Wealth taxes: a future battleground

by on July 21, 2013 at 3:51 pm in Data Source, Economics, History, Political Science | Permalink

That is my latest New York Times column, and it starts with this:

IF you’d like to know where American political debates are headed, the data suggest a simple answer. The next major struggle — in economic terms at least — will be over whether taxes on personal wealth should rise — and by how much.

The mathematical reality is that wealth is becoming more important, relative to income. In a new paper, “Capital Is Back: Wealth-Income Ratios in Rich Countries 1700-2010,” Professors Thomas Piketty and Gabriel Zucman of the Paris School of Economics have performed the heroic task of measuring wealth for eight leading economies: the United States, Canada, Britain, France, Italy, Germany, Japan and Australia.

Their estimates reveal some striking trends. For instance, wealth accumulation in these eight countries has risen relative to yearly production. Wealth-to-income ratios in these nations climbed from a range of 200 to 300 percent in 1970 to a range of 400 to 600 percent in 2010. Behind the changing ratios is some bad news, namely that slow productivity growth and slow population growth have depressed income growth, but also some good news — that relative peace and capital gains have preserved wealth.

I would say that we have much become much more efficient in preserving old wealth than in creating new wealth, and this is overall a worrying trend.

I argue that debt to wealth ratios are usually manageable, even in the case of Japan.  The real issue is that politics can make it very difficult to tax wealth and in that sense fiscal problems remain real and are fundamentally tied to governance, not debt to gdp ratios.

Overall I favor consumption taxes myself, for the traditional reasons.  But with rising wealth to income ratios, governments are sure to look where the money is.  I expect this to be a major battle, as it already is in Italy with the recent debate over the IMU property taxes.

There is much more in the column, you can read the whole thing here.

Bill July 21, 2013 at 3:57 pm

If you want to know if wealth is winning, ask about changes to the inheritance tax this last year.

Oreg July 22, 2013 at 9:28 am

Good point. There is a major difference between a yearly wealth tax and an estate tax.

A wealth tax is levied on money on which the *same person* has payed taxes before, at the time of acquisition. It’s a clear case of double taxation an, therefore, unfair. You may also argue, moreover, that it disincentivizes value creation.
An estate tax, in contrast, is payed by the heir who otherwise would not pay any tax on the inherited wealth at all. Moreover, an heir does generally not work to qualify for the estate and, therefore, the estate tax does not destroy incentives.

In consequence, I would like to see an abolition of general wealth taxes but heavy taxation of inheritance. Any resulting increase in revenue should be used to lower taxes on productivity, i.e., income taxes.

Tracy W July 22, 2013 at 10:16 am

But often the heir is someone the person who earned the wealth loved, and cared about. To take the most sympathetic example, I do know some men who are working hard to build up trust funds for a disabled child. More generally, many people do love their spouses and children, and reducing their ability to pass on their wealth to their heirs would indeed destroy incentives. And some childless people do really love certain charities, I remember the story of a woman working in a hospice for the dying, who had one patient, a banker from the city, who insisted on “working” each week he was at the hospice. They indulged his wish, assigned him an office, each day a secretary came from his old bank, and when he died they discovered he’d left the hospice his trading profits over the time he’d stayed here, something like a million pounds, and this was back a few decades.

And even if the current owner inherited the wealth themselves, there still is a role to play for incentives to maintain it to pass onto their heirs intact. For example, if a farmer has terminal cancer, inheritance rates may well affect how much they care about maintaining the productivity of their land.

msgkings July 22, 2013 at 2:14 pm

Currently there is no tax levied on portions of your estate you leave to charity, nor would I expect anyone is advocating for that. So the charity argument is out. Same for trusts for disabled children, if you set them up before you pass you can get a lot of value into them including via life insurance, all estate tax free.

So we’re down to the incentives of those who ‘do love their spouses and children’. Spouses inherit everything tax free. So now we’re down to how much can you leave the kids. The argument is over the amount of estate that you can pass down. And in no case is anyone suggesting that number is zero, even at the margins (i.e. no 100% estate tax at any level). But there’s nothing wrong with taking a large cut after a certain amount of millions gets passed on, which is what we have in place. If we are trading off higher estate levies for lower cap gains and income levies, that seems like a good trade.

Tracy W July 23, 2013 at 4:10 am

Perhaps. I was responding to Oreg’s claim that there are no disinheritance effects.

GP July 23, 2013 at 5:50 pm

So, msg, you think it is fair for families to deal with not only the death of a loved one, but also the loss of property and assets that belong to a family? Do you believe that the social fabric of the country would be better off if families had their assets taxed at a criminally high rate, which is effectively thievery by the government?

The estate tax is morally repugnant. If you believe that an inefficient, out-of-control (whether Democratic or Republican) government has a greater right to the assets that families have worked hard for?

Wealth is not infinite. Property taxes, cost-of-living, and other factors ensure that inherited wealth does not exist create a permanent aristocracy.

Personally, I would rather see those who stand to inherit great amounts of wealth use their circumstances to enter fields that benefit the good of society (scientists, professors, engineers, etc.).

Why should an heir be forced to sell a family’s generational home or apartment thanks to a tax that discriminates against those of means? Simply because the government sees the wealthy as a cash cow for its irresponsible spending, the estate tax is not justified.

bluto July 22, 2013 at 8:21 pm

I like wealth taxes if only to shut Warren Buffett up. His disingenuousness would be quite apparent when he faced a tax that would be substantially harder to avoid.

mike July 21, 2013 at 4:12 pm

A wealth tax sounds like a great way for our political elite to accelerate the trend of “time-shifting” i.e. plundering the past and future to pay off their constituents today. This story doesn’t have a happy ending, folks?

karl July 21, 2013 at 4:32 pm

Yeah, just look at how Switzerland is falling apart.

mike July 21, 2013 at 9:52 pm

What? I assume you are referring to something specifically, but I would note that Switzerland has strongly restricted the franchise until very recently and is also full of people who in quality are the envy of the world. If you’re the kind of faggot shitlib I suspect you are, I highly doubt you’d support adopting the Swiss policy on M16 ownership… yes/no?

steve July 21, 2013 at 10:23 pm

Absolutely. I wish they had given me an M-16 when I left the service. However, they now have pretty restrictive rules on ammunition. We have almost none. I will take the US.

Steve

Millian July 21, 2013 at 5:08 pm

This was a popular argument against universal suffrage, but there are very few examples of countries whose profligacy in one generation led to ruin in the next. Mostly budget crises tend to arise when countries can’t convince creditors that they can meet imminent commitments (like Greece).

Emil July 21, 2013 at 6:17 pm

And why can’t the greek meet their imminent commitments? The long run does exist regardless of what keynes said

JonF July 21, 2013 at 5:36 pm

“Plundering” the past makes sense– that’s where the obligations and debt come from.

mw July 21, 2013 at 4:13 pm

What is the argument for talking about all countries’ debt-to-gdp monolithically, while ignoring tremendous differences in net external debt-to-gdp? Countries with very high inequality are likely to be mostly in debt to their own wealthy people which, in addition to being sort of a bogus problem to begin with, is a very different political situation from countries mostly in debt to other countries due to lost global income share. In the latter case, you’re basically talking about a solution that looks like selling off all the valuable property to russian oil oligarchs. In the former, domestic redistribution. These have very little in common from a political standpoint, yet I can’t help but wonder if when you talk about “political dysfunction” as a moralistic judgment you’re talking specifically about the countries refusing to sell off their property to foreigners, rather than the ones refusing to redistribute domestically?

Mark Thorson July 21, 2013 at 4:29 pm

Rather than taxing wealth, it would be much easier to raise the tax on capital gains. That’s because it’s already being taxed, and a simple argument can be made that income of any kind is income, so why tax the income from labor at a higher rate than the income from capital? This would have a very similar effect to a tax on capital, and it would be easier to sell to the voting public.

Yancey Ward July 21, 2013 at 7:20 pm

You proposing elimination of the corporate income tax? If not, then you aren’t making a lot of sense when talking about fairness.

Mark Thorson July 21, 2013 at 8:26 pm

How do you draw a conclusion like that? I didn’t suggest getting rid of any tax. I merely suggested that the capital gains tax might be raised to the same rate as earned income.

Corporate income tax is something completely different. Politically, I think raising the corporate income tax would find favor among the voters. Properly implemented, it could have positive effects on pushing the financial industry toward more stable structures.

http://blogs.reuters.com/great-debate/2013/02/04/fixing-too-big-to-fail/

whatever July 21, 2013 at 10:15 pm

Corp tax + cap gain tax = double taxation

Mark Thorson July 21, 2013 at 10:39 pm

How is that different from individual income tax + cap gains tax? If I invest my savings in a stock and make money when I sell, I owe a cap gains tax on the profit. Corporations are legally people (except for being exempt from crimes like murder), so how is a cap gains tax on corporations any different from the same tax on individuals?

AndrewL July 21, 2013 at 11:03 pm

@Mark Thorson
Actually it’s triple taxed:

You take after-tax money to buy shares of a corporation (tax once). The corporation uses your money produce something, corporation pas corporate tax on a portion of the money made (tax twice). The rest is cap gains / dividends, which you then have to pay cap gains tax when you want the money back (tax thrice).

Mark Thorson July 21, 2013 at 11:35 pm

I didn’t say you weren’t being taxed more than once, but how is that different from the way it’s always been? And what is sacred about earning some money from an investment in a corporation, as opposed to working for it? Income is income, and I think the vast majority of the American public would see the argument that it should all be taxed at the same rate. There’s a huge pot of money that’s not being sufficiently collected, and the American people would be much less averse to collecting it, as opposed to introducing a new tax on static wealth.

whatever July 22, 2013 at 12:24 am

@Mark Thorson

Yes, all income should be taxed the same, so tax all people the same way regardless of how they made their money.

But corporations are not people. When you tax a corporation, you really tax the owners (and to some degree the employees and the customers).

So yeah, tax cap gain and wages the same way, but abolish corp taxes. There is no economic argument in favor of corp taxes. They don’t even bring in that much money.

mulp July 22, 2013 at 12:28 pm

income tax + sales tax = double taxation

transfer tax + property tax = double taxation

But then again, a 5% profit on sale of raw materials + a 5% profit on finished goods price + a 5% profit on price of retail sales is triple profiteering.

But no one is better at “taxation” than Wall Street fund managers, charging fees on your investment, charging fees for trading it, charging fees for increases in prices from their churn pumping up prices, while they don’t give you back fees when they are dumping as the prices fall, but keep charging you fees. If government were as clever as Wall Street, government coffers would be filled with cash and government would be touting how great they are to attract more people to get the privilege to pay the taxes.

Bill July 21, 2013 at 9:23 pm

Yancey, Corporate income taxes for Apple? Google?

Actually, what is interesting is that one of the proposals in 2001, when cap gains was up for discussion, was an initial proposal that you could deduct from Ord Income (if there were no cap gains) the percentage of taxes paid by the company whose dividend you received, on the basis that this would eliminate double taxation.

When they looked at it more carefully, Fortune 500 firms paid little taxes, so the amount deductable would be small.

zbicyclist July 21, 2013 at 10:37 pm

Plus, you can FIND capital gains, and they are relatively clear. Wealth is easier to hide (e.g. gems), and the valuation is more likely to be arbitrary (e.g. valuation of art masterpieces or other collectibles).

Tracy W July 22, 2013 at 11:34 am

So you get taxed on the income you make, and then if you save it rather than consume it, you get taxed again, at the same rate, on the return you make on that saved income?

Mark Thorson July 22, 2013 at 12:04 pm

Yes, but that’s only slightly different from the way it is now. It just brings the capital gains tax up to the same rate as the tax on earnings.

It’s not really double taxation — you’re being taxed on the “new” money made by your investments. The capital you saved is not taxed, only the capital gain. On the other hand, a wealth tax would be a tax on capital, so that would be double taxation.

Tracy W July 23, 2013 at 4:11 am

Is the capital gains tax adjusted for inflation?

Mat July 21, 2013 at 4:45 pm

Isn’t the growth of wealth related to the age of the population? People get richer during their lifetime, but in fact this is just pension saving or something like that.

Maitland July 21, 2013 at 4:47 pm

The “wealth tax” heavily penalizes accumulated wealth/capital… ultimately causing a sharp reduction in accumulated capital.

No quicker method could be found to promote capital consumption and general impoverishment… than to penalize the accumulation of capital.

Accumulated capital is the engine of our modern civilization & high standard of living — a serious tax on wealth would rapidly destroy both.

Rahul July 21, 2013 at 5:06 pm

A one-time tax wouldn’t have those disincentives. Maybe we ought to impose that once in a while.

Ashok Rao July 21, 2013 at 6:10 pm

A one-time tax “once in a while”. Hm.

mike July 21, 2013 at 8:29 pm

Somehow the “once in a while” people never seem to grok that people don’t take it at face value when you do something “just this once”

GP July 23, 2013 at 5:53 pm

By a “one-time tax” you mean occasionally stealing from those who have responsibly saved capital so that the government can squander it?

Alan H. July 21, 2013 at 11:46 pm

Taxing wealth has proven a loser in most countries. If Tyler had lived through the Swedish experience, and had wealthy friends there, he’d understand the absurdity of his proposal. Sweden ended up getting rid of the inheritance tax and providing so many ways to postpone cap gains tax that the effect was a huge real reduction in the tax on “financial income” over any longer holding period. Put aside the fact that the faster growth in wealth is a result of savings from the enormous disparity in income for many professions and business slots compared to, well, the rest of the world. Wealth cannot be trapped. But if you must experiment, Tyler, start with the Koch brothers: I’ll watch attentively.

jpe July 21, 2013 at 4:48 pm

I don’t think such a tax would be constitutional if levied by the feds (both as a normative matter and a predictive matter), and an amendment to permit it would be impossible to pass. it.could be done at the state level, but its tough to imagine it passing in many places, if any places.

David Barker July 21, 2013 at 8:31 pm

Excellent point, helps me breathe a little easier. And a state that imposed a tax on wealth would be quickly drained of it.

critic July 21, 2013 at 9:37 pm

Anyone who believes that the unconstitutionality of a law will always bar its implementation is in for some pretty bad shocks. Consider double jeopardy and the prosections we have seen for the depriving someone of his civil rights. Look at the eagerness with which university administrations and many other authorities prosecute “hate speech.” Tyrants will do as they want, constitution or not, and, as Frank Knight once put it, always for the public good.

Claude Emer July 21, 2013 at 4:48 pm

“I would say that we have much become much more efficient in preserving old wealth than in creating new wealth, and this is overall a worrying trend.”

Correct.

Then we jump into taxing as if taxes are meant to penalize wealth. Taxes are for funding government, not correcting wealth distribution. Now, government can make policies to promote social upward mobility but that’s different than “we have too much wealth, let’s tax it”

If the point is that we have so much wealth accumulation without any benefit to society because the wealthy are so adept at siphoning resources from government without a serious contribution in return, then it’s a debate worth having. But the argument has to be expressed first.

GP July 23, 2013 at 6:14 pm

Well said.

celestus July 21, 2013 at 4:49 pm

Inflation could be a bit higher, that is effectively a tax on wealth.

Other than that, as far as the U.S is concerned, why don’t we just raise middle class taxes back to where they were in the 1990s, “when the economy was doing well” as the President reminded us during his campaign to let the >$250k tax cuts expire? I believe that gets us about halfway to primary budget balance, so we can then do the $1 in spending cuts for every $1 in tax increases thing.

Spain, Italy, the UK, etc. may have to take more drastic measures however.

Anonymous July 21, 2013 at 7:24 pm

Inflation is a tax on wealth, but it’s regressive. Wealthy people don’t need much more cash on hand than poor people do.

David Barker July 21, 2013 at 8:35 pm

Inflation is only a tax on cash. Wealth held in other assets might not be diminished by inflation. Wealth invested in real estate equity with long-term fixed rate debt would grow with inflation, assuming that rents do.

celestus July 21, 2013 at 10:10 pm

Inflation is also a tax on bonds.

Jay July 21, 2013 at 8:43 pm

Inflation is a boon for poor people with negative net worth and fixed rate debt (think recent college graduates). Nothing like a student borrowing at the Elizabeth Warren window for 0.75% and inflation running in the double-digits if we got it there.

yi July 21, 2013 at 4:55 pm

Future of America is Brazil with Nukes.
Plus an asian overclass, of course.

Thompson July 21, 2013 at 5:00 pm

It’s important to distinguish between wealth and income. They’re usually conflated.

If physicists conflated velocity with position the way people conflate income with wealth, where do you think technology would be today?

The primary function of government is the protection of non-subsistence property rights i.e. wealth.

Note, I said “non-subsistence” property rights. The point here is that house and tools of the trade are protected from confiscation under bankruptcy law precisely because they are subsistence assets. Where government does not exist, subsistence properties are typically defended by the occupant, whose life is sustained by those assets. Government brings precisely the property rights we associate with civilization — assets beyond home and tools of the trade i.e. wealth.

If the primary function of government is to uphold property rights, then why is government funded by taxing economic activity rather than taxing property rights?

OF COURSE people who have vast property rights should pay more for the existence of the entity that upholds those property rights — just as they should pay more for property insurance.

OF COURSE people who make money as income every year should have zero tax burden as a result of those CHANGES in their net in-place liquidation value of assets.

Jay July 21, 2013 at 8:44 pm

Derivatives are too complex for the throngs of neanderthals out there.

Tracy W July 23, 2013 at 4:44 am

The primary function of government is the protection of non-subsistence property rights i.e. wealth.

Perhaps. But when you look at government spending, pensions, health care and education are far bigger categories than even defence (and some of defence is the protection of life and limb, and people’s actual homes).

http://www.usgovernmentspending.com/united_states_total_spending_pie_chart

Thompson July 21, 2013 at 5:01 pm

That creation of wealth is taxed rather than possession of wealth is precisely what is wrong with the tax base. Taxing creation rather than possession is precisely backwards from the fundamental standpoint of proper statecraft.

When you create something you are not costing society anything. When you possess something you are: the cost of defending your right to possess that thing.

It’s that simple.

Cliff July 21, 2013 at 9:31 pm

But the cost of property rights protection is miniscule. Most of government is entitlements, transfers, etc. Defense is significant, but could obviously be pared down dramatically (as it has been everywhere else in the world) without endangering property rights.

Thompson July 21, 2013 at 10:31 pm

You’re right. The cost of property rights is much smaller than what the government currently taxes. The wealth tax or use fee to pay for the service of property rights protection should be small.

You should tax the liquid value of artificial property rights at the risk free interest rate of modern portfolio theory. Establish liquid value via escrowed bids. The high escrowed bid for a property right receives interest at the risk free interest rate. Other bids do not.

This gets rid of what might be called “private sector economic rent” as a corrupting influence on civilization.

However, it leaves public sector rent seeking as a moral hazard. This is best dealt with by distributing revenues as a citizen’s dividend — equally to all citizens — and requiring national defense to be decentralized as it is with the Swiss.

Thompson July 21, 2013 at 10:39 pm

Here’s another idea: tax wealth’s avoidance of combat.

How much should the government pay you for threatening you with the draft?

Here’s a not-so-modest proposal to tax wealth for avoidance of combat (defined herein to mean any duty in a combat zone):

Since we’re worshipping markets these days, let’s let the wealthy set the retainer fee paid to young men who are obligated to serve if called for combat duty. The size of the monthly check sent to each combat retainee is set equal the minimum bid that lets the son of a wealthy family escape combat duty. Combat duty, like the draft itself, would be dependent on a lottery system, but among those within the armed services.

Q: But how would you fund such a retainer paid to millions of young men?

A: Tax net assets. Property rights are ultimately just a social construct protected by the government so when time comes to defend the government the beneficiaries of that social construct should pay for it.

Q: You said “let the wealthy set the retainer fee” — why wouldn’t they just set it to $0 so they pay no such wealth tax?

A: They set the retainer fee by bidding against each other to keep their own sons out of combat roles.

Q: That’s outrageous! A market to let the wealthy openly buy their way out of combat roles?

A: Yes, you heard right. The wealthy already frequently manage to avoid the draft, let alone combat roles. Let’s open the process so we can discover the market price of avoiding the risk of combat service, as valued by the wealthy.

Q: What’s the difference between this system and the “commutation” system used in the Civil War where $300 could buy your way out of the draft?

A: The differences are enormous:

1. Those still vulnerable to the draft were not paid $300 each — there was no net asset tax revenue to fund it — and therefore deeply resented the system. The draft riots are often attributed to the system of “commutation”.
2. The $300 figure was not reached by market mechanisms where the wealthy were trying to outbid each other.
3. The $300 figure was a one time payment — not an on-going series of payments that adjust up and down depending on the risks of war — the way any rational insurance premium should.

There are others, but together just these differences could add up to hundreds of billions of dollars a year in transfers and much greater social stability.

Q: If the poor are more willing to serve then why not just pay them what they demand rather than what the rich are willing to pay?

A: The wealthy need for us to believe that the government places no higher value on the lives of their sons than on the lives of the sons of the poor. At present that belief is maintained primarily through propaganda and manipulation of social identity. This unfairly exploits people who have strong altruistic tendencies. This is unsustainable. It squanders society’s social capital. Hypocrisy in high places doesn’t pay in the long run.

Q: But “Hypocrisy is a tribute that vice pays to virtue.” isn’t it?

A: Hypocrisy isn’t legal tender. Money is.

Q: Well, how can you ever expect such an absurd idea to make it through the political process when the wealthy are so influential over that process compared to the families that are struggling enough already trying to raise sons, let alone monitor the political process?

A: I’ll answer that question with another. Which would you prefer: A tax on wealth, or attacks on wealth?

Jason July 23, 2013 at 12:32 pm

Without delving into the pros and cons of raising funds in this manner I thought I should note that your last Answer was completely non responsive. Whether individuals prefer a “A tax on wealth, or attacks on wealth” — which, though catchy, is a false dichotomy — has little bearing on the likelihood of a “combat avoidance tax” becoming the law of the land.

As a simple illustration let’s say for argument’s sake that 30% of the populace marginally prefers “A tax on wealth” and that 70% prefer “attacks on wealth”. Since no pending legislation proposes a combat avoidance tax the effective probability that becoming the law of the land is near zero percent. If, instead 80% of the populace marginally prefers “A tax on wealth” and 20% prefers “attacks on wealth” the effective probability is still near zero percent.

Tracy W July 23, 2013 at 5:00 am

That’s rather implausible. For a start, if I grow cabbages one year, I am certainly costing society anything. I am taking up land to grow the cabbages, I am taking labour to plant the cabbages and to harvest them, I am using up fertiliser. If I am a profitable farmer, then the cabbages I create are more valuable to society than the cost of the inputs I use, but I’m still costing society something.

Furthermore, my cabbages need protecting against all sorts of threats as much as any long-term asset, perhaps even more, from ravenous insects to gangs of international cabbage thieves, to foreign invaders. A direct hit from a bomb would wipe out my cabbage fields as much as a direct hit from a bomb would wipe out a factory.

Finally, from the fundamental point of view of statecraft, governments are constrained in their taxing ability to being well below the total productive capacity of their economy, regardless of whether they tax production or consumption or wealth. If a government tries to tax wealth more rapidly than the wealth will be regenerated by production, then the economy is going to decline and the ability of the government to tax will decline with it.

Thompson July 21, 2013 at 5:04 pm

Overall I favor consumption taxes myself, for the traditional reasons.

When you have assets beyond those you, yourself, can effectively defend (such as your house and essential tools), the only reason you can claim them is the existence of the government to enforce your legal rights and protect them from foreign invasion. You want this service for free and to have people who are engaging in transactions to pay that fee for you. That’s unfair of you.

mike July 21, 2013 at 8:38 pm

Assets are easier to defend if you horde them in a vault. If rich people were forced to defend their own assets, they would tend to keep them in a vault inside a castle surrounded by armed guards. Or, I should say, historically when rich people had to defend their own assets, they kept them inside a vault in a castle manned with armed guards. The fact that our government protects property rights encourages wealthy people to instead spend and invest in ways that are not easy to lock in a vault inside a castle. In this age where technology allows an individual person to create value over the entire globe, while making hundreds of millions of low-IQ “strong back” people completely worthless, one would think that ot woudl be a good thing to encourage rich people to buy goods rather than hole up in a castle.

Thompson July 21, 2013 at 10:18 pm

The fact that the government protects property rights without charging a use fee for providing that service while taxing economic activity (sales, income, capital gains, etc.) and providing a “risk free asset” basis for the portfolios of the wealthy has lead to a profound corruption among the wealthy and has incentivized parasitism among the wealthy rather than investment in the creation of wealth.

If you have a “risk free asset” basis for your portfolios you will become a “no brainer” investor. This leads to favoring labor over automation hence falling into the immigration trap.

Incentives are everything and the current investment environment rewards rent-seeking either via the risk free asset or via public choice special interest lobbying.

Floccina July 21, 2013 at 10:19 pm

A consumption taxes wealth that is consumed, like when a person buys a home or a car.

Tracy W July 22, 2013 at 11:00 am

Why do you think this argument only applies to assets, and not to consumption? When the Nazis conquered much of continental Europe, people in occupied nations went hungry because the Nazis confiscated food. People went without clothes and without heating in the winter. Hospitals ran short of medical supplies. People’s consumption fell, because their governments couldn’t defend their economies against foreign invasion.

I’m a bit doubtful about your overall assertion that “the only reason you can claim them is the existence of government to enforce your legal rights”, after all, people trade, hold and consume drugs despite the government not merely failing to enforce those rights, but actively trying to stop the whole process. But accepting your argument in the first place, there seems to be no reason to assume that it only applies to assets. Jewellery for example can be both small and valuable, and is a very popular asset in countries where people don’t trust governments to protect their legal rights.

Thompson July 22, 2013 at 12:23 pm

Consumption is a change in wealth, not wealth itself. Just as velocity is a change in position, not position itself.

When you have assets beyond those you, yourself, can effectively defend (such as your house and essential tools), the only reason you can claim them is the existence of the government to enforce your legal rights and protect them from foreign invasion.

Tracy W July 23, 2013 at 4:15 am

Still strikes me as a distinction without a difference. Consumption can and does drop, if your government fails in doing its job of protecting you against foreign invaders, or protecting your legal rights. No difference there to assets.

(I also doubt your military history. How could, say, a Londoner in 1940 effectively defend their own house, and essential tools, against Nazi bombing raids?)

Thompson July 21, 2013 at 5:09 pm

I would say that we have much become much more efficient in preserving old wealth than in creating new wealth, and this is overall a worrying trend.

So what’s wrong with the investors? Why are they so corrupt? It should be obvious what exactly is wrong with investment: If you have a “risk free asset” basis for your portfolios you will become a “no brainer” investor. This leads to favoring labor over automation hence falling into the immigration trap.

Incentives are everything and incentives start with correcting the investment environment so it stops rewarding rent-seeking either via the risk free asset or via public choice special interest lobbying.

Rahul July 21, 2013 at 5:09 pm

If at all we have to go this wealth tax route, how about a high death duty instead?

Ashok Rao July 21, 2013 at 6:52 pm

Because Republicans will call it something like “Death Duty” and that will be that.

Cliff July 21, 2013 at 9:32 pm

Isn’t that sort of tax easily avoided, and doesn’t it create substantial distortions?

Tom West July 22, 2013 at 12:16 am

how about a high death duty instead?

Isn’t that sort of tax easily avoided

Those damn rich guys. They’d rather live forever than pay their fair share.

Alan H. July 21, 2013 at 11:56 pm

If you actually implement high estate taxes without loopholes, very few rich people will do you the favor of dying in this country. If you want to balance the budget, tax land (forestry, farmland) and stop subsidizing it. A very low rate will do the trick. And the land can’t move.

RM July 21, 2013 at 5:11 pm

But what is going to happen if people can hide their wealth or move it easily around?

Anonymous July 21, 2013 at 7:29 pm

Henry George was right all along!

Thompson July 21, 2013 at 5:15 pm

Look, it’s simple:

Civilization enables accumulation of property beyond the homestead — the accumulation of what might be called “artificial” property. Artificial property rights are therefore the proper tax base. Basing your taxes on economic activity is crazy and leads to run-away centralization of wealth. It is an obvious failure mode of civilization as the wealthy are prone to institutional capture in order to shift the tax base from wealth to economic activity.

To fix this, tax the liquid value of artificial property rights at the risk free interest rate of modern portfolio theory. Establish liquid value via escrowed bids. The high escrowed bid for a property right receives interest at the risk free interest rate. Other bids do not.

This gets rid of what might be called “private sector economic rent” as a corrupting influence on civilization.

However, it leaves public sector rent seeking as a moral hazard. This is best dealt with by distributing revenues as a citizen’s dividend — equally to all citizens — and requiring national defense to be decentralized as it is with the Swiss.

Tracy W July 22, 2013 at 11:12 am

To fix this, tax the liquid value of artificial property rights at the risk free interest rate of modern portfolio theory. Establish liquid value via escrowed bids. The high escrowed bid for a property right receives interest at the risk free interest rate.

What does it mean to “establish liquid value via escrowed bids”? The normal definition I am aware of for the word “escrow” is something held by a third party pending fulfilment of some condition. So, an escrowed bid presumably means that the person doing the bid delivers something in escrow to a third party to hold until some condition is owned.
So, imagine I own an illiquid factory. When you say “establish liquid value via escrowed bids” and “the high escrowed bid for a property right”, this presumably means that people bid for my factory, and whoever puts in the highest bid has to put up something in escrow to someone. Now what does this highest bidder put up? Do they own say a farm, and they put that up for the bid? But won’t they be being taxed on their farm, and won’t that farm be subject to bids? How can they bid for my factory with their farm as escrow if their farm is being subject to bids from other parties? Does the escrow get released at some point?
Furthermore, you say the higest escrowed bid receives interest at the risk-free interest rate. Who pays this interest? Me? Why should I, what benefit is there to me in paying interest to someone who happened to bid the highest. Am I going to be forced to pay interest to this person? What happens if my factory makes a loss and I can’t even pay interest at the risk-free interest rate?

And why would a farm owner want to bid for my factory if all they’re going to get is interest at the risk-free interest rate, no matter how high they bid?

And how does the government get any money in taxes out of this mess of escrowed bids?

Thompson July 22, 2013 at 12:25 pm

For an asset protected by law (herein after “asset”) it must be publicly declared by the owner who must be a natural person. Corporate assets are indirectly protected by law when their shares are so protected. An asset has an assessed value equal to the highest bid in escrow with the government. Lower bids for the asset which remain in escrow are added to the assets of the bidder but the highest bid in escrow is not counted as an asset of the bidder.

Fictitious persons (corporations, etc.) are not assessed. However, the natural persons who hold the derivative assets are assessed, for example, the liquid value of their shares held in the fictitious persons.

A natural person’s tax liability is:

(“Assessed value of assets” – “Assessed value of liabilities”) * “MPT’s risk free interest rate”

Liabilities are assessed as their liquidation value to the creditor. For instance, a mortgage lender can sell a mortgage on the open market and the new owner receives the mortgage payments. The mortgage is therefore an asset to the mortgage lender and is assessed as usual. To the home owner, the mortgage is a liability subtracted from his total asssets but the value subtracted is not the amount shown in the mortgage contract — it is the liquid value of the mortgage to the lender if he sells it as an instrument to the highest escrow bid.

A KEY POINT:

The most common criticism of this system is that it can be “gamed” by anti-competitive forces who try to shut down entrepreneurial startups by bidding for ownership at such a high price that it imposes an immediate tax burden so great as to overwhelms the cash flow of the startup. The start-up is either forced into bankruptcy or is forced to sell to the the anti-competitive entity, which then shuts it down as a cost of maintaining its monopoly position. The answer to this, which is obvious after moment’s reflection, is that the startup can defer its tax liability (not counting it as a liability in computing its tax liability, of course) up to the point that its liquid value is equal to its deferred tax liability. At that point the government forces liquidation. The startup can, of course, place a bid in escrow for itself to maintain its liquid value above its deferred tax liability. Any such deferred tax liability accumulates further interest liability compounded at the tax rate.

Tracy W July 23, 2013 at 4:36 am

Okay, so every asset to be protected by law, it has to be valued by having a bid recorded against it, with that bid being supported by an asset held in escrow with the government. The highest bid, with the asset in escrow sets the value of the related asset. Doesn’t this wind up with every single asset being in escrow?

And, you say that an asset held in escrow is not counted as an asset of the bidder. So if every asset is held in escrow to value every other asset then no one has any tax liability to the government, although they may have a right to tax refunds, if they have liabilities.

The most common criticism of this system is that it can be “gamed” by anti-competitive forces

Really? That lowers my opinion of my fellow citizens’ intelligence considerably. The biggest problems I can see with this are:
1. It’s extremely confusing.
2. It appears to wind up with the government holding in escrow all the assets in the country. Governments do not have a good record at producing wealth when they own assets.
3. There is no apparent way in which the government actually gets any tax money out of this.

Tracy W July 23, 2013 at 8:30 am

To explore further, let’s imagine a simple economy, in which only three people own assets beyond their own homes and own tools.
Alice owns a farm. Bob owns a workshop, which he and some employees use to make everything from clothes to furniture to tools. Carla has a habit of inventing things that make the farm and workshop work a lot more efficiently, Carla is therefore given some IP giving her a greater share of the output of the farm and the workshop in exchange for each invention. David supplies all the government services, from fending off Viking raids to keeping track of Carla’s IP. There are several other people, Emma, Fred and Georgina, who split their working time between the farm and the workshop, they own no assets apart from their own homes and tools. (Alice, Bob, Carla and David also own their own homes, tools, etc).
David is supported by a share of food produced from the farm and Bob sending him new clothes, furniture, weapons, etc from the workshop.

Now, say David decides to switch to Thompson’s wealth taxation. Each asset must have its liquid value established via escrow bids. So, to value Alice’s farm, Bob bids his workshop and its equipment, and Carla bids her IP. David decides that Bob’s bid is the highest, so he takes Bob’s workshop and holds it in escrow. To value Bob’s workshop, Alice bids her farm and Carla bids her IP. David decides that Alice’s bid is highest, so he takes Alice’s farm and holds it in escrow. Carla’s IP now needs to be valued, but Alice can’t bid her farm (it’s in escrow), and Bob can’t bid his workshop (it’s in escrow). How is Carla’s IP to be valued?

Also, we’ve established that Alice’s farm is equal to Bob’s workshop. But who pays taxes? Alice isn’t liable to pay taxes on her assets, as her only asset beyond her home and tools was her farm, which is now in escrow to support her bid for Bob’s workshop, and you say that “the highest bid in escrow is not counted as an asset of the bidder”). Bob isn’t liable to pay tax on his assets, as his only asset beyond her home and tools was his workshop, which is now in escrow, and you say that “the highest bid in escrow is not counted as an asset of the bidder”. Does Carla pay all the taxes because her IP assets are the lowest in value, and thus wasn’t used for valuing anything else?

Furthermore, how do Alice and Bob earn their livings, now that their assets are being held in escrow by David? How do Carla, Emma, Fred and Georgina earn their livings? Does David employ them along with Alice and Bob on the farm and workshop? How does David have the time to run the farm and workshop, along with fending off Viking raids and doing all the other government work? Does David then employ Alice and Bob to run their old farm/workshop, along with employing Carla, Emma, Fred and Georgina, and, to align incentives, let Alice and Bob run the risks of a shortfall in output, while paying him a proportion of the income from the farm or workshop? If so, how does this scheme differ from taxation based on income, apart from being more of an administrative burden?

dearieme July 21, 2013 at 5:35 pm

What about Land Value Tax?

Alan H. July 22, 2013 at 12:04 am

Exactly. The upper class always fights that off, but I’d bet the votes are there today. In all this tax talk no one mentions the fact that many large corporations don’t really pay income tax? That the write-offs for the depletion allowance aren’t strictly tied to the cost of discovery and acquisition? That many of the highest average incomes in the US are a result of laws letting guilds regulate themselves? That we pay cash benefits to people who can’t be bothered to develop literacy on their own time? That the wealth of bankers isn’t clawed back when the violate criminal laws because “they’re too big to jail” ? I’m nonplussed. Get rid of the charitable deduction immediately. If a university or foundation is really worthwhile, fund it with after-tax income. These causes would still be worth donating to, wouldn’t they?

kerokan July 21, 2013 at 5:35 pm

A course on public finance at MR Univ would be very helpful. I looked for accessible introductory material online, but couldn’t find any.

Rich Berger July 21, 2013 at 5:42 pm

Before the kleptocrats plunder more of our money, how about a top-to-bottom review of the worth of all government programs? Why should we keep serving drinks to a drunk?

Ashok Rao July 21, 2013 at 6:15 pm

This will be an interesting battle. I support – if we can’t get the type of total reform I like – wealth taxes over income taxes because it encourages skilled immigrants (who can earn almost at parity, but have their family next to them – whether from India or China) to move over if accounting for hyperbolic discounting and all.

That’s something that I find absent from wealth tax conversation. An Asian immigrant with an engineering degree planning to move to San Francisco can expect to pay a good chunk of his money in taxes. Anecdotally (and theoretically, if not conclusively empirically) this disincentivizes people from moving over.

A wealth tax on the other hand defers the large chunk of that taxation to “later when I’m rich”. Many models of discounting make this a more immediately preferable choice. In that sense it’s also “fairer”. It lets your poor immigrant, or poor anyone actually, “make it” before paying the high bill, whereas an income tax system sets a computer programmer with no change in his bank account on the same level as an old money lawyer.

Ashok Rao July 21, 2013 at 7:57 pm

Some commentary on wealth taxes and immigration here: http://ashokarao.com/2013/07/21/wealth-taxes-and-immigrants/

mike July 21, 2013 at 8:44 pm

I am shocked, simply shocked, that an Indian supports the government confiscating the property of Americans to support Indians colonizing America.

Ashok Rao July 21, 2013 at 9:17 pm

Yeah, I’m pretty shocked about this outrageous article too. It’s not like the fact that I was born in the US and/or that my parents have paid lots of taxes to the US for the past thirty years means much, or anything.

And it’s almost as if you didn’t read that this would be used to finance an income tax cut. Which is property “too”.

Cliff July 21, 2013 at 9:34 pm

So the many, many people who live paycheck to paycheck would be rewarded, while those who save and invest in growing the economy will be punished. Sounds like a good system.

Ashok Rao July 21, 2013 at 9:37 pm

Actually, high-end immigrants have this pretty cool habit of not living “paycheck to paycheck”. But hey.

Tracy W July 23, 2013 at 4:37 am

If you think it’s pretty cool, why do you want to punish it?

Tracy W July 22, 2013 at 11:19 am

So, let’s say we take the hypothetical immigrant, who is considering whether to take a stable job or whether to open a new software company with a brilliant idea he has. He has an experienced venture capitalist willing to invest in him, along with some money from his family and friends, and the venture capitalist generally has found that of the companies she’s supported in the past, on average about 10 new jobs are created, each job paying on average $100,000 a year. (This is an average between those companies that go bust and those that go bananas) As the immigrant doesn’t have 10 family members to employ, some of these jobs are going to go to native-born Americans.

Under a tax on wealth but not on income, the hypothetical immigrant will be biased towards the stable job at the existing company, as opposed to building the new wealth-generating company.

Or take the computer programmer with no change in his bank account versus the old money lawyer. Both of them could work to put away more money in their savings account, keep down their consumption, buy productive assets, or they could live for today, the computer programmer off their income, while the old money lawyer could live both off their earned income and by drawing down their wealth. The wealth tax system discourages the computer programmer from accumulating wealth, and the old money lawyer from maintaining wealth.

Adrian Ratnapala July 21, 2013 at 6:44 pm

What at an Econ-101 level are the pros. and cons. of wealth taxes vs. inflating your debt away? (This is not a rhetorical question, I have never even studies Econ-101).

Ashok Rao July 21, 2013 at 6:55 pm

At 101, in principle, a wealth tax should be a lot more similar to “inflating your debt away” than income tax. Inflation is, by many, called a “tax on capital” which basically encourages you to consume instead of save (it’s a lot more complicated in reality, but that aside).

In theory, a wealth tax without any exemptions would encourage the same – a shift towards consumption from saving.

There are differences. Inflation is implicit and has other effects that a wealth tax does not (mainly in financial markets, expectations etc.) Standard theory would tell you both are ineffective and harm capital formation. They would be more similar than either are to income tax.

8 July 21, 2013 at 6:48 pm

Agree, but drop the personal. USG could tax 50% of every college endowment over $1 billion and it would hit all the right people. Foundations are another nice source.

JWatts July 22, 2013 at 5:41 pm

+$1 billion

Jay July 21, 2013 at 8:13 pm

Did anyone click through the links? Is this the usual nonsense where the actuarial net present value of accrued social security and medicare benefits due are excluded? If so I suggest one way to change the trends. Do away with FICA taxes and let the less well off keep a larger share of their income and actually count the assets being ignored.

Bob July 21, 2013 at 9:07 pm

When countries go bankrupt, what wealth-to-debt ratio do they typically have? I think Cowen is saying that ratios of 3-to-1 like in Japan’s case are ok. What ratio is not ok?

Jim July 21, 2013 at 9:22 pm

I always wonder, is there really a strong argument against a simple federal head tax? It seems to me that a head tax is at this point the best way for people to fully appreciate the cost of their government, and to be able to make reasoned views on how much they value government services.

I did the math just now, and it seems that we could replace all federal revenue with a tax of just $17,203 per person, using 2013 figures. This seems very reasonable to me.

Cliff July 21, 2013 at 9:36 pm

Seems like a surefire way to bring our population into dramatic decline.

liberalarts July 21, 2013 at 9:57 pm

Good luck. I have a wife and 2 kids in my household, so my _federal_ tax bill would be $68,800 per year, which is well above the median family (households with 2+ members) income for the year. Any measurably significant head tax quickly runs into the problem of pricing a very large segment of the country out of the legal production markets and thus collecting nothing.

derek July 21, 2013 at 9:23 pm

Pillage pension plans. A massive source of wealth.

Come to think of it, hasn’t Detroit been on the fore front of this trend? They have managed to use money that was supposed to go into pension plans for something else. And yes, this is what Mr Cowen’s idea would look like in practice.

FE July 21, 2013 at 9:23 pm

Hard to see where the political coalition to tax wealth will come from. The wealthy funders of the Democratic Party are fine with raising taxes on wages, consumption, and a bit on capital gains, but not their own wealth. The only vulnerable store of wealth is retirement accounts. The Obama Administration floated a trial balloon about capping them in this year’s budget proposal. The next logical step would be a tax on “excess” balances in retirement accounts.

Floccina July 21, 2013 at 10:30 pm

I would be OK with a wealth tax if it was needed but, IMO:

We could cut the military 50% without hurting national defense.
We could cut SS by about 30% without hurting the needy elderly.
We could cut medicare and other government heath care spending by about 50% without hurting health or life expectancy. (see Singapore, Japan, Canada and the UK)

So I am strenuously against anything that increases the amount of tax collected.

Thompson July 21, 2013 at 10:41 pm

Here’s another idea: tax wealth’s avoidance of combat.

How much should the government pay you for threatening you with the draft?

Here’s a not-so-modest proposal to tax wealth for avoidance of combat (defined herein to mean any duty in a combat zone):

Since we’re worshiping markets these days, let’s let the wealthy set the retainer fee paid to young men who are obligated to serve if called for combat duty. The size of the monthly check sent to each combat retainee is set equal the minimum bid that lets the son of a wealthy family escape combat duty. Combat duty, like the draft itself, would be dependent on a lottery system, but among those within the armed services.

Q: But how would you fund such a retainer paid to millions of young men?

A: Tax net assets. Property rights are ultimately just a social construct protected by the government so when time comes to defend the government the beneficiaries of that social construct should pay for it.

Q: You said “let the wealthy set the retainer fee” — why wouldn’t they just set it to $0 so they pay no such wealth tax?

A: They set the retainer fee by bidding against each other to keep their own sons out of combat roles.

Q: That’s outrageous! A market to let the wealthy openly buy their way out of combat roles?

A: Yes, you heard right. The wealthy already frequently manage to avoid the draft, let alone combat roles. Let’s open the process so we can discover the market price of avoiding the risk of combat service, as valued by the wealthy.

Q: What’s the difference between this system and the “commutation” system used in the Civil War where $300 could buy your way out of the draft?

A: The differences are enormous:

1. Those still vulnerable to the draft were not paid $300 each — there was no net asset tax revenue to fund it — and therefore deeply resented the system. The draft riots are often attributed to the system of “commutation”.
2. The $300 figure was not reached by market mechanisms where the wealthy were trying to outbid each other.
3. The $300 figure was a one time payment — not an on-going series of payments that adjust up and down depending on the risks of war — the way any rational insurance premium should.

There are others, but together just these differences could add up to hundreds of billions of dollars a year in transfers and much greater social stability.

Q: If the poor are more willing to serve then why not just pay them what they demand rather than what the rich are willing to pay?

A: The wealthy need for us to believe that the government places no higher value on the lives of their sons than on the lives of the sons of the poor. At present that belief is maintained primarily through propaganda and manipulation of social identity. This unfairly exploits people who have strong altruistic tendencies. This is unsustainable. It squanders society’s social capital. Hypocrisy in high places doesn’t pay in the long run.

Q: But “Hypocrisy is a tribute that vice pays to virtue.” isn’t it?

A: Hypocrisy isn’t legal tender. Money is.

Q: Well, how can you ever expect such an absurd idea to make it through the political process when the wealthy are so influential over that process compared to the families that are struggling enough already trying to raise sons, let alone monitor the political process?

A: I’ll answer that question with another. Which would you prefer: A tax on wealth, or attacks on wealth?

Ashok Rao July 22, 2013 at 12:09 am

They did this during the civil war. There are several iterations, historically, of this proposal. You can either pay the government a pre-determined quantity to remove yourself from the draft.

Or draftees are randomly selected, but may hire on an open market someone to take their place.

This won’t work, of course, because it necessitates a continually standing army and forces a wasteful use of money when war isn’t required. More likely it just subsidizes war.

And while it may be nifty, I don’t see what big problem it’s solving.

Thompson July 22, 2013 at 12:38 am

I specifically point out in my comment how this differs from the “commutation” system used in the Civil War.

Jason July 23, 2013 at 12:41 pm

This proposal is moot while we have all volunteer armed services.

Brian Donohue July 22, 2013 at 1:05 am

Grasshoppers play, ants pay. It was ever thus.

Hugh July 22, 2013 at 5:06 am

Are we discussing a wealth tax as a substitute for some other tax, or as an overlay on an already large number of taxes?

In either case we will need to understand the relationship between wealth and investment. Can we tax wealth without reducing investment? Econ 101 would suggest that we can’t, and so I am against this proposed tax.

Andrew' July 22, 2013 at 6:40 am

we discussing a wealth tax as a rescue for bad governments for bad governing.

Andrew' July 22, 2013 at 5:13 am

I didn’t sign any debt agreements.

JWatts July 22, 2013 at 5:43 pm

Yes, but the big men with guns never really care.

rpl July 22, 2013 at 8:36 am

How does someone write an entire article on a “wealth tax” and not use the word “apportionment” even once? A direct federal tax on property is a complete non-starter in the United States because of the apportionment requirement. Any attempt to tax wealth will have to use existing indirect means like the income tax on capital gains, which means we’re just back to our same old arguments about income tax rates. Nothing to see here.

Urso July 22, 2013 at 9:33 am

Yep. Any proposal that starts with “first we have to amend the Constitution” is so obviously DOA that it’s not worth the time to discuss.

Bill July 22, 2013 at 9:12 am

See Article I, sections 2 and 9 of the US Constitution. Any attempt to apply a direct tax on people according to their wealth would run afoul of the Constitution.

Eugene Patrick Devany July 25, 2013 at 1:16 pm

A tax on net wealth may be imposed as an adjustment to the income and payroll taxes. After all, the Constitution permits a “tax” on the failure to procure health insurance.

Wonks Anonymous July 22, 2013 at 10:19 am

Tim Worstall says much of this talk is premised on mismeasurement:
http://www.forbes.com/sites/timworstall/2013/07/22/i-wouldnt-worry-about-the-wealth-gap-if-i-were-you/

MG July 22, 2013 at 11:09 am

If we are going to go down this road, why not also tax human capital. Also, let’s comission some bevavior econ types to derive the fair market value of hapiness, and tax that too. That way we can really say we are all in this together, not just the 1%. Finally, let’s also tax the assets of the public sector — national parks, museums, spectrum rights, etc. (I think taxing assets is fair because it is really the private sector that is always on the hook to pay the debt). Payments will be made from the proceeds of privatizations and would be used to retire the debt.

Oh, and let’s start implementing this with Detroit.
.

Mike W July 22, 2013 at 11:10 am

Would the wealth tax also be levied on the present value of the future retirement benefits of tenured university professors?

Joe Smith July 22, 2013 at 11:38 am

You might expect a rising wealth to gdp ratio if countries are maturing and investors are forced to seek diminishing returns.

Brian Donohue July 22, 2013 at 11:46 am

Wouldn’t you expect a higher wealth to GDP ratio as a byproduct of prosperity? My gut says there’s a couple hundred year track record to this effect in this country, for example.

Steve-O July 22, 2013 at 12:33 pm

Let’s tax attractive people. Better yet, let’s tax people who have sex with attractive people.

x July 22, 2013 at 2:24 pm

Taxes should be zero.

Hence, they should only raise if they are currently negative, by their absolute value.

Gazeteye ilan Vermek July 22, 2013 at 4:29 pm

fortune already scares me every time. to live a life after economic problem is not a problem.

The Anti-Gnostic July 23, 2013 at 9:47 am

I would say that we have much become much more efficient in preserving old wealth than in creating new wealth, and this is overall a worrying trend.

That has been US/Federal Reserve policy for quite some time: prop up asset values, so the rich are not allowed to become poor. You’re just now finding this out?

Mark July 23, 2013 at 3:07 pm

People are so creative and enterprising when pondering the myriad ways of plundering humanity. I would rather abandon the concept of slavery and advocate that men should own themselves and their labor. Perhaps the debate should not be about stealing from the productive but instead preventing theft by politicians and other parasites. Consider the next time you see a government employee what he produces or brings to the marketplace for the enjoyment of society. Nothing.

Eugene Patrick Devany July 25, 2013 at 1:10 pm

A net wealth tax on all assets is an efficient negative reinforcement to productive investment (as in “use it or lose it”). It can be used in a revenue neutral manner to lower job killing payroll taxes and income taxes; and also to eliminate capital gains and estate taxes.

Tim Worstall writes in Forbes that, “A ratio of 600 to 100 (ie, wealth is 6 times GDP) means that we are using that capital inefficiently in order to produce current income.” It looks like the U.S. is there or close to it.

Read more about the 2-4-8 Tax Blend at TaxNetWealth.com.

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