Can Wealth Taxes Be Justified?

Abstract

A wealth tax is a tax levied periodically on the value of a taxpayer's possessions (excluding opportunities to work or loaf and personal attributes, such as marketable skills, mental capacities, a healthy constitution, or a comely appearance). Could a wealth tax figure in a just, ongoing tax scheme, regardless of whether it might be justified as an extraordinary corrective to an unjust distribution of resources or opportunities? I argue that it almost certainly could not, if one assumes the correctness of one of a wide range of non-utilitarian, liberal egalitarian accounts of justice. It would have no place in a just tax system, not because a wealth tax would be impracticable (though its administration would pose well-known difficulties), but because it would be morally offensive. This paper assesses and finds wanting numerous rationales that have been suggested for taxing wealth, such as protecting democratic politics, maintaining the efficiency of labor and product markets, and spurring productive investment. I also argue at length that a wealth tax probably would have no role in funding government services under various benefit or fair-sacrifice principles for allocating the costs of collective projects. Nor would wealth taxes of the sort common in Western Europe serve as workable proxies for the rents that Left Libertarian theories of justice would charge for the use of natural resources, even if one endorses (though I offer reasons not to do so) some version of Left Libertarianism. A wealth tax might be justified as one component of an unusual tax on gratuitous transfers which I sketch--a tax that takes inspiration from, though it modifies significantly, the Meade Committee's Progressive Annual Wealth and Accessions Tax. Its role, however, would be very limited, and it would look nothing like wealth taxes now in use because it would apply only to a narrow class of assets. Finally, I consider arguments for adding a wealth tax first to a consumption tax, on the assumption that consumption taxation is justified, and then for adding a wealth tax to an income tax, this time on the assumption that an income tax is justified. In both cases, I contend, a wealth tax is inconsistent with the best arguments offered for both consumption and income as tax bases and with liberal egalitarian ideals of fairness.