That doesn't make sense, why would that be the case? Wealth taxes can be yearly just like income tax. Lets explain it this way. Let's say I'm rich. I have 5 million in a trust that I live off of. Every year I draw down 3%, about 150,000, and that is what I live on for the year. At most and assuming my tax guy is a total idiot, I pay 15% capitol gains tax or about $22,500 for the year. Now lets say I'm upper middle class and I earn that 150,000 in my job. I'm paying about 28% of that in taxes, even if I've managed to property caffeinate my tax guy. That's $42,000 for the year. The burden of taxes for the person still working is much, much higher then the rich guy. Many wealthy people I know don't pay taxes as they are able to keep their reported income below 20k. Edited for typosWe can plan on taxing income every year, but we can only tax a dollar of wealth once, then it's not available in following years.
Taxing that doesn't even come close to the tax burden we put on the middle class.
b_b explained my point, and added some additional concerns. It's also worth mentioning that wealth-in-hand was income at some point in the past. If you can sock away most of your after-tax income of $108,000, eventually you can live off your savings like the rich guy -- if it isn't re-taxed out of your hands.
I think he means that wealth, once taxed, is owned by the government. If I have $100, and the government takes 5%, I only have $95 left the next year, and so on. One could theoretically be taxed to the poorhouse, whereas income is only taxed once in hand. Some assets grow over time and some don't, and many assets have over inflated valuations that make taxing them questionable, not to mention the fact that for a lot of entrepreneurs, wealth is often illiquid. These reasons make wealth taxes unappealing to me.
Core inflation currently stands at ~2.1% according to the BLS. Not sure where you're getting -3% (not that it matters for the sake of this argument, because it could be anything 5 years from now). You're making some great assumptions that everyone with money has it in an S&P index fund. What about the individual who finds herself holding property that used to be worthless but is now in a trendy area? What about the entrepreneur who is completely cash poor but just received an investment valuing their company at $10,000,000? Should he have to sell out to pay Caesar because he's "rich"? There are many scenarios (as in these two easy examples) where wealth taxes represent an upward transfer of money, not a downward as you're proposing.
I'm not assuming that, like I said, if they don't invest they are losing money to inflation (which has a historic average of 3%). So the government will drive them to zero either way. Your money needs to grow over time. I think these examples you gave are definite problems we would have to figure out if we implement something like this. But if France, Italy, and most nordic countries can, we probably can too. I also think its much, much more common for rich people to not pay taxes then I do for the cases you describe (someone overnight owning a 10 million dollar business without time to set up liquid reserves isn't showing up on my facebook feed that often). If we never implement systems because there are possible edge cases we wouldn't have taxes at all :)