Thursday, October 24, 2013

Tax Net Wealth

I've said in the past: The United States government does not have a tax problem. It has a spending problem. The government exhausts whatever tax revenue it can lay it's hands on and then some. Spending is so out of control the Feds not only spend every dollar they can tax. They borrow heavily against future tax revenue building up a deficit of over $17 Trillion.

Tax Reform is likely to be a key issue of the 2014 and 2016 elections.

Tax Net Wealth is a proposal to include a direct tax on net wealth in the tax equation. The site is a bit vague on how one calculates net wealth. The site gives a tax rate blend of 2-4-8. There would be a 2% tax on wealth, a 4% tax on sales and an 8% tax on income. I assume that this is in addition to all the state and local taxes.

I love the low rates; however low rates can be deceiving.

Again, the site is not clear on how it determines net wealth. My guess is that the two percent tax is an annual tax that is recurring. So, let's say I had an asset worth $100.00. 2 percent of $100 is $2. I would have to pay two dollars each year for the privilege of owning the asset. In 25 years, I would pay $50 dollars for the privilege of owning the asset. I would pay a full $100 dollars in taxes (100% taxation) if I owned the asset for a full 50 years.

I am not sure how the program avoids double taxation. In this reform, I would pay an 8% tax on my income. I would then pay a 4% sales tax when I bought something, I would then pay a 2% yearly tax on durable items included in my net wealth.

The appeal of the tax is that it uses the magic numbers 2-4-8. I am always suspicious of tax reform proposals that start with magic numbers like 2-4-8 or 9-9-9 because Congress always has the ability to change the rates.

Once we have a direct tax on net wealth, there is likely to be politicians using wealth envy to drive the tax to astronomical heights. The deceptively low rate makes it even more tempting to jack up the wealth tax.

This said, I really think the author is on to something. The progressive tax rate should be triggered by net wealth rather than net income. I hope the author develops the idea further so that people can analyze it.


Eugene Patrick Devany said...


Thank you for taking a look at the 2-4-8 Tax Blend tax reform at Those not familiar with tax reform terms can find the descriptions to be wonkish - to put it nicely. The website is admittedly more complicated than necessary to explain the simple tax reform plan.

Your summary description correctly indicates that the plan relates only to federal taxes. It is different than most other plans because it not only simplifies taxes on income (and replaces the payroll taxes on income) but also adds a value added tax (VAT) and net wealth tax. The new taxes expand the tax base and enable the rates to be very low.

For individuals, there is a choice of a flat 26% income tax rate (plus capital taxes on gains, gifts and estates); or a lower 8% income rate plus 2% net wealth tax (excluding $15,000 cash and $500,000 in retirement funds).

For business there would be a 4% value added tax and C corporations would have a low 8% income rate.

All developed countries in the world have adopted a VAT and some also use a wealth tax - (which is generally limited to high wealth individuals). The 2-4-8 Tax Blend is the only plan which uses an optional wealth tax for those who would elect a much lower income tax rate.

y-intercept said...

My primary question about the wealth tax is if it is accumulative? If I had $1000 in wealth and paid 2% a year, I would end up paying $1000 in tax in 50 years. That is 100% tax. If congress decided to increase the rate to say 3%, I would pay 100% tax in just 33 years.

I also would question whether or not it is good to tax wealth. Adam Smith put forward the argument that it is good for a society to increase their wealth for stability.