Since some people tried to obfuscate my meaning in my last post on income tax (http://www.dailykos.com/...), I would like to undermine their assertions so that we can actually have a discussion on taxation in America. It was a recognition of the fact that unregulated wealth accumulation had been partly responsible for the economic instability and chaos of the late 19th century as well as the trust driven panics and corruption that led to the collapse of 1907 (See Thurman Arnold's the Folklore of Capitalism, 1937). Teddy Roosevelt's trust busting was aimed at the destructive economic and political effects of drastic wealth concentration. In the post-WWII period the high Eisenhower income rates were arrived at in the context of the financial gambling that had created the Great Depression (See John Kenneth Galbraith's The Affluent Society, 1958, the chapter on inequality). My earlier post was little different in aim from the proposals Galbraith set forth, the main problem with wealth concentration is that it perpetuates itself. A tax on income alone has little effect on amassed wealth unless it is progressive, that was my point. Someone with a billion in assets, like Warren Buffet, will earn 10s of millions each year from their asset returns. A tax of 30% on this income will not stop wealth concentration, but only slow it. It was recognized in the 1950s that a 91% income tax on those with the greatest wealth could result in a more effective reinvestment and reduction of wealth concentration. Certainly tax incentives were provided that caused wealth people to reinvest and the effective tax rate was much lower, in the area of 50% by most estimates (given a variety of tax cheating and avoidance techniques).
But let's look at some methods used by other countries to reduce wealth accumulation.
Wealth Taxes
France: A progressive rate from 0 to 1.8% of net assets. In 2006 out of €287 billion "general government" receipts, €3.68 billion was collected as wealth tax. See Solidarity tax on wealth.
Switzerland: A progressive wealth tax with a maximum of around 1.5% may be levied on net assets.[2] The exact amount varies between cantons.
Liechtenstein: The government of Liechtenstein taxes both personal and business income and principal (wealth). The basic rate of personal income tax is 1.2%. When combined with the additional income tax imposed by the communes, the combined income tax rate is 17.82%.[30] An additional income tax of 4.3% is levied on all employees under the country's social security programme. This rate is higher for the self-employed, up to a maximum of 11%, making the maximum income tax rate about 29% in total. The basic tax rate on wealth is 0.06% per annum, and the combined total rate is 0.89%. The maximum business income tax rate is 18–20%.[25]
Liechtenstein's gift and estate taxes vary depending on the relationship the recipient has to the giver and the amount of the inheritance. The tax ranges between 0.5% and 0.75% for spouses and children and 18% to 27% for non-related recipients. The estate tax is progressive.
Netherlands: Interest income is taxed like a wealth tax, i.e. a fixed 30% out of an assumed yield of 4% is a rate of 1.2%. See Income tax in the Netherlands.
Norway: Up to 0.7% (municipal) and 0.4% (national) a total of 1,1% levied on net assets exceeding NOK. 700,000.
India: Wealth tax is 1% on net wealth exceeding 30 Lakhs (Rs 3,000,000). However, non-residents returning to India are given exemption for seven years.
These are "wealth taxes" not the income tax that I proposed. Wealth taxes would be a more effective means to reduce wealth concentration than a progressive income tax. In each case wealthy individuals can use legal and illegal means to avoid tax. An international approach is needed and we have the tools under both the Rico Act and the Patriot Acts which allow the government to have access to financial records if illegal activities are suspected.
The possibility of effective results in reducing inequality over time are problematic. given the rates I proposed which would cause the 1% to use asset value to maintain their lifestyles and to continue to influence politics, the time to arrive at a moderate Gini in America would be approximately 100 years. With a Swiss approach to tax wealth by taxing assets could reduce that time by as much as 40%.