Wealth tax may offer missing link

The free market system might be compared to an engine that works well but that lacks a governor. It keeps speeding up and slowing down. A mechanism such as a wealth tax might be the missing factor that would help it achieve its true potential

Over the past few weeks local resident Tom Cole and your editor have been exchanging points of view on the relative merits of free market versus socialist systems.

The discussion began with an editorial about the book, “Spirit Level: Why greater equality makes societies stronger” by British researchers Richard Wilkinson and Kate Pickett. According to the book, income inequality causes increases in a long list of social and health problems, including violent crime, illegal drug use, mental illness, obesity, increased healthcare costs, shortened life expectancies, teenage births, unequal opportunities and higher imprisonment rates.

In our Feb. 21 issue Coles wrote that capitalism is synonymous with greed and the system can’t be effectively reformed. The only viable option is democratic socialism with the common ownership of the means of production, he felt.

Well, maybe. What the letter writer seems to have proposed would be something like the former Communist regime in the Soviet Union, with all industry, agriculture and so on owned by the state, but with a democratic rather than an authoritarian form of government.

One possible counter-argument would be that even in the Soviet Union, with its extreme penalties for any form of capitalist activity, there was a thriving underground free market. Central planning simply can’t satisfy all human needs.

Another counter-argument is the observable fact that the amount of inequality in free market systems goes up and down. Our society was much more egalitarian during the years following the Second World War than it is today.

One possible reform that has been proposed for the free market system would be a wealth tax. At present most of our government revenues come from income taxes – a tax that makes it difficult to become rich but relatively easy to remain wealthy. Having more government revenues coming from a wealth tax, on the other hand, would make it easier to become rich but more difficult to remain that way.

According to Wikipedia, several European nations have brought in forms of wealth taxes. France taxes net assets on a progressive rate from zero to 1.8 per cent. Switzerland has a progressive wealth rising to a maximum of 1.5 per cent. Interest income in the Netherlands is taxed in a manner similar to a wealth tax. In Norway, municipal and national wealth taxes amount to 1.1 per cent of net wealth over a certain minimum.

In addition, India has a wealth tax of one per cent on net worth over a certain minimum.

Another example of a wealth tax would be the Islamic zakat. The rate varies with different types of assets but is usually around 2.5 per cent per year. This tax was obligatory during the time of Mohammed but has since largely become voluntary (there’s more merit in giving voluntarily, said those in support of the change).

For most of us in the middle class, the imposition of a wealth tax would have little or no effect. We already pay a form of wealth tax on our most valuable assets – property taxes our homes.

The free market system might be compared to an engine that works well but that lacks a governor. It keeps speeding up and slowing down. A mechanism such as a wealth tax might be the missing factor that would help it achieve its true potential for meeting human needs.

– Clearwater Times