Originally Posted by
wiggin
Hmm. I used to firmly believe that all wealth taxes (including those on property, but especially those on plain old money) were wrong - they amount to double taxation, since the government has already taxed the income/capital gains/etc. that made that wealth. What right do they have to take a portion of your wealth that's just sitting there?
Since then, though, I've read up some more on the underlying theory behind some wealth taxes, and I'm less sure. I wouldn't say all taxes are necessarily immoral, but they're definitely bad, all other things being equal. Taxes tend to disincentivize various good behaviors (e.g. income, employment, wealth accumulation, etc.) and raise the price of transactions and goods. So, if you could provide the same (or better) necessary government services with fewer taxes, that would be preferable. Furthermore, at some point the marginal benefit to society from extra government services is offset by the distortionary effect of the tax levied to pay for that service, at which point taxes should not be further raised irrespective of the need for a particular government service.
That means that some taxes are 'better' than others in that they distort the market and disincentivize behavior in less damaging manners. You've all heard me suggest that Pigovian taxes (i.e. taxes on negative externalities like pollution) are particularly good for this, though they have some negative sides as well (unstable revenue streams in particular). I am also somewhat partial to 'user' fees (e.g. tollroads) as a way to match the cost of a service to the users of that service, though they can often be regressive or inefficient and thus require careful design. Lastly, as an alternative to income/payroll/wealth taxation, consumption taxes like VAT tend to be a better alternative. While not ideal (they can get complex and disincentivize consumption), they are better than the alternative, and the regressive effects can be offset by direct cash transfers to the poor.
One form of tax that also happens to seem quite efficient and well-designed is a land value tax. These taxes (which are not how most property taxes are designed) are a clever way to encourage landowners to maximize the income they can get from a piece of land. This means that large, low-yielding tracts of land will be unprofitable, while intensive development yields the most profit. It can thus reduce urban sprawl. There are some downsides - value assessment can be challenging in particular - but overall it's a pretty decent tax when compared to income/payroll taxes. So if property taxes were switched to a LVT system, I would now wholeheartedly support them even if they are somewhat similar to a 'wealth' tax.
More broadly, one can look at property/land as unique compared to other wealth taxes. Land is a scarce commodity, and its use and management is clearly up to the government (given the rights of eminent domain et al) in a final analysis. Inefficient or degrading use of land is in the government's interest to curtail, so appropriately designed property taxes may be able to give a 'nudge' towards the correct course of action.
That being said, I have also re-evaluated my thoughts about wealth taxes in general (IIRC I expressed incredulity at the wealth taxes extant in some European countries). While I still think that the exorbitant tax rates in places like France contribute to capital flight and disincentivize economic activity among the rich, I do think that there can be a place for a modest wealth tax if it can reduce income taxes. Essentially, a modest wealth tax acts like additional inflation on the very rich - they have to invest their assets productively (rather than in low yielding assets like government bonds) if they hope to make a real return. If the tax is low enough, they won't want to move their money overseas, but it will still give the rich an incentive to put their money to work in a more productive (economically) manner. The big issue with modest wealth taxes is valuation (it can be quite challenging to provide an accurate valuation of a household's wealth; far more challenging than its income). That being said, the burden would be fairly small on an aggregate basis, since it would be concentrated on relatively few households. AIUI a federal wealth tax is very tricky from a constitutional perspective, but legal concerns aside I can see a place for a limited wealth tax to take the place of income/payroll/capital gains/etc. taxes on unadulterated 'good' behaviors.
So I still am incredulous at the very high wealth taxes in some countries, and my inner capitalist rebels at the very idea of wealth taxation. But I recognize that wealth taxation is no more ridiculous or seemingly unfair than income taxation, and it may actually be somewhat better from an economic perspective if implemented appropriately.