BIDEN SHOULD TAX WEALTH NOT WORK
January 11, 2021 - Douglas Myser
Biden should tax wealth not work. While markets are at all time highs, President elect Joe Biden will inherit an economy projected to produce $900 billion less in federal tax revenues over the next two years due to Covid 10. As he seeks to "build back better", he should look to incorporate a wealth tax to his proposals. The objective of our tax system has long been to tax most heavily those who can best afford it. We also want our taxes to create the right incentives. A wealth tax serves both objectives better than the taxes we now have. From the perspective of wealth, our tax code is not even close to progressive. People working just to stay afloat may pay the lowest nominal rates of income tax, but probably pay the highest taxes as a percentage of their wealth. For those at the other end of the spectrum, getting rich ordinary income, taxed annually, is taxed more heavily than getting richer capital gains, taxed at favorable rates on realization, which in turn is taxed more heavily than simply being rich(based only upon death). Since capital gains taxes are paid only when shares in other assets are sold, the richest Americans have probably never paid a dime in taxes on the vast majority of their fortunes. Wealth is a far better metric than income. Biden should tax wealth not work.
We want to encourage employment, but taxing income is a disincentive to work. Getting paid 80 cents for doing a dollars worth or work makes that effort less rewarding. Taxing work also increases the incentive for companies to replace workers with machines. Using the same illustrative math, you have to pay an employee $1.25 to get them a dollar. That's not true for robots. Instituting a wealth tax would dramatically shift our prospects for achieving progressivity in our tax code, and better align investment incentives.