11 ms·

Thinking about wealth taxes

49 points by MaysonL 11y ago

sportanova 11y ago
> One received his wealth through inheritance and really isn’t doing much with it Seems very naive - what would doing a lot with it even mean? It's definitely not under their mattress and even if it's sitting in a bank at 0.1% it's being invested by the bank. Otherwise it's going to be in some mix of stock, bonds, and private investments. Don't see how that's much different than the entrepreneur who sold their company for $X,000,000 and doesn't reinvest all of it into their next company
- Hermel 11y ago
  It's the difference between dumb and smart money. Dumb money is passively invested, while smart money is actively invested into endeavors like startups, where the investor can make a difference beyond merely providing money.
  - sokoloff 11y ago
    That's not my definition (nor the typical definition I think) of "dumb money". To me, dumb money is late money chasing a piece of the action at stratospheric valuations, or chasing a scheme the investor has no hope of understanding. Money invested in AAPL/AMZN/FB is no more or less passive and no more or less "dumb" than money invested in VTSAX, IMO. In other words, I can "hire" the active managers of those companies on my behalf as an investor.
  - kyleblarson 11y ago
    And lose 100% of their "smart money" invested in said startup about 90% of the time.
    - verbify 11y ago
      But because of biases, we usually focus on the 1% of the time they make an absolute fortune. Usually more due to dumb luck than actual savviness.
  - tbrake 11y ago
    So - and I'm only halfway facetious here - an entropy tax? I wonder if it's useful or interesting to think about markets in terms of energy but confess to not having the economic or physics background to make it a reality.
  - morgante 11y ago
    That's not the typical definition of dumb money. Dumb money is money from people who actively invest it dumbly. For example, buying into pets.com because the internet seems cool.
  - allengeorge 11y ago
    I think the connotations you're ascribing to "dumb money" and "smart money" apply only to investor financing in startups. IIRC, active investing is an overwhelmingly "dumb" way for the average individual to invest their own cash.
  - UK-AL 11y ago
    Didn't venture capital and angel investors have terrible returns for the average investor? Might be different now.
  - douche 11y ago
    That would be the exact opposite of my definition of smart and dumb money. How many people have lost their shirts actively investing in business ventures, versus people who invested in boring, long-growth dividend-paying stocks?
- JoshTriplett 11y ago
  > what would doing a lot with it even mean? Doing whatever the person saying that phrase wants, which clearly takes precedence over the goals of the person who actually made the money.
- TheOtherHobbes 11y ago
  if it's being invested by a bank or a wealth manager it's going to be invested in existing companies, whose operations will be squeezed and distorted to provide the maximum possible return as fast as possible. This is more likely to kill jobs and prosperity than it is to produce them. It's also one of the prime causes of market bubbles. If it's being actively invested, the investor has the opportunity to build new companies. If it's redistributed by the government, the government can spend it on improving critical infrastructure, which is an easy way to create jobs and improve economic activity of all kinds. It can also invest it in new tech and R&D, which eventually trickles down to new opportunities for innovation.
  - vezzy-fnord 11y ago
    I think you're trying to hint towards the Financial Instability Hypothesis, but you're misstating it. You seem to be implying that any credit-driven financing at all is inherently distortionary. trickles down Trickle-down economics works for government spending, eh?
  - nickles 11y ago
    > if it's being invested by a bank or a wealth manager it's going to be invested in existing companies, whose operations will be squeezed and distorted to provide the maximum possible return as fast as possible. What do you mean by that? Existing companies raise capital to fund things like R&D, Capex, and entrances into new markets. All of these promote economic and technological growth and generally result in the creation of jobs. > This is more likely to kill jobs and prosperity than it is to produce them. It's also one of the prime causes of market bubbles. I'm not sure why you think investment causes job destruction. It's quite likely that there is less capital (for production) currently than would exist at the so called "golden level of capital". Increased investment would actually help rectify this (at the cost of current consumption). See a model like the Solow growth model for more information on this. > If it's being actively invested, the investor has the opportunity to build new companies. Unfortunately, many people have neither the desire nor the capability to successfully build companies and are able to enjoy returns on their money precisely because financial markets exist to invest in. > If it's redistributed by the government, the government can spend it on improving critical infrastructure, which is an easy way to create jobs and improve economic activity of all kinds. It can also invest it in new tech and R&D, which eventually trickles down to new opportunities for innovation. What makes the government better at job creation and R&D (with the exclusion of basic research) than the private sector? Greece has shown that governments can, in fact, allocate resources rather poorly [1]. [1] http://www.businessinsider.com/kyle-bass-chief-bank-economist-harry-potter-can-fix-greece-2011-2 http://www.businessinsider.com/kyle-bass-chief-bank-economis...
- abrezas 11y ago
  It isn't at all different. The amount of money the entrepreneur didn't invest into the next company or spent, is the amount he will be taxed as wealth. This way, the entrepreneur has incentive to spend it or do more investments instead of keeping it in the bank where it would be taxed. This incentive leads to inequality decreasing by the economy being more active.
  - VLM 11y ago
    You'll have a lot of fun preventing people from "investing" in ETF commodity funds like GLD which is basically stuffing gold in a mattress. Going a step up, over a reasonable short term, true blue chip stocks are almost gold in terms of stability. Tax them or not?
  - Lawtonfogle 11y ago
    I spent my money to buy dollar bills. A overall poor investment because of the expected lost, but an investment all the same. Money is always invested, even if you have it invested in the generic dollar instead of some other product. While it is common to think of the dollar as not being an investment, I find considering it an investment that is constantly losing value due to inflation to work better in my mental model.
  - sportanova 11y ago
    So you're saying that everything not spent or invested into a private company (that you actively manage?) is subject to a wealth tax. Seems like a risky idea because you're putting enormous incentives on increasing riskier investments. But you do realize that whether I put my money into a bank, or a stock, or anything other than a non-private company, it's not just sitting there, being dumb?
Hermel 11y ago
Switzerland has been following the suggested approach, and it seems to work well. There's no capital gains tax (for private investors), but a wealth tax instead. Another advantage beside the mentioned incentive to invest is that tax revenues are less volatile.
- _yosefk 11y ago
  Interesting! How are they taxing "illiquid" assets like real estate, paintings or jewelry?
  - MC7447a 11y ago
    Don't know about Switzerland, but in the Netherlands where there's also a wealth (or rather, net worth) tax, most property held for personal consumption (art, jewelry, cars, boats) are exempt. Their value in the aggregate is relatively low (compared to real estate and financial property), so the lawmakers decided it was not worth the hassle to tax those. Real estate is taxed separately, and municipalities run yearly appraisals. But I think that's pretty routine in most developed countries?
  - Hermel 11y ago
    For real estate, each region is free to define their own valuation rules. In Zurich, either 70% of the previous transaction value is used, or a conservative value based on size and location, whichever is higher. This value is often also the basis for the self-rent-tax. (In Switzerland, the amount you could earn by renting out a self-inhabited property is taxed as income. Not doing so would give homeowners an unfair advantage in comparison to renters.) Paintings and jewelry are only taxed if they make an unusually high share of your wealth, i.e. if you are a collector. Again, the exact guidelines vary depending on where you live. Here are the official guidelines for valuing real estate in Zurich (in German): http://www.steueramt.zh.ch/internet/finanzdirektion/ksta/de/steuerfragen/liegenschaftenbewertung/_jcr_content/contentPar/downloadlist/downloaditems/247_1306239562487.spooler.download.1452004776538.pdf/15-502_per+1.1.2016.pdf http://www.steueramt.zh.ch/internet/finanzdirektion/ksta/de/... Note that you do not have to apply these rules yourself. Instead, the local tax office performs the calculation and notifies you about the result. If you disagree, this result can be contested, but generally, you do not need to familiarize yourself with all the details.
cbeach 11y ago
Piketty gets away with a distortion of the debate because his conclusions are so populist. http://www.cityam.com/1416252493/financial-crisis-saw-uk-become-more-equal-was-nothing-celebrate http://www.cityam.com/1416252493/financial-crisis-saw-uk-bec... It's questionable whether a) there is growing inequality and b) more equal times (eg the 70s in the UK) were preferable for anyone.
- _yosefk 11y ago
  Of course he does! And I'm already mentally preparing to part with a large share of that money which I have left after paying the income tax, the capital gains tax and those other taxes. ("The rich" will not mean Warren Buffet or Ron Garret who have the money to dodge a new tax, it will mean those who failed to spend everything earned.)
- baldfat 11y ago
  > It's questionable whether a) there is growing inequality I am wondering if your talking about UK and not US? In US it is not questionable the gaps are certainly greater. http://www.cbpp.org/research/poverty-and-inequality/a-guide-to-statistics-on-historical-trends-in-income-inequality http://www.cbpp.org/research/poverty-and-inequality/a-guide-... https://www.washingtonpost.com/news/wonk/wp/2015/05/21/the-top-10-of-americans-own-76-of-the-stuff-and-its-dragging-our-economy-down/ https://www.washingtonpost.com/news/wonk/wp/2015/05/21/the-t... > b) more equal times (eg the 70s in the UK) were preferable for anyone. (Soft science?) In terms of poverty we could certainly do MUCH better.http://www.nytimes.com/2014/01/05/business/50-years-later-war-on-poverty-is-a-mixed-bag.html?_r=0 http://www.nytimes.com/2014/01/05/business/50-years-later-wa... In terms of working middle class. Does anyone even have a pension anymore? 401K are not pensions and well it is scary. Also the rate of pay has stayed stable despite to record profits. http://monthlyreview.org/2014/01/01/the-plight-of-the-u-s-working-class/ http://monthlyreview.org/2014/01/01/the-plight-of-the-u-s-wo...
  - pc86 11y ago
    Pensions don't work. The fact that they're disappearing is proof of that. The entire concept of being legally required to provide a certain monetary benefit in 2060 based on someone's work now is crazy. > 401K are not pensions and well it is scary. Why? Your benefit is based on the actual money you have. That's just math, as opposed to smoke and mirrors with pensions where the money may or may not actually be there 50 years from now.
thomasjames 11y ago
Direct wealth taxes at the federal level are considered unconstitutional unless they are carried out in proportion to each individual state's wealth. It is a really strange aspect of constitutional law that may prove complicated for the Sander's tax plan.
- Estragon 11y ago
  I didn't know Sanders has talked about instituting a wealth tax. Can you point me at some discussion about it?
  - dexterdog 11y ago
    I don't think there is much that he hasn't talked about taxing.
  - thomasjames 11y ago
    http://www.realclearpolitics.com/video/2015/10/20/bernie_sanders_a_little_more_complicated_than_just_taking_wealth_from_the_rich_and_redistributing_it.html http://www.realclearpolitics.com/video/2015/10/20/bernie_san...
vixen99 11y ago
https://blogs.harvard.edu/philg/2016/01/11/if-inequality-is-bad-why-does-the-government-run-powerball/ https://blogs.harvard.edu/philg/2016/01/11/if-inequality-is-...
Zach_the_Lizard 11y ago
There's a alternate hypothesis [1] put forward that increasing inequality is mostly due to an increase in housing costs. If this is the case, then it would likely be better to implement land taxes. Land taxes are probably better than most taxes for a variety of reasons, but if we are directly looking to decrease inequality land taxes would strike at the root cause. I am not an economist, so I'm not equipped to evaluate either set of claims. Is there anyone here who might know what they're talking about who can weigh in? [1]http://www.mit.edu/~mrognlie/piketty_diminishing_returns.pdf http://www.mit.edu/~mrognlie/piketty_diminishing_returns.pdf
- VLM 11y ago
  It would be a fair way to fund socialized medical care, as almost all medical care is provided to locals. Care is mostly rationed today on a large scale based on the wealth of the local area so very little would change other than cutting out many extremely wealthy and politically influential middlemen like insurance companies. People who hate the moral and ethical idea of pooled medical costs could trivially move into the wilderness where there's unfortunately no medical care at all other than long ambulance rides, therefore the prop tax paid to the local medical offices (which don't exist) would be quite low, which is kind of a self correcting problem. Much as we have "over 55 only" communities for places that refuse to fund elementary schools. The biggest problem with prop tax is the general social aversion to kicking people off "their" land. As if any land is truly privately owned, LOL, and the government messing with the rent is going to shine quite a bright light on that little social problem. You'd need some kind of plan to deal with temporarily un and under employed vs permanently un and under employed landowners, not to mention enormous numbers of homeless elderly retired people.
- delecti 11y ago
  What's to stop land-owners who are renting their land from just increasing the rents? I can't see that not happening, and that would have a big impact on poor renters. That would really only hit people who own their own homes, or who own land that they aren't renting.
  - Zach_the_Lizard 11y ago
kardashev 11y ago
Actually, the ethically and morally right thing to do would be to respect people's right to keep everything they earn. Good causes should prove they are good causes and be funded voluntarily. Forcing people to fund things causes conflict.
- rayiner 11y ago
  "Rights" are all arbitrary rules in an artificially constructed system. As an organism in the state of nature, the only "right" you have is to use your natural abilities to kill, eat, and steal from other organisms. When you impose a social organization that takes away that right, which is the only truly fundamental one, any rules you layer on top of that are arbitrary. Consequently, society can, consistent with ethics and morality, recognize a right to hold property, and just as consistently recognize exceptions to that right such as for payment of taxes.
  - twoodfin 11y ago
    What is your basis for "ethics and morality" that doesn't include recognizing the rights of the individual? Some kind of utilitarianism? Intuitionism? I certainly hope you didn't mean "It is therefore consistent with ethics and morality that society can...", which would mean your first paragraph implies there are no moral or ethical limits on what 'society' can do.
    - rayiner 11y ago
      Of course societies are limited in what they can do by ethics and morality--by their own ethical and moral constructs. Or by those of other societies that might use force to impose other ethical and moral constructs on them.
  - meric 11y ago
    kill, eat, and steal => kill, eat, steal, build and defend. Even birds build nests, and magpies defend their children in nests agains humans, too.
Brakenshire 11y ago
> A wealth tax, however, would shift the tax burden more onto the less active wealth holder. This, in turn, would give him a lower rate of return, and capital would shift to the more active individual. In other words, the redistribution would be a reallocation to more productive means. As the authors point out, however, this would also mean an increase in wealth inequality. Interesting to think about the social and economic consequences of this kind of change. Charities would probably be less capable of operating in perpetuity on endowments, individuals would no longer be able to invest their wealth and live off the rent. The economic status of all individuals within the upper and upper-middle classes would in effect be constantly sinking, and they'd be expected to make their way on their merits within the market economy. Money would be reallocated towards people who could do more with it. It would be a shift towards a world with a much more cut-throat, highly meritocratic, highly competitive model of capitalism. It also introduces nuance into the debate around Thomas Pikkerty, you're not just talking about capital growth, but also about passive and active investment. I doubt many people defend the passive growth of capital over and above the general growth of the general economy. If you really can put your money in property, or in an index fund, and with very low risk grow your wealth at a rate higher than the rest of the economy, that is clearly a problem - it is an economic tendency towards aristocracy. But if you're creating a system where passive capital is falling away, and the funds flowing in each generation towards people who can deploy the capital most effectively, that is a different moral issue, and a different trajectory for the future of the economy, and society.
- Spooky23 11y ago
  Wealth tax shifts revenue streams towards those who benefit the most financially from tax expenditures. Folks with significant wealth need the benefits of well run, stable government to hand on to that wealth. The proportionally pay little or nothing for that benefit. Poor people survive no matter what. Middle class people bear the burden of paying for everything.
- cbeach 11y ago
  Wealth would effectively become a burden - it will cost you time and money to maintain it. So I wonder if people will aspire less to become wealthy in the first place? I suspect fewer people will go all-in building a startup in their twenties if the wealth wasn’t going to effectively secure their future?
ThomPete 11y ago
I have long been wanting this kind of taxation to happen. It seems the most fair as the wealth increase created from ex. owning lots of land or building is mostly done by the rest of society not by the individual purchase of a building. So basically we should tax money that lazy and give tax breaks to money that are actively working. This also correlates with how economist normally want the economy to work. When everyone spends money wealth is created. You could say that people who make less money are better citizens from that perspective in that they are more likely to keep the economy going than those who just let it sit and collect in the background.
- norea-armozel 11y ago
  The problem is how do you deal with systemically created lazy money? Right now, some banks are just sitting on money since there's not much in terms of opportunities to invest. It seems to me the problem is that money effectively ceased to have any real value in the economy post-2007/8.
  - jbssm 11y ago
    If it's really that way then you wouldn't oppose that much for a part of it to be taken away from you. After all, it doesn't have "any real value".
    - norea-armozel 11y ago
      It's not so much my reaction to that sort of action but rather how the people who affect the market would react that matters. Let's say tomorrow all the govts of the world got together and said X amount of dollars in banks will be null and void of value (no taxes, just removed entirely from the market). Can you imagine the economic contraction that would occur? If you think the Great Depression or earlier panics were a problem this hypothetical situation would practically implode a century's worth of growth. The reality is that we're stuck in a disaster of our own making. Partly because money has no value (no commodity backing) and partly because since we decoupled value from money we thought we could print more of it to spur growth. But growth doesn't come from the money, it comes from the labor to produce goods and the goods which save time when we labor. You can't shortcut your way to growth. It comes from those sources and nowhere else. The rest is purely speculation driven or illusory in general. And it gets worse you think about the hard reality that people don't want more things. Consumerism doesn't fix the problem either as private debt keeps ballooning people realize their finite resources (wages from their own labor) is dwarfed by credit payments. So, bing bang boom the whole thing falls down.
reddog 11y ago
The wealth of the US middle class is already taxed heavily. In my part of the country it runs at about 3%. This tax is more commonly known as a property tax. Since the middle class carries most of its wealth in the form of equity in home, this wealth tax falls disproportionally on them.
- deleted 11y ago
  [deleted]
- paulojreis 11y ago
  Besides this, middle class doesn't have the ways of the higher class (to influence legislation and hire experts in avoiding taxation).
- dexterdog 11y ago
  3% ? I pay about 13-30% of my income in property taxes depending on what kind of year I had. Lately it's been closer to 30.
  - delecti 11y ago
    You might pay 13-30% of your income in property taxes, but you almost certainly pay <5% of you property's value, which is what the 3% in the parent comment was referring to.
    - dexterdog 11y ago
      Gotcha. Sorry for the confusion.
cbeach 11y ago
People ought to be able to enjoy the wealth they've earnt over their lifetime without having to defend it from the state. But when they die, IMO their wealth ought to be redistributed to society. Their own kids didn't earn it any more than the neighbour's kids did. I'm okay with increasing inheritance tax provided we simultaneously reduce income tax rates. That would produce a fairer society where people are more productive. There will be those who (fairly) contest the double taxation aspect of inheritance tax, but please consider the benefits to society of reducing income tax as a result of raising inheritance tax. Parents could argue that it's up to them what they give their kids. That's true. But watch "Made in Chelsea" to see what happens when kids get a large inheritance. Horrendous! :-) Obviously tax collection is also an issue here - people will naturally try to avoid inheritance tax, and it will be very hard to stop them. No easy answers to that.
- bko 11y ago
  Milton Friedman makes a good argument against the distribution of wealth that addresses your concern directly. Definitely worth a watch. https://www.youtube.com/watch?v=MRpEV2tmYz4 https://www.youtube.com/watch?v=MRpEV2tmYz4
- elcapitan 11y ago
  What would be the difference between inheritance and just giving your children money as long as you are alive? Would you be barred from that as well? So you could spend your money on whatever you want, but not give it to a very particular group of people?
  - AnimalMuppet 11y ago
    If I understand correctly, there are limits to how much you can give your kids before taxes kick in. It used to be something like $10K/year and $150K/lifetime above the $10K/year. And if you used the $150K/lifetime, it cut into what they could inherit without taxes. IANAL, and that was a while ago. I don't know what the current rules are.
- nugget 11y ago
  The inheritance tax already kicks in at a pretty high rate above $5 million and change. Are you advocating for an even higher rate? Close to 100%? If so, keep in mind that inheritance and gifting (while still alive) are directly connected. A 100% inheritance tax means you functionally prevent people from giving any sizable amounts of property to any other person (sans spouse presumably). This has a lot of implications. Even under such a system, if I am a wealthy parent, can I invest in a child's startup? What's the difference between a legitimate investment versus a transfer of wealth masked as an investment? Can I buy a 5th house in the city in which my child lives and allow them to live there rent free forever, or will the Government want to impute rental income? Will we create a new layer of (expensive, game-able) bureaucracy to decide what's fair use versus unfair use? Will the fact that effective transfers of wealth now require a higher degree of sophistication make inequality even worse? My point being that these types of taxes tend to introduce a lot of complexity, cost, and inefficiency (and that's before considering the inevitable loopholes that lobbyists pay to include). And ultimately, lots of unintended consequences. I agree that the tax system can and probably should be used as a tool to encourage more equality but let's do it in a simpler and more efficient way, like land value and other consumption taxes.
evanpw 11y ago
Interesting related fact: in much of Europe, children have a legal right to a big fraction of their parents' wealth after they die [1]. The Gates/Buffett/Zuckerberg scheme of giving almost everything would be illegal, and in some cases children can sue to recover donations made during their parents' lifetimes. [1] http://www.economist.com/node/14644403 http://www.economist.com/node/14644403

49 points by MaysonL 11y ago

> One received his wealth through inheritance and really isn’t doing much with it Seems very naive - what would doing a lot with it even mean? It's definitely not under their mattress and even if it's sitting in a bank at 0.1% it's being invested by the bank. Otherwise it's going to be in some mix of stock, bonds, and private investments. Don't see how that's much different than the entrepreneur who sold their company for $X,000,000 and doesn't reinvest all of it into their next company

Hermel 11y ago
It's the difference between dumb and smart money. Dumb money is passively invested, while smart money is actively invested into endeavors like startups, where the investor can make a difference beyond merely providing money.
- sokoloff 11y ago
  That's not my definition (nor the typical definition I think) of "dumb money". To me, dumb money is late money chasing a piece of the action at stratospheric valuations, or chasing a scheme the investor has no hope of understanding. Money invested in AAPL/AMZN/FB is no more or less passive and no more or less "dumb" than money invested in VTSAX, IMO. In other words, I can "hire" the active managers of those companies on my behalf as an investor.
- kyleblarson 11y ago
  And lose 100% of their "smart money" invested in said startup about 90% of the time.
  - verbify 11y ago
    But because of biases, we usually focus on the 1% of the time they make an absolute fortune. Usually more due to dumb luck than actual savviness.
- tbrake 11y ago
  So - and I'm only halfway facetious here - an entropy tax? I wonder if it's useful or interesting to think about markets in terms of energy but confess to not having the economic or physics background to make it a reality.
- morgante 11y ago
  That's not the typical definition of dumb money. Dumb money is money from people who actively invest it dumbly. For example, buying into pets.com because the internet seems cool.
- allengeorge 11y ago
  I think the connotations you're ascribing to "dumb money" and "smart money" apply only to investor financing in startups. IIRC, active investing is an overwhelmingly "dumb" way for the average individual to invest their own cash.
- UK-AL 11y ago
  Didn't venture capital and angel investors have terrible returns for the average investor? Might be different now.
- douche 11y ago
  That would be the exact opposite of my definition of smart and dumb money. How many people have lost their shirts actively investing in business ventures, versus people who invested in boring, long-growth dividend-paying stocks?
JoshTriplett 11y ago
> what would doing a lot with it even mean? Doing whatever the person saying that phrase wants, which clearly takes precedence over the goals of the person who actually made the money.
TheOtherHobbes 11y ago
if it's being invested by a bank or a wealth manager it's going to be invested in existing companies, whose operations will be squeezed and distorted to provide the maximum possible return as fast as possible. This is more likely to kill jobs and prosperity than it is to produce them. It's also one of the prime causes of market bubbles. If it's being actively invested, the investor has the opportunity to build new companies. If it's redistributed by the government, the government can spend it on improving critical infrastructure, which is an easy way to create jobs and improve economic activity of all kinds. It can also invest it in new tech and R&D, which eventually trickles down to new opportunities for innovation.
- vezzy-fnord 11y ago
  I think you're trying to hint towards the Financial Instability Hypothesis, but you're misstating it. You seem to be implying that any credit-driven financing at all is inherently distortionary. trickles down Trickle-down economics works for government spending, eh?
- nickles 11y ago
  > if it's being invested by a bank or a wealth manager it's going to be invested in existing companies, whose operations will be squeezed and distorted to provide the maximum possible return as fast as possible. What do you mean by that? Existing companies raise capital to fund things like R&D, Capex, and entrances into new markets. All of these promote economic and technological growth and generally result in the creation of jobs. > This is more likely to kill jobs and prosperity than it is to produce them. It's also one of the prime causes of market bubbles. I'm not sure why you think investment causes job destruction. It's quite likely that there is less capital (for production) currently than would exist at the so called "golden level of capital". Increased investment would actually help rectify this (at the cost of current consumption). See a model like the Solow growth model for more information on this. > If it's being actively invested, the investor has the opportunity to build new companies. Unfortunately, many people have neither the desire nor the capability to successfully build companies and are able to enjoy returns on their money precisely because financial markets exist to invest in. > If it's redistributed by the government, the government can spend it on improving critical infrastructure, which is an easy way to create jobs and improve economic activity of all kinds. It can also invest it in new tech and R&D, which eventually trickles down to new opportunities for innovation. What makes the government better at job creation and R&D (with the exclusion of basic research) than the private sector? Greece has shown that governments can, in fact, allocate resources rather poorly [1]. [1] http://www.businessinsider.com/kyle-bass-chief-bank-economist-harry-potter-can-fix-greece-2011-2 http://www.businessinsider.com/kyle-bass-chief-bank-economis...
abrezas 11y ago
It isn't at all different. The amount of money the entrepreneur didn't invest into the next company or spent, is the amount he will be taxed as wealth. This way, the entrepreneur has incentive to spend it or do more investments instead of keeping it in the bank where it would be taxed. This incentive leads to inequality decreasing by the economy being more active.
- VLM 11y ago
  You'll have a lot of fun preventing people from "investing" in ETF commodity funds like GLD which is basically stuffing gold in a mattress. Going a step up, over a reasonable short term, true blue chip stocks are almost gold in terms of stability. Tax them or not?
- Lawtonfogle 11y ago
  I spent my money to buy dollar bills. A overall poor investment because of the expected lost, but an investment all the same. Money is always invested, even if you have it invested in the generic dollar instead of some other product. While it is common to think of the dollar as not being an investment, I find considering it an investment that is constantly losing value due to inflation to work better in my mental model.
- sportanova 11y ago
  So you're saying that everything not spent or invested into a private company (that you actively manage?) is subject to a wealth tax. Seems like a risky idea because you're putting enormous incentives on increasing riskier investments. But you do realize that whether I put my money into a bank, or a stock, or anything other than a non-private company, it's not just sitting there, being dumb?

Hermel 11y ago

Switzerland has been following the suggested approach, and it seems to work well. There's no capital gains tax (for private investors), but a wealth tax instead. Another advantage beside the mentioned incentive to invest is that tax revenues are less volatile.

_yosefk 11y ago
Interesting! How are they taxing "illiquid" assets like real estate, paintings or jewelry?
- MC7447a 11y ago
  Don't know about Switzerland, but in the Netherlands where there's also a wealth (or rather, net worth) tax, most property held for personal consumption (art, jewelry, cars, boats) are exempt. Their value in the aggregate is relatively low (compared to real estate and financial property), so the lawmakers decided it was not worth the hassle to tax those. Real estate is taxed separately, and municipalities run yearly appraisals. But I think that's pretty routine in most developed countries?
- Hermel 11y ago
  For real estate, each region is free to define their own valuation rules. In Zurich, either 70% of the previous transaction value is used, or a conservative value based on size and location, whichever is higher. This value is often also the basis for the self-rent-tax. (In Switzerland, the amount you could earn by renting out a self-inhabited property is taxed as income. Not doing so would give homeowners an unfair advantage in comparison to renters.) Paintings and jewelry are only taxed if they make an unusually high share of your wealth, i.e. if you are a collector. Again, the exact guidelines vary depending on where you live. Here are the official guidelines for valuing real estate in Zurich (in German): http://www.steueramt.zh.ch/internet/finanzdirektion/ksta/de/steuerfragen/liegenschaftenbewertung/_jcr_content/contentPar/downloadlist/downloaditems/247_1306239562487.spooler.download.1452004776538.pdf/15-502_per+1.1.2016.pdf http://www.steueramt.zh.ch/internet/finanzdirektion/ksta/de/... Note that you do not have to apply these rules yourself. Instead, the local tax office performs the calculation and notifies you about the result. If you disagree, this result can be contested, but generally, you do not need to familiarize yourself with all the details.

cbeach 11y ago

Piketty gets away with a distortion of the debate because his conclusions are so populist. http://www.cityam.com/1416252493/financial-crisis-saw-uk-become-more-equal-was-nothing-celebrate http://www.cityam.com/1416252493/financial-crisis-saw-uk-bec... It's questionable whether a) there is growing inequality and b) more equal times (eg the 70s in the UK) were preferable for anyone.

_yosefk 11y ago
Of course he does! And I'm already mentally preparing to part with a large share of that money which I have left after paying the income tax, the capital gains tax and those other taxes. ("The rich" will not mean Warren Buffet or Ron Garret who have the money to dodge a new tax, it will mean those who failed to spend everything earned.)
baldfat 11y ago
> It's questionable whether a) there is growing inequality I am wondering if your talking about UK and not US? In US it is not questionable the gaps are certainly greater. http://www.cbpp.org/research/poverty-and-inequality/a-guide-to-statistics-on-historical-trends-in-income-inequality http://www.cbpp.org/research/poverty-and-inequality/a-guide-... https://www.washingtonpost.com/news/wonk/wp/2015/05/21/the-top-10-of-americans-own-76-of-the-stuff-and-its-dragging-our-economy-down/ https://www.washingtonpost.com/news/wonk/wp/2015/05/21/the-t... > b) more equal times (eg the 70s in the UK) were preferable for anyone. (Soft science?) In terms of poverty we could certainly do MUCH better.http://www.nytimes.com/2014/01/05/business/50-years-later-war-on-poverty-is-a-mixed-bag.html?_r=0 http://www.nytimes.com/2014/01/05/business/50-years-later-wa... In terms of working middle class. Does anyone even have a pension anymore? 401K are not pensions and well it is scary. Also the rate of pay has stayed stable despite to record profits. http://monthlyreview.org/2014/01/01/the-plight-of-the-u-s-working-class/ http://monthlyreview.org/2014/01/01/the-plight-of-the-u-s-wo...
- pc86 11y ago
  Pensions don't work. The fact that they're disappearing is proof of that. The entire concept of being legally required to provide a certain monetary benefit in 2060 based on someone's work now is crazy. > 401K are not pensions and well it is scary. Why? Your benefit is based on the actual money you have. That's just math, as opposed to smoke and mirrors with pensions where the money may or may not actually be there 50 years from now.

thomasjames 11y ago

Direct wealth taxes at the federal level are considered unconstitutional unless they are carried out in proportion to each individual state's wealth. It is a really strange aspect of constitutional law that may prove complicated for the Sander's tax plan.

Estragon 11y ago
I didn't know Sanders has talked about instituting a wealth tax. Can you point me at some discussion about it?
- dexterdog 11y ago
  I don't think there is much that he hasn't talked about taxing.
- thomasjames 11y ago
  http://www.realclearpolitics.com/video/2015/10/20/bernie_sanders_a_little_more_complicated_than_just_taking_wealth_from_the_rich_and_redistributing_it.html http://www.realclearpolitics.com/video/2015/10/20/bernie_san...

vixen99 11y ago

https://blogs.harvard.edu/philg/2016/01/11/if-inequality-is-bad-why-does-the-government-run-powerball/ https://blogs.harvard.edu/philg/2016/01/11/if-inequality-is-...

Zach_the_Lizard 11y ago

There's a alternate hypothesis [1] put forward that increasing inequality is mostly due to an increase in housing costs. If this is the case, then it would likely be better to implement land taxes. Land taxes are probably better than most taxes for a variety of reasons, but if we are directly looking to decrease inequality land taxes would strike at the root cause. I am not an economist, so I'm not equipped to evaluate either set of claims. Is there anyone here who might know what they're talking about who can weigh in? [1]http://www.mit.edu/~mrognlie/piketty_diminishing_returns.pdf http://www.mit.edu/~mrognlie/piketty_diminishing_returns.pdf

VLM 11y ago
It would be a fair way to fund socialized medical care, as almost all medical care is provided to locals. Care is mostly rationed today on a large scale based on the wealth of the local area so very little would change other than cutting out many extremely wealthy and politically influential middlemen like insurance companies. People who hate the moral and ethical idea of pooled medical costs could trivially move into the wilderness where there's unfortunately no medical care at all other than long ambulance rides, therefore the prop tax paid to the local medical offices (which don't exist) would be quite low, which is kind of a self correcting problem. Much as we have "over 55 only" communities for places that refuse to fund elementary schools. The biggest problem with prop tax is the general social aversion to kicking people off "their" land. As if any land is truly privately owned, LOL, and the government messing with the rent is going to shine quite a bright light on that little social problem. You'd need some kind of plan to deal with temporarily un and under employed vs permanently un and under employed landowners, not to mention enormous numbers of homeless elderly retired people.
delecti 11y ago
What's to stop land-owners who are renting their land from just increasing the rents? I can't see that not happening, and that would have a big impact on poor renters. That would really only hit people who own their own homes, or who own land that they aren't renting.
- Zach_the_Lizard 11y ago

kardashev 11y ago

Actually, the ethically and morally right thing to do would be to respect people's right to keep everything they earn. Good causes should prove they are good causes and be funded voluntarily. Forcing people to fund things causes conflict.

rayiner 11y ago
"Rights" are all arbitrary rules in an artificially constructed system. As an organism in the state of nature, the only "right" you have is to use your natural abilities to kill, eat, and steal from other organisms. When you impose a social organization that takes away that right, which is the only truly fundamental one, any rules you layer on top of that are arbitrary. Consequently, society can, consistent with ethics and morality, recognize a right to hold property, and just as consistently recognize exceptions to that right such as for payment of taxes.
- twoodfin 11y ago
  What is your basis for "ethics and morality" that doesn't include recognizing the rights of the individual? Some kind of utilitarianism? Intuitionism? I certainly hope you didn't mean "It is therefore consistent with ethics and morality that society can...", which would mean your first paragraph implies there are no moral or ethical limits on what 'society' can do.
  - rayiner 11y ago
    Of course societies are limited in what they can do by ethics and morality--by their own ethical and moral constructs. Or by those of other societies that might use force to impose other ethical and moral constructs on them.
- meric 11y ago
  kill, eat, and steal => kill, eat, steal, build and defend. Even birds build nests, and magpies defend their children in nests agains humans, too.

Brakenshire 11y ago

> A wealth tax, however, would shift the tax burden more onto the less active wealth holder. This, in turn, would give him a lower rate of return, and capital would shift to the more active individual. In other words, the redistribution would be a reallocation to more productive means. As the authors point out, however, this would also mean an increase in wealth inequality. Interesting to think about the social and economic consequences of this kind of change. Charities would probably be less capable of operating in perpetuity on endowments, individuals would no longer be able to invest their wealth and live off the rent. The economic status of all individuals within the upper and upper-middle classes would in effect be constantly sinking, and they'd be expected to make their way on their merits within the market economy. Money would be reallocated towards people who could do more with it. It would be a shift towards a world with a much more cut-throat, highly meritocratic, highly competitive model of capitalism. It also introduces nuance into the debate around Thomas Pikkerty, you're not just talking about capital growth, but also about passive and active investment. I doubt many people defend the passive growth of capital over and above the general growth of the general economy. If you really can put your money in property, or in an index fund, and with very low risk grow your wealth at a rate higher than the rest of the economy, that is clearly a problem - it is an economic tendency towards aristocracy. But if you're creating a system where passive capital is falling away, and the funds flowing in each generation towards people who can deploy the capital most effectively, that is a different moral issue, and a different trajectory for the future of the economy, and society.

Spooky23 11y ago
Wealth tax shifts revenue streams towards those who benefit the most financially from tax expenditures. Folks with significant wealth need the benefits of well run, stable government to hand on to that wealth. The proportionally pay little or nothing for that benefit. Poor people survive no matter what. Middle class people bear the burden of paying for everything.
cbeach 11y ago
Wealth would effectively become a burden - it will cost you time and money to maintain it. So I wonder if people will aspire less to become wealthy in the first place? I suspect fewer people will go all-in building a startup in their twenties if the wealth wasn’t going to effectively secure their future?

ThomPete 11y ago

I have long been wanting this kind of taxation to happen. It seems the most fair as the wealth increase created from ex. owning lots of land or building is mostly done by the rest of society not by the individual purchase of a building. So basically we should tax money that lazy and give tax breaks to money that are actively working. This also correlates with how economist normally want the economy to work. When everyone spends money wealth is created. You could say that people who make less money are better citizens from that perspective in that they are more likely to keep the economy going than those who just let it sit and collect in the background.

norea-armozel 11y ago
The problem is how do you deal with systemically created lazy money? Right now, some banks are just sitting on money since there's not much in terms of opportunities to invest. It seems to me the problem is that money effectively ceased to have any real value in the economy post-2007/8.
- jbssm 11y ago
  If it's really that way then you wouldn't oppose that much for a part of it to be taken away from you. After all, it doesn't have "any real value".
  - norea-armozel 11y ago
    It's not so much my reaction to that sort of action but rather how the people who affect the market would react that matters. Let's say tomorrow all the govts of the world got together and said X amount of dollars in banks will be null and void of value (no taxes, just removed entirely from the market). Can you imagine the economic contraction that would occur? If you think the Great Depression or earlier panics were a problem this hypothetical situation would practically implode a century's worth of growth. The reality is that we're stuck in a disaster of our own making. Partly because money has no value (no commodity backing) and partly because since we decoupled value from money we thought we could print more of it to spur growth. But growth doesn't come from the money, it comes from the labor to produce goods and the goods which save time when we labor. You can't shortcut your way to growth. It comes from those sources and nowhere else. The rest is purely speculation driven or illusory in general. And it gets worse you think about the hard reality that people don't want more things. Consumerism doesn't fix the problem either as private debt keeps ballooning people realize their finite resources (wages from their own labor) is dwarfed by credit payments. So, bing bang boom the whole thing falls down.

reddog 11y ago

The wealth of the US middle class is already taxed heavily. In my part of the country it runs at about 3%. This tax is more commonly known as a property tax. Since the middle class carries most of its wealth in the form of equity in home, this wealth tax falls disproportionally on them.

deleted 11y ago
[deleted]
paulojreis 11y ago
Besides this, middle class doesn't have the ways of the higher class (to influence legislation and hire experts in avoiding taxation).
dexterdog 11y ago
3% ? I pay about 13-30% of my income in property taxes depending on what kind of year I had. Lately it's been closer to 30.
- delecti 11y ago
  You might pay 13-30% of your income in property taxes, but you almost certainly pay <5% of you property's value, which is what the 3% in the parent comment was referring to.
  - dexterdog 11y ago
    Gotcha. Sorry for the confusion.

cbeach 11y ago

People ought to be able to enjoy the wealth they've earnt over their lifetime without having to defend it from the state. But when they die, IMO their wealth ought to be redistributed to society. Their own kids didn't earn it any more than the neighbour's kids did. I'm okay with increasing inheritance tax provided we simultaneously reduce income tax rates. That would produce a fairer society where people are more productive. There will be those who (fairly) contest the double taxation aspect of inheritance tax, but please consider the benefits to society of reducing income tax as a result of raising inheritance tax. Parents could argue that it's up to them what they give their kids. That's true. But watch "Made in Chelsea" to see what happens when kids get a large inheritance. Horrendous! :-) Obviously tax collection is also an issue here - people will naturally try to avoid inheritance tax, and it will be very hard to stop them. No easy answers to that.

bko 11y ago
Milton Friedman makes a good argument against the distribution of wealth that addresses your concern directly. Definitely worth a watch. https://www.youtube.com/watch?v=MRpEV2tmYz4 https://www.youtube.com/watch?v=MRpEV2tmYz4
elcapitan 11y ago
What would be the difference between inheritance and just giving your children money as long as you are alive? Would you be barred from that as well? So you could spend your money on whatever you want, but not give it to a very particular group of people?
- AnimalMuppet 11y ago
  If I understand correctly, there are limits to how much you can give your kids before taxes kick in. It used to be something like $10K/year and $150K/lifetime above the $10K/year. And if you used the $150K/lifetime, it cut into what they could inherit without taxes. IANAL, and that was a while ago. I don't know what the current rules are.
nugget 11y ago
The inheritance tax already kicks in at a pretty high rate above $5 million and change. Are you advocating for an even higher rate? Close to 100%? If so, keep in mind that inheritance and gifting (while still alive) are directly connected. A 100% inheritance tax means you functionally prevent people from giving any sizable amounts of property to any other person (sans spouse presumably). This has a lot of implications. Even under such a system, if I am a wealthy parent, can I invest in a child's startup? What's the difference between a legitimate investment versus a transfer of wealth masked as an investment? Can I buy a 5th house in the city in which my child lives and allow them to live there rent free forever, or will the Government want to impute rental income? Will we create a new layer of (expensive, game-able) bureaucracy to decide what's fair use versus unfair use? Will the fact that effective transfers of wealth now require a higher degree of sophistication make inequality even worse? My point being that these types of taxes tend to introduce a lot of complexity, cost, and inefficiency (and that's before considering the inevitable loopholes that lobbyists pay to include). And ultimately, lots of unintended consequences. I agree that the tax system can and probably should be used as a tool to encourage more equality but let's do it in a simpler and more efficient way, like land value and other consumption taxes.

evanpw 11y ago

Interesting related fact: in much of Europe, children have a legal right to a big fraction of their parents' wealth after they die [1]. The Gates/Buffett/Zuckerberg scheme of giving almost everything would be illegal, and in some cases children can sue to recover donations made during their parents' lifetimes. [1] http://www.economist.com/node/14644403 http://www.economist.com/node/14644403