[I thought I had mad a thread on this subject before, but I can’t seem to find it and I have a lot of reason to doubt my memory. I hope I will tread new ground in any case.]
I propose a revenue-neutral tax shift from income to wealth. Rather than pay a percentage of their income, determined by the size of their income, individuals should pay a percentage of their wealth determined by the size of their wealth every year.
The tax would be fairer, because the burden would not fall on those who earned a lot, but those who had a lot. A billionaire who ‘comes from money’ will owe little in income tax, even though she could afford to pay a significant amount; conversely, a young entrepreneur pulling herself out of poverty may earn quite a lot, but have significant debt or family obligations that make her actual ability to eat the cost of taxes quite low. Shifting to a wealth tax will make it much harder for the idle rich, and much easier for the upwardly mobile. Both seem like net social positives.
A wealth tax also encourages people to use the money they do have wisely. Properly applied, a wealth tax should include the value of investments as ‘wealth’, but since sitting on cash is likely to lead to a loss of money, people are incentivized to move their savings into investments whose returns will offset the loss from taxes.
Wealth tax would also enable the elimination of many other forms of tax. Corporate taxes could be abolished, and instead the tax burden from them would be shifted to the owners of the corporation based on the share they own. Property taxes could likewise be eliminated, since the value of property would be taxed along with other assets.
A wealth tax would provide a very soft incentive against concentrations of wealth. Like eliminating primogeniture, it would encourage greater distribution and earlier, as it would reduce the net burden on an individual.
The problems with a wealth tax are many, but no more so than with an income tax, and many of the problems are dissipating with technology. One problem seen in countries with a wealth tax is capital flight, the hiding of wealth beyond the reach of the taxing state. This wealth should still be counted towards a total, but is difficult to assess. One way to solve the problem would be for declarations of wealth on tax forms to be presumptively binding, such that you could not claim that wealth for the purpose of taking out a lone, or bring an action against someone in court for theft of the money if you had denied possession of it on your tax forms. Also, continuing to collect revenue data as the government does, it could compare intake and spending records and check for anomalies. Not all frauds would be caught, but neither is all income tax fraud prevented.
Another difficult problem is counting wealth. Does my house count? My car? The fuzzy dice on my mirror? This problem can be solved in a similar way: claiming a very low value on a car would become obvious if the car were in an accident or sold. Consumer goods that are likely to end up in a landfill would not need to be counted, but anything that will retain value beyond an individuals use could be affected by a lie about its value.
Above all, any kind of tax will become easier to administer as information on revenue and expenditures is captured and transferred more efficiently. The use of credit cards and banks makes it easier to see when money is being regularly shuttled off to Switzerland. This information is already available to authorities that are looking for tax evasion, and its use will decrease the costs and increase the accuracy of policing taxation.