Wealth can be defined as a measure of one’s assets in the form of cash and equivalents as well as the market value of ones physical and intangible assets. These assets are accumulated during one’s lifetime with after-tax income. Therefore, the current use of graduated income tax rates, which applies to ones earned income, interest income, and short-term capital gains, dampens a person’s ability to accumulate wealth in the first place.
The common belief around the use of a graduated income tax rate is that it serves to confiscate income from the wealthy so as to redistribute income to the less wealthy. However, it appears to me that in reality, it prevents the less wealthy from ever becoming wealthy. Wealthy people grow their wealth by using their assets, which are now beyond the graduated income tax rates, to make investments that are not taxed on a graduated basis but receive special tax treatments in the form of lower fixed tax rates (i.e. long-term capital gains) or are allowed to grow on a tax-deferred basis.
Therefore, the use of a graduated income tax does not accomplish its redistribution of wealth objective, but in fact, keeps the less wealthy from ever becoming more wealthy.
Is the use of a graduated income tax really a way to increase the wealth divide?
