How easy is it to administer a wealth tax?

A third issue is logistical. A wealth tax would be like an estate tax levied every year. Figuring out the tax owed on large estates is complicated, costly and time-consuming. The Internal Revenue Service gives estates a year to file a return, but even then, executors often have to file extensions. And on the other end, auditors go through the returns, which can take years before an estate is settled.

The process requires not just lawyers and accountants but valuation experts who assess the worth of assets like closely held family businesses.

“It would be a highly cumbersome tax return to prepare on an annual basis,” said Jeff Moes, executive vice president and chief fiduciary officer at FineMark National Bank & Trust, which serves high-net-worth clients. “Every federal estate tax goes through an audit, and presumably this would go through an audit as well. They’d have to figure out if the valuation methodology is correct.”

“A billionaire would have a return that would be literally three feet high,” he added. “Our $100 million clients own multiple closely held businesses. All of them would require an expert valuation and five-year financials.”

And then the government would need to have enough auditors to verify everything that was submitted. In 2018, for example, an estimated 4,000 estate tax returns will be filed, with tax owed on 1,900 of them. That’s a tenth the number of tax returns that would be filed under Ms. Warren’s wealth tax plan.

Here is more from Paul Sullivan at the NYT.

Comments

So...40,000 returns? Doesnt sound like that many. Probably wont raise much money.

Just count everything as income. No step up basis on death. No exemptions. Lower the rates and broaden the base! So easy!

Let's cut military spending and stop with the wars. These things cost money we don't have.

It's not so much a revenue thing, but to avoid the type of permanent upper class that the founding fathers wanted to avoid.

The Constitution provides for national defense, interstate commerce, limiting government powers (especially to infringe on any inalienable right, e.g., property), and not much else.

Direct taxes were unconstitutional until the 16th Amendment. I've seen an article saying the "wealth tax" could be unconst. because the 16th specifically authorized a Federal income tax. If so, how are estate and gift taxes constitutional?

Some historian believe the Founders wanted to "wed" the interests of wealthy to the new nation and its limited government.

Do you have a quote or written evidence that any Framer's purpose was to avoid or preclude a "permanent upper class?" I think it was an hereditary aristocracy.

Let's cut government power for welfare, free housing, free health, free food, open borders/invasion. They seriously cost money we don't have.

The better question is why would you even have a wealth tax. It is probably unconstitutional. It is counter productive. It will harm those who are in the middle class or below the most. I understand why a dishonest politician would advocate for it; to buy votes with free stuff. What I don't understand is why would any sane person actually Implement it? Stupidity comes to mind. Hate of the country perhaps.

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Rightly so that these Centrist Neocon-Neolibs bring up questions of practicality and logistics for a new tax scheme/social program such as “how are we going to pay for that?” “how is that going to be enforced/administered?” “at what cost?” and my personal favorite “this could open up a lot of unintended consequences or second/third order effects.”

Yet they rely on emotional arguments when it comes to matters of US as bearing sole responsibility for omni-war/omni-global-policing. And those same arguments that they apply to some economic program: Arguments that attempt to quantify or question what is the ROI on this, how will it be implemented, what is the goal/endstate, how does it benefit the average American, bringing up unintended consequences are simply dismissed.

And there's really no such thing as "money we don't have" when the government is the issuer of the currency it then uses.

US Dollar History. The dollar began backed by a specified weight in silver. The, a weight in gold. Now, the US dollar's "value" is set with the PhD standard.

How is that working?

"Let's cut military spending and stop with the wars."

You get the award for irony. It is our strength that prevents us from being destroyed by other super powers. Cutting military spending would create exactly the conditions needed for WW III. LOL. Your comment was supposed to be funny, right?

>stop with the wars

We have a Trump fan in the house.

Which war is stopped?

The war on the Kochs. And the billionaire vulture class.

Still worth it. Anything to remove the smug look on the face of Soros, the Kochs and other annoying globalists.

Even the smug establishment Dems that run the NY Times are scared of these taxes. All the more to want them.

The rich are our gods, we must honour them.

If only the poor billionaires had some sort of resource to trade for the services of accountants...

Seriously thoigh, it doesn't have to be the easiest to administer tax as it has another goal besides raising revenue: reducing inequality. A fair criticism would either A. provide a more efficient way to reduce inequality or B. argue reducing inequality isn't worth it.

As for enforcement, just go with a Beckerian solution and make the fine for being caught out so massive that you only need to randomly audit a few each year.

I remember something about Trump being for a wealth tax in the 1990s. Wonder what he thinks now.

"Trump has called for a one-time 14.25 percent tax on the net worth of individuals and trusts worth $10 million or more. "

https://www.taxprophet.com/archives/faq/991128.htm

Trump's clearly no Eisenhower.

Ask the Swiss. They have been at this wealth tax thing longer than anybody.

Well, yeah. That's largely because what we're talking about here is a "wealth tax" and not Tyler's property tax (you will note that this distinction is not even lost on Liz Warren---her proposal, of course, applies to *net wealth*). And, a lot of these potential problems were already covered right here by Viv in the MR comments. What a scoop on the NYT!

Again, here you've got a few people who might actually have the experience needed to evaluate the practicality of the proposal in "real life" rather than a "public intellectual". They are basically saying, "hey, based on some actual experience this is going to be really complicated", strongly suggesting it therefore might not be such a grand idea. And yet, if the politicians and voters push this through, it will be those same folks who get blamed for the complexity! And guess who most often does these required annual "valuations"---economists!

A few additional points to those raised in the article:

I covered this in an earlier comment, but the complexity will be greatly increased by the inevitable carveouts and exceptions, many of which would be warranted. If you are going to respond to this, back your comments up, please, with a little more thought and analysis. The little cow pies, for example, dropped by Moo Coo, above, don't interest me at all.

You might think these super rich folks have tons of cash lying around to pay their annual wealth tax bill. Not necessarily true. The liquidity issue is one well known by estate tax specialists. Expect that assets will need to be sold to pay these annual taxes. Not everyone is going to borrow. Think when they dump huge blocks of stock in the market to pay their tax bill that won't affect you? Guess again.

I'm surprised that our economic experts have not yet commented (to my knowledge) on the one issue on which they might have expertise---is this tax counter-cyclical or pro-cyclical to recessions? I'm not sure, but my guess would be, on net, the latter. Does it add to the volatility of markets? I invite Tyler and others to enlighten us.

Despite the unnecessary duplication (FATCA etc), I'm actually in favor of requiring banks to disclose how much income US taxpayers earn on ther accounts in the US and abroad. Unfortunately, if you are going to have an income tax system, you can't simply rely on everyone voluntarily reporting. But, this also raises serious privacy concerns that need to be balanced. The wealth tax on all or most all assets would significantly alter the current balance between disclosure and privacy. As noted in the article, *everything* would need to be disclosed to the IRS *every year* much like an annual estate tax return. Expect substantial additional reporting requirements on all assets. Think that won't apply to you? How else are they going to know you don't have $50 million hidden somewhere? How are *taxpayers* going to know they don't meet that (or some other) threshold ? Trust me, lawyers and accountants, (legitimately) worrying about their own potential liability, will insist that far more people undergo these audits internally just to make sure they are not above the limit.

These privacy issues also have potentially serious political implications. I suppose Bill and Hillary and Barrack and Michelle (add your own list) would be subject to these annual wealth tax returns. Annual audit by the IRS on everything? Do they really want the Trump administration (or some other) having access to all that? This sounds like a potential special prosecutor on steroids and one that is not always going to be politically neutral. I see the potential here for a lot of political abuse and not just from one side or the other.

Not only does this wealth tax idea strike me as a bad idea for all the reasons stated (and others) , but based on the rhetoric I hear from AOC, Liz Warren and others, my intuition is telling me that this might be another small step to Venezuela.

Yep. And once on the books, there will be perpetual agitation to lower the exemption amount ( to e.g. $5 million, $1 million) to tax the rest of those kulacks AOC considers wealthy.

I wonder what the assessed value of academic tenure will be?

So basically the John Birch Society may have been right.

That the Russians would be able to potentially undermine American democracy through the use of corrupt and/or willing dupes and apparent fifth columnists? Bannon has used the word 'treasonous' in connection with such activities, but that is a bit too harsh, at least from an originalist perspective.

So yep, that decades old prediction seems about right. Admittedly, the Birchers never predicted that it would be the Republicans benefitting from the efforts of a Russian leader trained by the KGB.

Enacting a wealth tax has to be like arresting Roger Stone. You gotta go in quick, under cover of darkness, before they send it all to the Caymans.

They brought out the SWAT team, at dawn, with CNN on hand, to arrest a loudmouth jackass. Then they manacled him and made him do the perp walk on cable TV, most probably for the crime of being keen to know what dirt about Hillary was in Podesta’s trove of hacked emails.

Good. Stone deserves a long prison sentence as do all Russian colluders who betray the United States of America!

Deflation, a long period of price compression removes inequality, and requires we run a surplus.

If you look at history since 1971, we can see how the rich make money, the Keynesian cycle, they know exactly when government is nearly broke and they make a killing. It is nearly the perfect scam, only an English dandy could have swindled all those dufas American economists.

What wealth? The wealth they have?
No, the super wealthy have a futures contract, the keynesian economists has already convinced us to do unfair deals in the future. We have already agreed to giving them another half trill as long as they help cover pension costs. This deal was made a few weeks ago, it is done, and we all supported it but don't know we supported the deal, we are only allowed asymmetric information as Stiglitz points out.

Keyenesians always and everywhere promote cycles and claiming to be acyclic. A few days ago, the public sector freaked about California, a secret deal was done. This is how we did it during the lasst cycke, I was there, it was a public agreements, pensions saved, rich get richer and was exclained that way to us exactly, we knew about it was no conspiracy. I can actually find the written comments everywhere where we knew the deal, we agreed. Open and shut case.

We just agreed to do it again, and again we all go into this with open eyes, no one is fooled, we have made a decision to give a half trill to wealthy people and salvage the public sector pensions.

Deflation will not "require we run a surplus". Deflation will make the trade deficit larger as holding dollars becomes more attractive to foreigners.

Deflation can't decrease inequality with the amount of debt that the poor and middle class carry in the country. College loans, mortgage, car lease, credit cards, those aren't rich people problems.

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.

The process requires not just lawyers and accountants but valuation experts who assess the worth of assets like closely held family businesses.

No, you don't need "valuation experts". You need the market, with bids made on the market to determine value.

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.

I almost missed the turning point, I was doing software, not paying attention. The pensions and city budgets are starting their keynesians cycle. The cities all have huge interest payments due because they all did the keynesians borrowing at exactly the same time a few years ago. Gavin has had to drain the rainy day fund,capital gains taxes, our main tax, is stopped with the market. Returns came in at -4%, all the cities are due, in total, to increase their pension payments, their budgets crashed. That was the alarm, the reason Powell turned and restarted the cycle. We are not concerne3d about Bill tripling his wealth last time, we are concerned because if he triples again this Keynesians cycle, the guy has 300 billion, and multiply that by four five or six, and we can easily see a half trillion taken from the kids and given the the wealthy. That is collapse, and this is why we have the sudden hysteria, Liz Warren and Krugman already made the deal, it is done unless we stop it in the next month or so.

How much value is there, in itself, purely in the accurate wealth data for billionaires that this process would make accessible to government?

One last point on the millennials. This is their first agreement to bail out the public sector and fund the wealthy. It is the fourth of fifth time the boomers done it.

It is important that all the millennials have the facts. If we send Keynesian economists off on millennial swindle, then the milennials get stuck with a life time of voter's regret, and that is not fair unless they know exactly what is going on. They have to know what they sign, this time. They do not want to get caught like the french yellow vesters having to eat the contract they personally signed in France. The millennials need to know the full extent of the contract.

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.

Property taxes are a lot easier.

I looked up on Google various wealth taxes going back to the middle ages, and how they were implemented. There is a lot about it, and I have barely scratched the surface. "Jew Tax" was not a Nazi invention by any means.
Implementation seems to be by the following means.
Identify a wealthy minority.
Demonise it.
Make life unpleasant for it.
Don't let them leave the legislature taking anything with them.
The minority doesn't have to be racially defined. It can be by any profession or occupation that has built up so much reputation that it is highly paid. Lawyers and bankers, for example, have been chucked out before.
The present discussion seems to be about industrialists. So the first step would be how to define an industrialist without going to all the trouble of auditing what his wealth actually is.
Once that has been achieved, pass laws that make his life inconvenient. Money Laundering regulations and demand checks for Identity Purity at every move he makes. Mere inconvenience may not be enough, so tax activities necessary to forming and running a business. The "tax" may even be indirect, such as demanding some regulation that involves paying a high fee to a another professional.
Eventually the industrialist will try and move abroad, so then pounce and allow him to take nothing with him except the clothes he is wearing.

What Mr. Sullivan writes in his article is all true: these proposals to increase taxes on the wealthy would be very difficult to administer and would be fraught with schemes of tax avoidance (and evasion). But Mr. Sullivan also unintentionally highlights several areas that are ripe for reform. One is the old tax preference for earned income (salary and wages), which was subject to a maximum tax rate of 50% even as unearned income (dividends, interest, etc.) was subject to a maximum rate of 70%. Can one even imagine a world where salaries and wages, rather than interest and dividends, would be given preferential treatment. Today, it's unearned income that is given preferential treatment, including the new 20% deduction for passive income received from a pass-through entity (partnerships, S corporations, etc.); one cannot imagine the amount of effort that is being devoted to restructuring businesses in order to qualify for the 20% deduction. Why has earned income gone out of favor? Because it's the investor class that has come to dominate our politics and our tax code. Of course, it's all the preferences and exclusions for unearned income (including such things as "carried interest") that has resulted in a preference by owners of capital to invest in complex financial assets rather than productive capital, which in turn has resulted in reliance on rising asset prices for prosperity. Our tax code has all manner of incentives for investing in nonsense like cryptocurrencies. To paraphrase Mr. Clinton's political advisor, it's the incentives, stupid! Economists are supposed to know something about incentives, but they suffer a strange case of amnesia when it comes to the wealthy. When was the last time an economist had a fresh idea? I can't remember either.

This topic is becoming boring.

So the wealth tax is just rent seeking for lawyers and accountants. It's like Warren Buffett getting praise for his principled stand against the estate tax, when he was really protecting his insurance business.

I have never really understood the term "rent seeking" in this sort of context.
To receive rent you have first to buy something, eg a house, shop or possibly something expensive that most people can't afford, and then receive rent for its use.
Lawyers and accountants don't buy anything in order to receive fee income from helping people comply with tax laws. If anything it is more like taking protection money. But I notice that the hapless taxpayer is made to sign off the work that he has fully understood it and agrees it is correct. Well, if he had the knowledge and experience to do that then surely he didn't need to employ a professional in the first place?

The other thing that will make the wealth tax very hard to administer is the ability of the wealthy to split ownership between themselves, relatives, trusts, and foundations.

For instance, imagine Bob is a billionaire. He holds 500 million in a closely held corporation. He has the corporation moves its accounts overseas. He then has the corporation buy assets overseas. He then reports that these assets have lost half their value.

How do you verify that? Are you planning on sending tax investers to Tanzania to verify that the ore yield in a mine really has gone down?

There is a reason that places like Sweden, Denmark, and Finland all scrapped their wealth taxes. More tellingly, Labour in the 70s tried to implement a wealth tax and ended up unable to draft one that would raise enough revenue to be worth the bother.

It is kinda hilarious to me that the new socialists in the US are intent of completely ignoring the history of European socialism. Somehow we are supposed to get universal healthcare without having a broad based taxation plan ... like every European Social Democratic party used to build their health systems. Somehow we are going to have green electricity, without the rise in electricity rates in Germany or Spain. Somehow we will manage to make a wealth tax work.

I am sure that in some things the US is indeed exceptional, but I find it hard to believe that we can magically manage democratic socialist policy better than countries with much more experience being run by democratic socialists.

I think there has been a steady improvement in international agreement and enforcement, to the point where the rich had to go to extremes like shady Panama banks to avoid detection.

Until the papers are leaked and the tax suits begin.

U.S. charges four in 'Panama Papers' tax evasion scheme

“International agreement and enforcement.”

Omg dude. In the same way that the US invasion of Iraq was a steady improvement in international agreement, sure.

The US basically decided it was the ultimate arbiter and enforcer of...whatever rules it wanted and decided. Threatened with the full force of the US, countries caved.

Your Fearless Leader Trump is doing the same with the Iran deal pullout. With the same apparatus. It was wrong then and it’s wrong now.

It does make me chuckle though, progressives’ dream is that all property and voluntary transactions in the world are under the purview of a world authority.

Authoritarian to the end.

Better idea: congress changes fed mandate to wage level targeting, compounding at ~4%. Seems simpler to administer and less deadweight loss.

I think all reasonable people agree that you want a good inheritance tax rather than a yearly wealth tax. Which implies you need good in enforcement on gifts and more illicit transfers.

Which leads to related issues. You may recall that T made a big deal of calling C's charitable foundation a sham. It turned out that C's was pretty legit, and T was projecting. T's was the sham. For a time I thought that was it. But now I worry about a darker possibility. Who's charity was actually the norm? Was T's pessimism warranted?

Don't @ me with T/C bs, address the bigger question of what the personal foundation of the typical super rich person is up to.

I know many of them are doing politics, which I don't consider charitable, that's just forcing your beliefs out on the world.

I think real charity needs to make a material improvement in the world, for instance Jimmy Carter building houses with Habitat.

Name the ten big impact projects the Clinton foundation completed.

We’ll be waiting. There aren’t any. Money shoveling to cronies.

Everyone knows Trump is a crook. Apparently voters didn’t care.

It occurs to me now that this was probably the name-hopping troll.

As the reality starts to sink in, expect to see ever more panicked essays like this about how taxing the 0.1% will lead to cats and dogs living together.

A little timely commentary on the inheritance tax:

"This post started off tongue in cheek, but I'm actually kind of serious. We need to hike the estate tax before a quarter of America's billionaires die in the next 10-12 years and leave their money to a generation of Wyatt Kochs."

https://t.co/Mfns7mSFz4 https://t.co/dSslukAjUA

This is the problem with wealth taxes. Wages and consumption are easiest to tax, then other income, then real estate, then other stuff...

Real estate is a wealth tax. So is inflation. So are inheritance taxes. Focus on those- other wealth taxes get crazy invasive.

At us in Switzerland it's done without any problem.

Sue seems like this could have been written when the income tax was enacted. I am sure that the same thing could have been said about all the record keeping we now take for granted.

By the way, a little moment that shows both how good AOC is at this, and how the super rich might have been a bit conspicuous in their consumption.

https://twitter.com/AOC/status/1092131620306518022?s=19

Interesting idea put forward in a paper I read a while back is to require people to publicly declare the value of their assets and pay tax on that valuation. The kicker is that anyone can by the asset for the declared value, or maybe a small premium above. Economic rationalism that might be vehemently resisted by otherwise economic rationalists. Interesting, but difficult to get that one across the line I think.

The government , especially the democrats, is chasing its tail around. There is massive fraud in the college education loans and this is going to be similar to the housing debacle. People are borrowing money with no intention of going to class and using the expense money for personal purposes other than room and board. They are called skippers. When the school bounces them out, the move onto the next school. The government is years behind on audits.

Congress cannot do direct taxation. The Sixteenth Amendment had to be passed to allow taxation not proportioned among the states. I really doubt there is enough oomph for this to get another Amendment passed.

Tyler, is there any commentary about this that you've seen?

Oh, this did get a mention in the NYT piece. I missed by searching for "Sixteen" instead of "16". Lesson learned.

The IRS currently estimate of the voluntary compliance rate is 82%. The involuntary rate is 84%. What will the rate be for the Wealth Tax?

"The voluntary compliance rate is now estimated at 81.7 percent compared to the prior estimated rate of 83.1 percent. After accounting for enforcement and late payments, the net compliance rate is 83.7 percent."

Oh, so it's not "easy," huh? Well, then never mind, I guess...

It's difficult, sure. Enforcement has always been one of the downsides of a wealth tax. But Warren's proposal overcomes this issue in three ways:

1) The tax only targets the mega rich, which means far fewer people to audit. France's wealth tax kicked in ~$1 million, whereas Warren's begins at $50 million.
2) The proposal includes a large increase in funding for the IRS
3) Recent changes to US law (e.g. FATCA) and major international leaks (e.g. Panana Papers) has made it more difficult than ever to hide assets internationally.

Agreed with goatling when he says you should either be arguing that there is a more efficient means of fixing income inequality or arguing that income inequality isn't a problem worth fixing. Show your real hand.

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