So why tax by proxy and not wealth directly?
If by "wealth" you mean "net worth", then because that is even harder to administer than income taxes.
If by "wealth" you mean "income", we do that, but earning income through an entity with separate legal entity whose income is not taxed and retaining it in that entity becomes an effective tax dodge if it is permitted. Which is why corporate "income" tax (which is effectively a tax on retained profits) is included as part of the income tax system.
There will be some complicated edge cases but there will be relatively few and the ability to game them is less because wealth is a simpler concept than income.
Source?
> There will be some complicated edge cases but there will be relatively few and the ability to game them is less because wealth is a simpler concept than income.
How is wealth a "simpler concept" than income. AFAICT, income is far simpler (and, in fact, involves a strict subset of the assessments necessary in assessing wealth.)
Wealth is the value of everything you have less what you owe. Every item can be valued by seeing what people would pay for it, which is usually just its current market price. How do you determine income objectively? You could merely take wealth at two points in time but our society has declined to define it that way because much of the money coming in might go to some sort of expense which ought to be excluded, which is neither objective or simple, and because some changes (such as fluctuations in asset prices) are assumed to be transitory and therefore impractical to tax. The latter is actually the source of most of the perfectly legal tax evasion in this country: Hold stocks, generate value, pay nothing until you sell which needn't be ever.
"What people would pay for it" is a controversial quantity that can only be speculatively and uncertainly answered unless you are actually selling it in an open, unrestricted auction (even actual sale under real-world conditions often doesn't answer this, since its possible that both buyer and seller have non-financial interests which motivate the sale decision such that the purchase price does not represent the market value.) For pure interchangeable commodities with robust markets, this is less of a problem, but for many real world assets (including real estate) this is not the case.
Note that while real estate is already subject to ad valorem taxes (and other value-based policies, such as eminent domain), valuation is not at all free from contention even with those taxes as just one piece of the overall tax picture; if wealth-based taxes were the primary tax system, that problem would be magnified.
> How do you determine income objectively?
If you can value wealth objectively, you can value income objectively, since income is just a subset of the changes in wealth. The problems in income valuation are problems in wealth valuation (which is why, e.g., capital assets are valued at sale for income purposes, which becomes less viable of a solution to the problem of valuation if you aren't taxing the change in wealth but taxing the wealth in each year it was held.)
Yep. A friend thinks we should have a "You bought it!" law for insurance companies that assess the value of your belongs to calculate a premium. Basically once they give you their assessment, you have to right to say, "You bought it!" and they have to take it off your hands at that price. Not that such a law could work in the real world, but it is pretty clever. I bet a lot of people wish they could use such a law for property tax assessments.
But I could imagine a "We The People Buy It" under a system of wealth taxes. That the gov't could choose to buy any asset for a modest premium over what the taxpayers asserts it was worth for purposes of taxes last year. Heck, maybe any citizen should be allowed in on that game?
"Hmmm, you say your restaurant business is worth only $300k? It is your lucky day! I just bought it for $360k."
Real-estate appraisals are imperfect but getting within 20% most of the time is quite achievable. The main problem is for unusual or expensive properties which could be handled similarly to hard-to-value assets.
Your statement doesn't follow unless defining that subset is easy. What should be included or excluded? As we're discussing corporations, we have ample evidence of the ability to game. You could suggest closing loopholes but most of the loopholes also have legitimate uses.
You write that "capital assets are valued at sale for income purposes" is a solution to the difficulty in measuring their value. Why is this the case? Remember that the origin of this discussion is whether it's better to tax corporate income or the wealth of those who own the vast majority of that income. Are you asserting that valuing a person's equity holdings is difficult?
If we don't ignore non-financial, non-real estate assets, then difficulty of estimating their value becomes a significant issue.
[1] One of the reasons the US got into the health care mess they have now was companies taking over the payment of health insurance instead of giving a salary increase. Workers liked this because it effectively meant they paid less taxes.
That is the standard argument, but countries have been taxing property a lot longer than they have been taxing income. Some even manage to tax property at current market prices (e.g. Canada).
That countries have been taxing selected forms of property longer than they have been taxing income is in no way inconsistent with taxes on net worth being harder to administer than taxes on income (and even if they had been taxing net worth longer than income, it wouldn't be), so that's not even a counterargument.
It would seem to me that an unconditional basic income could therefore be paid in part through this mechanism, with the inflation caused by simply increasing the amount of money in circulation. That is to say - the money could simply be created by the government. You can frame this as deficit spending (if you'd like) or you can frame it as the equivalent printing of money. This could (by act of Congress) be done without floating bonds to cover the deficit, but that might cause some conservatives to freak out.
The other problem is that while inflation incentivizes moving up the risk curve, capital gains work in the opposite direction, incentivizing idle cash balances. One side of the government wants you find yield, the other punishes you for finding that yield.
At the end of the day, you're just going to make people find that yield (they have to) and you won't increase tax revenue. People can stomach _some_ risk, but not an infinite amount (especially the institutional guys).
Developing countries frequently switch to USD/EUR in times of financial calamities, as marketplaces there gravitate towards currencies that preserve wealth, not erode it, which is what you're planning to institutionalize.