Taxing wealthy may be insufficient, backfire on governments

Officials around the world, including state and federal government personnel in the U.S., are discussing proposals that would focus taxes on the wealthy. Some of these are direct, while others would impose taxes on luxury items that they purchase but others generally do not, such as high-end real estate.

These plans have economic ramifications that make them unwise, according to Bloomberg. When assessing the various proposals, experts have in many cases concluded that their effect on government budgets will be minimal, largely because the wealthy are not numerous enough to have a larger impact.

In the case of the United States, a proposal to impose a surtax on the wealthy might not address issues such as the fact that some of them derive their income from dividends and investments rather than wages. As a result, it could create unequal taxation between wealthy taxpayers, unintentionally making the situation more complicated and encouraging them to seek loopholes.

In Britain, the government estimated that attempts to raise taxes on those above a certain income threshold would be less than half as effective as designed as taxpayers either left the country or successfully avoided the tax. The danger of singling out this group is that they will react similarly, according to the news source.

Attempts to focus on investors and day traders could have similar effects, since they are relatively few compared to wage-earners, suggesting that broader tax reforms are more likely to be effective.