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Well I don't see any upside to a wealth tax. There is the massive calculation problem. My dad used to have a small business who's purpose was selling other small businesses. And the calculation problem is enormous. One company can look almost exactly the same as another until you are at analysis part 3 or 4. And we are going to do that for all equity every year? John Smith over here running Smith's Recycling is going to figure out, on a yearly basis, what his (the only recycling business in town by the way, so no comps, this isn't real estate) how much its worth to have a recycling business? And, remember these valuations aren't simple or static. Recycler A who sells in 2009 might have gotten 1/5 what B does 2 towns over in 2010 (real example). And its another case where we are forced to trust tax agencies to be fair and unbiased in the application of the law. No, I don't think I have that trust.
As an investor who deals in highly productive capital (as opposed to less productive cash, houses or bonds), your father would be among the people who benefit the most from a wealth tax. It would be a laughable sum compared to the capital gains tax and corporate tax he pays. So imprecision barely matters. And that kind of business is the worst example possible when it comes to calculation problems. Besides, increased liquidity and transparency about how much those mom-and-pop businesses are actually worth would be economically very beneficial, though that is admittedly my personal instinct.
Your example makes no sense. If you can buy an investment in capital it doesn't produce static returns like "$100k/year in profits." If it does, its purchase price will go up significantly and approach the cost of buying an equivalently risky bond. What a more realistic scenario of investing in a new company would look like:
Year 1: Invest $1 Million. Pay $10% taxes on that. Y/Y Profit: $-50k. Pay $100k in taxes. Now we have to sell 10% of the company (to who is an important question I might add). Year 2: Your stock still has paper worth 900k. Y/y profit: 0k Pat 90k in taxes. Sell equity again. Year 3: $Paper stock worth $810k. Y/Y Profit 100k. Your Share, 81k, Your taxes. 81K. Finally breaking even.
It's not difficult to find companies with a P/E of 10.
My wealth tax was 1%/y yours is 10%/y. A 10% wealth tax is obviously confiscatory and destroys the economy.
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