Taxes On Net Worth…Tragic Yet Unavoidable?

By: ispeculatornew
Date posted: 09.19.2012 (5:00 am) | Write a Comment  (8 Comments)

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We all know how countries from the US to both small and bigger European countries are in serious trouble. They have high unemployment, growing deficits, unfunded pensions and debt that is quickly becoming out of control. I’ve discussed all of this a few times in recent months and what does seem clear is that part of the solution will be for governments to get higher revenues, they are becoming increasingly desperate. Ideally, those would come from increased economic activity but it unfortunately seems like that could take a while. Countries like Portugal, Spain, Italy and even the US might have to take more drastic action.

Current Sources Of Revenues

These days, governments make most of their money through income taxes for both individuals and companies. They also often charge sales taxes, they charge on capital gains, interests and other sources of investment income, etc. One of the big problems though is that as the economy becomes more global, it’s becoming easier for individuals and corporations to avoid paying taxes making raising taxes less effective. Some politicians pretend like simply raising tax rates will fix the problem but I’ve saying over and over that it’s not. The reality is that rich individuals and companies are setting up structures that make it easier to move their income. That is partially why large corporations such as GE, Google and Facebook pay almost no taxes in the US. Many rich individuals, through various methods also avoid paying taxes even though they still end up paying the vast majority of all taxes being paid (over half of Americans end up paying no federal income taxes)

Basically.. It’s NOT Working

Governments seem to be unable to raise revenues and while I like so many others think spending should be cut, I don’t think that raising revenues can be left off the table. It’s not clear what these governments can do. For example, in the US, increasing tax rates that are already much higher than in competing countries seems foolish.

The “Nuclear” Option: Taxes On Net Worth

One option that has been suggested in a few countries including France is taxing the net worth of individuals, especially for those looking to redistribute wealth. For example, if you had a 0.5% tax, an individual that was worth $1,000,000 would be forced to pay $5000 in addition to whatever is owed through income. The major advantage for the government is that it would bring in massive revenues.

A few countries already do this:

France: Progressive rate between 0 and 1.8% of net assets
Iceland: 1.5% on assets above a determined amount
Switzerland: Progressive rate that goes up to 1.5%
Norway: 1.1% on assets above a determined amount

I Feel Like It’s A Terrible Idea

First off, this gives even more incentives for rich individuals and companies to have their assets held abroad, in foreign corporations. It would also be very tempting for the government to increase these taxes over time, making it easier to keep the government’s spending up (not a good thing). Where does it end? This just seems like a recipe for more class warfare, with the 99% trying to tax the rich as much as humanly possible. How could that possibly be a good idea? The top 1% already pays 37% of the taxes? How much more should they pay?

It’s Going To End Up Happening Though

I’m starting to believe that it’s the only way that these countries will be able to come up with a workable tax plan.

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  1. Comment by Hans — September 19, 2012 @ 7:39 pm

    IS, a very bad idea, however, I would favor a tax on financial boggers instead, since I heard there are several million..It would rise a lot of money for the government, who, of course, would quickly spend it and to another vic..

    Its easy, just REDUCE BLOODY SPENDING!

  2. Comment by Erik — September 20, 2012 @ 12:40 am

    We used to have that system here in Sweden, and the result was that many rich people moved out of the country. One example is Ingvar Kamprad founder of IKEA and one of the richest in the world who moved to Switzerland. The richest can always “hide” their wealth somewhere.

  3. Comment by Hans — September 26, 2012 @ 6:06 am

    In less than two weeks, I have read an anti-gun and a pro tax OP from the author of this blog…

    This is not good…

  4. Comment by IS — September 26, 2012 @ 10:41 am

    @Hans – Pro Tax? Where did you see that? I do think raising taxes is part of the solution, but nowhere near what most democrats are arguing for…. it’s just part of a much bigger problem

  5. Comment by Hans — September 27, 2012 @ 6:54 pm

    IS, if someone endorses taxes they are pro tax…
    It is black and white…

    Taxing is the easy way out..

    Moreover, if you charge more for anything, you generally get less of it…

  6. Comment by IS — September 30, 2012 @ 7:45 pm

    @Hans – I guess we’ll disagree on that. I don’t think it’s black and white at all, I do think that 90% of the issue is spending… but getting to a functional tax system is also part of it.. and to me, that includes lowering rates, eliminating loopholes and yes, probably getting to a rise in revenues in the end. I do agree that it’s almost always seen as the easy way out. That being said, in many cases, just reducing spending will not be enough

  7. Comment by Hans — September 30, 2012 @ 10:59 pm

    IS, you can tax to a 100% of income and the spending can always exceed it…

    For many a household, tax represents the second or third highest portion of their budget and adding to that burden is a very bad idea, especially since spending has gone rabbit..

    And why would Norway commit this fraud, in light of the fact, it carries no long term debt and has 600 billions in savings..?

    This tax will do nothing but be lost in a big black hole…

  8. Comment by Hans — October 4, 2012 @ 5:39 pm

    IS, please read this link…It is a model how fiscal insanity can be repaired – all without taxing.

    That is why I rejected Simpson & Bull Commission.

    The real meaning of austerity: is losing something completely, rather that partial…

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