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There is absolutely no accounting for how people will react. The obvious example is that people will move their wealth elsewhere. It also isn't fair to the po

There is absolutely no accounting for how people will react. The obvious example is that people will move their wealth elsewhere. It also isn't fair to the poorest, unless there is a separate mechanism enabling a minimum quality of life. And it completely ignores how you would define things. For example if I have a bridge on my property, does that qualify as wealth? How exactly would I pay 4% of the bridge in taxes? If I invest in a new factory, am I going to have to pay 4% of that investment every year before the factory is even profitable? When I liquidate things to pay for taxes, is that going to count as income? Since interest rates are less than 4% this completely discourages any form of saving unless the returns are at least 4% plus the rate of inflation. Although it isn't immediately apparent, savings are something that enables economic growth as the money is lent out again. TLDR: * People adapt around scheme you have so your numbers won't work in the real world the way your spreadsheet says they do * It gets really hard to work out what actually constitutes wealth and income once people have to pay tax based on it - part of the reason for the complexity of the tax codes worldwide * It will greatly discourage savings and investments * People will avoid illiquid wealth since you'll have to keep coming up with 4% of its value each year * You'll need an army of people to work out out how valuable things are. Reducing tax rates is generally an admirable goal, as is simplifying tax codes. But if you start from almost nothing like this proposal you'll soon find yourself having to add lots of complexity back in, because it is complex.

rayhano 14y ago
You are right about not being able to account for behaviour. I would love to sit down and model the macroeconomic possibilities, as well as the potential behavioural implications. In response to some of your points, if you have little considerable wealth, the 3% income tax is an incredible incentive to earn. But let's assume you have considerable wealth and will have a larger tax liability than you currently have (which is an incredibly small proportion of people - I have to work it out, but estimating that it is 3% of the population). So you are part of the (estimated) 3% that will pay more tax. If you put those assets to work, then they earn an income to pay tax (which is what those who work have no choice in). If you are sitting on your assets, then this encourages you to participate in the economy. For those who are poorest, we have this problem in the UK where you have to earn £20,000 per annum to have the same lifestyle as being on social benefits. Why? Because of high income taxes. Those who are poorest will benefit from a massive increase in take-home-pay. That is the key aim of this proposal: encourage/reward people to work. And yes, the spreadsheet is simplistic and implementing this would be much more complex. For example, economic assets like factories would have to be ringfenced as disposal of those would be detrimental to the economy. Clarifications: wealth would be net (i.e. less debt) When you say saving, do you mean sticking cash under the mattress or in a bank? Inflation is higher than interest rates right now; why is no one telling the US/UK governments to stop printing cash? Investment in business yields a much better return than the stock market (which by the way is not investment - the investment happened when the shares were originally issued; if you buy shares on the stock market, you aren't an investor).
- rogerbinns 14y ago
  > If you are sitting on your assets, then this encourages you to participate in the economy. No, it encourages me to pay people to work out how to reduce my tax liability through every legal scheme possible taking advantage of every definition and ruling, and considering every alternative. Those alternatives include sending the money elsewhere, schemes where I pay myself with my own money, getting assets valued at less (after all they depreciate by 4% extra per year), moving to another EU country that doesn't tax wealth (instant 4% gain doing that), schemes that are (borderline) illegal weighing the probability of being caught etc. > For example, economic assets like factories would have to be ringfenced as disposal of those would be detrimental to the economy. And so begins the complexity of your tax code. And a loophole for people with wealth to exploit. And now you have to increase your tax rates to take into account the wealth that isn't being taxed. > Clarifications: wealth would be net (i.e. less debt) Cool another loophole. Have a look at Larry Ellison sometime. What many people don't know is that he doesn't sell his shares in Oracle. Instead he borrows money against the value of his shares and is at over a billion dollars in debt. > When you say saving, do you mean sticking cash under the mattress or in a bank? Saving as in economics. http://en.wikipedia.org/wiki/Saving http://en.wikipedia.org/wiki/Saving > Inflation is higher than interest rates right now; why is no one telling the US/UK governments to stop printing cash? Huh? When interest rates are low it encourages investment because the cost of money is low. It also encourages finding places with higher returns (remember housing bubbles?) Money printed by governments that is at a higher rate than economic growth results in inflation, and less results in deflation. Neither is particularly desirable, although most aim for a little bit of inflation due to human nature. The US and UK central banks are independent and generally target an inflation rate which is why nobody has told them anything http://en.wikipedia.org/wiki/Inflation#Monetary_policy http://en.wikipedia.org/wiki/Inflation#Monetary_policy > Investment in business yields a much better return than the stock market It doesn't work that way. In general returns are correlated with risks. There are greater returns where there are greater risks. It would be rather foolish to take lower returns for greater risks or to offer greater returns for lower risks. Under your plan investments lose 4% per year all else being equal which reduces the potential returns. (Unless your tax code has yet more complexity.) > stock market (which by the way is not investment - the investment happened when the shares were originally issued; if you buy shares on the stock market, you aren't an investor). You aren't even trying now. It is true that the share issuer only gets money when the shares were first invested, but that does not mean that everyone buying shares after that point are not investors. At the simplest case a company produces dividends, so purchasing a share gives you access to those dividends. Your expectations are that the value of those dividends are greater than the NPV of the money you use to buy the shares. It is of course more complex than that - shares also reflect the assets of the company, dividends can be "paid" by increasing the share price instead of payouts, profits reinvested defer dividends and asset increases to the future etc. Going back to the original share purchasers, part of their investment reasoning is that they can sell in the future when their opinion of the risks/rewards do not match their desires. And finally the current price of shares set expectations of what value the company would get if it sold newly created shares. Note that most larger companies are constantly creating new shares such as through employee and manager incentive plans.
rayhano 14y ago
And thank you for the considered response.

rayhano 14y ago

You are right about not being able to account for behaviour. I would love to sit down and model the macroeconomic possibilities, as well as the potential behavioural implications. In response to some of your points, if you have little considerable wealth, the 3% income tax is an incredible incentive to earn. But let's assume you have considerable wealth and will have a larger tax liability than you currently have (which is an incredibly small proportion of people - I have to work it out, but estimating that it is 3% of the population). So you are part of the (estimated) 3% that will pay more tax. If you put those assets to work, then they earn an income to pay tax (which is what those who work have no choice in). If you are sitting on your assets, then this encourages you to participate in the economy. For those who are poorest, we have this problem in the UK where you have to earn £20,000 per annum to have the same lifestyle as being on social benefits. Why? Because of high income taxes. Those who are poorest will benefit from a massive increase in take-home-pay. That is the key aim of this proposal: encourage/reward people to work. And yes, the spreadsheet is simplistic and implementing this would be much more complex. For example, economic assets like factories would have to be ringfenced as disposal of those would be detrimental to the economy. Clarifications: wealth would be net (i.e. less debt) When you say saving, do you mean sticking cash under the mattress or in a bank? Inflation is higher than interest rates right now; why is no one telling the US/UK governments to stop printing cash? Investment in business yields a much better return than the stock market (which by the way is not investment - the investment happened when the shares were originally issued; if you buy shares on the stock market, you aren't an investor).

rogerbinns 14y ago
> If you are sitting on your assets, then this encourages you to participate in the economy. No, it encourages me to pay people to work out how to reduce my tax liability through every legal scheme possible taking advantage of every definition and ruling, and considering every alternative. Those alternatives include sending the money elsewhere, schemes where I pay myself with my own money, getting assets valued at less (after all they depreciate by 4% extra per year), moving to another EU country that doesn't tax wealth (instant 4% gain doing that), schemes that are (borderline) illegal weighing the probability of being caught etc. > For example, economic assets like factories would have to be ringfenced as disposal of those would be detrimental to the economy. And so begins the complexity of your tax code. And a loophole for people with wealth to exploit. And now you have to increase your tax rates to take into account the wealth that isn't being taxed. > Clarifications: wealth would be net (i.e. less debt) Cool another loophole. Have a look at Larry Ellison sometime. What many people don't know is that he doesn't sell his shares in Oracle. Instead he borrows money against the value of his shares and is at over a billion dollars in debt. > When you say saving, do you mean sticking cash under the mattress or in a bank? Saving as in economics. http://en.wikipedia.org/wiki/Saving http://en.wikipedia.org/wiki/Saving > Inflation is higher than interest rates right now; why is no one telling the US/UK governments to stop printing cash? Huh? When interest rates are low it encourages investment because the cost of money is low. It also encourages finding places with higher returns (remember housing bubbles?) Money printed by governments that is at a higher rate than economic growth results in inflation, and less results in deflation. Neither is particularly desirable, although most aim for a little bit of inflation due to human nature. The US and UK central banks are independent and generally target an inflation rate which is why nobody has told them anything http://en.wikipedia.org/wiki/Inflation#Monetary_policy http://en.wikipedia.org/wiki/Inflation#Monetary_policy > Investment in business yields a much better return than the stock market It doesn't work that way. In general returns are correlated with risks. There are greater returns where there are greater risks. It would be rather foolish to take lower returns for greater risks or to offer greater returns for lower risks. Under your plan investments lose 4% per year all else being equal which reduces the potential returns. (Unless your tax code has yet more complexity.) > stock market (which by the way is not investment - the investment happened when the shares were originally issued; if you buy shares on the stock market, you aren't an investor). You aren't even trying now. It is true that the share issuer only gets money when the shares were first invested, but that does not mean that everyone buying shares after that point are not investors. At the simplest case a company produces dividends, so purchasing a share gives you access to those dividends. Your expectations are that the value of those dividends are greater than the NPV of the money you use to buy the shares. It is of course more complex than that - shares also reflect the assets of the company, dividends can be "paid" by increasing the share price instead of payouts, profits reinvested defer dividends and asset increases to the future etc. Going back to the original share purchasers, part of their investment reasoning is that they can sell in the future when their opinion of the risks/rewards do not match their desires. And finally the current price of shares set expectations of what value the company would get if it sold newly created shares. Note that most larger companies are constantly creating new shares such as through employee and manager incentive plans.

rayhano 14y ago

And thank you for the considered response.