How do you then prevent a regressive tax policy, given capital is almost the exclusive form of wealth accretion for the 1%?
If that incredibly wealthy person goes and spends his money ostentatiously -- basically why we generally hate the rich in the first place because of the social stratification caused by them have bigger and better things -- then a sales tax with luxury tax or high profile items would quickly bring them back into the category of those most taxed.
If that incredibly wealth person didn't spend a lot of money and lived well below his means, then why do we care? He is basically producing for free for the rest of use to consume. If he invests his money or just puts it in a bank account, he is helping to increase capital formation and drive society forward. Even if he just burns his money or buries it, he is basically giving everybody else in the world more purchasing power -- and in this case he literally is working for free. I never understood this who argument about the rich sitting on their money: it means they are working without consuming and that means they really aren't being paid.
Income taxes are okay to an extent too. But they are just so much more difficult to get right. Defining income is difficult, and some people have very volatile income streams earning $200k one year and $50k the next. Should they really be taxes more (and a great deal more) than the guy who make $125 in two years? A sales tax or VAT is just easier from an implementation point of view. And there is nothing stopping you from excluding items like food and medical bills and nothing stopping luxury taxes either.
The rich aren't hated because they drive nicer cars, they are hated because it's their greed that causes a lot of suffering.
> it means they are working without consuming and that means they really aren't being paid
Our economy relies on consuming. And even if they never consume their assets, they do consume the interest it generates. Sometimes for generations.
Because wealth is many different things. Too the poor, wealth is food. This can be increased, within reasonable limits. Too the middle class, wealth is access to inherently limited resources, like properties with a non-atrocious commute. Too the rich, wealth is power and that, by nature, happens at the expense of others. Capital accretion is power accretion, even more so when the rich lives like a monk. And the power you give one person is freedom you take from another. Once they have used their power to own all nice spots of land and use the food to run their boats and jets on "green" fuel, it turns out that all the supposed wealth you have given the lower classes was just money.
Taxing capital suddenly looks dead easy when you compare it to taxing power.
If they truly never use it---spending it or using its mere existence for leverage---they might as well be burning it. Literally the economy is being shrunk for nobody's gain.
The economy literally got a lot of free stuff and obviously people are much richer than before. Money is a promise, if someone is forgetting the promises others made to them (burning money) others benefit as they just got free stuff.
The Veil of Money was used to describe the question of whether money was important to the real economy, and it brings up how money can confuse and hide.
Money is just an accounting mechanism, literally an IOU -- a claim on future production. Remove the money and see what happens: The chef and I down the clean exchange services and we agree on an equal exchange, one hour of her time for one hour of my time. She cooks for me for 5 hours, but she doesn't have any need for my help yet, so I write her an IOU saying I'll help her with her stock portfolio when she needs me. She decide to die in a horrible fire, taking with her the house and IOUs. Now I have 5 hours of free cooking and the world is no worse off for her not consuming. In fact it is much better.
If somebody worked and produced so much more than anybody else in the entire world and produced half or everything but never spent a penny and one day burned everything, yes, the dollar would double in value overnight -- fewer dollars chasing the same amount of good, deflation. All the government would need to do is produce the little green pieces of paper or double everybody's bank accounts overnight, and the world would now have all that stuff for free.
IE, I agree with the orthodox position (EG Milton Friedman) that taxing person A to provide services to person A is generally a bad deal for person A.
If there was a policy whereby tax is raised and groceries are provided by central buying organisation and distributed back proportionally to their contribution, almost everyone would loose. The production of groceries would be worse. etc. But, that doesn't mean a progressive redistribution would harm everyone.
In my groceries example the reality is that the vast majority would be far worse off. It's a very bad policy. My point is that the argument for progressive taxation is in my opinion very hard to dismiss from an economics perspective. A dollar is not of equal consumption value in different hands to the same extent that it is not of equal productive value in all hands. Consumption does not have the same market forces funnelling it to its highest value use, a consumption equivalent of Coase theorom or somesuch.
The advantage of redistribution of wealth at point of consumption is (again, IMO) real and it grows bigger as wealth becomes more unevenly distributed.
Capital gains taxes make up about 4% of total revenue. For that 4%, we pay almost half of that on enforcement. So, for 2% of our revenue, we do some pretty nasty damage. There definitely are better ways.
The way our politics are structured for the time being (and have been structured for basically all our history), under your hypothetical those getting the 10x increase would see their influence in government increase roughly five-fold or so. The current wealth disparities in most of the developed world are already stretching the legitimacy of democracy to its limits - if what you suggest came to pass what is left of it would evaporate.
Real estate for example is very inflation sensitive and your tax bill would be all over the place if you taxed the capital gain on that. Then what do you do when the land falls in value? Do you really think the government would give a rebate? And then when it rises again, hopefully they wouldn't tax it again (the basis for the last taxation should have been raised), but I wouldn't put it past legislators grabbing for money by saying you can only back back 5 years or something to determine the tax basis.
What's your definition of capital?
"and like to cause a lot of social issues."
Which parts of this article on land-value tax do you disagree with?
https://en.m.wikipedia.org/wiki/Land_value_tax#Assessment.2F...
In particular, the "Value can be computed by capitalizing rental streams." (Is someone renting the land, or are they renting the office skyscraper that's on the land?)
"Further, valuators in the home-and-contents insurance industry do so in order to calculate an insurance premium, separating the value of the home from the value of the land."
My experience is that's done in a straight-line percentage method ("the land is 20% of the purchase price in this area"), which doesn't distinguish adequately enough for taxation valuation purposes, IMO, but does provide some basis for insurance company purposes.
"Another approach is the residual method: the value of the site is the property's total value minus the depreciated value of buildings and other structures."
So, the land I own under a rental property gets more and more valuable each year (as I depreciate the buildings and structures)? Then, I sell it to another investor and the land value drops again to a low baseline and starts to rise as THEY depreciate the buildings? That doesn't make any sense to me.
The article admits that the whole valuation topic is a hard problem and I agree with that.
Don't tax "capital" in the form of money, certainly don't tax labor.
Why punish productive effort? Punish use of resources. This will make people strive for efficiency and go a long ways towards eliminating problems like pollution, encourage recycling etc.