America does not have an income inequality problem so much as it has a wealth inequality problem. The top 1% make about the same total income as the bottom 40% combined, which is significant, but it is nothing compared to the wealth gap.
The top 1% have 139x as much wealth as the bottom 40%.
So, why are income and capital gains tax rates based on income, not wealth? This is an outdated and oversimplistic way to ballpark wealth, and modern technology makes it much easier for track wealth now than in the past.
If we want to devise a more sensible tax system, we should strongly consider basing income and capital tax rates on a metric I will call Liquid Net Worth, instead of the traditional “taxable income”. This ensures that tax rates are assessed on a more full picture of someone’s financial situation, not just their year-to-year income.
Continue reading “Liquid Net Worth may be a Better Basis than Income for Income Tax Rates”