Updated August 2021 If you pay attention to political programs or follow any news about the economy and taxes, then you no doubt have heard plenty of debate regarding income inequality. The fact is there is a lot of income inequality in the country. Whether you side with the haves or the have-nots, the fact remains that those on each side of the argument feel they have the right answers.
According to democratic philosophy, the argument goes that if you want to fix income inequality the solution is to raise taxes on the wealthy to give more of that money to the poor or middle-classes. While it sounds like a good plan on the surface, a recent report shows that realistically, policy changes are much more effective in closing the income gap between the wealthy and lower income classes.
That’s right. According to a study recently released by the Competitive Enterprise Institute, the difference between the economic brackets among the top and bottom levels is not as important as the living standard of those in the lowest economic levels.
Is a Wealth Tax the Solution?
According to a 2020 article authored by Ike Brannon, a senior fellow at the Jack Kamp Foundation, “…a wealth tax would do nothing to help low-income earners while hurting the rest of the economy.” He further points out, “The Democratic party has made reducing income inequality one of their key goals for the country, and it is one that should be a priority for everyone else as well. However, how we accomplish such a thing matters quite a bit.”
The Harm of a Wealth Tax
Mr. Brannon goes on to say that our economy benefits greatly from the purchases and investments of the very wealthy and imposing a wealth tax could chase those economy boosters out of our country. “While doing such a thing will, in fact, allow inequality measures to report significant progress, doing so would do nothing by itself to improve living standards of people at the bottom of the distribution, or make it easier for people to climb up the income ladder. It’s akin to losing weight by lopping off body parts—it achieves a numeric goal but is counterproductive for the overarching goal.”
A strong economy allows for more jobs and better pay, which allows for a better standard of living for everyone, especially for those in the poorest class. It’s fair to say anyone would agree the poor need help to receive a higher standard of living, but a wealth tax is not the best solution to the problem.
We hope you found this article about Wealth Tax and Income Inequality helpful. If you have questions or need expert tax or family office advice that’s refreshingly objective (we never sell investments), please contact us or visit our Family office page or www.Groco.com. Unfortunately, we no longer give advice to other tax professionals gratis.
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