Taxes on wealth were first introduced in Europe, aimed at reducing
the growing wealth gap between the rich and the poor. It was meant to
raise revenue for addressing pressing social requirements and also to
discourage the attitude towards amassing wealth.
Still, in countries across the world, majority of wealth is
concentrated at the hands of fairly small number of people. Ideally
taxes on wealth cuts down the disparities in wealth rather than the
income, which actually is the determinant factor on how the scales are
weighed for the next generations.
Also, taxes on wealth can bring
about vertical as well as horizontal equity, which income tax fails to
achieve. For example, neither a wealthy person nor a poor one with no
income will pay income tax. But the wealthy ones need to cough up wealth
tax while the poor need not.
But, as critics puts down, taxes on wealth can actually cause
inefficiency by discouraging wealth producing economic initiatives.
Also, the revenue generated by imposing taxes on wealth may not be that
productive as the theory suggests. The wealthiest form only a small
percentage of the population and by nature they are adept at avoiding
taxes while remaining themselves within the contours of law.
Taxes on wealth comes in two forms – the capital transfer taxes that
are levied when wealth change hands and the annual wealth taxes. Capital
transfer taxes can occur either at death – also called inheritance tax –
or via donation (gift tax). Some people tend to believe that Capital
Gains tax to be a form of taxes on wealth. But in realty, capital gains
tax is the taxation on the income obtained on capital and not a wealth
tax on the capital.
Ideally, taxes on wealth should not be severe on the tax payers even
if they have lots of wealth. Instead, after the minimum slab of no
taxation, the taxes on wealth percentage should increase at increments,
depending on the value of wealth in dollars. Such a fairer taxation not
only increases the revenue but also goes a long way in bringing down the
inequality aspect as well.
But with intelligent investing,
one can save a lot that other wise goes as wealth tax. But that
requires careful thought and advanced planning. May be a tax
professional could help one in this regard.
3/21/2014
How to minimize your taxes on wealth
CW BOOKINGAN HOTEL
Jakob Jelling is the founder of http://www.cashbazar.com. Visit his website for the latest on personal finance, debt elimination, budgeting, credit cards and real estate.
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