Andrew Coyne asks the obvious question about the sudden keen interest in imposing wealth taxes:
“washdc040208-02” by carencey is licensed under CC BY-NC-SA 2.0
It is noteworthy how the debate on inequality has shifted in recent years: from the problem of poverty, whose evils are obvious, to the “problem” of great wealth; from the gap between the poor and the rest of us, to the gap between the rest of us and the rich, or indeed between the rich and the very rich.
But it is not obvious why it is wrong, in itself, that a small number of people should get stinking rich. It is clearly objectionable if they did so by illicit or unethical means — but then it is the means itself, not the wealth, to which we object. And it would be in poor taste, at the least, if they spent it all on themselves. But that is not how the great fortunes are typically disposed of — it’s physically impossible to spend more than a small fraction of it.
Perhaps the argument is less that the rich are too rich than it is that the government is too poor. You can make a case that government should spend more on certain things, especially in America. It doesn’t follow that you need to raise taxes to do so. A lot of good new spending could be funded by cutting bad old spending.
Suppose there were a case for raising taxes. Are wealth taxes the way to go? Wealth is, after all, merely the accumulation of past income — and we already tax income. If rich people are exploiting loopholes to avoid paying tax on their incomes, by all means close the loopholes. But the case for taxing income twice seems obscure.
Yes, we already have a kind of wealth tax, in the form of municipal property taxes — and they’re a notorious mess. They conform to none of the usual principles of good taxation, being neither simple, nor efficient, nor fair.
Why unfair? The bedrock criteria of tax fairness is supposed to be ability to pay. That’s only uncertainly related to wealth. Suppose the value of your house shoots up. Congrats: suddenly you’re wealthy. But your income is unchanged. And it’s income you need, or more accurately cash, to pay your taxes. It’s not clear why you should pay more in tax than someone with the same income, but a cheaper house.
