Tax the rich, change capitalism. Democrat Presidential hopefuls like Elizabeth Warren and Bernie Sanders have put forth plans to fix America’s wealth-inequality problem. The problem is relevant, and requires attention. It seems it will take center stage as we inch closer to November of 2020.
The 2008 recession and subsequent recovery furthered the divide between the middle and upper class. It considerably bridged the gap between the ultra high net worth families and the rest of us. These folks are traditionally called the 1%.
Warren has proposed a Wealth Tax, which would tax households once they accumulated a certain amount of money. How? She suggested financial audits to calculate the accumulated total wealth of families, plus, penalties in the event a family tried to change citizenship in efforts to avoid taxation. The numbers of affected families is incredibly small, however, this intrusion requires a deeper dive.
First, financially auditing an entire household while living is new. It isn’t entirely unquestionable, because a household is expected to show the value of their assets at death to discover how much Estate Tax (Death Tax) is assessed. The likely result is problematic. It discourages investment and growth of assets at the highest level of our society. Is it beneficial to discourage families in their earning years to withhold investing decisions? Money would be taxed three times. First, income. Second, realized gains. Finally, total wealth. The math would likely discourage many investments.
The wealth tax proposed by Warren is a step in the right direction to fix income inequality problems, but let’s look at this differently. Instead of taxing wealth, why can we not reform inheritance taxes. Why do we allow the passing of wealth from generation to generation? This does not need to be a right once you pass away. Land and real estate pass downs should be minimal, and loopholes allowing for astronomical dollars to be sheltered need to be reformed. In conjunction, we should do away with income tax. Encourage spending and wealth while living but keep future generations motivated to succeed as well. This resets the playing field for the group. That is how we can find the ‘fair share.’
Currently, each spouse in a household can pass on $11.2 million dollars free of the Inheritance Tax. Most wealthy families can exploit a multitude of loopholes to further avoid taxation, and preserve their wealth. Money must remain permitted to pass on to a spouse without tax, as well as any children below age eighteen. However, how much family wealth needs to be passed on without taxation when the children are adults? Of course there are exceptions, like in the case of a child with a physical or mental disability, but on average, the current generational wealth structure should be reexamined.
This applies to a few ultra-wealthy families in our country, but it encompasses a tremendously large amount of money. There should be limits put in place to how much money can be passed on after death, and when the limits are reached, the money should be returned to the US Treasury. This creates an incentive for people to spend their money while they are alive. The money spent will encompass leisure and philanthropy. A wealthy person knowing their money would be returned to the government at death would likely want to enjoy their wealth, or at least use it for as much good as possible while living.
Finally, and most important, it prevents future generations from simply waiting on inheritances and pass-downs. It resets the playing field for each generation. This fundamentally entitles everyone to more of a fair chance than we currently have, while still having a capitalistic system in place to generate and create wealth.
A reformed Inheritance Tax must be offset by an abandonment of income tax. Let the states and municipalities tax income if they so choose, but the Federal Government should stay out of taxing paychecks. This will be a power shift to the local governments in our country. It creates a system where local governments compete for the top laborers most equipped to handle the needs of their geographic region. The ease of transportation, and the ability to relocate in our country has never been easier. Local governments should fight for the skill-sets they believe are most able to further develop their local economies.