Sentences about household wealth (Cyprus fact of the day)

On average, the wealthiest households are in Luxembourg, but Cyprus, which last month came close to a complete financial meltdown, was second.

That is from the eurozone.  And this:

Median net wealth is the lowest in the bloc’s paymaster, Germany (51,400 euros), less than a third of that in Italy (173,500 euros) or Spain (182,700 euros), due to the relatively low level of home ownership in Germany.

As I’ve said many times in the past, much about the future will depend on whether wealth taxation turns out to be politically feasible to a greater degree than at present.

Comments

Just for comparison, the median net worth figure for the US (2007) is listed as $120,000 (91,000 Euros)
Due to the pricking of the housing bubble, probably lower now.

http://www.joshuakennon.com/mean-and-median-household-net-worth-by-age/

Updated to 2010 numbers.
The 2010 US median net worth is $77,000 -- not much different than Germany after we convert to Euros and allow for the substantial error bound in cross-national statistical comparisons.

http://www.joshuakennon.com/a-look-at-household-net-worth-and-household-income-by-age-group-from-the-2010-survey-of-consumer-finances/

This is an excellent link. One thing you see is an interesting connection between age, income, and wealth. Among 45-54 year-olds, median wealth is $117,,900. Among 55-64, it's $179,400. Among 65-74, it's $206,700, and for 75+, it's $216,800.

Meanwhile, income for these groups: 45-54 $61,000; 55-64 $55,100, 65-74 $42,700, 75+ $29,100.

As age progresses, we see declining income levels and increasing wealth levels. Is somebody exaggerating the cost of living in retirement?

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Table 4.1 from "HFCS Report on the Results from the First wave" shows the numbers:

http://www.ecb.int/home/html/researcher_hfcn.en.html

I always rely on high fructose corn syrup as a proxy for household wealth.

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General wealth taxes are great for dealing with once-in-a-blue-moon emergencies that occur randomly. Used to be called the capital levy. Levied regularly, or only on selected assets, wealth taxes are idiotic.

> wealth taxes are idiotic

why?

Possibly because they would probably deter accumulations of capital induscriminately and destroy investment. Also as long as their were jurisdictions more friendly to capital they lead to capital flight.

As to levies on select assets, it would depend, isn't this what a property tax is?

A capital levy, especially in War time when the integity of the state and the safety of all private capital is at risk, is another matter, but who ges to say how great the emergency has to be?

What would be so wrong about a Land Value Tax and a flat tax on corporate share values (public and private)?

I'm asking because I honestly don't know, and I haven't seen an argument for why these are worse than income, capital gains, or consumption taxes.

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I am not sure how what you are saying now and what you have said in the past about taxes is consistent with what you say about cutting spending. Maybe you want to increase taxes and cut spending.

In any event, I think that you avoid dealing with the issue of growing income inequality in places where we do not expect it to happen. In general you (and Alex) seem inclined to think only the poor are leeches, but you give a pass to the well-connected, rich, and powerful -- the real rentier class.

Yes, that is what public choice economics is all about: giving a pass to the rentier class.

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Have you read any of the posts on MR?

I read them all and, and all the comments and every day someone says they always say something I've never seen said.

Yes, this happens all the time.

It takes an amazing amount of selective reading to come to the conclusion that: "In general you (and Alex) seem inclined to think only the poor are leeches, but you give a pass to the well-connected, rich, and powerful".

I suppose it's possible to reach that conclusion, but only if you take a substantial amount of comments out of context and completely ignore a lot of others.

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What are average household sizes?

Household size is part of the explanation.

Average household size (at page 12 of the ECB report):
Germany 2.04
Italy 2.53
Spain 2.68
Cyprus 2.76
Luxembourg 2.48

The report is available at http://www.ecb.europa.eu/pub/pdf/other/ecbsp2en.pdf?12694bccf6849586b587dfb0fabb5abd.

Thanks for the link. Here is a gem that should make you worry about cross country comparisons...
"This section shows how households save for retirement using voluntary private pension plans and/or whole life insurance contracts. Public pensions and occupational pension plans are not considered in this report
, as the value of some public pensions and occupational pension plans can be difficult for households to evaluate. Cross-country comparisons are challenging in the sense that institutional arrangements across countries with respect to the different modes of retirement savings, such as voluntary private versus public or occupational, can be quite substantial. A deeper analysis of these differences falls outside the scope of this report. "

Spot on Jay and first thought that crossed my mind. Also using housing wealth seems dangerous as houses are non-trade-ables. The value of a Spanish house must be determined in part by the overall health of the Spanish economy.

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Yeah, well, public pension promises are mostly unfunded, so I'm not sure how much 'wealth' you get to count for that.

It's worked in Germany, although like most things there it is a weird amalgam of public and private schemes.

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Those numbers seem a little high. Spain has a mean income of $23,541 per year according to the OECD.
http://www.oecdbetterlifeindex.org/countries/spain/

How do you get a Median household of $240K from that?

Mean income per capita vs Median wealth per household... Seems doable.

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Net wealth would be a little different from income.

If a country has a culture of renting rather than buying homes, then all things being equal its net wealth is likely to be lower. However, as Jay points out in this thread, things can be more complex.

Net wealth would be a little different from income.

Sure. But it seems implausible that an income that low, could generate that much wealth, without a substantially higher savings rate than what I've seen stated for Spain previously.

However, I do agree that it could well be an issue of interpreting wealth as Jay points out. Obviously, if you equate pensions to the equivalent annuity, you could get figures that high.

In the case of Spain, lots of wealth come from houses that are unsellable, because people prefer to keep houses empty than lower prices until the market clears. Some of this houses were bought early in the housing bubble, so even at current prices they'd produce amazing returns.

The government could use a variety of regulation tactics to force the market to clear (See, for instance, how Andalusia proposed today a tax on unoccupied homes), but this would bring in yet another set of problems: Unlike in the US, if someone defaults on a mortgage in Spain, the creditor can go after other assets, not just the property the lien was on. Also, the banking system has a huge exposure to this mortgage problem. So, we'd either get families that get completely wiped out (car, pension, furniture and such), or Spain's banking system gets wiped out.

After either of those cases, I'd be shocked if median Spanish wealth looks anywhere near what was described here.

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What is the definition of "wealth"? Anyone with a minimum basic understanding of accounting/finance would conclude that accrued SS/Medicare/Pension benefits due are indeed assets. Yet when Proggers trot out their pro-redistributionist charts they source US household wealth data that does not count these as assets (to be fair to the Fed they disclose this in the SCF, but it is too many pages into the document that there is 0% chance an ideological Progger would read it let alone comprehend its implications). Are the European numbers the same way?

Those aren't legally assets. They can be zeroed out by the next Congress at any moment. Congress can't do that to any privately held assets without paying compensation.

Are not property taxes a form of wealth tax?

Yes, but I don't understand your point. At some point short of 100% a property tax may become a taking, but at some point well short of 100% it can't be paid because everyone would have to liquidate.

A SS benefit cut is analogous to a property tax in budgetary terms, but that doesn't make SS an asset.

Increasing property tax reduces property value without compensation

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Then US Treasuries aren't legally assets. They can be zeroed out by the next Congress at any moment without paying compensation.

Do banks consider them assets when considering whether to make someone a loan? Can these assets legally be seized to pay back taxes, debts, etc? I don't know.

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Actually, Congress cannot zero out US Treasuries, due to the 14th Amendment to the US Constitution:
"The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned."
This has been interpreted by the supreme court as meaning money borrowed by the federal government, including treasuries, must be paid back. The Supreme Court has also ruled that Social Security, medicare, and other entitlements, however, are not protected by the 14th amendment, and can be renegged on at any time by Congress.

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And let me quote the PhD economists from the Federal Reserve...

"Two common and often particularly important types of retirement plans are not included in the assets described in this section: Social Security (the federally funded Old-Age and Survivors’ Insurance program (OASI)) and employer-sponsored defined-benefit plans. OASI is well described elsewhere, and it covers the great majority of the population. The retirement income provided by defined-benefit plans is typically based on workers’ salaries and years of work with an employer, a group of employers, or a union. Unfortunately, future income streams from OASI and defined-benefit plans cannot be translated directly into a current value because valuation depends critically on assumptions about future events and conditions—work decisions, earnings, inflation rates, discount rates, mortality, and so on—and no widely agreed-upon standards exist for making these assumptions."

In other words these are assets but the Fed does not have the means to value them.

http://www.federalreserve.gov/pubs/bulletin/2012/pdf/scf12.pdf

Counting transfer payments as assets strikes me as fishy, especially at a time when those transfer payments cannot be paid in the future without, as Tyler insinuates, a wealth tax.

Fundamentally, there is a difference between real wealth and accounting identities labeled "wealth."

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Wealth taxes in general may be troublesome, but there's one particular form of wealth tax which is endorsed by many (most?) economists: Land Value Tax. Unlike any other wealth tax, it's impossible to evade it since you can't physically move land.

We know from the article that the majority of an individual's wealth is stored in property. As a rule of thumb we can expect that half of that wealth is derived from land, while the other half is derived from the buildings on top. In densely-populated Europe it's likely that land makes up an even higher proportion of wealth. Therefore there's a lot of potential revenue available from taxing land values. It's a no-brainer economically; although much harder politically.

I'm not sure how is there revenue from assets as generally construed. Maybe you can repay debts. But are you going to pay current accounts? All of a sudden your asset values start to plummet.

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Wealth taxes may prove impossible if they hasten the move to bitcoin or some successor that solves some of btc's problems.

How does bitcoin hide the physical asset?

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Progressive wealth taxes -- or flat land value tax after some median annual wage deduction, would be helpful to reduce the inequality with minimum other bad effects.

Start at 0.2%, increasing by that amount each year until the gov't budget is balanced. Rents go up, but not enough to cover 100%. Old homeowners might need a deferred tax bill -- live there now, pay after death and before ownership transfer. Ownership prices stagnate/ decline--affordable housing!

We already have a wealth tax built into our system.

2% inflation + 24% capital gains tax rate means that you are paying about a .5% wealth tax per year (on things that are covered by capital gains, of course houses and retirement savings are exempted from that).

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Until SCOTUS reverses itself a federal tax on wealth violates the 'takings' clause of the US constitution. I think Adam Smith got taxes right, though I've only read his bit carefully in J.S.Mill's Principals of Political Economy, Book V, Chapter III. Taxes income, expenditures, rents, profits, and wages (and the various renamed incarnations of each, i.e. royalties) seem sufficient. The problems were largely perceived to be in the uncertainty, non-specificity, and arbitrariness of taxes as actually instituted in statutes. We have taxes on forestry and farming income: The problem, of course, is that we also have hundreds of laws and regulations which rework those basic taxes via support programs, unusual deductions, and so forth.

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Interesting how economists tend to share datasets that do not pass a simple sanity check. I am too lazy to read the methodology, but a brief look at the ECB paper (1) reveals that their definition of "net wealth" really is just net wealth coming from house ownership.

(1) http://www.ecb.europa.eu/pub/pdf/other/ecbsp2en.pdf?12694bccf6849586b587dfb0fabb5abd

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Isn't a wealth tax what asset/fund managers do successfully each year?
Additionally, the article mentions that 85% are in real assets. I don't know what prices they use, but from the 2009 peak I'd use a ballpark -50% on the value of property in Spain or Greece.

No it is what the government does every year through seigniorage. Asset management fees are accrued voluntarily.

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So, we've amortized assets by financing them through revenues. Now we are going to go the reverse mortgage route? Somebody needs to do some math on how quickly that would get tapped out. Is it like oil well tapped out or Anderson Silva tapped out?

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