Media Owned by Wealthy Are Quick to Tell You Wealth Taxes Are a Bad Idea
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I know this isn't always the case with everyone. And especially investors have a case that higher corporate taxes reduce the value of their investments, possibly to the point of not making them.
But this incentive is so blatantly obvious in other cases and so rarely understood. I can only assume that the vast majority of people think businesses are taxed like people. You pay taxes on all of your income. But businesses only pay taxes on their profit. It's a big, big difference that changes the incentives.
On the other hand, lowering corporate taxes also generates a cascade of tax avoidance, since you have higher profits that generate the need for more complex tax avoidance schemes to reduce taxation on that large amount of money.
Tax evasion breaks this system. Profit is taken out of the system and stores offshore, where it doesn't create any value.
Tax evasion is bad. Investing is good.
Honestly, the tax holidays royally piss me off especially coming from a party that "embraces law and order" - it's essentially like pardoning a bunch of robbers - except the actual robbers stole far less money.
Looking at behavior in the extreme case is only valid if behavior scales smoothly up to that limit.
At 100% tax rate I would expect that pattern to be magnified. As a board member, I'd use my success to hire or partner with anybody I had the slightest positive feeling for, until there is just enough money left over that I don't have the biggest target painted on my forehead.
It sounds like if taxes are high, I invest and play for time, waiting for some administration to offer me a tax break so I can take money out. Is a targeted tax break then also a chance to extract profit?
I don’t know if this scales all the way up when all the big co’s move their HQ’s offshore. Perhaps we need diff positions for diff business sizes.
A better option would be to remove corporate incomes taxes entirely. Only tax the outflow instead, which would be simpler to implement and easier to deal with at all levels.
And the lower the incentive to make new investments.
And the higher the incentive to engage in socially wasteful tax-avoidance accounting.
The difference being that the former is low risk and can grow the business, while the other has a good chance of triggering penalties that wipe out the savings and could even result in jail time for one or more executives.
Consider that the historically highest rates of tax fraud are during the current administration, despite historically low levels of tax on corporate income.
Can't speak for all companies, but higher tax rates generally means more money invested in tax avoidance. If for example, your tax rate was 95% of your income it would be rational for you to put a lot more effort into finding ways to avoid those taxes than if the taxes were 1%.
>...The difference being that the former is low risk and can grow the business,
Low risk? Investing in your business can grow the business or it can be money that could have just as well be thrown away. Lots of businesses have failed because they did bad investments, tried to over-expand, etc.
>...while the other has a good chance of triggering penalties that wipe out the savings and could even result in jail time for one or more executives.
There are no penalties or jail time associated with tax-avoidance - you probably mean tax evasion which is a crime.
>...Consider that the historically highest rates of tax fraud are during the current administration, despite historically low levels of tax on corporate income.
How much tax fraud is there with corporations? According to the IRS:
>...The Internal Revenue Service (IRS) has identified small business and sole proprietorship employees as the largest contributors to the tax gap between what Americans owe in federal taxes and what the federal government receives. Small business and sole proprietorship employees contribute to the tax gap because there are few ways for the government to know about skimming or non-reporting of income without mounting more significant investigations.
https://en.wikipedia.org/wiki/Tax_evasion_in_the_United_Stat...
Another source says:
>... Even though corporate misdeeds grab a lot of press, corporate underreporting accounts for only $67 billion of the tax gap, or 14.8 percent.
https://money.howstuffworks.com/personal-finance/personal-in...
I'm just imagining the 1950s cottage industry in compensating executives with a company car, personal assistant outside of work, etc before the IRS caught up?
And all the present day shenanigans with Amazon/Apple etc hiding profits in Ireland?
Dividends are thus actually preferred by most investors, and buybacks generally only advantage the biggest investors.
Additionally, corporations don't get special capital gains rates but do get dividends received exemptions for dividends from related company, so in many cases corporate shareholders would prefer dividends over share buybacks.
Buybacks are big not for tax reasons (because in most cases, companies make buybacks out of borrowed funds, not profits), but because they artificially inflate the stock price, which increases the value of the executive compensation packages of the executives that authorized the buyback.
Some people think it is good for the economy, its not objectively true. If a company invests in itself instead of giving out dividends it's making a choice upon the shareholder, which in turn could mean the company invests in something less efficient than the shareholder could find.
> n the other hand, lowering corporate taxes also generates a cascade of tax avoidance
Unless corporate taxes are 0, and you save all of this issues plus get to fire a lot of corporate layers.
Not at all clear to me this is the case.
If a firm eyeballs a project that is likely to have a good return, they will pursue it regardless of the corporation tax rate at present. Meaning that whether the corporate tax is high, low, or nonexistent, it's better to make money than not make money.
Given this, if a firm cannot see any good opportunities to pursue, incentivizing mass investment in zero or negative return projects, while coincidentally incentivizing lower government revenue is unlikely be a net good for society. That seems to me to be a encouraging massive destruction of wealth and also encourage enormous mis-allocation of capital.
See: https://fred.stlouisfed.org/series/M2V
Our current policy is to paper over bank liquidity or other problems by printing money. Big institutions and the mega-rich are hoarding massive quantities of cash. The economy as a whole would be better off if billionaires were doing stuff with their money rather than hoarding shares.
It’d be insane to have it any other way for businesses. Whole swathes of low margin businesses would be impossible to operate. For example a super markets average margins are 3-5%.
Corporate tax is (generally) on profits because you can deduct costs. It allows for the flow of money to efficiently find a sub supplier for the parts of a good or service.
The real scam is when things like health insurance premiums are deductible for a company but not for an individual.
To be fair, that this "scam" is still alive today is mostly by accident.
It stems from WWII times, when stateside laborers were uniquely low in supply and high in demand, and when labor had ridiculous bargaining power.
Laborers couldn't really ask for higher wages, because that was politically impossible (appearing to be extorting wartime needs for money was/is a faux pas).
So companies began competing on "benefits": health, accidental death and disability insurance among them.
To help ease the burden on employers and employees, the IRS allowed businesses to "temporarily" deduct insurance premiums. (This relief came against the backdrop of unprecedented wartime tax hikes).
Postwar, it was unfeasible to remove this measure, as the majority of Americans who had insurance got it through their employers: it would upset both businesses who have to pay more, and employees who lose insurance.
Later, some government (I forget which...) signed this stopgap measure into the tax code, making it permanent.
Regardless of the interesting history, I agree with you, it should be universally deductible.
Not just politically impossible, illegal:
>> World War II disrupted those trends. As demand for everything — particularly labor — climbed, Congress passed the Stabilization Act of 1942, which allowed the president to freeze wages and salaries for all the nation's workers. A day after its passage, President Franklin Roosevelt issued an executive order invoking these powers, which applied to "all forms of direct or indirect remuneration to an employee," including but not limited to salaries and wages, as well as "bonuses, additional compensation, gifts, commissions, fees."
But there was an exemption of massive proportions slipped into a fateful clause: "insurance and pension benefits" could grow "in a reasonable amount" during the freeze."
- https://www.chicagotribune.com/opinion/commentary/ct-obamaca...
And, relevant to today's discussion:
>> By slapping corporations with tax rates of 80 or even up to 90 percent on any profits in excess of prewar revenue, Congress all but guaranteed a frenzied search for loopholes.
Also interesting to note that the change in question wasn't a switch from workers paying for their own health insurance to it being paid for by employers. Prior to WW2 less than 10% of Americans had any form of health insurance, by the end of the war it was close to 30%.
I’m for it being universally not deductible. Or at least not deductible for corporations.
The idea is that it forces everyone onto a common public individual market as there would be no tax or cost advantage of corporations to self-insure or provide insurance.
Longer term this gives better mobility to workers and lowers costs of the individual market by bringing in 100M+ healthy people (which lowers the average risk weight cost of insurance).
If it were not deductible for anybody, fewer people would have health insurance. If you're in that pool, it's good for you, because it would probably be cheaper. But fewer people would be insured, so it's overall bad, right?
Am I'm missing some part of your argument?
The idea of making it universally deductible/subsidized for individuals seems to be the path that we're on right now.
Case 1: If you purchase health insurance on the exchange, and are very poor, you can get fully-subsidized plans. (Not to mention if you qualify for medicare).
Case 2: The most plausible proposals of "Medicare for All" are basically expanding the pool of people who qualify for zero-premium medicare advantage plans. This keeps insurance individualized and operated by private companies to maintain quality improvements driven by capitalistic-competition, although the government is the ultimate payer.
Case 3: the government (yes, even the current administration) has taken several steps to encourage employers to subsidize the costs of employees purchasing insurance individually, rather than as a group [see https://www.takecommandhealth.com/ichra-guide].
"If you are enrolled in an employer-sponsored health insurance plan, your premiums may already be tax-free. If your premiums are made through a payroll deduction plan, they are likely made with pre-tax dollars, so you would not be allowed to claim a year-end tax deduction." [2]
[1]: https://www.nerdwallet.com/article/taxes/self-employment-tax... [2]: https://www.investopedia.com/are-health-insurance-premiums-t...
Do they mean if for example a company pays $5000/year in employee insurance, they can subtract $5000 from their tax bill? If so, that's a tax credit right?
As I understand it, a "tax deduction" is a deduction on taxable income (in the case of an individual) or profit (in the case of a company).
Taxes low? Start up something new, get it going. Taxes go up again? Sell it off (if they haven't already) and go back to early retirement doing whatever.
Maybe it is largely the type of business that behavior changes. Their last venture was starting up an aquaponics farm in a borderline urban / suburban area, though I haven't kept in touch and it appears to have been sold off to another family.
Inflation can put a bit of a wrinkle in this, since if you get $20M for your business and then you find that that's worth the equivalent of $2M in 5-10 years it can crimp your early retirement.
My other big question is how this interacts with monetary policy. Inflation tends to preference financial capital by a.) lowering the real cost of outside credit and b.) causing dislocations within the economy that create opportunities for new startups. That could offset higher corporate taxes to some extent, while if combined with low corporate taxes it could spark a mania.
I don't see this holding true. Can you explain how?
Like, yes as a personal investor you now have less to invest, because you are taxed more on your income. But of the money you have left after tax, investment is still investment. There's no other way to make money of your money then to invest it. So as long as you don't spend all the money immediately, the incentive to invest it is there.
Also, the companies you invest in will be incentivized to reinvest in themselves, thus their stock growth potential will be higher, so a good time to invest in them.
Finally, the biggest investors arn't individuals, but investment firms, and because they themselves are a company, they themselves are like all others more incentivized to reinvest into their business, thus they are more likely to want to take their profit and invest it some more, instead of cashing it out as revenue.
Not quite. The fact that taxes are about to go up has already taken a huge chunk out of the sale value of the business. You want to sell it when taxes are low and not about to go up.
Sure — if you're already wealthy enough to get by without any income, that might make sense. But for most business owners the alternative is "work for someone else", not "return to early retirement".
By reducing the expected outcome of a new venture, taxes discourage marginal entrepreneurs from starting businesses.
Sure, they may feel that way. But the person who bought the business off them is still incentivized to behave in the way that the GP post describes.
Also, the people I am speaking about were most definitely born before the 90's. More like 50's or 60's.
I know you aren't arguing against higher taxes, but my response to that is... and? Does Target benefit more from some random hedge fund buying up $20 million of their shares? Or from consumers buying $20 million in goods from them? Once a company has gone public, unless they're trying to do another round of funding, the share price is almost meaningless beyond the ghost of being taken over by another entity.
This belief that institutional investors mean more to the health of a business than ACTUAL SALES is baffling to me (not saying that's your stance).
Investors making money means more money to invest, which creates more companies and services.
That cash reserve is needed if we're to self fund big projects and in case of down-turn, lawsuit or other unforeseen event if we are to avoid immediately laying people off.
The alternative is to raise money which dilutes founders and employees who own stock or vested options.
You won't encounter this issue if you're early stage or if you are "going for growth" by running at a loss and raising money in successive rounds. But it is a huge problem if you are a self funding small or medium sized business.
> a wealth tax creates a perverse incentive to not invest back in the company.
This is arguably a "good thing" because one could argue that it's "unfair" that large, high revenue / high income corporations allocate so much capital in our economy. It would arguably be better for them to pay the taxes and instead have that capital be allocated by a democratically accountable body: the government.
This is certainly "arguable." One of the very few things economists agree on is the market's are better at allocating capital than governments. That's one of the core functions of markets.
That isn't really the societal win you're making it out to be though. If you "pocket" profits, i.e. pay them to investors, the investors just go out and invest them again in something else. Which is actually better, because it reduces concentration of wealth inside of corporations. Instead of one corporation growing ever larger because they have to invest internally or be subject to punitive taxes, you get many new independent companies being formed as investors seek out new opportunities for the money they receive as dividends.
The other problem is that there are many forms of investment that are taxed differently. Government bond interest typically isn't taxed. Real estate appreciation typically isn't taxed until sale, which means they can be deferred indefinitely. Investing in foreign corporations will be subject to the tax rates in those other countries. So if you increase the domestic corporate tax rate, investment moves from domestic companies to things like real estate speculation and foreign companies, which may not be desirable.
Moreover, multinational corporations arrange for profits to be declared in whichever jurisdiction has the lowest taxes, so increasing the tax rate on domestic corporations disadvantages them against multinationals that won't be paying those taxes.
The reverse is actually true. Historically, the lower the tax rate, the more investment you get in real estate speculation and other passive income streams because it's now more efficient to simply not invest in productive activities when you can just get effectively free money without doing any work.
The higher the tax rate, the more businesses invest in actual business activities, because they get more expenses they can use to offset income they may earn, and because passive activities generally don't generate enough of a return to be worth the investment compared to (re)investing in an actual business.
You can only invest so much into a grocery store. The entire point of us having free markets is so that capital can move around. Locking it down into once place is the exact opposite of what you want to do.
See https://en.wikipedia.org/wiki/Double_Irish_arrangement for a historic example.
But the Double Irish (and similar structuring) is no longer permitted and would be treated as an illegal tax scheme today. (It's grandfathered in for companies already using the structure.)
Generally, between BEAT, GILTI, global transfer pricing policies, and the rise of nationalist economic policies, it's now riskier and more expensive to switch to a global corporate structure than to just keep everything in the US.
I used to do a lot of outbound structuring work, and now (post TCJA) almost everything is inbound, compliance, or restructuring existing foreign operations to more tax-friendly foreign jurisdictions (i.e., moving out of China to Vietname, etc.)
Why buy a stock if Biden will take 1% of it annually? May as well just buy rapidly depreciating status symbols instead.
I don't necessarily think it leads to purchasing status symbols. Depreciation already kind of incentivizes that, so I don't think there's anything fundamentally game-changing there.
And, depending on what is actually done with the money that Congress has decided to appropriate, it may be redistributed to consumers who will buy more of whatever that publicly traded company produces, or pay off the national debt, or do other things that can increase the health and growth of the economy. (Or not.)
Probably because trading stocks will still leave you with a lot more money than if you threw a tantrum, took your toys home and hid your money under your mattress - no plan that I've seen has investors paying capital gains at the level of their equivalent income - investment is still heavily subsidized.
We already have wealth taxes, only very narrowly targeted.
Because the stock will allow you to avoid paying taxes. By investing revenue in investment, as a company, you can avoid paying tax on the money. So if you're a small or medium sized business, you have two choices:
1) Cash out and buy a rapidly depreciating status symbol with the money, but get taxed on it at a higher rate.
2) Reinvest the money in growing your business.
At least that's what I understood from OPs reasoning.
Edit: Also spending money in depreciating status symbols is also a contributor to the economy.
A business that is not making a profit does not pay income taxes. I don't have a single client that has voluntarily turned down making a profit because they'd had to pay some income tax on it.
The only time business income tax rates make a difference is when the business is choosing between multiple profit-generating activities and wants to maximize the net (post-tax) income by minimizing its tax burden.
There is a strong case for allowing immediate, or faster, write-offs for capex spending in preference to lowering corporate tax rates because of this effect.
Except in Washington State.
I could imagine some reasonable arguments for having a low tax like that around.
People are taxed the same way. There are all kinds of ways to spend your money before paying income tax on it. Most obviously, on health "insurance".
You're already a business owner. You're faced with decisions on what to do with an already existing business, not whether to start a new business, and in what state or country to do that.
The latter is absolutely not a given and the former is only really safe if you invest the money in something that isn’t really an investment in the business.
Phrased differently, if you had a magic cash printing business like this that can safely scale up with more money you would be absolutely stupid to not do it regardless of the tax rates.
Where do you live that taxes are as volatile as petrol prices? Taxes change in Ireland but in terms of decades.
There is simply no other way to align interests of the wealthy.
The founding fathers, including a handful of those quoted in the linked post, were highly critical of democracy and even of men who didn't own multiple house like they did.
We just narrowly missed out on having a constitution which only allowed land owners to vote. There were even years long debates on whether votes should be proportional to the amount of land owned.
Using the founding fathers to argue for state enforced equalization of outcomes is plainly absurd.
Frankly, I don't care what the plan is. I just want to see a less inequality and a stronger middle class.
Can it be also an incentive to work less, since most of the results of your hard work will be taken from you in form of taxes, or you would need to 'hide the profits' potentially forever?
Let me introduce you to how private equity works. They have figured out how to hide the profits by buying out the original owners!
They buy companies by having them borrow heavily to "invest" in buying out the previous owners. And then try to keep the corpse of the company looking good enough that they can flip to someone else. The trick is that debt payments count against profits so the new owner saves on taxes.
The people who set up the deal get paid in a variety of ways. But in the end what they get paid tends to be roughly proportional to how much money no longer goes to Uncle Sam. So when you see someone who got rich in private equity, like Mitt Romney, it isn't a bad approximation that their personal wealth reflects how much money the US no longer receives in taxes due to the deals that they structured.
Note, if you're over 50 you may remember the "junk bond kinds" of the 1980s. That's the same thing as private equity. They just rebranded themselves after their actions gave them a bad name.
This creates a surveillance society on every possession and purchase, and facilitates confiscation and intimidation, an encroachment on our liberty. In fact, that the IRS and the government have a view on every single financial transaction due to the Patriot Act already has a chilling effect on freedom (consider donations). A wealth tax would absolutely be a massive and unnecessary further encroachment upon liberty as the majority of Americans would ultimately have to detail and report their assets to show they do not qualify, while the wealthy would very likely be able to largely anyway cheat on their wealth tax by manipulating valuations of their assets.
I mean wealth per se isn’t an issue. In the grand scheme of things what material goods you have matter little. It’s the unreasonable and unbalanced command over actual capital that create issues.
E.g. in NZ you buy property, but the local government taxes it, so you are essentially paying a small lease. Enough so that some retirees with no income have to downsize because the rates are a significant burden.
A wealth tax seems impractical on many levels, including the increased burden of trying to document the value of your items for people of modest wealth levels. Unique or thinly traded luxury items have value that can't really be known until they are sold, which is why capital gains are taxed at the time of a sale. I'm thinking of a rare coin that might be $75,000 or $100,000.... you can't know the value until it goes up on the auction block. Same thing applies to real estate, antique cars, artwork, etc.
However, to combat the side-effect of wealth tax requires global governance, which in today's day and age, seems like a pipe dream.
Just like a small business is less regulated than a large one (often), or how smaller incomes are taxed simply while those with more money/more complex assets get audited more - the ultra-wealthy will certainly have more of their assets audited, and yes, they will have side channels to evade taxes. That doesn't mean we don't try to tax them.
When someone out in the open owns 75 cars, a private jet, and a $250,000,000 townhouse in Manhattan and another $5 billion in stock, it's pretty damned simple and not wholly intrusive to look at that and say "alright..."
I'm not defending the entire concept of a wealth tax, but I am saying it isn't as dire for _everybody_ that you say it is.
By the way it was replaced 2 years ago on a tax on real estate wealth only.
Really the only area of significance I can think of where the problem is not solved is having to report your artworks, I guess? Something that doesn't affect most people.
> wealth tax is a colossal privacy and administrative burden on _every single taxpayer_
I have not seen a single wealth tax proposal that doesn't have a gigantic cutoff where it would do nothing for 99%+ of the taxpayer base. Most proposals have a floor in the tens of millions.
> Assets must be accounted for when calculating wealth, so the tax service will be required to track and value assets including vehicles, homes, and material good etc. for every citizen to see if the wealth tax would apply to them -- if we didn't report material goods, the wealthy could sock money away in expensive cars, artworks, jewelry and other material non-real-estate assets as they already do for investment.
I will admit to not knowing much about a wealth tax, so maybe there is an established solution here. But it seems like the default would be a privacy and administrative burden even on those people not paying the tax.
It doesn’t matter what the floor is, you still have to report all your assets to the IRS to prove you don’t meet it.
Income tax is already an administrative burden on every single taxpayer, and it works fine.
Do you imagine that people don't already track and value their vehicles and homes and other high value material wealth? That strikes me as unusual.
I just did some quick research and it looks like the tax failed in Europe [0]. Thousands of millionaires in France just left the country and eventually it was just axed and declared a failure.
Which seems interesting -- the measure of success of a wealth tax seems to be how many rich people stay.
[0] https://www.npr.org/sections/money/2019/02/26/698057356/if-a...
Only in the US would non-wealthy people actively and aggressively advocate on behalf of the ultra-wealthy.
You say this, yet you don't provide a single citation for any of your arguments.
> There is a very strong case that one reason for sluggish economic growth is the concentration of assets and wealth in so few hands, and the continuing stagnation/decline in wealth/living standards/etc of bottom 40% of the US when measured in things like "healthcare", "education" etc. A redistributive wealth tax that was well structured could be a huge boon to GDP growth.
This seems plausible, but not self-evident. Give us evidence.
[1] https://www.sciencedirect.com/science/article/abs/pii/S03057...
I've seen this talking point twice now this week. What's the alternative? We all live in crowded multi-family buildings? We all live in squalor for the sake of a few saved acres in a country with vast amounts of land?
It's frightening that many people cannot imagine proper city planning when other countries (the Netherlands come to mind) demonstrate that it can be done and improves quality of life immensely.
It sounds like you've never been in an apartment building. Some are crappy, sure, but plenty are pretty nice or at least decent (the building, the apartments will be what the residents make of them).
Many other things need to be in place and fully functional for a high wealth tax to work and even then, it is likely to work for a 10 to 30 year period, only to serve as a dragging anchor at a later stage. I would argue that many of the challenges in Europe from a technological innovation standpoint, can be partially derived in high taxation.
It is also difficult to determine what is the right amount of taxation while taking into account the importance of incentive mechanisms. Also, at what point do tax hikes stop?
Some of the key real solutions to many of societies challenges is to have its populace be more active in all of its inner working, helping them to better understand the constraints and opportunities as opposed to being a bunch of people getting of top of their little soap box. There is also a major need for strong reforms to tackle nepotism, corruption and laziness at all levels of society.
> Some other European countries have discontinued this kind of tax in recent years: Austria, Denmark (1995), Germany (1997), Finland (2006), Luxembourg (2006) and Sweden (2007).
source: https://en.wikipedia.org/wiki/Wealth_tax#Historical_examples
The WSJ has their take https://www.wsj.com/articles/where-wealth-taxes-failed-11572.... Criticisms within the same wiki article can probably shed extra light into why https://en.wikipedia.org/wiki/Wealth_tax#Criticisms
Any sensible wealth tax proposal in the U.S. would probably have to pair it with a similar tax on the transfer of assets abroad.
The real inequality we have today is being perpetuated by outdated regulations, primarily from the 1930s. It's also being perpetuated by people that invest in Warren Buffet-style "value" stocks, which extract actual rents from people, while delivering no technological improvements. Housing is 80% of the inequality problem, and if we are going to fix that, we have to stop making it illegal to build enough homes for people that need them. And to do it cheaply enough, we have to turn to automated custom home manufacturing, which means overcoming the objections of labor unions.
For example, I just saw this in the LA Times - "Labor unions, environmentalists are biggest opponents of Gov. Brown’s affordable housing plan":
https://www.latimes.com/politics/la-pol-sac-labor-enviro-hou...
NB: I think we need new, distributed structures to replace labor unions, because the goal they serve is an important one. The existing ones concentrate power at the top, and have become just another corrupt institution.
Are you really suggesting that taxing someone based on their views is a good idea.
The thing I'm trying to call out is that they might not want to wipe out GenX-ers like me, who invested their personal savings into TSLA, and are working to use the wealth to actually help people rather than to buy fancy clothes, condos and yachts.
https://www.youtube.com/watch?v=rIAZJNe7YtE
(Something to understand here is Weinstein's argument about WWII, embedded growth obligations and institutional decline...)
There's already enough homes (in the USA, at least) to house all the homeless people in the country. Unfortunately, giving homes away wouldn't be profitable, and profit is all that seems to matter.
Or is it an ad hominem even if the "hominem" is a class (wealthy people) instead of a person?
To the extent that they do it for themselves alone, which is making an assumption about intent.
Many wealthy people honestly believe that low taxes drive economic growth that is good for all.
This organization is not living up to it's name if it's only taking the easiest potshots imaginable at one side of the issue.
Those two things are not the same, nor even necessarily correlated.
You know what'd be nice? Consent. I'd like to be consented before my value is forceful removed from me. I'd like to pick an efficient charity to give this money to.
Today, my neighborhood's roads get paved the same as Jeff Bezos's neighborhood. If taxes were voluntary, then I might not be able to afford more than dirt roads for my house, whereas I bet Jeff's house would be fine.
Instead of increasing entitlements or adding yet more taxes - we lower the size of the government spending UNTIL it matches where most people pay for the services received in a more scaled manner.
Source: https://taxfoundation.org/summary-latest-federal-income-tax-...
I was looking for the lucky duckies argument to rear its head. The Intercept has an article which does a great job of eviscerating it[1]
> ...when you take all U.S. taxes into account — federal income taxes, federal payroll taxes, federal corporate taxes, the federal estate tax, federal excise taxes, and the plethora of state and local taxes — the U.S. tax system is just mildly progressive.
> If the U.S. tax system were perfectly flat, the share of taxes paid by each group of Americans above would be equal to their share of income.
> Instead, the top 1 percent — with an average income of about $2 million — made 20.9 percent of America’s income, but paid 24.1 percent of America’s taxes. Few people will perceive this as a monstrous injustice.
> Meanwhile, the middle 20 percent of Americans— with incomes between $41,000 and $66,000 per year — make 10.9 percent of America’s income and pay 9.4 percent of America’s taxes. The bottom 20 percent, making less than $23,000, make just 2.8 percent of America’s income and pay 2 percent of America’s taxes. That is, the “lucky duckies” of the right’s imagination who pay little to nothing in income taxes are still paying a significant portion of their income in taxes overall.
[1] https://theintercept.com/2019/04/13/tax-day-taxes-statistics...
From a post transfer perspective, America’s tax system is firmly progressive, but less so than European countries. The other side of that is that in America you have the opportunity to do quite well for yourself if you aren’t in one of the aristocratic elite families. That isn’t really the case in many of these European social democracies. Not only is there a safety net below you, but there is also a net above you as well.
Nearly 50% pay no federal income tax. It's worth making that statement precise in this case, because saying they pay no federal tax is just a lie.
But what matters is income tax (for individuals).
Per wikipedia
https://en.wikipedia.org/wiki/File:US_Wealth_Inequality_-_v2...
Eyeballing this chart suggests that the top 10% have more than 69% of the wealth, so paying 69% of the taxes seems like a good deal for them.
The gap between the rich and poor is growing, and has been doing so since 1980.
r > g is the biggest long term problem facing capitalist democracies.
That should be a lesson in how much of our taxation system is regressive not a lesson on how little Buffet is taxed.
Buffet and his secretary both pay a couple hundred dollars of tax to register their used cars or a couple dollars of tax on a pack of smokes or a couple tens of dollars fee for some government service or a buck here and there for toll roads and those things are a much larger fraction of the secretary's income. The less you make the more these "fixed fee" taxes screw you.
Cutting entitlements and putting MORE of a financial burden on people who have nothing isn't going to fix the problem. AT BEST it'll result in massive social unrest and the end of the American Experiment.
"I know you can't afford healthcare, and can barely afford food, but we're going to need to take away your food stamps, and your subsidized housing because Larry Ellison just can't afford another 1% increase in taxes". That's what you're going with?
Your statement confuses wealth with income.
https://taxfoundation.org/summary-of-the-latest-federal-inco...
The top 1% of US taxpayers control over 60% of the wealth. If they're only paying 21% of the tax burden they are GROSSLY under-taxed.
https://www.bloomberg.com/news/articles/2019-11-09/one-perce...
Also, how about the game of entrepreneurship? I'd much rather play that game on a playing field where there are a lot of customers who are well off.
it doesn't have to be if Marxists don't stir it all the time
Progressive taxation of someone earning $100k per year in San Francisco or NYC is hardly fair. At least prior to covid19 causing a crash in the rental market one could expect to pay ~$2500 a month to share a 2bedroom place. That's spending 42% of take home pay to have roommates! Not to mention everything else costs more, a meal out, riding the bus, getting your bicycle repaired, clothing etc.
$400k per year is about what it takes to run a middle class family w/ 2 kids in such a city. -- They're already paying $162,121 in taxes annually.
When we progressively tax those who actually have less than the median after CoL, we're being unfair (IMO)
The solution to the problem is not taxing people in SF less. This is the same flawed idea that the solution to houses being unaffordable is to have a mortgage interest deduction and (previously) a property tax deduction for home-owners.
All this did was make houses and land more expensive to make up for the tax deduction.
I full agree that housing costs should not be deductions.
Another way to think about it is that in a high CoL markets, not only does a marginal dollar buy you less marginal goods (such as a burrito), but you also are likely in a higher marginal tax rate making it geometrically worse.
So, probably not affected much by a wealth tax.
> $400k per year is about what it takes to run a middle class family w/ 2 kids in such a city.
What? The median household income in NYC is about $63k.
My step mother told me that she "can't possibly be in the 1% because she doesn't even have a gardener."
The news ensures rote reinforcement and education of the class system for the masses, while celebrities act as a sort of failsafe to avoid things like the 18th century French revolution.
individual celebrity popularity is permitted to ebb and flow, however a general aversion to or boycott of celebrities acts as a canary in a coal mine, alerting the most wealthy and opulent to the existence of a systemic backlash against the fundamental tenents of class inequality and, most importantly, the ruling class of wealth. This sort of unilateral distaste for celebrities was last seen during the COVID quarantine when celebrities insisted solidarity with their fans while sequestered in lavish mansions or private estates. the acrid contrast between pawns forced to work multiple jobs and elites who merely benefitted from the inconvenience of isolation in paradise produced a widespread backlash. In response, celebrities were recalled by media owners and a greater focus was put on thanking "essential workers" in media (print, tv, and billboards) as well as the Amazon news piece, which acted to repair and maintain the US populations perception of wealth as a net-good.
Here are the facts that aren't in dispute:
1) Other countries that have tried wealth taxes have started abandoning them, most recently France and Sweden: https://www.cato.org/publications/commentary/why-europe-axed....
2) There is little economic consensus on whether wealth taxes would be efficient or hamper economic growth: https://assets.aspeninstitute.org/content/uploads/2019/09/We....
3) Economists do generally agree, however, that consumption taxes on individuals are the most efficient and least distortionary strategies: https://www.npr.org/sections/money/2012/07/19/157047211/six-...
> Three: Eliminate the corporate income tax. Completely. If companies reinvest the money into their businesses, that's good. Don't tax companies in an effort to tax rich people.
> Four: Eliminate all income and payroll taxes. All of them. For everyone. Taxes discourage whatever you're taxing, but we like income, so why tax it? Payroll taxes discourage creating jobs. Not such a good idea. Instead, impose a consumption tax, designed to be progressive to protect lower-income households.
4) Warren's and Sanders' proposed wealth taxes would be dramatically higher than anything a developed country has attempted (up to 6% and 8%). And even based on the candidates' own projections, they would raise not very much money (under $300 billion per year, or less than 1/6 of what would be required to fund Medicare 4 All).
5) Billionaires just don't have that much money in the aggregate to warrant such an outsized attention in tax policy. All the wealth of all U.S. billionaires adds up to $3.4 trillion. Even if you confiscated it all in one go, that would fund the local, state, and federal governments for a bit over six months, without even accounting for the new spending proposed by Warren and Sanders.
Same reason we don't have a Federal property tax.
https://en.wikipedia.org/wiki/Direct_tax#U.S._constitutional...
There's actually a decent amount of precedent that holds the property tax as a direct tax, and therefore unconstitutional on the federal level. Even a liberal court would make this decision I think.
NPR and PBS in the US.
And it has real consequences for the spirit of democracy. It opens up the idea that people can literally vote to take other people's stuff and give it to themselves. That process will not have any good results for anyone.
Dismantle the IRS, ditch all of the complexity.
You're using "income" as your input variable to calculate "fairness", but you could just as easily use "disposable income". Someone making $25,000 per year might have a disposable income of $0. Asking this person to kick in $5000 seems ludicrous.
I honestly don't know how you could assess fairness without looking at ability-to-pay:
(income) - (basic survival needs) = (money leftover you can potentially contribute to the government)
This is obvious, fair, and is why most nations have progressive taxation structures.
That, or a progressive tax with a ceiling at 20%.
I fully agree with a flat tax w/ 0 baseline deduction.
but we still need a definition of what is "take". Afterall , paying 20% tax on $100 receipts makes no sense if it cost me $105 in expenses already.
BI sucks but even they said as much for why Europe has scrapped most of their wealth taxes:
https://www.businessinsider.com/4-european-countries-wealth-...
The US is a country with a terribly funded IRS. They can barely audit those who obviously don't pay their taxes. If you are someone with 10 or 100M of assets it's easy and obvious to hide them in assets that can't be tracked.
I'm sure there's a theoretical tipping point where they become too bloated to do their job well, but their current levels of funding are far below that.
People who subscribe to the "wealthy people should pay their fair share" meme would probably be better off directing their efforts toward advocating for more IRS funding, than for changing laws and closing loopholes. The laws are already there - we just need to properly fund the folks that enforce them.
Wealth taxes are great in theory but tough to implement. The value of large pools of assets can be easily reduced by marketability and liquidity discounts. See the real estate industry. I’d like to see wealth taxes work but I think having value accrue to people over capital is a better approach.
Its the problem with income-taxes, naturally government increases expenditures without need for legislation. It's a bad rule. This is why I think government should be financed by flat-expenditures: sum of costs / people and send a bill. This framing would make government very sensitive to increase of expenditures.
Sure, eat the rich, but you are left with the same question the sort people who advocate that kind of thing never seem to ask themselves, which is, "and then what?"
It seems obvious to me from reading extensively around this that we have very little basis for arguing the case for free will. Our entire existence: our personal lives, our business lives, our investments, our health, our wealth - are driven by luck.
I run a successful small business in the UK. I can squint and pretend that everything about this success is down to me, but the reality is:
I'm white
Middle class
Have a great family
Have had the luck to have a wonderful family background including supportive parental influence as well as a generational (mother + grandparents) financial safetynet all the way through my life.
Have (so far) had great luck as far as health is concerned.
Are ANY of these things down to me and my skill? No, none. They are down to luck.
Am I a good business person? Yes, I like to think so. What's that down to? Luck.
So for me, now, to turn around and say "No, I'm not paying my taxes. I don't believe in taxes. I don't believe in helping those less well off than me. I don't believe in helping people. I don't believe in the state"...? That is bullshit. Utter, total bullshit. And it makes me f*g sick when I see people gathering vast quantities of wealth and then somehow making out that they are somehow separate from the [majority] of people in this world who really badly need help.
We should all be getting off our fat, lucky arses and doing more to help people instead of squirreling away our wealth and pretending we're somehow special. And we should start by taxing the bejesus out of the wealthy. They [we] [I] can afford it.
Rant over. As you were.
A year later, come back and let us know how far your luck got you.
I'm from a working class family in the UK, most of whom are on benefits and half are immigrants. My sister is a single mum (by choice), because she wanted to move out and in the UK the only way to really do that if you're working class is to have kids and hope the government gives you a home.
My partner's mum is earning around £45,000 and lives in a £500,000 house. She's also a single mum and has never worked a day in her life. She has done pretty well though because she (reluctantly) had 5 kids and managed to get one diagnosed with autism despite most GPs believing he doesn't actually have autism – you only need one doctor to give you a diagnosis, so she just keep trying until she got it. A few months back she was thinking of getting a job (not because she needs the money, but because she was bored while the kids were at school). The guy at the job centre told her not to get a job because it wouldn't make financial sense given what she's receiving from the government. Another nice perk is that she gets free food from the food bank every week which she'll often give to us because she doesn't actually need it – sometimes she'll get some nice deserts from M&S so it's worth getting either way. In fact, most of my family go to the food bank despite not needing to do so because why not?
In contrast me and my partner live in a very small home, which we work full time to afford. We can't afford kids, but we hope one day we might be finically secure enough to have at least one before we turn 35. Not that we'd want to, but if I'm honest I'm doubtful whether we'd ever be able to afford 5 kids or live in a £500,000 house like her mum.
As someone from the working class I can honestly say I have no idea what my upper-middle class colleagues are talking about when they talk about wealth inequality. Apart from me only people I know who are my age who don't live with their parents are those that had kids. If fact most of the time those in my family who have had children live in much nicer homes than my middle-class colleagues. Thankfully I consider myself somewhat lucky that I'm weirdly good with computers which allowed me to get a middle class job despite the fact software development would typically be out of reach for someone from my background.
What upset me the most though is that when I lost my job a few years back I received very little government help because I had around £10,000 saved up to pay taxes (I had to fill self assessment at the time). Apparently if you have savings that disqualifies you from help. I recently found out the reason my sister blew all her savings on a BMW after having her kid is because that way she had a better chance of being given a house by the government.
Sometimes I wonder if our welfare state would actually help the working class more if it focused on incentivising people to make good decisions rather than having as many kids as possible and spending everything you get on cars and holidays. As far as I can tell the system right now doesn't actually help the working class, that is unless you're content living on welfare your whole life. In my experience the middle class is completely detached from how hard it is if you're from a working class family a want to simply make an honest living instead of following the more traditional working-class route of not working and having children. As far as I can supporting this system is just propagating a system that leads to further poverty and income inequality.
I see this reasoning bias in many middle-class positions though. For example, most of my middle class colleagues seem to think drugs are harmless and that's presumably because they do them now and again at parties, but they're not the kind of people who would allow drugs to consume their lives. Yet, just yesterday I had my partner crying to me because both her mother and brother are addicted and abusing drugs. I also have alcoholics and drug users in my family. There is a very clear reasoning fallacy going on here, specifically how the middle class just assumes that working class people act like they do. But they don't. Most working class will prefer living on welfare if you give them the option because they don't have many options and that's all they know. Just like many will abuse drugs if you allow them because these aren't people who make the best life decisions, especially if they're not incentivised to make the right decisions.
I'm sorry if this comments comes off as overly emotional, but it does upset me having to watch this cycle of poverty happen over and over again in my family. What the working class needs are good incentives to work and negative incentives to have children they can't afford or to abuse drugs. They also need good opportunities, so if you're a business owner I'd urge you to consider hiring some people from less well off backgrounds who may not having a university degree, etc but who you can train up and get on the right path. This push for more people to go to university has also done a lot of harm to the working class – you get automatically ruled out from a lot of jobs (including software development roles) regardless of your experience simply because you weren't privileged enough to go to university.
However the required growth rate to justify the tax cut was estimated by 6.5. Even when the economy was good before the pandemic it never got above 4.5 percent. And now we're not even close.
Maybe a wealth tax is not the best idea but based on the current economic realities and the budget deficit what is a better alternative? Conservatives will say "cut the budget or spending" but which expenditures are you going to cut?
It might be a bad idea but compared to 23 trillion dollar? The super wealthy have benefitted from how many tax cuts and yet we are still running a massive deficit. Many like to say 'its a spending problem' but then ask them where to cut spending and usually its spending that does not affect them. Plus you need to factor in the affects of austerity on the economy, as the UK has tried it and it did not work, which will reduce revenue and make the deficit and economy worse.
Hate it all you want but it should be on the table as an option to stop the bleeding. Bring on the downvotes.
We can look at France, which used to have a wealth tax, after they elected a socialist in 1981. https://en.wikipedia.org/wiki/Solidarity_tax_on_wealth
It not only failed to raise the expected revenue, it was estimated it actually led to a net negative revenue due to capital flight and a higher percent of French people renouncing citizenship. Because it was unpopular and didn’t raise much money, in 2017 it was abolished.
There are some types of wealth taxes that I believe can succeed, such real estate taxes and inflation (which operates effectively as a tax on unspent money). How about instead of proposing wealth taxes which have failed in the past and cause strange incentives, we try to hit our inflation targets first?
https://www.linkedin.com/pulse/why-how-capitalism-needs-refo...
Think about what a wealth tax means. Say I found a company like WeWork (bear with me and try to forget the shenanigans pulled by their CEO). Things are going pretty well and before you know it, we raise money at a $200 million valuation and my stake is 50%. On paper I'm now worth $100 million dollars, but that money isn't in my bank account... it's an imaginary number that my investors decided to invest at. Based on E. Warren's wealth tax plan, I now owe 2% of my wealth above $50M. So where do I get that $1 million from? I don't have cash or liquid assets, so likely I have to dilute my shares to get some personal money. No problem... investors will understand.
So I go on for a few years paying some taxes on my new wealth, 3-5% of my equity a year. Now, the company has grown and we raise a big amount of money. Say Softbank gives us $5 billion at a $20 billion valuation, and i've been diluted to 25% at this point, but now I'm worth $5 billion on paper. Under EW's plan, I owe 3% of my wealth above $1 billion, plus 2% of wealth between 50M and 1B. My tax bill is gonna be $139,000,000. Again, my wealth doesn't exist in the bank... it's in my private shares. But okay, I raise money from investors to dilute my shares and pay taxes... at this point they expect it.
OK... now I make plans to take my company public. Finally I'll have some real liquid money and paying these taxes will be easier, because I can just sell shares on the open market. But wait, I put some feelers out and the market thinks my company isn't worth $20 billion... it thinks it's worth $10 billion. Do I get a refund for past tax payments?
The point is that the government will have a very hard time determining what things are worth. It's easy to tax income or sales, because those are known values. The price of WeWork, or a Picasso for that matter are not. So what's gonna happen? I can guarantee that billionaires are gonna come up with a 1000 ways to claim that they are worth much less than they are. They'll start taking companies private. They'll put money into hard-to-value and illiquid assets. Some will revoke their citizenship and move elsewhere. On the whole, it may not gonna be great for the economy, even though in a sense there's a moral justness to it.
There are better ways to tax the wealthy. Higher capital gains taxes and estate taxes to name a few (estate taxes run into the same issues as wealth taxes, but at least it doesn't burden people to value their property every year).
Have cash? Inflation (cheapens govt debt) Own Property? Property Taxes. Own Equity? capital gains on realization of profits Get Dividends? Dividends are taxed. Income? Taxed.
Virtual every form of wealth is taxed. The question should be how much should it be taxed, and enforcement. A wealth tax is a nice song and dance around the issue and cannot be reasonably implemented hence why it's in the zeitgeist.
Property tax would make more sense as a tax on limited resource than as a wealth tax.
Given the amount of future debt we've taken on, it's probably a good thing to have growing deferred income too.
Many people do, it is the organizing principle of most modern civilization after all but that does not mean it is indeed inherently "fair" or "good".
You can see it as a subscription fee for the service of upholding private property rights instead.