Wealth Tax, Conservatism and the Right to Privacy

Wealth Tax, Conservatism and the Right to Privacy

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In today’s WSJ, Stanford economics professor Ronald McKinnon makes what he calls a “conservative” case for a wealth tax (the emphasis is mine):

In order to have a fairer tax system, we should implement a new federal wealth tax in addition to the federal  income tax. Unlike the current income tax, the wealth tax would not rely on how income is defined. Rather, it would require that households list all their domestic and foreign assets on, say, Dec. 31 in the relevant  tax year. With a large exemption of $3 million that effectively excludes  more than 95% of the population, a moderate flat tax—say 3%, on wealth  so defined—could then be imposed. …

If requiring taxpayers to provide to the federal government a complete list of their assets is conservative, I am going to need to revisit the definition.¹

I usually don’t like slippery slope arguments, but in this case I must make an exception. The taxation of static wealth based on what a cabal of bureaucratic elites thinks is the right amount of wealth a person should be permitted to have is like the first snowball in an avalanche. Just how long do you think it will it take before the left proposes an increase in the wealth tax rate? And when Republicans oppose that increase, how long do you think it will take for the left to demogogue the issue, and, once again, accuse the right of favoring the rich at the expense of the middle class?

As conservatives, when we concede to any tax that is based solely on a taxpayer’s economic class, regardless of how low the rate appears to be, we lower the bar progressives must hurdle in order to engage in future, steeper confiscations of wealth.

A tax on wealth is not wrong because the wealthy can’t afford to pay it. It’s wrong because it’s anti-freedom and anti-American.

Footnotes:

¹   Of course, none of this really matters because the left will rightly attack the wealth tax on right to privacy grounds. And if you believe that, I have citrus grove in Iceland I want to sell you.

(Hat Tip: Paul Caron)

About Peter Pappas

Peter is a tax attorney and certified public acccountant with over 20 years experience helping taxpayers resolve their IRS and state tax problems.

He has represented thousands of taxpayers who have been experiencing difficulty dealing with the Internal Revenue Service or State tax officials.

He is a member of the American Association of Attorney-Certified Public Accountants, the Florida Bar Association and The Florida Institute of Certified Public Accountants and is admitted to practice before the United States Tax Court, the United States Supreme Court, U.S. District Courts - Middle District of Florida

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Comments

  1. It’s also wrong on a practical level: who is better at allocating capital? Private people (stupid though many may be) are much better at efficiently allocating their savings and investments (i.e., capital) than is government (which typically merely squanders it).

    As Von Mises wrote, the difference between the American truck driver and the (then) Chinese Coolie was the truck, which enabled the driver to out-produce and, therefore, out-earn the Coolie by a factor of perhaps 1,000. Government produces virtually nothing (and clearly nothing that private, free men and women can produce at twice the quality and half the cost); it usually simply transfers wealth. That is not wealth creation; it’s wealth destruction.

  2. Doug,

    I’m very proud of you. It’s the first time I have ever heard you not accuse someone of being an alcoholic and requiring your services.

  3. Eugene Patrick Devany says:

    There is “[a] Conservative Case for a Wealth Tax” (WSJ, Jan. 9, 2012) but Stanford University Professor Ronald McKinnon has not formulated it well. In addition, his suggestion for a 3% wealth tax on top of the current progressive income tax is not very conservative.

    My “2-4-8 Tax Plan” is something a true conservative might embrace.

    In August of 2006, I made the following suggestion to the President’s Advisory Panel on Tax Reform: tax Net Individual Wealth at 2%, Consumption/Sales at 4% and Income at 8%. I have subsequently come to realize that the flat rate nature of the taxes provides the remarkable ability to simplify the tax proposal and make most of it disappear from view. I consider it the flat rate miracle.

    Sales taxes can be implemented by including the tax in the listed price (as in gasoline sales). When the retail tax is already included in the posted price, the consumer sees more accurately what will be paid and is less apt to feel the pinch of the tax (4% under the 2-4-8 plan).

    A flat rate income tax with no deductions can also work in the background. Unlike the current complicated income tax form (with so many rates, adjustments, credits and deductions) the 2-4-8 plan would rely primarily upon a payroll tax (8% under the 2-4-8 plan). Because the rate applies to income from all sources (including dividends and interest on bank accounts) the financial institutions would pay the 8% tax so the stockholders and depositors would not have to. Thus, for the vast majority of taxpayers with income only from employment, dividends and interest; the tax would be prepaid and the filing of the return would be nothing more than confirming an online summary prepared automatically by the IRS computers from data supplied by the employers and financial institutions. A more detailed income tax return would generally be necessary only for businesses (corporations, partnerships, self-employed individuals and landlords) where the computation of taxable income requires an accounting of business expenses to reduce gross revenue.

    Under 2-4-8 most individual taxpayers would not perceive any sales tax or income tax at all. The perception and the reality is that the taxes would be paid by business. The rates are extremely low but still sufficient to produce more than 60% of the revenue needed by the federal government. Of course, even a streamlined federal government needs a little more than a mere $1.5 trillion to get by. The 2% Individual Net Wealth Tax would produce another trillion dollars which would be more than enough to start paying down the national debt. A comparison of the 2-4-8 plan with the plans of the 2012 presidential contenders offers solid proof of the financial soundness of this approach and why it has appeal to people of all political spectrums. See my website at http://www.TaxNetWealth.com for details.

    Many who oppose net wealth taxes fail to understand the legal-economic definition of income as “the sum of consumption and any change in net worth” according to University of Pennsylvania Tax Law Professors David Shakow and Reed Shuldiner (described in the seminal Symposium on Wealth Taxes published in 2000). Tax rates can be applied to any base (income, consumption and/or net worth) to raise government revenue. Today few legal scholars believe that there is any constitutional impediment to a net wealth tax or federal consumption tax and many consider the 16th Amendment “to lay and collect taxes on incomes, from whatever source derived” to have been unnecessary. Concerns regarding the valuation of net wealth for tax purposes are genuine but exaggerated in light of near universal access to internet databases.

    Lastly, I write to suggest that many wealthy persons (and many who want to be) would welcome a modest 2% net wealth tax in exchange for significant reductions in individual and corporate income tax rates.

    Eugene Patrick Devany

    Massapequa Park, NY

  4. Eugene,

    A tax on wealth accumulations is socialistic. This is America, not Venezuela.

  5. Randall Burns says:

    It is expensive to defend property rights beyond what an individual can really look after. Why should holders of large concentrations of assets get a free ride-especially when the alternative is taxing poor and middle class people to death?

    The only group that has experience large accumulation of capital the last 30 years are the very rich (with over $1-5 million in assets)-google Ed
    Wolff Wealth trends to see a study on this.

    This isn’t a market operating-it is massive corporate welfare-fueled in large part by the rich buying legislation from corrupt politicians.

    Also, you need to look at _all_ assets here-when you include stuff like pensions, insurance and foreign investment-the US has over $160 trillion in private assets. A 1% asset tax with a hefty exemption might bring in 35% of federal revenue(which means the remaining revenue might be generated with something like a 15% sales tax)-good by complex tax accounting and the IRS.