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Under Dutch tax law: if you have a gold coin you need to pay “box 3” meaning wealth tax on it. But if you have a bunch of gold coins you can call them “an art

Under Dutch tax law: if you have a gold coin you need to pay “box 3” meaning wealth tax on it. But if you have a bunch of gold coins you can call them “an art collection” and now you don’t pay any wealthy tax on them at al.

AnthonyMouse 2y ago
This is one of the main reasons that wealth taxes are bad policy. There are many assets that could have significant value, but the value is highly subjective. Since an accurate valuation is impossible and the range of plausible valuations is wide, it inherently becomes a system for arbitrage and distorts investment into whatever assets minimize the tax. Overestimating the value of hard-to-price assets is massively destructive (people get rid of and make no attempt to acquire those assets because the tax exceeds their value; no more art), but setting their value to zero or otherwise underestimating their value does exactly as you're seeing. Nearly all other taxes solve this by applying the tax when a transaction occurs and the current value is known in the form of the price being paid by the buyer to the seller.
- pydry 2y ago
  There's an easy fix for that. You tell the government how much it is worth for tax purposes. If the government thinks you have underestimated it they reserve the right to buy it at that price. It would make tax evasion risky and expensive.
  - perfmode 2y ago
    clever. how’d you come up with that?
    - habitue 2y ago
      It's called a harberger tax: https://en.m.wikipedia.org/wiki/Harberger_Tax https://en.m.wikipedia.org/wiki/Harberger_Tax
      - antonvs 2y ago
        As written on that wiki page it’s completely impractical: > Others are able to purchase the property from the owner at the taxed price at any time, forcing a sale. The idea is apparently supposed to “improve societal welfare”, but the reality is it would favor the wealthiest who could afford to have and hold property, while everyone else would be at the mercy of those richer than them.
        Analemma_ 2y ago
        This is almost certainly never going to actually exist, so this is all idle speculation, but if it was real I don't think it would necessarily play out as you describe. The wealthy would be paying way more in tax than they are now (they have to, or their own assets would be sold as well), which would result in a much more generous system of income redistribution. They'd also need to generate constant cash flow to prevent that property from being sold, so I think you'd have fewer "idle rich" on passive income. I suspect the stable equilibrium would be a lot more renting rather than property ownership, but also a much more generous welfare state such that this was not a problem, since few people would want/need to keep a house as a store of value.
        habitue 2y ago
        > more generous welfare state That's the bull case. The bear case is "money is distributed to government contractors through overpaying for things"
        AnthonyMouse 2y ago
        > The wealthy would be paying way more in tax than they are now (they have to, or their own assets would be sold as well) That has nothing to do with the concept. The rate of the tax is separate from how it operates. > I suspect the stable equilibrium would be a lot more renting rather than property ownership Then the person doing the renting out would be paying the tax (and incurring the associated risks) and passing it on as higher rents. What does that help? The problem here is assets that are hard to value. Not just in a subjective sense (what is a piece of art really worth?), but in a very practical sense. Take the things we have very good pricing information on -- stocks. If a share of Google is worth $100 and then six months later it's worth $110, but you put down $100 on the form -- objectively its market price at the time -- now someone can lift your shares off of you for a discount because the value changed and they raced to the filing office before you did. Now imagine the same thing but for something that doesn't have a high trading volume or an observable market price at any given time, but can still suddenly change in value over time. Then it gets worse. Many types of property have a value to the owner which is different than their market value. Suppose you operate a self-storage company. You have a piece of property which is objectively worth $500,000 where you operate your business. You declare that it's worth $500,000, because it is. Now a competitor can buy it off you for that amount just to grief you, because even though that's the value of the property, in order to move you have to contact all your customers and have them come and pick up their stuff, pay real estate commissions to find and purchase an otherwise identical property to move your business to, shut down your business while you hire contractors to move all your storage lockers to the new property etc. Meanwhile the competitor just buys it from you for $500,000 and sells it to anyone but you for $500,000 (easy because that's it's true market value), causing you all this trouble and poaching half your customers in the process. It's the kind of thing academics come up with which has enormous negative consequences in practice.

AnthonyMouse 2y ago

This is one of the main reasons that wealth taxes are bad policy. There are many assets that could have significant value, but the value is highly subjective. Since an accurate valuation is impossible and the range of plausible valuations is wide, it inherently becomes a system for arbitrage and distorts investment into whatever assets minimize the tax. Overestimating the value of hard-to-price assets is massively destructive (people get rid of and make no attempt to acquire those assets because the tax exceeds their value; no more art), but setting their value to zero or otherwise underestimating their value does exactly as you're seeing. Nearly all other taxes solve this by applying the tax when a transaction occurs and the current value is known in the form of the price being paid by the buyer to the seller.

pydry 2y ago
There's an easy fix for that. You tell the government how much it is worth for tax purposes. If the government thinks you have underestimated it they reserve the right to buy it at that price. It would make tax evasion risky and expensive.
- perfmode 2y ago
  clever. how’d you come up with that?
  - habitue 2y ago
    It's called a harberger tax: https://en.m.wikipedia.org/wiki/Harberger_Tax https://en.m.wikipedia.org/wiki/Harberger_Tax
    - antonvs 2y ago
      As written on that wiki page it’s completely impractical: > Others are able to purchase the property from the owner at the taxed price at any time, forcing a sale. The idea is apparently supposed to “improve societal welfare”, but the reality is it would favor the wealthiest who could afford to have and hold property, while everyone else would be at the mercy of those richer than them.
      - Analemma_ 2y ago
        This is almost certainly never going to actually exist, so this is all idle speculation, but if it was real I don't think it would necessarily play out as you describe. The wealthy would be paying way more in tax than they are now (they have to, or their own assets would be sold as well), which would result in a much more generous system of income redistribution. They'd also need to generate constant cash flow to prevent that property from being sold, so I think you'd have fewer "idle rich" on passive income. I suspect the stable equilibrium would be a lot more renting rather than property ownership, but also a much more generous welfare state such that this was not a problem, since few people would want/need to keep a house as a store of value.
        habitue 2y ago
        > more generous welfare state That's the bull case. The bear case is "money is distributed to government contractors through overpaying for things"
        AnthonyMouse 2y ago
        > The wealthy would be paying way more in tax than they are now (they have to, or their own assets would be sold as well) That has nothing to do with the concept. The rate of the tax is separate from how it operates. > I suspect the stable equilibrium would be a lot more renting rather than property ownership Then the person doing the renting out would be paying the tax (and incurring the associated risks) and passing it on as higher rents. What does that help? The problem here is assets that are hard to value. Not just in a subjective sense (what is a piece of art really worth?), but in a very practical sense. Take the things we have very good pricing information on -- stocks. If a share of Google is worth $100 and then six months later it's worth $110, but you put down $100 on the form -- objectively its market price at the time -- now someone can lift your shares off of you for a discount because the value changed and they raced to the filing office before you did. Now imagine the same thing but for something that doesn't have a high trading volume or an observable market price at any given time, but can still suddenly change in value over time. Then it gets worse. Many types of property have a value to the owner which is different than their market value. Suppose you operate a self-storage company. You have a piece of property which is objectively worth $500,000 where you operate your business. You declare that it's worth $500,000, because it is. Now a competitor can buy it off you for that amount just to grief you, because even though that's the value of the property, in order to move you have to contact all your customers and have them come and pick up their stuff, pay real estate commissions to find and purchase an otherwise identical property to move your business to, shut down your business while you hire contractors to move all your storage lockers to the new property etc. Meanwhile the competitor just buys it from you for $500,000 and sells it to anyone but you for $500,000 (easy because that's it's true market value), causing you all this trouble and poaching half your customers in the process. It's the kind of thing academics come up with which has enormous negative consequences in practice.