
Thinking about wealth taxes - MaysonL
http://equitablegrowth.org/thinking-about-wealth-taxes/
======
cbeach
People ought to be able to enjoy the wealth they've earnt over their lifetime
without having to defend it from the state.

But when they die, IMO their wealth ought to be redistributed to society.
Their own kids didn't earn it any more than the neighbour's kids did. I'm okay
with increasing inheritance tax provided we simultaneously reduce income tax
rates. That would produce a fairer society where people are more productive.

There will be those who (fairly) contest the double taxation aspect of
inheritance tax, but please consider the benefits to society of reducing
income tax as a result of raising inheritance tax.

Parents could argue that it's up to them what they give their kids. That's
true. But watch "Made in Chelsea" to see what happens when kids get a large
inheritance. Horrendous! :-)

Obviously tax collection is also an issue here - people will naturally try to
avoid inheritance tax, and it will be very hard to stop them. No easy answers
to that.

~~~
nugget
The inheritance tax already kicks in at a pretty high rate above $5 million
and change. Are you advocating for an even higher rate? Close to 100%? If so,
keep in mind that inheritance and gifting (while still alive) are directly
connected. A 100% inheritance tax means you functionally prevent people from
giving any sizable amounts of property to any other person (sans spouse
presumably). This has a lot of implications. Even under such a system, if I am
a wealthy parent, can I invest in a child's startup? What's the difference
between a legitimate investment versus a transfer of wealth masked as an
investment? Can I buy a 5th house in the city in which my child lives and
allow them to live there rent free forever, or will the Government want to
impute rental income? Will we create a new layer of (expensive, game-able)
bureaucracy to decide what's fair use versus unfair use? Will the fact that
effective transfers of wealth now require a higher degree of sophistication
make inequality even worse?

My point being that these types of taxes tend to introduce a lot of
complexity, cost, and inefficiency (and that's before considering the
inevitable loopholes that lobbyists pay to include). And ultimately, lots of
unintended consequences. I agree that the tax system can and probably should
be used as a tool to encourage more equality but let's do it in a simpler and
more efficient way, like land value and other consumption taxes.

~~~
cbeach
Absolutely right on the complexity and loopholes. As I said - very hard to
collect this in practise. But then again there are ways of legitimately
avoiding income tax too.

I agree with raising consumption taxes.

------
Brakenshire
> A wealth tax, however, would shift the tax burden more onto the less active
> wealth holder. This, in turn, would give him a lower rate of return, and
> capital would shift to the more active individual. In other words, the
> redistribution would be a reallocation to more productive means. As the
> authors point out, however, this would also mean an increase in wealth
> inequality.

Interesting to think about the social and economic consequences of this kind
of change. Charities would probably be less capable of operating in perpetuity
on endowments, individuals would no longer be able to invest their wealth and
live off the rent. The economic status of all individuals within the upper and
upper-middle classes would in effect be constantly sinking, and they'd be
expected to make their way on their merits within the market economy. Money
would be reallocated towards people who could do more with it. It would be a
shift towards a world with a much more cut-throat, highly meritocratic, highly
competitive model of capitalism.

It also introduces nuance into the debate around Thomas Pikkerty, you're not
just talking about capital growth, but also about passive and active
investment. I doubt many people defend the passive growth of capital over and
above the general growth of the general economy. If you really can put your
money in property, or in an index fund, and with very low risk grow your
wealth at a rate higher than the rest of the economy, that is clearly a
problem - it is an economic tendency towards aristocracy. But if you're
creating a system where passive capital is falling away, and the funds flowing
in each generation towards people who can deploy the capital most effectively,
that is a different moral issue, and a different trajectory for the future of
the economy, and society.

~~~
Spooky23
Wealth tax shifts revenue streams towards those who benefit the most
financially from tax expenditures.

Folks with significant wealth need the benefits of well run, stable government
to hand on to that wealth. The proportionally pay little or nothing for that
benefit. Poor people survive no matter what. Middle class people bear the
burden of paying for everything.

------
Zach_the_Lizard
There's a alternate hypothesis [1] put forward that increasing inequality is
mostly due to an increase in housing costs.

If this is the case, then it would likely be better to implement land taxes.
Land taxes are probably better than most taxes for a variety of reasons, but
if we are directly looking to decrease inequality land taxes would strike at
the root cause.

I am not an economist, so I'm not equipped to evaluate either set of claims.
Is there anyone here who might know what they're talking about who can weigh
in?

[1][http://www.mit.edu/~mrognlie/piketty_diminishing_returns.pdf](http://www.mit.edu/~mrognlie/piketty_diminishing_returns.pdf)

~~~
delecti
What's to stop land-owners who are renting their land from just increasing the
rents? I can't see that _not_ happening, and that would have a big impact on
poor renters. That would really only hit people who own their own homes, or
who own land that they aren't renting.

~~~
Zach_the_Lizard
>What's to stop land-owners who are renting their land from just increasing
the rents?

The supply of land is fixed is the difference. If you tax a good with fixed
supply, the price of that good will tend to decrease.

A good that is not fixed will tend to increase in price after a tax, because
the higher costs will tend to reduce supply.

>I can't see that not happening, and that would have a big impact on poor
renters.

Taxing improvements reduces the incentive to build--costs rise--which is why
property taxes can be passed on to renters.

Because land is fixed in supply (keep quiet, Kansai International Airport!),
it isn't actually possible to pass on a land value tax to renters. Land taxes
actually make land cheaper to buy (though with an ongoing tax obligation).

>That would really only hit people who own their own homes

The tax falls on those who own land, who tend to be the wealthiest in society.
Because its a tax on land _value_ , those with the most valuable land pay the
brunt of the tax.

Think of Midtown Manhattan; the land owners there would pay a large proportion
of the taxes in NYC since they have a comparatively large portion of the land
value.

Someone in deep Queens would have relatively low taxes since their land is not
nearly as valuable, even for the same acreage.

>or who own land that they aren't renting.

If you own land you aren't renting in a high value area, yes, it punishes you
for that by design. Think vacant lots in the city center. If you own such
land, you are likely rich.

If you are attempting to use NIMBY rules to prevent development, it will
utterly destroy you. I think this is a feature, not a bug.

~~~
chatmasta
> If you tax a good with fixed supply, the price of that good will tend to
> decrease.

If anybody else found this claim to be counter-intuitive, the wiki article on
'Land value tax' helped me understand. [1]

I am not convinced. The biggest problem I see is the practical one of
appraising the value of the land, which depends on what the land will be used
for. A landlord will almost always outbid a homeowner when buying a plot of
land, because the landlord intends to monetize the land, while the homeowner
intends to live on it.

A land value tax would favor monetization over personal use, increasing rental
prices and expanding the size of the "renter class" while shrinking the size
of the "homeowner class". The result would be an effective increase in the
relative price of owning a home compared to renting one.

Paying rent is obviously economically inferior to owning property, and any
policy that encourages rental growth over homeowner growth will only increase
the inequality gap. Only the wealthiest benefit from increased rental volume.

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

------
kardashev
Actually, the ethically and morally right thing to do would be to respect
people's right to keep everything they earn. Good causes should prove they are
good causes and be funded voluntarily. Forcing people to fund things causes
conflict.

~~~
rayiner
"Rights" are all arbitrary rules in an artificially constructed system. As an
organism in the state of nature, the only "right" you have is to use your
natural abilities to kill, eat, and steal from other organisms. When you
impose a social organization that takes away that right, which is the only
truly fundamental one, any rules you layer on top of that are arbitrary.

Consequently, society can, consistent with ethics and morality, recognize a
right to hold property, and just as consistently recognize exceptions to that
right such as for payment of taxes.

~~~
Zigurd
That is your view. Now write a constitution based on that. Or, perhaps you
find a constitution, or basic law, that has a viewpoint on rights to be
superfluous.

The US constitution was written with a point of view: that people have rights,
and that those rights are unenumerated. You might think that's rather
artificial. But so is government, in general.

~~~
rayiner
The U.S. Constitution assumes that people have "rights" but does not
articulate a theory of what those rights _are_. Do they exist in the state of
nature, as Locke believed, or do they arise from recognition by society? The
Constitution takes no position on that.

~~~
AnimalMuppet
The Declaration of Independence _does_ take a position on that, however - that
those rights are given by God, and therefore that no human has the authority
to take them away.

------
sportanova
> One received his wealth through inheritance and really isn’t doing much with
> it

Seems very naive - what would doing a lot with it even mean? It's definitely
not under their mattress and even if it's sitting in a bank at 0.1% it's being
invested by the bank. Otherwise it's going to be in some mix of stock, bonds,
and private investments. Don't see how that's much different than the
entrepreneur who sold their company for $X,000,000 and doesn't reinvest all of
it into their next company

~~~
Hermel
It's the difference between dumb and smart money. Dumb money is passively
invested, while smart money is actively invested into endeavors like startups,
where the investor can make a difference beyond merely providing money.

~~~
kyleblarson
And lose 100% of their "smart money" invested in said startup about 90% of the
time.

~~~
verbify
But because of biases, we usually focus on the 1% of the time they make an
absolute fortune. Usually more due to dumb luck than actual savviness.

------
cbeach
Piketty gets away with a distortion of the debate because his conclusions are
so populist.

[http://www.cityam.com/1416252493/financial-crisis-saw-uk-
bec...](http://www.cityam.com/1416252493/financial-crisis-saw-uk-become-more-
equal-was-nothing-celebrate)

It's questionable whether a) there is growing inequality and b) more equal
times (eg the 70s in the UK) were preferable for anyone.

~~~
baldfat
> It's questionable whether a) there is growing inequality

I am wondering if your talking about UK and not US? In US it is not
questionable the gaps are certainly greater.

[http://www.cbpp.org/research/poverty-and-
inequality/a-guide-...](http://www.cbpp.org/research/poverty-and-
inequality/a-guide-to-statistics-on-historical-trends-in-income-inequality)

[https://www.washingtonpost.com/news/wonk/wp/2015/05/21/the-t...](https://www.washingtonpost.com/news/wonk/wp/2015/05/21/the-
top-10-of-americans-own-76-of-the-stuff-and-its-dragging-our-economy-down/)

> b) more equal times (eg the 70s in the UK) were preferable for anyone. (Soft
> science?)

In terms of poverty we could certainly do MUCH
better.[http://www.nytimes.com/2014/01/05/business/50-years-later-
wa...](http://www.nytimes.com/2014/01/05/business/50-years-later-war-on-
poverty-is-a-mixed-bag.html?_r=0)

In terms of working middle class. Does anyone even have a pension anymore?
401K are not pensions and well it is scary. Also the rate of pay has stayed
stable despite to record profits. [http://monthlyreview.org/2014/01/01/the-
plight-of-the-u-s-wo...](http://monthlyreview.org/2014/01/01/the-plight-of-
the-u-s-working-class/)

~~~
pc86
Pensions don't work. The fact that they're disappearing is proof of that.

The entire concept of being legally required to provide a certain monetary
benefit in 2060 based on someone's work now is crazy.

> _401K are not pensions and well it is scary._

Why? Your benefit is based on the actual money you have. That's just math, as
opposed to smoke and mirrors with pensions where the money may or may not
actually be there 50 years from now.

~~~
baldfat
Pensions work 100% but they cost money SO instead of paying pensions we have
more profits which benefits the wealthy? The whole stock market profits the
same people. That people have to pay into the market for them to have a
retirement plan also benefits the same wealthy people.

When people's 401K fail then the government has to pay for the companies for
not providing for their employees.

[http://time.com/money/3624637/401k-retirement-problems-
getti...](http://time.com/money/3624637/401k-retirement-problems-getting-
better/)

~~~
pc86
Don't pensions rely on the market in order to remain solvent? Where does the
supposed gain come from? Either it comes from the markets, in which case the
workers are better off investing in the market directly, or it comes from the
people paying into the system today, in which case it collapses as soon as the
debits exceed the credits.

And no it's more like "pensions work 75%"[0]

[0] [http://abcnews.go.com/blogs/business/2013/04/insolvent-
union...](http://abcnews.go.com/blogs/business/2013/04/insolvent-union-
pension-plans-may-double-by-2017/)

~~~
baldfat
Pensions rely on payments. Now those payments do get invested. Pennsylvania
just didn't make payments for 10 years for teachers and state workers and that
kind of causes problems.

Also 65 might be to low a number now but that is another issue.

~~~
pc86
> _Pensions rely on payments._

Meaning that the system collapses if you don't have new people continually
paying into it?

I think that already has a name.

~~~
baldfat
No the state just didn't pay their bill. Now we are paying much higher to
catch up!

Last time I looked PA has millions of people.

------
Hermel
Switzerland has been following the suggested approach, and it seems to work
well. There's no capital gains tax (for private investors), but a wealth tax
instead. Another advantage beside the mentioned incentive to invest is that
tax revenues are less volatile.

~~~
_yosefk
Interesting! How are they taxing "illiquid" assets like real estate, paintings
or jewelry?

~~~
Hermel
For real estate, each region is free to define their own valuation rules. In
Zurich, either 70% of the previous transaction value is used, or a
conservative value based on size and location, whichever is higher. This value
is often also the basis for the self-rent-tax. (In Switzerland, the amount you
could earn by renting out a self-inhabited property is taxed as income. Not
doing so would give homeowners an unfair advantage in comparison to renters.)
Paintings and jewelry are only taxed if they make an unusually high share of
your wealth, i.e. if you are a collector. Again, the exact guidelines vary
depending on where you live.

Here are the official guidelines for valuing real estate in Zurich (in
German):
[http://www.steueramt.zh.ch/internet/finanzdirektion/ksta/de/...](http://www.steueramt.zh.ch/internet/finanzdirektion/ksta/de/steuerfragen/liegenschaftenbewertung/_jcr_content/contentPar/downloadlist/downloaditems/247_1306239562487.spooler.download.1452004776538.pdf/15-502_per+1.1.2016.pdf)
Note that you do not have to apply these rules yourself. Instead, the local
tax office performs the calculation and notifies you about the result. If you
disagree, this result can be contested, but generally, you do not need to
familiarize yourself with all the details.

------
ThomPete
I have long been wanting this kind of taxation to happen. It seems the most
fair as the wealth increase created from ex. owning lots of land or building
is mostly done by the rest of society not by the individual purchase of a
building.

So basically we should tax money that lazy and give tax breaks to money that
are actively working.

This also correlates with how economist normally want the economy to work.
When everyone spends money wealth is created. You could say that people who
make less money are better citizens from that perspective in that they are
more likely to keep the economy going than those who just let it sit and
collect in the background.

~~~
Zach_the_Lizard
>It seems the most fair as the wealth increase created from ex. owning lots of
land

If you want to charge people for profiting from land, it seems a land tax
would be the best way to do it. It's essentially a property tax, except
instead of taxing the land and the improvements, only the unimproved land
value is taxed.

This allows capturing some of the economic rents by society as a whole in a
way that has very little distortion and is essentially avoidable only by
moving.

Moving would mean not taking advantage of any of the benefits or improvements
of the area, so the only way to avoid it would be to give up the benefits. A
wealth tax, by contrast, could be avoided by moving wealth to another country.

Since a large amount of wealth is tied up in land, a land tax is a sort of
wealth tax by proxy, but with virtuous effects of promoting additional
development and investment and punishing things like land speculation. It's a
progressive tax too.

~~~
ThomPete
I agree about just moving the money to another country is an issue.

But it's one that a globalized world where money can move freely must deal
with somehow.

I think we will see this shift and that more and more countries will be
working together closer and closer.

It's going to take time but I think it's unavoidable.

------
reddog
The wealth of the US middle class is already taxed heavily. In my part of the
country it runs at about 3%. This tax is more commonly known as a property
tax. Since the middle class carries most of its wealth in the form of equity
in home, this wealth tax falls disproportionally on them.

~~~
dexterdog
3% ? I pay about 13-30% of my income in property taxes depending on what kind
of year I had. Lately it's been closer to 30.

~~~
delecti
You might pay 13-30% of your income in property taxes, but you almost
certainly pay <5% of you property's value, which is what the 3% in the parent
comment was referring to.

~~~
dexterdog
Gotcha. Sorry for the confusion.

------
vixen99
[https://blogs.harvard.edu/philg/2016/01/11/if-inequality-
is-...](https://blogs.harvard.edu/philg/2016/01/11/if-inequality-is-bad-why-
does-the-government-run-powerball/)

------
evanpw
Interesting related fact: in much of Europe, children have a legal right to a
big fraction of their parents' wealth after they die [1]. The
Gates/Buffett/Zuckerberg scheme of giving almost everything would be illegal,
and in some cases children can sue to recover donations made during their
parents' lifetimes.

[1]
[http://www.economist.com/node/14644403](http://www.economist.com/node/14644403)

------
thomasjames
Direct wealth taxes at the federal level are considered unconstitutional
unless they are carried out in proportion to each individual state's wealth.
It is a really strange aspect of constitutional law that may prove complicated
for the Sander's tax plan.

~~~
Estragon
I didn't know Sanders has talked about instituting a wealth tax. Can you point
me at some discussion about it?

~~~
thomasjames
[http://www.realclearpolitics.com/video/2015/10/20/bernie_san...](http://www.realclearpolitics.com/video/2015/10/20/bernie_sanders_a_little_more_complicated_than_just_taking_wealth_from_the_rich_and_redistributing_it.html)

