This paper argues that
an annual wealth tax is poorly matched to the goals most often invoked by its
proponents – reducing inequality, protecting democracy, and strengthening
social trust. The paper develops three difficulties that make an annual wealth
tax an ineffective or counterproductive instrument: a valuation problem that
cannot be solved by administrative refinement; a mismatch between ambitious
democratic and social ends and modest fiscal means; and incentive effects that
discourage saving, investment, and entrepreneurship. As an alternative, it
proposes reforms within the income-tax base that target economic rents – the
excess returns that fund durable political influence and reflect unfair,
policy-created scarcities. Two design changes are emphasized: treating death as
a realization event to reach decades of accrued gains and adopting a minimum
tax on accrued gains for the ultra-wealthy, with mark-to-market for liquid
assets and deferral with interest for others. Together these reforms better
align means with ends, addressing both fairness and democracy without the
knowledge and incentive costs of a wealth tax.