Comment by koolba
9 years ago
> Bill Gates' (to name a random American citizen) has a far larger share in the GDP than most other Americans. If you want to solve that raise your taxes on the rich and lift up those that are at the lowest end of the scale. That will have a lot more effect than some fiction where you get to do a bunch of make-believe bookkeeping.
Or go a step further do what nobody has the balls to do: tax wealth
That's what all these schemes are really trying to do, albeit in roundabout and inefficient ways. Taxing wealth has it's own complexities (unrealized gains and non-cash assets are the big ones) but it'd be saner than a negative tax (i.e. entitlement) calculated off GDP.
From the perspective of trying to get the budget balanced, taxing wealth is probably the single most efficient way to do it.
From the perspective of the tax code as an incentive system, taxing wealth is a strange thing—it makes people feel less interest in becoming wealthy, and thereby causes fewer GDP-building things to happen! (This is also, for a similar reason, why economists don't like corporate taxes or trade tariffs: they disincentivize exactly the things that help the economy the most.)
Economists are usually more in favor of a land-value tax, because it punishes people for something that doesn't build GDP (investing their wealth into property and then sitting on it as it appreciates), and encourages them to instead do things that do build GDP (like investing their wealth into companies.) A land-value tax is still essentially a luxury tax, but it doesn't have the same problem of unilaterally discouraging GDP creation that taxing wealth does.
I think becoming wealthy is incentive enough to become wealthy. No one is going to stop trying to be wealthy just because they might get taxed for that wealth. If anything, they will just try to hide it in another state. But the argument that a wealth tax would remove any incentive to become wealthy is not very strong.
If a lottery ticket's prices goes up, and the purse goes down and/or the odds get longer, you'll be less inclined to buy a ticket.
It's the same with work. If hard work is less likely to pay off, or if you'll have to work harder, or both, you'll be less likely to work harder. Some people will work harder anyways, and many will be discouraged.
Marginal effects matter. This is why dynamic analysis is important.
28 replies →
Right, it only becomes a problem if you tax wealth so much that the net value of the next dollar is lower than the effort required to obtain it. At a certain level of wealth, where one is effectively paying others to invest their money for them, and they're earning off interest, that effort is basically 0.
Since a couple years back, we have a 1% tax on wealth in Colombia, which applies to anyone who has above approx. 330,000 USD in assets
I don't think it has disincentivated anybody from becoming less wealthy and/or working less. It just incentivizes tax evasion, but even that is not significant.
On the other hand, a large number of social programs have been built around this new tax. Anybody in the country could get cancer and would get free decent healthcare.
How much is a normal house in Colombia?
1 reply →
> taxing wealth is a strange thing—it makes people feel less interest in becoming wealthy
If we're talking about how people feel about their tax system, I think we need to talk about how a huge portion of the US misunderstands "tax brackets", and seems to think that paying more taxes when they're "bumped to a higher tax bracket" is a thing, and that there's some strategy in avoiding getting paid marginally more than some threshold. (Since tax brackets apply to marginal income, this is incorrect; you're still taxed at the lower rate for your income up to the threshold.)
This is almost certainly causing people to behave in ways that are economically irrational for themselves far more than any tax on large wealth (let's say, for the purpose of argument, $100M or more) would be. Yet there is no campaign to fix people's understanding of tax brackets so that more people feel incentivized to make more money.
If we're talking about an actual rational response to the tax system, I would much rather have $102M in the bank and get taxed on half my savings over $100M than have $99M in the bank and get taxed on half my savings over $100M.
> and thereby causes fewer GDP-building things to happen!
Why does a tax on wealth cause fewer GDP-building things to happen? The rational thing to do given a tax on wealth is to spend your extra wealth on services you're interested in, donate it to charities you support, etc., all of which seems like it increases GDP more than investing it for yourself would: it produces additional revenue for organizations, which produces jobs, which grows the economy.
I'd believe this argument for a tax on income, since it disincentivizes people from making more money, which means they're not spending that money because they didn't make it, and also they're voluntarily refusing to do profitable work they otherwise would have done. (I don't think I agree with the argument, but at least I understand how it works.)
> I would much rather have $102M in the bank and get taxed on half my savings over $100M than have $99M in the bank and get taxed on half my savings over $100M.
This is the best distillation of how marginal tax rates works I have ever read.
There still are taxes that don't work like this (usually in the form of benefits that cut off at a certain income range) so unfortunately we still have messed up stuff. The feeling isn't completely unfounded
> Why does a tax on wealth cause fewer GDP-building things to happen? The rational thing to do given a tax on wealth is to spend your extra wealth on services you're interested in, donate it to charities you support, etc.
Another rational thing to do is to create vehicles that store but temporarily impair the market value of that wealth as computed for wealth tax purposes. Put it into a private company and offer minority, non-controlling stakes in that private company to all comers and act surprised when only family members take you up on the offer. It's a minority stake without control rights; it's going to be worth less than the net asset value. Store the wealth there until you're ready to use it, then have the company directors make a distribution, or leave the transfer in place to your heirs, who will receive a controlling interest when their shares (that maybe they bought) are reunited with the shares that you will them upon death. Or invest in something illiquid and very hard to accurately value.
Technically, all of those things create GDP activity for lawyers and accountants as well, but it's hardly good public policy, IMO. (I'm not opposed to a reasonable wealth tax, say 0.25% annually on sums 10M-50M USD and 0.5% annually on sums above that. I don't think it's a tax without lossy consequences though.)
> I think we need to talk about how a huge portion of the US misunderstands "tax brackets"
I know engineers that are guilty of the misunderstanding you describe. How does anyone graduate from a university in the United States without at some point having been exposed to the idea of marginal taxation?
> From the perspective of the tax code as an incentive system, taxing wealth is a strange thing—it makes people feel less interest in becoming wealthy, and thereby causes fewer GDP-building things to happen!
I think this is false in practice, especially with a progressive wealth tax.
Most people don't want money, they want the things money can buy... long, healthy, and generally happier lives. People that keep striving past that point are people that seek to change the world, folks like Gates or Musk. A progressive wealth tax starting at $10M wouldn't really change the incentives at play.
taxing wealth is a strange thing—it makes people feel less interest in becoming wealthy, and thereby causes fewer GDP-building things to happen!
Citation? I know it feels correct, but is it actually correct in practice? Is there any evidence that the rare person who generates enormous wealth was motivated substantially by wealth (and not a drive to build something substantial or change the world)?
At least in the case of Gates, I suspect he would have built Microsoft even with slightly more onerous (to the wealthy) tax policy.
Taxing land value is even better: not only does it not punish any economic activity, so doesn't have any dead weight cost; it actively encourages better land use, and thus might even benefit the economy.
Also land is hard to hide, and relatively easy to value. So it's really hard to evade the tax. If you are going to tax wealth, and want that to include assets like equity in private companies, you are going to have to value those assets.
As I've suggested here: http://www.pdfernhout.net/basic-income-from-a-millionaires-p... "For example, imagine a basic income for everyone was supported by a 6% tax on all wealth that is based on monopoly scarcity. So, this would be an annual tax on real estate equity, bank accounts, cash and gold hoards, copyrights and patents, and so on -- basically anything that requires the government to defend it as a monopoly against someone else taking it in a way that leaves you with less. Anything undeclared would not be subject to legal process for recovery if stolen. It would seem only fair in a sense to support the government with a percentage of what you have, in proportion to the amount you have. (One might also propose a progressive tax on that, like higher rates on large total amounts, but let's just assume it is a flat tax.) Essentially, this could be seen as a protective tax on wealth. If millionaires don't declare wealth, the wealth can be taken by anyone, even by the government. :-) If wealth is declared, it is defensible in a criminal suit, and further, maybe the government might even insure it against theft (maybe even other things like fire or accident or war or natural disaster). Recovery of stolen property would then be a function of the government as a revenue source, after it had reimbursed the person who lost it."
2 replies →
Money and power (and the accompanying freedom they bestow upon the holder) have always been their own reward. Even in Communist systems, money was just replaced by "party capital" -- even if you were poor on paper, your power will lead to your children having more power.
Multiple incentives to be wealthy -- or worse, feedback loops to ensure the children of the wealthy maintain their advantage -- are just redundant.
> From the perspective of trying to get the budget balanced, taxing wealth is probably the single most efficient way to do it.
Why? As a total layman, wouldn't it be incredibly inefficient? If we tax the wealth of, say, the top 100 richest Americans, wouldn't that cause some pretty terrible downsides? If we force them to sell their holdings, wouldn't that ripple through the economy?
Take Jeff Bezos--if you forced him to sell a significant portion of his stock, wouldn't that depress the Amazon stock price, which affects a significant number of other individuals and businesses?
The problem is that eventually you run out of other people's money.
7 replies →
> taxing wealth is probably the single most efficient way to do it.
It's not taxing wealth so much as taxing the mechanisms that create undue inequality that would work: yes, I'm talking about taxing rental income. The number one driver preventing people from building savings is draining their income through rent.
The solution is sort of obvious, but hated by people who love the AirBnB model: https://news.ycombinator.com/item?id=14493769
Pardon me but the solution you claim is already in place, well understood and totally ineffective.
Income is already taxable, including rental income. On top of that there are various taxes for owning/occupying a property. It varies with what state/country you live in.
Generally speaking, a property is a poor investment if you already have the money, they have poor returns and they don't grow in value outside of a few bubbles.
That being said, I agree that the pressure of rent is unbearable and growing for most of the population. The rebalance historically happened with wars. Properties ain't worth much when people die and buildings are bombed.
10 replies →
That proposal is rather complicated, and probably inefficient. Why not just go with a land value tax?
>do what nobody has the balls to do: tax wealth
Just to clarify, nobody in the US is doing this, but it's not unheard of elsewhere. For example, Norway has a wealth tax of about 0.85% and there are some other examples at https://en.wikipedia.org/wiki/Wealth_tax#Current_examples .
The drawback of taxing wealth is that it distorts markets, it discourages saving.
EDIT: Can't comment ("You're posting too fast, blah blah blah"). Here are some replies to the comments bellow:
> It's encouraging people to make their money be productive instead of stashing it under a mattress.
When you have money in the bank, you're effectively lending most of it to other people. Your money is "productive", which is encouraged by the interest.
> Everything distorts markets. The question is how to distort markets into providing the best outcome.
Neutral tax (https://en.wikipedia.org/wiki/Optimal_tax) doesn't. But of course, market distortion is not the only or primary factor in policy decision-making.
There are plenty of analogous policies in America. For example, universities are required to spend 10% (or some other percent?) of their total endowment each year in order to keep their tax-free status. This is why Harvard & Co. need to continue fundraising each year despite their massive endowments - they're massively discouraged from just 'saving' as well.
Everything distorts markets. The question is how to distort markets into providing the best outcome.
2 replies →
Frankly,the trickle-down economics is not working.Plain and simple. Giving the rich lower tax and expecting them to invest the money back to the economy has been proved not to be working.
And we know now that the ultra-rich folks tend to take the money,windfall from lower tax, and hide it in Virgin-Island, Panama,Cayman Island and other offshore tax havens.
2 replies →
Indeed. And saving/investing is important! It's not a coincidence that the industrial revolution happened in a country with a secure established rule of law such that people could make investments without worrying about losing them at the whim of a dictator.
Much better to tax consumption.
16 replies →
The fallacy here is that there is a pure form of market that isn't inherently distorted by the man-made rules required bring it into existence at all against wilderness of nature's 'rules' of the wild.
Discouraging savings is actually the point. We should tax money that sits idle and provides tax benefits to money invested.
If you can build wealth around being active rather than just reaping the benefit of interest of interests then that should be encouraged rather than just grabbing and keeping.
29 replies →
That Wikipedia page links to a interesting piece: "Taxing Land is Better Than Neutral: Land Taxes, Land Speculation and the Timing of Development" (https://books.google.co.uk/books/about/Taxing_Land_is_Better...)
It's encouraging people to make their money be productive instead of stashing it under a mattress. That doesn't sound like a bad thing to me.
8 replies →
The economy does not care whether you put your money in a bank or under your mattress. The central bank will influence interest rates in response to your actions. What matters is the amount of money that's actually chasing goods and services.
If the central bank wants banks to have more reserves for loans, it buys assets from banks in exchange for newly created reserves. Money markets are a command economy.
1 reply →
> it discourages saving.
Taxing wealth encourages investment because you have to turn a yearly return in excess of the wealth tax to not have your wealth shrink.
The incentives to be wealthy will never disappear. Taxing wealth just makes it harder and makes sure that those who are wealthy work for it.
Perhaps that kind of distortion is a good thing. Perhaps the market isn’t an all-seeing all-knowingly omnipotent entity independent of the humans that created and participate in it.
IOW you should explain why “market distortions” are inherently a bad thing.
We tax real property, which is a form of wealth taxation.
Municipalities do, but the federal government does not.
1 reply →
Right. The bank owns 100% of the property. The "owner" is underwater. And the owner pays property tax. So "wealth" taxation is perfectly fine for that situation.
Many top corporate executives in Norway & Sweden will evade this by "living" in Switzerland for >183 days a year.
Inflation is not deductible, so the US (and most other countries) have defacto wealth taxes to the tune of INFLATION RATE * CAPITAL GAINS TAX RATE, or roughly 0.48% annually to high earners in the USA.
It's not a matter of balls, it's a matter of understanding that the most important part of tax policy is compliance, that is actually collecting the taxes.
Even our current methods of evaluating quantities and distribution of wealth are vague estimates, and that's without people incentivized by taxation to hide or minimize it.
A wealth tax that turns into anything but a buildings-and-cars tax is a fantasy from an enforcement perspective, and significant property taxes have issues of their own.
There is an option for enforcement you're not realizing here, called the Commodore Mathew Perry method, it goes like this. --Location: Tax Havens--
>Knock Knock Its the United States
With huge boats, with guns, gunboats.
>Open your banks' records, stop having them be closed
and theres not much they can do about.
So they sign a treaty making sure their banks' records are not closed.
--------------------------------------------------------------
Inspired by this, both historically and in delivery https://youtu.be/Mh5LY4Mz15o?t=4m46s
Are you suggesting the USA does this to tax havens like Ireland, The Netherlands and The City of London?
Is it not a thing for startups to be based out of Delaware for a tax advantage? Would the ships even have to leave the harbor to do this?
4 replies →
That's a good argument for the land value tax as primary revenue source.
We do tax wealth in a very limited way in the form of real estate property taxes. Though I would note that it hits the middle class and poor more disproportionately than the extremely wealthy. And I'd note that the tax cuts in front of congress propose making that scheme land even harder on the middle class by eliminating or curtailing the state/local tax (including property tax) exemptions from federal taxes.
Inheritance tax also taxes wealth, but it does so rarely and again the rich tend to find ways to avoid this.
The problem with many "wealth" taxes is that they end up missing the top 1% and hurting the people who are building a business.
Eg inheritance tax does a fantastic job of just screwing over family businesses that on paper are worth say $7mm+ because on paper the kids who inherit the business now owe taxes on maybe $2mm (I think the first $5mm is tax free w/ inheritance), but selling any of the business to pay the taxes would often destroy the business.
And I'm not talking about massive businesses like Walmart - I mean businesses like a large-ish family farm where just the land, equipment, animals, etc are all worth $7mm+ on paper, even if the farm doesn't produce massive profits.
I think the effect on small businesses and farms are vastly overblown. In 2013, 20 small businesses and farms were affected. The idea that estate tax affects family businesses is mostly a stalking horse for extremely wealthy who just want to save themselves money and whose descendants would still receive plenty of money even with an inheritance tax.
https://americansfortaxfairness.org/tax-fairness-briefing-bo...
Capital gains tax + inflation is a wealth tax. Each year you have to grow your money by inflation for it to maintain buying power. 2% inflation * 20% top rate LTCG tax means the wealthy pay a deferred 0.4% wealth tax yearly.
Inflation is only a tax on wealth that is not invested. Literally cash under mattresses.
Investments in real estate, equities, commodities etc all increase in notional value to factor in the devalued currency.
1 reply →
That's sort of true, but I'm not sure if that the inflation effects are truly a "tax on wealth". Inflation is a tax on everybody, holding a wide range of assets in that sense. Also because it's driven by inflation, those proceeds to the government are also just growth of proceeds needed to buffer against inflation in the goods that government purchases.
Edit: Thinking about it a bit more. Inflation would also tend to drive up the numerical profits of companies, which will tend to buffer a stock price for example. So I'm not sure how this inflation independently contributes much of a specific tax on the wealth.
10 replies →
It'd be better to tax things we don't want, like pollution.
Massive inequality is among the things we really shouldn't want.
Massive rent-seeking, enclosures, network effects, and benefiting by public infrastructure and institutions, without paying back full costs, or by imposing dislocations on other economic sectors, as well.
Aviation accounts for 6% of transportation fuel use. For a small portion of passenger and minuscule fraction of cargo movement.
I'm persuaded that wealth taxes and maximum income are the appropriate solution: after X million per year, you don't get more money, and after you and your family heap up Y million of _fluidly defined_ assets, you get taxed on what you hold/control/manage-via-tax-shelter.
Obliterate the tax shelters, obliterate the tax havens, bring the money back home under threat of criminal law.
I'm not saying you can't be a fat cat. But at a certain point (fluid and blurry, but distinctly present), it's just morbid obesity that is squishing other citizens.
Everybody tends to put that certain point above where they are at. I realize, as limited to a US discussion, it is easy to say Bezos and Gates are rich, I am not. But if this was expanded, simply as a thought experiment, to the entire world would you be fine classified as a "fat cat"?
Assuming (perhaps incorrectly) you are in the US, you are also reading Hacker News, so you are probably the top 1% of the worlds wealthiest. Again, just a thought experiment, but would you be fine with your government saying that as a 1 percenter in world wealth you can no longer earn anymore, you have hit that certain point, are a fat cat and can grow no more wealth, under threat of criminal law?
This sort of logic is also why it's hard to get this sort of legislation passed nowadays.
Media has done a good job of raising awareness of the problems of wealth disparity, and a lot of people nod along.
But no matter how wealthy someone is, they can always point to the more-rich and say those people are the problem and should be taxed, not themselves.
2 replies →
That argument is relatively vacuous on its face, because that is moral flattening (along with intentionally misunderstanding the problem), and promotes inaction.
How can you implement such a practice when our politicians and leaders are fat cats (or aspiring fat cats)? Only vote for people below a certain wealth line?
Throwing politicians out of office who don't do it and promoting a stigma around vast amounts of wealth will change things.
Elections matter.
I like the idea of a wealth tax.
The details will be difficult: how do you assess wealth with any semblance of accuracy, especially in the face of an increased incentive to hide it? I'd love to hear anybody's clever ideas to tax wealth in a way that catches cheaters. The biggest issue is what you do with wealth held overseas.
But even if the cost of catching cheaters is many billions of dollars of enforcement apparatus, it seems worth it. Of course, you create a new problem: avoiding corruption in a large enforcement apparatus chasing after people with the resources to easily bribe them. (But this problem is not unique to wealth taxes, and I don't think bribing the IRS is actually much of a problem—people just bribe Congress.)
There's another problem: wealth taxes would probably need a constitutional amendment in the U.S. From Article I, Section 2:
"Representatives and direct Taxes shall be apportioned among the several States which may be included within this Union, according to their respective Numbers..."
There's already an amendment to clarify that federal income taxes are OK. But wealth taxes will need their own amendment.
Conceptually, though, I totally agree: if the problem is unequal wealth, just redistribute the wealth directly to move toward a less catastrophe-prone distribution.
> Or go a step further do what nobody has the balls to do: tax wealth
Heard of this before. Have there been any attempts of that before and how did it fare?
It would seem to be as soon as wealth is taxed, wealth will morph or change shape to avoid being taxed. We'd end up with some new arcane tax scheme where wealth is held in a tropical island nation and the owner of the wealth gets a stipend or I don't know, rents all their possessions from that entity.
The estate tax is a tax on wealth.
It's actually a tax on wealth transfer, and it has far more favorable terms than tranferring wealth above gift limits while still living. In some sense, the entire estate process is a massive loophole that allows wealth transfer without realizing any income, but a fairly understandable one given the nature of family relationships.
Only for mortals.
Without a doubt, a global wealth tax would significantly improve the quality of life for every human on this planet; even those with the large amounts of wealth being taxed.
Only if the tax revenues are spent wisely. In the US, some 42% - 57% of the tax base goes to defense spending [1]. It's extremely arguable if that is a good way to spend such a large quantity of tax dollars. One could argue "we should elect representatives who make better spending decisions," however the defense lobby makes sure to get involved with all lawmakers. Once again it comes back to campaign finance reform as the necessary first step to straighten out the political system.
Just to clarify, it is 42-57% of discretionary. When compared to non-discretionary spending like Social Security defense spending is pretty small.
I'd be fine with a wealth tax on a national level with restrictions on offshoring cash, but I don't want to steal wealth from everyone in the west to distribute it globally. You'd also have a very difficult time getting nations like China to agree to something like this.
Edit: sorry, wasn't aware of the exact definition of this. Having everyone pass this sort of thing is a great idea imo.
A global wealth tax does not distribute the tax globally. It just means that every nation collects a wealth tax. This is to prevent a race to the bottom which would penalize the first countries that enacted a wealth tax.
> Or go a step further do what nobody has the balls to do: tax wealth
"Nobody?" Other countries manage it.
Any examples offhand?
Well France is the most famous example, but several other European countries (e.g. Spain and Switzerland in my experience) do too, as well as some in South America.
Hmm just checked the Wikipedia and it says that Donald Trump proposed it for the US as well.
1 reply →