Taxes are going up for most Americans on Jan. 1 unless Congress and the White House agree to a new plan to raise revenues and cut spending. This plan would avoid the massive tax hikes and spending cuts lawmakers agreed to last summer.
At this point in the fiscal cliff negotiations, some Republicans are warming to the idea of raising revenues but they haven't committed to higher tax rates. President Obama insists on raising income tax rates for those earning more than $250,000 annually. Billionaire investor Warren Buffett favors higher tax rates on incomes above $500,000, and many in Washington and elsewhere are calling for an overhaul of the tax code that would eliminate or reduce common tax breaks.
Economist Daniel Altman is proposing something completely different on the tax front --- a system that taxes wealth rather than revenue. It's not intended to raise more revenues but rather to reduce inequality which, he says, threatens growth.
"Wealth inequality is making the pie smaller for all of us," Altman tells The Daily Ticker. It limits opportunities, which reduces productivity, and ultimately lowers "living standards for all of us in the long term."
Altman, an adjunct professor at New York University's Stern School of Business and author of four books, says wealth inequality in the U.S. has been rising steadily for the past 20 years.
"It's at a crazy high level that you only see in very poor countries, and it's starting to threaten growth," he says.
He proposes to replace income, capital gains, estate and gift taxes with a progressive wealth tax that "would do much more to reduce [wealth inequality] than any other tax plan being considered in Washington," according to his recent New York Times op-ed.
Altman's plan would exempt the first $500,000 of wealth from taxes, which he says would affect about 80% of households (these individuals would continue to pay payroll taxes for Social Security and Medicare). The next $500,000 of wealth would be taxed at about 1% followed by a 2% tax on assets valued above $1 million. That's enough to replace all the money collected from taxes on income, capital gains, dividends, estates and gifts, says Altman.
He says says taxes would rise for those whose wealth is valued at $10 million or more but taxes might even decrease for those with $3 million or less in assets. All these changes would be phased in over time as new workers enter the workforce. Current assets including large nest eggs would not be subject to the new tax, says Altman, and he stresses that his proposal would replace the current tax regime, not add to it.
"Maybe it's time to update our tax code for the 21st century," says Altman.
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