Taxes on wealth or simply wealth taxation
is the tax levied on the value of wealth owned by a person. As the term wealth carries with it a broader meaning, commonly capital transfer taxes (which add
inheritance tax and gift tax), property taxation
, and capital gains taxes are some times invariably referred to as wealth taxes.
Taxes on wealth were first introduced in Europe, aimed at reducing the growing wealth gap between the rich and the poor. It was meant to raise revenue for addressing pressing social requirements and also to discourage the attitude towards amassing wealth.
Still, in countries across the world, majority of wealth is concentrated at the hands of fairly small number of all the people. Ideally taxes on wealth cuts down the disparities in wealth rather than the income, which actually is the determinant variable
on how the scales are weighed for the next generations.
Also, taxes on wealth can bring about vertical as well as horizontal equity, which income tax fails to achieve. For example, neither a wealthy human
nor a poor one with no income will pay income tax. But the wealthy ones positive need
to cough up wealth taxation
while the poor absolutely need not.
But, as critics puts down, taxes on wealth might
actually cause inefficiency by discouraging wealth producing economic initiatives. Also, the revenue generated by imposing taxes on wealth can not be that productive as the theory suggests. The wealthiest form only a small percentage of the population and by nature they are adept at avoiding taxes while remaining themselves within the contours of law.
Taxes on wealth comes in two forms the capital transfer taxes that are levied when wealth change hands and the annual wealth taxes. Capital transfer taxes can occur either at death also called inheritance tax or via donation (gift taxation
). Some many people
tend to believe that Capital Gains taxation
to be a form of taxes on wealth. But in realty, capital gains taxation
is the taxation on the income obtained on capital and not a wealth taxation
on the capital.
Ideally, taxes on wealth should not be severe on the tax payers even if they have lots of wealth. Instead, after the minimum slab of no taxation, the taxes on wealth percentage should increase at increments, depending on the assessment of worth
of wealth in dollars. Such a fairer taxation not only enhances
the revenue but also goes a long way in bringing down the inequality aspect as well.
But with intelligent investing, one may save a lot that other wise goes as wealth taxation
. But that requires careful thought and advanced planning. May be a taxation
professional could help one in this regard.
