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Wealth Tax Effect

Something we have heard a great deal about in the past several months is the interest of some presidential candidates in imposing a wealth tax on individuals who have substantial wealth. This proposed tax is not a substitute for the income tax or other taxes but is an additional tax intended to help fund a variety of planned spending programs.
From the standpoint of a politician, the proposed tax has a great deal of attraction since it not only brings more revenue to the government but appeals to both a desire to reduce inequality of resources among people and the very human feeling of envy. Of course, the reduction in inequality is one-sided since the wealthy will have less after the tax is exacted but the money won’t directly benefit those who are far less wealthy. Instead, the revenue will go to fund a variety of government programs and the primary benefit will be to those who are hired by the government to administer those programs.
More disturbing is the potential of such a tax to fail in two respects. The first is one we have all seen in action and that is the tendency of individuals to respond to a new tax with a change in behavior which will lessen the blow. Divesting oneself of a portion of wealth will reduce the exposure to the tax while at the same time the tax will discourage individuals from striving to create and build wealth going forward. The second aspect is the undeniable fact that the reduction in wealth due to exaction of this tax will inevitably mean less revenue in future years as the tax continues to shrink the pot.
The logical final step – and the one that is probably the best reason to oppose such a tax – is that the insatiable desire of the government for revenue will mean the tax will in the end apply to almost everyone with any type of wealth. The burden will fall on the middle class – upper and lower – and the only real equality will be in the lack of opportunity and similarly reduced circumstances for all. What fun. 


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