Chartered Financial Consultant


Tax Wealth or Income?

As I begin my 41st year of preparing income taxes, I once again contemplate the complexity, even lunacy, of the Internal Revenue Code.  I have two thick volumes of The Code on my bookshelf, almost 5,000 pages.  I rarely open them, but they look so impressive.

Income tax policy serves at least three purposes: 1) to collect money so the government can pay its current bills and past debts, 2) to encourage certain types of economic behavior such as buying homes, contributing to charities and buying business equipment to stimulate the economy, and 3) to encourage low income earners to work by providing eligible individuals with an earned income credit so they can receive tax refunds in excess of their withholding (i.e. a negative income tax).

Alternatives to the current system are regularly proposed: flat tax, value-added tax, national sales tax.  These have their merits and flaws, but most taxpayers are unwilling to trade the current system they dislike for one where they might have to pay more.

One interesting alternative or supplement to the current system is to tax wealth rather than income.  Robert Reich, Clinton’s Secretary of Labor, recently discussed this concept in a blog post: The Myth of Living Beyond our Means. I believe he should have been President Obama’s Secretary of the Treasury instead of Tim Geithner, but that was an early tip-off that President Obama was not going to be very liberal.

Anyway, here’s a quote:

“Wealth has become even more concentrated than income (income is a stream of money, wealth is the pool into which it flows).

The richest 1 percent now own more than 35% of the nation’s household wealth, and 38 percent of the nation’s finances – including stock and pension funds.

Think about this: The richest 400 Americans have more wealth than the bottom 150 million of us put together.  The 6 Wal-Mart heirs have more wealth than the bottom 33 million American families combined.”

Reich’s blogs are worth following; here’s a link to the full text.

Bob Dreizler

Bob Dreizler