What exactly is Wealth tax in the United States?
Wealth tax is a widely used term that is based on a revenue-raising policy proposal and has gained national attention. Wealth tax is a tax that is levied on the value of holdings of assets. There are various types of wealth tax in the United States; income tax is one of the most important wealth tax. While addressing wealth and income inequality, advocates associated with wealth tax presents an argument that wealth tax is an effective and progressive means for raising revenues. According to the experts, the wealth tax is a way that affects a very small fraction of households of the United States.
On the other hand, critics claim wealth tax is difficult to enforce as it can lead to evasion of tax and may be unconstitutional, which can reduce the revenue amount collected.
There are several arguments related to wealth tax; some are in favor of wealth tax and the rest are against it. To analyze the importance of Wealth-tax, we need to see what is the role of wealth tax and how the Wealth Tax works.
How does wealth tax work?
The term wealth tax is explained as the tax which is levied on the annual income or assets of all debts of any individual or household. Net worth or annual income is composed of the assets related to finance — such as bonds, mutual funds, stocks, bank accounts, as well as non-financial assets such as luxury products, real estate, and family heirlooms. There are several wealth tax proposals that also include an “exit tax” on assets that are transferred abroad to check tax avoidance.
To understand the basic concept of wealth tax, consider an example of a 2 percent wealth tax that is imposed on individuals or households with a net worth above $100 million. A wealthy person with a net worth of $3 billion will be liable to pay 2 percent on the $2.9 billion in assets, he or she owns above $100 million — resulting in a $58 million tax.
Moreover, if an additional 1 percent surcharge were imposed on all net worth above $1 billion, then the individual would again pay nothing on his or her first $100 million assets. He has to pay 2 percent on the next $900 million and 3 percent on the following $2 billion in total net worth. Under this plan, the person would pay the total wealth taxes of $78 million.
Conclusion
Most economists admit that the wealth tax is an important tax. They say it is used for addressing the income and wealth inequality of the nation. The economists did not agree on the optimal approach.
There are many advantages and disadvantages that are concerned with the tax system, including wealth tax. The arguments, along with the national debts, will continue to rise to the historical records. This highlights the importance of policy solutions that are creative and innovative. This topic is analyzed to address the system inequalities related to income. The related terms will help the tax system of the nation sustain in a better way.
