6 ms·

I don't think you're describing an obstacle to change, you're describing the mechanism of change avoidance. Compare: "Gosh, every time we try to tax the wolves

I don't think you're describing an obstacle to change, you're describing the mechanism of change avoidance. Compare: "Gosh, every time we try to tax the wolves, it ends up hurting the sheep as well. Why can't our 100% wolf, 0% sheep Congress get this right? I guess it's just a hard problem!" The solution is not to give up, the solution is to actually tax the rich more. Also, your examples are awful: paying taxes on the sale of your house is extremely rare, and the reason your hypothetical person who makes $500k in a good year pays such a high tax burden is because we tax income more heavily than capital gains, i.e. the exact opposite of a "tax targeting the ultra rich".

stmfreak 5y ago
No. The solution is for government to spend LESS. There is no amount of tax that can out earn Congress’ appetite for pork, kickbacks, and voter bribery through wealth transfer. The only reason we are told to see the illiquid wealth of billionaires as a problem is the lie that Congress can spend that money better. They cannot.
TimPC 5y ago
The problem isn't that it hurts the sheep as well, it's that it hurts the sheep almost entirely. Raising capital gains would be a decent idea that forces the rich to pay more. Basically zero support for it. Closing loopholes helps too, not what we're seeing in tax policy discussions which focus on rates instead. Raising the top rate on income when most of the ultra-rich's money comes from investment isn't making sense. There is also little interest in creating ultra-high tax brackets. I agree in principle with someone earning $5 million/year paying a higher percentage than someone earning $1 million/year. Many countries the top rate starts at $120,000ish in local currency. Taxes on the sale of a primary home is not as rare as you think. It may be a twice in a lifetime event for many people but if it costs you a fortune each time people are discouraged from buying starter homes and then upgrading as their family grows. Make this too expensive and people even choose to have fewer children rather than get a bigger house. People may also choose to avoid the real estate market early to wait for a realistic home and risk getting priced out entirely. Admittedly, capital gains taxes are less punitive than land transfer taxes in this regard but it's still a factor. A capped to $500K of capital gains on a primary residence of tax avoidance is useful for middle and upper middle class Americans. It's not a measure designed predominantly for the rich unless your definition of rich is so broad that it includes any property owner. We've seen what happens when you create markets where people can't move and it looks a lot like San Francisco. That's not something I'd want policies to try and replicate.
- skybrian 5y ago
  Arguably capital gains should be paid earlier so it’s a sunk cost. Being able to put it off is market-distorting. It’s hard to come up with a fair way to do it though. Maybe a requirement to save money in advance based on market price, like payroll deductions? Then once you actually sell, you might even get a bit of a refund, encouraging turnover. But that would affect people with cash-flow problems the most. And the biggest problem is that many people don’t want to sell and will resent any attempt to encourage it. Because encouraging turnover is equivalent to penalizing people who stay. There is no “natural” way to do this, anything can be considered a market distortion depending on your point of view. For large residential buildings in California, I’ve heard that apartment owners will essentially swap buildings for some kind of tax advantage. (I forgot what it was, though.)
  - TimPC 5y ago
    I think being able to put off capital gains on assets like homes and start-up stock is necessary for the tax system to not do awful things like force people to sell a home because it becomes too valuable or bankrupt someone who has stock options in a company that reaches a high valuation but has untraceable stock.
    - skybrian 5y ago
      We consider these awful because of tradition. The land tax advocates would say that people who own valuable real estate should sell, they are hoarding valuable property. My scheme (which I’m not too serious about) would not force bankruptcy in the stock options scenario because you could give up some stock options to get your money back. Or possibly get a very low interest loan since it would be fully collateralized by the forced savings.
  - yourapostasy 5y ago
    > For large residential buildings in California, I’ve heard that apartment owners will essentially swap buildings for some kind of tax advantage. You might be thinking of the federal-level 1031 exchange [1]. California’s particularly distortive Prop. 13-based market has led to a separate Prop. 60 tax base exchange mechanism that might also fit what you saw [2]. [1] https://www.investopedia.com/financial-edge/0110/10-things-to-know-about-1031-exchanges.aspx https://www.investopedia.com/financial-edge/0110/10-things-t... [2] https://www.bosinvest.com/blog/tax-planning/dreaming-of-downsizing-an-upside-property-tax-consideration/ https://www.bosinvest.com/blog/tax-planning/dreaming-of-down...
ojbyrne 5y ago
If a person makes $500k in a good year, they will get hit with higher taxes, but they're probably going to invest a lot in order to hedge against not so good years. Taxing their capital gains is a double whammy.
- willseth 5y ago
  If the tax is on the gains it's still a single whammy.
- Alupis 5y ago
  Just imagine Income Tax + Sales Tax... get taxed on what you earn, then taxed again when you go to spend it! This is a clever way to reduce purchasing power without making it seem as bad, ie. nobody really considers the tax on a new car purchase until they're signing the final paperwork... or even on a new T-Shirt. Depending where yo live, this sales tax is non-trivial too, sometimes up to 10%+.
  - lotsofpulp 5y ago
    Sales tax is the most visible tax. Maybe the richest of rich people do not consider it, but I have a hard time believing "nobody" considers it.
    - Alupis 5y ago
      Do you add up in your head how much that fast food meal will actually cost before you order it? How about when you try on new shoes? Probably not...
      - lotsofpulp 5y ago
        Yes, it is trivial to add 10% (or 30% for waited restaurants) to a number. Even if people did not for small purchases, with so many people living paycheck to paycheck, surely they notice an extra $50 to $150 for a TV or $3,000 for a car. One of Amazon and other online only retailers’ biggest advantages until 2018 was that it did not have to charge sales tax to people in states without a physical Amazon presence. That meant you saved 7% or more buying from Amazon instead of locally. Basically everyone I know used to buy online to skirt sales tax. https://en.wikipedia.org/wiki/South_Dakota_v._Wayfair,_Inc https://en.wikipedia.org/wiki/South_Dakota_v._Wayfair,_Inc. It was a very big deal and politicians had been complaining about waning sales tax revenues.

stmfreak 5y ago

No. The solution is for government to spend LESS. There is no amount of tax that can out earn Congress’ appetite for pork, kickbacks, and voter bribery through wealth transfer. The only reason we are told to see the illiquid wealth of billionaires as a problem is the lie that Congress can spend that money better. They cannot.

TimPC 5y ago

The problem isn't that it hurts the sheep as well, it's that it hurts the sheep almost entirely. Raising capital gains would be a decent idea that forces the rich to pay more. Basically zero support for it. Closing loopholes helps too, not what we're seeing in tax policy discussions which focus on rates instead. Raising the top rate on income when most of the ultra-rich's money comes from investment isn't making sense. There is also little interest in creating ultra-high tax brackets. I agree in principle with someone earning $5 million/year paying a higher percentage than someone earning $1 million/year. Many countries the top rate starts at $120,000ish in local currency. Taxes on the sale of a primary home is not as rare as you think. It may be a twice in a lifetime event for many people but if it costs you a fortune each time people are discouraged from buying starter homes and then upgrading as their family grows. Make this too expensive and people even choose to have fewer children rather than get a bigger house. People may also choose to avoid the real estate market early to wait for a realistic home and risk getting priced out entirely. Admittedly, capital gains taxes are less punitive than land transfer taxes in this regard but it's still a factor. A capped to $500K of capital gains on a primary residence of tax avoidance is useful for middle and upper middle class Americans. It's not a measure designed predominantly for the rich unless your definition of rich is so broad that it includes any property owner. We've seen what happens when you create markets where people can't move and it looks a lot like San Francisco. That's not something I'd want policies to try and replicate.

skybrian 5y ago
Arguably capital gains should be paid earlier so it’s a sunk cost. Being able to put it off is market-distorting. It’s hard to come up with a fair way to do it though. Maybe a requirement to save money in advance based on market price, like payroll deductions? Then once you actually sell, you might even get a bit of a refund, encouraging turnover. But that would affect people with cash-flow problems the most. And the biggest problem is that many people don’t want to sell and will resent any attempt to encourage it. Because encouraging turnover is equivalent to penalizing people who stay. There is no “natural” way to do this, anything can be considered a market distortion depending on your point of view. For large residential buildings in California, I’ve heard that apartment owners will essentially swap buildings for some kind of tax advantage. (I forgot what it was, though.)
- TimPC 5y ago
  I think being able to put off capital gains on assets like homes and start-up stock is necessary for the tax system to not do awful things like force people to sell a home because it becomes too valuable or bankrupt someone who has stock options in a company that reaches a high valuation but has untraceable stock.
  - skybrian 5y ago
    We consider these awful because of tradition. The land tax advocates would say that people who own valuable real estate should sell, they are hoarding valuable property. My scheme (which I’m not too serious about) would not force bankruptcy in the stock options scenario because you could give up some stock options to get your money back. Or possibly get a very low interest loan since it would be fully collateralized by the forced savings.
- yourapostasy 5y ago
  > For large residential buildings in California, I’ve heard that apartment owners will essentially swap buildings for some kind of tax advantage. You might be thinking of the federal-level 1031 exchange [1]. California’s particularly distortive Prop. 13-based market has led to a separate Prop. 60 tax base exchange mechanism that might also fit what you saw [2]. [1] https://www.investopedia.com/financial-edge/0110/10-things-to-know-about-1031-exchanges.aspx https://www.investopedia.com/financial-edge/0110/10-things-t... [2] https://www.bosinvest.com/blog/tax-planning/dreaming-of-downsizing-an-upside-property-tax-consideration/ https://www.bosinvest.com/blog/tax-planning/dreaming-of-down...

ojbyrne 5y ago

If a person makes $500k in a good year, they will get hit with higher taxes, but they're probably going to invest a lot in order to hedge against not so good years. Taxing their capital gains is a double whammy.

willseth 5y ago
If the tax is on the gains it's still a single whammy.
Alupis 5y ago
Just imagine Income Tax + Sales Tax... get taxed on what you earn, then taxed again when you go to spend it! This is a clever way to reduce purchasing power without making it seem as bad, ie. nobody really considers the tax on a new car purchase until they're signing the final paperwork... or even on a new T-Shirt. Depending where yo live, this sales tax is non-trivial too, sometimes up to 10%+.
- lotsofpulp 5y ago
  Sales tax is the most visible tax. Maybe the richest of rich people do not consider it, but I have a hard time believing "nobody" considers it.
  - Alupis 5y ago
    Do you add up in your head how much that fast food meal will actually cost before you order it? How about when you try on new shoes? Probably not...
    - lotsofpulp 5y ago
      Yes, it is trivial to add 10% (or 30% for waited restaurants) to a number. Even if people did not for small purchases, with so many people living paycheck to paycheck, surely they notice an extra $50 to $150 for a TV or $3,000 for a car. One of Amazon and other online only retailers’ biggest advantages until 2018 was that it did not have to charge sales tax to people in states without a physical Amazon presence. That meant you saved 7% or more buying from Amazon instead of locally. Basically everyone I know used to buy online to skirt sales tax. https://en.wikipedia.org/wiki/South_Dakota_v._Wayfair,_Inc https://en.wikipedia.org/wiki/South_Dakota_v._Wayfair,_Inc. It was a very big deal and politicians had been complaining about waning sales tax revenues.