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You are a successful capitalist and you are proud to get rich by investing your capital better than most. You’re also smart enough politically to see how the winds blow – not necessarily to your advantage. So, accept that something has to change for the economy to work for everyone, or at least to keep the forks closed.
What change do you need to support? Paradoxically, you may want to pass a net wealth tax.
It seems certain that the tax burden on capital owners will increase. Determining to spend more on utilities and investment it is its strongest point in decades. So is the sense that when capital wealth has grown much faster than income (ratio of wealth to gross domestic product) they have doubled since the 1980s), the contribution relating to public funding should remain the same.
This changing political climate is a trend that capital owners will resist in vain. Instead, they should bet on the form of taxation that is best for them and for capitalism itself. A progressive net wealth tax it is an annual tax on the net worth of taxpayers (their total assets minus their debts) paid at an increasing rate above a tax-free amount.
Only a handful of countries have them, but they include some of the most successful economies in the world, such as Switzerland and Norway. In the US, a wealth tax has been proposed Elizabeth Warren and Bernie Sanders, the two most left-wing candidates in the last presidential election. So far the The Biden administration’s willingness to raise taxes it reveals no appetite to consider this tax. Successful capitalists should expect this to change.
All countries already tax wealth participations. They are rarely taxed on a recurring and regular basis. Instead, they impose encumbrances on assets when they are changed from one form to another, as is the case with capital gains tax on the realization and stamp duty of transactions, or when they are transferred from person to another, as with inheritance and gift taxes. In addition, all countries charge recurring taxes on wealth in the form of real estate.
All this makes capitalism work less well. Taxing wealth only during transactions rewards hoarding rather than deploying or reallocating capital to what capitalists may think is the most productive use. It is also inadvisable to pass on wealth to the younger generations at a time when they can make better use of it.
The incentives created by existing wealth taxes are not just inefficient. Some of them are evil. Indeed, inheritance and gift taxes impose a lighter burden on the assets of those who live longer or accumulate their wealth more than on those who die earlier or pass them on more quickly. Property taxes are added to the gross capital wealth, so someone with a 90% mortgage pays the same as someone who owns the same property and is ten times richer.
Capital gains tax it penalizes those who take the best investment options by imposing only incremental wealth growth and making losses deductible. He also ignores that the ability to pay taxes depends on the total participation of everyone rather than the amount by which they go up. Simply put, this regime redistributes millionaires who invest well to billionaires who invest poorly. A net wealth tax would do the opposite.
A net wealth tax also compares favorably with taxes on capital income flows: corporate profits, dividends, and interest income. What they have in common is that the greater your profit from investing a certain amount of capital, the more you will pay in taxes. Again, if you invest a billion dollars, you may be taxed less than if you invested a million well.
With a net wealth tax, the tax burden is independent of profitability. From this it follows that more successful investors would maintain more of their return and see their capital accumulate more quickly. It is the fiscal version of the New Testament parable of the talents.
Over time, this would put more of the capital of the economy in the hands of those who allocate it well. The model rewards success and strengthens the potential for creative destruction of capitalism. A wealth tax that is also progressive, over time, would support the growth of less concentrated wealth: more modest but more frequent, well-invested fortunes.
The result is that, of all the ways of taxing capital, a progressive tax on wealth is the most amicable regime with capitalism and the most supportive of a proprietary democracy. And this, without a doubt, is the social model that best suits capitalists in the long run, even those ultra-rich but bad investors who would be hit hardest by the wealth tax.
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