There has been an ongoing debate about the rich not paying taxes. The President of the United States; Joe Biden has proposed measures to ensure that the super-rich pays a fair share of taxes. Taxes are important to any country since they help the government raise revenue and also help in wealth redistribution. However, wealthy people use some gaps within the law to avoid taxes.
Warren Buffett noted that his secretary pays higher taxes than he does. This is a clear indication that rich people know various ways to avoid tax legally. This then begs the question, what are the best ways to tax the rich?
Below are some ways the government can use to tax wealthy people.
1. Raise Top Income Rates
The other way to tax the rich is by increasing tax rates for high-income earners. Bill Clinton and Barack Obama managed to slightly raise top income individual tax rates. Governments in other countries should follow suit and increase taxes for high-income earners so that they can pay more taxes.
The super-rich has multiple sources of income like capital gain on assets, profits from businesses, monthly income, and returns from investments. They should be made to declare their wealth and sources of their income. Consequently, all their income sources should be taxed.
2. Raise Estate Tax
Raising the tax on inherited property can also be a great way to tax rich people. The assets of the rich people are not taxed during their lifetime when they appreciate. It is very possible for these assets to go un-taxed during the succession period. For this reason, wealthy people are able to accumulate lots of wealth during their lifetime. Governments can use estate tax to tax such assets before they are transferred to the heirs.
3. Introduction of a wealth Tax
Many countries like Australia, Switzerland, and Luxembourg have a wealth tax. Wealth tax ensures that almost all assets, besides the income of the wealthy people, are taxed. Senator Bernie Sanders proposed an increase in estate tax while Elizabeth Warren proposed an annual wealth tax to ensure that the wealthy pay a fair share of taxes.
Read more: List of countries with wealth tax.
4. Tax on Accrued Capital Gains
The rich people are able to accumulate much wealth because most assets are taxed when they are sold. The wealthy people rarely sell their assets, and hence they are able to avoid paying taxes. Therefore, the best way to tax the rich is by taxing any increase in the value of assets, whether they are sold or not. To enforce it, there should be a frequent valuation of the super wealthy’s assets.
5. How the Rich Get Away Untaxed
Tax avoidance is legal and many rich people have found a way to avoid being taxed. Some of the ways the super-rich use to get away untaxed include stashing money in offshore accounts in tax haven countries, contributing to charity, investing in stocks, and avoiding transferring property to their heirs. Although these are all legal ways to avoid taxes, there should be a way to ensure that the rich pay a fair share of taxes.
Summary of How to Tax the Rich
Practically, raising taxes to tax the super-wealthy is harder than it seems. Every proposed means to tax the rich has a problem. For instance, one of the proposed ways to tax the rich includes raising tax on capital gains income. Practically, it will generate little revenue and not billions as expected. However, options like raising the top individual income tax rate can help raise more revenue for the government.