As an economic illiterate, the following had never occurred to me. But then I don’t remember ever seeing this obvious fact in the public prints before, so maybe I’m not alone. Maybe we’re all idiots.
[Thomas] Piketty’s big point about the United States is that we actually do engage in substantial wealth taxation in this country. We call it property taxes, and they’re primarily paid to state and local governments. Total receipts amount to about 3 percent of national income. The burden of the tax falls largely on middle-class families, for whom a home is likely to be far and away the most valuable asset that they own. Rich people, of course, own expensive houses (sometimes two or three of them) but also accumulate considerable wealth in the stock market and elsewhere where, unlike homeowners’ equity, it can evade taxation.
Piketty also observes that the current property tax system is curiously innocent of the significance of debt. A homeowner is taxed on the face-value of his house, whether he owns it outright or owes more to the bank than the house is worth.
“If you own a house worth $500,000 but you have a mortgage of $490,000 then your net wealth is $10,000,” he explains. “So in my system you would owe no tax.”
Right now, an upper-middle-class person with a pricey house and a mortgage is taxed identically to a colleague with a similar income who inherited a similar house from his parents. This, to Piketty, is nonsensical. He thinks economists who emphasize the importance of building a tax code that’s friendly to wealth accumulation are onto something, but that the emphasis on low rates for the rich is entirely misguided. The goal should be to make the haves pay more so that the rest of us can pay less.