What if US taxes were based on wealth, not income?

[Chiropteran]

This is just an idea that I came up with, AFAIK it's not in favor by any political party, so I am posting this in off topic. I don't intend this to be a political discussion. If the mods feel it should be in the political forum, so be it.

What if US taxes were based on wealth rather than income?

I was thinking about this after reading the stimulus check thread. If you were taxed based on your total wealth, rather than income, wouldn't you be more inclined to spend money rather than saving it?

Also, wouldn't such a change help small businesses? Massively huge mega corporations that sell for virtually no profit just to gain market share would still be paying taxes, while smaller companies with few assets could make a large profit without seeing most of it get taxed away.

It would encourage money flow, because holding onto it would just result in it getting taxed down to nothing eventually.



What are the drawbacks? Has such a tax system ever been tried or suggested?

 

[BigJ]

Here's something off the top of my head:

How are you going to be able to get people to accurately report their wealth?

 

[newb111]

Screw that. We already encourage people to spend too much and not save for retirement, then beg the government to bail them out with SS.

 

[Chiropteran]

Originally posted by: BigJ
Here's something off the top of my head:

How are you going to be able to get people to accurately report their wealth?

Well, initially it would be tough transitioning.

There would have to be a 25% audit rate or something to discourage people from lying, but once the system gets rolling it would be trivial to track:

Previous years wealth + income - expenses = current year's wealth.

 

[Chiropteran]

Originally posted by: newb111
Screw that. We already encourage people to spend too much and not save for retirement, then beg the government to bail them out with SS.

Just as current retirement savings offer tax advantages, the same could be true in a wealth based tax system. Money set aside for retirement wouldn't be taxed as long as certain restrictions are followed.

 

[Kelvrick]

I think I preferred the flat sales tax method.

 

[BigJ]

Originally posted by: Chiropteran

Originally posted by: BigJ
Here's something off the top of my head:

How are you going to be able to get people to accurately report their wealth?

Well, initially it would be tough transitioning.

There would have to be a 25% audit rate or something to discourage people from lying, but once the system gets rolling it would be trivial to track:

Previous years wealth + income - expenses = current year's wealth.

:laugh:

Just think about what you're saying for a minute.

 

[daniel1113]

http://en.wikipedia.org/wiki/Capital_flight

There's your drawback right there.

 

[Ronstang]

You guys are really trying hard to find ways to chase wealth out of the country aren't you? Ask California how that is working out for them and get back to us.

 

[Baked]

And how are you gonna make tax lawyers lie less than they already are w/ the current system?

 

[soccerballtux]

Problem is they'd just move their money outside the country. Probably follow the money too.

Business would leave. I think.

Darnit there's so much frickin stuff I don't know.

 

[Chiropteran]

Originally posted by: BigJ

Originally posted by: Chiropteran

Originally posted by: BigJ
Here's something off the top of my head:

How are you going to be able to get people to accurately report their wealth?

Well, initially it would be tough transitioning.

There would have to be a 25% audit rate or something to discourage people from lying, but once the system gets rolling it would be trivial to track:

Previous years wealth + income - expenses = current year's wealth.

:laugh:

Just think about what you're saying for a minute.

Are you saying it would just turn into an income tax? It would be calculated approximately the same, but the end result would be different.


Guy has a 60k job, current system-

he is taxed 15%, pays $9k in taxes every year

Guy has 60k job, wealth system-
have to assume a lot here, lets say 30k a year is spent on consumable expenses and 30k is invested in actual assets

he is taxed 3%.

30k per year, so he pays $900 the first year, $1800 the second year, $2700 third year, etc.
Over the long term of 20 years of work he ends up paying about the same in taxes.

Difference being the current system is a lot harder on the guy when he needs the money the most: he just started working, needs a place to live a vehicle etc. A wealth based tax system taxes him harder at the end of his employment but at the start he pays very little.

The numbers I listed would need to be tweaked of course, the idea isn't to increase or decrease the taxes paid, just to change when they are owed.

 

[bobsmith1492]

Originally posted by: Chiropteran
This is just an idea that I came up with, AFAIK it's not in favor by any political party, so I am posting this in off topic. I don't intend this to be a political discussion. If the mods feel it should be in the political forum, so be it.

What if US taxes were based on wealth rather than income?

I was thinking about this after reading the stimulus check thread. If you were taxed based on your total wealth, rather than income, wouldn't you be more inclined to spend money rather than saving it?

Also, wouldn't such a change help small businesses? Massively huge mega corporations that sell for virtually no profit just to gain market share would still be paying taxes, while smaller companies with few assets could make a large profit without seeing most of it get taxed away.

It would encourage money flow, because holding onto it would just result in it getting taxed down to nothing eventually.



What are the drawbacks? Has such a tax system ever been tried or suggested?

When people have money it doesn't just disappear from the world and do nothing.

It's called investment. Do you have a mortgage? Then you're borrowing money from a bank who got their money from people who are saving it, NOT just spending it.

Want to start a new business? You talk to venture capitalists who gather money from investors to give to you to get started.

Anyone who hides their money as cash under their mattress is an idiot and taxing like this is the most surefire way to destroy the economy.

 

[Chiropteran]

Originally posted by: soccerballtux
Problem is they'd just move their money outside the country. Probably follow the money too.

Business would leave. I think.

Darnit there's so much frickin stuff I don't know.

Perhaps. But wouldn't businesses love to work in a place with 0 income tax? The idea isn't to increase or decrease total taxes, just to encourage fluidity in the market.

If the total tax cost was about the same either way, why would companies leave the US market?

 

[Chiropteran]

Originally posted by: bobsmith1492

When people have money it doesn't just disappear from the world and do nothing.

It's called investment. Do you have a mortgage? Then you're borrowing money from a bank who got their money from people who are saving it, NOT just spending it.

Want to start a new business? You talk to venture capitalists who gather money from investors to give to you to get started.

Anyone who hides their money as cash under their mattress is an idiot and taxing like this is the most surefire way to destroy the economy.

Yeah I know what money is used for. But the whole point of business is to make money, right? Income. And income is taxed. Income tax doesn't actually discourage people from making an income, does it?


So why would they stop investing money if assets were taxed instead?

 

[BigJ]

Originally posted by: Chiropteran

Originally posted by: BigJ

Originally posted by: Chiropteran

Originally posted by: BigJ
Here's something off the top of my head:

How are you going to be able to get people to accurately report their wealth?

Well, initially it would be tough transitioning.

There would have to be a 25% audit rate or something to discourage people from lying, but once the system gets rolling it would be trivial to track:

Previous years wealth + income - expenses = current year's wealth.

:laugh:

Just think about what you're saying for a minute.

Are you saying it would just turn into an income tax? It would be calculated approximately the same, but the end result would be different.


Guy has a 60k job, current system-

he is taxed 15%, pays $9k in taxes every year

Guy has 60k job, wealth system-
have to assume a lot here, lets say 30k a year is spent on consumable expenses and 30k is invested in actual assets

he is taxed 3%.

30k per year, so he pays $900 the first year, $1800 the second year, $2700 third year, etc.
Over the long term of 20 years of work he ends up paying about the same in taxes.

Difference being the current system is a lot harder on the guy when he needs the money the most: he just started working, needs a place to live a vehicle etc. A wealth based tax system taxes him harder at the end of his employment but at the start he pays very little.

The numbers I listed would need to be tweaked of course, the idea isn't to increase or decrease the taxes paid, just to change when they are owed.

Alright first of all, how would you prevent Guy from transferring around wealth to avoid paying tax on accumulated wealth? What actually defines wealth? Just previous years income - expenses, or assets?

Also, do you realize how much manpower would actually go into a 25% audit rate? Roughly 130 million Americans file taxes every single year. That means auditing of over 30 million Americans, more than 12x the number they audit now.

 

[1prophet]

Fix stuff like this first. Text

 

[bobsmith1492]

Originally posted by: Chiropteran

Originally posted by: bobsmith1492

When people have money it doesn't just disappear from the world and do nothing.

It's called investment. Do you have a mortgage? Then you're borrowing money from a bank who got their money from people who are saving it, NOT just spending it.

Want to start a new business? You talk to venture capitalists who gather money from investors to give to you to get started.

Anyone who hides their money as cash under their mattress is an idiot and taxing like this is the most surefire way to destroy the economy.

Yeah I know what money is used for. But the whole point of business is to make money, right? Income. And income is taxed. Income tax doesn't actually discourage people from making an income, does it?


So why would they stop investing money if assets were taxed instead?

You can't make money without having it first - capital, the basis of capitalism. If you prevent people from having money, no one can make money or do anything, really.

 

[Chiropteran]

Originally posted by: BigJ

Alright first of all, how would you prevent Guy from transferring around wealth to avoid paying tax on accumulated wealth? What actually defines wealth? Just previous years income - expenses, or assets?

It'd be the exact same as our current income tax system. You would use the same methods. How do you prevent someone from giving his income away to prevent it from being taxed? You don't. The government doesn't care what you do with your income, they know how much you got from your employer and they tax it before you even see the money.

Wealth would be total assets. Cash + investments + (house value+/- appreciation/depreciation) + (car value- depreciation) + (misc items - depreciation). Not new concepts, all are already regular economic numbers accounts have to know.

Edit: guy has 2 million in assets, and decides to be sneaky and send 1 million to his cousin in Italy. Does the government care? No, they know he has 2 million in assets based on last years taxes + his income. He is taxed for 2 million. I don't see this being an easy loophole.

Originally posted by: BigJ

Also, do you realize how much manpower would actually go into a 25% audit rate? Roughly 130 million Americans file taxes every single year. That means auditing of over 30 million Americans, more than 12x the number they audit now.

That is only required for the transition. Once the system is rolling, the government knows how much each person has for assets and only needs to track the changes- increases through income, decreases through documented expenses and normal legal depreciation.

 

[Pacfanweb]

Taxes are already based on wealth, in effect. Who do you think makes the most money? Well, guess what....they also pay the vast majority of the taxes, too.

How can you tax someone for HAVING a lot of money? So you tax it for a year, and if they still have what's left after taxes the next year, you tax it again because they still have it?

Can't and won't work. Not to mention it'd be a FAR greater task for the IRS to try and keep up with all that info.

 

[Chiropteran]

Originally posted by: bobsmith1492


You can't make money without having it first - capital, the basis of capitalism. If you prevent people from having money, no one can make money or do anything, really.

It wouldn't prevent people from having money. Look at the example above, a 3% asset tax is equal to a 15% income tax over 20 years. If it was based on 40 years, the tax would be 1.5%. I'm not sure exactly where it would be to work out to about the same as our current tax rates, but it's apparent to me that the percentage would be very small. Probably smaller than inflation. It would barely be noticeable, except by the rich.

 

[Chiropteran]

Originally posted by: Pacfanweb

How can you tax someone for HAVING a lot of money? So you tax it for a year, and if they still have what's left after taxes the next year, you tax it again because they still have it?

Yes, exactly. Just like you tax someone who makes money, and tax them again the next year when they continue to make money.

People already pay this, through inflation. It doesn't seem that harmful. Lets increase it by 1-2% and use the money to replace the income tax.

 

[Chiropteran]

http://inflationdata.com/infla...e/CurrentInflation.asp

Current inflation is ~4%, in 2002 it was ~1.5%. So an increase of 2.5% isn't seemingly fatal. And that is without income tax being removed. If natural inflation was reduced to 1%, and an asset tax of 2% replaced our income tax, the government would have more money and we would have more money too.

What can be done to reduce inflation?

 

[daniel1113]

Originally posted by: Chiropteran
http://inflationdata.com/infla...e/CurrentInflation.asp

Current inflation is ~4%, in 2002 it was ~1.5%. So an increase of 2.5% isn't seemingly fatal. And that is without income tax being removed. If natural inflation was reduced to 1%, and an asset tax of 2% replaced our income tax, the government would have more money and we would have more money too.

What can be done to reduce inflation?

Get rid of the Federal Reserve.

 

[BrownTown]

This would just encourage people to spend everything the second they got it and never save, how is that a good idea? ITs also like double taxation to the extreme (you are taxed on the same income every year if you save it, so saving something 20 years in advance you end up losing 90% of it in taxes!)