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The Big Problem with Wealth Taxes

• duxut_staglatz 7y ago
  This was a problem for the federal income tax as well, which was solved.
  • pwg 7y ago
    Yes, but solved only by passing the 16th amendment, which specifically authorized the federal income tax. The article is, in a round about way, arguing that a wealth tax would need just such a constitutional amendment as well. And in today's political environment it would be much easier to just hike the existing income tax rates than obtain the majorities necessary for passing a constitutional amendment.
    • defen 7y ago
      That won't do much to combat wealth inequality though, because the ultra-wealthy typically do not have high incomes, at least relative to their overall wealth.
  • rsj_hn 7y ago
    Just 13 states is enough to block it, with a population of 16 million, or less than 5% of the US population can block an amendment. For the income tax, there was broad based support for a Federal income tax from both left and right, liberal and conservative, business and labor, rural and urban. Without an income tax, the government was still dependent on taxing alcohol, so the temperance movement backed it, as did those wanting a strong military, and business who didn't want excise taxes to pay for all spending backed it. Small states backed it. Big states backed it. Rural states backed it. The current system of trying to fund the entire government on sin and commerce taxes was hated by everyone. Moreover at the time, the pro-income tax crowd could promise that only the top 1% would pay any income taxes, and so get the overwhelming support needed for a constitutional amendment. Although Warren is trying to play the same game here, people are not gonna be fooled again by the "only billionaires will be taxed" line. At least, as long as 5% are not fooled, it wont pass.
    • specialist 7y ago
      You're saying that reverting the 2017 federal tax cuts, which overwhelmingly benefitted rich people, valued at some trillion dollars, financed by borrowing (vs offset with spending cuts), is a bad idea because non-rich people will have to pay a few bucks more?
      • rsj_hn 7y ago
        So you're saying that you have difficulty converting letters to words in your mind and so will just invent a comment and then proceed to come up with your own take about it? Is this is a good use of your time? In that case, Why did you say that dogs should be forced to eat cats? I think that's a terrible take, and pretty irresponsible for you to advocate for it.
        • specialist 7y ago
          I'll agree that I'm not smart enough to divine your meaning. Apologies. Although Warren is trying to play the same game here, people are not gonna be fooled again by the "only billionaires will be taxed" line. I'll only add that I remain baffled when people support tax cuts for other people. A preferential tax cut for me is a tax increase for you.
          • rsj_hn 7y ago
            Wow, there is a lot to unpack there. Your assumption that opposing the introduction of a new type of tax is equivalent to advocating for a tax cut is false. You assumption that the total tax base is constant over time and thus advocating a tax cut for you is equivalent to a tax increase for me is false. Easily dispelled by looking at historical data, which shows tax share of GDP is not constant. Your assumption that the economy consists only of two people, you and the billionaire, so that a tax cut for one is a tax increase for you specifically is false. Your assumption that it makes no matter whether something happens at the state or federal level is false. Your belief that it doesn't matter whether a politician misrepresents a policy ('only Billionaires will get taxed to pay for my healthcare plan') as long as you agree with the policy is reprehensible. Truth is important in and of itself. I could go on, but you are living in a completely different reality from me.
• robert_foss 7y ago
  Sounds like FUD to me
  • lr4444lr 7y ago
    Politicians' pronouncements and promises on the campaign trail are the actual FUD (or its positive equivalent) IMHO.
  • bsenftner 7y ago
    Exactly. We write our own laws. If need be, we'll write this into law.
    • fennecfoxen 7y ago
      And after the Supreme Court strikes down your law as an affront to the law of the Constitution, perhaps you'll pack the court with flunkies who will rubber-stamp those laws as well, and try again.
• netfl0 7y ago
  Clickbait from academics makes me sad. My issue is with the headline. The probability of something making it through Congress and getting rejected by the court seems pretty low given the historical precedents.
  • lr4444lr 7y ago
    That's not fair. The authors probably have little to no say in the headline. I thought the content of this op ed was among the best I've read in the paper for a long time.
    • netfl0 7y ago
      > The problem, alas, is the Constitution. It’s not much of a stretch to think the title was their idea. I’d grant that the paper may have added the word “big”. It has their name on it.
• objektif 7y ago
  Why couldn't we just increase the sales tax especially on the goods that are consumed by the upper/upper-middle class?
  • bsenftner 7y ago
    Likewise, let's eliminate as many of a tax shelters used by the 1%, as well as add luxury taxes to the financial planning services only the uber wealthy can afford.
    • NovemberWhiskey 7y ago
      As a member of the 1%, please tell me more about the tax shelters that I'm using? The vast majority of salaried employees have essentially no options at all for sheltering from tax.
      • mattrp 7y ago
        Right... but you wouldn’t know that until all the deductions you used to have are wiped out because you make too much... and then you get AMT’s for added insult. And it’s not 1%... I don’t know the % you’d have to be the but the deduction wind down around $175k in w2 income. That’s hardly bezo’s territory. So let’s say you make $175k and have been thrifty and done a ton of saving and own your home... so now on top of that you’re getting wealth taxed? You know what will happen- this will decimate the white collar servant class in states like NJ where property taxes already exceed 50% of ones mortgage payment AND you can no longer deduct local taxes from your federal return... ever notice the people complaining the tax cuts unfairly benefitted the rich are the ones who already made too much to benefit from the doubling of the standard deduction (ie >80k) but too little that the removal of the state tax deduction really hurt (<$175k)... and yet these same folks somehow think the wealth tax won’t be for them. Dream on... dream on..
    • everybodyknows 7y ago
      Curious that you're the first to mention an obvious first step in the right direction: Heavy tax on non-productive consumption and assets, a/k/a luxuries. Nobody "needs" a penthouse suite in Vegas, a 100 foot yacht, or a Ferrari. Why not start there?
• burmer 7y ago
  Yeah, I never liked the idea of a wealth tax because it seemed overly complicated and open to manipulation. You’re taxing an assessed value of things that people say they own? This seems like property taxes, but worse, and rich people fight property tax valuations more frequently.
• seibelj 7y ago
  The other problem with wealth taxes is that they don’t work. If we tax wealth beginning at 50mil suddenly we will have tons of 49millionaires. Just imagine if the wealth tax began at 50k rather than 50mil. The hottest growth job would be tax lawyers.
  • dgacmu 7y ago
    Only a poorly designed wealth tax would have that property. This is exactly why progressive tax systems use marginal rates. People wouldn't stop saving at 49 million when they had to pay tax of 1% on the money above 50 million. they wouldn't stop at 99 million if they had to pay 2% on the parts above 100 million.
    • londons_explore 7y ago
      A lot of people don't understand marginal tax rates. If the population you are taxing doesn't understand the tax system, they will behave according to their understanding of it, rather than reality. I have met plenty of people who say "don't give me a pay rise, I don't want to hit the 40% tax rate", even with a marginal tax scheme with no discontinuities.
      • imgabe 7y ago
        Someone with a net worth of $50 million should understand marginal tax rates, or at the very least be able to hire someone who does.
      • croon 7y ago
        You can offer to take the bullet for them. Win-win!
      • hackeraccount 7y ago
        That's not totally illogical. Generally pay raises come with an expectation of effort and commitment. Maybe the people saying no don't think the after tax amount covers the increases in those things.
    • 7y ago
• cm2187 7y ago
  The experience of the wealth tax in france is that it costs almost as much to collect than what it collects, plus creating unintended effects. Turns out it is not straightforward to estimate what every asset in a country is worth.
  • beefield 7y ago
    That's why I think more appropriate way to think about wealth tax is not actual practical implementation, but more like a goal. So no adding together all wealth, but tax the value of real estate instead of the rental income. Tax market cap of public corporations instead of their profit. Tax cars, boats and business jets. Tax bonds and other securities on their value instead of revenue. Etc. All these ibdividual taxes are going to have issues to be sorted out before implementing, bit I argue that as individual taxes, the issues are way easier to solve than for one generic wealth tax.
    • psweber 7y ago
      That does sound reasonable. People game the current system to the maximum. How would you expect people to game a system of taxing the obvious assets, and what could be done about it?
      • mattrp 7y ago
        The way they would game it would be by building unpermitted structures. Read Hernando de Soto’s mystery of capital - he talks how this happens all over the world as a way to store wealth. The problem is it can’t be financed so the capital is stranded and it’s unsafe - many years ago there was a small earthquake (maybe a 6) in turkey and it leveled the region despite earthquake building codes that had been in place for decades. If you had an old structure it survived, the new ones were decimated. Why? The unpermitted buildings avoided the building code regulations. Anyone remember the last time LA had a six earthquake... that’s right you don’t because no one in LA cares about a six because we haven’t yet destroyed our economy through perverse taxing and over regulation.
    • mc32 7y ago
• londons_explore 7y ago
  A wealth tax is rather similar to inflation... A 2% annual tax on wealth causes my bank balance to go down by 2% each year. A 2% inflation causes my bank account to become 2% less valuable each year. The only difference is property (land, cars, etc.). Thats super hard to value anyway, since without selling an item, you can't be sure what it would sell for.
  • fennecfoxen 7y ago
    Would you say that the majority of your wealth is in your bank account, as opposed to being in housing or a retirement portfolio of stocks and bonds?
  • mdorazio 7y ago
    I'm not following your last statement. Land is already taxed on its assessed value, which changes regularly, and things like cars have easy to find residual value estimates from third parties. You wouldn't necessarily get the true market value to tax, but getting some baseline value wouldn't be particularly difficult. The only exceptions I can think of are really intangible value stores like artwork.
  • throw0101a 7y ago
    > Thats super hard to value anyway, since without selling an item, you can't be sure what it would sell for. Actually it's quite easy. For land, governments do it all the time: * https://en.wikipedia.org/wiki/Land_value_tax https://en.wikipedia.org/wiki/Land_value_tax For many other type of property: what is the insured value? Certainly not exact, but probably with-in an order of magnitude of accuracy, which may be 'good enough'.
    • brycehamrick 7y ago
      This is a really good point actually, insurance firms are already licensed and regulated. You could effectively implement a wealth tax simply through added taxes on insurance policies.
  • ixwt 7y ago
• java_script 7y ago
  Interestingly the paper they cite for more-constitutional alternatives to a wealth tax actually includes a wealth tax in its suite of options and argues in favor of the constitutionality of a wealth tax (p 25) E: I should add it disagrees with the central argument that this would be a “direct tax” and mentions ways the wealth tax could itself be structured to give the Supreme Court less of a leg to stand on. Personally I’d rather run a candidate that would even bring this fight in the first place. Maybe if it’s on the news then the >99% of viewers will realize that the <1% are able to beat them down easily in any legal fight imaginable despite their incredible small numbers and harmful distribution preferences.
• blacksqr 7y ago
  Instead of taxing individual wealth, far easier and constitutionally sound to impose a corporate tax as a percentage of total stock value. Let the markets determine the value of the stock, then calculating the tax is a few minutes' work. Most people who get really rich do so by owning stock or shares in a corporation, partnership or LLC.
  • organsnyder 7y ago
    What about privately-held stocks?
    • Chirael 7y ago
      Sounds like it would be a big incentive for companies to stay private as long as possible.
    • krajzeg 7y ago
      While not a viable way to actually do things, it is fun to imagine crazy unicorns like WeWork being taxed on their outrageous valuations.
    • blacksqr 7y ago
      Many privately-held companies sell stock, and their value can thus be calculated. For those that do no stock trades, a gross income tax would be a simple alternative.
      • organsnyder 7y ago
        Seems like a strategy could emerge to do private sales at well below estimated value, in order to game this system. You could make it illegal, but it would be incredibly hard to prove (and harder still to detect).
        • blacksqr 7y ago
          Seems like such a strategy would already be illegal as a means of avoiding capital gains taxes. It would also have the side-effect of destroying the company's valuation and thus its credit rating.
• coldcode 7y ago
  It's much easier to tax the poor, but you don't get anything. Marginal/progressive tax systems exist for a reason. The problem is rich people can afford to lobby (buy) politicians to make their taxes go away, which is why the IRS is continuously starved for budget. The IRS admits it cannot afford to audit wealthy people because it requires a lot of people and effort, so auditing poor and middle class people is the best they can do. Seems like the first thing would be to beef up the IRS budget.
  • metalliqaz 7y ago
    increasing the IRS budget wouldn't cost money but would make money from tax cheats. political opposition to this has always been the most clear demonstration that congress is in the pockets of wealthy donors, in my opinion.
    • wmeredith 7y ago
      I totally agree. In its current state the IRS makes $4 for every $1 in its budget.
      • simonsarris 7y ago
        Why is that impressive? Those two numbers in a vacuum tell us nothing at all. Why isn't the IRS making $50 for every $1 in their budget? Suppose we cut their budget by 50%, it's possible they've just been wasting money and now they'd make $8 for every $1 in their budget. Great! Suppose we double their budget. If they don't do anything differently they'll make only $2 for every $1 in their budget. etc etc. There must be some component of their budget that is the part of the IRS that goes after potentially fraudulent tax returns, and presumably increasing or decreasing it will have a yield effect, but your figures have zero to suggest what that is or where the point of diminishing returns may be. Broadly speaking, context-free numbers that don't actually imply anything (maybe more to the point cannot imply anything without more information) should be viewed with suspicion. :/
        • metalliqaz 7y ago
• bradenb 7y ago
  I think it was Planet Money that had an episode about wealth tax where someone had an interesting solution to the problem of the manpower involved in enforcing it: simply let the owners claim the value of their assets, but let the government reserve the right to purchase the item at whatever value is claimed. Theoretically this would lead to owners being as accurate as possible. I know there are probably a lot of gotchas with that approach, but I really appreciate the elegance.
  • xorfish 7y ago
    Wouldn't that just be a free long call for the government? Valuations can change pretty fast. If you declare your s&p500 index fund portfolio with the most recent value and it goes up 10% over the next few month until the IRA reviews your wealth. Are they allowed to buy it at the declared value?
    • NovemberWhiskey 7y ago
      Yes; another one of the huge problems with this proposal is that it neglects that many assets have time value. Unless the government has to buy the asset the instant you propose your valuation, you’re just being forced to write a free, ATM option to the government. Illustrative example: The S&P 500 index is currently about 3092. An "at the money" (ATM) option is one where the strike price of the option is equal to the current price. A call option for SPX at 3095 expiring on 12/06/2019 is currently selling for $37.90 on the CBOE. So basically you're giving away >1.2% of your investment by allowing the government to buy it at a price you quote today but a month later. Alternatively, you have to over-state the present value of the investment and pay more tax.
  • mattrp 7y ago
    Easily defeated as an unfunded liability which is illegal. Otherwise the government would have to fund these purchases with budget allocations. The value of US real estate is ~$30t for example.... which by the way should give some sense of scale for the absurdity of trying to fund Medicare for all.
• empath75 7y ago
  Morally and practically I think the best thing to do is implement a confiscatory estate tax. I don’t think it’s immoral or particularly hazardous to democracy for individuals to amass a large amount of wealth in their life time. The danger is when people then pass down these massive stores of wealth to their children and grandchildren who have done nothing to earn it, and yet will be able to use it to distort the political system for their personal gain or simply sit idle while accruing more wealth through rents and interest. Wealthy people should be able to pass down no more wealth to their kids than would be needed for them to live a decent lifestyle without needing to work, or to continue a family business of reasonable size for another generation, but no more.
  • pjc50 7y ago
    > I don’t think it’s immoral or particularly hazardous to democracy for individuals to amass a large amount of wealth in their life time. It is when the political system runs entirely on money and one rich elderly person can have a huge influence on public opinion.
    • npongratz 7y ago
      > It is when the political system runs entirely on money and one rich elderly person can have a huge influence on public opinion. Then, I'd argue, the root problem is with the political system itself.
    • empath75 7y ago
      Let's pick an example that a lot of people think have a negative influence on politics -- the Koch brothers. They inherited their wealth from their father, Fred.
    • everybodyknows 7y ago
      Recall that Warren Buffett has repeatedly called for higher taxes on the wealthy. Back around the GFC in 2019 he told the press "The 1% are at war with the 99%, and they're winning, big time".
  • CoolGuySteve 7y ago
• reddog 7y ago
  Just want to point out that almost all Americans already pay a substantial wealth tax. Most of middle class wealth is in the value of their homes and that wealth is taxed as much as 2.4% per year by states and local government in the form of a wealth tax called a property tax. And no, you don't get out of that wealth tax by renting. Renters are paying their landlords property taxes as part of each months rent check. Given that, a 2% tax on billionaire wealth doesn't seem unreasonable. Shouldn't their wealth tax burden be the same as the middle class? Yes it would be complicated but not nearly as complicated as assessing the value of millions of homes in the US (and commercial property, vacate land, etc) and sending out a yearly property tax bill, handling appeals and then collecting.
• methodiosmel 7y ago
  I think that the problem with wealth tax is that a person's wealth is none of your business. It is immoral to think you have the right to someone else's property. Just because you vote to take away people's property does mean it isn't theft and doesn't mean you're any better than a petty envious cretin. People should have the right to make as much money as they like through voluntary transactions that ultimately benefit both parties. And they should be allowed to leave as much of that money to their descendants and they wish. This should be none of your business. You people are evil!
• hackeraccount 7y ago
  I'm extremely skeptical of taxes that try to take a large amount of money from individuals for two reason. One is psychological. I make a small amount of money relative to Jeff Bezos. If you root under my couch cushions you'll find nickles and dimes. Naturally if you do the same for Jeff you'll find $100 bills and stock certificates worth thousands of dollars. Except you don't. Because on some level if you ask Jeff if $1000 is a lot of money he'll say yes. People know that some amount is a percentage of their totally wealth but they also understand what an amount is worth in absolute terms. And they're jealous of it in those terms. The other problem I have is that tax avoidance is a fixed cost. It's the price of a tax attorney or more cynically a congressman. All three of the groups - the taxed, the lawyers and the congress people - have an understanding on that. You don't pay %10 of the tax to avoid the tax - you pay a set amount to avoid it. As the tax grows larger the incentive to avoid ratchets up.
• kbutler 7y ago
  As if there were only one "big problem" - incentive effects - investment effects - asset flight - valuation - avoidance - breaking up going concerns (small business/family farm) - the fact that it hasn't worked anywhere Oh, yeah, and as they said, it's illegal.