Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail
Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

Wealth Tax

What it is:

A wealth tax is based on a person's net worth or the value of his or her assets.

How it works (Example):

Let's say John Doe makes $100,000 a year. He also has $500,000 saved for retirement and a house that is paid off and worth $400,000.

An income tax applies to John's income of $100,000. Let's say it works out to 14%, which means he pays $14,000 in taxes this year.

If, however, the government applies a wealth tax, then John pays, say, 14%, on his $500,000 of savings and $400,000 of house every year. That works out to $126,000 -- far higher than income taxes.

Why it Matters:

Some countries tax wealth, but many tax income. In the United States, taxes are generally income-based, though property taxes are one example of how governments tax the same asset over and over again. This could be considered a wealth tax.