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Cato Institute: Taxing Wealth and Capital Income

August 1, 2019
By Chris Edwards

Wealth is simply accumulated savings that economies need for investment.

This study discusses why targeting wealth for higher taxation is misguided. Wealth is simply accumulated savings that economies need for investment. The fortunes of the richest Americans mainly consist of active business assets that generate jobs and income. Increasing taxes on wealth would not help workers, but instead would undermine productivity and wage growth.

Basic economic theory suggests that taxes on capital should be low, and that conclusion is strengthened by the realities of today’s global economy. Furthermore, wealth taxes are even more distortionary than current federal taxes on capital income.

Nonetheless, taxing capital in a fair and efficient manner is a challenge. This study argues that the best approach would be a consumption-based tax system. Such a system would tax capital income but in a simpler way that does not stifle investment and economic growth.

Article Tags
Taxes Economy