Calif. Wealth Tax Proposal Likely Faces Constitutional Challenges
law360.com
law360.com
https://www.cnbc.com/2019/03/08/tax-collectors-chase-rich-ne...
As well as tax inheritance at 25% or progressively.
Wealth lasts for generations, and you don't pay inheritance taxes on family connections or a top tier education. New taxes that make the accumulation of wealth more equal, i.e. progressive income taxes or capital gains as income taxes, will not erode the existing wealth disparity within our lifetimes. Just look at how the policies up until the 80s resulted in white Americans owning all the property, which subsequently appreciated due to monetary policy.
If wealth inequality is a problem, which I believe it is, you should tax wealth because it directly reduces the gap in absolute terms.
Inequality is deeper, inequality should be targeted with things like free access to university and technical schools, policies that target housing prices to keep those lower or progressively tax homes with property taxes to reduce expensive homes, tax empty homes, fix health care so a base level is included as part of taxes for every citizen, expand childcare/school to age 3 months, pass paid vacation on a federal level of 4 weeks, bump minimum wage, pass an inheritance tax of 50% on anything more than 1 million, etc.
Thinking a wealth tax fixes anything is crazy. Just look at all the case studies out of Europe. All it does is create more loopholes, reduce business investment, and cause capital to flee.
Also, inequality in the right ratio is good. Now we just need to figure out where that ratio should be. I think the USA is obscene right now, but mostly because we have enough money to build a real working society and instead we've built a cage to fight to the death within.
Europe has some really bad policies around not letting companies die that need to die. It is really hurting them. I am hopeful that they can remap labor policies to allow for more flexibility to compete with the USA while keeping a real social safety net through payroll taxes and government "insurance".
Europe also needs better bankruptcy laws to allow for people to start over. The USA has the best bankruptcy laws in the world right now IMO. Europeans can't afford to take risk or access capital because of some of these policies.
I am living in Spain btw, about to move to Portugal. I am leaving because of the Wealth tax here is so poorly thought out it would take 60%+ of my income and I couldn't live on what remains. Especially since I am starting a new business.
Note - We could also stop the step up clause for inheritance which makes me angry. So that when someone dies and the assets pass to someone else they pay capital gains instead of zeroing it. This is such a loophole for rich people.
Purity of tax theory is what ended up as Poll Tax riots in the UK. Eventually local taxation reverted to property as it tends to once pragmatism and reality reasserts itself.
California could get what it needs using a volumetric hut tax - unless it fancies going independent and setting up its own currency.
It seems reasonable that a argument can be made that property exist in one of those places rather than none. Maybe the Federal government should simple dictate where that is and then let local government handle the actually taxation.
Otherwise the Gold on the face of the Reserve Bank of Australia balance sheet would belong to England.
I very much doubt anybody would suggest that England can tax the Gold of Australia any more. We'd never hear the last of it from the Aussies for starters.
The USA is one of only 3 countries to tax you no matter where you live. Which is really painful for Americans not living in the USA. They need to fix this...
The rest of the world taxes you as part of a territorial system, ie, where you live and have tax residence.
It's hard to imagine the benefits for the masses of an additional 47% in per capita productivity growth not outweighing the benefits of the higher tax rates on the rich.
It's big because it's a big state. If it were a country, it would be in the top 50 in the world by population, and 5th by GDP. It's got issues of its own, like any other large organization, but there's nothing particularly out of line about its budget.
They're doing this not because the budget is in deficit (it was going to be in surplus this year, before the pandemic, and had been in surplus for a while) but because it wants to shift the burden of its budget to those with wealth (and away from the middle class, especially the lower-middle-class). It may or may not be a good way to do that, but it's not because it's desperate for money. Quite the reverse: it's got so much money that it gets to choose how it funds itself.
[1] https://en.wikipedia.org/wiki/List_of_U.S._state_budgets
[1] https://en.wikipedia.org/wiki/Bank_of_North_Dakota [2] https://en.wikipedia.org/wiki/North_Dakota_Mill_and_Elevator
Two seconds of googling. The Wikipedia article for progressive taxation[1] suggests that the Roman Republic had a form of wealth tax:
> The tax rate under normal circumstances was 1% of property value, and could sometimes climb as high as 3% in situations such as war. These taxes were levied against land, homes and other real estate, slaves, animals, personal items and monetary wealth
Then we have the wealth tax Wikipedia article itself[2] that lists 8 instances in recent history of wealth taxes.
Then you say:
> Not to even mention California’s proposed plan to keep collecting taxes after the person flees the state
How is this any different from how taxes are owed today? I'm pretty sure all back taxes you owe a state remain even if you move states. Otherwise you could just rack up a huge tax bill & move states to escape.
Even federal US tax liabilities are applied on world wide income & has treaties with many countries to enforce these laws for expats.
> It’s also unethical. Taxing people based on how much money they have left over after paying all of their other taxes is just wrong
Aside from stating a personal tautology you haven't really elevated the discussion much & then everything else flowed from this premise rather than evaluating the argument on its merits. I'm sure there's a compelling argument against this that could be made against a wealth tax independent of constitutional issues, but you haven't made it.
[1] https://en.wikipedia.org/wiki/Progressive_tax [2] https://en.wikipedia.org/wiki/Wealth_tax
I do hope the 10 year thing takes into account how long you’ve been in the state and how much you earned within the state.
Remember. You’re only getting taxed on the amount over >30mil in assets (first 30 million isn’t taxable). That’s quite a lot of money before a very small tax begins to be levied.
I do hope there’s also allowances for income tied up in illiquid investments (eg private business investments). I would also worry about taxation on net worth that hasn’t been realized (eg private company that does a valuation that suddenly puts you over the 30 mil threshold). These seem like important nuances that could quickly torpedo any benefits.
As an example a popular “Just two cents” plan takes a third of the value of a taxed base in 20 years and by 35 years, the government has received over half.
IMO, "small" wealth taxes "get big" because they take repeated bites at the same apple.
Government take [via wealth tax] in the example above is the result of 1 - (1 - taxrate) ^ years.
1 - (1 - 0.02) ^ 20 = 0.3323 ; (20 years => 33%)
1 - (1 - 0.02) ^ 35 = 0.5069 ; (35 years => 51%)https://docs.google.com/spreadsheets/d/1_k6sFrBAjwpJbXKHmpNA...
What people (wealth tax supporters) are really trying to do is tax unrealized gains that compound because there are no transactions to tax. Dubious legally for the U.S. but not onerous if structured right.
Take a 45-year-old who's worked hard and gotten very lucky. They've earned $50 million from an IPO and are retiring early. How much money can they spend per year, before and after the wealth tax?
Just to keep it interesting, I'm proposing this scenario before running the numbers.
Assumptions:
1. Death at 90, no money left over.
2. Money invested very conservatively with 3.5% return.
3. No income, so no income tax or capital gains tax [1].
4. Inflation is 1.76% (average of last 10 years [2]).
5. Wealth tax is 0.4% applied to wealth in excess of $30mm.
With the wealth tax, our lucky devil can spend $1,509,000 every year. That's inflation adjusted, so when they turn 90, they're spending $3.3mm per year.
Without the wealth tax, they can spend $45K more: $1,554,000 per year (inflation adjusted).
I don't know about you, but if I had $1.51mm in spending money per year, I wouldn't be sweating the extra $0.05mm. It seems like a reasonable cost to me, and very low compared what you'd pay in income tax.
https://docs.google.com/spreadsheets/d/1fV9pip51Z-qqRUG3pDEc...
[1] I may have misunderstood how capital gains are taxed when you have no other income. I don't think it detracts from the overall point, though.
[2] https://www.usinflationcalculator.com/inflation/current-infl...
However, if we were to use Warren's proposal, our lucky millionaire would be unaffected, because it doesn't kick in until $50mm. (A happy coincidence.)
If I run the numbers again, using a very lucky millionaire with $100mm in assets, it comes out as follows:
1. Warren wealth tax: $2,613,000 yearly spending power
2. CA wealth tax: $2,939,000 yearly spending power
3. No wealth tax: $3,104,000 yearly spending power
Warren's proposal is much more aggressive about leveling wealth inequality, especially considering that it jumps to 6% for billionaires. I'm not convinced it was a serious proposal, though, given that it was part of Warren's campaign rhetoric. I think she's serious about a wealth tax, but I suspect the specific proposal was a starting point in the bargaining process—an attempt to shift the Overton window, if you will—not the expected outcome.
Taxes on net wealth and particularly net wealth held outside California by non-residents of California represent a material different case in my mind and one which I’d hope would not be found constitutional.
It's not about "how much money they have left". It's about "it's hard to effectively tax at the earning time, so taxation is applied to leftovers".
> As far as I know there’s no basis for this ever having been done in human history.
So wealth tax as a term exist for a purely theoretical concept?
The goal is noble, of course, as always. With good intentions... It would be nice if a better mechanism for keeping society on somewhat equal footing would be offered instead.
I want people working to improve the human condition. One way to encourage that is to reward people who meet the needs of other people, as evidenced by people paying them money for goods and services.
Each model has benefits and drawbacks for both the government and the tax paying citizen, and both works. Taxing wealth directly has the benefit that it gives the government a more even and predictable taxation each year, and the citizen benefit by gaining any additional profits that is above the rate for the government debt+1%. The downside is that the government may not get as much tax as it could as the yearly stock value increase tend to be a bit above that predetermined value, and citizens may loose out a bit more when there is a significant crash.
The benefit of taxing only when people sell stocks is that the government get the whole income tax, and the citizen do not have to pay any tax if they don't have any profits. However it seems that most people are going with option 1 since people tend to expect that stocks will go up in value when they invest in stocks. Currently, that predetermined tax is (0.51+1)*0.3 or 0.453% per year of the total stock value.
The benefit of doing so for the investor is that the potential for profits is higher, and on average the predetermined tax rate is a bit lower than the actually tax you would pay after selling the stocks.
Let say as an example you bought stocks in an index fond between 2010 and 2018. The average result from all index fonds was +8%. With regular income tax on sales the resulting profits people got after tax was 5.6% each year. With the predetermined tax they got to keep 7.547% out of those 8%.
But this year the crash might have resulted in less than 0.457% profits, in which case the predetermined tax can be higher than what the income tax would be on sales.
When gauging the ethics of a choice one must weigh the harm against the several, independently and collectively. If that which is gained by the many is greater than the loss suffered by the individual or the few than it is not only ethical, it is essential to fuel a thriving society. Something that we collectively have neglected to do got decades.
Or say, that two people that have lost their kidneys due to driving drunk and each having an accident, and that your kidneys are a good donor match. Should we take both your kidneys and give one to each of the drunk drivers? Only one person would suffer (too bad for you), but the two others would gain.
Or imagine, your daughter going to elementary school with her new birthday present, a stuffed animal. Three classmates are envious and jealous, should their teacher throw the little stuffed animal in the trash, making three classmates happy at the expense of you daughter?
Wouldn't it make sense by this reasoning for you to be forced to take a couple of homeless people as roommates? It would make their lives much better (even more so if you were forced to prepare meals for them), this only inconveniences you while benefiting your new roommates.
However, I think that most people would agree that the line is crossed well before throwing away children’s toys or killing people for their kidneys. Hence the slippery slope fallacy.
However, this can't be all because Joe (not a real person) might go and gamble away all of this sudden windfall. Meanwhile Jane (not a real person) might also go and gamble and win, doubling her net-worth. Is it now time to redistribute again?
Furthermore, once you realize how this works, doesn't this change people's behavior in a negative way. Why bother working when you end up with the working people's savings anyway.
Many will likely say, "Oh, but your argument is silly, that's clearly not how the principle will be applied." If that is so, just describe how it should be applied?
Is the goal equal happiness or is it equal wealth for everyone? Some won't be happy without spending lots of money extravagantly, others will be happy with a simple "safety net". Again, how are we to think about this once we have decided that it is up to us to determine what to do with someone else's money for the sake of a gain to the many.
It seems to me that this ethical principle is far short of being useful in deciding how much to take from other people.
The goal is to make good decisions with low risk potential that help a lot of people.
Say the local homeless shelter can't make rent, and it's February, 3ft of snow, 0F overnight. In this specific set of circumstances I would argue it is ethically necessary to tax the wealthiest of the city fairly on a proportional basis to stop these people from dying due to exposure. Or even to commandeer buildings and resources, so long as the suffering parties are not unduly burdened, e.g. there are 10 millionaires and a 10 millionaire. The 10 pay 50%, the one pays 50%. If they have to sell a plane, camp, boat or painting so be it. That's just the cost of being a good neighbor. If people don't want to do these things then they shouldn't be wealthy, or maybe work to actively prevent cities from decaying to the point where people protest outside their house with a prop guillotine.
Another example, if we nationalize the health care system and a million people lose their jobs but 100 million benefit from cheaper care that isn't profit motivated then it is also ethically necessary. This is based upon made up numbers and should not be taken as actual argument for measures that should be taken. Smarter people than I make those arguments, talk to them. I'm only trying to explain my take on the ethics of hurting few to help many. That being said killing someone to rob them is still morally reprehensible, as would be forcing a billionaire into the streets to turn all their houses into homeless shelters. Though there is a good discussion to be had about ethical ramifications of living in a mansion with armed guards and private jets when their staff collect benefits. In that case I think it's clear something must be done. What is not easy to decide, and is a severe moral failing of the people that comprise local, state and federal governments.
I typed this on my phone, if it's unclear or has errors I'm sorry and I will be happy to clarify myself positions or correct any errors.
I'm not making broad statements about making fast massive sweeping changes. Not only would such undertakings such as the ones you've elucidated be tremendously difficult, they almost certainly would cause far more harm in the attempt.
If you would find it helpful I can explain specifically why I'm against each of these proposals,but I think it's more succinct to say:
When evaluating a proposal that could make people's lives better at the expense of others we must weigh the harm against the benefit. If I were to take a billionaire and make them a millionaire to do great things for millions I will usually argue that it is ethically necessary for one with so much to suffer for the many. However, I do not support reckless, violent, or ill conceived proposals to hurt one to help many. Instead, we must all lower our weapons and come together to solve these problems.
If we take too long then those with less restraint will make many decisions for us, the consequences of which will not be distributed ethically, fairly, sanely or legally.