I understand the emotion of “stick it to the rich,” bamacpa, but see several issues.
First, the definition of “wealthy.” The general public defines that as “somebody who has a lot more money than I do.” Who exactly is “wealthy”?
Even if you agree on a number, do you define ”wealthy,” in terms of income or assets?
If income, do you make allowances for place of residence? After all, $100K a year household income in Manhattan is a lot less than $100K a year in Iuka, Mississippi.
Do you define “wealthy,” in terms of assets? If you tax an increase in asset value, do you also allow a deduction (and likely refund) when the value decreases? At what percentage is the increase taxed vs. the decrease?
For example, I have a $200K portfolio. The market increases 25%, and it’s now worth $250K. I pay tax on the $50K increase, never mind the fact that I haven’t sold a share or pocketed a penny of the profit.
Next year, there’s a recession, and the market tanks 40% (not that unusual over the course of a business cycle). My formerly $250K portfolio is now worth $150K. I paid tax on the $50K increase when the market went up. Do I get to deduct the $100K decrease now that it’s down?
Assuming so, is there a limit to the deduction, or do I have to spread it out over time — like the tax loss carryforward?
A corollary question: when my portfolio value increased by $50K, the gain put me in a higher tax rate — because, you know, more income should pay a higher percentage than a lower one….so progressive tax rates.
Now that I took a $100K hit to the chin, I’m in a lower tax bracket, so the deduction is worth less. Are you telling me I pay a higher tax rate on an increase in value, but get to deduct a lesser percentage on a decrease in value? Even though I never sold a share? Really?
And none of that begins to address how you’d quantify the change in value of assets that aren’t publicly traded — like a family business.
Mrs Basket Case and I have a halfway decent pile of assets — mostly publicly traded. Other than the taxes we pay on IRA or 401(k) withdrawals, we have little or no income. Are we wealthy? Why or why not? And how does the answer figure into the idea of “let the rich pay for it”?
Even if you do work through all that, how much money does it raise? As in, if you taxed all income over $500K at 100%, how much money would it raise? And how long would that fund the deficit? Do you assume going forward that those making over $500K will continue to do so? If they get to keep 0% of it, why would they? The most talented people just got a massive incentive to mentally check out.
The answer is that there simply aren’t enough “rich” people, however that might be defined. The solution to this problem will take everyone pitching in. — rich, middle class and poor. Nobody will escape the burden.
