Which of the following is a commonly cited economic argument in favor of implementing wealth taxes?

• A. Wealth taxes are easy to administer and have no impact on investment decisions.
• B. Wealth taxes can reduce income inequality by redistributing resources from the richest individuals to society.
• C. Wealth taxes eliminate the need for any other form of taxation.
• D. Wealth taxes encourage higher savings rates among wealthy individuals.

Answer: (B)

Verified step by step guidance

1. Step 1: Understand the concept of a wealth tax. A wealth tax is a tax levied on the net wealth (total assets minus liabilities) of individuals, typically targeting the richest segment of the population.
2. Step 2: Identify the primary economic arguments for wealth taxes. These often focus on redistribution of resources, reducing income and wealth inequality, and generating government revenue.
3. Step 3: Evaluate the options given in the problem by comparing them to common economic reasoning. For example, consider whether wealth taxes are known to be easy to administer or if they impact investment decisions.
4. Step 4: Recognize that wealth taxes are generally argued to reduce income inequality by transferring resources from the wealthiest individuals to society through government programs or public services.
5. Step 5: Conclude that the most commonly cited economic argument in favor of wealth taxes is their potential to reduce income inequality by redistributing wealth, rather than claims about ease of administration, eliminating other taxes, or encouraging savings.