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But a wealth tax also targets owners of assets that don’t appreciate. It taxes both the winners and the losers, and for the latter it’s nothing but a forced div

by bhupy 6y ago

But a wealth tax also targets owners of assets that don’t appreciate. It taxes both the winners and the losers, and for the latter it’s nothing but a forced divestiture of their ownership stake. A capital gains tax, on the other hand, strictly targets those whose assets have appreciated in value. Wealth is always eventually taxed when it’s liquidated. And if it is never liquidated, then it arguably doesn’t really matter.

epistasis 6y ago
Wealth hoarding matters immensely for things like land, which is why the most common wealth tax is a tax on real estate holdings. It can also matter for other resources which are finite, but land is one of the most crucial one in our current times, and why we are seeing such ridiculously large gains in housing costs in the past few decades after a century of housing costs remaining fairly constant.
- bhupy 6y ago
  Agreed. As you said, the solution to that is either a Georgist Land Value Tax or a Land Appreciation Tax, not a blanket wealth tax.
  - epistasis 6y ago
    I'm also fully in favor of wealth taxes, especially since the US has weakened estate taxes and other checks that would help mitigate increasing inequality. I started mentioning land, as it's the most clear problem of idle wealth. But hugely unequal distribution of wealth also results in slower economic growth and overall less economic activity than if there is more equal access to capital and resources. Capital strikes can be just as effective as labor strikes, and though they don't get much attention they can cause great harm.
    - bhupy 6y ago
      > But hugely unequal distribution of wealth also results in slower economic growth and overall less economic activity than if there is more equal access to capital and resources But wealth != capital. Wealth only becomes capital when it is realized/liquidated, at which point it is taxed. Before that happens, one person's wealth doesn't preclude someone else from investing or being productive because unlike land, wealth is not zero-sum.
      - jmcgough 6y ago
        Sure, wealth isn't zero-sum, but when it's built on top of people making $7.25 an hour with no benefits (or less than that as a contractor), it may as well be. And yes, there are other options for solving problems like that beyond just a wealth tax, but maybe a wealth tax is part of the solution.
        bhupy 6y ago
        > but when it's built on top of people making $7.25 an hour with no benefits, it may as well be. But...it's not? The only person who has concentrated an unimaginable amount of wealth for which this might be true is Jeff Bezos's Amazon, except Amazon workers all earn a $15 minimum wage, 401k matching, and are part of the same group health insurance plan as the engineers and product managers. They happen to enjoy some of the best health insurance available to an entry level job that requires no college education. Outside of Bezos, the vast majority of the wealthy pay their workers handsomely (Bloomberg, Bill Gates, Tim Cook, Page/Brin/Pichai). And even if this was somehow a pervasive truth, the solution to that is a basic income, not a wealth tax. A wealth tax wouldn't even come remotely close to funding a basic income. If you were to seize 100% of all wealth of the top Forbes 500, you would get enough money to run the current Federal government for 8 months. Not 8 months per year, 8 months ONE TIME.
        logicchains 6y ago
        Jobs don't just grow out of thin air. That $7.25 job is self-evidently better for the worker than whatever other opportunities they had available, otherwise they wouldn't be doing it. Taking away that opportunity won't make their life any better, just means they end up on a worse job.
    - bsanr2 6y ago
      In fact, the vast majority of US wealth is tied up in private companies (and, of those, in a few extremely large companies). A wealth tax would not be ruinous for the entities paying it.
- thaumasiotes 6y ago
  > It can also matter for other resources which are finite, but land is one of the most crucial one in our current times, and why we are seeing such ridiculously large gains in housing costs in the past few decades after a century of housing costs remaining fairly constant. If we were being restricted by land availability, we could fix that easily by putting more housing on the same amount of land. That problem was solved long ago.
  - epistasis 6y ago
    > we could fix that easily by putting more housing on the same amount of land As somebody who has been watching the process for this for years, let me tell you that it is the exact opposite of easy, and nearly impossible. And it's nearly impossible because current wealth holders are able to stop it from being built. And in most areas where there are housing shortages, locals and local governments consider the current land "built out" meaning that the zoning does not permit more housing or more height than is already built, an the notion of changing these arbitrary restrictions is so inconceivable that it almost never happens. This is what has really changed over the past yes decades to make housing prices soar: refusal to allow more housing to be built on existing land.
    - thaumasiotes 6y ago
      Sure, but that's a completely different analysis. There's no shortage of land.
      - francisofascii 6y ago
        There is certainly a shortage of desirable land. Waterfront property is a good example.
      - epistasis 6y ago
        It's not a different analysis, it's my core point. Land is valued very differently depending on what it can be used for, and what it is close to, and is completely non-fungible. Zoning restrictions have been used as a means to massively inflate home values in the US in high demand areas, and that program really came to fruition in the 80s and 90s as areas became "built out" according to allowed zoning. Which then fueled the massive inflation in housing costs. This restriction on allowed uses has differing effects depending on whether it's applies in small areas or large areas: downzone a single lot or single neighborhood in a city and it may prevent those parcels from becoming too valuable because they have limited use. Downzone an entire city and it causes housing values to soar because it has created a housing shortage. In the Bay Area we have a massive shortage of land that allows more housing to be built on it, and even land for which we can build offices.
dublidu 6y ago
Currently, capital gains is on taxed on sale. Even on sale there are ways to reduce or defer it (opportunity zone investments for example). Some also donate appreciated shares to charities that are suspect (Trump comes to mind). Most billionaires don’t sell most of their stock during their entire lifetime.
nrmitchi 6y ago
> Wealth is always eventually taxed when it’s liquidated. For large segments of wealth (real estate) this is untrue. Inherited property receives a step-up in cost basis to the current "fair market value", such that the capital gains liability is removed. You might argue that this is realm of the "Estate Tax", but that is a different topic. https://www.investopedia.com/terms/s/stepupinbasis.asp https://www.investopedia.com/terms/s/stepupinbasis.asp > if it is never liquidated, then it arguably doesn’t really matter. This is also not true. It does matter. It is not difficult to take extremely large "loans" (loans are not taxed) against assets that you own, in order to avoid actually selling the asset. This is a not-rocket-science way to reap the benefits of an absolutely massive fortune without any of it ever being "liquidated".
- bhupy 6y ago
  > You might argue that this is realm of the "Estate Tax", but that is a different topic. What? Why? This is pretty squarely in the realm of how to taxa transfer of wealth. The wealth tax is a really ham-fisted way to solve this problem. > It is not difficult to take extremely large "loans" (loans are not taxed) against assets that you own, in order to avoid actually selling the asset. Even if one were to take a collateralized loan, it would need to eventually be repaid, and for this to happen, some gain would have to be realized somewhere. That money isn't free. No matter what, that wealth is eventually taxed.
topaz0 6y ago
"taxes both the winners and the losers". Nobody who's sitting on $50M of assets is a loser.
- bhupy 6y ago
  > Nobody who's sitting on $50M of assets is a loser. First of all, we're not talking about "$50M of assets", we're talking about $50M ownership in your company. That is un-diversified. Second of all, a wealth tax necessarily means that you will have to relinquish ownership of your own company unless you're "a winner".
  - topaz0 6y ago
    "relinquish ownership of your own company". Only down to the very generous floor of the wealth tax, and only in the very worst case where you have no other way to access liquidity based on the value of the company, which seems unlikely unless that value is extremely inflated. I see you make your case in a bunch of comments in this thread, and it seems to me applicable to a very narrow case, and even in that case doesn't have drastic consequences.
    - bhupy 6y ago
      > very generous floor of the wealth tax > and it seems to me applicable to a very narrow case The floor of the wealth tax doesn't really refute the central argument, because it just means that it impacts anyone who owns a business worth over $50 million. This is a LOT of businesses in the US! > and even in that case doesn't have drastic consequences. That level of liquidation and lost ownership will have potentially disastrous ripple effects on the economy, because for a lot of companies, the theoretical market value — upon which one's theoretical net worth ("wealth") is calculated — is based in large part on that individual maintaining ownership and control of the company. Once a founder starts liquidating large portions of their wealth and divesting their ownership, it's difficult to predict what that could do to the value of the company, and consequently the value of pension funds and portfolios that rely on the stability of the corporate value, and ultimately impacts the employees of those very corporations.
ivalm 6y ago
Wealth tax proposals target only very high nw people. There is no inherent right to be very high net worth, if you are not productive with your wealth then it is more efficient for the society if that wealth is reallocated. This is what wealth tax does.
- bhupy 6y ago
  > there is no inherent right to be very high net worth But there is an inherent right to the ownership of property (enshrined in the US Constitution). A Federal wealth tax is currently unconstitutional for the same reason that you don’t have Federal property taxes: the Constitution explicitly prohibits the Federal government from levying direct taxes except for income (via the 16th Amendment). Wealth is not income.
  - ivalm 6y ago
    Sure, I am all for an amendment.
didibus 6y ago
My thoughts are twofold here. 1) I agree with you, taxing asset holdings is strange logistically. I think it be best to tax income. The only change I'd make is currently, income is taxed at a percentage based on your total income in the year. What could change is to tax income at a percentage that is a function of the current estimated value of your wealth instead. So if you cashed out 1 million and that's all you have, you'd pay less tax on it than if someone cashed out 1 million but still had another 10 million worth. 2) Maybe it's a bad idea to allow anyone to own too much of anything of great value to society. In that regard, it could make sense to force wealthy people to sell some of it, to whatever treshold we believe is too much for one person to own. That's where I think a wealth tax could come in as a vehicle to force people who own too much to sell some of it. So that we have a more evenly distributed wealth ownership accross the board. The only thing here is I'm not sure if a wealth tax is the best scheme for this. I think the income tax that I described in #1 would be good when it comes to taxes (money that goes to the government). For wealth, I'd be more inclined with something like where people have to sell a percentage, but taxes don't necessarily need to be involved (beyond the income tax as described from the sell). The idea here is just that no one should own too much, so at some point, you need to sell so that ownership is better distributed. Not necessarily that this should go towards taxes.
ivalm 6y ago
We should incentivize productivity (thus low income/gains taxes) but pay for goods and services (thus wealth and inheritance taxes). There is nothing beneficial for society if there are people with large amounts of poorly allocated wealth (ie not productive enough to grow faster than tax rate).

by bhupy 6y ago

epistasis 6y ago

Wealth hoarding matters immensely for things like land, which is why the most common wealth tax is a tax on real estate holdings. It can also matter for other resources which are finite, but land is one of the most crucial one in our current times, and why we are seeing such ridiculously large gains in housing costs in the past few decades after a century of housing costs remaining fairly constant.

bhupy 6y ago
Agreed. As you said, the solution to that is either a Georgist Land Value Tax or a Land Appreciation Tax, not a blanket wealth tax.
- epistasis 6y ago
  I'm also fully in favor of wealth taxes, especially since the US has weakened estate taxes and other checks that would help mitigate increasing inequality. I started mentioning land, as it's the most clear problem of idle wealth. But hugely unequal distribution of wealth also results in slower economic growth and overall less economic activity than if there is more equal access to capital and resources. Capital strikes can be just as effective as labor strikes, and though they don't get much attention they can cause great harm.
  - bhupy 6y ago
    > But hugely unequal distribution of wealth also results in slower economic growth and overall less economic activity than if there is more equal access to capital and resources But wealth != capital. Wealth only becomes capital when it is realized/liquidated, at which point it is taxed. Before that happens, one person's wealth doesn't preclude someone else from investing or being productive because unlike land, wealth is not zero-sum.
    - jmcgough 6y ago
      Sure, wealth isn't zero-sum, but when it's built on top of people making $7.25 an hour with no benefits (or less than that as a contractor), it may as well be. And yes, there are other options for solving problems like that beyond just a wealth tax, but maybe a wealth tax is part of the solution.
      - bhupy 6y ago
        > but when it's built on top of people making $7.25 an hour with no benefits, it may as well be. But...it's not? The only person who has concentrated an unimaginable amount of wealth for which this might be true is Jeff Bezos's Amazon, except Amazon workers all earn a $15 minimum wage, 401k matching, and are part of the same group health insurance plan as the engineers and product managers. They happen to enjoy some of the best health insurance available to an entry level job that requires no college education. Outside of Bezos, the vast majority of the wealthy pay their workers handsomely (Bloomberg, Bill Gates, Tim Cook, Page/Brin/Pichai). And even if this was somehow a pervasive truth, the solution to that is a basic income, not a wealth tax. A wealth tax wouldn't even come remotely close to funding a basic income. If you were to seize 100% of all wealth of the top Forbes 500, you would get enough money to run the current Federal government for 8 months. Not 8 months per year, 8 months ONE TIME.
      - logicchains 6y ago
        Jobs don't just grow out of thin air. That $7.25 job is self-evidently better for the worker than whatever other opportunities they had available, otherwise they wouldn't be doing it. Taking away that opportunity won't make their life any better, just means they end up on a worse job.
  - bsanr2 6y ago
    In fact, the vast majority of US wealth is tied up in private companies (and, of those, in a few extremely large companies). A wealth tax would not be ruinous for the entities paying it.
thaumasiotes 6y ago
> It can also matter for other resources which are finite, but land is one of the most crucial one in our current times, and why we are seeing such ridiculously large gains in housing costs in the past few decades after a century of housing costs remaining fairly constant. If we were being restricted by land availability, we could fix that easily by putting more housing on the same amount of land. That problem was solved long ago.
- epistasis 6y ago
  > we could fix that easily by putting more housing on the same amount of land As somebody who has been watching the process for this for years, let me tell you that it is the exact opposite of easy, and nearly impossible. And it's nearly impossible because current wealth holders are able to stop it from being built. And in most areas where there are housing shortages, locals and local governments consider the current land "built out" meaning that the zoning does not permit more housing or more height than is already built, an the notion of changing these arbitrary restrictions is so inconceivable that it almost never happens. This is what has really changed over the past yes decades to make housing prices soar: refusal to allow more housing to be built on existing land.
  - thaumasiotes 6y ago
    Sure, but that's a completely different analysis. There's no shortage of land.
    - francisofascii 6y ago
      There is certainly a shortage of desirable land. Waterfront property is a good example.
    - epistasis 6y ago
      It's not a different analysis, it's my core point. Land is valued very differently depending on what it can be used for, and what it is close to, and is completely non-fungible. Zoning restrictions have been used as a means to massively inflate home values in the US in high demand areas, and that program really came to fruition in the 80s and 90s as areas became "built out" according to allowed zoning. Which then fueled the massive inflation in housing costs. This restriction on allowed uses has differing effects depending on whether it's applies in small areas or large areas: downzone a single lot or single neighborhood in a city and it may prevent those parcels from becoming too valuable because they have limited use. Downzone an entire city and it causes housing values to soar because it has created a housing shortage. In the Bay Area we have a massive shortage of land that allows more housing to be built on it, and even land for which we can build offices.

dublidu 6y ago

Currently, capital gains is on taxed on sale. Even on sale there are ways to reduce or defer it (opportunity zone investments for example). Some also donate appreciated shares to charities that are suspect (Trump comes to mind). Most billionaires don’t sell most of their stock during their entire lifetime.

nrmitchi 6y ago

> Wealth is always eventually taxed when it’s liquidated. For large segments of wealth (real estate) this is untrue. Inherited property receives a step-up in cost basis to the current "fair market value", such that the capital gains liability is removed. You might argue that this is realm of the "Estate Tax", but that is a different topic. https://www.investopedia.com/terms/s/stepupinbasis.asp https://www.investopedia.com/terms/s/stepupinbasis.asp > if it is never liquidated, then it arguably doesn’t really matter. This is also not true. It does matter. It is not difficult to take extremely large "loans" (loans are not taxed) against assets that you own, in order to avoid actually selling the asset. This is a not-rocket-science way to reap the benefits of an absolutely massive fortune without any of it ever being "liquidated".

bhupy 6y ago
> You might argue that this is realm of the "Estate Tax", but that is a different topic. What? Why? This is pretty squarely in the realm of how to taxa transfer of wealth. The wealth tax is a really ham-fisted way to solve this problem. > It is not difficult to take extremely large "loans" (loans are not taxed) against assets that you own, in order to avoid actually selling the asset. Even if one were to take a collateralized loan, it would need to eventually be repaid, and for this to happen, some gain would have to be realized somewhere. That money isn't free. No matter what, that wealth is eventually taxed.

topaz0 6y ago

"taxes both the winners and the losers". Nobody who's sitting on $50M of assets is a loser.

bhupy 6y ago
> Nobody who's sitting on $50M of assets is a loser. First of all, we're not talking about "$50M of assets", we're talking about $50M ownership in your company. That is un-diversified. Second of all, a wealth tax necessarily means that you will have to relinquish ownership of your own company unless you're "a winner".
- topaz0 6y ago
  "relinquish ownership of your own company". Only down to the very generous floor of the wealth tax, and only in the very worst case where you have no other way to access liquidity based on the value of the company, which seems unlikely unless that value is extremely inflated. I see you make your case in a bunch of comments in this thread, and it seems to me applicable to a very narrow case, and even in that case doesn't have drastic consequences.
  - bhupy 6y ago
    > very generous floor of the wealth tax > and it seems to me applicable to a very narrow case The floor of the wealth tax doesn't really refute the central argument, because it just means that it impacts anyone who owns a business worth over $50 million. This is a LOT of businesses in the US! > and even in that case doesn't have drastic consequences. That level of liquidation and lost ownership will have potentially disastrous ripple effects on the economy, because for a lot of companies, the theoretical market value — upon which one's theoretical net worth ("wealth") is calculated — is based in large part on that individual maintaining ownership and control of the company. Once a founder starts liquidating large portions of their wealth and divesting their ownership, it's difficult to predict what that could do to the value of the company, and consequently the value of pension funds and portfolios that rely on the stability of the corporate value, and ultimately impacts the employees of those very corporations.

ivalm 6y ago

Wealth tax proposals target only very high nw people. There is no inherent right to be very high net worth, if you are not productive with your wealth then it is more efficient for the society if that wealth is reallocated. This is what wealth tax does.

bhupy 6y ago
> there is no inherent right to be very high net worth But there is an inherent right to the ownership of property (enshrined in the US Constitution). A Federal wealth tax is currently unconstitutional for the same reason that you don’t have Federal property taxes: the Constitution explicitly prohibits the Federal government from levying direct taxes except for income (via the 16th Amendment). Wealth is not income.
- ivalm 6y ago
  Sure, I am all for an amendment.

didibus 6y ago

My thoughts are twofold here. 1) I agree with you, taxing asset holdings is strange logistically. I think it be best to tax income. The only change I'd make is currently, income is taxed at a percentage based on your total income in the year. What could change is to tax income at a percentage that is a function of the current estimated value of your wealth instead. So if you cashed out 1 million and that's all you have, you'd pay less tax on it than if someone cashed out 1 million but still had another 10 million worth. 2) Maybe it's a bad idea to allow anyone to own too much of anything of great value to society. In that regard, it could make sense to force wealthy people to sell some of it, to whatever treshold we believe is too much for one person to own. That's where I think a wealth tax could come in as a vehicle to force people who own too much to sell some of it. So that we have a more evenly distributed wealth ownership accross the board. The only thing here is I'm not sure if a wealth tax is the best scheme for this. I think the income tax that I described in #1 would be good when it comes to taxes (money that goes to the government). For wealth, I'd be more inclined with something like where people have to sell a percentage, but taxes don't necessarily need to be involved (beyond the income tax as described from the sell). The idea here is just that no one should own too much, so at some point, you need to sell so that ownership is better distributed. Not necessarily that this should go towards taxes.

ivalm 6y ago

We should incentivize productivity (thus low income/gains taxes) but pay for goods and services (thus wealth and inheritance taxes). There is nothing beneficial for society if there are people with large amounts of poorly allocated wealth (ie not productive enough to grow faster than tax rate).