Me on wealth taxes from 2013

I don’t usually like to rerun material, but every now and then it seems appropriate.  Here is the opening paragraph from my NYT column from six years ago:

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.

There is much more at the link.

Comments

I don't like to re-run old comments, but here it is (December 18, 2017 in response to John Thacker on the Trump tax bill):

Thacker: ""If you are a leftist who wants single-payer, you have to like the tax bill. It’s been much easier in history to raise rates (they’re nothing but a number) than to reduce the value of big upper-middle class deductions like the MID or SALT.""

Viv: "Good observation, but I would not limit this to "single-payer". Generally, the raison d'etre of the left is to redistribute income from the top to the bottom . This bill helps them do that. Count on this: Next time the Dems are in control, the top rate will be raised on the top 1-5 percent of earners or whatever slice they can politically afford. Raising the top rate is politically easier because it affects fewer voters. If this bill becomes law, the GOP will have done the hard work for them. The reduction of deductions and the corporate reforms are important and will survive. When was the last time we had such a major corporate income tax reform? It's hard to do."

Prediction: The wealth tax is a talking point for the primaries. It won't go anywhere further. Tax rate rise is much more likely.

The raison d'etre of the right is to redistribute wealth from the bottom to the top.

Yin-Yang wot wot

Because Not taking is exactly like Taking in Left wing thinking.

This is the classic bait and switch played by the left. They claim they want higher taxes on for the "wealthy" but they will create higher taxes for the middle class too. This isn't accidental it is merely their propaganda necessary to get the people to vote them in and then the reality that you simply cannot get enough money by taxing only the wealthy more and must tax the middle class to fund the free stuff.

The problem is that the <50% pay basically no taxes.

We should shift more of the tax burden on the poor, to discourage people from being poor.

Great plan. I'm sure that after seeing their smaller paychecks, those WalMart clerks will march right out and get jobs at Goldman Sachs

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und endllich die Tapferkeit Mut, genen Sie vvor und geben Ihnen a
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sagern weiter so fantastischen Arbeit!

I'm not sure why this must be explained to a person reading an economics blog.
"We should shift more of the tax burden on the poor, to discourage people from being poor."
NO! We should shift the tax burden for two reasons; 1 to lower taxes overall because once you are paying taxes you are so eager to vote to increase them. 2, for equality. No one should get a free ride. Everyone should have skin in the game. If you live her and enjoy all the benefits of our country then you contribute to the costs.

Our current tax system as envisioned by the left is no different than two wolves and a sheep voting on what is for dinner.

Despite reading an economics blog, I actually have exactly the same capacity to be stupid as do other people.

I might have been making a bit of a cheeky joke.

Utter nonsense. Our system is rigged with preferences and subsidies for the rich at every level, in every conceivable way, in every conceivable location.

There is absolutely nothing passive about it.

Agreed your statement was utter nonsense.

Our system may have implicit preferences. But that doesn't make bad logic into good logic.

Happily, I'm not rich. I'm not taking from the poor.

Maybe you smart people can explain something I read a few days ago.

Michael Walsh, "Tired Of Living Paycheck To Paycheck? Repeal The Sixteenth Amendment. 'The income tax was always just a way to prevent the middle class from ever accumulating wealth.'”

My wife and I are kind of wealthy. But our property taxes are about 4x the national average, we paid full-freight for our kids to go to college, and in some years our federal tax bill alone has been higher than the national median income. What have we been doing wrong? How are we missing out on all those sweet, bottom-to-top subsidies?

What was your effective federal tax rate in those years?

A progressive tax system that isn't as confiscatory and doesn't redistribute as much you'd like from from upper to lower classes does NOT IN ANY WAY constitute a subsidy for the wealthy. That's worthy of Orwell's Newspeak dictionary.

The tax code itself contains numerous subsidies outside the rate itself. And many other subsidies are outside taxes.

I do hope you know this and are merely trolling.

Stop hand waving -- give us some specific examples of subsidies inside or outside the tax system that my family (or ones like us) have enjoyed due to monies redistributed from lower-income taxpayers.

Here, I'll get you started -- I can actually give you some examples (though I don't think you're going to like 'em). The government subsidizes various things that the wealthy consume and enjoy at much higher rates than the poor do. What are these nefarious subsidies you ask? Well there's NPR and National Parks, for example. And then there is the National Endowment for the Arts -- they subsidizes museum exhibits and classical and jazz concerts and the like. The demographics for all of these government-subsidized activities skew toward the upper classes. Will you join me in calling for an end to these subsidies for the wealthy? (Why do I suspect the answer is no?)

OK, now your turn -- give us some other specific instances where the wealthy are being subsidized at the expense of the lower classes.

How about employer-provided tax-free health insurance?

How about a police force that prevents the starving hordes from redistributing your ill begotten funds?

You rich white men use violence and “the law” to steal the fruit of everyone’s labor, and then use you wealth to buy the policies to make sure the violent white redneck men with guns, aka COPS, Will murder brown people to protect “your property.”

The subsidy is that we currently, and wrongly, allow you to steal and murder and horde our labor’s value.

" that prevents the starving hordes from"

Yep, when I think of America, I think starving hordes.

The U.S. has the most progressive federal income tax in the entire world

Evidence? Who needs evidence when it's *everywhere*!!

Said progressives about racism.

Said wingnuts about bush doing 9-11

Said commies about class conflict

Said Nazis about the Jewish conspiracy

Said leftists about unfair wealth distribution

Said FDR about Japanese Americans

I could do this all day...

Car radio: Report of a car driving against traffic on the interstate.
Driver: One! Here are hundreds of them!!

That seems to be more the raison d'etre of the progressives form the middle to the top, and from the bottom to the top.

@Vivian Darkbloom - your post is not on point. Neither of you are discussing, in the passage cited, a WEALTH tax, rather than an INCOME tax. One is like capital gains or property tax, the other is tax on your salary.

@Everybody reading this - it caught 1%, brainy me by surprise*, so it should catch plebeian you by double surprise, that Piketty is also concerned with the wealth-income ratio (*for example, the Wikipedia entries on both "Capital in the 21st C" as well as "Economic Inequality" fail to mention "wealth-income" ratio but do mention "Gini coefficient"). That ratio has gone up (as has of course wealth itself and income, Gini coeff, itself), as TC points out in his column, though I would have liked to see him emphasize it more.

Bonus trivia: small countries do better in keeping the wealth-income ratio down, so move to Greece, Ecuador, Panama?, (NEP-HIS blog: "The inclusion of small economies in the analysis is important because theory predicts a different evolution of wealth-income ratios during industrialization depending on the size of the country. In particular, large economies (like the ones studied by Piketty and Zucman) are expected to increase their wealth while small economies are expected to increase capital imports. ")

Yes, it's wealth inequality that can create economic problems (i.e., instability). Why has wealth inequality outpaced income inequality? Well, for one math: income inequality adds to wealth inequality. But more importantly, wealth inequality builds upon itself through little or no effort from the owner of the wealth: rising asset prices is the gift that keeps on giving. Until rising asset prices turn to falling asset prices. For those paying attention, falling asset prices is the market mechanism for correcting excessive wealth inequality (the wealth own most of the assets and, thus, suffer disproportionately when asst prices fall). Of course, it's the role of the friendly central bank to avoid the market correction.

Here is Joe Weisenthal, who is very good, interviewing Elizabeth Warren on her wealth tax proposal, among other things: https://www.bloomberg.com/news/videos/2019-01-30/sen-elizabeth-warren-on-wealth-tax-plan-health-care-and-venezuela-video

She loses me when she says implies that only the rich have a chance to get a good education and to become very successful. Why not, we can afford to tax the rich more and give more to lower earners?

I sense a certain ... hmmm paucity in Candidate Warren’s grasp of entrepreneurship. Who is she again, and did she earn her money at?

If an individual inherits some money or otherwise gets a windfall such as a lottery win or divorce settlement she can enjoy that for the rest of her natural life by investing it and living off the income.
Or she can spend it over a short period of time on services or depreciating assets such as clothes and cars.
The second choice probably seems silly to most of those on this list.
But that is exactly what a government does by confiscating the assets of wealthy people. Once they have gone, they have gone.

Well, unless of course, hypothetically, bear with me, the government spends the money on infrastructure, or on a fiscal impulse with a permanent (hysteresis) effect. Just because the government doesn't have a balance sheet, doesn't mean it doesn't own any assets.

One enormous problem with government is that it does not manage its balance sheet. It is easy to produce apparent short run income gains by cannibalizing assets.

'course we got a balance sheet! Lemme see...

We got these couple thousand military bases and equipment all over the globe that I found under the sofa. An' there's all that crappy junk debt we bought from the banks, that's buried out behind the carport. We've got all this public land, but we are trying to Marie Kondo that because it just doesn't bring us much joy anymore.

Nice, I laughed.

Just want to add though, that smart people on the right look at our military bases etc etc and think: “we can flog them for pennies on the dollar and the perennially millennial Dems will blow it all on guaranteed income for baristas and the like.” [easy cannibalizing of assets; see above]

“Better to hang on the bases in case we need them.”

Pennies on the dollar seems generous. Most of it walks out the gate methinks.

For a tax above the real return on assets, I think you are correct. This may apply to the 3% above $1B, for example. For the proposed 2% above $50M, I don't think this will increase propensity to spend because you can still delay consumption and increase your overall total level of consumption because you can still grow real wealth, even in the presence of a 2% tax.

"you can still grow real wealth,"

This is correct. Assuming, 7% gain on assets and 3% inflation rate, then current gains are around 4%. A 2% tax is thus roughly a 50% tax on wealth accumulation.

Of course if you spend any of that wealth accumulation, you are then subject to additional capital tax gains.

I think any rumor of such a tax would send wealth flooding offshore

Such a tax would come out of a closed committee and be passed in an overnight session with the President signing it the next day. With plenty of penalties for any wealth movement after the fact.

Granted, you'd likely hear rumors of a few politically connected insiders moving assets before hand, but not enough data for most people to react.

Can't this a true statement every year? It seems both parties fight about it constantly.

Florida once had a wealth tax (it was an excise tax on intangibles - stocks, bonds, etc.). So people moved their wealth outside Florida. It's more difficult to avoid a wealth tax at the federal level but not impossible. Schemes to avoid the wealth tax would convert many wealthy people into tax evaders (tax evasion being a crime), the end result being that the meaning of "evasion" would be seen in a new light, what I call the Apple Effect: what Apple does to avoid U.S. income tax was once considered tax evasion (i.e., a crime), but punishing Apple would indirectly punish all those fine folks who own stock in the company, including many voters and the politicians who represent the voters.

So, in America, crimes pay because greed is considered good.

@ Rayward.
If I remember correctly when I was handling Taxes and Finance for a software company with Business in 15+ states, Florida wa s the only state that had a TAx on Year-end receivables. not on Sales or Profit bi=ut on Amounts not yet collected from customers. Was the craziest thing I have seen in Taxes.

You are correct: ARs are "intangibles" and, hence, were subject to the tax. Repeal of the intangible tax came in stages, the first being the tax on ARs. Florida does not have a personal income tax, so weird taxes such as the intangible tax make up for it. Florida does have a sales tax on the sale of tangible personal property. Back in the 1980s, the legislature got the idea of extending the sales tax to services (legal, accounting, brokerage, plumbing, etc.). Of course, a sales tax on services looks very much like a flat income tax. Two things resulted: the public outcry was so great the tax was repealed before anybody paid it (although we did collect it for a short time), and the leaders in the legislature who supported it were defeated in the next election. Indeed, the episode helped shift Florida from a Democratic majority in the legislature to a Republican majority in the legislature, where it has stayed.

Interesting. Thanks for these points.

From Chapter 199 of the 2005 Florida Code:

"199.185 Property exempted from annual and nonrecurring taxes.--

(1) The following intangible personal property shall be exempt from the annual and nonrecurring taxes imposed by this chapter:
...
(l) All accounts receivable arising or acquired in the ordinary course of a trade or business which are owned, controlled, or managed by a taxpayer"

Funny that a software company would be owning accounts receivable that were not acquired in the ordinary course of its trade or business...

Thanks for this pointer ; we were not aware of it.

Speaking of inequality, digital advertising now accounts for just over 50% of total advertising spending. Google and Facebook together capture almost 60% of total revenues from digital advertising.

I do wonder how effective advertising really is. On the Internet, if anyone wants something it is so easy to Google it, read reviews and then buy it. People no longer have the time or money to just buy things they don't really need because they are influenced by advertisers.

Minimum cyber hygiene - use ad blocking software, use another search engine (duck), and don’t use Facebook.

I was just wondering the same thing. I get all these ads that don't interest me in the slightest. I wonder; does anyone even buy this stuff, or is that no longer the point?

I start wondering if maybe I am hopelessly old school, and ideas like profit and moving product are horribly passe.

It's sort of like insurance, where it used to be, they (1) collected premiums and (2) invested it, then later (3) paid out claims, and then kept the difference. Eventually, they figured out that they could skip 3.

Bloomberg 2020
no wealth tax
no skin care regimen

It is interesting that you arrive at a wealth tax by way of Piketty rather than current events.

But then perhaps the two reinforce. Piketty warned of concentrated wealth, and the last gasps of tax cuts and trickle downs didn't really make it to the working class. First the abstract and then the practical demonstration.

That might be why we get surprise results like Progressive pollster finds majority support for Elizabeth Warren’s wealth tax.

The pendulum might swing hard. Not least because the shine is off the idea that billionaires are necessarily better or smarter. Too many are showing themselves no better, and dumber.

@anonymous - why is killing a goat dumb? We do that in the Philippines (I've said it here before, rather than a stun gun and knife as Zuckerberg used, they poor a cup of vinegar down the kids' throat and it dies rather quickly, suffocated. The baby goat is called a 'kid', for you dumb ones). The only part of the story I found odd is why the goat meat was cold, and why Zuckerberg doesn't just hire a professional chef.

As for the progressive's wet dream of taking the wealth from the 1%'ers like me, dream on. The 1% owns 50% of the wealth in the USA and we're not giving up without a good long political fight.

It could be that Jack is skewing the story to make Zuckerberg look foolish. There is such a thing as a captive bolt stun gun that is specifically made for the humane killing of food animals. So that part of the story may not be too crazy. Not an electric stun gun from Fry's.

Reducing it to how crazy is it to kill your food just to know it died?

"Reducing it to how crazy is it to kill your food just to know it died?"

All your food died at some point....

I am suddenly reminded of the Johnny Cash song.

This is the most manly part of Faceberg:

http://fortune.com/2011/05/26/mark-zuckerbergs-new-challenge-eating-only-what-he-kills-and-yes-we-do-mean-literally/

Reply to Ray: What does the top 1% have to do with a wealth tax on net worth above $50 million? Forbes notes the U.S. has about 5,000 households with $100 million net wealth. 5,000 is not even close to .01% of U.S. taxpayers.

It doesn't, Ray likes to brag about how much money his parents have. I had a buddy like that when I was 11.

Did he have a hot girl friend half his age?

Yeah, she was a big time gold digger at 5 1/2 years old.

This won’t become law for the same reason there won’t be a wall. It’s insane.

Taking off the troll hat for a moment, Let’s think this through:

A privately held business has $100 million in assets, and makes $30 million a year in revenue during economic expansions. Let’s say 10% of that revenue is profit : $3 million in good years. On the $3 million, he pays the top marginal rate.

When the economy slows down or enters a recession, he makes zero profits. Since there are no profits, he pays no taxes (still has prop taxes. But simplification) but can keep the business alive and maintain his workforce during the recession.

Under the Warren insanity, on top of the profit taxes hes now paying $2 million a year in taxes just on the assets.

Instead of paying $1.5 million during the good years on his profits, he’s paying $3.5 million. His actual take home income after tax went from $1.5 million to negative $500,000. And this is during an expansion.

What about during recessions? Well, now he’s losing $2 million a year instead of operating at zero profit. His take home pay went from zero to negative $2 million.

If you read carefully, I did not endorse the wealth tax, nor predict that it would pass.

I am commenting on how we got here, to a very changed environment and attitude toward wealth.

"A majority of voters resent rich people, and worry that the GOP is too sympathetic to them. For this reason, when Democrats "attack" the wealthy -- and increase the salience of class resentments -- their vote share tends to go up. Populism *is* pragmatism."

https://t.co/gUriW5sdsu

And if you bothered to take your own advice, you could see in the comment I don’t refer to your opinion on wealth taxes at all.

Then maybe you should link your comments where they are related.

'Under the Warren insanity, on top of the profit taxes hes now paying $2 million a year in taxes just on the assets.'

I want to say one word to you. Just one word. Hmm: There's a great future in depreciation. Think about it.

Seriously, a company with any production equipment is using depreciation to reduce its tax bill -and its 'wealth' - to as little as possible, and fully legally.

Where do you think the term write-off comes from? It is what happens to an asset after it is fully depreciated.

Admittedly, if all your privately held company does can be described using the term Finanzkapitalismus, then depreciation - much like workforce - are not really meaningful terms.

I’m well aware of how depreciation works and how it affects income taxes.

Notice I also didn’t include property taxes, licensing fees, and a thousand other things in an Internet comment meant to illustrate the overall impact of the proposed tax.

You’re making an assumption that overall capital stock or PPE or IP of a hypothetical firm would trend downwards due to depreciation. Stock and flows my friend.

Stocks and flows. Sorry I don’t know the German equivalent.

'and how it affects income taxes'

Except capital depreciation is used in a corporate setting generally - yes, people do try to depreciate their own property, but the scale is tiny compared to what ExxonMobil, owner of a number of undoubtedly fully written off refineries (worth nothing from one perspective involving 'assets'), does. And yes, those refineries undoubtedly have a liquidation value, but are not part of ExxonMobil's 'wealth' in terms of an asset with a value above $0 from the (simplified) perspective of the IRS (and a clever accountant would be able to get that $0 into serious negative territory with a bit of creativity - such as the expense of cleaning up the site).

'would trend downwards due to depreciation'

Um, all capital equipment at a company that manufactures something does not only trend downward, it depreciates to the maximum extent possible to $0 (leaving aside something like scrap value in an Internet comment) as an offset to revenue.

'Sorry I don’t know the German equivalent.'

For a manufacturing company, it capital equipment is its taxable 'wealth.' And that company depreciates its equipment as fully as possible, to offset its profits - leading to an asset worth nothing.

Yes, lots of details, etc. And I admit that my interest in any current wealth tax proposals is zero - to the extent they occur, they will be gamed, for example by using already well established tax concepts involving a company's 'wealth.' That was the point about financial capitalism - you basically cannot depreciate a billion dollar bank account (though moving it offshore is attractive and not all that hard way to avoid taxes - Starbucks knew how to enjoy a good Double Irish, for example, and the current man thinking about an independent run for president would undoubtedly love to taste that again https://en.wikipedia.org/wiki/Double_Irish_arrangement) the way you can a billion dollar refinery.

A comment about a privately held business and the tax consequences triggers a Wikipedia page, a rant about Exxon, a misunderstanding of stocks and flows and inversion?

Mkay.

There’s only thing thing in your response that’s relevant, so I’ll address that.

A given production machine will be depreciated over time, yes. And that will be used to offset tax on profits. Yes. That’s because companies are not allowed to offset it fully in year zero.

But regardless we’re looking at overall assets of a firm. Its capital stock in total not individual components thereof. That’s what would be taxed. Assuming a company is only replacing depreciated productive capital stock and not adding to it, the assets would be unchanged through time. So it’s irrelevant to the proposed wealth tax.

Unless your implication is that the company in question would depreciate everything to scrap value and liquidate the company. But that’s not how we generally analyze tax incidence, we don’t assume companies are planning on liquidating.

'about a privately held business'

I was talking about a manufacturing company - you know, the sort of company that has an actual workforce. Clearly, a company involved in retail sales (assuming it does not own property) has little capital stock.

'That’s because companies are not allowed to offset it fully in year zero.'

Mainly to prevent cheating - I buy a machine, keep it for a day, then sell it on, at a price designed to keep the tax gains worth the time of such paper transactions, collecting full tax value for something that did not actually depreciate by any meaning of the term at all. Leaving aside self-dealing entirely (such as with a privately held company just happening to buy Mercedes that are then sold for a $1 to the private owners, with the company receiving a full tax write off), as pointed out when the idea of immediate expensing was brought up here in the past.

'Its capital stock in total not individual components thereof.'

We may be using different different definitions of capital stock - inventory would not be something I would ever consider capital stock (yes, simplified), for example. It is certainly an expense, and yes, inventory can also be depreciated from a certain perspective, of course.

Again, I have not read any of these wealth tax proposals, or even commentary about them. But I am sure that a company like ExxonMobil has a lot less taxable wealth using current tax standards than its actual book value. And though I would never want to deny the stupidity of badly thought out taxation schemes, the crude oil that enters a refinery and the refined products that leave are not considered wealth, and the receivables (and payables, for that matter) involved in turning crude into gasoline is not wealth (or losses, for that matter) either. Yes, all very simplified.

Manufacturing works for the example, as long as its privately owned sole proprietorship. So we agree.

You point out why the government demands that expenditures on capital assets cannot be expensed immediately. Cool. Also irrelevant as to whether it’s illegal. It’s still illegal. So we agree.

Whether a giant public corporation in the oil and gas industry is properly accounting for assets is totally irrelevant to the example of a sole proprietorship and the tax law proposal.

More importantly, it’s not the point. So what is your point?

That business owners (let’s say a machining company is the example) can simply depreciate their capital stock (machines) to zero over the life of the machines and close the business once they have zero capital stock to avoid the wealth tax?

Assuming their output is constant, their capital stock will be roughly constant to produce the output, and thus depreciation has zero impact on how the wealth tax affects the business.

"Seriously, a company with any production equipment is using depreciation to reduce its tax bill -and its 'wealth' - to as little as possible, and fully legally."

LOL, another person with a fundamental misunderstanding of depreciation.

Depreciation isn't something that a company wants to do, it's something that the government forces them to do in order to smooth the flow of taxes. In the absence of taxes and their effects, companies would normally just expense everything in the year they paid for it. It's a zero net effect on the actual accounting ledgers.

However, in the presence of taxes, expensing everything immediately would tend to lower taxes immediately. Instead the government forces you to depreciate your asset in order to insure a steady supply of taxes over several years.

'another person with a fundamental misunderstanding of depreciation'

Or maybe a too German centric view - German companies always depreciate their equipment to the extent possible. This is even possible in the case of a private person, by the way. If you can convince the Finanzamt that your PC is used mainly for business, you can depreciate it over several years, using its cost to offset some of your income. Strangely, the government does not force anyone to do that - as a matter of fact, the government tries to discourage people lowering their tax bills that way, for example demanding to see some documentation from your employer that your personal PC is mainly used for work related activities (forget about depreciating a gaming rig if you are a teacher, for example).

'It's a zero net effect on the actual accounting ledgers.'

Not for a manufacturing company. The German term is actually AfA - Absetzung für Abnutzung, which while a tax term, includes 'Abnutzung' - that is, a machine designed to produce 1 million units has lost 10% of its value after producing 100,000 units (simplified example). Depreciation is not simply a fantasy constructed by governments to smooth their tax revenue (actually, depreciation reduces their tax revenue, as it is used as offset against profit - no allowable depreciation would increase taxable profits, from this perspective - and it explains why a company can depreciates its vehicles, but a private person cannot), it is a reality in which a machine has a useful life based on physical reality. All manufacturing companies (well, successful ones, at least) are fully aware of this reality, and this is reflected in the company's accounting.

Though if you wish to buy a Mercedes with 100,000 miles on it for the same price as the same model with 20,000 miles, I'm sure that the person selling the high mileage car will enjoy hearing you explain how accounting for depreciation is something that the government forces people to do, and that any other perspective just shows a fundamental misunderstanding of depreciation.

You seem to have no grasp of the obvious.

"actually, depreciation reduces their tax revenue, as it is used as offset against profit - no allowable depreciation would increase taxable profits"

No, that's a moronic statement. Expensing assets would allow the entire amount to be written off. Depreciating forces the business to spread the expense over a longer time period. Thus raising their marginal taxes.

"Though if you wish to buy a Mercedes with 100,000 miles on it for the same price as the same model with 20,000 miles"

Again, that's a moronic statement. You are confusing business accounting depreciation with wear and tear (physical depreciation). They are not the same all.

For example, two cars bought last year. They both have 1 year of allowed depreciation on them. One has 100K miles of use, the other has 20K mile of use. No one with any reasonable intelligence thinks the two vehicles are worth the same amount of money.

'Expensing assets would allow the entire amount to be written off.'

That is not the idea behind depreciation - depreciation of production equipment is based on the idea of 'wear and tear,' thus justifying giving a tax benefit to a manufacturing company for simply being in business. And that 'wear and tear' takes places over years, not all at once, obviously.

This is also why depreciation is not allowed in all cases, of course - a billion dollar bank account does not suffer from wear and tear.

But we started with you talking about tax accounting, and companies being forced to depreciate, and now you talk about business accounting depreciation. They are not the same thing, at least in Germany - and I would have assumed the U.S. Because just like German manufacturing companies, I had always thought that American manufacturing companies keep, in a sense, two sets of books - one used when dealing with the tax authorities, and one used when dealing with the real world. You know, one set that shows no taxable profit, while the other shows just how much money the company actually earned. Of the two, which do you consider involves business accounting depreciation? Because obviously, if depreciation is forced on companies, the second set would have no depreciation at all, apart from possible wear and tear, right? And it would have assets that never lose value, meaning that the PC that runs Windows 95 and bought in 1996 is still worth $1000 on the company's books. Even if no one has turned it on for 15 years, and it is just sitting in a basement somewhere.

There are other reasons for depreciating assets that are not tax law or wear and tear related. But if you wish to buy a Windows 95 PC for 1000 dollars, I'm sure that can be arranged too.

Value of assets , to include capital stock, varies wildly based on the rules.

Consider mark to market. You’ve eliminated your stated purpose for depreciation.

Regardless this entire discussion is a giant red herring and waste of time.

Depreciation has no impact on the impact of the tax law, excepting the absolutely insane idea that the company will never replace or invest in capital stock again, but rather let their assets burn down to their scrap value and then disband the enterprise.

Another episode in wasting time with prior.

Brilliant!

Tax the corporation's income. Tax the stockholders' dividends on the corporation's income. Tax at 2%(?) the wealthy's wealth, including appreciated market value of the corporation's stock. Then, tax the inheritance/estate at 40% to 50% when the wealthy dies.

It's the class war. And, it's all they got. The 98% (upper-middle, middle, low-to-moderate income, and welfare dependents) can vote to take away the 2%-er's money.

FYI - It will not be enough.

America doesn't have a tax problem. It has a spending problem.

Is that worse than a tax regime planned entirely for the top 2%?

Good question. Makes me think - !Me duele la cabeza!

Are they proposing to abolish all those other taxes and replacing with the 2% wealthy tax? If not, I have no opinion, better or worse.

Better are faster GDP growth and expanded personal prosperity. Taking more taxes from the wealthy doesn't advance that stuff.

"Better are faster GDP growth and expanded personal prosperity. Taking more taxes from the wealthy doesn't advance that stuff."

I almost fully agree. Almost, because I think many are approaching the wealth tax intuitively rather than literally.

Would a 2% tax on fortunes over 50 million dollars cause them to reduce earnings, or would it cause them to make sure their estate was earning more than 2%?

I'd like to think a 2% tax was something I could handle, in that situation. Thought I actually do agree with those who say a 50% estate tax is better and more efficient than a yearly wealth tax.

Holy Cow! I think we almost agree. Never thought that would happen.

Cheers!

Any article loses me completely at the first mention of Piketty. That asshole has no credibility with me.

Wealth and income disparities are meaningless as long as they are gained in a free market. To see how this is the case, imagine that homogeneous people are endowed with equal property. Then one and only one of them discovers a huge trove of diamonds under his property which, by law, belongs to him. This wealth endowment does not make anyone else worse off. In fact, it makes everyone better off because the hyper endowed individual can only benefit from the diamonds by trading for other things, and the existence of trades proves a net increase in utility. This story doesnt change, and in fact gets stronger, when this individual CREATES diamonds instead of merely finding them. His innovation makes the whole world better off, and he gains most (but not all) of the wealth gains.

It is unremarkable that an entrepreneur garners the lion's share of new wealth that he creates. What is remarkable is that anyone else gets to share it at all.

This says nothing of the disincentive to wealth creation from redistributive taxes.

Note that gains in wealth are zero sum when someone becomes unequal by taking from others rather than creating it.

I forgot to mention Citizens United above. Had that decision not gone the way it did, the idea that diamond-guy is as harmless as anyone else might have held on.

I really think that part of the reaction against great wealth might be a reaction against Citizens United. That is, if you can't keep billionaires out of politics, fight them more directly.

Certainly that has been one thread of reaction to Howard Shultz. Why, they ask does a guy with just an idea that he might run for president get so many prime time tv slots?

He's a diamond-guy.

Regardless of how Citizens United was decided, that would not have kept billionaires from running for president using their own money. What would have happened had the decision gone the other ways would have been the imposition of an official government-licensed press, where no corporation without government permission would have been able to speak or write (or publish newspapers, magazines, videos, movies or books) advocating for or against political candidates without some form of official press status (which of course, the government could always threaten to revoke). Keep in mind that The New York Times is a for-profit corporation -- if Citizens United had gone the other way, why could the Times continue to publish election editorials and endorsements but not Citizens United?

No if it had gone the other way Citizens United would have been one of the most illiberal decisions in Supreme Court history.

That's just a circular argument hidden beneath inflammatory text. Text like "no corporation without government permission would have been able to speak or write."

Circular because you assume the ancient practice of writing a letter to the Times is just like spending a million dollars, and then cry "if I can't spend a million dollars how can anyone ever write to the times!"

What if speech and campaign spending really are different?

(It is going to rain in an hour, so boring.)

Do you even know what, specifically, was at issue in Citizens United? The non-profit organization Citizens United wanted to promote and distribute Hillary: The Movie. During oral arguments, government counsel admitted that there was no critical difference between publishing a movie and the same information in book form. So if campaign finance laws could be used to prevent a non-profit corporation from distributing 'Hillary: The Movie', they could also be used to prevent publication of 'Hillary: The Book'. Do you see the problem yet?

As for press licensing -- if certain corporations (like CU) were to be prevented from engaging in political speech under campaign finance laws and others (like the NY Times or CNN) were to be permitted, how would that work in practice? How would the government distinguish between corporations that could engage freely in all manner of political speech and those that could not?

We can all read Wikipedia.

"The federal law, however, prohibited any corporation (or labor union) from making an "electioneering communication" (defined as a broadcast ad reaching over 50,000 people in the electorate) within 30 days of a primary or 60 days of an election, or making any expenditure advocating the election or defeat of a candidate at any time. The court found that these provisions of the law conflicted with the United States Constitution."

That was actually a pretty narrow consideration already, spending tightly associated with elections.

But again, I am not prescribing a specific campaign finance law, I'm just using this as an example of every action causing an opposite reaction.

"Three-fourths of survey respondents — including 66 percent of Republicans and 85 percent of Democrats — back a constitutional amendment outlawing Citizens United."

And as I say they might develop a bit of resentment for rich people in politics as well.

...or making any expenditure advocating the election or defeat of a candidate at any time

And why wouldn't this have applied to for-profit news corporations? Because they're not making separate expenditures for their advocacy? So then the safe harbor is -- don't buy ads in newspapers or or TV stations, just buy the whole newspaper or the station, and then you can engage in any election-related advocacy you like and label it an editorial? Do you still really not see the fundamental problem here?

Do you all see what this is?

The rich oligarchs spreading fascist propaganda and lies with their Madoff Money want the same rules as the New York Times.

Halliburton and Exxon-Mobil can buy our elections with cash to make sure they get their Manchurian candidate. And Russian stooges, aka Republicans, call it freedom.

The common man, like me as a moderate Republican, remembers when freedom of speech was about one person speaking.

Russian trolls think it includes people banding together in organizations to raise money and produce speech. That’s blatantly illegal and an excuse for Russians to interfere.

Groups of citizens should never be allowed to comment on an election or candidate. Vote warren 2020

MR is a silly place

"What is remarkable is that anyone gets to share it at all"

This is in no way remarkable. We live on land we took by violence and we retcon it to some sort of tale of freedom and "new worlds." The entrepreneurs get where they are by manipulating government and media. Who cares.

I didn't take any land by violence

The discovery of diamonds absoutely does make others worse off. Everyone else who owned diamonds before the discovery finds the value of their diamonds reduced because the market is now flooded with supply. It’s not like you can eat them - their only value is their scarcity, and if you take away the scarcity, they are nothing but shiny trinkets.

Although I guess if you discovered a REALLY big trove, you could burn them in your wood stove to stay warm after diamond-induced hyperinflation destroys the economy.

"Everyone else who owned diamonds before the discovery finds the value of their diamonds reduced because the market is now flooded with supply. "

+1, basic supply and demand curve

Nobody should pretend that increasing supply has no effect on price. Certainly how to treat the effect is a matter of debate, but it should certainly be a factor for consideration.

It takes 3 generations to build up an appreciable amount of capital. The first Gen does crappy jobs and saves nothing but they are now I'm America! Thr second Gen does boring jobs and saves heavily, the third enjoys the miracle of compound interest and doesn't screw it up. 4th and onward can thrive with minimal effort.

I work with many immigrants who are in the second generation. Have many friends who are in the second generation. I myself am in the third. America really is the land of opportunity and we really are all potential millionaires.

Except in most generational models I am familiar with, the third fritters its trust fund away on cocaine and bottle service

"Miracle of compound interest"? At current rates, it takes centuries to double your money.

Average rate of return on the DJIA for 100 years is 3% (inflation adjusted). Doubling rate is ~25 years. In the last 10 years the DJIA has been ~10% which implies a doubling around 7 years.

Once you have the time horizon to weather short term (e.g. decadal) shocks, investing doubles money faster now than it did 100 years ago.

Long term stock market gain = 7% Long term inflation = 3%, Real returns = 4%

72/4 = 18

It takes 18 years to double your money in real values.

good news for bitcoin

Bitcoin has a published value. It's as vulnerable as anything.

FWIW, many assets can be easily concealed. Bitcoin's advantage there is minimal.

The U.S. and other countries suffer from a mismatch in tax receipts and expenditures in part because of tax evasion schemes. Indeed, it's estimated that between $22 trillion and $32 trillion is hidden in secretive offshore accounts that escape taxation by the owners' home countries. That was the estimate in 2012. Today, that figure is likely much higher. If the U.S. adopted a wealth tax, I don't expect that figure would fall.

Are you attempting to say that tax avoidance or evasion are bad?

It is a legal distinction. US law uses the word evasion to mean a crime, whereas avoidance just means doing with the law tells you, to avoid the tax.

Next major struggle?

There have been at least a dozen "major struggles" in economics in the last six years that were bigger than the wealth tax, which was only brought up by the flailing Fake Indian because she was beaten out by Occasional-Cortex in raising the marginal rates to infinity.

But thanks for pretending you can predict the future, as well as your humblebrag that you once had some of your words printed in the open sewer that is the hysterically-partisan NYT.

Get your quid off the grid!

Consider pulling out of a recession with Liz Warren. What are her choices?
1) Let the rich get richer and fund the precious government programs
2) Negoatiate, hard.

She will choose the former. In any given recession,k the hysterics will demand insurance for the sacred entitlements, refuse to negotiate. Liz will have no choice, let the super wealthy get more super wealthy.

The rich will be taxed when we are forced into monetary regime change, and this is likely the best method, devaluation. It is simply impossible to get a majority of freaked out, bottom dweller voters to think clearly in a recession, they always give up the store.

Debt is too high, the government debt industry relies on inequality to fund debt service on the margin.

Indeed. But the rich own leveraged real assets and equities, so devaluation makes them richer.

The best way to tax existing wealth is through a progressive consumption tax. That way you don't reduce investment incentives. There are different ways to do this. One example would be a 5% VAT coupled with a higher standard deduction or UBI.

Shout it from the rooftops

A consumption tax could work if all realisations of investments are taxed at income tax rates, and all money put into investments is subject to income tax relief.
It would punish frivolous consumption by people wealthy enough to have investments, and therefore would be of ecological and environmental benefit.

Wealth taxes are just "eat the rich" class warfare.

Warren's tax would at best bring in 1/20th of US government expenditures in one year.

Per her own advisors:

"$2.75 trillion over 10 years [275 billion a year], according to an estimate by Emmanuel Saez and Gabriel Zucman, two economists advising her campaign." [ ] material added

To bring in real money to fund all the lib wish list, you have to raise the rate or lower the floor or both. We all know that "both" would be the answer.

While I oppose the wealth tax, and I doubt Warren's advisors realize that the wealthy would make moves to pay less tax and so $2.75T is more than they will collect, $275B per year would reduce the annual deficit by around 25-30%, dropping it from around 5% of GDP to 3.7% of GDP.

So again, I oppose it, but that's real money. And it's not funding anything more than what we are already spending. Government spending is not a lib thing, or a con thing, it's an American thing.

Green New Deal, Medicaid for All, "Free" College. That is what Warren and the rest running for president want.

Warren doesn't want care about the deficit and not one penny of this tax if enacted will go to deficit reduction.

Its just class envy, which is ironic since Warren is a multi millionaire. I guess she expects to be dead before we eat her.

Exaggerations don't add anything to the discussion. Warren like a lot of limousine liberals (Buffett, etc) is fine with paying more in taxes. And before you pull out the moldy canard about 'then she is free to send in more' remember it's a collective action problem.

The state of the country's finances and demographics (which is driving a lot of the spending) means that there will be pain. Pain in terms of higher taxes, higher inflation, and some reduction in benefits for Medicare and age raising of Social Security.

There's no other way.

"Most wealth has already been subjected to income and other taxes, perhaps multiple times."

This strikes me as ridiculous. Close carried-interest loopholes and thousands of other dodges and we'll revisit the comment's validity.

I am wealthy. I make more than $1M per year. But if I stopped working my lifestyle and my family's lifestyle would come crashing down. I'm not asking for sympathy. We live better than most of the world can ever imagine. But a confiscatory policy is not going to solve any problems or change the world, it's only going to cause people like me to pay lawyers to avoid the taxes which we feel are unfairly targeting us.

Most wealth is in pension plans and banks. Hang on to your wallets folks. They are going to nationalize the banks. There is no limit to socialist greed and envy.

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