New Requirement to Report ALL Offshore Assets May Foreshadow U.S. ‘Wealth Tax’
by Mark Nestmann
The Tea Party contingent of the Republican Party won’t like it. But, if President Obama and his minions have their way, U.S. taxpayers may soon be paying a new tax – one based on their net worth.
Such “wealth taxes” are nothing new. Among other countries, France, India, the Netherlands, Norway, and even Switzerland levy a tax based on the net worth of individual residents. I last wrote about wealth taxes here.
The mechanics of a wealth tax couldn’t be simpler. You prepare a balance sheet of your worldwide assets. Then, you subtract an exempted amount. (For instance, in France, the first EUR 600,000 of assets are exempt from wealth tax. This exemption is slated to increase to EUR 1.3 million in 2012.)
If your net worth is higher than the exempted amount, wealth tax is due on the balance. In France, the rates vary from 0.55% to 1.8%, although they’re scheduled to be reduced in 2012 to a top rate of 0.55%. However, if you have a net worth that exceeds EUR 1.3 million, you’ll need to pay the tax on every euro of your assets – not just those assets above EUR 1.3 million.
Tax-and-spenders love wealth taxes. They defend the idea because they say it supposedly rewards hard work and penalizes non-productive investments. For instance, if you have a net worth of $2 million in a country that imposes a 1% wealth tax on the entire amount, you’re obligated to pay $20,000 annually. You’ll get that bill no matter how you invest the $2 million. If you’ve invested in non-income-producing investments (e.g., gold), you pay the $20,000, with no offsetting income.
On the other hand, if you invest the money in supposedly “safe” 30-year Treasuries yielding 4%, you’ll generate $80,000 in income annually (unless, of course, the Treasury defaults). You pay the $20,000 in wealth tax, tax at a maximum 35% on the $80,000 ($28,000) for a total tax of $48,000. You get to keep $32,000.
In this way, wealth tax apologists believe that this type of tax rewards productive investment and penalizes unproductive investment.