I was discussing income tax on another forum, and it was proposed that a wealth tax could solve some of the problems associated withincome tax. Some of the problems mentioned were:
1. An income tax can be made progressive in only one of two ways:
a. By having tax arbitrary tax brackets, which might not be fair when we consider that a person with a slightly higher income could end up keeping less of his income than his neighbour just because he ust squeezed into another tax bracket, which is contrary to justice and democracy. or
b. Come up with a mathematical means of calculating income along a curve graph. But then that wouldn't be fair to the more mathematically challenged, as any tax system should be easily understandable and calculatable by the general population for it to be truly democratic.
2. One way to avoid the problems above is to adopt a proportional income tax, meaning that everyone pays the same percentage of his income regardless of wealth. Such a tax system might put an unfair burden on the poor or, alternatively, excessively alleviate the responsibility of the rich.
3. Regardless what kind of income tax is used, income taxes are excessively simple in that they're incapable of taking various social complexities into consideration. For example, two persons earning the same income would pay the same amount in taxes, regardless of whether one has more dependents than the other, or if he might have other expenses unaccounted for in the tax. Of course this could be alleviated by all kinds of combersome government programs such as child-tax benefits, etc. etc. etc. but that's just very combersome and unnecessarily complicated. Either that, or he has to calculate all kinds of complexities into the equation to figure out how much he has to pay.
A wealth tax eliminates all of these:
1. Since it's based on wealth and not income, it's natural that the wealthy will be taxed, and not the poor. This could include a person with a low income but with a leisurely life devoid of many responsibilities, thus allowing him to save more money. A person with a high income but a large family or other social responsibilities would find it harder to save money, and so would pay less tax naturally. Also, sinse essential wealth is not counted, a large family could claim more property, such as a larger house, extra beds, etc. as essential.
2. Unlike income tax (except for the charity-deductible portions), a wealth tax takes charitable contributions into account automatically, without needind any further calculation of wealth. For example, a person who gives much of his money to charity would naturally have less wealth accumulated than the one who never gives, and so should naturally pay less in tax, as he automatically would with a wealth tax.
3. Because a wealth tax, unlike an income tax, takes extra family or other social responsibilities into account automatically, it elimiates the inefficiencies inherent in myriad separate government departments having to try to calculate every possible complexity of life to try to figure out how much money to give back through child tax benefits, etc.
What are your thoughts on this; would a wealth tax be an idea worth introducing as a supplement to income tax?
Another possibility that I could see would be a combination of a proportional income tax and a wealth tax, with the income tax being very low, and more weight placed on the wealth tax.