Proposal for tax revolution: 3% income tax, 4% wealth tax

&#62; 4% wealth tax<p>We already have a wealth tax. It's called "inflation." If the government wants to tax wealth, all they have to do is print money. The culture of living within your means and saving for the future basically died before I was born, so the point that this kind of policy punishes responsible citizens who are capable of living frugally, within their means, and saving the future is essentially moot.<p>Sales and income taxes are easy to implement because they're based around money actually changing hands. Property taxes are easy to implement because the physical thing that's being taxed is clear. General wealth taxes rely on accounting and valuation of illiquid assets, which is easily subject to gamesmanship.<p>If this was implemented, you'd just cash out your bank account every day, then tell the tax authorities you "spent" the money (in reality you keep a suitcase full of large bills under your mattress, but they have no way of knowing that). As long as you don't make a ton of money, and could conceivably be spending it on living well (vacations, movies, good food, alcohol, flowers for the significant other, etc.), how are they going to prove otherwise?<p>If you have more money, it gets more difficult to use that particular trick, but you'll also have more political power to get loopholes written into the law, and pay accountants to figure out how to make the loopholes work for you. And it'll also become more worthwhile to go to the trouble of keeping money overseas out of the range of taxation, or set up exotic financial structures like life insurance policies, trusts or derivatives, which don't have a definite value until they become payable.<p>I'm not an accountant, so some of the details might not be one hundred percent right, but it feels like that's a fair first approximation to what would happen.

There is absolutely no accounting for how people will react. The obvious example is that people will move their wealth elsewhere. It also isn't fair to the poorest, unless there is a separate mechanism enabling a minimum quality of life.<p>And it completely ignores how you would define things. For example if I have a bridge on my property, does that qualify as wealth? How exactly would I pay 4% of the bridge in taxes? If I invest in a new factory, am I going to have to pay 4% of that investment every year before the factory is even profitable? When I liquidate things to pay for taxes, is that going to count as income?<p>Since interest rates are less than 4% this completely discourages any form of saving unless the returns are at least 4% plus the rate of inflation. Although it isn't immediately apparent, savings are something that enables economic growth as the money is lent out again.<p>TLDR:<p>* People adapt around scheme you have so your numbers won't work in the real world the way your spreadsheet says they do<p>* It gets really hard to work out what actually constitutes wealth and income once people have to pay tax based on it - part of the reason for the complexity of the tax codes worldwide<p>* It will greatly discourage savings and investments<p>* People will avoid illiquid wealth since you'll have to keep coming up with 4% of its value each year<p>* You'll need an army of people to work out out how valuable things are.<p>Reducing tax rates is generally an admirable goal, as is simplifying tax codes. But if you start from almost nothing like this proposal you'll soon find yourself having to add lots of complexity back in, because it is complex.

Why would I bother investing money at all then? You can expect an annual return of around 7% on the stock market, subtract 4% wealth tax and 2% inflation and you're left with nothing in real terms.<p>Everyone (even the super-wealthy) would spend all of their income as soon as they earn it. Sounds great ("imagine all the production it would stimulate!") until you realize that no one is making capital investments. Factories rot, infrastructure decays, and innovation stops.

Most of that wealth (ownership of non-corporate businesses and real property, to start) is completely illiquid. You can't sell 4% of your house.

What is this other than deferred taxation? If one earns 100k in year one, it is taxed as income at 3%. I put the net 97k in the bank and from next year onwards it will again be taxed as wealth at 4%, in perpetuity.

Everyone would just move their money out of the UK.

Would really appreciate thoughts AND please do post results here from the new tax calculator at the bottom of the post.

TLDR: author lacks basic understanding of both macroeconomics and the reasoning underpinning the complexity of modern tax systems (here's a hint: tax codes <i>always</i> start off simple and get more complicated to minimize evasion and loopholes.)<p>The idea would not work anywhere unless adopted everywhere; a perpetual 4% tax on wealth in one nation would lead to the immediate or near immediate flight of capital to other nations.<p>On the flipside, a 3% tax on income is generally too low to be meaningful except in ridiculously small European countries. At 3%, you might as well just not bother with an income tax because the cost of calculating and collecting the tax (both on the government and on taxpayers) would in most countries exceed the revenue brought in.