How Wealth Tax Is Better Than Income Tax

How Wealth Tax Is Better Than Income Tax

How Wealth Tax is​ Better Than Income Tax
Wealth Tax
Do you​ want to​ move money from the​ wealthy to​ the​ poor? Well,​ tax wealth.
Wealth tax causes far less market distortion,​ and hence,​ much fairer than income tax .​
Wealth tax hurt productivity less .​
If you​ live in​ a​ capitalistic country,​ then your income is​ yours fairly .​
However,​ Bob’s wealth might not be traceable to​ productivity .​
Bob might have gotten his wealth through inheritance gained through slavery,​ or​ genocide .​
The link between wealth to​ productivity is​ less than the​ link between incomes and productivity .​
Hence,​ wealth tax discourages productivity less than income tax.
Wealth tax also has meritocratic justification that can actually increase productivity .​
Property rights are effectively contracts between a​ person and the​ society .​
Part of​ the​ contract is​ that the​ society will protect the​ person’s property.
Well,​ if​ you​ protect Bob’s land,​ you​ should get paid right? Wealth tax is​ then effectively protection fee we pay to​ our local gangs we call governments .​
How much a​ society should get paid for protecting wealth? Natural pricing schemes will be of​ course something proportional to​ the​ amount of​ wealth protected.
Let’s examine this issue.
Wealth Tax as​ Protection Fee
The year is​ somewhere in​ 13th century .​
Kublai Khan attacked China .​
The peasants don’t bother fighting .​
Why? Because all they have,​ their life,​ they can take with them in​ refugee .​
The lands belong to​ landlords anyway .​
So just let the​ landlord fight .​
The Sung emperor realized this .​
So,​ the​ Sung court provided land sharing to​ peasants .​
Now the​ peasants have something worth dying for,​ land .​
However,​ it’s kind of​ late .​
Also,​ that enraged the​ land owning landlords who switched side to​ the​ Mongol .​
There goes Sung dynasty,​ the​ most prosperous country in​ the​ world at​ that time.
Say a​ foreign investor puts 1 million dollars in​ 2 countries each .​
The first 1 million go to,​ hmmm… Let’s see…,​ Somalia,​ where the​ money just goes away through local warlords .​
The next 1 million goes to​ Singapore with its strong laws and commitment to​ meritocracy .​
In which country the​ $ 1 million produce higher return? in​ Singapore of​ course.
Now,​ say Singapore taxes wealth by 1% but gives 16% return .​
Say Somalia has no wealth tax but provide 0% return .​
Where do you​ want to​ invest your money? in​ Singapore…
At the​ end,​ any country that can provide return on​ to​ investors will motivate investors to​ invest money on​ that country .​
Countries will compete with other countries in​ trying to​ give better protection for investors .​
Countries that do it​ well can get away with more wealth tax and still be very attractive for investors .​
Investors will still put money in​ that country even though the​ country taxes a​ small percentage of​ wealth tax.
If governments’ spending can be slashed,​ the​ rest can be given as​ dividend to​ all citizens in​ equal share for everyone manner .​
Karl Marx would love this,​ am I​ a​ commie or​ what? That’ll provide incentives for citizens all over the​ world to​ vote in​ favor of​ free market,​ privatization,​ or​ anything that gets money in​ .​
The more investor-friendly the​ countries are,​ the​ more money gets in,​ the​ more dividend those citizens will get.
Some special arrangements should be around to​ prevent citizens from abusing the​ system by just making more kids to​ collect more dividends,​ but that’s easy to​ solve.
Less Market Distortion
Back to​ our sample .​
Say you’re equally poor .​
However,​ you’re more diligent than your peers .​
Then you​ wouldn’t pay much higher tax than your peers because you’re equally poor .​
Hence,​ wealth tax do not punish the​ diligent as​ much as​ income tax.
When you’re richer,​ you​ can build factories rather than mansions .​
You don’t pay extra penalty for gaining income .​
So,​ you​ will pay the​ same amount of​ tax whether you​ build factories or​ mansions.
It takes the​ same amount of​ military power to​ protect a​ mansion and a​ factory .​
So why in​ the​ earth factories pay more tax?
Less Repulsive Than Income Tax
Will you​ invest money in​ a​ country with 30% income tax or​ in​ a​ country with 2% wealth tax? Well it​ depends .​
If you​ have a​ good business plan,​ then wealth tax is​ preferable than income tax .​
Good business plan means good returns on​ your investments,​ which means high productivity,​ income or​ profit .​
However,​ if​ your business plan is​ lousy or​ you​ just want to​ put your money for mansions that produce no return then income tax is​ preferable.
Exchanging income tax into wealth tax will hurt incentives for good business plan much less .​
You’re not going to​ be penalized for having better business plan and earning more profit.
Higher return of​ investments are better not only for investors but for everybody .​
When businesses collapse,​ the​ ones that collapse first are usually the​ ones with lower returns that’s just above the​ margin .​
Things go a​ little wrong and those bad business plans will collapse .​
Income tax encourages all businesses to​ be like that .​
Wealth taxes do not penalize profit and hence will increase profit.
If wealth tax is​ done in​ exchange of​ income tax,​ good investors would love it​ more and invest more money .​
Bad investors that governments will end up bailing out with IMF’s help can invest somewhere else.
Doesn’t Go Berserk
No people in​ any country,​ in​ their right minds,​ would demand too much wealth tax .​
Why? Because too much wealth tax will simply drive investors away .​
Some countries can demand bigger wealth tax but only if​ they do their homework well,​ such as​ maintaining security and explicit consistent rules.
At the​ end,​ there will be a​ nice supply and demand relationship where all countries try to​ provide the​ best capital protection and efficient economic and capital growth at​ the​ least possible cost or​ tax .​
The citizens in​ such countries can simply pocket the​ difference,​ which will be called profit .​
When citizens think like stock holders,​ then politicians will think like CEOs.

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