Question

How is the tax base defined for a comprehensive wealth tax? What are some of the problems associated with measuring wealth? Why would inclusion of the assets of corporations and outstanding corporate stock double-count the wealth of corporations?

Answer 1

The definition of income states that it is the sum of any change in net worth and the amount of consumption of a tax payer. Thus, in case of comprehensive wealth tax the tax base is the sum of income tax and estate tax. Income tax is calculated on the amount of income and estate tax is imposed on the wealth and estate.

The problems associated with measuring wealth are as following:

1. The wealth is valued using historical cost method thus, the actual value of the wealth is not considered, i.e. fair value of the wealth.
2. Appropriate amount of depreciation or depletion charging on the wealth is one of challenges faced in wealth tax.     
3. The taxes are charged on historical value of the wealth thus, often resulted in minimum amount of taxes.

The corporations are involved in business operations including acquisition of raw materials, payment of salaries and wages, and other expenditures and sales. All the operations are conducted using the assets of the corporations. All the business operations include payment of different types of taxes thus, there is already significant amount of taxes paid. Further inclusion of corporations assets and outstanding corporate stock obviously double-count the wealth corporations.