Questions that are rarely asked (from the comments)

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.

That is from John Thacker in the comments.  And, for the case where the wealth tax would apply to more people than just the very wealthy, Dallas ponders:

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.

Ponder away on that one…

Comments

Yes, wealth is difficult to measure and define. However, valuing public pensions and trying to tax their imputed value would be a non-issue under a Warren or Sanders wealth tax. Warren's starts taxing wealth at $50 million while Sanders' starts at $32 million.

If we accept the $3 million estimate for the value of a pension, the question of taxation would only arise for a handful of independently wealth civil servants who don't have any debt. Much more problematic, in my view, would be how to handle stakes in partnerships and privately owned corporations. The people with the most experience in valuing privately owned businesses are the much-loathed M&A specialists and investment bankers. A wealth tax could cause a surge in demand for their services as the government and rich families haggle over the true value of their business interests.

Much simpler to just increase capital gains taxes and close loopholes in corporate taxes.

Does anybody but me remember how the original income tax was sold as only applying to a few tens of thousands of families, the ultra rich?

-dk

Yes. One wonders how long the same set of political actors who would implement a wealth tax with a $50 or $32 million exemption will defend not applying the tax to the assets of the evil people with wealth above $25 million, $10 million, or $1 million?

Respond

Add Comment

No matter how much they raise taxes, they will spend more.

My theory about Federal income tax-exempt interest on state, county and municipal debt securities: the power to tax is the power to destroy, so the Federal government could not have that authority.

There have been a number of howlers since, say, 1913: "I'm from the government and I'm here to help you." The Fed would abolish the business cycle. FDR during the 1932 presidential election campaign, "I will not confiscate Americans' gold money." When Social Security was enacted, very few Americans lived to be 65 years of age.

It's all about getting the camels nose into the tent

Based on the experiences of advanced countries in Europe, wealth taxes don't bring income into the treasury, they are a net loss. That's because they cause avoidance efforts which drive wealthy people to shift themselves and/or their assets out of the country, which also remove all the other taxes those people would have otherwise paid to that country.

That's the primary reason why Austria, Denmark, Finland, France, Germany, Iceland, Ireland, Italy, the Netherlands, Luxembourg, and Sweden have repealed the wealth taxes they experimented with. It's an already failed idea and it's easily predicted how it will ultimately turn out just by looking at the examples of others who have tried.

For example, if anything is exempted, then one common evasion tactic is to borrow lots of money against non-exempt assets (reducing their net value) and invest the "loans" in exempt assets.

The whole scheme is just a jobs act for lawyers and accountants and a way to export capital to other countries, not a way to raise money.

Others have also pointed out that it's Constitutionally dubious, at best, so I won't belabor that.

This is a political talking point for certain politicians to avoid having to explain how they'll pay for their incredibly high proposed spending increases on top of the otherwise massive spending increases we already get from Congress. It's not a serious policy proposal, unless the proposer is simply ignorant of actual wealth taxes .

In the Netherlands, we/they have a 30% tax on a 4% hypothetical return, which is equivalent to a 1.2% wealth tax. The old 2% wealth tax was repealed in name only, and I don't think anyone is really complaining.

(Except about that 4%. People are actually litigating about that. And even winning, somehow.)

In every discussion about taxes and specifically new or increased taxes is the buried lede. Governments continue to expand and waste most of their revenues. Therefore they continue to demand more and higher revenues. There is no limit to expanding government. When they finally get 100% they will still come up with ideas and reasons to increase taxes and they will still use the claims that some group is not paying enough. There should be a limit. That is that no one pays taxes in excess of, say, 30%. That's all taxes; federal, state local, property, etc. AND there should be a limit on government. That is that all government cannot take more than, say, 5% of GDP and that between them all they must exist on that amount and no more. Until we have those limits and assurances we will continue to suffer the consequences.

Seriously, don't both parties agree deficits don't matter?

Respond

Add Comment

Respond

Add Comment

Respond

Add Comment

Respond

Add Comment

Respond

Add Comment

>When Social Security was enacted, very few Americans lived to be 65 years of age.

Actually it was about half. SS was enacted in 1935, not 1835. But SS was close to being actuarially fair at the time. Most of the people who lived to collect SS didn't collect it for long.

Respond

Add Comment

Respond

Add Comment

Respond

Add Comment

Ane does annonse remember the wonderful Stone Age when nobody payed taxes?

The Stone Age lacked borders to keep those brown invaders from stealing our jobs.

Respond

Add Comment

Things haven't changed. Scholars estimate that medieval serfs gave about one-third of their labor and produce to the lords. Slaves gave 100%. Taxation is slavery.

Does anyone remember when the United States of America was a constitutional republic? No one living.

You wanna cry?

No. I've been bent over laughing since the wee hours of the morning of 9 November 2016.

Respond

Add Comment

Respond

Add Comment

Respond

Add Comment

Respond

Add Comment

Respond

Add Comment

Keep on panicking, lord knows y'all have to make up for all the more righteous opportunities you passed up to do so while the rest of us were gearing up for Trump stealing millions from the Treasury for himself and his family.

Too late , as it was already stolen prior to him getting into office by the previous admins cadre of crooks.

That is a ridiculous refuge to take, that unprecedented corruption is the same as always.

But I can see advantages to the pretense. It at once frees Trump voters of their 2016 responsibility, and opens up 2020 possibilities.

You just need a "but her emails" for the new age.

Yet another name change?

This is an old name, but it iz kind of sad that you think there is just one guy here who you think could find this age unprecedented.

So it’s the mouse using another older name.

Got it

Respond

Add Comment

Respond

Add Comment

Respond

Add Comment

Respond

Add Comment

Respond

Add Comment

Respond

Add Comment

The biggest effects will be on professions where people earn lots of money when they're young: Wall Street, Hollywood, Silicon Valley, professional sports. Raising income tax to 1950s rates won't help either.

Silicon Valley in particular will be hit hard, as it depends heavily on immigrant talent. Skilled immigrants will simply go to other countries. And skilled young Americans will have a strong incentive to pursue their careers elsewhere.

Of course, non-resident US citizens have to file income tax, and presumably the same would apply for wealth tax. But enforcement requires the cooperation of foreign countries and foreign banks, and they only do so because the US is a global financial hegemon. It won't retain that status for long if money and talent starts fleeing under worst-case high-tax scenarios.

"Silicon Valley in particular will be hit hard, as it depends heavily on immigrant talent. Skilled immigrants will simply go to other countries."

Oh, no. Jobs for Americans. The horror! The horror! Oh, the Humanity! Let this cup pass from me!

Bastiat to aisle two please. Bastiat to aisle two.

A particularly egregious Lump of Labor fallacy needs cleaning up.

Jobs will make Americans poorer! Making money will bankrupt American workers!

You couldn't even look it up?

Respond

Add Comment

Respond

Add Comment

Respond

Add Comment

Respond

Add Comment

Respond

Add Comment

If someone owns a private jet outright, taxing that wealth is reasonably straightforward. You would have to periodically assess the property, account for depreciation, etc., but it is a tractable problem.

What if that person decides to put the jet under the name of an LLC and then lease it out to businesses or other rich people part-time, as many wealthy people are known to do? Do you value the LLC according to the assets under its control minus liabilities and then tax the owner of the LLC for that net equity value? Or do you take the LLC's profit, do a risk-adjusted PDV calculation, and then tax the owner according to the calculated PDV?

If we use the first methodology, it's still relatively easy to tax private jets but what about tech companies? Amazon's price to book ratio is over 16 -- if it had never gone public, Jeff Bezos would have a huge incentive to keep it private and only pay taxes on his share of its equity value.

If we use the second methodology, then tax avoidance is trivial and all you need to do is put your assets in the name of some shell corporation that never earns any money.

Wealth taxes are moronic, but this recent obsession is more along the lines of trying to discredit any taxation that will return the amount of taxes the truly wealthy pay to their pre-Trump level.

You can actually show that a one shot wealth tax (and the "one shot" is the key here) is the only non distortionary tax even if you believe in Chamley-Judd.
Otherwise, a wealth tax is equivalent to a capital income tax as long as everybody has the same level of productivity. If productivity differs across individuals, then a wealth tax is mechanically less distortionary than a capital income tax: just think about the fact that the most productive individuals will acheve the highest capital incomes and be taxes the most. This point is made also by Saez and Zucman, who show that the the wealth taxes would particularly affect "old capital" like Bill Gates' compare to "new capital" like Zuckerberg's.

The distortion from a wealth tax would come from people substituting away from realizing income or holding wealth in liquid, easily measurable forms. For instance, if pensions are exempt from the wealth tax (as per Tim Worstall's comment), you can expect more high-earning individuals would insist on being compensated through pensions rather than income or stock options. Then if Congress enacts a tax on super-pensions that pay people millions of dollars a year, expect the terms to change so that these pensions pay out in income or perks to one's family members. It will just be another cat-and-mouse game of tax avoidance.

I am broadly sympathetic to the aims of Piketty, Saez, Zucman, et. al. but I get the impression economists who make tax proposals don't spend enough time talking to lawyers and accountants, who know much more about how taxation plays out in the real world.

Respond

Add Comment

Respond

Add Comment

" return the amount of taxes the truly wealthy pay to their pre-Trump level." You want to collect fewer tax dollars? OK, we finally agree.

Pre Trump level taxation would cause my taxes to go down. The SALT limitation killed me.

Respond

Add Comment

Respond

Add Comment

Respond

Add Comment

Respond

Add Comment

If you have questions how a wealth tax could be implemented, just look at Switzerland. Under the Swiss system, municipal bonds would clearly be a taxable asset like every other bond. Furthermore, pension plans and retirement savings in a recognized form (the equivalent to the 401k account in the US I guess) are exempt.

The comment author's fear of wealth being harder to assess than income is justified. However, it is not impossibly hard. For example, for real estate, there are tables with the tax value per square meter of land for each municipality. So all you need to know is how much land you own in square meters, loop up the tax value per square meter and multiply the two.

Furthermore, this forms the basis for the "self-rent value" (Eigenmietwert). In Switzerland, the rent you pay (or would have to pay) to yourself for living in your own house is taxable income. This sounds counter-intuitive at first, but makes sense economically. There is no economic difference between persons A and B living in their own home and persons A and B living in each others home and paying rent for it. So these two scenarios should also be taxed the same if one wants to avoid distortions.

For those who are interested, these tables start at page 20:
https://www.steueramt.zh.ch/internet/finanzdirektion/ksta/de/steuerbuch/zuercher-steuerbuch-definition/zstb-21-1/_jcr_content/contentPar/downloadlist_0/downloaditems/2647_1547212342271.spooler.download.1547030816329.pdf/ZStB-Nr-21-1.pdf

The problem is that we're not Switzerland. Culture matters.

The Obama administration floated the same - in effect, living in your mortgage free home was unfair to those who had to rent or chose to live in big cities where there are nil-to-none or few realistic opportunities to own one's dwelling.

Remember, before he became president, Obama blamed whites for moving to the suburbs taking their tax dollars with them to the detriment of minorities and poor city dwellers. He also said that the raising the capital gains tax wasn't about collecting tax revenue - it was about fairness.

Taxing the wealthy is not about collecting revenue - it's about what is perceived to be fair.

Can you imagine if we taxed athletic talent the same way - not just salaries - but actual talent by handicapping said talent? You only get two strikes, you have to wear weighted shoes, and you can't play today. It's just the right thing to do. Or, retailers charged for flat screen televisions based on your ability to pay: -make 15k? $50 for the TV -make 100k? $2000 for the same TV. It's just the right thing to do.

You can do all the tax analyses you want - good or bad, nuanced or not, based on models with 10 assumptions or 40; essentially, the government wants your money because it needs a new revenue stream under the pretense: It's only fair to make people pay their fair share.

We can pay off the debt, close the wealth gap, help the poor, help the less educated...blah, blah, blah...

Of course, the right thing to do is to abolish an old, less desirable tax when introducing a new one. For example, I would abolish inheritance taxes and the tax on private capital gains.

Respond

Add Comment

Of course, we could just charge people for everything they buy an amount proportional to their income. Then everyone would have the same amount of money. Problem solved.

Respond

Add Comment

Respond

Add Comment

Respond

Add Comment

"There is no economic difference between persons A and B living in their own home and persons A and B living in each others home and paying rent for it. So these two scenarios should also be taxed the same if one wants to avoid distortions."

Why only on real estate? If you have $100 in your pocket, and I have $100 in mine, that's equivalent to you giving me your bill, and me giving you mine. So you are just making an argument for taxing all ASSETS, which (even if I don't like it) is fine intellectually, especially if you remove all other taxes. But you cannot sell this as an INCOME tax, because we can, in theory, trade those $100 bills millions of times a day, generating ridiculously high income. What is the imputed value of cash? What, for that matter, is the imputed value of Mona Lisa?

Respond

Add Comment

Respond

Add Comment

There's an answer here:

"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"

In the Saez and Zucman work on wealth distribution they specifically reject unfunded pensions as being wealth. They reject pay as you go pensions as being wealth. They reject Social Security as being wealth. That pretty much covers all government pensions - I'm not sure of any that are actually funded properly through asset funds other than future tax revenues or contributions.

So, no, by definition, government pensions aren't going to be counted as wealth.

Pension funding status seems completely arbitrary, and varies over time.

How about annuities?

How about rich guy putting his $10 million of wealth over the Sanders limit into his own sole employee LLC’s defined benefits pension plan; no more taxable wealth?

Loophole lawyers will have a field day.

Respond

Add Comment

"That pretty much covers all government pensions": not in the UK. Local Government pensions come from funded schemes. There are also some small examples that I can no longer remember but that's the only big example. UK teachers' pensions, for example, are unfunded.

Respond

Add Comment

"That pretty much covers all government pensions - I'm not sure of any that are actually funded properly through asset funds other than future tax revenues or contributions."

I don't follow: CalPERS - wealth or not wealth?

Apparently about 68% wealth in 2017, about 71% in 2018.

"Our funding status estimate increased nearly 3 percentage points from 68 percent in FY 2016-17 to 71 percent in FY 2017-18. These estimates are based on a 7 percent discount rate."

https://news.calpers.ca.gov/fast-facts-to-know-about-calpers-investment-and-pension-funding/

Okay, bear with me - so: the neighborhood shopping plaza that is owned by CalPERS would or would not be treated differently wealth-tax-wise than the one across the street from it that is not?

For wealth tax purposes, a pension with a NPV of $3 million from Calpers would/ could be treated the same as direct ownership of $3 million of Kimco (a shopping center REIT) common stock.

Respond

Add Comment

Someone finally in this thread finally got to the real issue. Calpers should be treated as the entity paying the wealth tax. So, 2% of Calper's asset base should be its tax levy.

Respond

Add Comment

Respond

Add Comment

Respond

Add Comment

Respond

Add Comment

Respond

Add Comment

The valuation problem for illiquid and priceless assets is actually straightforwad to solve: ask the taxpayer how much the asset is worth and give the Government an option to buy the asset at that price + some small premium.

We will start with your grandmother's ring that you gave as an engagement ring to your wife. You say your price, we add 10% and the ring is gone.

I guess it's hard to get to the $30Mln limit with a wedding ring...

Of course if you have no argument, it seems pretty effective to resort to some emotional topic to hijack the discussion.

Respond

Add Comment

By the way, just to stress how moronic your argument is. Let's say your wealth is in excess of $32Mln, so indeed you have to pay the tax. Let's say the ring is actually worth 1,000$ but you attach an emotional value of 100,000$.
You implicitly assume that the Government will immediately confiscate your ring no matter what price you quote. But then, as the smart economic agent you are, you realize that the Government would never buy the ring as long as you quote a price of at least $910 given that it would amount to exercise an OTM option. Just quote a price of $910 and pay your 2% tax which would amount to $18. In present value terms, assuming a discount rate of 5%, that would be about $360 or about 0.36% of the value you attach to your precious ring. Such a confiscatory state...

Nonsense, spiteful actors exist everywhere. Giving the government the power to buy such things means that if you happen to annoy the bureaucrat making the purchase/no purchase decision, you will be out the asset even if the government pays over market value.

There have been plenty of cases where governments have improperly used eminent domain in order to spite individuals involved in petty vendettas. Why should we expect this new authority to be immune to human vices when the old, less sweeping ones already aren't?

And of course your solution still fails even in strictly economic terms. Suppose it is 2008 and Mr. Zuckerberg is placing down his value of Facebook as $5 million. How does the government know to exercise its option? Does it have access to Facebook's internal accounting? Or does it just have to trust Facebook when it says we have these liabilities in Dublin?

After all, when it comes to things like corporations, when you buy them, you also buy their liabilities. I could see a lot of profit potential in gaming the government's ignorance to stack a bunch of liabilities inside one corporate shell and then putting down a tempting valuation. Government exercises their option, only to find they have just paid for a net negative value.

And works this way for a lot of assets. If I own an oilfield, does a precipitous drop in value mean that I am dodging the wealth tax and the government should buy? Or that the field has played out even further and I am trying to dump it before I have to pay dismantling costs?

Or say I buy stud stallion. I list his value as $15 million (not unreasonable for high end studs). How is the government going to know his actual worth? Did I actually buy him for $15 million or was he found to be infertile or too violent to mate? How will the government know? Or take paintings, is this "$3 million dollar" work something by a famous artist that has proper authentication where a gazillionaire is hiding $20 million in wealth ... or is it work by an unknown hack which the government will overpay on by $2.99 million?

And of course there are the financial instruments. Say I have some options that come due in six months at the firm where I work. Under current market conditions they are worth $15 million. I put down their worth as $7 million. Do I know something the market doesn't (after all I work inside) or am I cheating the wealth tax?

Absent a lot of government knowledge about value, you end up either getting snookered for low value assets. Or you let people walk with massive undervaluations of real wealth.

Governments are terrible at these sorts of offers. They have rules they must follow. They have to make many of their deliberations publicly. They have controlling agents who concerns far outside of profit maximization. Their agents are chosen, ultimately, through a political process.

Like so many of these things, this sounds like a great place for regulatory capture and subsequent fleecing of the real taxpayers.

Really? So we are going to easy street. We just need to annoy the government and make it buying our stuff at inflated prices.

How much do we believe in regulatory capture? How much do we believe that the government should follow predictable rules and processes?

Wealth taxes will be pitting, maybe, a few hundred million dollars of government manpower against a few hundred billion dollars of tax avoidance manpower. In the long run, I would definitely bet on the latter.

Any law is like that. Bill Gates' wealth is much bigger than, say, the FBI's annual budget. Or the United States Department of Justice. I don't see how lawlessness is a better situation.

So you believe the drug war is successful?

Illegal drugs are estimated to be around a $150 billion dollar industry in the US. The US government spends something around $50 billion to stop it.

Drugs have the advantage of being physical goods and being universally illegal. Going after wealth is going to be harder - recognizing it as such is non-trivial, people can legally own a certain amount of it, and there will be innumerable entities that can hold large amounts of wealth.

This is not a new idea. Zakat is traditionally a one part in forty wealth tax. A number of Islamic regimes have collected it via the state for generations. It never raises anything close to 2.5% of wealth in revenue. In a good year, Malaysia might collect 0.2% of GDP (not wealth) in Zakat.

If you believe a wealth tax is going to easily raise money, you should also believe that drugs are easily interdicted. Me, I find that history shows such things are exceedingly difficult unless you are willing to kill lots of people or you have a massively pro-compliance culture.

It is not the same thing. Drug dealers are criminals while legal assets are legal. Gill Gates can't just hide Microsoft, it is not how the economy works, actually.

It's exactly how the economy works

Respond

Add Comment

Sure he can. He already did.

Round Island One is a Bermudan holding company where Microsoft parked their intellectual property for much of the last decade. That IP generated billions of revenue. If sold as an independent entity its valuation would represent the majority of Microsoft value.

Per extant tax law, all of that wealth is domiciled outside the US and is not on the US books. In fact, even the revenue streams generated were not on the books per the IRS.

And this is normal. Intellectual property routinely can make up the majority of wealth in a company these days. It is trivially easy to locate IP in a tax haven, pretty much every major company h as been doing that for decades. With enough corporate shells you can make valuation exceedingly difficult. Is this offshore shell company the one that holds all the IP & wealth? Or is the one than Enron set up to hold debt off the primary books?

Then we’ll pass better laws.

You don’t get to destroy the IRS and refuse to pass reform and then throw your hands up in the air when the rich get away with murder and tax evasion.

There is more than enough money to pay off all student debt and Medicare for All if we stopped tax evasion, ended corporate welfare and closed loopholes.

This is a $4 trillion a year pot of gold.

Wouldn't it just be easier to declare all assets the government's and give us all allowance?

Respond

Add Comment

For years most of the major international corporations played games, like Microsoft I just mentioned. Facebook, for instance is actually Irish and not in California to this day. Google moved almost all their European profits to Ireland, sent them to a Dutch company, back to Ireland and then on to Bermuda.

After years of this stuff, we and Europe did pass new laws 2015 (and we went so far as strong arming Irish internal politics) ... and in 2020 it will finally stop being a viable tax avoidance strategy.

Passing laws is slow. These loopholes rarely exist because of outright malfeasance, they exist because somebody legitimately has some worry that needs special treatment. Then the accountants and tax lawyers have a run at it and we find all the weakness.

How has passing new laws worked in practice? Well when were targeting the income flows generated by wealth stocks that had been moved abroad, they were abysmal. Over half of the largest companies paid less than half of the statutory rate. Many of them received billions in tax refunds while hiding 10 of billions of potential taxes overseas. We passed laws in 1998, 2004, 2011, and a host of other years that I cannot quickly Google. None of those kept up with the corporations.

Instead our highest tax receipts came when we cut the rates to a point where tax avoidance was more hassle than it was worth.

Far from being a "pot of gold", taxes like these are buried under mountains and hidden in ores. To get it we will, always, have to pay for enforcement (the cheap part), continuously update the law (the slow part), and deal with decreased economic performance as people and corporations respond to the incentives (the costly part). We may get some gold out after we mine and refine it ... but I am doubtful that it will be particularly lucrative.

After all, that is the 1300 year experience of Muslim states (continuing to the present) with 2.5% wealth taxation with Zakat. That was the experience with most European countries. So unless you want to tell me that both Europeans and Muslims are inherently inferior to Americans, my prior is going to be that our efforts will be stymied just like theirs.

Respond

Add Comment

Respond

Add Comment

Respond

Add Comment

Respond

Add Comment

Respond

Add Comment

Respond

Add Comment

Respond

Add Comment

Respond

Add Comment

Respond

Add Comment

Respond

Add Comment

Respond

Add Comment

Respond

Add Comment

The effect of a wealth tax of 2% would be first:

1) Billions of stocks and bonds offered for sale
2) stock prices plunging, interest rates rising

The Fortune 500 et al would have much lower hurdles for being in the top 500, and the total wealth of the 1% would shrink as a share.

The floor for prices will be labor costs to create assets. Ie, shares of google, amazon have virtually zero link to labor cost of anything. However, a $100 million price factory in the Midwest will have a labor cost of about $100 million to replace. It might have cost a billion to build three decades ago, but technology change without ongoing investment of labor will have consumed the $900 million in reduced price.

Google, amazon share price inflation is driven by high income workers saving and bidding up share prices to get shares instead of paying workers to build new competing firms. The problem with trying to compete with say Amazon is spending $100 billion paying workers to build a substitute (Bamazon) based on pocketing a $500 billion profit on the IPO, is people would sell amazon stock to get the cash, which would result in huge share price drop limiting the price they will bid for Bamazon. Lots of cash paid workers up front with no assurance of getting it back, much less a profit. It would be like Uber and Lyft, Pets.com.

For dividend paying stocks, the price would fall until the dividend is greater than 2% of share price so the dividend would cover the wealth tax.

Respond

Add Comment

America is utterly divided, but I think Mrs. Mrs. Gabbard can become a consensus candidate. She is a veteran, she supports Medicare for All, she opposes terrorism and she opposes knee-jerk military interventionism. I think she can help heal the deep divides in our country.

Yeah, I think Mr. Gabbard is the best option to lead America in the tempestuous world we live in now.

Respond

Add Comment

And if the US doesn't want her perhaps Brazil should hire her.

I don't know what Brazil has to do with it. Non-Brazilians can be elected Brazilian presidents. The Brazilian Constitution says so.

Can't, I mean.

She could be granted citizenship, if only on the grounds that she's brown and good-looking.

It is not that simple. Only natural-born-citizens can preside Brazil.

Don't you have the system in Brazil that there's a Supreme Court that can just make stuff up? It's a system that's been so effective in the US that even the UK has copied it.

Respond

Add Comment

Respond

Add Comment

Respond

Add Comment

Respond

Add Comment

Respond

Add Comment

Respond

Add Comment

Respond

Add Comment

Today's high level of inequality of wealth is in large part a function of rising asset prices (as opposed to disparity in incomes); disparity in income is the foundation for the sharp rise in inequality of wealth attributable to rising asset prices. Should we care about the high level of inequality of wealth? My view, often expressed, is yes. No, not because of social and political instability, but because of financial and economic instability (that often give rise to social and political instability). That's not the view of our host (or at least not the view expressed by our host). Of course, financial and economic instability is the market mechanism for correcting a high level of wealth inequality. It's a "cure" that is worse than the "disease" it corrects; thus, central banks intervene in order to prevent the market mechanism from correcting the high level of wealth inequality. If central banks intervene once, central banks must repeatedly intervene because every "successful" intervention sets up another round of financial and economic instability and intervention; the groundhog day for monetary intervention. Our monetarist friends (such as Sumner) would strongly disagree with this, but our Austrian friends (you know who you are) agree. We have come to rely on rising asset prices for prosperity. It's a fool's path to prosperity. [To be clear, I would not follow neither the path of our Austrian friends (let prices fall in a financial crisis) nor the path of some of our Democratic friends (reduce wealth inequality by taxing it). But I would not follow the path of those who refuse to see reality.]

Respond

Add Comment

(i) "How would a wealth tax impact the fat civil service defined benefit pension plans?" I've had lots of displeasure from acquaintances when I've pointed at the capital value of their UK Old Age Pensions, the equivalent of US Social Security. Combined with DB occupational pensions they often imply that people who've had quite ordinary careers are millionaires. And if they own a house within hailing distance of London you can perhaps add on another million or two.

(ii) "Warren's starts taxing wealth at $50 million while Sanders' starts at $32 million." At the start: a super-exponential decay will drop those thresholds pretty quickly.

Respond

Add Comment

In South Korea, there is a very strict 50% gift tax/inheritance tax. It is viewed there as a quasi-wealth tax.

This high-% "wealth" tax leads to many perverse incentives around both wealth creation and asset valuation:

1. Wealthy people who hold large (~controlling) stakes in public companies try to actively LOWER the stock-market valuation of that company, ESPECIALLY at/around the time of share gift from father/mother to son/daughter.

As you can expect, some of these actions to hold down share price actually harm the long-term interests of the other shareholders in the company. E.g. deciding to delay a big cost-cutting initiative, or lazily building up cash on the balance sheet instead of making acquisitions or capital investments.

Overall it's somewhat of a headwind to GDP (especially considering the negative wealth effect).

2. Wealthy company shareholders in Korea actively seek to have a low market valuation on their shares by not only going public (crazily enough, public valuations in many industries are much lower than private valuations despite the lack of daily liquidity) - but also by creating 1 or even 2 levels of publicly-traded holdcos of the underlying opco. This way, the major shareholder can REALLY maximize the discount on his shares vs. fair value - each holdco layer generally brings on even more % discount! Of course, woe to the other shareholders who own (or buy) shares in this holdco!

My point is, the high "wealth" tax in Korea has created a pretty large industry, eating up tens of thousands of hours of lawyer and rich-person time/energy, focused literally on "market-price minimization." Is that really such a good incentive? You would need to believe the market is SUPER inefficient to think that these major-shareholder families are still laser-focused on creating value within their companies (while simultaneously pursuing a flat/negative stock price outcome).

Especially when there are non-controlling shareholders also owning chunks of these companies, who desire capital gain and dividend income - this seems like a bad social outcome of high wealth taxation.

I've often wondered if the best practical Estate Tax would (i) start at a modest threshold, (ii) have almost no exemptions - except for money left to a spouse or a disabled child, and (iii) have a rate of 10%.

Respond

Add Comment

Respond

Add Comment

Scanning a few Swiss tax summaries, Canton assessed wealth tax is net of recognizable debt, contributions to pension plans are deducted from income tax and as noted in a prion comment, pensions excluded from wealth tax. There is a scheme for taxing religious entities.
And, first debate question for Warren: Would you impose a tax on dogs like Switzerland does?
Second question: Why are cat exempt?

Talking about taxes without looking at the fine print is not very productive.

Respond

Add Comment

Invariably, anti-pension whiners must justify their outrage by characterizing pension values as "unearned," as some sort of free gift out of the blue.

Pensions are of course a legal wage liability and part of total compensation, and the terms are spelled out for everyone to see at the time of service. Yet the whiners invariaby describe their own retirement funds as money they scraped and saved for by the sweat of their brow, while the greedy ones with the fat pensions stood around holding a shovel while promises of unlimited free money in the future rained down on their heads.

Person #1 chooses x salary + y pension. Person #2 chooses z salary and no pension -- after which he devotes a portion of that salary to some other savings vehicle, or not.

Now person #2 is all whiny and unhappy (read: jealous) that he didn't choose to save his money via a pension (never mentioning the salary and job that came as the other part of the deal). It's not rocket science, you chose the bird in hand, the other guy chose the two in the bush.

It's a free world and a free market bubba, if they're so fat and over-generous, why didn't you chose the job with the pension back then?

In a free world with a free market there would be no public employee pension funds. All retirement pensions are bogus in a number of ways, the foremost being that compensation is supposedly being deferred to the future when the recipient is no longer able to earn an income. This means that the employee is considered too stupid to save or invest his money as he receives it. The fact that the funds that are said to make up the pool from which retirement benefits are drawn are invested in businesses by highly-paid fund managers and others is perhaps the real reason for the retirement programs in the first place.

Additionally, if the Protestant work ethic, which is deemed by many to be the foundation for the success of the capitalist system, is indeed valid, retirement programs are a refutation of that idea. In America, those that don't work aren't supposed to eat. They're regarded as malingering shirkers, unless they've put in two decades behind a desk in an air-conditioned office and had a retirement party on a Friday at the office. Of course, most retired public employees cash a couple of checks and then move right into a similar job, sometimes at the very same agency in which they worked. Public employee pension programs are an example of the behavior the RICO act was meant to eliminate.

That's a raft of sophistic garbage that ignores the point of my post.

The point of your post, that a public employee position with a defined benefit pension financed by the taxpayers is a choice available to anyone, is simply BS.

they sure as hell are more available than wall street jobs.

and the point you skipped is that the benefits are a legal agreement made in advance and spelled out clearly for all to see. And that the people who take those jobs do so evaluating the mix of total compensation of wage and pension combined.

you can't make it through your argument without shrill ad hominem directed at public employees.

Your argument works if the ‘z’ salary is significantly larger than the ‘x’ (or at least z=x+y) and 40 years ago when I was choosing a profession, I think that was the case, mainly that civil servants traded job security and a pension for lower yearly salary. But no more. The advent of public service unions (government being the only industry where unions are still relevant and powerful) has distorted this to where x+y>z with no market mechanism to rebalance. IOW, are you saying I should tell my 20 year old son the way to financial freedom is to get a govt job rather than join the private sector? One thing wall street and public service employees have in common:everyone else despises them.

"Are you saying I should tell my 20 year old son the way to financial freedom is to get a govt job rather than join the private sector? "

If the situation is as sweet and without downsides as the caricatures insist, then yes, public service is clearly the rational economic choice.

Respond

Add Comment

Respond

Add Comment

I agree with your general sentiment McMike, he’s full on ideological.

But pensions are assets and must be treated as such under a wealth tax. The only people who will be hit with a wealth tax under this scenario.....politicians and ex presidents....

Not like the DMV clerk has $30 million in assets. Bidens, Trumps, Obamas, Pelosis, McConnells...

I would be in favor a politicians only and persons 2 degrees from politicians wealth tax. Any difference between the glide path of your wealth prior to that person taking office versus after is taxed at 90%. Thats a real anticorruption law. Finally we can use metadata from the NSA for a real purpose!

Cheers McMike, good to see you commenting again

Agreed, defined benefit pensions should be treated generally the same as defined contribution savings plans for those purposes. Valuation of which will indeed employ a few accountants.

FWIW many people are unaware that pensions are sometimes a replacement for social security. And so, teachers who are in a defined benefit plan, do not participate also in social security.

and cheers back at ya.

Respond

Add Comment

Respond

Add Comment

Respond

Add Comment

Respond

Add Comment

Respond

Add Comment

Respond

Add Comment

Who said they were unearned??

Isn't the point that they are equally as earned as any other assets?

No, the whole tone of the comment that was cited in the O/P parroted the general theme of "fat" pensions for bureaucrats as opposed to money legitimately saved.

Yes,it was while making the point that evil unelected bureaucrats will exempt themselves. But as I said above, the complainers cannot seem to stay away from caricatures and ad hominem when complaining about pensions.

Respond

Add Comment

Respond

Add Comment

Respond

Add Comment

The Warren and Sanders confiscation theories are strictly red meat being thrown to the plebs. It ain't going to happen. Tax receipts have no relationship to federal expenditures anyway, the funds needed to finance aircraft carriers are simply enpixelated or generated through borrowing. And most of that money goes, once again, to the already wealthy.

Yes, and no. Sure, there will be no wealth tax of the sort proposed, not in our lifetimes anyway. But what has the elites in a mortal panic is that the worm is beginning turn on their impunity and immunity from concrete criticisms. The self-serving nonsense about "job creators" that dominated the conversation for the last few decades is starting to wear thin, and the practice of trying to justify endless tax cuts with junk economics is running out of road.

So it's just BS to fire up the naive and foolish, huh? Which of their other policies that should be viewed in that same light?

Never let a crisis go to waste.

Respond

Add Comment

Not necessarily BS, but anchoring and framing. Which is pretty common in politics and negotiations.

Just as threats of single payer greased the skids for ACA. Threats of a wealth tax will grease the skids for a return to progressive rates.

Solid comment here, +5 internet points

Respond

Add Comment

Respond

Add Comment

Respond

Add Comment

Respond

Add Comment

Respond

Add Comment

On munis, why wouldn't the wealth tax be applied? The existing exemption on muni interest is from a 1913 federal tax law. Munis lost their constitution protection in 1988.

Quoting from
https://taxfoundation.org/reexamining-tax-exemption-municipal-bond-interest/
The Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA) required states and localities to issue their bonds in registered form in order for the bonds to be tax-exempt.[13] The Social Security Amendments of 1983 modified the taxation of Social Security benefits such that some households with high municipal bond income were subject to additional taxes on their benefits.[14] Finally, the Tax Reform Act of 1986 created several restrictions on arbitrage bonds (where a municipality reinvests the proceeds of tax-exempt bonds in other investments with higher yields) and private-activity bonds (where a municipality issues bonds to fund private projects).[15]

These bills caused the Supreme Court to revisit the question of whether federal taxes on municipal bonds are constitutional in South Carolina v. Baker. In a 7-1 decision, the Court upheld Congress’ restrictions on tax-exempt municipal bonds, arguing that “the rationale underlying Pollock… has been thoroughly repudiated.”[16] In essence, the Court ruled that taxing the interest received by someone who owns a municipal bond is different than taxing a state or local government, and that the former is constitutionally permissible.

Respond

Add Comment

Regarding pensions, consider too that if they are not covered by a wealth tax employers will offer them. And for those with a 401K they can buy an annuity -- with the benefit of overcoming adverse selection and reducing their cost. Would annuities be covered?

Respond

Add Comment

Would be very difficult to apply a wealth tax to privately owned companies. No market based pricing readily available.

"No market based pricing…" Swiss Tax authorities do not agree.

Market value is "capitalization of net profit during last two years."

Taxpayer's appeal of confiscatory tax rejected.

https://www.brhpartners.ch/en/canton-of-geneva-wealth-tax-confiscatory-taxation/

Respond

Add Comment

Not a problem. We'll simply make it very expensive and difficult (or illegal) to have a privately owned company.

Respond

Add Comment

Respond

Add Comment

The only exemptions to a wealth tax (my personal preference is a 100% tax on assets over $100K) would be donations to the Democratic Party. Additional credits could be earned by anyone working to elect the good and ethical party.

Respond

Add Comment

Are we failing to imagine the evil genius?

Wealth tax, high threshold, low rates, What me worry?

Let's follow the trail of the Swiss Tax Authorities cited above.

Why is "market value" = current share price or assessed value or arms length offer? "Market value" citing IRS regs (per Lois Lerner) is the:

average of the highest five trading prices over the last two years;
the average of the highest priced properties sold in the same zip code in the last year;
if no independent valuation is deemed accurate, the IRS shall assign a "market value";

Your paper Wealth, my friends, has appreciated beyond your imagination.

Respond

Add Comment

Respond

Add Comment