Would You Be OK With a "Net Worth" Tax (in theory)?

[_Who Knows]

So some people complain that rich people pay a higher tax rate than poorer people. They argue that it's only fair for everyone to pay the same rate. Why should richer people pay a higher rate? Isn't that socialistic?

So, I propose something new. Get rid of the income tax, and just tax net worth. Everyone at the SAME rate. This should be fair, right?

[_Jason Bourne]

Hmmmmm

Maybe

I think Florida has something like this. But it is based on intangible assets not net worth.

[_asbestosman]

I might argue that some things I have are assets, but they are non-transferrable and difficult to measure (my undergrad degree).

Anyhow, for me it's not a question of fainess or socialism per-se. I'm mostly worried about the balance between funding things we think are important and hurting economic activity through taxes. Deciding how to pay for it will certainly come into play there.

[_Who Knows]

I might argue that some things I have are assets, but they are non-transferrable and difficult to measure (my undergrad degree).

I realize there are difficulties associated with implementing something like this. That's why in the title i wrote 'in theory'. I'm just curious about people thoughts on the overall concept - in terms of 'fairness'.

Anyhow, for me it's not a question of fainess or socialism per-se. I'm mostly worried about the balance between funding things we think are important and hurting economic activity through taxes. Deciding how to pay for it will certainly come into play there.

I agree. However, I think that (how the $$ is spent, how much does the gov. need, etc.) is for another discussion.

[_asbestosman]

Should a net worth tax allow for deductions for things such as medical expenses, professional equipment, and even perhaps number of dependents? Otherwise I would think that a net worth tax would still put some people at a disadvantage and would be "unfair".

[_Who Knows]

Should a net worth tax allow for deductions for things such as medical expenses, professional equipment, and even perhaps number of dependents? Otherwise I would think that a net worth tax would still put some people at a disadvantage and would be "unfair".

I don't think so - because your net worth would be affected by those things. i.e., if you have a big medical expense, that's going to decrease your net worth, thus leading to lower taxes. More dependents = lower net worth (if you have a lot of dependents, and still have a high net worth, you should be able to pay your taxes). I think a net worth tax adjusts automatically for those things.

Get rid of estate taxes. get rid of the stupid $10k donation rule. Whoever holds the wealth, pays the taxes. And ALL pay the same rate.

[_asbestosman]

I don't think so - because your net worth would be affected by those things. i.e., if you have a big medical expense, that's going to decrease your net worth, thus leading to lower taxes. More dependents = lower net worth (if you have a lot of dependents, and still have a high net worth, you should be able to pay your taxes). I think a net worth tax adjusts automatically for those things.

In the present, that certainly holds. The reason I think it's more complex is because you will have more future expenses than someone else and thus your net worth will be depleted faster year by year than someone else who started with similar net worth today but has less year-to-year expenses.

Now, I can see how you'll end up paying less in future years as your expenses effect your net worth. But in some ways I see known future expenses (like medical) as some kind of minus on net worth. However, to be completely fair to this line of reasoning I would also have to figure in known future income, and I think either one can quickly become impossible to effectively predict. Still, I think known of almost certain future circumstances does factor in to economic fairness in tax.

[_Who Knows]

In the present, that certainly holds. The reason I think it's more complex is because you will have more future expenses than someone else and thus your net worth will be depleted faster year by year than someone else who started with similar net worth today but has less year-to-year expenses.

Now, I can see how you'll end up paying less in future years as your expenses effect your net worth. But in some ways I see known future expenses (like medical) as some kind of minus on net worth. However, to be completely fair to this line of reasoning I would also have to figure in known future income, and I think either one can quickly become impossible to effectively predict. Still, I think known of almost certain future circumstances does factor in to economic fairness in tax.

Sorry man, i lost you. I'm confused on who you're referring to, under what circumstances, etc.

[_asbestosman]

Sorry man, i lost you. I'm confused on who you're referring to, under what circumstances, etc.

If I know that I'm going to have to pay for medical care for my ailing child, in some sense I consider that to decrease my net worth even though most of that expense will be paid in the future. Aren't expected future expenses figured in to companies when people try to evaluate what they're worth? Now granted, that may not technically be the "Net Worth" of the company, but I think it figures into an evalution of how much that company is worth.

The next thing I was saying was that expected future income would also have to be considered as it is when evaluating how much a company is worth (at least as far as stock goes).

I was transferring those ideas to personal net worth.

But as I am no accountant nor economist, I could be totally off my rocker. Your response makes me suspect this is the case.

[_Who Knows]

You have some valid points. Like i said, i'm not sure this is at all feasible. There are some major kinks to work out.

But keeping it very general - what is fair - in terms of evaluating who's paying more taxes. Do we look at taxes paid as a % of income, or taxes paid as a % of net worth? Bill gates probably pays taxes of less than 1% of his net worth, but lets say 30% of his net income. While the reverse is true for jimmy the accountant who makes 60k a year. He probably only pays 10% of his net income in taxes, but pays maybe 10% of his net worth, or maybe 50% of his net worth. So with the current tax system, some people whine that gates is paying an unfair share of taxes (since he's in the 36% tax bracket), but i do not believe this to be the case. I think he's getting off a lot easier (paying a much lower tax rate when looking at what really counts - wealth) than jimmy the accountant.