Let me propose a radical idea to discuss: abolish the income tax and
replace it by a tax on net assets. I'm not proposing any particular
rate structure, but let me describe the general ideas.
Income tax has too many loopholes for the wealthy. For example, the
Facebook and Google CEOs pay themselves $1 per year, avoiding any income
tax and paying only the low capital gains rate when they occasionally
sell some stock to finance their lifestyles. The rest grows tax-free,
indefinitely, as their companies grow.
It seems to me that a fair tax would be based on a person's ability to
pay it. The ability to afford a tax is much more dependent on how much
wealth you have than how much income you make. Taxing the income of
someone who can barely make ends meet, preventing them from accumulating
any savings, doesn't seem beneficial for society overall.
It is much harder for a wealthy person to hide their assets than to
exploit income tax loopholes. Of course there will always be loopholes,
but most of the information regarding the ultra rich, for example, is
even public, otherwise it would not be possible to compile the Fortune
400 list.
The middle class is already subject to an asset (real estate) tax on
what, for most, is their primary asset, their home. So it's nothing
new, and although those who pay it don't enjoy doing so of course, it's
accepted and viewed as a necessary evil to finance their local
community. The real estate tax is actually very regressive â" the less
equity you have in your home, the higher percentage of that equity you
pay, since it is based on the home's value, not your equity in it. You
pay it even if your equity is negative (i.e. if the mortgage is
underwater)! If both real estate tax and income tax were replaced by a
net asset tax, it would seem to me to be much fairer.
One argument I've seen against an asset tax is that it would encourage
people not to accumulate wealth i.e. would encourage stagnation. I
disagree. A positive benefit of the real estate tax, for example, is
that it discourages the accumulation of property sitting idle, but
encourages the development and use of that property. Similarly, I would
imagine a net worth tax would encourage productive use of the money,
possibly even finally leading to that trickle-down job creation we hear
so much about.