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2050

Reform

Wealth Tax

It is apparent that some rich people will do whatever they can to minimise their income tax payments, and with the help of well paid accountants, setting up artificial schemes to minimise tax liability if not completely eliminate it. This is an issue. Every member of society that has the means must make a financial contribution to the running of a civilised society. For the rich, who enjoy their wealth largely because they live in a stable society that is governed according to the rule of law, their obligation to pay tax is high. It is also necessary to address wealth inequality in society. When a small percentage of people own the vast majority of the wealth this is not good for a society.  

The proposal is that there be a wealth tax for the rich that runs in parallel with income tax. However the person does not pay both, they pay either the income tax or the wealth tax, which ever tax amount is greater. This should put a base under the amount that the rich pay. While attempting tax minimisation would still be expected they would have to do it on two fronts - income tax and wealth tax - making it harder for them to avoid paying tax.

I will put some figures to the proposal, for illustrative purposes. The wealth tax would kick in for people with wealth over $2.5 million (I may increase that figure for people over the retirement age). The amount taxable for wealth tax purposes would include the value of the residential house assets. Super would be exempt. If the rich have a house and other assets valued at $10 million then $7.5 million of that value would be included in the wealth tax assessment. I would set the wealth tax at a modest rate, say 3% possibly increasing to 4% for wealth over $40 million and 5% for wealth over $100 million.

Say someone has wealth of $25 million and they earn a taxable income of $1 million both from their job and their investments. Their income tax liability would be approx. $423,000. Their wealth tax liability would be ($25 million - $2.5 million) x 3% = $675,000. However they don't have to pay both, they pay the highest, that is, $675,500. If the person earned $2 million then their income tax liability would be $873,000, which is greater than the wealth tax liability and is therefore the tax debt. If they "arranged their affairs" so that they only earned a taxable income of $100,000 they would still pay the wealth tax of $675,500.

The only deductions I would allow on the wealth tax would be donations to registered charities, at a deductible rate / formula to be determined.

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