The United States wants to introduce a tax on wealth: the middle class may suffer from this
The United States decided to tax the rich. Although the wealth tax is targeted at the richest taxpayers, it can ultimately harm middle-class families. Writes about it Fox Business.
Unlike payments on income and wages, the wealth tax will target the value of accumulated assets or pre-tax capital held by wealthy Americans.
Vermont Independent Senator Bernie Sanders and Massachusetts Democratic Senator Elizabeth Warren put forward their proposals for wealth taxes, which they say will only apply to people with assets of 32 million dollars or more and 50 million dollars for relatively small groups of taxpayers (families, dependents, couples, etc.).
But experts are not so sure that the target “small group” of taxpayers will persist over time.
“This is what happened with AMT (Alternative Minimum Tax),” said Tim Space, one of the leaders of the EisnerAmper Personal Welfare Advisory Group, in an interview.
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The AMT, which was adopted in 1969, was originally intended for approximately 155 wealthy taxpayers who completely avoided income taxes, requiring special deductions.
However, since this measure was not indexed for inflation, the proportion of people who were supposed to pay increased over time.
According to a Congressional report, about 1 million people paid AMT in 1999 year, while about 31 million did it in 2010 year, which covered all but the lowest income classes.
“Over time, the government began to realize how much profit it was making,” Space said.
AMT tax revenues totaled around 122 million in the 1970 year. By 2014, they had grown to 28,6 billion dollars.
According to the estimates of the Center for Tax Policy, if the provisions of the Law on the Reduction of Taxes and Jobs, which increased the exemption from benefits and phasing out AMT, do not last, AMT revenues will jump from 6,2 billion in 2025 to 62,1 billion in 2026.
Chris Edwards, director of tax policy research at the Cato Institute, argues that politicians are likely to be tempted by the introduction of a potential wealth tax.
“After the entry into force of this law, taxes, which will initially apply only to the very rich, will not bring a lot of money to the treasury. And the government will still have a huge budget deficit due to rising spending on benefits, so liberal politicians will insist on lowering the income threshold for wealth tax to the level that now corresponds to the middle class income level, ”Edwards said.
Former Louisiana Governor and Republican Party presidential candidate 2016 of the year, Bobby Jindal, expressed a similar opinion during the interview, adding that average Americans have the right to be concerned.
“The problem with these plans is that ... it always starts like this: you know that the income tax was supposed to be only for the rich - these taxes were only for wealthy people. Then, if you own a good house, if you have a car, if you have savings for retirement, you will also fall for this wealth tax, ”Jindal said.
Edwards also noted that wealth taxes adopted in countries of the Organization for Economic Co-operation and Development (OECD) have few exceptions. For example, in Switzerland, tax affected people with a net income of just over 67 000 euros (about 73 400 US dollars) in the 2017 year.
Perhaps that is why both Warren and Sanders did their best to make it clear that their proposal would affect only the richest Americans. Warren calls his plan a "tax on supermillionaires," while Sanders called it a "tax on extreme wealth." They both hope that this measure will help reduce growing economic inequality.
Critics, however, argue that there may be short-term effects on the economy. Wealthy Americans invest their wealth, creating jobs and income. This means a loss of innovation and opportunity if investment is not encouraged. It also potentially means slowing economic growth.
In addition to questions regarding its constitutionality, there are doubts about how the IRS will be able to administer the tax, because for this it is necessary to constantly determine the value of things such as art or owning a business.
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