Comment by geofft
9 years ago
> 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?