What About a Truly Progressive Wealth Gain Tax?

The idea of a minuscule 1% Wealth tax has been promoted recently, but what I think would be better is a truly progressive tax on all wealth gains regardless of source – whether it be through employment income, capital gains, or gifts and inheritances.

What reasonable objection can there be to a tax regime which says you can keep 1/n of the nth $million of whatever wealth you gain, by any means whatsoever, in any given year?

This would mean (since 1/1=1) that there would be no tax at all on the first million dollars of income.

The second million would be taxed at a rate of 50%

The third at 67%.

And so on.

So an income of $2million (either from employment, capital gains, or inheritance) would yield an after-tax gain of $1000000+$500000=$1500000 for an effective tax rate of 25%

$3million would yield  $1500000+$333333=$1833333 for an effective tax rate of 39%

$4million would yield  $1833333+$250000=$2083333 for a net rate of 48%

And an income of $ten million (either from employment, capital gains, or inheritance) would yield an after-tax gain of

$1000000+$500000+$333333+…  …..+$111111+$100000=$2,930,000

for an effective tax rate of 71%.

And, yes, the marginal tax rate would be unlimited, so an inheritance of $1billion, if paid all at once, would have a marginal tax rate (on the last million) of 99.9% but the amount the poor exploited child would get to keep would still be almost $7.5 million.

But if the transfer was spread out over several years the tax impact would be a lot less – which might perhaps provide a useful incentive for effective succession planning!

The revenue (and taxpayer impact) of such a system could easily be adjusted by just changing the tax-free amount and step size from a million dollars to some other amount (such as, say, $100k)

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