The Big Escape: How the Ultra-Wealthy Avoid Paying Taxes and How to Fix It [pdf]
warren.senate.gov
warren.senate.gov
What tax rate do middle-class families pay on their net worth? 0% I believe, since we don't have wealth taxes?
EDIT: Repeat after me: net worth increases are not income. Net worth increases are not income. I mean, I "made" $250k last year in home appreciation, but that's just fake money. If they taxed me on it, it would come out of my much smaller take home pay.
This is the big lie. Most of these asset prices are increased due to inflation anyway. In real terms, both the stock market and real estate have been stagnant for decades, but by inflating the currency, they can make people out to have 'increasing net worth' and then tax them.
I don’t think that’s quite true - I would say a better definition would be that a company is worth what someone will pay for it, regardless of if you actually sell it or not.
Stocks, piles of gold and cash are just different types of asset all of which have value.
And you have to really tax all of that, otherwise the wealthy will just avoid taxes by being paid in untaxable gold bricks and trade those for purchases rather than dollars.
Same as stock grants: if you're paid in stock, you pay income taxes when that stock is granted, at the market value of that stock.
You aren't taxed on the FMV increase of that stock until you sell it (at which point you're taxed on capital gains).
this is a good definition for someone like me. if I had to liquidate all my assets today, I could easily figure out how much they are worth just by looking at existing bids.
while no less "true", this definition isn't very helpful at scale. warren buffet can't just sell all his berkshire stock by filling orders. depending on the circumstances of the sale, it could either be worth a lot more than n * last price or a lot less.
In the 90s there were stories of a fan who caught a milestone home-run baseball and because of its sentimental value didn't want to sell it, but had to do so in order to pay the tax bill.
In the extreme case, if I have a child, does that constitute income equal to the price a human-trafficker would be willing to pay for him or her?
Then maybe we should give the poor some of this "fake money" since it's fake and doesn't matter anyway.
>EDIT: Repeat after me: net worth increases are not income. Net worth increases are not income. I mean, I "made" $250k last year in home appreciation, but that's just fake money. If they taxed me on it, it would come out of my much smaller take home pay.
>This is the big lie. Most of these asset prices are increased due to inflation anyway. In real terms, both the stock market and real estate have been stagnant for decades, but by inflating the currency, they can make people out to have 'increasing net worth' and then tax them.
This is an actual big lie, since you can borrow against assets like this with secured loans. And you can turn it into cash without moving out immediately with reverse mortgages. How are you able to get "free real money" from "fake money"? Maybe it's not as fake as you think.
Okay, and how do you pay back these loans? That's right: with your income. You're just moving the problem around.
At the end of it all, they have enough dividends/rental income, that's paying for lavish lifestyles, and they still own all of the hard assets that they can then pass down to their heirs with minimal taxable events.
Most anybody has the means to research how to set up an amazon store, a blog, or a youtube channel and start making business income. But instead of spending their time learning how to better their life, they waste it on social media, watching tv, etc.
Those are barely above MLM scams in likelyhood of making money.
You're sort of proving the opposite of your point by giving those as examples to pull yourself out of poverty.
You can lead a horse to water but you can't make it drink though.
And the supplementing your income with Uber, etc. thing is slightly different in that you get compensated for each hour you put in starting with your first hour. The big issue I have is with schemes that take time and capital investments where you probably won't make a dime.
What do you mean by this? Inflation over the past couple decades has come in around 2-3%. The stock market has appreciated by much more.
http://www.shadowstats.com/alternate_data/inflation-charts
In this view, there has been no asset appreciation. It's a myth to quell the masses achieved by manipulating inflation rates.
Plus if your argument were fair, we wouldn’t be seeing the kind of wealth concentration in the system.
It’s essentially a sign that financial engineering is an un-checked force multiplier which regulation has not kept up with.
Finally - asset appreciation is real, yes interest rates have been low and would typically be inflationary - however we’ve also had multiple massive disasters in a short span of time which have crushed demand and economic activity.
They have many problems as well, but that's a wealth tax.
So they are getting appreciation on leverage.
I would argue the median homeowner is being subsidized, having a negative wealth tax.
The local government takes away 1%, but the Federal government pumps up your asset price by >2% - that's a -1% wealth tax (paid entirely through inflation by non-homeowners).
The only wealth taxes the US has are property taxes. We all just think of wealth as the stuff that doesn't get taxed. The richer you get, the less of your wealth is taxable. The poorer you get, the more you pay wealth taxes.
In theory, we tax rich people when they convert their wealth to income. In practice, they all convert their wealth to income by borrowing against it, then dying, then having their estate pay their debts tax free.
(I am purposefully ignoring the companies not paying taxes since that I think is a valid issue if we are talking about income).
So Warren Buffet may have $84 billion in stocks and assets, but how much did he actually sell? How much money went from selling stocks to his bank account?
I think that number if far more important.
Yes it is true that we have excise taxes on cars and property taxes on homes, I feel like a just plain "wealth" tax is not the right solution.
I don't like the idea that the government can say, "you have X amount in stocks, you must sell a certain perfect so you can pay us in taxes". Which is what this sounds like to me? Or am I majorly missing something here. Taking the Warren Buffet example, he would have to come up with 2.5 billion in taxes
If you have $84 billion (or even $20 million) in stocks and assets, you can borrow against them without converting them to income. Then you can die. Then your estate pays off the debt without paying income taxes. Thus, 0 income taxes over a lifetime of converting wealth to income.
Wouldn't that loophole be the better thing to try to address then?
Instead of just focusing on their wealth, instead focus on the loopholes.
* round nubmers ** you'd pay 150,000 usd on a 1 million dollar investment cashout
federal income tax on a salary of 100,000 USD times 10 is 151,040
So the government still gets their tax's (and more if you countother ancillary tax's) AND 10 people have a job
When you buy stock, you're not paying salaries. You're buying ownership of something that has value, generates income, and mostly intends to use that income to pay salaries.
The argument you're making is an argument against corporate income taxes. That's different.
But surely you have to make payments on those loans before then... interest payments at least. You're either making those payments with the money you were loaned or from your regular income (that was taxed in the first place). At that point you might as well just pay the capital gains taxes because you're losing the same money to interest payments anyway.
> Merrill Lynch recently quoted an interest rate of 3.2% to clients with at least $1 million in assets. Those with $100 million or more can get a rate as low as 0.87%.
These are loss leaders for banks. They want to entice incredibly wealthy people to do business with them and have their companies do business with them.
Wealthfront has a product for the merely rich: https://www.wealthfront.com/portfolio-line-of-credit
> Because your line of credit is secured by your diversified investment portfolio, we can keep the rates low for you. Depending on account size, current rates are 2.40% - 3.65%. Using a line of credit is generally cheaper than carrying a balance on a credit card or taking out a personal loan.
> Borrow up to 30% of your account whenever you need it, for whatever you need. Pay back what you borrow and the interest payment on your own schedule.
And remember the ultra-rich themselves own the bank. Warren Buffet has huge multi-billion dollar positions in Goldman Sachs and Wells Fargo, in addition to owning the real-estate arm of Berkshire Hathaway itself. And the ones that don't own the banks, still get favorable personal treatment from banks in order to get their M&A or underwriting business.
The difficulty you are having in parsing out the comparison here is because the comparison is difficult to make (and possibly you are just trolling). How would you word this sentence to make it more clear? It is clear from the rest of the document that what is being compared is not the "wealth tax" on families, because as you said we don't have wealth taxes.
The comparison is what percentage of wealth do families already give to the government through taxes in general. Nowhere does it mention an existing "wealth tax". Most middle-class families build their wealth from a paycheck, while ultra-rich families can do so through other means that aren't taxed. Whether or not you agree that a wealth tax would be of benefit here, it's hard to argue against that point. And that is what your referenced quote is trying to elucidate.
Well of course not. There isn't one. And the Senate can't pass one because the Constitution (happy birthday) doesn't allow them. Elizabeth Warren knows that a wealth tax is unconstitutional. She swore to support and defend the Constitution. And she is championing a wealth tax.
https://www.bloomberg.com/news/articles/2021-02-16/swiss-wea...
Liquidating assets to cover that tax works out to a lower overall tax burden on the individual than capital gains tax. Most nations that are mulling wealth taxes are considering them as an added tax layer, as opposed to the Swiss who use it as an indirect means to tax investments, rather than asking for a per-transaction gain payment. Nations that have done the approach that's opposite to Switzerland tend to reverse their wealth taxes, or see little benefit (France, for instance).
It probably wouldn't work that way in the US, since it has an exit tax and it also taxes income globally regardless of where you currently reside (and I'd imagine any wealth tax would work similarly).
It seems like this is a recipe to generate some temporary funding for the US government by selling off our national assets (e.g. ownership of major US companies) to foreign investors.
The stock market.
> It seems like this is a recipe to generate some temporary funding for the US government by selling off our national assets (e.g. ownership of major US companies) to foreign investors.
Without domestic ownership requirements, that will happen anyway, for instance: https://www.marketwatch.com/story/jeff-bezos-just-sold-nearl... ("Jeff Bezos has sold $6.7 billion in Amazon shares over the past week"). I reckon that's about 3% of his wealth.
And frankly, the wealthy have been expatriating US national assets for a long time, just not the paper financial ones. I don't see why we should be especially concerned with those, since what they mean is controlled entirely by US law.
I am surprised people bite at this manipulative narrative. It seems to me that it discredits their arguments right away. In that sense, voter education would go a long way.
Huh? 0.05% is 20x smaller than 1%
To be top .5% in 2020, a household needed a net worth of $17,557,208. The top .1% bracket started around $43,207,732.
This wealth tax doesn't kick in until 50M USD.
I suspect it's people believing what they want to believe. When Elizabeth Warren comes along and says, "you can have everything you need: healthcare, food, clothing, housing, all without having to work at a job you hate, and all we have to do is agree to take a little bit from a few people who won't even miss it", a lot of people who do work at a job they hate and stress about how much healthcare, food, clothing and housing they have or might have in the future don't really see much downside in saying, "yeah, sure, let's try it".
I wonder if that’s been tried before. Maybe there’s some point of reference for the outcomes of that approach. Maybe it could be tried on a local basis and then evaluated before a complete overhaul of the largest single nation economy?
If I had to guess, I don’t think it would work out very well. Unless you imprison the wealthy. Then their wealth wouldn’t be mobile.
This would be a great idea to apply lean startup methodology. If it works, we’ll, that’d just be…unprecedented!
There's an interesting google talk on this from long ago. https://www.youtube.com/watch?v=X1PtStipIsc
An extremely reasonable 2.5% would be owed on money sitting in the bank for one lunar year (it's a form of "wealth tax" if you will). It has been documented that in Iraq during the Ummayad period where everyone paid their share of Zakat, there were no more poor people left to accept it.
And that's it, no income tax or messing around with it. It works.
Livestock and produce have a separate calculation, but most of us here are not in that business.
What would if the winning team always ended up writing the rules in such a way to where they were always winners and only winners could write next years rules?
As others have said, it is income that is taxed, there will be plenty of people who own capital (e.g. inherited a large country house) and who don't have the cash to pay a tax on it and presumably it would seem unfair to force them to sell it (and hope they get decent money for it) in order to pay a tax on it.
The UBI would be equal to the amount of the tax on up to some minimum income level (say, 50k / year). In other words, everyone gets a monthly check that is essentially a rebate on their sales tax up to the income threshold.
That's simple, loophole-free, and avoids the privacy invasion that accurate income tax collections require.
But you still don't have to pay taxes on your gains with this bill. You can take out a loan on your new assets at a 2-3% rate and its reduced to around 1% with inflation. Now you don't have to pay taxes because a loan on the principal value doesn't cause a taxable event with the step up in value. You just sell enough to cover your interest liabilities and pay taxes on that.
I wish they'd address WHY these rates are so low by attacking people and companies that aren't being productive with their capital by building things people want. Why attack a people or a company with a wealth tax if they are paying low rates because they spend most of their revenue on building the business. Capitalism is about rewarding good allocators of capital.
These rules also only apply to people with $50M+ and only to amounts over that $50M. I don’t think almost anyone should have that level of wealth in the world - it’s clearly created at the cost of others.
It gives no details on what loopholes would be closed, and then conflated that with tax cheats and that a well funded IRS will solve both.
A well funded IRS will just be rubber stamping the compliant tax reducing methods faster. Although most constituent's experience with the IRS is retroactive and adversarial, wealthier people's experience with the IRS is pre-emptive and collaborative. It is a totally different experience.
I don't get the impression that the people and organizations identified here would ever be subject to these taxes, even if the law was passed without any debate.
Changing values of assets are not income. Taxing net assets would require so much extra liquidity that may not exist, and if people wanted to be compliant with a wealth tax they will have to avoid illiquid assets which would be the most counterproductive fiscal and monetary policy for the economy. You want to get more people to go into illiquid assets to make them liquid, big yikes.
It is disingenuous trying to equate "$1 added to their net worth" to a wage worker adding $1 to their net worth, even if it was purely for explanation purposes. But here it is intentionally made to seem like something else. Its would make more sense to add a sales/excise tax to the buyers that push up the price of assets as they are the only ones moving liquid value around. Like a new uptick rule. Makes more sense to tax appraisers for illiquid assets if they uptick. I don't think any of these make real sense, but makes more sense than taxes people subject to the whims of the market.
Crypto.
Sorry I couldn’t help myself.
> ROSALSKY: In 1990, there were 12 countries in Europe that had a wealth tax. Today there are only three. Perret says they didn't work for a lot of reasons. Among other things, it costs a lot to enforce. It pushed rich people out of the country, and the wealth taxes didn't raise a lot of revenue.
But
> ROSALSKY: But Warren says that her proposal, which has no exemptions, will play out differently in the United States. Greg Rosalsky, NPR News.
Unfortunately, nothing in her proposal justifies that. Why can't companies and people just move out of the US to avoid this? Singapore or other countries will readily welcome them.
In France at least, it has been a topic of political debate for decades before the recent abolition and what's clear at this point is that it costed much less than what it brought (both in terms of law enforcement, and in terms of rich people moving out of the country).
> Unfortunately, nothing in her proposal justifies that. Why can't companies and people just move out of the US to avoid this?
A wealth tax isn't a tax on a company, it's a tax on the owner of the company so moving the company won't help here. And the owner leaving the US won't help either, since they will still have to pay taxes as long as they remain a US citizen. Renouncing to US citizenship would still be an option of course, but I'd expect the opportunity cost would be much higher than the cost of the tax itself.
Why? In 2021, a lot of countries have US levels or better infrastructure. The owner can reside outside the US and still make products for the US and the world.
> Americans Gave Up Citizenship in Record Numbers in 2020, Up Triple From 2019, Reports Tax Specialists Americans Overseas
https://www.prnewswire.com/news-releases/americans-gave-up-c...
A wealth tax on land (an LVT) is literally impossible to avoid however since you can't move the land.
Yeah, those are called property taxes and already exist.
Meanwhile the ultra rich are getting ultra richer and the rest is getting poorer.
So lets globally coordinated tax the rich for a while in a way that they can not evade their net wealth to some other country and lets see how well that works.
What is important is how much a person is paying as a function of how rich they are. Rich people get to pay way less and it's not fair. They can get around tax laws because their cash flows don't look like the average citizen's tax flows.
Do you have more info on this? The middle class literally paid less in taxes due to Trump's cuts[1]. The rates were lowered across the board and the standard deduction (negligible to the 1%, a huge chunk of change to the middle class) was increased.
[1] https://www.bloomberg.com/news/articles/2020-10-27/the-trump...
https://www.americanprogress.org/issues/economy/news/2019/09...
https://www.rollingstone.com/politics/politics-features/trum...
https://www.salon.com/2020/12/27/50-year-study-of-tax-cuts-o...
https://www.motherjones.com/politics/2020/06/trumps-tax-cuts...
I'm also curious what you think a sound tax policy would look like as an alternative to what Warren is proposing.
More seriously though, issues like wealth taxation, capital gains taxation, inheritance taxes etc. are I would say more of a reflection of the relative strength of large property owners (a.k.a. "Capitalists" or "The 1%" to use other colloquial terms) versus the rest of the populace, to set economic-cultural norms and influence legislation.
Certainly, if such a tax is put in effect, many of the wealthy would make an effort to hide their assets away, possibly even abroad. But if the (federal) state wanted to cope with or overcome this potential tendency - which it really does not in the ultra-bought-off US political system, including Ms. Warren - there are many ways it could do so, both on the national and international levels. Not to mention how US corporations already employ asset and activity off-shoring to evade taxation.
Finland: Discontinued
Luxembourg: Discontinued
Sweden: Discontinued
France: Discontinued*
Spain: Current
Netherlands: Current
Norway: Current
Switzerland: Current
Italy: Current, but excludes assets held within the country
Belgium: Current
So 5 discontinued & 6 current? That doesn't seem like "Almost every single"
https://en.wikipedia.org/wiki/Wealth_tax#Current_examples
Do you have a better source for what countries had it an discontinued it? For what it's worth I am here considering Financial property exclusively, France still has it's property tax which can be considered a wealth tax.
I am struggling to find write ups that don't just echo "they all repealed it" but list the specific countries.
In fairness, the "old" wealth tax did not bring a lot of revenue.
> In 1990, about a dozen European countries had a wealth tax, but by 2019, all but four had eliminated the tax because of the difficulties and costs associated with both design and enforcement. Belgium, Norway, Spain, and Switzerland are the countries that raised revenue from net wealth taxes on individuals in 2019 with net wealth taxes accounting for 1.1% of overall tax revenues in Norway, 0.55% in Spain, and 3.6% in Switzerland for 2017.
The citation for those statements links back to the OECD, so they apparently don't count the Italian and Dutch taxes as "wealth taxes". The NPR transcript linked elsewhere says only three countries have it, so that interviewee may not be counting Belgium either (since the tax is solely on financial instruments and not total wealth).
The exact amount varies between regions.
Wealthy regions like Madrid have abolished it. Non coincidentally, the regions that are economically doing better, and more contributing, per capita, to the central State.
https://www.businessinsider.es/impuesto-patrimonio-son-difer...
An article in Spanish
https://www.elindependiente.com/economia/2021/04/25/madrid-d...
Another one
https://www.libremercado.com/2021-08-03/el-efecto-laffer-de-...
En concreto, la región de Díaz Ayuso recibió de la caja común apenas el 23% de lo que ingresó en 2019.
Meaning that Madrid out of the 100% taxes it collects for the State, only 23% end up in Madrid. But that's still fine, because of the higher economic activity.
Madrid has been accused of "tax dumping", by having way lower taxes than other regions, and still:
Tanto es así, que Madrid aporta en torno al 68% del sistema de solidaridad interterritorial (más de 4.000 millones) frente al 25,5% de Cataluña o el 6,6% de Baleares.
Meaning that, even with low taxes, Madrid funds 68% (+4 billion Euro) of the inter-region fund system.
How is this possible? Why does Elon Musk pay less taxes than an average person who works in Tech?
It's probably why CEOs also like to take super low salaries.
What I don't understand is how their stock gifts or dividends don't trigger more taxes or why their taxes are indeed so damn low.
This money belongs in people's pockets, not in pockets of senators and their golf buddies.
Like clockwork, from a historical perspective.