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Comment by absherwin | Hacker News Reader

Given that the vast majority of wealth in this country in held in liquid assets or in real estate which is already taxed based on value, why do you suppose that a scheme to tax it would be more complex than the corporate tax system which employs on the order of ten thousand people and generates returns that are often thousands or even tens of thousands of pages and has been shown to be amenable to a wide variety of gaming through manipulating the timing and geographic incidence of profit?

There will be some complicated edge cases but there will be relatively few and the ability to game them is less because wealth is a simpler concept than income.

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> Given that the vast majority of wealth in this country in held in liquid assets or in real estate

Source?

> There will be some complicated edge cases but there will be relatively few and the ability to game them is less because wealth is a simpler concept than income.

How is wealth a "simpler concept" than income. AFAICT, income is far simpler (and, in fact, involves a strict subset of the assessments necessary in assessing wealth.)

Non-financial non-real estate assets account for 5.8% of the total according to the Fed's flow of funds report (Z.1) table B.100: http://www.federalreserve.gov/releases/z1/Current/z1r-5.pdf. Note this also includes non-profits but that's a relatively small distortion.

Wealth is the value of everything you have less what you owe. Every item can be valued by seeing what people would pay for it, which is usually just its current market price. How do you determine income objectively? You could merely take wealth at two points in time but our society has declined to define it that way because much of the money coming in might go to some sort of expense which ought to be excluded, which is neither objective or simple, and because some changes (such as fluctuations in asset prices) are assumed to be transitory and therefore impractical to tax. The latter is actually the source of most of the perfectly legal tax evasion in this country: Hold stocks, generate value, pay nothing until you sell which needn't be ever.

> Every item can be valued by seeing what people would pay for it

"What people would pay for it" is a controversial quantity that can only be speculatively and uncertainly answered unless you are actually selling it in an open, unrestricted auction (even actual sale under real-world conditions often doesn't answer this, since its possible that both buyer and seller have non-financial interests which motivate the sale decision such that the purchase price does not represent the market value.) For pure interchangeable commodities with robust markets, this is less of a problem, but for many real world assets (including real estate) this is not the case.

Note that while real estate is already subject to ad valorem taxes (and other value-based policies, such as eminent domain), valuation is not at all free from contention even with those taxes as just one piece of the overall tax picture; if wealth-based taxes were the primary tax system, that problem would be magnified.

> How do you determine income objectively?

If you can value wealth objectively, you can value income objectively, since income is just a subset of the changes in wealth. The problems in income valuation are problems in wealth valuation (which is why, e.g., capital assets are valued at sale for income purposes, which becomes less viable of a solution to the problem of valuation if you aren't taxing the change in wealth but taxing the wealth in each year it was held.)

> "What people would pay for it" is a controversial quantity

Yep. A friend thinks we should have a "You bought it!" law for insurance companies that assess the value of your belongs to calculate a premium. Basically once they give you their assessment, you have to right to say, "You bought it!" and they have to take it off your hands at that price. Not that such a law could work in the real world, but it is pretty clever. I bet a lot of people wish they could use such a law for property tax assessments.

The incentives do not necessarily work well there.

But I could imagine a "We The People Buy It" under a system of wealth taxes. That the gov't could choose to buy any asset for a modest premium over what the taxpayers asserts it was worth for purposes of taxes last year. Heck, maybe any citizen should be allowed in on that game?

"Hmmm, you say your restaurant business is worth only $300k? It is your lucky day! I just bought it for $360k."

OMG, that's brilliant! Now I just need a couple of hundred million and I could buy Walmart!

Of course, there are imperfections in some assets. Let's not talk in the abstract. We've established that this problem applies to 5.8% of assets. Some percentage of those have reasonably computable valuations. If not or if the valuation is contested, we can allow tax to be paid on profits as an alternative or a cumulative tax to be paid at sale based on average value through the holding period which could be inferred given a standard growth curve.

Real-estate appraisals are imperfect but getting within 20% most of the time is quite achievable. The main problem is for unusual or expensive properties which could be handled similarly to hard-to-value assets.

Your statement doesn't follow unless defining that subset is easy. What should be included or excluded? As we're discussing corporations, we have ample evidence of the ability to game. You could suggest closing loopholes but most of the loopholes also have legitimate uses.

You write that "capital assets are valued at sale for income purposes" is a solution to the difficulty in measuring their value. Why is this the case? Remember that the origin of this discussion is whether it's better to tax corporate income or the wealth of those who own the vast majority of that income. Are you asserting that valuing a person's equity holdings is difficult?

If we shift a huge portion of the tax burden to financial and real-estate assets and ignore others, will that remain at 5.8%?

If we don't ignore non-financial, non-real estate assets, then difficulty of estimating their value becomes a significant issue.

Income is not simpler, as you can change around how people are compensated, which is exactly what's happened for the better part of a century at least [1]. But if you own a garage full of Ferraris, then you own a garage full of Ferraris. The only problem at that point would be foreign held wealth.

[1] One of the reasons the US got into the health care mess they have now was companies taking over the payment of health insurance instead of giving a salary increase. Workers liked this because it effectively meant they paid less taxes.

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