2% Net Wealth Tax
word "tax" comes from the Latin â€œtaxioâ€ which means approximation.
Net Wealth is the "Average" - "Cash" - "Fair Market"
Value of Assets
Less the Value of Legal and Enforceable Debt
The â€œaverageâ€ aspect of the valuation
seeks to adjust for assets that may fluctuate during the tax period. Items
such as stocks or gold should be value averaged over the tax period. This
should also eliminate any advantage that might be gained by
selecting a valuation day when the market price of an item is at its lowest.
It also equalizes the effective tax burden for those who might file
annually, quarterly or even monthly.
The â€œcashâ€ aspect of the valuation seeks to
allow for the adjustment of an estimated sale price by permitting an offset
for all reasonable and normal costs of a sale. It is essentially the same as
the cash liquidation value. For example the cash value of
a house would be the sale price less the typical closing costs and brokerâ€™s
fee. [As a practical matter, it would not be unreasonable for the tax
authority to permit a tax filer to elect a standard fee or percentage as the
equivalent cost of selling assets. For example, in estate practice, a 6% fee
is an accepted standard for the administration and liquidation of an
The "fair marketâ€ aspect of the valuation
seeks to limit the scope of assets subject to taxation of those items for
which there is a normal and customary market. For reasons of custom,
public policy and/or legal restriction there is no market for ones kidney, a personal copyrighted item
not put up for sale, a wedding ring during the term of a marriage, personal
clothing, food, controlled substances, family bible and similar items.
Retirement plans subject to strict government control, such as an IRA or
401k plan, would also be
exempt from taxation until a proper withdrawal is made. Many jurisdictions
and laws also permit a fair burial fund (i.e. $15,000) to be beyond the reach
of creditors including the government. An exemption for a burial fund might
also serve as the equivalent of a deduction, effectively eliminating wealth
taxes for very poor families with net wealth of less than $15,000 per person
(i.e. $60,000 for a family of four). In the example of a family of four with
$60,000 in a bank account where $1,200 may have been withheld by the bank, a
refund could be requested (which would incidentally also provide an
incentive for compliance with the tax filing obligation).
Business: The average value of a
corporation's stock would determine the value for individual wealth tax
purposes. The 2% wealth tax would be paid by the business directly to the
government on behalf of the owners or stockholders of record (on a pro rata
basis). The stock value is easy to determine for a publically traded
corporation but may require an inventory of assets for the millions of small
corporations. A similar inventory would be necessary for partnerships, sole
proprietorships, etc. In most cases the small businesses would benefit from
a valuation based upon a liquidation of assets computation rather than an
often higher sale of stock or ongoing business basis. The key difference
with a small business is that the principals of the company may account for
much of the value of the business and their non-contract services should not not
valued for wealth tax purposes.
Foreign Businesses: Another issue
arises in regard to which, if any, businesses should pay wealth taxes on the
net wealth of the business. To the extent individual owners are paying
the wealth tax (or the business has paid it on their behalf) it would be
double taxation. However, a business may be owned by a combination of
domestic and foreign businesses and individuals. The regulatory aim should
be to make sure that foreign owners pay the wealth tax while avoiding double
taxation of US corporate owners. [The corresponding regulatory burden is
also compounded a bit by stock holding corporations, subsidiary
corporations, multinational corporations, mutual funds, etc.] A workable
solution may be found in a rule that imposes the wealth tax on individual US
citizens and all foreign owners (weather individuals or corporations).
Foreign Assets: Generally US citizens are required to file
and pay US taxes regardless of where they live. Assets held in foreign banks
and even real estate in a foreign country should be taxed (subject to a tax credit
for tax paid to
the foreign government). The intent of any enforcement regulations should be
that the movement or location of assets anywhere in the world should not
reduce the taxes owed by a US taxpayer.
Private Trusts: Some trusts are
intended to benefit a particular individual or family. Occasionally they are
created tin an attempt to avoid the creditors of a deadbeat beneficiary.
Some are even located overseas in an effort to avoid US taxation. The assets
of family trusts should be considered as individual
assets of the US beneficiaries for tax purposes, with the tax avoided
only to the extent paid by the trust on behalf of the individual(s).
Digital Filing: Completing and filing wealth tax returns should be
little more than compiling a simple grouped inventory of assets and liabilities.
There should be no need to furnish an itemized list of each and every item
(unless and until an audit is necessary). The
government should be expected to operate an online system to help in the
valuation process - including a comprehensive database of items with
approved values. With near universal access to computers, it is also time for the IRS to require
the digitally filing of all returns.