Monday, September 03, 2012

The case for wealth taxes: inequality is far worse than you think

Wealth taxes are potentially important parts of any country's tax toolkit, complementing other taxes such as income taxes, value added taxes and so on. Wealth taxes are levied not on a flow of income but on a stock: the absolute size of assets held, and there has been a lot of talk about them in the UK recently. A New Statesman story (hat tip: Tax Research) contains an interesting graphic on the distribution of wealth in the UK, showing what a wealth tax might strike:

Now that, in itself, is quite dramatic - and ponder, for a moment, the plight of the median household in the picture.

In fact, though, we don't know the half of it. Recently we published a major report entitled "Inequality: You Don't Know the Half of It," which explained how inequality in every country is far worse than anyone has said before, because of the estimated $21-32 trillion in hidden offshore wealth, piled at the top of the income scale, uncounted.

We revealed a remarkable paradox: studies show that while the incomes of the top 1% in the United States more than doubled from 1980-2010 (and the incomes of the top 0.1% more than trebled while the incomes of the top 0.01% more than quadrupled) - the wealth trends showed a completely different picture: the top 1% owned 33.8% of the wealth, while in 2009 the top 1% owned 35.6%, a tiny increase.

Sam Pizzigati, a top U.S. inequality expert, notes that offshore missing wealth is likely to be a key explanation: the other explanation would be that
"they take that income and blow it on $500 dinners every night. That doesn't make sense. You simply cannot consume away that fantastic amount of money that income inequality has put into their pockets."
So the graphic here is likely to understate the problem by a very significant degree. The case for wealth taxes - and one very good way to do that is through Land Value Taxes - becomes stronger every day.


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