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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

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.

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.