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We should tax wealth, not income. [1] The majority of income the top 0.1% make is from investments and gets taxed as capital gains, only about 15% of their inc

• conanbatt 9y ago
  Maybe we should stop thinking taxes are the solution to inequality. "Cutting all the high trees so the forest looks even".
  • JamesBarney 9y ago
    Taxation is both effective, and far less invasive to markets than many other solutions.(like minimum wages, enforced labor unions, changing the way companies pick or compensate CEOs). So that's why it's brought up so often. What are some solutions you're aware of that are equally effective and less invasive?
    • microcolonel 9y ago
      > Taxation ... minimum wages, enforced labor unions, changing the way companies pick or compensate CEOs None of these are solutions to inequality. Tax-backed redistribution efforts (think new deal) have had no measurable positive impact on absolute or relative poverty; nor have minimum wage laws. The idea of corrupting the CEO compensation and hiring practice at the national level is about as boneheaded as they come. All of these actions decrease efficiency, and none of them have a significant positive impact on poverty. I just don't see the point of insisting we "do something!" when none of the similar "solutions" we've tried have made for any positive change, and all of them have measurably cost us in efficiency and growth. The "do something!" model of governance is cruel and deficient; if it would be better, all things considered, to do nothing, then do nothing!
      • _delirium 9y ago
        Strong social safety nets of the Scandinavian variety do reduce post-transfer poverty (less so inequality), mostly by truncating the bottom of the income curve with a floor. You can get rid of poverty pretty much by definition if you have sufficient income transfers so that everyone's income is above the povery line. E.g. if your national poverty line is $13k, if you guarantee $13k incomes, no more poverty, at least by that measure. Works a bit better in practice if you also have an integrated social worker system, so you can figure out e.g. if someone is homeless due to purely lack of income or mental health or other illness and direct them appropriately.
        • microcolonel 9y ago
          > Strong social safety nets of the Scandinavian variety do reduce post-transfer poverty (less so inequality) Granted Scandinavian countries, now more just Norway and Denmark, tend to have very low potential for poverty in general. The rate would likely be comparatively low even without the programmes. Norway and Denmark have both considerably reduced entitlements over the years to relieve the enormous stress they put on the economy. Well before any of these programmes became so comprehensive, Norway, Denmark, and Sweden were very productive and comparatively equal.
    • conanbatt 9y ago
      > Taxation is both effective, and far less invasive to markets than many other solutions. I don't really agree with this. Taxes are distortive and doesn't necesarily help inequality. It might even make it worse. But also, there is taxation as a progressive system of government funding, as there is taxation as in "You will never own more than X, because the government will seize it". In terms of solutions, I'm not a professional economist, but as I read different authors and books, it really seems like we don't understand why we have inequality in the first place. Even Piketty's Capital feels more like explaining that its going on than why. So I'm jitterish about any solution that doesn't help resolve the core cause, for the which there doesn't seem to be consensus The CEO's pays is a small but funny example about that: CEO's pays increased enormously after by a law thought to dimishing their returns, made their salaries public, and increased CEO's ambition and bargaining power. The very idea to dock their pay increased it. But those are small bits at the macro-economic level.
      • erentz 9y ago
        They don't have to be. A "death tax" for example that takes 100% of a persons estate at death would be both simple, non distortive, and in terms of equality level the playing field every generation.
        • esarbe 9y ago
          Why does this get down voted? Even if you don't agree with the idea; it has been proposed in a calm and reasonable manner. Care to explain?
          • erentz 9y ago
            It's pretty hard to discuss such things without people getting emotional and defensive. I think people look at something like this and say "but that's not fair I earned all my money"[1]. They don't look at it and think about what the world would look like in such a scenario, how they might have lived differently, how they would instead spend their money before death (perhaps making the world a better place), or how they might have less concerns about needing to pass on money to their children because their children would be "just fine" in the society they created under this system. [1] ignoring the whole subject about luck and what it means to earn something when two equivalent folks just have different dice rolls go their way, etc. Or especially in the context what it means to earn something when you just inherited it. (I have a bunch of friends who have inheritance coming their way and just totally expect it, they lead very different lives because of that than those I know who don't have that.)
  • choxi 9y ago
    Sure, I should have stated my assumption: there will always be inequality in a capitalist economy. But you can have varying levels of inequality and the extremes are probably not healthy. My suggestion above wouldn't create perfect equality, it just fixes the broken incentives we currently have that reward us for hoarding wealth and penalize us for earning it.
    • conanbatt 9y ago
      I'm all up for reducing any tax, at any point for any reason whatsoever.
    • ericd 9y ago
      I would suggest that we currently don't do nearly enough saving as a nation, on average, and probably shouldn't further disincentivize that.
      • dlp211 9y ago
        Those who can afford to save do, those who can't don't. There isn't someone out there making $50k/yr raising a family saying "if capital gains rates were just a little lower I would save so much of my paycheck". I on the other hand am going to put my money in the markets whether the capital gains rate is 15% or 30% because I have used up all my tax-advantaged account space and still have extra money.
        • ericd 9y ago
          It's not as simple as "those who can afford to save, do". There are also a huge number of people living well above their means, and the percentage of people with no savings is much, much higher than the percentage of people who don't make enough to save. The F-150 is the best selling vehicle in the US, and they're certainly not all going to people in the construction industry. And $50k/yr is more than enough to save money in most parts of the country. That's a good salary.
    • humanrebar 9y ago
      > ...there will always be inequality in a capitalist economy What economy doesn't have inequality?
  • pjmorris 9y ago
    Taxes are what give fiat currencies their value. No taxes, no fiat currency. If you don't believe me, consider why the US dollar has value at your local store and the Monopoly dollar doesn't.
    • conanbatt 9y ago
      Thats a terrible to reason to have or increase taxes. If you eliminated paper currency altogether in one fell swoop, the next day you would have another one replace it, be it bitcoin, gold or cigarettes.
      • pjmorris 9y ago
        Something underlies the value of bitcoin (proof of work), gold (rarity, utility, beauty, portability), cigarettes (addiction). Think through what underlies the value of fiat currencies like the US dollar. I'm with the chartalists [0]/Modern Monetary Theorists [1], believing that a government's ability to tax is the anchor for the currency's value. [0] https://en.wikipedia.org/wiki/Chartalism https://en.wikipedia.org/wiki/Chartalism [1] https://en.wikipedia.org/wiki/Modern_Monetary_Theory https://en.wikipedia.org/wiki/Modern_Monetary_Theory
        • conanbatt 9y ago
          Have barely scanned these articles, but even if I agreed that tax collection is what gives currency most of their circulatory value, thats no reason to have taxes, let alone making them higher.
          • pjmorris 9y ago
            Something's got to circulate. There's not enough bitcoin+gold+barter-able commodities to go around, so fiat currency is necessary to the economy as it stands. If you agree that taxes give currency most of its circulatory value, you have to figure out what else would give it value if taxes were taken away.
  • avasylev 9y ago
    Funny that comparison with the trees can be applied in a different way - you do need to cut high trees if you want to grow smaller trees in the same place. This spring I cut very high pine because it shadowed my entire backyard and I want to grow more smaller trees on the perimeter.
    • sokoloff 9y ago
      Rush, Trees (1978) : https://www.youtube.com/watch?v=8_D0wkLyCXE https://www.youtube.com/watch?v=8_D0wkLyCXE There is unrest in the forest There is trouble with the trees For the maples want more sunlight And the oaks ignore their pleas The trouble with the maples And they're quite convinced they're right They say the oaks are just too lofty And they grab up all the light But the oaks can't help their feelings If they like the way they're made And they wonder why the maples Can't be happy in their shade? There is trouble in the forest And the creatures all have fled As the maples scream 'oppression!' And the oaks, just shake their heads So the maples formed a union And demanded equal rights 'The oaks are just too greedy We will make them give us light' Now there's no more oak oppression For they passed a noble law And the trees are all kept equal By hatchet, axe, and saw
  • esarbe 9y ago
    This is a very interesting analogy. Because I've learned in ecology that from time to time a forest needs a good fire to allow for new growth.
    • deleted 9y ago
      [deleted]
    • conanbatt 9y ago
      Its a Marxist Forest.
  • mikeash 9y ago
    That's a terrible analogy. Taxes don't destroy wealth.
    • conanbatt 9y ago
      Taxes might or might not destroy wealth, but government surely does.
      • mikeash 9y ago
        Could we rephrase your previous comment as "Maybe we should stop thinking government is the solution to anything"?
• RealityNow 9y ago
  I agree, but how would we enforce a wealth tax? Seems like it'd be really easy for rich people to hide their money in assets. What about just printing money? Not ideal obviously, but there'd be no way to avoid the inflation "tax".
  • conanbatt 9y ago
    There are many ways to protect yourself from inflation. And inflation has also devastating consequences to all assets and incomes.
  • aceon48 9y ago
    Inflation harms wage earners farrrr more than capital holders. Capital holders can put it into assets that rise with inflation. IMO it's one of the driving factors of inequality of the past few decades. Those with capital / assets can leverage up, borrow more money, and then pay it back with lesser inflated dollars.
    • JamesBarney 9y ago
      Unexpected inflation moves money from people with nominal assets to people with nominal debts. Basically the very rich(who hold most nominal assets like bonds) to everyone who has a mortgage. Also the IMF's stance on inflation and inequality is moving from hyperinflation to sustainable inflation leads to reduced inequality but there aren't advantages to moving to a lower inflation than that.
  • duality 9y ago
    Avoiding inflation due to printing more cash would look like not holding cash. Your proposal would tax people whose lives involve mostly currency, not other assets. I think it would actually have the opposite of the effect you intend.
  • zanny 9y ago
    You can do a wealth tax by targeting the big ticket items. Rather than invade everyone's home with tax collectors to guesstimate how much every couch cushion you have is worth, you can hit probably 98% of wealth by just taxing the calculated value of owned land and buildings (which is already being appraised for property taxes in most states) and stocks, bonds, and options. So we already invade your privacy to appraise the former, and the later has to be be public because companies need to know who owns what shares and the trading platforms need to associate users to shares they own. Both can be used by government to provide ownership details. You would also want to wealth tax companies for total global cash-on-hand assets they have as well. Those are also required to be public record already. That way private business executives cannot tax haven their own stuff under an LLC, and companies like Google / FB are punished for hoarding hundreds of billions in offshore accounts they have no intent to spend or bring back into the states. Of course, this is all saying "government should do X" which is just for entertainment, pretty much. The US is in no condition to act in the will of the people at all right now anyway, so its all speculation - you would have to fix the broken democracy first.
• tomjen3 9y ago
  Rather than tax wealth, tax spending: no taxes on your income, no taxes on anything until you spend it. That way people will have more money to invest in companies allowing the economy to grow and create wealth, and we kill the ludicrous idea that consumption creates wealth, rather than construction. It does have the issue that this hurts poor people, but that is easily solvable with a direct transfer of (electronic) cash.
  • adamlett 9y ago
    Your argument hinges on the erroneous belief that more investment is always better. But in order to create value, investment capital needs sound investment opportunities with positive expected ROIs. If there is too much capital and not enough opportunities, supply and demand dynamics cause the ROIs to start to drop until investing becomes value destructive. That's when the market for investment starts to resemble a Ponzi scheme.
  • dlp211 9y ago
    We don't have a capital problem. Capital is available, it's cheap, and it is flowing.
  • flyinglizard 9y ago
    At the end of nearly all civilian investments, stands a consumer with their wallet out. Take them out, and you are left with unused infrastructure.
• jws 9y ago
  Capital gains tax in the US is lower than income from labor, but it is also worth considering the effects of inflation on the investments. Your 4% return is not really a 4% increase in wealth, you need to also take out the 1.7% your investment lost that year to inflation. In real terms, you wealth only increased 2.3%. If you want to tax wealth gains as ordinary income there should be an acknowledgment of inflation. In practice you end up with roughly the same amount of money going to taxes and a much more complicated system. In this example it would raise the investment income tax revenue by 33%, not the 233% difference in tax rates. But the index fund 4% and the 1.7% inflation were pulled out of orifices and our predictive capabilities are so reflected.
• deleted 9y ago
  [deleted]
• lend000 9y ago
  Easier said than done -- not all wealth is liquid. What if someone has all their wealth in one or two real estate properties? Or a family heirloom gem collection which is worth a lot but which they refuse to sell (and otherwise are not wealthy)?
  • jhayward 9y ago
    Easy, you do what is done with senior citizens who owe property taxes. The taxes accumulate without being paid and are collected when the property is transferred to an inheritor or buyer.
• cjlars 9y ago
  For the sake of completeness. Top capital gains rate is 20% + 3.8% medicare surcharge + state tax. In a high tax state like California, you're paying 37.1% on investment income, not 15%. Also, top federal rate is 39.6%, not 35%, plus state income tax, you can pay as high as a statutory rate of 52.9% in CA, or around 47% after deductions. And more to your point, we already have a defacto wealth tax in the US because inflation is not deductible. If you hold a bond paying 2% per year, and inflation is also 2% per year, you pay tax on those gains even though you've made a post-tax loss in purchasing power. At 2% long term inflation, the defacto wealth tax works out to be the 2% multiplied by your capital gains rate, or from 0.47% to 0.74% for high earners depending on what state they live in.
  • gok 9y ago
    Nit: That 52.9% number isn’t quite right because you get to deduct your CA income tax against your federal income tax. So in practice even if you made a billion dollars in California, you’d pay $133M to the state then get federally taxed 39.6% on the remaining $867M, giving you an effective tax rate of about 47%.
    • cjlars 9y ago
      Good point, updated. It would be further impacted by AMT and the standard deduction thresh-hold, but that's a good estimate I think.
  • humanrebar 9y ago
    > we already have a defacto wealth tax in the US We have actual wealth taxes, too, in the form of property taxes.
• gok 9y ago
  Wealth tax is a good idea that’s very hard to implement effectively. Many countries have tried it only to give up on it (Germany, Sweden). France has a comprehensive wealth tax but it raises less than 2% of total tax reciepts, suggesting it’s not doing much. It’s very difficult to prevent the wealthy from finding ways to hide wealth.
  • humanrebar 9y ago
    This is part of the reason some want to tax consumption more aggressively. "Wealth" that isn't used is really just a collection of expensive large numbers. Sooner or later, when that wealth is used, it can be taxed as consumption and/or real property.
    • dlp211 9y ago
      Except it doesn't work that way because cost basis gets reset during inheritance which is a huge give away to the most wealthy families. It is also the reason for an Estate Tax.
      • humanrebar 9y ago
        The heirs would presumably be buying homes, cars, vacations, food, night clubs, etc.
    • mikeash 9y ago
      Unless "use" includes stock purchases and political donations, you'll just hurt the poor even more. The problem with wealth concentration isn't buying houses and cars, it's buying power.
• whack 9y ago
  The real problem though isn't wealth inequality, it's income inequality. If someone has a billion dollars that's invested in various stocks, and never tries to withdraw that money, leave him alone. The day he decides to sell his investments and start buying private jets, that's the time to tax him on his income. The argument against a wealth tax, is that it penalizes savers, and rewards spenders. Which is not what we want as a society. It's better for both the individual and for society if people invested their money into productive enterprises, instead of spending it on luxury goods. If the goal is to provide a more egalitarian quality of life across society, this can be perfectly achieved through an income tax alone. Specifically, by treating capital gains the same way as salaries, and by increasing the marginal tax rates for high earners.
  • albinofrenchy 9y ago
    The argument against income tax is that it penalizes earners, and rewards not working. Sure, that is a reductionist argument but so was yours. The real argument against taxing wealth is that it isn't really feasible; you'd just encourage banking in other countries or buying up a lot of land. I also agree that capital gains being taxed at a lower rate is insane and makes sense only when you realize that's how politicians tend to get wealth.
    • banned1 9y ago
      Assuming wealth is earned, why would you want to tax it? It already was taxed when the individual was working. Inherited wealth is another matter.
      • dredmorbius 9y ago
        Check your assuption.
      • barrkel 9y ago
        Are returns to capital earned? Certainly it's not easy getting outsize returns reliably, but the idea that the return is earned in a way that scales with the amount invested sounds very dubious to me.
• mcbits 9y ago
  By "park" you mean "invest" in (hopefully) productive participants in the economy. It arguably makes sense to seize wealth that's being invested in ways that are harmful to society and divert it into investments that are good for society, but imposing taxes based simply on the quantity of wealth won't accomplish that.
• TimPC 9y ago
  Taxing wealth is a deeply invasive bureaucratic nightmare. Having individuals be legally required to produce a balance sheet of all their assets for the government every year seems quite problematic. This would get into issues of having people be required to re-establish the fair price of all their collectables, etc. It's also a deeply dangerous attack on retirement. Instead of being taxed on the gains from your wealth, being taxed on the wealth itself requires much larger returns to live off the income from an investment. I think it might make sense to have a higher inheritance tax with fewer loopholes to resolve the issues of intergenerational wealth. It's probably very important to protect the mechanisms of retirement.
  • jordanb 9y ago
    This is basically the point of the estate tax: people are already producing a balance sheet of all the wealth for the purpose of distrusting it to the heirs. So tax the wealth when the estate changes hands and all the accounting is going to be done anyway.
    • TimPC 9y ago
      Not once per year. The ongoing balance sheet is highly problematic. Any assets that don't need to be updated would represent giant loopholes and potentially areas where bubbles would be inflated as capital moves into assets that grow whose growth isn't adequately accounted for.
    • sokoloff 9y ago
      My parents are going through updating their will. They have a collector car. It might be worth $50K, probably worth $70K, maybe worth $90K. They have a house. Might be worth $350K, probably $450K, maybe $500K. Provided their estate will not hit the federal exemption (it will clearly not) or state exemption amount (ditto), there is nothing to compel them to prepare a balance sheet with fair market values.
      • TimPC 9y ago
        But how do you make a wealth tax fair if there is no need to prepare a reasonably accurate balance sheet? If it's a yearly tax the loopholes allowed without an accurate balance sheet are so extraordinary that it's reasonable to assume they will cause more problems than the tax fixes.
• mjevans 9y ago
  Broadly, I see three categories where taxes could be applied: * Wealth (accumulated capitol) * Income (acquired capitol) * Consumption (utilized capitol) The problems with income and consumption based taxes include: * Double taxation (which side is taxed, both?) * Inequality / Regressive (generic taxes target the poor/middle) * 'sitting on capitol' isn't taxed A good fresh start is probably necessary. * Taxes exist to fund the public good. * Taxes should target undesired (by the community) behavior * Incentives should target desired behavior * You are what you measure and how you react (punish/reward) With the above in mind, I am entirely for two types of taxes. Income: A maximum income target and a 'minimum' income target. These two numbers would be plugged in to a single non-linear formula that applies to all. The more someone makes, the more they're taxed (they would always take home more, but for every dollar over they'd take home less of that dollar). B.I.G. could be built in to this formula as a third number (mostly raising the floor); but to me the minimum number already sounds like it is this number. Wealth: Some savings is a good idea. Having a year or two of runway (disaster preparedness). Saving to move in to a house. Investing* in active things (stocks/bonds/etc) for retirement. Owning your own means of production / transportation / housing (within reason). Wealth is more static, when wealth suddenly shows up it should be taxed as income. When it's held over time it should be taxed at a much lower rate, but still taxed (every period, IE year). Society should agree on a divisor that is fair, and how much different types of wealth are discounted. 'wealth' (divided down) would thus be figured in to the total tax liability on the compound curve I described in the income section.
• IanDrake 9y ago
  I completely agree, but for totally different reasons. If a major function of government is to protect our property (land, savings, boats, cars, etc...), then it could be said the more property we have the more we benefit from government protection and the more we should pay. Another function of government is to facilitate trade. For this service, ALL transactions should be taxed (including payroll). If you look at the totality of this, the actual tax rates would be nominal for every "normal" individual, thus it wouldn't necessarily be regressive. We're talking about a 1% tax rate on property and ALL transactions. To me this makes sense on so many levels. It captures money from everyone participating in the system and it captures it relative to the person's level of benefit from the system. The hardest part would be tracking. However, if the tax is nominal and the punishment for cheating is high, then it seems like it wouldn't need outrageously intrusive controls.
  • sokoloff 9y ago
    Transaction taxes drive vertical integration (as this reduces the number of bites at the apple along the supply chain). I don't think that's always a bad thing, but it does violate a principle of fairness that I hold, which is that substance matters over form. If Starbucks owns coffee plantations, roasters, logistics, stores, the cup of coffee you get might be untaxed prior to you paying for it. If a competing coffee company performs the exact same steps, except uses third party farmers, logistics, roasters, and rents their storefront, that cup of coffee was taxed 5+ times before you bought it. I don't see the societal benefit to encourage vertical aggregation like that.
    • IanDrake 9y ago
      I get what you're saying, but profit creates the same motivation for vertical integration. If there are two layers in my coffee bean acquisition I'm losing the profit made at every layer, so of course I would want to own those layers and capture that profit before we even add a 1% tax. But vertical integration comes at a risk, which is why only the biggest players will attempt it. Now, add a 1% transaction to those two layers. You're now losing 2.01%. But at each layer you're already losing 15% net profit made by your supplier. I'm not sure you would change your perspective on vertical integration for 2% when you're already leaving 15-20% on the table.
• dredmorbius 9y ago
  Wealth, or more generally, rent-producing assets: https://www.vanityfair.com/news/2017/09/the-obscure-economist-henry-george-ayn-rand/amp https://www.vanityfair.com/news/2017/09/the-obscure-economis...
• terminalcommand 9y ago
  Taxing wealth may be counter-productive. The way our economy should work is that you get rewarded for the wealth you generate. If you cannot store the value for the things you've done, there would be no incentive to produce. A janitor working as a contractor may not have the chances the people in Kodak had back in the day. But at least he/she still gets to work a shift, gets paid for overtime. There is nothing stopping that person from pursuing their passion and create wealth. The reward of the wealth may be monetary or not. On the other hand, let's think about the "privileged" workers. The more you get paid, the less life you have. In our current state of capitalism, if the employer pays you a lot, he/she wants to own you and use you until nothing of you is left. The current system doesn't care about long term, it's all about the short term. The people who break are replaced, and because people break, the workload gets heavier. But there is an unlimited demand of new workers fresh out of school willing to work under the same conditions. The work starts in the morning at 9 am, you can't be late, but you can't leave until the work is done. You go home, sleep for a few hours and start again. Sometimes you work on weekends and you definitely take a laptop to your holiday (if you have one). If you work this hard, generate wealth and you know that if you stop working, all that you've endured would be for nothing, that would be inhumane.
• spoonie 9y ago
  Tax land not wealth! You can't move or hide land, unlike other assets.