I know the sound of wealth tax doesn’t seem very good and it sounds like you have to pay extra to the government for earning more. Well that’s exactly it, in much simpler terms.

What is wealth tax?

A wealth tax is a tax based on the market value of assets owned by a taxpayer. Those assets can be anything ranging from cash, bank deposits, shares, fixed assets, personal cars, real property, pension plans, money funds, owner-occupied housing, and trusts.

Right now, Only four Organisation for Economic Co-operation and Development (OECD) countries currently levy a wealth tax: France, Norway, Spain, and Switzerland.

What is an example of a wealth tax?

Suppose an individual has an annual income of $120,000. So according to the 24% tax bracket which this person falls in, the tax imposed would be 24% of $120,000= $24,000.

Now if the government was to tax the overall wealth of the individual. Suppose the net worth of the person is $500,000. The wealth tax then would be $120,000.

So now you know why some people are against it.

Coming to the question whether wealth tax is a good thing or a bad one.

What are the advantages of a wealth tax?

1. More equitable

Particularly in a society like India where there is so much wealth disparity, wealth tax seems more equitable.

It is believed that a system that raises government revenue from both the income and the net assets of taxpayers promotes fairness and equality by taking into account taxpayers’ overall economic status, and thus, their ability to pay tax.

2. Generates significant revenue

Although wealth tax is applicable to only certain individuals and that too on a certain portion of their wealth,it still could potentially raise significant amounts of revenue which could be used by the government for resource development and benefits of it’s citizens.

3. Motivation to invest more

So obviously the one who has been chipped off a major part of their wealth in the name of wealth tax, they would want to invest every penny they have rather than putting it to no use and letting it’s value decrease with each year.

In other words, wealth tax encourages people to invest in assets and grow their overall wealth.

Disadvantages of wealth tax

1. Cumbersome to evaluate

Plain cash, stocks, even property can be calculated to find a person’s net worth but wealth tax requires to be calculated on a person’s net worth each year based on everything they own and by that they mean EVERYTHING.

Assets like artwork, ongoing businesses etc don’t have a fixed market value so it takes a great deal of time and skill to evaluate these.

2. Discourage the wealthy

It could potentially drive the riches away from the country since no one likes to pay a hefty tax and that too just for earning more.

And if that happens, it will obviously reduce the tax that country could have accumulated.

3. Double taxation

Firstly, the people will be taxed for their income and then a wealth tax for holding on to that income in terms of assets.

This seems unfair and people should have the right to their own money. This would only discourage them to work.

Conclusion- Is Wealth tax good or bad?

Coming to our original question, wealth tax has always been a topic of debate. It differs from individual to individual. So we laid out the pros and cons of wealth tax for you, now you have to decide if it’s good or bad. What is your take on this?