
The Big Problem with Wealth Taxes - Bostonian
https://www.nytimes.com/2019/11/07/opinion/wealth-tax-constitution.html
======
coldcode
It's much easier to tax the poor, but you don't get anything.
Marginal/progressive tax systems exist for a reason. The problem is rich
people can afford to lobby (buy) politicians to make their taxes go away,
which is why the IRS is continuously starved for budget. The IRS admits it
cannot afford to audit wealthy people because it requires a lot of people and
effort, so auditing poor and middle class people is the best they can do.
Seems like the first thing would be to beef up the IRS budget.

~~~
metalliqaz
increasing the IRS budget wouldn't cost money but would make money from tax
cheats. political opposition to this has always been the most clear
demonstration that congress is in the pockets of wealthy donors, in my
opinion.

~~~
wmeredith
I totally agree. In its current state the IRS makes $4 for every $1 in its
budget.

~~~
simonsarris
Why is that impressive? Those two numbers in a vacuum tell us nothing at all.
Why isn't the IRS making $50 for every $1 in their budget?

Suppose we cut their budget by 50%, it's possible they've just been wasting
money and now they'd make $8 for every $1 in their budget. Great! Suppose we
double their budget. If they don't do anything differently they'll make only
$2 for every $1 in their budget. etc etc.

There must be _some_ component of their budget that is the part of the IRS
that goes after potentially fraudulent tax returns, and presumably increasing
or decreasing it will have a yield effect, but your figures have zero to
suggest what that is or where the point of diminishing returns may be.

Broadly speaking, context-free numbers that don't actually imply anything
(maybe more to the point _cannot_ imply anything without more information)
should be viewed with suspicion. :/

~~~
metalliqaz
wat

more revenue from better enforcement is not only logical, it has been the
conclusion of several reports from various agencies. the suggestion of twofold
increase in revenue collection from half the budget is a farce.

~~~
simonsarris
Okay, but he didn't point to any reports from any agencies. He gave a stat
that by itself backs no position on anything.

------
empath75
Morally and practically I think the best thing to do is implement a
confiscatory estate tax.

I don’t think it’s immoral or particularly hazardous to democracy for
individuals to amass a large amount of wealth in their life time.

The danger is when people then pass down these massive stores of wealth to
their children and grandchildren who have done nothing to earn it, and yet
will be able to use it to distort the political system for their personal gain
or simply sit idle while accruing more wealth through rents and interest.

Wealthy people should be able to pass down no more wealth to their kids than
would be needed for them to live a decent lifestyle without needing to work,
or to continue a family business of reasonable size for another generation,
but no more.

~~~
pjc50
> I don’t think it’s immoral or particularly hazardous to democracy for
> individuals to amass a large amount of wealth in their life time.

It is when the political system runs entirely on money and one rich elderly
person can have a huge influence on public opinion.

~~~
npongratz
> It is when the political system runs entirely on money and one rich elderly
> person can have a huge influence on public opinion.

Then, I'd argue, the root problem is with the political system itself.

------
reddog
Just want to point out that almost all Americans already pay a substantial
wealth tax. Most of middle class wealth is in the value of their homes and
that wealth is taxed as much as 2.4% per year by states and local government
in the form of a wealth tax called a property tax.

And no, you don't get out of that wealth tax by renting. Renters are paying
their landlords property taxes as part of each months rent check.

Given that, a 2% tax on billionaire wealth doesn't seem unreasonable.
Shouldn't their wealth tax burden be the same as the middle class? Yes it
would be complicated but not nearly as complicated as assessing the value of
millions of homes in the US (and commercial property, vacate land, etc) and
sending out a yearly property tax bill, handling appeals and then collecting.

------
cm2187
The experience of the wealth tax in france is that it costs almost as much to
collect than what it collects, plus creating unintended effects.

Turns out it is not straightforward to estimate what every asset in a country
is worth.

~~~
beefield
That's why I think more appropriate way to think about wealth tax is not
actual practical implementation, but more like a goal.

So no adding together all wealth, but tax the value of real estate instead of
the rental income. Tax market cap of public corporations instead of their
profit. Tax cars, boats and business jets. Tax bonds and other securities on
their value instead of revenue. Etc. All these ibdividual taxes are going to
have issues to be sorted out before implementing, bit I argue that as
individual taxes, the issues are way easier to solve than for one generic
wealth tax.

~~~
mc32
Wouldn’t taxing wealth reduce the real value of properties?

Say you have a 100 acre farm[1] valued at $100 and produces $10 of goods
annually. If you start taxing on the $100, no one is going to pay $100 for the
farm once a wealth tax is implemented as now they are taking on tax liability
that previously didn’t exist.

[1]for the sake of argument and illustration, were ignoring property taxes
which are like wealth taxes.

~~~
beefield
> Wouldn’t taxing wealth reduce the real value of properties?

Yes. That's almost like magic. You get cheaper properties, the property tax
revenue is used to reduce your other taxes so your net income does not
decrease (on average, of course). So you actually get more money to spend
otherwise than into your mortgage. Almost like alchemy. Turning taxes to
wealth...

~~~
Konnstann
You don't get reduced taxes though, so your net income does decrease. The
wealth tax isn't going to take the place of any other tax, it is in addition
to the taxes already in place. Whether you believe in the legitimacy of the
wealth tax or not the people paying it won't be better off, nor will most of
the people not paying it (disregarding benefits of the programs funded by the
tax).

~~~
beefield
If the other taxes do not decrease, then that means you get some other benefit
where the money is democratically being allocated. Tax money generally does
not just disappear in a modern relatively free society.

(Of course you can argue that western democracies are kleptocracies by default
and all taxes just disappear to the pockets of the thieves and you get no
benefit from them, but I personally do not consider that as a feasible
starting point for a reasonable discussion)

~~~
Konnstann
That's why I put a disclaimer in parentheses. I was responding to the claim
that a wealth tax would result in unchanged or higher income, which is
patently false. My answer to getting some sort of "benefit" is programs like
corn subsidies, which are not democratic, and are one cause of the obesity
epidemic in the US, because corn syrup is shoved into anything and everything,
fed to animals, etc. Again, not arguing against the wealth tax, just the
assumptions behind taxation that are being made.

------
bradenb
I think it was Planet Money that had an episode about wealth tax where someone
had an interesting solution to the problem of the manpower involved in
enforcing it: simply let the owners claim the value of their assets, but let
the government reserve the right to purchase the item at whatever value is
claimed. Theoretically this would lead to owners being as accurate as
possible.

I know there are probably a lot of gotchas with that approach, but I really
appreciate the elegance.

~~~
xorfish
Wouldn't that just be a free long call for the government?

Valuations can change pretty fast. If you declare your s&p500 index fund
portfolio with the most recent value and it goes up 10% over the next few
month until the IRA reviews your wealth. Are they allowed to buy it at the
declared value?

~~~
NovemberWhiskey
Yes; another one of the huge problems with this proposal is that it neglects
that many assets have time value.

Unless the government has to buy the asset the instant you propose your
valuation, you’re just being forced to write a free, ATM option to the
government.

Illustrative example: The S&P 500 index is currently about 3092. An "at the
money" (ATM) option is one where the strike price of the option is equal to
the current price. A call option for SPX at 3095 expiring on 12/06/2019 is
currently selling for $37.90 on the CBOE.

So basically you're giving away >1.2% of your investment by allowing the
government to buy it at a price you quote today but a month later.
Alternatively, you have to over-state the present value of the investment and
pay more tax.

------
londons_explore
A wealth tax is rather similar to inflation...

A 2% annual tax on wealth causes my bank balance to go down by 2% each year. A
2% inflation causes my bank account to become 2% less valuable each year.

The only difference is property (land, cars, etc.). Thats super hard to value
anyway, since without selling an item, you can't be sure what it would sell
for.

~~~
ixwt
The suggestion that I've heard to solve this problem is if the wealth tax
applies to you, you have to offer to sell your property to the government (not
all of it, but you could claim so much under a threshold that isn't being
sold, this isn't the full idea).

If the government believes that it's worth more than that, they are allowed to
purchase it for that price, and resell it at auction. If they think it is
reasonably priced, or over priced, you have to pay the wealth tax on your
proposed price.

This will drastically simplify the problem. There won't be a negotiation on
the price, there would be two independent evaluations, rather than one complex
one where there's a large amount of back and forth.

I don't know where I heard it, but it was mentioned offhandedly as a simple
solution to valuations for a wealth tax.

~~~
NovemberWhiskey
That's assuming that a sufficiently detailed inventory to allow appraisal is
reasonably possible; and then that the government will pay the costs
associated with valuing all the assets.

And then don't asset owners end up paying a surtax on their emotional
attachment to their property? i.e. the only way I can hold onto something I
would never want to sell is by paying a "wealth tax" that is decoupled from
its market value.

~~~
razorunreal
That seems fair to me because it results in a tax based on how much the
property is worth to you specifically. The "value" may be inflated from real
market value, but as long as that is true for everyone it doesn't matter.

Also if it's too much of a burden to value all these assets, you can list them
publicly and let people bid. If you expect the government to protect your
ownership rights, I think it's not too much to ask that you list your major
assets.

~~~
londons_explore
>major assets.

Such a scheme could also require you to list a value of "all unlisted assets".
If you try to hide a gold bar by lumping it in with all your trash, then the
government can buy out and auction "all of razorunreal's unlisted assets" as a
job jot. Companies would pop up specialising in identifying people with hidden
assets to profit from them.

------
duxut_staglatz
This was a problem for the federal income tax as well, which was solved.

~~~
rsj_hn
Just 13 states is enough to block it, with a population of 16 million, or less
than 5% of the US population can block an amendment.

For the income tax, there was broad based support for a Federal income tax
from both left and right, liberal and conservative, business and labor, rural
and urban. Without an income tax, the government was still dependent on taxing
alcohol, so the temperance movement backed it, as did those wanting a strong
military, and business who didn't want excise taxes to pay for all spending
backed it. Small states backed it. Big states backed it. Rural states backed
it. The current system of trying to fund the entire government on sin and
commerce taxes was hated by everyone.

Moreover at the time, the pro-income tax crowd could promise that only the top
1% would pay any income taxes, and so get the overwhelming support needed for
a constitutional amendment.

Although Warren is trying to play the same game here, people are not gonna be
fooled again by the "only billionaires will be taxed" line.

At least, as long as 5% are not fooled, it wont pass.

~~~
specialist
You're saying that reverting the 2017 federal tax cuts, which overwhelmingly
benefitted rich people, valued at some trillion dollars, financed by borrowing
(vs offset with spending cuts), is a bad idea because non-rich people will
have to pay a few bucks more?

~~~
rsj_hn
So you're saying that you have difficulty converting letters to words in your
mind and so will just invent a comment and then proceed to come up with your
own take about it?

Is this is a good use of your time?

In that case, Why did you say that dogs should be forced to eat cats? I think
that's a terrible take, and pretty irresponsible for you to advocate for it.

~~~
specialist
I'll agree that I'm not smart enough to divine your meaning. Apologies.

 _Although Warren is trying to play the same game here, people are not gonna
be fooled again by the "only billionaires will be taxed" line._

I'll only add that I remain baffled when people support tax cuts for other
people.

A preferential tax cut for me is a tax increase for you.

~~~
rsj_hn
Wow, there is a lot to unpack there.

Your assumption that opposing the introduction of a new type of tax is
equivalent to advocating for a tax cut is false.

You assumption that the total tax base is constant over time and thus
advocating a tax cut for you is equivalent to a tax increase for me is false.
Easily dispelled by looking at historical data, which shows tax share of GDP
is not constant.

Your assumption that the economy consists only of two people, you and the
billionaire, so that a tax cut for one is a tax increase for you specifically
is false.

Your assumption that it makes no matter whether something happens at the state
or federal level is false.

Your belief that it doesn't matter whether a politician misrepresents a policy
('only Billionaires will get taxed to pay for my healthcare plan') as long as
you agree with the policy is reprehensible. Truth is important in and of
itself.

I could go on, but you are living in a completely different reality from me.

~~~
specialist
Still no answer about 2017 tax cuts.

Your "rebuttal" ignores debt over that time span.

You also add a lot of assumptions about assumptions. In the interests of
discourse, we'll give you partial credit for participation.

------
hackeraccount
I'm extremely skeptical of taxes that try to take a large amount of money from
individuals for two reason.

One is psychological. I make a small amount of money relative to Jeff Bezos.
If you root under my couch cushions you'll find nickles and dimes. Naturally
if you do the same for Jeff you'll find $100 bills and stock certificates
worth thousands of dollars. Except you don't. Because on some level if you ask
Jeff if $1000 is a lot of money he'll say yes. People know that some amount is
a percentage of their totally wealth but they also understand what an amount
is worth in absolute terms. And they're jealous of it in those terms.

The other problem I have is that tax avoidance is a fixed cost. It's the price
of a tax attorney or more cynically a congressman. All three of the groups -
the taxed, the lawyers and the congress people - have an understanding on
that. You don't pay %10 of the tax to avoid the tax - you pay a set amount to
avoid it. As the tax grows larger the incentive to avoid ratchets up.

------
burmer
Yeah, I never liked the idea of a wealth tax because it seemed overly
complicated and open to manipulation. You’re taxing an assessed value of
things that people say they own? This seems like property taxes, but worse,
and rich people fight property tax valuations more frequently.

------
java_script
Interestingly the paper they cite for more-constitutional alternatives to a
wealth tax actually includes a wealth tax in its suite of options and argues
in favor of the constitutionality of a wealth tax (p 25)

E: I should add it disagrees with the central argument that this would be a
“direct tax” and mentions ways the wealth tax could itself be structured to
give the Supreme Court less of a leg to stand on. Personally I’d rather run a
candidate that would even bring this fight in the first place. Maybe if it’s
on the news then the >99% of viewers will realize that the <1% are able to
beat them down easily in any legal fight imaginable despite their incredible
small numbers and harmful distribution preferences.

------
blacksqr
Instead of taxing individual wealth, far easier and constitutionally sound to
impose a corporate tax as a percentage of total stock value.

Let the markets determine the value of the stock, then calculating the tax is
a few minutes' work.

Most people who get really rich do so by owning stock or shares in a
corporation, partnership or LLC.

~~~
organsnyder
What about privately-held stocks?

~~~
blacksqr
Many privately-held companies sell stock, and their value can thus be
calculated.

For those that do no stock trades, a gross income tax would be a simple
alternative.

~~~
organsnyder
Seems like a strategy could emerge to do private sales at well below estimated
value, in order to game this system. You could make it illegal, but it would
be incredibly hard to prove (and harder still to detect).

~~~
blacksqr
Seems like such a strategy would already be illegal as a means of avoiding
capital gains taxes.

It would also have the side-effect of destroying the company's valuation and
thus its credit rating.

------
netfl0
Clickbait from academics makes me sad. My issue is with the headline.

The probability of something making it through Congress and getting rejected
by the court seems pretty low given the historical precedents.

~~~
lr4444lr
That's not fair. The authors probably have little to no say in the headline. I
thought the content of this op ed was among the best I've read in the paper
for a long time.

~~~
netfl0
> The problem, alas, is the Constitution.

It’s not much of a stretch to think the title was their idea. I’d grant that
the paper may have added the word “big”. It has their name on it.

------
robert_foss
Sounds like FUD to me

~~~
bsenftner
Exactly. We write our own laws. If need be, we'll write this into law.

~~~
fennecfoxen
And after the Supreme Court strikes down your law as an affront to the law of
the Constitution, perhaps you'll pack the court with flunkies who will rubber-
stamp those laws as well, and try again.

------
objektif
Why couldn't we just increase the sales tax especially on the goods that are
consumed by the upper/upper-middle class?

~~~
chongli
Because millionaires don’t eat a thousand times more food than
“thousandaires.” Rich people don’t spend their money in general, they invest
it, and then their children inherit it.

Fine if you want to levy a huge tax on yachts, but very few people who could
afford one have the inclination. And from what I gather, those who do want a
yacht buy it in Italy, not the US.

If you really want to tax the things rich people buy, then start with a land
value tax. Rich people buy huge amounts of real estate. Taxing it at its fair,
unimproved value would be ideal [1].

[1]
[https://en.wikipedia.org/wiki/Land_value_tax](https://en.wikipedia.org/wiki/Land_value_tax)

~~~
AJ007
Wealthy people also like to buy up large amounts of undeveloped land for
conservation purposes. I’m not sure why they don’t just say they are jacking
up income & capital gains taxes, and getting rid of tax-free asset transfers
to non-profits.

I still haven’t seen anyone estimate how much Amazon’s value would drop if
Jeff Bezos has to liquidate 6%+ of his Amazon shares every year. Who is even
buying those shares? One could claim, well the existing trading volume would
support it, but these predicted, yearly fire sales are going to be happening
across all asset classes by the ultra wealthy. We may just be switching from
paying for current consumption with IOUs (Treasury bonds) to transferring
ownership of American assets to foreigners and thus future income.

------
kbutler
As if there were only one "big problem"

    
    
      - incentive effects
      - investment effects
      - asset flight
      - valuation
      - avoidance
      - breaking up going concerns (small business/family farm)
      - the fact that it hasn't worked anywhere
    

Oh, yeah, and as they said, it's illegal.

------
seibelj
The other problem with wealth taxes is that they don’t work. If we tax wealth
beginning at 50mil suddenly we will have tons of 49millionaires. Just imagine
if the wealth tax began at 50k rather than 50mil. The hottest growth job would
be tax lawyers.

~~~
dgacmu
Only a poorly designed wealth tax would have that property. This is exactly
why progressive tax systems use marginal rates. People wouldn't stop saving at
49 million when they had to pay tax of 1% on the money above 50 million. they
wouldn't stop at 99 million if they had to pay 2% on the parts above 100
million.

~~~
londons_explore
A lot of people don't understand marginal tax rates. If the population you are
taxing doesn't understand the tax system, they will behave according to their
understanding of it, rather than reality.

I have met plenty of people who say "don't give me a pay rise, I don't want to
hit the 40% tax rate", even with a marginal tax scheme with no
discontinuities.

~~~
imgabe
Someone with a net worth of $50 million should understand marginal tax rates,
or at the very least be able to hire someone who does.

