Wall Street Journal, January 11, 2012
WSJ Editor, Robert Frank, Questions Valuation of
The Problem with a Wealth Tax [summary]
The Wealth Report is a daily blog focused on the
culture and economy of the wealthy. It is written by Robert Frank. The
Wealth Tax proposal of Professor Ronald McKinnon published in the Wall
Street Journal two days earlier recieved over 450 comments (mostly negative)
and warrented a more reasoned response from Frank.
He notes that the idea of a wealth tax, "seems
to be gaining popularity". He asserts that, "The wealth tax, however, has a
fatal flaw: valuation." and goes on to cite statistics showing that private
business account for up to 40% of the assets of the wealthyist. He argues
that, "Even the rich donâ€™t know what exactly what theyâ€™re worth in any given
moment" and implies that the regulatory process could not be fair.
I sponsor the website
www.TaxNetWealth.com but I oppose
a net wealth tax on the wealthy unless it also applies to the poor. In
August of 2006, I proposed the 2-4-8 Tax Plan to the Presidentâ€™s Advisory
Panel on Tax Reform which consists of three taxes: a 2% Net Individual
Wealth tax, a 4% Retail Sales tax and an 8% Payroll/Business Income tax.
Please try to think outside the box before you react.
The 2-4-8 Tax Plan is the only reform proposal that applies the exact same
rates to the rich and poor. There are no deductions. There are no tax
brackets. There are no tax credits or entitlements. There is no favoritism.
It would yield about $2.6 trillion per year (slightly more than the current
combination of Income, Social Security, gasoline and other federal taxes and
In the last couple of months, both the New York Times
and the Wall Street Journal have published opinion pieces from academics
recommending European style wealth tax surcharges on the wealthy. These have
been around for over a century and are often described as socialistic â€“ at
least in the governmentâ€™s blatant effort to redistribute the wealth of a few
to entitlements for many. These ill-considered proposals to tax only the
wealthy are just as inequitable as the so called â€œFair Taxâ€ attempt to
impose a national 30% sales tax which would devastate the poor.
Concerns about valuation (especially for private
businesses) are often raised. In todayâ€™s environment of near universal
access to internet databases there would be no real obstacle to the
valuation of 99% of assets. A private business, at least in the early years,
will no doubt need to be valued almost entirely on its tangible assets alone
(i.e. liquidation value). As income grows the ratio of income to assets
would likely require an upward evaluation based upon accepted guidelines.
When the business is sold any huge discrepancy might be grounds for an
audit. The process does not have to be exact to be fair.
Lastly, I invite you to consider the fact that many
wealthy people (and many more who want to be) would gladly accept a 2%
wealth tax in exchange for a flat 8% individual and corporate income tax,
and the elimination of Estate and Capital gains taxes (â€¦ and just suck up
the 4% sales tax without being a cry baby).
Eugene Patrick Devany
See also 2%
Wealth Tax for related issues.