There appears to be an increasing interest in Washington in finding new ways to tax the super wealthy (definitions vary). Recent proposals seem to include an additional annual tax on large net worths and a tax on unrealized capital gains. These proposals claim to be modest and directed at a very small percentage of the population.
This might be a good time to review the history of the Federal income tax. The Federal income tax was established in the Revenue Act of 1913, following the adoption of the Sixteenth Amendment to the Constitution, which became law in 1913. The rates were initially low and applied only to very high incomes. The introduction of the income tax was billed as, and designed to be, a tax on the very wealthy, a way to “soak the rich,” or require that they pay their “fair share.”
How has that worked for you? I’m sure all of you are already aware of what the Federal income tax has become.
Investors should consider what these contemplated new taxes on “the very wealthy” might do to capital formation, innovation and retirement plans. Once a principle is established, it is much easier to gradually lower the tax threshold and increase the tax rate.
All comments and suggestions are welcome.
Walter J. Kirchberger CFA