December 4, 2015 No.1
https://www.facebook.com/mehtarahulc/posts/10153159307396922
Why is it "impossible" to implement to wealth tax without income tax?
.
Many believe that wealth tax is sufficient and no income tax is needed.
.
Here is the problem with wealth tax and no income tax ---- gold / diamond / silver.
.
Say we have 2% wealth tax. Say a person has wealth of Rs 100 crore and so wealth tax due on him is Rs 2 crore. Now that person can sell his wealth and convert into gold / diamond / silver and hide it. And then he can say "I have near zero wealth" and pay no tax !! Now solution is to raid them or use narcotest in public, but all these solutions are too clumsy. And allowing officers to decide whom to raid , when to raid etc is very corruption prone. .
So that person who has wealth of Rs 100 crore can convert his wealth into gold etc and evade all wealth tax. And when he needs to buy land etc , he can convert gold into cash and buy land. When he buys land, he will have to pay wealth tax. But during the period he had gold etc, he evaded wealth tax.
.
Each time a person manages to evade taxes, someone else ends paying higher taxes or govt weakens. Both situations create problem. A country with lesser evasion will get ahead of country with higher evasion , other factors constant.
.
So all in all, wealth tax has problem that there are some from of wealth which can be easily hidden namely gold / silver / diamond. And they should NOT be banned either. Because last line of defence and survival is gold and guns that citizens have. When Military and Govt collapses due to foreign invasion, the ONLY thing that helps is gold / guns that citizens have. So citizens MUST be allowed to keep gold. In fact, one law-draft I have proposed requires citizens to keep gold coins which he can sell ONLY in case of medical needs.
.
Now how does income tax solve that problem? Say income tax rate is 30%.
.
1. Say a person has wealth of Rs 100 crore in say year 2015
.
2. Say wealth tax is Rs 2 crore per year
.
3. Say he sells wealth, buys gold , claims that he spent all his Rs 100 crore and has no wealth now, hides gold and evades taxes
.
4. Now say one day in year 2020 , he needs to buy land of say Rs 100 crore. So he will have to sell some of his gold , and buy land of Rs 100 crore.
.
5. But in that year, he will have to pay income tax on "income" of Rs 100 crore i.e. pay Rs 30 crore. as income tax !!
.
Why will he be "forced" to pay income tax? Because when he buys land of Rs 100 crore, he will have he will have to explain where he got Rs 100 crore from. he cannot claim it as "money obtained" from sale of existing wealth, because he didnt declare that wealth in previous years. So he will have no choice but to declare that Rs 100 crore money as incom. And in that case, Rs 30 crore of income tax (assuming income tax rate of 30%) will apply.
.
So if one hides the wealth using gold, then on the day he needs NON-HIDEABLE wealth, he will be forced to pay income tax of 30% !!! IOW, hiding wealth becomes good option only if the person intends to hide the wealth and only spend it on hideable items in his later life or later generations. But if at all he needs to spend money for non-hideable expenses or non-hideable wealth, then hiding wealth to evade taxes makes a poor economic decision.
.
IOW, if there is both income tax and wealth tax, then
.
1) one can evade wealth tax by converting unhideable wealth into hideable wealth
.
2) but a huge income tax will apply when he converts hideable wealth to buy unhideable wealth or do unhideable expenses.
.
3) no such income tax will apply when he converts hideable wealth to buy hideable wealth or do hideable expenses
.
So save "2% wealth tax today, and pay 30% income tax after next few years". makes a poor economic decision,
.
So if regime has BOTH wealth tax and income tax, then instances of wealth tax evasion by buying and hiding gold , diamond , silver etc will be very rare.
.
But if there is NO income tax, and only wealth tax, then hiding wealth using gold etc and evading wealth tax will become norm
.
====
.
So if there is both, wealth tax and income tax, then tax burden on factory owners , who run on low profits can increase making them unviable. There are cases where GENUINE business with lot of land / assets / wealth make losses and will have no money to pay taxes. eg Apple company made losses for several years. In such cases, income tax falls to zero. But wealth tax will remain, and can literally kill such companies.
.
Solution I have proposed is (2% of wealth value MINUS 15% of salaries MINUS other taxes paid MINUS income tax paid MINUS wealth tax credit accumulated over past years). And if this is negative, then it becomes wealth tax credit for next years.
.
The details of this wealth tax law-draft are inhttps://www.facebook.com/mehtarahulc/posts/10152686291831922 .
.
Anyway, this status was ONLY to explain that "wealth tax alone" may look "simple" , "elegant" etc but at the end of the day, it isnt IMO viable at all. IMO, income tax is must, And solution is "wealth tax minus income tax minus other credits".
https://www.facebook.com/mehtarahulc/posts/10153159307396922
Why is it "impossible" to implement to wealth tax without income tax?
.
Many believe that wealth tax is sufficient and no income tax is needed.
.
Here is the problem with wealth tax and no income tax ---- gold / diamond / silver.
.
Say we have 2% wealth tax. Say a person has wealth of Rs 100 crore and so wealth tax due on him is Rs 2 crore. Now that person can sell his wealth and convert into gold / diamond / silver and hide it. And then he can say "I have near zero wealth" and pay no tax !! Now solution is to raid them or use narcotest in public, but all these solutions are too clumsy. And allowing officers to decide whom to raid , when to raid etc is very corruption prone. .
So that person who has wealth of Rs 100 crore can convert his wealth into gold etc and evade all wealth tax. And when he needs to buy land etc , he can convert gold into cash and buy land. When he buys land, he will have to pay wealth tax. But during the period he had gold etc, he evaded wealth tax.
.
Each time a person manages to evade taxes, someone else ends paying higher taxes or govt weakens. Both situations create problem. A country with lesser evasion will get ahead of country with higher evasion , other factors constant.
.
So all in all, wealth tax has problem that there are some from of wealth which can be easily hidden namely gold / silver / diamond. And they should NOT be banned either. Because last line of defence and survival is gold and guns that citizens have. When Military and Govt collapses due to foreign invasion, the ONLY thing that helps is gold / guns that citizens have. So citizens MUST be allowed to keep gold. In fact, one law-draft I have proposed requires citizens to keep gold coins which he can sell ONLY in case of medical needs.
.
Now how does income tax solve that problem? Say income tax rate is 30%.
.
1. Say a person has wealth of Rs 100 crore in say year 2015
.
2. Say wealth tax is Rs 2 crore per year
.
3. Say he sells wealth, buys gold , claims that he spent all his Rs 100 crore and has no wealth now, hides gold and evades taxes
.
4. Now say one day in year 2020 , he needs to buy land of say Rs 100 crore. So he will have to sell some of his gold , and buy land of Rs 100 crore.
.
5. But in that year, he will have to pay income tax on "income" of Rs 100 crore i.e. pay Rs 30 crore. as income tax !!
.
Why will he be "forced" to pay income tax? Because when he buys land of Rs 100 crore, he will have he will have to explain where he got Rs 100 crore from. he cannot claim it as "money obtained" from sale of existing wealth, because he didnt declare that wealth in previous years. So he will have no choice but to declare that Rs 100 crore money as incom. And in that case, Rs 30 crore of income tax (assuming income tax rate of 30%) will apply.
.
So if one hides the wealth using gold, then on the day he needs NON-HIDEABLE wealth, he will be forced to pay income tax of 30% !!! IOW, hiding wealth becomes good option only if the person intends to hide the wealth and only spend it on hideable items in his later life or later generations. But if at all he needs to spend money for non-hideable expenses or non-hideable wealth, then hiding wealth to evade taxes makes a poor economic decision.
.
IOW, if there is both income tax and wealth tax, then
.
1) one can evade wealth tax by converting unhideable wealth into hideable wealth
.
2) but a huge income tax will apply when he converts hideable wealth to buy unhideable wealth or do unhideable expenses.
.
3) no such income tax will apply when he converts hideable wealth to buy hideable wealth or do hideable expenses
.
So save "2% wealth tax today, and pay 30% income tax after next few years". makes a poor economic decision,
.
So if regime has BOTH wealth tax and income tax, then instances of wealth tax evasion by buying and hiding gold , diamond , silver etc will be very rare.
.
But if there is NO income tax, and only wealth tax, then hiding wealth using gold etc and evading wealth tax will become norm
.
====
.
So if there is both, wealth tax and income tax, then tax burden on factory owners , who run on low profits can increase making them unviable. There are cases where GENUINE business with lot of land / assets / wealth make losses and will have no money to pay taxes. eg Apple company made losses for several years. In such cases, income tax falls to zero. But wealth tax will remain, and can literally kill such companies.
.
Solution I have proposed is (2% of wealth value MINUS 15% of salaries MINUS other taxes paid MINUS income tax paid MINUS wealth tax credit accumulated over past years). And if this is negative, then it becomes wealth tax credit for next years.
.
The details of this wealth tax law-draft are inhttps://www.facebook.com/mehtarahulc/posts/10152686291831922 .
.
Anyway, this status was ONLY to explain that "wealth tax alone" may look "simple" , "elegant" etc but at the end of the day, it isnt IMO viable at all. IMO, income tax is must, And solution is "wealth tax minus income tax minus other credits".
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