A better system would be to tax peoples net wealth regardless of income or what assets they own. You'd have to divulge at the end of the tax year what your net wealth is (or even better have a system that tracks it all) and you then get presented with a tax bill. You could probably do away with income tax, VAT, council tax etc.
That's a terrible system and involves all sorts of subjective valuation, people having to pay an annual fee just to hang onto things they own etc...
Income is taxed on an ongoing basis, assets are taxed when they are transferred and/or when gains are realised as a result of them being transferred or sold.
Essentially you'd want to tax someone more simply because they bought a modest house in an ordinary area but it became popular and their neighbours houses have all risen in value. They've earned nothing extra personally but now they might need to sell their home or take out an additional mortgage on it to pay some annual tax you've decided they should owe.
So John Smith in his 20s manages to buy a house in say New Cross, he takes a risk and buys it in the 90s when it was cheap.. John is now in his 50s... New Cross has become more expensive, John's house is in theory worth 800k, his neighbours are now bankers and lawyers etc... John has done absolutely nothing himself other than just live in the house he bought decades ago but because his neighbours have bought/sold houses nearby for increasingly higher amounts you think John should be liable for some extra tax....
So you tax John.. he can't very easily afford it so he takes out a new mortgage on his (now 800k house), he has to take out quite a chunk to pay over the next 10 years or so.... now lets say New Cross becomes less popular post-pandemic... people move away, house prices now fall... Johns house is now worth only 300k... but he's now got a huge mortgage on the thing and he's due to retire...
At no point did John actually realise any huge gain, he was taxed for something he owned based on it being worth a high amount at one point before falling in value, at no point did he really benefit from that rise in value as he never sold it.
We should tax actual realised gains and transfers not estimates of value on an ongoing basis.
For random one - Sarah is an artist - she's made 10 paintings... she also works for minimum wage... a collector really likes her exhibition of 10 paintings and seeks to buy the lot, Sarah doesn't actually want to sell all of them, only 2 of the paintings are for sale, the collector offers 40k for them... Sarah now has a minimum wage job and 40K in the bank... but... Sarah also has the 8 remaining paintings - in theory, they're worth 160k... does she now owe you a tax simply because she wants to keep a painting she made herself? Should she burn a few of them to reduce her tax liability?
Again, IMO, she should pay tax once they're actually sold or passed on... perhaps in future they'll be worth even more.. maybe, when she dies, there will be one or two left in her estate and they're worth millions. That's where you tax assets - when they're sold or transferred. Alternatively, maybe the paintings suck and no one else actually wants to buy them - thus the issue with trying to tax based on estimates of value not actual realised gains/transfers of assets.
Obvs most artists don't get to sell paintings for mega $$$$ but it's more to illustrate the principle of it - could apply to anything, perhaps you've registered a really cool domain name and you simply want to keep it for your personal homepage, side hustle... do you now need a loan in order to pay an annual tax to keep it?
