The horror of April 15 may look like good times in comparison to what it will look like if or when government imposes a wealth tax.
A wealth tax is a tax on the difference, if the difference is a positive number, between a person’s assets and liabilities. For example, if, on December 31 of a given year, a person has $500,000 in assets and $200,000 in liabilities, a tax would apply on the difference: $300,000.
France and Switzerland already have a wealth tax.
In the United States, a wealth tax looms as a large possibility because so many parts government are losing money.
The U.S. Postal Service, Medicare, and Social Security are all going broke. Who knows what the final bill will be for the Affordable Care Act (Obamacare)?
California currently has a projected budget surplus of $4.2 billion, but the surplus is dwarfed by the state’s pension obligations of $500 million to $1 trillion. The money is owned to state employees and to public school teachers once they retire.
When government is losing money, it generally tries to raise additional funds by increasing taxes. In November 2012, when California’s fiscal situation looked dire, Gov. Jerry Brown sponsored a successful ballot measure, Proposition 30, to raises taxes. The proposition increased the state sales tax by one-quarter percentage point. The top personal income-tax bracket went to 13.3 percent. Before Proposition 30 passed, California already had the highest state sales tax in the nation. The state also had the nation’s top personal income-tax bracket: 12.3 percent.
California (along with other states) already has a wealth tax, but it goes by a different name: the property tax.
Normally, a tax is levied on an asset as the time the asset, like a business or a stock, is sold. But the property tax is levied on real estate while the property is still in the owner’s possession. Curiously, no property tax is levied on a person’s furniture, appliances, or clothing.
The problem with a wealth tax is determining the size of a person’s assets. Can government really find out if someone has a Rembrandt painting, gold coins, or diamond-studded jewelry hidden somewhere?
Some assets are easy for government to find. Real estate is registered with government agencies. The amount of money held in stocks or bank accounts can determined by examining a person’s tax returns or by asking a brokerage house or a bank for copies of a person’s financial records.
So, on April 15, 2014, a person should pay his taxes and possibly be grateful that, outside of the property tax, there is no wealth tax — at least not yet.