Defining wealth and taxes on the wealthy

This chapter covers basic definitions and descriptions for wealth, the wealthy, the wealthiest, and the measurement of wealth and income inequality. Exploring the connection between wealth and the wealthy owners of that wealth reveals a lack of homogeneity. Colloquial usage of ‘wealthy’ encompasses not only those who have accumulated substantial ownership of assets, but also those with high income levels. Close inspection is given to claims about the distribution of income, typically estimated from income tax returns. Serious difficulties with this evidence arise from the inability to represent income from unrealized gains on all capital assets, and income generated in offshore jurisdictions. By comparison, available wealth distribution estimates have even more severe methodological problems. Reliance on surveys and, from tax returns, realized capital gains and estate taxes, provide incomplete and possibly misdirected information about the upper tail of the wealth distribution. Description of significant, perhaps dramatic, undercounting in estimates for the upper tail of the empirical distributions for income and, especially, wealth is followed by examination of taxes on the wealthy, and comparison with the traditional hard-to-tax problem. The practical difficulties of imposing net wealth taxes are identified and other, more viable methods of raising taxes on wealth are examined. Specific attention is given to the treatment of taxes on capital assets, especially the taxation of capital gains.