Wealth is distributed extremely unevenly in the US, with the top 1% of households owning nearly 40% of the wealth. This number has increased dramatically from the mid-70s, when the statistic was around 20%. Why we've had such a change is a subject for another diary, but the triumph of free-market fundamentalism ("markets good, regulation bad") has a lot to do with it.
Progressive income tax rates deal with the problem somewhat, but income taxes are complex and difficult to enforce, cause some economic distortions, and reduce the value of labor vs. capital. The inheritance tax is one way of dealing with the problem, and it should continue to be relied on (and rates should be increased somewhat). A direct wealth tax is another option, and it is used successfully in some countries. However, a wealth tax may be even more vulnerable than an income tax to the use of creative methods to bypass it. This diary suggests one other way of reducing the extreme concentration of wealth in the US--the Land Value Tax.
The land value tax basically involves the government charging a tax of some percentage of the market price of a piece of land per year--note that this differs somewhat from a property tax in that it does not tax the value of improvements to the land. A land value tax is difficult to evade and easy to administer. It is a progressive tax since the ownership of land is even more concentrated than income or wealth (see here), it encourages the most efficient use of land, and it causes minimal economic distortion.
Philosophically, the land value tax is very appealing--if one starts from the presumption that the natural world was originally the common resource of all persons, then it makes sense that society can offer individuals the right to own land (ie the right to exclude the rest of society from the land) in return for rent. Therefore a land value tax is not really a tax, but simply the collection of rent on behalf of those who waive their right of access to the resources they would otherwise have been free to use.
The land value tax has other advantages (copied from the Wikipedia entry):
* A correlation between high LVT and growing economic prosperity is predicted by Georgist theory, and has consistently been observed in practise.The major drawback is that a land value tax would cause a decline in property values. Thus, a land value tax should be introduced gradually and probably kept to a reasonably low level. The Wikipedia entry has the following to say about this issue:
* A natural source of public revenue. All land makes its full contribution to the government, allowing reductions in existing taxes on labour and enterprise.
* A stronger economy. If labour, buildings or machinery and plant are taxed, people are dissuaded from constructive and beneficial activities and enterprise and efficiency are penalized. The reverse is the case with a tax on land values, which is payable regardless of whether or how well the land is actually used. LVT is a payment, based on current market value, for the exclusive occupation of a piece of land. In the longer term, this fundamentally new and different approach to revenue raising is expected to stimulate new business and new employment, reducing the need for costly government welfare spending.
* Marginal areas revitalized. Economic activities are handicapped by distance from the major centres of population. Conventional taxes such as VAT and those on transport fuels cause particular damage to the remoter areas of the country. LVT, by definition, bears lightly or not at all where land has little or no value, thereby stimulating economic activity away from the centre - it creates what are in effect tax havens exactly where they are most needed.
* A more efficient land market. The necessity to pay the tax obliges landowners to develop vacant and under-used land properly or to make way for others who will. Holding land idle becomes financially unsustainable.
* Less urban sprawl. Because LVT deters speculative land holding, dilapidated inner-city areas are returned to productive use, reducing the pressure to build on green-field sites.
* Less bureaucracy. The complexities of Income Tax, Inheritance Tax, Capital Gains Tax and VAT are well known. By contrast, Land Value Tax is straightforward. Once the system has stabilized, landholders will not be faced with complicated forms and demands for information. Revaluation will become relatively simple.
* No avoidance or evasion. Land cannot be hidden, removed to a tax haven or concealed in an electronic data system.
* An end to land speculative bubbles. Speculation in land value - frequently misrepresented and disguised as "property" or "asset" speculation - is the root cause of unsustainable booms which result periodically in damaging corrective slumps. Land Value Taxation, fully and properly applied, eliminates the speculative element in land pricing.
* Impossible to pass on as higher prices, lower wages, or higher rents. Competition makes it impossible for a business producing goods on a valuable site to charge more per item than one producing similar goods on less valuable land - after all, producers and traders at different locations are paying different rents to landlords now, yet like goods generally sell for much the same price and employers pay their workers comparable wages. LVT cannot be passed on to tenants, as they are already paying the full market rent, and the tax doess not affect the economic rent of the land.
* Lower natural interest rates in economy. In the present system, the value of land has to be paid fully during the purchase. This increases the demand for money in the economy to serve these lump-sum payments. In a pure LVT system, the amount paid to buy a house or start a business is less because the initial prices of land are low due to the anticipated LVT payments as long as the land is held. Thus in an LVT system, the demand for money is lower (other things being the same), lowering the natural interest rates. The availability of more money for productive capital investment acts as a further boost to the economy.
* Fairness. Land (unlike goods and services) has no cost of production. If an ample supply of land of equal desirability were available everywhere, there would be nothing to pay for its use. In reality land acquires a scarcity value owing to the competing needs of the community for living, working and leisure space. Thus the unimproved value of land owes nothing to the individual efforts of the landowner and everything to the community at large. It belongs justly and uniquely to the community. Conversely, the reward for individual effort can belong only to the one who earns it, to spend, save, or give away as he or she may see fit.
If land's value were reduced to zero or near zero by recovering effectively all its rent, as many LVT advocates propose, total privately held asset value could decline by as much as 1/4 or even more, a massive reduction -- most LVT opponents would say confiscation -- of private citizens' wealth. Indeed, this loss of property owners' asset value may be the only genuine objection anyone really has to LVT, and the only real reason LVT has not been widely adopted for its demonstrated economic benefits. All other criticisms of LVT (except Marx's) may be considered largely rationalizations of this central, all-dominating, and seemingly insurmountable objection: LVT would greatly reduce not only landowners' wealth, but total privately held wealth. While all taxes transfer wealth from citizens to government, most other taxes have little or no such effect on total wealth.The effect of a land value tax on urban sprawl is somewhat unclear, but the application of a land value tax in conjunction with conservation incentives and urban growth regulations should result in increased density in cities.
There is no doubt that LVT would reduce landowners' wealth. However, the effect on total wealth may be considered somewhat illusory. After all, LVT substitutes for other taxes, so the reduction in land value just represents the shifting of the tax burden off of other taxpayers and onto landowners. The reason a land value tax reduces the value of land but an income tax does not reduce the value of income is that unlike land, the income recipient cannot be owned, and is thus not an asset (to understand this more clearly, consider how an income tax levied on the products of slave labor would reduce the asset value of slaves). Similarly, a sales tax does not reduce asset value because the tax liability is not associated with any specific asset, only with a transaction. The reduction in land value due to LVT therefore simply balances an equivalent increase in the value of work, consumption, and everything else that would have triggered a tax liability were the LVT not replacing those other taxes. The equivalent relief from other taxes does not appear as an increase in total asset value because unlike LVT, such taxes are not associated with any specific asset.
Unfortunately, as far as I know the federal government is not currently able to tax real property. This may require a constitutional amendment to change. However, states and local governments can effectively use a land value tax.
Here's an article in the New Statesman containing more information: The case for taxing land
Landvalutax.org advocates a land value tax and provides more arguments.
One more article: A land tax is 200 years overdue