How to argue for a wealth tax

I am seeing more people argue for a wealth tax, but I have yet to see them address the core issues.

Let’s put aside all of the “big picture what do you think about bigger government issues,” where I do not expect agreement to be easy, and focus on two simple matters of exposition.

First, let’s say a proponent argues for a “two percent wealth tax.”  In the United States, most of that tax is likely to fall on accumulated capital gains.  I then would like to know what is the implied tax rate on capital gains under such a system.  Hint: you do not just add “two” to the current capital gains rate, since a given capital gain is diminished by two percent each year, not just once.  The final net tax rate will depend on the rate of discount, but since marginal funds seem to be going into negative nominal yield securities, arguably that discount rate should be pretty low, shall we say zero?

I played around with a bunch of numbers, and across 20-30 year periods came up with total net capital gains tax rates in the 50 to 70 percent range, noting that the current 20 percent long-term base rate for high earners is applied to nominal not real gains.

Has any wealthy country sustained such a high net real capital gains rate?

Of course, rhetorically a “2 percent tax on wealth” sounds much better than say “a 62 percent tax rate on long-term capital gains.”  Don’t be fooled!

To be clear, I am not sure I have found the right numerical range.  Nonetheless I view finding the right estimates to be the responsibility of the wealth tax advocates.  I am simply pointing out that the correct numerical range might be quite high.

(As a side note, what would happen to the value of a $1 million painting that is supposed to last 100 years, as indeed most paintings with that value do?  Are so many arts institutions — say the auction houses — to be bankrupted overnight?  Which other long-term asset values would take huge spills and what would be the social consequences of that?)

Second, do you have any argument why a higher wealth tax would be better than a higher tax on consumption?  The latter also could fund the government programs you have in mind.  And please make sure this discussion focuses on tax incidence, incidence, and then incidence, rather than just citing the immediate application of the tax burden.

If you see a case for a wealth tax that does not directly address those questions, ask for more!  Because the case for a wealth tax has in fact not yet been attempted, much less made.

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Are so many arts institutions — say the auction houses — to be bankrupted overnight?

How would they go bankrupt? They don’t typically hold the auction items in inventory.

Are you saying prices would drop? Why should they? The 2% is due on a Google shares or a Picasso. Both are investments that are expected to appreciate by more than 2% a year.

Well here's one for you:

https://www.moma.org/momaorg/shared/pdfs/docs/about/annual_bond_disclosure__2014.pdf

The Museum of Modern Art doesn't reflect the value of their collections in their financial statement. Notwithstanding, they still list 1.6 billion dollars in assets, which would accrue a wealth tax of 32 million dollars, which alone would have increased their operating expenses about 15%. Now, how many billions is the art that they're holding worth? They won't be able to hold that artwork - MOMA is operating based on their past investments yielding income, their yearly membership and admission income is not sufficient to keep them operational. A wealth tax will have a large negative impact on their ability to hold assets.

"The Museum’s collections, acquired through purchase and contributions, are not recognized as
assets on the consolidated statements of financial position. Purchases of collection items are
recorded in the year in which the items were acquired as decreases in unrestricted net assets.
Contributed collection items are not reflected in the consolidated financial statements. Proceeds
from sales of works of art, which are reflected as increases in temporarily restricted net assets, are
used exclusively to acquire other items for the collection."

Just FYI, no actual or suggested wealth tax applies to charities such as MOMA (I believe) nor to businesses, but only to individuals (albeit including a % of individuals' interests in businesses)

A wealth tax that excludes the enormous holdings of the Ivy League may well be politically untenable.

1. Why? I'm not going to start crying that Elan Musk has to pay a wealth tax but the Harvard endowment fund doesn't.

2. Huge endowments do deserve their own special treatment. I would say donations to them should no longer be tax exempt unless Ivy Leagues expand their enrollment AND establish multiple campuses not within 500 miles of each other.

And the Socialist will slowly take away all your freedoms and dictate how we should all live. Give them such arbitrary control over your wealth and the simple next step is control over all private property.

I suspect there will be quite a few steps before that happens, few of them simple.

These Trumpists sure leap to defend the ultra rich. They assume they will be the next Elon Musk.

Taxing wealth is not the road to serfdom. I would prefer 100% inheritance taxes for any estate worth over $100,000 to a wealth tax though. These thousandaires and their ilk should not be allowed to create dynastic wealth.

Not only should we confiscate every asset of the dead, the assets of their children should be examined to see if they benefited at all. These ill gotten gains will finally be returned to the right people.

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Yet you are already talking about using the tax code to control Harvard and how they do business. In your world such steps are easy and a good thing

"Using the tax code to control Harvard"? You mean the current tax code is neutral when it comes to donations to Harvard? I did not know that.

Why a wealth tax? The answer is complicated. The ruling elite know that wealthy people will simply remove their wealth from the grasping hands of our government so the tax won't bring them the revenues they desperately want. But it is a bait and switch effort because the middle class cannot move offshore and the wealth tax once voted into law will be morphed into a federal property tax on your car, your house, your furniture your boat, etc. THAT is the objective.

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So your solution is to use it as a sledgehammer to fit your notion of fair and just. That is the path to greater freedom. Sure OK

There's no sledgehammer. Harvard is perfectly free to accept donations even if they aren't tax deductible. Plenty of alumni have the income to give to Harvard even if they don't get a tax break for it and even if people stopped giving to Harvard tomorrow it's endowment income alone would essentially run forever.

The flip side is, of course, the Harvard endowment is today being subsidized by taxpayers. Taxpayers subsidize Harvard tuition with grants and government backed loans and special bankruptcy laws that make student debt different from other types of debt. If it a sledgehammer to say the taxpayer should get something more from that than they currently get? Esp. if Harvard has the option to go independent?

Allow deductible donations or don’t. Creating complex regulations and rules that fit your notion of fair is the worst path

There's nothing complex about what I proposed. Complex simply means you don't care to understand it. Why? Because you have no interest too and you shouldn't. You aren't running a school or starting a charity. If I owned an oil well or emu farm I would know a lot about wells or emus. I don't so I won't.

Donations are deductible which means there are already rules about what a donation is. I joined a Meetup group that talks about philosophy. Every now and then the guy who runs it hits us up for some donations since he pays $20 per month. Not deductible but I'm sure if he started getting hundreds of people at some point he would figure out how to make them deductible.

Endgame here is donations to Harvard are deductible because we think it's a good idea to encourage education. Creating the world's largest 401K that will never stop growing, however, was not our idea. You're free to add pebbles to that mountain but why should it be deductible? Why do we have to eliminate all deductions if we happen to want some limits on them? Answer, we don't. These are rules you are imposing on everyone else, complex rules I suppose, that have no basis beyond your mental images. Why should we be bound to them?

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Another problem with Tom T.'s position is that a wealth tax would probably have to tax only the end point of the wealth. In other words, Tesla has a lot of wealth and Elan Musk, owning a huge piece of Tesla is very wealthy.

A wealth tax would either have to tax Tesla, in which case Musk would pay nothing but the value of Tesla would fall hence causing him to lose wealth as the price of his shares goes down or tax Musk while leaving Tesla the corporation alone.

For this reason I don't think a wealth tax would cause all that much grumbling if billionaires had to pay it but Harvard's endowment didn't. Ultimately if billionaires demanded equal treatment it would just increase the burden on them either way since taxing endowments would also require taxing corporations and other entities with accumulated wealth.

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Auction houses don't hold art in "inventory" but the final buyer certainly does.

Yearly wealth taxes on art will mean fewer buyers and lower prices. If the price drops are drastic enough, this does not merely cut into commission fees. It might even puncture the greater fool theory and therefore threaten the business as a whole.

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A federal wealth tax is unconstitutional, if anyone cares.

Good one. Hahahahahaha!!!

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Citation Required.

The federal income tax exists only because of the 16th, which explicitly authorizes only a tax on income. If you have a specific argument that a federal wealth tax is an authorized power, make it. Otherwise, he’s right, it’s unconstitutional because the federal government is granted no such power.

It’s funny that Tyler thinks that Dems need to “make an argument” when they propose things, and it’s funny that you guys think Dems ever concern themselves with what is constitutional.

It doesn't matter whether the Democrats would care. This is obviously the case, and the current Supreme Court would absolutely rule that way.

Everyone will know this before legislation goes anywhere, and consequently the legislation will not go anywhere. There will not be a wealth tax.

The authoritarian democrats will pull the same trick they have before: threaten the Supreme Court with expansion and stuffing if they rule against their grand plans.

Constitutionality never concerns them.

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They could attempt an amendment.

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It's not quite that clear. The constitution gives Congress the power to tax, but it says that "direct taxes" must be apportioned among the states according to population. The Supreme Court held early in the 20th century that an income tax is a direct tax, so that the income tax congress had adopted was unconstitutional. That decision has been much criticized, but it doesn't matter now because the 16th amendment allows congress to impose an income tax without apportionment. Congress can and has adopted many taxes other than income taxes, all of which seem to be taxes that are not "direct."

Whether it would be constitutional for congress to impose a wealth tax without apportioning it among the states (which would be nuts) depends on whether a wealth tax is a "direct tax." Anyone who tells you that there is a clear answer to that question is a fool or a liar.

How do they find a Constitutional argument for inheritance taxes? A wealth tax could be imposed anytime you have a taxable event triggering an indirect tax. Anytime you sell or transfer an asset the wealth tax could be viewed as an excise tax on that transfer. Your net worth would see a dramatic drop because any attempt to adjust your portfolio would trigger a wealth/transaction tax. Sort of a hybrid of a value-added tax and a wealth tax. Tax advisors could make a fortune. The sale of any asset over $100,000 could be a federal wealth tax but call it an indirect or excise tax. That could be Constitutional (New York Trust v Eisner, 1921).

To be fair, arguing against a given tax reform on the basis that tax advisors will make a killing is like arguing against medicare expansion on the basis that doctors will make a killing.

No it is more like turning doctors into unproductive government bureaucrats. Tax advisors dealing with complex regulations is like giving road construction workers spoons to build roads. It employs some people but is hardly the best solution.

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As wealth is simply accumulated income, one could argue a wealth tax is just a species of income tax.

Consider a 401k. You put some of your income in it and those contributions are not taxed. Decades later you pay tax as you withdraw from the 401K. That seems like a wealth tax.

one could argue a wealth tax is just a species of income tax.

Yeah, and you'd be lying to yourself or lying to someone else.

Wealth does indeed appear to be accumulated income.

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This is an interesting perspective. However, you are taxed on the distribution of the 401k, which is treated as income. I believe they call it "deferred income" which is taxed. It is not like you are being taxed on the total worth of your 401k every year.

I think it enough of a distinction that you wouldn't call it a "wealth tax"

A wealth tax needn't be payable every year just as you see with a 401K income tax is not necessarily payable when it is earned.

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Also https://law.utexas.edu/faculty/calvinjohnson/directtax.pdf seems to impy that "direct taxes" were never understood to apply to the apportion requirement. Consider a tax on whisky. Even at the time of the founding, it was understood that a whisky tax would have to be uniform in rate. But, of course, that would fly in the face of apportionment. If one state made/consumed 2 times the whiskey of another state with equal population, its tax rate would have to be 1/2.

Also for my right wing leaning friends here, if you feel a wealth tax is unconstitutional how would that not also apply to a consumption tax?

The Constitution forbids a direct tax, which is a tax on real or personal property imposed solely by reason of its being owned by the taxpayer.

Southern states insisted on it to prevent the imposition of a tax on slaveholders (in part the reason for why Blacks were 3/5 persons) and large plantations. They feared that Southern states could have an undue tax burden imposed by Northern states. "fifty Citizens of North Carolina can be taxed no more for all their Lands than fifty Citizens in one of the Eastern States." 16th amendment modified for an income tax.

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It’s a flow not a stock.

A federal property tax would be unconstitutional as well. Closest analogue would be excise taxes.

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There are certainly arguments both for and against the position that a wealth tax is a direct tax. But nobody knows for sure. Back when the constitution was being drafted, someone asked what the meaning of "direct tax" was. No one answered. I have an opinion, but I see no point in offering it because I have no idea whether today's Supreme Court would agree. There is no point in discussing the various arguments here: The one thing that is absolutely certain is that the opinions of tax and constitutional scholars are divided, and that very able people can be found on both sides.

from wiki
In the United States, the term "direct tax" has acquired specific meaning under constitutional law: a direct tax is a tax on property "by reason of its ownership"[4] (such as an ordinary real estate property tax imposed on the person owning the property as of January 1 of each year) as well as a capitation (a "tax per head").[5][6

Nonsense

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Nonsense upon stilts, in fact. Wikipedia cites a handful of lower court opinions dealing with taxes that are not wealth taxes and a supreme court opinion which says only that a tax on failure to buy health insurance is not a direct tax. It is absurd to say that these opinions have given "direct tax" a "specific meaning."

I have no particular views on the soundness of any of the opinions cited in the Wikipedia piece. But Wikipedia's claim that they settle the meaning of "direct tax" is absurd.

Roberts opinion on Obama Care taxes is not a head tax or a tax on wealth. The exemptions are for excise taxes. Like transaction taxes. A pure Federal wealth tax is unconstitutional. You would need to find a judge willing to ignore the plain language of the Constitution. Put politicians might be able to tax wealth by taxing real estate transactions, stock trades, luxury taxes on cars over x dollars, etc. They would need to be creative . And groups would quickly try to write exemptions to reward friends and punish enemies. The government gains power and we lose freedoms.

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I'm not so sure scholars disagree on this. From the above source, at least, 'direct taxes' were indeed contemplated by the Founders. For example, Madison and John Jay contemplated a tax on carriages. However say New York and Virginia had the same populations but NY twice the number of carriages. If the tax is to raise the same revenue from each state, then VA's rate must be twice NY's. If some state happened to have no tax, then that state's 'share' would land on the first poor person who had the misfortune to ride over the border with a carriage. This, however, is NOT how the Founders viewed the apportionment.

The absurdity of apportionment goes beyond a question of whether it would
be prudent or of good consequence to enforce the requirement.33 Prudence or concern about consequence might mean we do not want the result, but the Framers did, and their intentions are binding. Constitutional mandates can be simultaneously bad policy and mandatory. Absurdity, however, is a stronger
objection than prudence or concern about bad consequences. Absurdity indicates that even the Framers did not intend the results. The Founders did not see the inconsistency between uniformity and apportionment when they drafted and
debated the Constitution,
34 or at least no one said it in a way to force the polity to
come to grips with the nonsensical rule.35 The Founders intended no absurdity nor hobble on Congress’ power to lay direct taxes. When the Founders later realized it, they recoiled from the result.36 Even within the rules of strict construction, courts should resolve a result unforeseen by the Founders by inquiry into how the
Founders would have resolved it had they recognized the problem.3

They would have recognized a carriage tax would simply tax each carriage at a certain amount and if a state had twice as many carriages as another, it would pay twice as much in total but the same per carriage. Likewise a capitation tax would likewise be the same amount per head.

Alternative readings of the Constitution are permitted even if they lead to undesirable outcomes or bad policies but are not permitted if they lead to absurdities

Even more damming here is under the Articles of Confederation taxes were apportioned as basically a wealth tax. Each states' share of tax was based on the sum of its estimated land and improvements. Of course how the state taxed its citizens to come up with its quota was up to it, but you essentially had a wealth tax where being twice as wealthy meant you paid twice as much. Of course before the industrial revolution income and wealth disparities were smaller so population and total wealth were more highly correlated.

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Additional problems with reading the Constitution this way include:
1. Almost immediately after it was ratified, one of the first taxes considered was a tax on land. That was essentially a wealth tax in an agricultural dominated nation.
2. Both the Federalists and anti-Federalists abhorred the concept of a 'head tax' yet reading the Constitution in the manner suggested above would essentially make all taxes a 'head tax' in the sense that all rates would have to vary up and down in such a way so as to raise the same tax per person in each state.
3. While the Federalists did appear to favor keeping a quota system as a way of collecting taxes (where apportionment makes sense), they also supported direct taxation where the gov't places tax directly on things (carriages, cod, tobacco, etc. which essentially rolls up into wealth for all practical purposes). The Articles of Confederation was straining under its quota system.

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As a total commie, I have to say Tyler is right about this one. I do not understand why anyone thinks a wealth tax is advisable or necessary as opposed to, say, a dramatic increase in the capital gains tax rate. I agree with Tyler that nobody even seems to be trying to make the case for a wealth tax — I sometimes get the impression that its advocates think that the current income and consumption tax schemes are too easy to avoid, so a wealth tax would be a way to target the people who have “slipped through the net” by attacking their accumulation directly. But if that’s the assumption underlying these schemes, it seems pretty obvious that plugging the holes in the current regime is a better use of everyone’s resources than implementing an entirely separate regime that will undoubtedly have its own flaws and loopholes and unintended consequences. The thinking behind wealth taxes (to the extent I’ve ever heard any such thing articulated) just strikes me as incoherent.

Why does Tyler frame it as if incidence of wealth tax on capital gains taxes is something that needs defending. Yes, it can plausibly raise effective capital gains to 60%, so what? Most of western society would be completely fine with that.

Btw, some (arguably not very influential) academics do make a case for wealth tax: see Radical Markets publication.

Anyone who is proposing a policy change should have to defend it, and its overall long term impact would be a key part of that defense...why is that even something to question?

More substantively, the arguments that need responding to are arguments that a 60% capital gains rate would be deeply harmful to the economy, because it would strongly disincentivise risk taking, starting new businesses, innovation, etc.

You say "most of western society" would be completely fine with that...but if so, then why does no country have a capital gains rate that high? The U.S.'s current rate of 28.6% (federal plus average state rates) is actually one of the highest in the world (ranked #6), and Denmark is the top rate at 42%.

https://taxfoundation.org/us-taxpayers-face-6th-highest-top-marginal-capital-gains-tax-rate-oecd/

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'rather than just citing the immediate application of the tax burden'

Otherwise, someone might just point out that a VAT affects lower income people considerably more than higher income people. To use the UK as an example - 'The poorest 10 per cent of households in the UK pay a greater proportion of their income in tax than the richest 10 per cent, new analysis has revealed.

Officials statistics show the lowest tenth of earners pay an average of 42 per cent of their income in the form of income tax, national insurance, VAT and council tax.

In contrast, the richest 10 per cent see around a third (34.4 per cent) of their earnings go to the taxman, according to analysis by The Equality Trust. .... A similar trend applies to VAT, on which the poor pay 12.5 per cent of their income while the rich pay five per cent.' https://www.independent.co.uk/news/uk/home-news/lowest-earners-more-tax-richest-office-national-statistics-inequality-council-tax-vat-equality-trust-a7704331.html

You have to work out what you want. Yes, VAT hits lower income people proportionately more, but VAT generates much more revenue, and raises much more absolute income, both overall and from high-income earners (including tourists).

Given the very low absolute amounts raised from the bottom quartile, it is quite possible to even over-compensate the bottom quartile for their VAT.

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Or not that sophiscated when it comes to comment removal, which indicates either somebody who is either still learning, or someone who is not very competent.

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Obviously that can't continue forever, the high income are simple saving more consumption for the future, when it will be taxed at the same rate. Saving rather than consuming should be encouraged, since investment grows the economy for everyone. If the rich never consume any resources then they're not actually much better off than the poor.

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Wealth taxes work, once every coupla' hundred years! :-)

Once every 40-50 years, basically once a generation. The Nixon Shock was a wealth tax. o was the FR shock, the Greenback shock, Free silver shocks, first and second bank of the US shock, then the Hamilton shock; all were a one time wealth tax.

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Switzerland's wealth tax is quite high in some cantons, but caps out at about 1%, and Switzerland does not have capital gains tax.

Yes, in Switzerland, the capital gains of private citizens are not taxed. Instead, there is a moderate wealth tax. I always suspected that this is the preferable system in comparison to that of other countries that do the opposite. The main reason is a systemic one: with a capital gains tax, those who use their capital most productively, most notably successful entrepreneurs, pay the highest taxes. With a wealth tax, much more tax revenue comes from lazy rich who sit on idle capital without knowing what to do with. The result is a situation in which capital is better allocated and the economy grows faster. Maybe that is one of Switzerland’s success secrets?

John Cochrane also touches that topic on his blog:
https://johnhcochrane.blogspot.com/2018/02/a-great-efg.html

One caveat to that. Actually in every country with a wealth tax there is inevitably a court decision that if the wealth tax exceeds a certain amount of income this is a confiscatory imposition and a breach of human rights.

So the total tax burden is always capped at 60-70% of the income.

Now people who are actively working must pay themselves for tax purposes a certain salary (at least in Switzerland), but your (hypothetical) "lazy rich who sit on idle capital without knowing what to do with" is not earning anything other than the income they choose to get paid out of their various investment vehicles. Now consider how much money you can borrow very cheaply against, say, a $20m investment portfolio and solve for the equilibrium.

Yes, the wealth tax has two caps. The 1% in Geneva or lower in other cantons. The second cap the "seizable portion of income" (rough translation). This prevents asset rich - income poor people being forced to sell assets to pay wealth tax.

The seizable portion of income in Switzerland which can be used to pay wealth income is total income - (basic expenses + children expenses + rent or mortgage + retirement savings + other taxes). Basic expenses comprise food, clothing and health insurance. This calculation implicitly includes the right to food, clothing, shelter and health. Money that goes into said expenses cannot be seized for either debt repayment or taxes.

And of course, there are exceptions in the wealth tax. If I remember well, farmers pay a wealth tax proportional to the income generated by the farm. It would be impossible for farmers to pay wealth tax if the land is valuated at commercial prices. It's not uncommon that a farm has as neighbors apartments buildings. The sales value of a 2 hectares farm surrounded by apartments buildings should be several millions and far beyond the ability to pay for a family that produces milk and legumes.

@delenta est: is that loan a tax saving strategy base on debt shifting?

The loan is just a simple play on the cap on tax as a % of income. If I have all my income in offshore trusts that have been accepted as opaque vehicles for Swiss tax purposes, plus maybe a million in a current account, for example, my income for Swiss tax purposes, in very simplified terms, is my deemed rental value of my house plus whatever I pay myself, but at least 1% of my net wealth.

But if I borrow 2.5m from the trust, I can just spend that, and it is not income (subject to conditions and careful planning!). When I do pay it back there will be income, and I will have to have income of at least the interest expense (which won't be deductible), etc, but you get the idea.

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shouldn't a land value tax have priced that inefficient farmer off on to other land a long time ago?

The Swiss have chosen their preferred model of society and are happy to pay for it.

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"lazy rich who sit on idle capital "

How dare people do what they want with their property!

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I thought the point of a wealth tax was to reduce the amount of money spent on status seeking, such as things like bidding up the price of paintings:

"I'm sorry dear, but because of the wealth tax year we're going to have to spend more money exploiting the masses by providing products and services they want to buy, and less convincing the people in the estate next door that we are bigger wankers than they are."

No. If you have the wealth to buy it you are already taxed on it (debts are deductible from the wealth tax base in almost all cases). You only pay more in your case if the asset appreciates.

Let's say I'm rich enough to pay the wealth tax. Then my uncle dies and leaves me $1 million net. Let's assume before the wealth tax I would have split it between shares and treasuries. I would get the benefit of a high average return from the shares but the disadvantage of high volatility. And from the treasuries and I'd get the advantage of low volatility but the disadvantage of a low return. But after a wealth tax of say 1-2% is introduced the average return from shares is still strongly positive, but the return from treasuries is looking really lousy. So I'm going to be more likely to put my money into shares than treasuries. I'll have more of an incentive to put my money into asset categories with higher rates of return.

Quite true and in fact Switzerland's wealth tax which assumes a minimum investment income of 1% compounds this.

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So it distorts financial markets, but does it actually cause the rich to spend less on art?

It encourages them to put their art into charitable trusts or to make conditional donations to museums (i.e. they still keep it half the time, etc), yes.

But as per my comments above the really wealthy either don't care or can structure their way around it.

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" I'll have more of an incentive to put my money into asset categories with higher rates of return."

I don't think so.

"Let's assume before the wealth tax I would have split it between shares and treasuries. I would get the benefit of a high average return from the shares but the disadvantage of high volatility. And from the treasuries and I'd get the advantage of low volatility but the disadvantage of a low return."

Before the wealth tax, you wanted a blend. Less volatility than shares, higher returns than Treasuries. Hence rather than putting 100% in A or B, you put some mix between the two extremes.

After the wealth tax, you still want neither all return or all stability.

Look at it this way. I am filthy rich and all of my financial assets are in Treasuries. Just to make things clear, let's say a wealth tax is introduced that is high enough to make the return on treasuries negative. Will I be prepared to see my wealth eroded every year? Maybe some people would be okay with that, but many would put their money -- or at least a portion of their money -- into something with a better rate of return. So a wealth tax will result in an incentive to put assets to more productive use, even though that won't happen in every case.

Will I be prepared to see my wealth eroded every year?

You're argument here is that 0 is a magic number. If your wealth is invested earning 3% per year and that falls to 1%, you may not be happy but you accept it. If your wealth goes from earning 1% per year to -2%, why then you go Joker level crazy and will sink all your money into the first fly-by-night scheme that comes along to escape the negative rate of return.

Errr no. Do you think any wealthy people have big safes? Big safes with cash in them are automatically negative rates of return. After all even if inflation is 0% you still gotta pay for the land that the safe is on and pay to keep the safe maintained. Yet even in times of high inflation, they still made plenty of safes. The difference between 0 and -1 is 1 unit. That is the same as the difference between 2 and 1 or 3 and 2 or 10 and 9.

That's not what I am attempting to convey at all.

For people who want to make a positive return on their assets, a wealth tax will give them an incentive to move their assets into areas that give a better return. Many people will do this, but they don't have to if they don't want to. It's only an incentive. For those who have no interest in interest in making a positive return then they don't need to make any changes as presumably they are happy with how their assets are now. And if the wealth tax is 1% then in 72 years they will have have half the wealth above the point where it kicks in than they do now.

OK people want a positive return but this is still falling back on 'magic number 0' ism. If someone wants 1% only, getting 0% is 1 unit short. If they just want to maintain their wealth at 0%, -1% is still one unit short. Yea -1% cuts your wealth in half over 72 years. You'll be dead long before that. Even if you're not, that's still a long time. If today you happen to be at -1%, you can stay there for quite a while long before your wealth gets cut in half. If you want to wait, years even, to see what investment opportunities open up you can.

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A wealth tax seems incompatible with assets of opaque value.

Consider the two investment profiles.

Investor A invests 100 million dollars in some weird asset. Unfortunately, the value drops to a mere 10 million dollars in year 1. It stays that way for five years, but in year 5 there's a boom and it's now worth 200 million.

Investor B invests $100 million in steady assets and their value goes 100 -> 120 -> 140 -> 160 -> 180 -> 200 over the five years.

Under a capital gains system, these two are equivalent, so there's no reason to disguise one as the other. But under a wealth tax, investor B owes a lot more in taxes.

Investments in private companies, or in more exotic things like derivatives or cryptocurrencies, seem like they would permit B-type investors to appear like A-type investors for tax purposes.

So hey, maybe a wealth tax would encourage tech startups and investment in cryptocurrency technology, and be a good thing ;-)

+1

Necessity is the mother of invention. Nothing focuses the mind better than when you know government is coming after your money.

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The problem is out of control, off budget spending. Additional taxes may begin or exacerbate a decline of economic growth. A total tax percentage of around 18.5% of GDP has been the limit to maintain positive growth - or so I've heard.

There is this thing called "history" that can put your mind to ease on this topic.

Poverty in Europe?

Yes, that's a good example. After World War 2 poverty was endemic in Western Europe but it's now one of the wealthiest regions of the world despite money countries never falling below 18.5% of GDP collected as government revenue. In the Netherlands per capita GDP in today's money went from roughly $16,000 in 1960 to $55,000 today.

Yet poverty in Europe remains rampant and far above that of the U.S.

Eh? What? You know I'm responding about positive growth and the portion of GDP collected as government revenue, right? Every year when my father was a child some kid he knew would fail to make it through the winter. These were from families that tried to make it through the winter on bread and lard because they could afford little else. This would still be happening if European countries were unable to manage positive growth.

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One thing I don't get about the tax code is that corporations like Amazon can pay zero in taxes because they reinvest all their pre-tax money so they have nothing left for the tax man. Why can't Joe Public do the same?

That's the point of a wealth tax. To get capital put to productive use instead of granite bench tops or whatever is popular among the rich these days.

Of course, it would be wise to boost inflation from its current levels before implementing a wealth tax. Don't want interest rates to drop to zero and lose the ability to rapidly respond to shocks to the economy.

"capital put to productive use instead of granite bench tops or whatever is popular among the rich these days"

Why is production of granite countertops and the wages of installers not a "productive use" of the money?

Yeah, just when I think I'm starting to understand econ just a little bit better, something like that throws me back into the remedial group.

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If you can make money from making granite bench tops then you can make money from making granite bench tops. But yes, if you are employed gold plating Little Lord Fauntleroy's bicycle collection, a wealth tax can negatively impact you.

(I mentioned granite bench tops since that here they were popular among cashed up bogans attempting to imitate the upper class or the upper middle class. These bench tops have since fallen out of fashion.)

At the end of the day, you work in order to consume. Consumption is adding value to the economy.

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Joe public can, if he invests in a personal business, but financial investment expenditure (other than interest and some fees) is not deductible.

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Some Swiss cantons have a 2-3 per thousand wealth tax and the sky has not fallen (yet).

Yes but I have added some useful perspective on that above. Actually it is nearly 1% in certain communes of Geneva.

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"Some Swiss cantons have a 2-3 per thousand wealth tax and the sky has not fallen (yet)."

Sure. That's a 0.2-0.3% Wealth Tax. Tyler mentioned a “two percent wealth tax” .

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A real life example of an unintended consequence is the farmers on the French Île de Ré. When the island became a chic place for the wealthy to vacation, land prices rose and farmers had to sell land which had been in their family for generations, just so they could pay the wealth tax they were all of the sudden subject to. Sure, they were rich, but they didn't want to be rich, they wanted to live on their land.

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How about a Federal property tax

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One way, although probably not the most acceptable way to some right-wing Americans, is to impose a 100% tax on any asset that the American IRS would define as a form of "valuable consideration" and then distribute it on the basis of absolute equality without regard to borders. That would (obviously) solve the immigration problem and reduce international conflicts. Of course, private property would be classified as theft and doing so-called "friendly favors" would be a form of tax evasion. Sex would be rape, whether money was involved or not because it is impossible for a woman (or man) to freely consent under conditions of inequality.
Tinkering with the broke system isn't going to cut it. A complete overhaul is needed. You can't make an omelette without breaking eggs, as V. I. Lenin said.
Personally, however, I don't necessarily agree with this. I feel it would be better to not make the omelette rather than break the eggs. Therefore, in other words, I favor doing nothing to the current system. Let the rich people keep their money, but give the poor people an equal amount.

The Fed should just conduct monetary policy through helicopter money. Juice the accounts of the plebs when it is time to stimulate and take away the punch bowl when not. Better than useless banks that deserve to lose their privilege in the financial system for acting as dumb, reckless money pre-2008 and now as dumb, lendless money after 2008. Business might prefer to be crowdfunded rather than take on a bank loan with all kinds of red tape.

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Would the two percent wealth tax apply to muni bonds? Because of their tax advantaged status, muni bonds are generally held by the wealthy, who get enough of a tax advantage to offset the lower yield. A wealth tax presumably causes more "reach for yield" among those affected, which would disproportionately affect munis.

On the other hand, a wealth tax that excepted wealth held in munis would create a massive tax advantage for them at the high end, much greater than their current income tax exemption.

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Practical concerns aside, the incidence (high wealth households) of a personal wealth tax is the reason some liberals support it. I believe that support is less about using the tax to fund government spending, and more as a tool for redistribution. If the accumulation of excess wealth leads to outsized political and economic power, a direct taxation of that wealth is seen as a tool to address that issue.

TC also asks about the impact of a wealth tax on the value of assets like artwork. I find this to be an one of the best arguments in favor of a wealth tax. If a non-depreciating asset does not generate utility exceeding 2% of its market value to the owner of that asset, that owner should find a way to put the asset to better use.

"the incidence (high wealth households)"

Begging the question?

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Florida at one time had a wealth tax, an annual excise tax on intangibles located in Florida (stocks, bonds, ARs, etc.). Moving investment portfolios became an annual ritual to avoid the excise tax: the tax was levied on intangibles located in the state on January 1st. Soon enough, owners of intangibles decided it was easier to just leave the intangibles elsewhere rather than moving them back and forth to avoid the assessment of the tax.

According to some estimates, there are trillions in assets (and the income they produce) "hidden" in accounts offshore to evade (not avoid) U.S. income and estate taxes. If these fine wealthy friends of Cowen (and mine) are willing to evade the income and estate taxes at the risk of prison, wouldn't they avoid (or evade depending on the terms of the wealth tax) the wealth tax by moving the wealth to "hidden" accounts offshore? [I use "hidden" in quotes because the assets are in plain sight for those willing to look.]

Of course, we don't need a wealth tax (or Cowen's preferred consumption tax) to raise more funds for government, since all that is necessary is a combination of (1) enforcement, (2) higher and more progressive income tax rates, and (3) elimination of tax preferences and exclusions that serve only to reward those with the greatest political influence. Granted, it's highly unlikely we are going to do (1) or (3), but as the economic heretics (that would be Saez et al.) point out, at one time (the time when we had the greatest economic growth and shared prosperity) we had higher and more progressive income tax rates. For decades we have cut taxes on the wealthy on the promise of economic flourishing, including massive investment in productive capital, increased productivity, and rising income of all workers. An unkept promise, I should add.

Only 8 million watched the Democrats debate the other night. Fortunately for the candidates. The grab bag of goodies on offer disqualifies those making the offer. Wealth tax, social security and Medicare for all, free college, and on and on they go. Cowen need not worry about a tax increase for his (or my) wealthy friends. What Cowen should worry about are (a) rising inequality, (b) social and political instability, and (c) financial and economic instability.

Higher taxes and more tax shelters/deductions.

Then there was this little thing called Post-WWII economy.

How come when people are arguing for higher taxes because of bygone eras never point out world devastation from war?

That seems to have been a somewhat unique situation and one I personally wouldn’t want to live thru to get that progressive dream.

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Instead of equivalent capital gains tax, shouldn't we be thinking in terms of equivalent consumption tax, i.e., how much does the wealth tax reduce one's consumption? In the absence of taxes, if one saves a dollar for n years, one consumes (1+r)^n at the end. With a wealth tax of tW, one consumes (1+r)^n * (1-tW)^n. So, the effective consumption tax tC is

(1+r)^n * (1-tC) = (1+r)^n * (1-tW)^n
or
tC = 1 - (1-tW)^n.

Regardless of r, the wealth tax reduces ones consumption by fraction tC, which grows with n. The wealth tax is effectively a tax on young savers. A 64-yr old saving for retirement at age 65 pays only 2%. A 55-yr old pays 18% after 10 years. A 35-yr old pays 45% after 30 yrs. A 25-yr old pays 55% after 40 yrs. Yes, for a 25-yr old young socialist, a 2% wealth tax has the same effect after 40 yrs as a 55% marginal income tax rate with no wealth tax (pay 55% now and save for 40 yrs tax free).

Of course, Elizabeth Warren and Bernie Sanders, are both quite old themselves. However, the more relevant common characteristic is probably that both support old-age entitlement programs. The higher the tax on long-term savings, the less likely people will be to break free of dependence on such programs.

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Tyler is getting closer to the real effective rate of a wealth tax but he is still short. Lets take Warren Buffet most of his wealth is in an untaxed appreciated security called Berkshire Hathaway. He supposedly takes a salary of $250,000 per year so to pay a 2% wealth tax he needs to obtain after tax money of 2% he currently needs to sell around 2.7% of his stock every year.

Now if we add the new proposed tax rate of 70% instead of the capital gains rate he needs to sell 6.7% of his stock every year to net 2%. Wont be long before he runs out of money.

Good old Warren is pushing 89 years old so he really doesn't have to worry about running out of money in his lifetime. But even if he was younger, a portfolio could last anywhere between decades and centuries if you pull out 6.7% every year depending on its gross performance.

"could last anywhere between decades and centuries if you pull out 6.7% every year depending on its gross performance."

Sure, but all of that amount would be going straight to the government and the portfolio would be worthless. So, no one would build such a portfolio in the first place.

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Two things rolling around in my head on this topic

First, what is the economic value of pulling forward spending? Let's say Jeff Bezos' marginal dollar of wealth will be spent in ~300-400 years by his good-for-nothing great-great-grandson or whatever. The compounded discount on that marginal dollar of consumption is very very high (NPV of that consumption is trivial at any positive discount rate), such that taxing that marginal dollar does nothing much to change Jeff Bezos' incentives or the net present consumption value of his wealth. But if you tax it, and then turn around and spend it today, that consumption has much higher aggregate NPV.

Setting aside tax avoidance issues, it seems like there's a utilitarian argument to taxing at least those estates so large that they can't realistically all be consumed. Paul Allen's experience comes to mind where he found it hard to even give away his wealth at a rate faster than it appreciated.

In other words, it's not the money spent by the rich that galls and concerns, it's the money they'll never spend.

Second, what do we think the implications are of the existing wealth tax that is applied just to real estate (in the form of property tax)? I get that many might prefer to do away with that one too, but as a second best wouldn't it be at least better to at least try not to distort the market by taxing one investment type differently than others?

This has things completely backwards. Money that's not consumed is invested and benefits everyone. Forcing the rich to consume real resources instead of investing them for our benefit is a huge loss.

If the money is invested in government bonds your analysis breaks down.

... or collecting monopoly rents.

There's no logical sense in which a world where Bezos sells some Amazon shares means less money is invested to benefit us all. The money's already been invested, it built Amazon. Nice job.

You must be confused. Bezos cashing in his capital investment in amazon to build a massive yacht, consuming enormous real resources to construct it, obviously is a net negative.

Massive yacht is not a good example since, while consumption, it is still subject to the wealth tax. But substitute whatever consumable you want. If he's using it up, there's less for the rest of us.

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How so? We want people to cash in government bonds and compete with us to purchase the things that we want instead?

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Finally someone brings up the real reason for the wealth tax - dispersion of wealth. Marginal fortunes, those beyond a never-have-to-work-again amount, are the only ones affected. Putting a more effective damping force than the gutted estate tax on would-be oligarchs and royals.

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Bill Gates says a wealth tax would be fine, but a higher inheritance tax would be better. I agree, and it fits better with my ideas on meritocracy. Let great winners enjoy their wealth in their lifetimes. But that's it. Unearned dynastic wealth is un-American.

Isn't it kind of odd that there were 45 comments before the inheritance alternative was mentioned?

Wealth tax is a tax on a stock, inheritance is a tax on flow.

This has major implications for tax incidence, so they are effectively very very different. All taxes are actually consumption taxes, but the incidence difference of consumption now versus later is large and important.

The only way to equate these would be if one views tax policy solely through the lens of social engineering.

You know what, I think that stock vs flow argument is just semantic.

If someone says "it's my family's wealth" (or literally my family's legal trust) is there a "flow?"

It's more sensible to consider inheritance tax as a death duty, a wealth tax invoked at the moment of personal expiration.

It’s not semantic, and this has both constitutional ramifications and incidence consequences. The wealth is not taxed, the inheritance income (flow) is taxed. Remember, all taxes are consumption taxes.

Regardless, you’re ignoring the main incidence question. Which, okay.

You have some SJW meta argument about inheriting assets that’s orthogonal to the economics discussion.

All taxes are consumption taxes. Repeat as many times as necessary.

Of course it's the name changer, with another idiotic argument.

It’s at this point it becomes clear you think tax incidence is the plural of a tax incident.

Your argument is 1 minute before death, wealth tax.

1 minute after death, the same money, with the dead guy's SSN, flow.

Please tell me that the entire economic community doesn't buy this "difference."

It's a wealth tax on you as you pass out of the world.

Can you describe in your own words what tax incidence means? Or why all taxes are consumption taxes? Or are you here to spout irrelevant nonsense and pollute yet another thread with things that are not true?

The wealth (stock) is not what’s taxed it’s the transfer (flow) to the inheritors. If the deceased wanted all assets burned at the moment of his death then there wouldn’t be anything to transfer. Taxing the stock of assets would be blatantly unconstitutional under federal law.

You’re also still ignoring tax incidence, you know, the entire point of the post.

I’ll give you a hint. It’s not the plural of incident. That should save you some googling time.

Have fun hiding in the weeds.

You are not a smart man. Your field certainly is not economics but you also consistently lack the intellectual curiosity to learn about it. You go to twitter not Khan academy. Pamphlets from advocacy groups not JSTOR. Facebook not MRU.

You have claimed to be a programmer on these threads but based on your inability to construct logical arguments that’s obvious bs. You do not do work that involves constructing flows of logic to perform tasks. I’m calling immediate bs.

What was your field?

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"It’s not semantic, and this has both constitutional ramifications and incidence consequences. "

You are arguing with a troll. It's pointless.

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I always like to consider the wealth tax we have the most experience with: property tax.

We have been collecting it in some form for centuries and we can see pretty well what the limits of such taxation are. After all, real estate cannot be offshored, has a reasonably liquid market with relatively easy to estimate values, and is heavily concentrated among the wealthy.

The highest property tax by state is in New Jersey at 2.44%. The highest property taxes in the country are just under 4% in a few notable cities. When Bridgeport recently increased its property taxes, google tells me they had a large drop in value.

If nobody is able to tax real property at even 4% without serious declines in property value that significantly undermined the revenue generated. I shudder to think about what will happen with a wealth tax that goes after complicated financial instruments that are easily hidden, misvalued, and moved overseas. And lest we forget the total investment value of all the land in the US is ~$23 trillion. Total net wealth in the country is ~$98 trillion. This makes our worst property taxes roughly equivalent to a 1% wealth tax.

Increasing a wealth tax to 2% would be somewhat similar to boosting property taxes to around 8%. So we are entering the land of plans that have never been tried in the 50 states, never in the thousands of cities, and are easily double what anyone is currently paying now. Sure sounds like it will be easy to make work.

A property tax is a wealth tax but notice that it applies to everyone that owns a house. Just like the income tax that started out taxing just a few hundred people the wealth tax would soon morph into taxing everyone on their wealth.

(*) net wealth = assets (house) - liabilities (mortgage)

The perversity of the property tax is that it taxes not equity but the total value of the property.

Maybe, but when the taxes have been there for literally a century, often without too much change, they just get priced into value.

Further if we buy Cowens arguments that Facebook faces an implicit portion of French VAT, then I would suggest that the lenders end up paying a portion of property tax (otherwise they could reduce rates and lend to more people).

Absent international wonkery property taxes come out of what a seller pays, what a mortgage company can profit, and what the property owner pays. This is even more direct with rental units and business real estate. Ultimately Google tells me that we have $23 trillion in real estate and net wealth of $98 million. I am sure there are few other de facto wealth taxes out there, but for the longest running one we come nowhere close to Warren's levels.

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“The total investment value of all the land in the US is ~ $23 trillion.” Does this include the 28% of US land owned by the federal government? Would a federal land tax create an incentive for the feds to sell federal land?

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"We have been collecting it in some form for centuries and we can see pretty well what the limits of such taxation are. After all, real estate cannot be offshored, has a reasonably liquid market with relatively easy to estimate values, and is heavily concentrated among the wealthy."

Property taxes on rental property in competitive markets, as they almost all would be but for euclidean zoning, the tax incidence falls mostly on the renters.

Which is one of those things I wonder about with a wealth tax. As the wealthy rarely have Scrooge McDuck style money vaults, they "rent" out their current stock of wealth to others (banks, corporations, governments) in exchange for revenue flows over time.

If the real property tax incidence falls mostly on the ones who use the property rather than the owners, why exactly would we expect the same not to hold for say T-bills or corporate bonds?

I mean maybe it wouldn't, but at the end of the day our current wealth taxes are maybe an order of magnitude less than Warren proposes. Seems awfully iffy to believe that this won't have major dead weight loss from tax avoidance and second order effects.

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What a farce! Why don't you try calculating workers' marginal tax rates under the absurd accounting that a 15% marginal tax rate is really ENORMOUS because it precludes investing that money in a 10% return stock market index and compounding it over decades.

Cowen shows the absurd lengths that establishment economists go to defend the policy interests of the wealthy.

In which Bob comes DANGEROUSLY close to making a good point and actually learning something in the process... but can’t quite get there.

Baby steps, Bob! We’re pulling for you!

Next he'll be complaining that Social Security isn't such a great deal after all, when you consider what else you could do with the money instead...

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A wealth tax is necessary because the wealthy are able to shift the transformation of income to wealth in time. They don't have to sell until they have favorable political and tax environments, or perhaps
never, and they die, transferring the wealth to their descendants often
through channels that avoid inheritance taxes. This is basically long term tax avoidance. The point of the wealth tax is to recapture the lost taxes on income.

“Recapture.”

Because all money belongs to the government, and if it ever somehow escapes into the Wild, it needs to be track down and recaptured, like a lost poodle.

God, I love you so much.

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Note that the usual proponents of the wealth tax almost uniformly oppose limiting SALT deductions. That gives some indication of the avoidance and special pleading to be expected.

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I think the masses (myself included) need a Marginal Revolution University video on the topic, please.

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Switzerland has a wealth tax that apparently goes as high as 0.94%. We could surely learn something from the Swiss experiment.

That said, the wealth tax is problematic for other reasons. First, wealth is easy to conceal in some forms. The rich don't just hold stocks, bonds and bank accounts but also have vehicles, international real estate holdings, shares or partnerships in non-traded companies, jewelry, and art work. Second, even if you track down all of these assets across multiple jurisdiction and tie them to physical owners, there is the problem of valuing them. Real estate assessments are tricky enough -- try valuing complex derivatives that don't trade in the open market or a family business that has been closely held for 50 years and is not up for sale.

A consumption tax is also problematic as the truly wealthy can simply hop on a private jet and consume somewhere else if consumption becomes too expensive at home.

Cleaning up the tax code, cracking down on trusts and foundations, and making the capital gains tax more progressive would be better bets for taxing the wealthy.

There are multiple comments above on the Swiss example. Highlight is that in even the highest-tax cantons it is half of what is proposed here, they don't have capital gains tax and even so it is often able to be structured around.

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Second, do you have any argument why a higher wealth tax would be better than a higher tax on consumption?

It satisfies the ressentiment people like Bernie Sanders and Elizabeth Warren have toward the competent and successful.

Poor me. I only have one house.

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The best way to tax capital is to grab it once but credibly promise never to do it again. Not an easy task. The policy that comes closest is an increase in consumption taxes. A VAT in the US is difficult politically, mainly because it implies a shift in the burden away from people who work toward people who live off their savings (e.g. the retired).

But even a 5% VAT would raise about $0.75 trillion, about 15% of federal spending.

Ideally we progressively tax consumption. There are many ways to do this and many ways to get there. I think the most feasible would be to 1) implement a relatively small VAT while increasing spending / reducing taxes on the poor, 2) allow much greater deductibility of income not consumed (e.g. Universal Savings Accounts), ideally up to the point where the tax schedule on labor income is flat. Given that a flat income tax is equivalent to a flat consumption tax, the net result is a progressive consumption tax.

If you want to “tax the rich!”, tax their consumption. Period.

I agree, although perhaps not with the period, nothing is perfectly definitive in relation to tax.

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It seems to me there's actual, real-world equivalents of wealth taxes we could look to as plausible equivalents.

If you own real property--a house, an apartment--you pay real-estate taxes, typically to a local jurisdiction, on an ad-valorem basis.

In my area--Alexandria, Virginia--the historical rate has been about a percent, give or take: the current official assessment on my apartment is around $250,000 and I will be paying between $2500 and $3000 a year ( I don't have my tax bill in front of me). So my "wealth tax" on the largest single asset I or most people own would add roughly $5000 to my annual Federal tax bill.

I have enough investments that it's easier and (possibly) better for me to have a broker. Brokers charge quite a lot--1-2 percent a year, again on an ad-valorem basis--so for every $100 thousand in assets you'd be charged $2000 a year.

Dunno if this helps but it's at least a start.

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1. If the tax is only levied on assets over $50 million, the effective rate is much lower - in fact zero for most people. So the economy wide tax rate on capital gains will be much lower.

2. Aren't most of these institutions tax-exempt non-profits?

There is no reason to believe the $50 million exemption will stand. Once the tax framework is enacted, lowering the exemption amount is much easier.

In the case of the estate tax, the threshold has been raised over time, not lowered. Why would this be any different?

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Why isn't it: The long term very safe expected return on money is about 3%, so a 2% tax is a tax rate of about 66%?

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There are 2 reasons Dems are proposing a wealth tax.

1) Class warfare is good politics
2) Their enormous spending plans can't remotely be funded by a higher income tax on "the rich" or even on the sort-of well-off.

1) is not going to change. 2) would be better addressed by a VAT tax with large exemptions for the poor.

The Warren wealth tax is estimated to bring in 220 bilion

["According to tables in a recent paper by Saez and Zucman, this would apply to around $11 trillion of holdings this year, producing revenue of at least $220 billion."] www.reuters.com/article/us-usa-economy-wealth-explainer/explainer-democrats-warren-and-sanders-want-wealth-tax-economists-explain-how-it-works

Its a camel nose, 220 billion would not fund fraction of what she proposes to spend on new stuff.

These estimates are fully wholly entirely nuts, as well, as they assume minimal behavioural responses. I would think ~50bn would be considered a success.

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How would the exemption work? It sounds complicated proving your poverty. Perhaps just as a UBI?

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Or 3. There is a growing sense that something is unbalanced in the economy and lopsided wealth seems to be part of the problem.

Regarding #2, enormous spending programs do not need to be funded anymore. When trillion dollar wars and then tax cuts are tossed around it gets to be pretty hard to come up with an enormous spending program that needs funding anymore. Most people are no longer buying the idea that putting solar panels on every home will be the straw that breaks the back of the US economy.

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What's the confusion? The wealth tax is appealing because it is a nice clean way to raise a lot of money entirely from people who can easily afford it without messing up anyone's incentives. A high capital gains tax would be much less progressive in the sense of also being paid by people who don't have tens of millions of dollars.

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Important to compute the tax rate on real investment income. Take into account inflation and the fact that capital gains taxation without full refund for capital losses is in fact double taxation of investment income.

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In Austin, my property taxes (school district, hospital district, city, county) add up to about 2.2%. Does this post make sense in the context that a 2.2% tax on my home wealth (which has appreciated since I bought, though now the taxable value is capped year-on-year due to a homestead exemption) might be thought of as high but not crippling? There are people who have to sell their homes because they say they can't afford the property tax anymore, in both high and low-tax jurisdictions, and we weep for seniors and folks with disabilities who suffer that, but nevertheless assessing property tax on real estate is very common.

It's less than 2.2% because it is both your home wealth and home income. Every year your home generates income either in the form of rent if you are renting it out or implied rent if you are living in it.

While this seems counter-intuitive it doesn't if you imagine owning several homes. Do you look at 2.2% of the home value or at it relative to both the home value and the rents you're collecting (minus expenses like repairs)?

I agree it gets to be a bind for seniors & others when someone is 'house rich/cash poor'. Some states have various types of relief like rebates for seniors but those are imperfect solutions at best.

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How would a wealth tax impact the fat civil service defined benefit pension plans? If you look at the actuarial value of my friend's public pensions they have values in the 3 million+ range (up to 90% of a spiked salary at 55 years of age for life no-cut contract with a cost of living clause: if you claim disability, it becomes tax-free). A 2% wealth tax on that value would be $60,000+ per year.

Of course, since the people imposing the wealth tax would be bureaucrats with defined pension plans, they would be an asset (wealth) that is excluded and how can you charge a tax against an unfunded liability. Meanwhile, people like me who saved for his retirement would have their assets stolen (perhaps to fund that unfunded liability of the ruling bureaucrats).

The details of a wealth tax with the added variable of time would become even more complex than even the income tax system. With most long term assets value only becoming apparent upon sale having any real long-lived asset would become economically insane. You want some asset with near-zero value (as determined by the IRS bureaucrat) until the year you sell it. That will create a whole new class of privileged assets.

But no one is proposing we tax pensioners. Aren't the proposals for wealth over $50 million or something?

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I would imagine two things would be in play:

1. A pension might not count as wealth as it is not something you can sell. If pensions were turned into tradeable commodities, like a bond, then we have a different case.

2. If a wealth tax applies only for accumulated wealth over $50M or $100M or even $1B, pension funds whether or not they are funded wouldn't apply.

1. Watch billionaires buy up lifetime annuities. This also cannot be sold. It is actually pretty trivial to engineer something to hold value you cannot sell. I imagine there will be a rather brisk business in selling offsetting lifetime annuities/life insurance policies. These would allow you to borrow against them jointly and the bank would always be able get paid back one if the other failed. As an added benefit, if you are pretending such things have no wealth value, you can easily generate debt against them which further drops your tax burden.

2. Do we intend to index that nice round figure to inflation? At 3.25% inflation (long term US inflation rate), a 3 million dollar pension would be hit with a wealth tax on "$50 million" in around 80 years, so children born shortly should expect to begin hitting wealth taxation on pensions when they retire. If we increase longevity, as is still happening for the sorts of folks who have $3 million pensions, then we might be looking at 20 year olds hitting these values absent threshold adjustment.

You could of course argue that in the future these values will, of course, be adjusted, but I suspect if we can sustain a $50 million threshold, it will be adjusted down to $20 million or $10 million (2019 value) within 20 years.

Whatever you do, wealth is a harder beast to capture than income. Income is all but always a two party affair. He who pays and she who gets paid. Both of them have to lie to hide the flow. Wealth is not. Wealth just means that one person has to lie about something - why yes I blew $2 million at the casino, every year, for 10 years and then try to hide it. Worse income is, most of the time, relatively easy to value; wealth is not. While right now a lot of the complicated cases are trivial, I assure you they will become non-trivial the moment people can make billions of dollars abusing them.

Experience has taught me that in the fight between government regulators being paid six figure salaries and corporate attorneys paid a percentage on eight or nine figures, bet on the latter every time. I strongly suspect that a wealth tax will simply shift a lot of money into tax avoidance and evasion; the truly obscenely wealthy will not be touched too hard while the merely wealthy will bear things full force. That sounds an awful lot like the setup in the Ancien Regime and I would prefer not to take a blind leap that this will work out without policy specifics of how to value, verify, and collect from some of the savviest money people on earth.

1. Wouldn't that simply transfer wealth to the people selling annuities?

2. What type of pension are you talking about? A lump sum entitlement or a stream of payments?

I agree with you a comprehensive wealth tax would be a mess compared to income, but not necessarily a large one. How easy is it to hide, say, $100M or $1B? The assets that are most attractive to own because of their security and liquidity are stocks and bonds. Rare paintings, bars of gold, suffer from a built in negative return by their physical nature (I suppose you can buy 10 $100M paintings, but I'd be pretty nervous every night thinking about them all in one house...what if there's a fire? I guess I could invest in fireproof rooms, security guards and insurance policies but if the wealth tax is low then my quest to hide form the tax man is going to start being counter productive at some point).

1. And you think they won't be based in the Turks and Caicos why?

2. Which type is going to be easiest to game? Because I can assure you that if either have preferential tax treatment they will become common promptly.

Apple has already proven that you can move income streams in the billions to low tax jurisdictions, and that is doing it all above board for consumer goods and services. Here we are literally just talking about hiding a glorified bank account.

Or put another way, how well do you think drug interdiction works? Because it is vastly easier to stop movement of physical contraband than money.

Besides, I am sure somebody can cook up something that works legal like. Say I form a company and restrict shareholders to those with net worth under say $10 million. We take the billionaires money, and each of us doubles our networth by buying US government bonds. We are below the threshold so now our billionaire has a lifetime flow of money as we send him the funds as the bonds payout, minus a small fee for our services. In case he dies early, he buys an offsetting life insurance policy. He goes to the bank, the bank lends him cash against the combination of our cash flows and his life insurance policy. Now we pay the bank, he has cash back for a one off skim on the top, and we and the bank get to split the skim with a small slice for the life insurance company. If we get creative we just move all three entities (a partnership to "own" the bonds, a life insurer, and a ban to "lend") into one firm and call it a day.

And this isn't even breaking a sweat. As we have learned with every tax in every era hard bright lines like $50 million are politically palatable, but the invariably end up causing all manner of headaches. You need to account for wealth exiting the country, you need to account for shell corporations that only exist to hide the wealth on the books of people below the threshold, and you need to account for all manner of "investments" that mysteriously have ill-liquid and opaque pricing which just so happen to be in the money whenever needed.

I mean this has been tried before. Abu Bakr tried to enforce a 2.5% wealth tax in the Ridda Wars ... and eventually his successor Uthman gave up on taxing anything except "apparent wealth". Even today in places like Pakistan and Malayasia, where zakat is mandatory and collected by the government, revenues only range around 0.1 - 0.5% of GDP even though zakat is pegged at 1 part in 40 of wealth.

The Muslim world has had 1300 years of experience trying to collect 2.5% wealth taxes. It is religious mandate that is an absolute requirement in Islam. And it still brings in less revenue than income based taxation (like Jafari khums). And has for centuries.

So again, if this is not a large mess, why is no Islamic state able to collect even 1% of their GDP (not gross wealth) in Zakat? Why are the gini indices still stubbornly bad for these countries with a wealth tax?

I mean maybe you think there is something inherently wrong with Islamic societies, but I have this sneaky idea that we will do no better than they have.

Again, I come back to property taxes. We still have lawsuits, every year, about loopholes to real property taxes. We still have nobody going after percentages close to Warren's plan.

But somehow we will achieve more than every other Western Country that tried in the 20th century. We will achieve more than every Islamic society in the last 1300 years. Because its Amurica and we are just better at everything than them.

I'm not entirely sure you can easily dodge all this by overseas silliness. You give your $1B to a guy in the Turks to give you an annuity of $75M/year. Wait he's not answering the phone! Ohh he's vanished. Damm.

Unless you're willing to go full money laundering, and money launders charge much more than 2%, dodging a well written wealth tax is not as easy as you may think. Apple and other companies shifting their profits to Ireland is by design of the law as income taxes have to take into account which jurisdiction income is earned in.

Ancient Muslim societies were from an age when wealth was stored in physical objects (gold) or landholdings. Today serious wealth (let's say beyond a few hundred million) is held digitally (or in land but land is easy to track at least in the US).

Buy an insurance contract against him vanishing.

I mean seriously, the problem of entrusting billions of dollars in tax havens has already been solved. These are not new endeavors.

Also I am not talking only about ancient Muslim societies. I am talking about contemporary Pakistan, Malaysia and a few other Islamic jurisdictions that collect Zakat as part of the tax burden. Somehow Pakistan and Malaysia both have trouble with their wealth taxation (taking in a massively smaller percentage that the top line would suggest) in spite of having plenty of digital wealth holdings.

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A tax on assets would have to be apportioned among the states to be within the bounds of delegated powers in Article I of the federal constitution. It's a reasonable wager that drawing attention to the dubious legality of such attack is status-lowering in the faculty rathskellar.

See above, if by apportioned you mean different rates set so each state pays approximately the same tax per person regardless then that almost certainly is NOT what the Constitution has ever said. If you mean a state with 2 times the wealth ends up paying 2 times as much wealth taxes, then there is probably no Constitutional issue.

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I notice this thread and original post address the wealth tax from the point of view of incentives to invest and how much revenue it could plausibly raise or how much redistribution it could do.

Missing from this, however, is another angle, wealth concentration. There is a growing sense among many that there is a point when wealth concentration starts becoming corrosive to an economy and society.

Just as an extreme example, suppose a single person owned controlling shares of just about all of the companies in a country effectively being a single point of control for, say, 90% of an economy's output. Exactly how radically different would this be from a socialist country where a single ministry controls 90% of the industry (leaving 10% in the hands of small private companies)?

I see a leading argument for a wealth tax to be based not so much on raising revenue (do we still need to do that given MMT and Trumponomics?) or redistribution but as a way to attack wealth concentration on the extreme end. Note that many of the people who advocate for a wealth tax are also supportive of enhanced anti-trust enforcement. If it was just about redistribution or raising revenue the two wouldn't be linked. In fact they may be enemies of each other since one would like a large monopolist who would be slapped with a big wealth tax bill versus multiple companies fiercely competing with slim profit margins.

Could be wrong, but what I think you are really worried about is power concentration.

For that, giving the government the power to hammer any up and comers seems kindof dodgy. After all, the old money will have vastly more experience at dodging the taxman and new money often breaks into the stratosphere by dint of a one-off windfall that can be hard to hide from taxation (e.g. when Facebook went public).

I could easily see all manner of silly schemes to hide the wealth that result in an ever more entrenched plutocracy as the ability of the next generation to supplant them dwindles.

What worries much more than random plutocrats are the foundations. Having individuals with massive resources controlling the universities, the think tanks, the cultural entities, and yes the activist groups is pretty harsh. At least with a wealthy schmuck you can sue him and be done with it. Enticing the wealthy to shield large amounts of wealth in the Harvard endowment or far more sinister non-profits seems like a bad idea.

You didn't answer my question. How is it functionally different if, say, one guy owns 90% of the capacity of the economy versus a socialist economy minister controlling 90% of the economy?

In both cases I'm thinking less about plutocracy and more about simple efficiency. Since neither economy has any effective means of competition, you are going to harm economic growth. Of course plutocracy does come into the game at some point. We see this in countries like Russia where you have big fish in a small economic pond effectively running the gov't but even assuming government and business keep to their domains the control issue becomes important.

"Having individuals with massive resources controlling the universities, the think tanks, the cultural entities, and yes the activist groups is pretty harsh."

Cultural entities? You mean like some foundation created the Marvel Superhero movies? Wrote Game of Thrones books then got HBO to make a series? Or for that matter grants grants to 15 year old Tik Tok and Youtube stars when they cross 10,000 followers?

Well for a start one guy owning 90% can end up owning 89% next year. Likewise, if he has two kids they will own 45% each. Absent some form of primogeniture and mean to restrict or control the wealth acquisition of the rest of the country we should expect him to own less proportionally every year (as long as the net saving's rate is positive).

So for a start, a socialist economic minister need not keep up with the Jones. His power is backed by fiat and arms. A merely obnoxiously wealthy individual must still out earn everyone else or he begins to lose sway.

As far as decision making goes, well for a start the wealthy guy isn't a socialist which a good Bayesian should recognize makes him much less likely to commit economic blunders (not all socialist economic ministers cause financial ruin of countries ... but they have much higher odds than almost anyone else).

For another, just because he controls the stock (wealth) does not mean he controls the flow (prices). Say he hires a pool boy. The pool rents one of his apartments, buys his groceries at the company store, and so forth. Our pool boy has no savings so every year his wages return to our gazillionaire. Yet if our gazillionaire prices the wage too low, the pool boy can go work for somebody holding the other 10% of the money. Yes there will be monopsony-like pricing, but we still have a useful price signal if only 1 in 10 applicants makes their market price with the minority wealth holders.

In contrast, socialist economic ministers have historically ignored such price signals and feel free or compelled to dictate prices and wages in defiance of the revealed prices in the small semi-free markets in the state.

Both of them obviously are less efficient than a perfect market, but they are fundamentally not the same.

Again, history has shown me precious few examples of ultrawealthy individuals who leverage their way into controlling the masses on an hereditary basis. History has shown me all manner of such mandarins who have done so off the basis of controlling tax policy.

Within a generation any wealth tax strong enough to break to the oligarchs will be run by (new) oligarchs.

As far as cultural entities, I was thinking more like MOMA, the NSO, or any of the other high prestige options that punches a plebian's ticket into high society without significant cash or hard power. In ye olden days I would have included the Catholic Church.

Historically, the elites have been quite happy to use confiscatory taxation to keep down their competition, particularly when they can do various tricks to escape the worst of the tax burden.

So we wait 80 years for economic growth? Or longer if he only has one son? Or if his kids get along with each other? At least the socialist economic minister could get transferred to a different job!

"For another, just because he controls the stock (wealth) does not mean he controls the flow (prices). Say he hires a pool boy. The pool rents one of his apartments, buys his groceries at the company store, and so forth. "

Yea he would lack the ability to receive price signals. His monopoly position would keep competition from underbidding him and gaining market share but he would have the same problem the socialist minister has, without price signals efficient output choices cannot be found.

No, economic growth would occur, just less efficiently than in a more competitive market.

Likewise he is definitely receiving price signals. His monopsony position is not absolute. 10% of the wealth is out there bidding against him and, about 10% of the time, they will be the winning bidders. At worst, he receives 10% of the price signals that would exist in a competitive economy.

I mean we see this all the time. De Beers, for instance owned 90% of the diamond trade back in the 80s, and yet we saw significant growth in the diamond economy and we saw De Beers reacting to price signals from the 10% outside of the cartel.

Intel controls somewhere in the high 90%s of the server market, yet again they somehow manage to get price signals coming through.

Historically the British East India Company outright owned parts of India, yet their historical record is replete with price signals.

Again 90% wealth concentration would create problems, it has historically, but for most of human history that sort of wealth concentration was normal. Peasants who owned neither the fields (held by their lord) nor their homes (held by their lord) still sent price signals around the local village. For a mostly closed feudal economy, local economies routinely had the vast bulk of the wealth concentrated into a single owner. Yet price signals are still recorded.

Markets are more efficient without single entities having outsized influence, but historically they managed to exist in situations with well worse than 90% wealth concentration.

So back in the days of the USSR trade with communist nations was tricky. If Poland sold the USSR a tractor, how many bottles of vodka would they have to send? The Soviet answer was to use prices in capitalist countries as a guide to set the terms of trade.

When it was pointed out to them that since their ideology said there would eventually be a communist revolution that would convert all the states away from capitalism, how would trade be solved then? The sarcastic Soviet economist replied "we will keep one country capitalist just for this purpose.'.

It sounds like you're saying free markets and competition aren't really necessary. You could plan 90% of your economy just as long as you're somehow 'taking price signals' from the remaining 10%.

The problem with this is the price signals are likely to be accurate but distorted. The price signals from smaller streaming services other than Netflix and Amazon are not signals from some alternative universe where streaming follows the perfect competition model. The price signals reflect market knowledge and anticipation of how the major players like Netflix or Amazon will respond to the smaller players. That's quite sensible for them but it fails in the purpose you want, to provide Netflix/Amazon with information that allows them to 'plan' the streaming economy almost as well as if it ran on perfect competition.

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"There is a growing sense among many that there is a point when wealth concentration starts becoming corrosive to an economy and society. "

Is there?

I remember one year the media, and Bernie Sanders among others, trumpeted this: ""The Walton family, which owns Wal-Mart, controls a fortune equal to the wealth of the bottom 42 percent of Americans combined."

To dislike Bezos is pretty easy - he's not a man trying hard to be liked, like Gates. (My husband might sigh and put in, sadly, it's the bald head - nobody likes a bald man.) Attacking the Waltons got no traction, though, even though the Waltons have never really gone in for showy Rockefeller-like (or Gates/Buffett) big philanthropy, and even thought Wal-mart really did change the way lot of American towns look and function. Is it because Wal-mart, once derided for "destroying main street," gets a pass for being the place where poor people shop? And/or work?

I suspect it's because most people think of Sam Walton, a nice old man whose been dead for a while now. They don't think of Wal-Mart today when they think of the Waltons and Walmart today is not universally loved by any means. Ditto for Bill Gates who today is seen as less Microsoft and more about smart charity. That and both Walmart and Microsoft seem like second tier monopolies these days when stacked up against Amazon, Google, Apple and Facebook.

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Explain how a wealth tax is supposed to work for people who own family farms or family-owned businesses?

Let's say I own a farm that has a combined land, equipment and revenue value of $10 million, but which only brings in a salary for my family of $100,000 per year. A 2% wealth tax on $10 million is twice the family's actual income. What do they do?

The same goes for small business. Any business above the floor for tax has to now make an additional 2% return on capital just to maintain the status quo.

And savings? If you are only earning 2% on your savings, the government will take ALL of your gains.

Wealth taxes are an invitation to capital flight, and will result in a major decrease in investment in new ventures. It would disrupt small businesses, and require armies of tax lawyers who will further drain resources from the fleeced to the fleecers.

I imagine the rates would have to vary based on the type asset we are talking about. Something like a family farm would have to be taxed at a much lower rate or a high exemption would have to be in place since any such valuation would be pretty dated and complicated (equipment would have to be properly depreciated, for example).

In the case you describe, for example, the farm probably is paying property tax. How does that work? Either the rate is low or the valuation is deflated to represent the fact that $10M is probably not a 'real' valuation if the asset isn't very liquid.

The wife's family has such a farm. The land is zoned for agriculture and taxed at that level for property tax. Shockingly some gazilionaire has a horse "farm" in the area which is also taxed at that rate. A "country estate" becomes awfully hard to differentiate from a "farm" once the lawyers get involved.

And is not just farms. Machinery, warehouses ... there are all manner of assets that are non-liquid and hard to divide. Many times, businesses have to go a year or three with net losses; under such scenarios you may be doubling, quadrupling, or worse their burn rate. That means that during a recession, you may well have a lot of family firms go under as they are unable to tap credit and their assets are indivisible.

Property tax is pretty instructive. There are only a few states where real property tax is over 2%, and there only a handful of cities where it is approaching 4%. Yet even these have resulted in documented valuation falls (reducing tax receipts), business closures, and worse economic performance. As real property is maybe 1/4th of total wealth, we are talking about a new tax that is going to hit at least twice as hard as the most heavily taxed property in the country and something like 4 - 8 times as hard as the national average.

Of course you can carve out exemptions, but down that path lies all manner of dead weight loss. Certainly such exemptions will invite those with the most to lose to spend the most on, and become most successful at, dodging the taxes.

Ultimately, I strongly suspect that wealth taxation will fall hardest on those who actually have the least plutocratic inclinations. Those who own business assets that are neither liquid nor mobile.

Frankly, this seems like just the sort of thing to slowly scale up among several states. Let MA or RI give it a go first. If we see utter capital flight, then we can expect that at a national level. If we see chicanery that results in massive dead weight loss, we can again avoid.

As is we are talking about something like an order magnitude larger than any similar tax tried before. Rolling it out after what is likely to be a highly contentious election, possibly with the need to revoke the filibuster, and some creativity with constitution ... I just don't see this as a particularly safe experiment.

Easy you make the $10M exemption. If your wife has a $12M farm, she pays 0 on the first $10M and whatever the rate is on the remaining $2M. If someone else has a $100M estate they would pay on $90M. At some point here we cross a credibility point. "Well my wife inherited a farm worth $100M but we just use it to raise 3 chickens per year so could never pay any type of tax on it"...err well no.

Ultimately I think the purpose of wealth tax proposals is to target wealth concentration which means you're looking at 1% of 1%, not even 1%. Large farms then won't even get you there. I leave you to HBO's Succession and their "$5M is a nightmare" speech, which I wish I could easily find on Youtube:

*****
"You can't do anything with $5 million Greg, 5's a nightmare, can't retire, not worth it to work"

"Poorest rich person in America, the world's tallest dwarf"
****

IMO if the purpose is to dampen the extreme end of the wealth scale, it would be trivially easy to make it so a farm isn't touched.

I refer you again to the "horses" bit. If you raise horses, you can easily jack around with the livestock values. Top horses can easily breach $20 million, each. How exactly would you differentiate a working horse farm from some tax dodge? I have seen both already and the tax folks haven't come up with a definition yet that works, and that is before you octuple the utility of dodging wealth taxes.

I mean if this were easy, we would already have a universally accepted solution. Instead we get a hodgepodge of approaches in different jurisdictions because they all have various difficulties.

Maybe you just want to make all farms untouchable ... well great I suspect there would be a mad bidding war for farms to store wealth. And then people would borrow against the farm to generate a liability to offset their other assets.

Warren isn't the first person on the planet to do a wealth tax. As noted below, Zakat is supposed to be a 2.5% wealth tax (1/40th), many Islamic states have enforced its collection. I has never generated near 2.5% of wealth as revenue, in spite of attempts to kill those who fail to pay it in some states. And that is among people who believe that failure to may damn them in the afterlife.

How exactly do you get a $20M horse without liquidity?

I mean, let's say you have two horses that produce a new horse. You do not spend any cash except for vet bills and feed. You train the horse yourself. I suppose this looks no different than many people who own horses as pets/hobby. Two possibilities:

1. You never do anything with this horse. You ride it, enjoy it but it lives out its life no one ever aware its worth $20M. Sort of like the old comic book hidden under your attic boards that turns to dust over the ages with no one aware its there.

2. You at some point sell this horse for $20M.

At point 2, the nature of this is revealed to the financial system. As far as the IRS is concerned, you have $20M in income. At this point, facing a big tax bill, you assemble every vet bill, feed bill, trainer bill and whatnot you can to establish that you had expenses against that $20M. At this point you actually do accounting and at this point the asset nature of the horse is accounted for.

Of course, this doesn't happen. I don't know anything about raising horses but I know enough to be skeptical that a hobbyist just happens to produce a $20M horse like a $1M comic book happens to turn up in a garage sale. Such operations have to run as businesses with sophisticated bookkeeping and if you're targeting a large exemption (let's make it $100M then).

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The current proposals are to tax only wealth above $50 million. Most of that would be in liquid stock in public companies or large private companies that could go public or well assets to raise the money.

So much of the pixels spilled on this issue are about the injustice of a pensioner paying the tax, or a small family business owner, or some other middle class/upper middle class family. None of those would be involved.

Now, it is probably still not a great idea, because those with that kind of wealth can afford top level CPAs and attorneys to make sure they pay as little as possible, far less than the tax is meant to collect. Or they will just leave the country.

Making the inheritance tax bite a little harder would be perhaps a reasonable compromise, although it would not raise that much. Something like 50% above $10 million, 70% above $50 million, etc. This would induce a lot of avoidance strategies also, but since one of the biggest ones is donating those assets charity, maybe that's not so bad either.

If you want to go after inheritance tax reform, this basket of reforms seems fair enough
- Eliminate inheritance tax
- Eliminate basis step-up on death
- (But allow inflation adjusted basis if you like)

Now you might object that this has a broader base and mainly hits folks who are well off but not the 0.1%. That's true, and also the point. A narrow tax base like personal assets over $50 million is too easy to avoid.

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+1 well said.

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The bigger problem is that it's a tax on savings, double taxing income which first pays it on labor, then on savings. True, a 2% rate is huge, but the post's argument fails if we just set it to 0 .1% instead.

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a given capital gain is diminished by two percent each year, not just once

No. The tax is on wealth, not gains. Pay $10 for a security and see it go to $50 and you pay 2% of $50, not 2% of $40.

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The argument I rarely see made is that a wealth tax is on money that isn't moving. By definition you're putting money into the economy when you spend tax revenue that comes from an idle source. A consumption tax is on money that would otherwise already be spent on something else, thus reducing purchasing power.

Lower tax rates simply requires the money that moves around to work harder, to pick up the slack of the money sitting in a mattress.

This argument is also used, oddly, to justify cutting the capital gains tax rate. Supposedly money is 'locked up' in stocks. People don't want to sell because that will lock in a tax bill since they purchased the stock long ago at a lower price. If only they were 'liberated' now they could sell and redirect that 'locked up' capital to some other worthy investment.

This doesn't make any sense if you think about it for a few minutes. In order to own an asset, you have to buy it. Whoever you brought it from has the money. That person has sold his asset so will be in the market for a new asset. So why wouldn't he simply invest in the promising new asset? Example, Elan Musk cashed out of PayPal and used the money to start Tesla. The people who are holding PayPal stock in their 401K for 30 years aren't holding back Tesla.

Likewise you have a mattress with $100M in it because, well, you're really eccentric but honest. Wealth tax now means you lose 1% of that every year. Why would that make you go out and spend or invest?

Think about it carefully. You had $100M in cash. You could have easily spent or invested that. You didn't for whatever reason, say you're really paranoid about a huge crash coming and cash will be king. OK now you have $99M. You're not happy that 1% is gone but you are still confronted with the same question, what do you do with $99M in cash? If you still have the same ideas that caused you to keep $100M in a mattress, you would probably keep $99M in that same mattress. Why not?

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