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> It does, however, invalidate the original argument, which was that tariffs are being promoted by the rich because it's better for them than the existing incom

> It does, however, invalidate the original argument, which was that tariffs are being promoted by the rich because it's better for them than the existing income tax If I were to steelman that argument, I'd say getting rid of income tax takes the wind out of the sails of the "wealth tax" / "tax the billionaires" / "fix the loopholes" argument which seem to be gathering steam. That it kills or underfunds government social-safety programs is a secondary bonus, and using it as an excuse for decapitating safety/oversight/enforcement agencies who get in the way of higher profits via "overregulation" is a tertiary bonus for those that believe in starving the beast that is central government.

AnthonyMouse 2y ago
> If I were to steelman that argument, I'd say getting rid of income tax takes the wind out of the sails of the "wealth tax" / "tax the billionaires" / "fix the loopholes" argument which seem to be gathering steam. The trouble there is that those arguments are incoherent. If you invest in something and then sell the investment at a profit, the profit is a capital gain. You know how much it is because there was just a transaction, you can spend the money, it's currently in cash so you're not being forced to sell an illiquid or indivisible asset in order to pay the tax on it, if you're using an income tax then that's income. If you invest in something and its value goes up, that's not income yet. You only have the asset, not its value in cash with which to buy anything or pay tax. The value could go back down at any time. There may not have been any recent transaction so there is no objective way to value it. How do you tax something of indeterminate value owned by someone who may not have any liquid assets? So it only becomes income when you sell it at a profit, and then never selling appreciating assets is a primary way the rich increase their net worth without having taxable income. There hasn't been any sane proposal for how to do it otherwise. You have some startup founder -- and this is actually the primary vehicle for billionaires to exist -- who owns a company that is now maybe worth a billion dollars. Or they could go bankrupt next year, nobody knows. She doesn't have a billion dollars in cash, she just owns the company, which itself doesn't even turn a profit yet. The only place for the money to come from is to sell the company. To get from a million dollar valuation to a billion, a company has to double every year for ten years. If there is a 25% tax on the unrealized gain, the owner loses 12.5% of the company every year compounding which means before ten years they no longer control the company. Therefore every large company ends up being controlled by Wall St. or foreign investors. That seems like a bad outcome. Ownership of the company is the thing the money then going to tax had been buying the taxpayer. It wasn't more yachts or houses, for that they'd have had to sell the shares and pay the tax as it is. So that's the primary thing the proposal would be changing about the economy: Corporate ownership moves from domestic individual founders to corporate investment firms and foreign nationals. The real problem -- that there is a company the size of a country -- still exists, but now all of those companies are controlled by mercenary investment funds instead of only some of them. The actual cash that went to the government didn't come from the owners nominally paying the tax, because they didn't have any cash. It came from the people buying the shares being sold, or holding the ones being devalued by increased selling, i.e. those Wall St. investment funds. But that's not their money. They get control of the companies when their fund owns them, but the money is from retail investors. It's everybody's 401(k) and pension fund. So that's who ends up paying the tax, because forcing the founders to sell increases the supply of shares which lowers the price which reduces the returns from everybody's retirement account. The people making tax laws mostly understand this, which is why proposals like that haven't gone anywhere and hopefully won't. But wanting that to happen is the argument that moving this rake out of the way is bad because it would make it harder for someone careless to step on it and whack themselves in the face.
- gamblor956 2y ago
  If there is a 25% tax on the unrealized gain, the owner loses 12.5% of the company every year compounding which means before ten years they no longer control the company. Therefore every large company ends up being controlled by Wall St. or foreign investors. That seems like a bad outcome. Yes, if you pick silly numbers any policy can be made to look silly. A wealth tax would never use a 25% rate because that would eliminate most of the wealth in a few years. Wealth taxes are always very low rates, i.e., 0.15% in Belgium, 0.5% to 1.5% in France (note: France did see a temporary outflow of billionaires when they first introduced this tax, but as the tax is on global worth, only complete expatriation would eliminate the liability); Italy has a wealth tax on non-Italian wealth of about 0.75%. Corporate ownership moves from domestic individual founders to corporate investment firms and foreign nationals. No, the opposite is true, since wealth taxes would penalize ownership through holding companies (greater wealth), and a wealth tax would also apply to foreign nationals owning U.S. assets. The most likely implementation of a wealth tax would be progressive (like it is in France), which would harm greater accumulations of wealth, i.e., corporate holding companies. The people making tax laws mostly understand this, which is why proposals like that haven't gone anywhere and hopefully won't. America already has wealth taxes. In many U.S. states (and especially a number of so-called "business friendly" red states), businesses already pay the equivalent of a wealth tax on top of their property taxes (the name varies from state to state; in some states they are called franchise taxes, in others "business privilege taxes", some call them "fees"). The rates are all far below 1%.
  - AnthonyMouse 2y ago
    > A wealth tax would never use a 25% rate because that would eliminate most of the wealth in a few years. But we're talking about a tax on unrealized capital gains. A wealth tax has entirely different problems. To begin with, there are major asset categories with no objective way to value them, so how do you even calculate it in the absence of a sale, or prevent those assets from being used as a tax shelter? Then you're creating a large economic distortion because the tax isn't accounting for risk. A low-risk investment might have had an inflation-adjusted return of 0.1%, but now it's -0.4% and an institution that needs to maintain stability and avoid value loss is forced into riskier investments. A low rate is also self-defeating. If you use 0.5% against typical assets with a 10% annual return, it's equivalent to an income tax rate of only 5%, but you're still incurring all of the administrative complexity and still have non-trivial perverse incentives. But if you raise the rate to the level that "pay their fair share" normally implies, the perverse incentives become exponentially worse. > No, the opposite is true, since wealth taxes would penalize ownership through holding companies, and a wealth tax would also apply to foreign nationals owning U.S. assets. So now you're back to applying the tax to everyone's retirement account and not just "billionaires" and have given domestic businesses a competitive disadvantage in attracting foreign investment. You want foreign investors to give you their money because otherwise they invest in competing companies in other jurisdictions. What you don't want is for them to get a controlling interest in your companies at a discount. > In many U.S. states (and especially a number of so-called "business friendly" red states), businesses already pay the equivalent of a wealth tax on top of their property taxes. And those taxes cause existing problems for them, e.g. companies then avoid setting up capital-intensive businesses in those jurisdictions. See also Land Value Tax debate.

AnthonyMouse 2y ago

> If I were to steelman that argument, I'd say getting rid of income tax takes the wind out of the sails of the "wealth tax" / "tax the billionaires" / "fix the loopholes" argument which seem to be gathering steam. The trouble there is that those arguments are incoherent. If you invest in something and then sell the investment at a profit, the profit is a capital gain. You know how much it is because there was just a transaction, you can spend the money, it's currently in cash so you're not being forced to sell an illiquid or indivisible asset in order to pay the tax on it, if you're using an income tax then that's income. If you invest in something and its value goes up, that's not income yet. You only have the asset, not its value in cash with which to buy anything or pay tax. The value could go back down at any time. There may not have been any recent transaction so there is no objective way to value it. How do you tax something of indeterminate value owned by someone who may not have any liquid assets? So it only becomes income when you sell it at a profit, and then never selling appreciating assets is a primary way the rich increase their net worth without having taxable income. There hasn't been any sane proposal for how to do it otherwise. You have some startup founder -- and this is actually the primary vehicle for billionaires to exist -- who owns a company that is now maybe worth a billion dollars. Or they could go bankrupt next year, nobody knows. She doesn't have a billion dollars in cash, she just owns the company, which itself doesn't even turn a profit yet. The only place for the money to come from is to sell the company. To get from a million dollar valuation to a billion, a company has to double every year for ten years. If there is a 25% tax on the unrealized gain, the owner loses 12.5% of the company every year compounding which means before ten years they no longer control the company. Therefore every large company ends up being controlled by Wall St. or foreign investors. That seems like a bad outcome. Ownership of the company is the thing the money then going to tax had been buying the taxpayer. It wasn't more yachts or houses, for that they'd have had to sell the shares and pay the tax as it is. So that's the primary thing the proposal would be changing about the economy: Corporate ownership moves from domestic individual founders to corporate investment firms and foreign nationals. The real problem -- that there is a company the size of a country -- still exists, but now all of those companies are controlled by mercenary investment funds instead of only some of them. The actual cash that went to the government didn't come from the owners nominally paying the tax, because they didn't have any cash. It came from the people buying the shares being sold, or holding the ones being devalued by increased selling, i.e. those Wall St. investment funds. But that's not their money. They get control of the companies when their fund owns them, but the money is from retail investors. It's everybody's 401(k) and pension fund. So that's who ends up paying the tax, because forcing the founders to sell increases the supply of shares which lowers the price which reduces the returns from everybody's retirement account. The people making tax laws mostly understand this, which is why proposals like that haven't gone anywhere and hopefully won't. But wanting that to happen is the argument that moving this rake out of the way is bad because it would make it harder for someone careless to step on it and whack themselves in the face.

gamblor956 2y ago
If there is a 25% tax on the unrealized gain, the owner loses 12.5% of the company every year compounding which means before ten years they no longer control the company. Therefore every large company ends up being controlled by Wall St. or foreign investors. That seems like a bad outcome. Yes, if you pick silly numbers any policy can be made to look silly. A wealth tax would never use a 25% rate because that would eliminate most of the wealth in a few years. Wealth taxes are always very low rates, i.e., 0.15% in Belgium, 0.5% to 1.5% in France (note: France did see a temporary outflow of billionaires when they first introduced this tax, but as the tax is on global worth, only complete expatriation would eliminate the liability); Italy has a wealth tax on non-Italian wealth of about 0.75%. Corporate ownership moves from domestic individual founders to corporate investment firms and foreign nationals. No, the opposite is true, since wealth taxes would penalize ownership through holding companies (greater wealth), and a wealth tax would also apply to foreign nationals owning U.S. assets. The most likely implementation of a wealth tax would be progressive (like it is in France), which would harm greater accumulations of wealth, i.e., corporate holding companies. The people making tax laws mostly understand this, which is why proposals like that haven't gone anywhere and hopefully won't. America already has wealth taxes. In many U.S. states (and especially a number of so-called "business friendly" red states), businesses already pay the equivalent of a wealth tax on top of their property taxes (the name varies from state to state; in some states they are called franchise taxes, in others "business privilege taxes", some call them "fees"). The rates are all far below 1%.
- AnthonyMouse 2y ago
  > A wealth tax would never use a 25% rate because that would eliminate most of the wealth in a few years. But we're talking about a tax on unrealized capital gains. A wealth tax has entirely different problems. To begin with, there are major asset categories with no objective way to value them, so how do you even calculate it in the absence of a sale, or prevent those assets from being used as a tax shelter? Then you're creating a large economic distortion because the tax isn't accounting for risk. A low-risk investment might have had an inflation-adjusted return of 0.1%, but now it's -0.4% and an institution that needs to maintain stability and avoid value loss is forced into riskier investments. A low rate is also self-defeating. If you use 0.5% against typical assets with a 10% annual return, it's equivalent to an income tax rate of only 5%, but you're still incurring all of the administrative complexity and still have non-trivial perverse incentives. But if you raise the rate to the level that "pay their fair share" normally implies, the perverse incentives become exponentially worse. > No, the opposite is true, since wealth taxes would penalize ownership through holding companies, and a wealth tax would also apply to foreign nationals owning U.S. assets. So now you're back to applying the tax to everyone's retirement account and not just "billionaires" and have given domestic businesses a competitive disadvantage in attracting foreign investment. You want foreign investors to give you their money because otherwise they invest in competing companies in other jurisdictions. What you don't want is for them to get a controlling interest in your companies at a discount. > In many U.S. states (and especially a number of so-called "business friendly" red states), businesses already pay the equivalent of a wealth tax on top of their property taxes. And those taxes cause existing problems for them, e.g. companies then avoid setting up capital-intensive businesses in those jurisdictions. See also Land Value Tax debate.