Wall Street Journal, January 9, 2012
Stanford University Professor Makes
Conservative Case for Net Wealth Tax
Conservative Case for a Wealth Tax [summary]
Professor Ronald McKinnon of Stanford University has opined that a 3% Net
Wealth Tax (with $3,000,000 deduction) is needed, "as a necessary political
condition for much needed rationalization of the income tax" in an effort to
flatten the rates. He favors a net wealth tax, in part, because, "any
attempt to impose higher marginal tax rates on even moderately high income
earners-as President Obama wants for families earning more than $200,000 per
year-can lead to losses in economic efficiency and even to losses in ...
government revenue if high earners work less or seek out more loopholes and
NPR Radio, On Point Update, January 19, 2012
Professor McKinnon took to the radio to explain that it was the Wall
Street Journal editors and not him that used the term "Conservative" in thr
title of his oft mentioned article. He also has modified his position to
recomend a $6,000,000 deduction rather than a $3,000,000 deduction noted
above. He also explained that he advocated a concurrent flat (or flatter)
income tax rate to boost the economy but did not disclose the numbers during
the one hour radio broadcast. See
Point for more details and coments to the NPR broadcast.
Comment to the Wall Street Journal
There is â€œ[a]
Conservative Case for a Wealth Taxâ€ (WSJ, Jan. 9, 2012) but Stanford
University Professor Ronald McKinnon has not formulated it well. In
addition, his suggestion for a 3% wealth tax on top of the current
progressive income tax is not very conservative.
My â€œ2-4-8 Tax Planâ€ is
something a true conservative might embrace.
In August of 2006, I made the following suggestion to the Presidentâ€™s
Advisory Panel on Tax Reform: tax Net Individual Wealth at 2%,
Consumption/Sales at 4% and Income at 8%. I have subsequently come to
realize that the flat rate nature of the taxes provides the remarkable
ability to simplify the tax proposal and make most of it disappear from
view. I consider it the flat rate miracle.
Sales taxes can be implemented by including the tax in the listed price
(as in gasoline sales). When the retail tax is already included in the
posted price, the consumer sees more accurately what will be paid and is
less apt to feel the pinch of the tax (4% under the 2-4-8 plan).
A flat rate income tax with no deductions can also work in the
background. Unlike the current complicated income tax form (with so many
rates, adjustments, credits and deductions) the 2-4-8 plan would rely
primarily upon a
payroll tax (8% under the 2-4-8 plan). Because the rate applies to income
from all sources (including dividends and interest on bank accounts) the
financial institutions would pay the 8% tax so the stockholders and
depositors would not have to. Thus, for the vast majority of taxpayers with
income only from employment, dividends and interest; the tax would be
prepaid and the filing of the return would be nothing more than confirming
an online summary prepared automatically by the IRS computers from data
supplied by the employers and financial institutions. A more detailed income
tax return would generally be necessary only for businesses (corporations,
partnerships, self-employed individuals and landlords) where the computation
of taxable income requires an accounting of business expenses to reduce
Under 2-4-8 most individual taxpayers would not perceive any sales tax or
income tax at all. The perception and the reality is that the taxes would be
paid by business. The rates are extremely low but still sufficient to
produce more than 60% of the revenue needed by the federal government. Of
course, even a streamlined federal government needs a little more than a
mere $1.5 trillion to get by. The 2% Individual Net Wealth Tax would produce
another trillion dollars which would be more than enough to start paying
down the national debt. A comparison of the 2-4-8 plan with the plans of the
2012 presidential contenders offers solid proof of the financial soundness
of this approach and why it has appeal to people of all political spectrums.
See my website at www.TaxNetWealth.com for details.
oppose net wealth taxes fail to understand the legal-economic definition of
income as â€œthe sum of consumption and any change in net worthâ€ according to
University of Pennsylvania Tax Law Professors David Shakow and Reed
Shuldiner (described in the seminal Symposium on Wealth Taxes published in
2000). Tax rates can be applied to any base (income, consumption and/or net
worth) to raise government revenue. Today few legal scholars believe that
there is any constitutional impediment to a net wealth tax or federal
consumption tax and many consider the 16th Amendment â€œto
lay and collect taxes on incomes, from whatever source derivedâ€ to
have been unnecessary. Concerns regarding the valuation of net wealth for
tax purposes are genuine but exaggerated in light of near universal access
to internet databases.
write to suggest that many wealthy persons (and many who want to be) would
welcome a modest 2% net wealth tax in exchange for significant reductions in
individual and corporate income tax rates.