Yes, the problem is hoarding. Which is proportional to the delta in potential and actual productivity of the already wealthy (and their assets).
Here's a quick demonstration: imagine all US taxation (apart from excise taxes) was replaced by a 3% yearly tax on household net wealth. No income taxes. No corporate taxes. No cap gains. No weird deductions based on expected future whatever. The question now is: cui bono? The hard working, high growth individuals (wealthy or not) benefit because their income and capital gains remain untouched -- they just need to earn enough in returns to offset the 3% tax. And who loses? The hoarders engaged strictly in "wealth preservation" (https://books.google.com/ngrams/graph?content=wealth+preserv...).
You clearly have not thought though the consequences of your proposal. Here are just a few of the problems:
* What if I own a house but have no cash? Will I have to sell it and live on the street to pay the taxman?
* What if the ultra-wealthy buy property and then mark it down? I.e. they buy paintings, then "accidentally" "damage" them. Whoops, a billion dollars in artwork gone, sorry IRS. Later, it is miraculously repaired. Will the IRS have to start sending undercover agents to inspect people's art collections?
* A 3% wealth tax is still less than the growth rate of many financial assets. I.e. the stock market grows at ~7%. So the rich will still get richer. And if you increase the tax to say, 8%, congrats, you just destroyed the financial markets.
* What if I own a house but have no cash? Will I have to sell it and live on the street to pay the taxman?
- You do that now. Property taxes.
* What if the ultra-wealthy buy property and then mark it down?
- People lie to the IRS now, system still functions.
* A 3% wealth tax is still less than the growth rate of many financial assets.
- Not necessarily. Safe stores of huge amounts of money yield very little. I don't know all the implications on interest rates, etc.. but it's an interestng idea.
I don't understand your response. The primary purpose of the proposal was to illustrate what "hoarding" is. Did it accomplish that goal? If not, why?
To address your concerns generally -- every tax policy has a variety of impacts on behavior. Multiple countries already have a wealth tax, so they are definitely workable. There are behavioral and policy methods of addressing potential negative consequences.
To respond more specifically:
> What if I own a house but have no cash? Will I have to sell it and live on the street to pay the taxman?
That's a straw man argument for a host of reasons. We already carve out exemptions for primary dwellings, and there's no reason why this wouldn't similarly apply, up to some limit. But even absent that, real assets are real assets, and there are multiple ways of extracting liquidity from them (and moreover doing so generates wealth for society). You can take on a "reverse mortgage", or rent out one of your rooms, or sell it and rent, or take out an annuity that's secured against your home, among other possibilities.
> What if the ultra-wealthy buy property and then mark it down? I.e. they buy paintings, then "accidentally" "damage" them. Whoops, a billion dollars in artwork gone, sorry IRS. Later, it is miraculously repaired. Will the IRS have to start sending undercover agents to inspect people's art collections?
That's fraud/non-compliance/tax evasion, and it's already a massive problem in the current tax system, except now it's cloaked in things like a "double dutch with an irish sandwich". In any case, this is a problem that is dealt with every day, in business, by insurance companies, and there's no reason why the same techniques couldn't be used by tax officials.
> A 3% wealth tax is still less than the growth rate of many financial assets. I.e. the stock market grows at ~7%. So the rich will still get richer. And if you increase the tax to say, 8%, congrats, you just destroyed the financial markets.
Yes, and a 95% income tax rate will destroy the labor market. So? And yes, at 7% CAGR on the S+P the wealthy continue to get wealthier (assuming all their assets are in equities, a big assumption). But note that, in the process, we've eliminated income taxes, so everyone else will be getting richer faster. A win-win.
The evidence is inconclusive - some (Norway, Switzerland) are economically strong societies, while others (Spain, India) are economic basket cases.
Side effect of introducing a wealth tax is an increase in corruption as all of a sudden subjective evaluations of illiquid property can lead to substantial increases, so there are scenarios where it's cheaper to pay off the assessor in private than be subjected to an increase. Litigation to question the assessed value is a fairly minor occurrence nowadays, but with universal wealth tax owners of illiquid property are likely to sue more often, as there's more property to assess (and hence make mistakes).
India and Italy are known for high corruption levels, and you could argue that placing low-paid government officials into high-value positions is almost corruption by design.
Here's a quick demonstration: imagine all US taxation (apart from excise taxes) was replaced by a 3% yearly tax on household net wealth. No income taxes. No corporate taxes. No cap gains. No weird deductions based on expected future whatever. The question now is: cui bono? The hard working, high growth individuals (wealthy or not) benefit because their income and capital gains remain untouched -- they just need to earn enough in returns to offset the 3% tax. And who loses? The hoarders engaged strictly in "wealth preservation" (https://books.google.com/ngrams/graph?content=wealth+preserv...).