The Economist is running an online debate on "How should governments tax capital." Scott Sumner, an economics professor at Bentley University, has a piece that says the proper tax rate on capital income is zero, and that, in addition, there should be no corporate income tax. Along the way, however, he suggests a few other taxes: "Even with every possible safeguard, there might be some wealthy people who are clever enough to avoid taxation. If this were a serious problem, we could have a wealth tax on luxury consumption (mansions, yachts, private jets and other luxury goods)....If the current distribution of wealth is deemed unjust, then there should be a one-time wealth tax at the point of transition to the new tax regime, to be paid over a period of several years."
Talk about a can of worms. How about that wealth tax on luxury consumption? How do you define a "mansion"? Is a seven-bedroom house for a family of two a mansion? What about the same house for a family of 12? Is a $1 million one-bedroom apartment in New York a "mansion"? What about a $1 million eight-bedroom house in a suburb of Cleveland, Ohio? What if a family has a beach house, a ski house, a weekend house, and a city house, none of which, individually, are large or expensive enough to qualify as a mansion. If the wealth tax is to apply to private jets, how about to First Class commercial airline seats? Is the $295 tasting menu at Per Se luxury consumption? What about for the couple who earns less than $100,000 a year, lives in Middle America, and is there to celebrate their 50th wedding anniversary? Is paying the full $60,000 a year tuition, room, and board for your offspring at an Ivy League college luxury consumption?
As for a "one-time" wealth tax, who would believe that it would actually be "one time"?