A low rate wealth tax translates into a high rate income tax, and a high rate wealth tax translates into a huge rate income tax. If an asset has a return of, say, eight percent, then a one percent wealth tax is a 12.5% income tax (1/8). Two percent wealth tax, 25% income tax, etc. This would be on top of existing income tax rates. Political plausibility is what is in question here.
Second, once you tax some wealth away, it's not there next year to tax, either thru a wealth tax or an income tax. You can't keep pounding on the same asset indefinitely, as you can with an income tax.
Third, a wealth tax would be difficult to administer. Lots of assets would be difficult to appraise, either because of their nature, or the type of ownership. The complexity of the Estate Tax is an indication of the difficulties involved.
Fourth, a goofy implication of a wealth tax is that it is higher for someone who is doing worse and lower for someone who is doing better, in terms of income. With a one percent wealth tax, if my assets returned 2% this year, the wealth tax is a 50% income tax. If they returned 20%, it's a 5 percent income tax.
A realistic wealth tax would have a very low rate and a high exempt level. Perhaps its main benefit is to provide the Gov with more information on individual wealth so it can administer the income tax more effectively.
Suppose Mr. Gates is hiding 15% of his income, hence 15% of his assets. (The estimate of unpaid taxes from evasion is about 14% of the total.) For every billion in assets, this is $150 million hidden. At an average effective rate of 25%, this is $37.5 million a year. If total income tax revenue is a trillion, a 15 percent increase in observed and reported income taxed at the same average rate is $150 billion, much more than any likely wealth tax revenue, I would say.
Overall taxes in the U.S. are about 30% of GDP. In social-democracies the equivalent is often greater than 40%. So in a $9 trillion economy, we need $900 billion to get some way into the ranks of social-democracies. So even $150 billion is still a sideshow, if nice to have.
mbs
I definite agree with the need for universal programs and also with "soak the extremely rich" taxes even if we can't limit it to just them and also soak the merely very rich as well.
However, I wonder if you are underestimating much we could get out of the top 1% in the best of all worlds. Bill Gates' $40 billion alone could go a long way.
But then I'm not an economist.
-Andy English