Thursday, April 17, 2003

Discussion: Wealth Tax v. Income Tax v. Consumption Tax v. ???

FYI, Pete, Dave, and Ryan haven't responded to their invites yet (update: Pete just signed in too). Worthless slackers. Henry has signed himself up, so maybe we'll hear from him.

I can't say as I've ever spent much time considering tax systems. After spending a little while thinking about it, I have to prefer a wealth tax most and consumption tax the least. I very much agree with Dave's assessment of progressive tax systems, and would go a couple steps farther.

In addition to the fact that wealthy people most benefit from stable society, they are, quite frankly, most able to pay. As a society we tend to value people having access to things that we regard as necessities; food, water, shelter, clothing, medical care, education. For people with little wealth, these things can require their entire income to cover. At the least they use up a substantial portion of it, leaving little for discretionary spending. For a wealthy person these necessities require a much less significant proportion of their wealth to provide for. A much higher proportion of their wealth is available for discretionary spending. Since part of the job of the government (at least in my twisted mind) is to ensure that all people have the necessities, it seems counter-productive to take money from people for whom that money is vital to their ability to provide themselves with necessities. Rather, take a greater proportion from those who have the ability to pay it out their discretionary spending.

Further, (and I'm sure this will get me into a great deal of trouble) I think there is a role for the government to regulate and redistribute wealth. It is unhealthy for any society to have too uneven a distribution of wealth. When wealth becomes too concentrated in too few places the social structure becomes inherently unstable. Additionally the presence of a strong middle class is vital to the healthy function of a democracy. Democracy can be corrupted all too easily by money, and as such allowing people to amass vast wealth subverts the democratic process and allows those people to exert a much greater influence over the political system than anyone else.

So, for these three reasons (fairness (as per the discussion with Dave), practicality, and wealth regulation), I favor taxation on wealth. On the other hand the practicality element of it is largely cancelled out by the practical issues of administering the tax. It is much easier to impose taxes on transactions (income/consumption) rather than wealth, as they are discrete and easily quantifiable. Income tax offers some compromise in that income is relatively easy to track across a period of time and the tax can still be implemented in a progressive manner. Clearly there is a correlation between income and wealth. So using a progressive income tax system is a simpler, but less accurate, method of trying to tax wealth. A consumption tax would be quite difficult to implement in a progressive manner, and as such I don't care much for it.

No comments: