Taxing Income vs. Taxing Wealth

by Ugh

In another edition of "russell asks," he queries why we can't/don't tax wealth rather than income.  

There are a number of reasons for this, some better than others.  Let's assume the federal government set a wealth tax at 2%. 

First question is: 2% of what.  Presumably of the fair market value of your net, but not gross, assets (that is, less any debt outstanding, but it wouldn't have to be that way). 

That leads to the second question: how do we measure fair market value?  In cases like publicly traded securities, it's easy: the closing price on 12/31/2013.  But for other assets, it's much more difficult. Certainly houses are more difficult than stock - and we do impose a wealth tax on houses at the state level but it's called a "property tax" (and at the gross value of the house no less) - but probably doable. But what about my car(s) (although some states base registration fees on FMV)?  Or my boat?  Or my persian rugs?  Etc.  

We could of course make simplifying assumptions, e.g., all 2003 Honda Civics are valued at $X - that seems a little unfair to the person who has 200,000 miles on it vs. someone who only has 10,000.  Or we could tax only easily measured assets like publicly traded securities (we'd have to decide what "publicly traded" means, and there's at least one, if not more than one, very long definition of that in the Code) and "large" assets like houses - perhaps piggy backing off the state's valuation for property tax purposes (and maybe subtracting out the outstanding principal of the mortgage).  But this would allow folks with very nice cars, yachts, Picasso collections, etc., off the hook.

To compensate for this we might try to make it progressive by saying 2% of assets above $Y, but that wouldn't eliminate the need to measure your assets.  OTOH, we kind of do this now with the estate tax, but that's one time only event, not yearly.   If $Y was set high enough, perhaps yearly measurement wouldn't be an issue.

Another question, although a similar problem arises with the income tax, is why measure on 12/31 each year?  Why not more often, or less often?  And what happens if there is, e.g., a huge run up in the stock market in December followed by a collapse in January (say the financial crisis hit January 15), and now my stock is worth $50 but valued at $100 for the 2% tax?

Ability to pay might be an issue as well, which is generally why there is income tax withholding on wages (and certain other payments).  Suppose I'm retired, living in the house I paid off over 40 years, living on social security, and the neighborhood is much nicer now than when I moved in.  Now there's a 2% tax on my house, that could be a large chunk of my income, and I might either have to sell my home, take out a loan, or perhaps a reverse mortgage.

Other issues:  what to do about pensions, 401k, IRAs, etc.?  Is there a separate wealth tax for corporations, trusts and other legal entities?  Are charities exempt?  How do we value intangible property?  Do we keep the current "worldwide" system of taxation in place?  Would this cause wealthy people to renounce their citizenship?

There may also be a Constitutional problem, which is whether a wealth tax is a "direct tax" that must be apportioned among the several states.  I don't think the Supreme Court has ruled something a direct tax in more than 100 years because the apportionment clause is, well, stupid and nonsensical.  (see this article), but I can see the current court ruling that such a tax is "direct."  

It might be easier to tax wealth now than 100 years ago, but it's not as easy as taxing income, or at least we have much more experience taxing the latter and the infrastructure in place to do so.  That said, until recently many countries in Europe had a wealth tax (and probably some still do), so maybe we could learn from them.

Finally, there is the Golden Rule:  he who has the gold, makes the rules.  Which might be the best and simplest explanation.

Comments

[Ssb00]

It's refreshing to come across a place that knows the difference between wealth and income. And the explanation why we tax one and not the other is a good one. I would mention that property and ad velorem taxes are on wealth, but they have historically been sources of local revenue, not federal. The only wealth tax that comes to mind is inheritance, and the exclusion (four million? I'm not sure) is so big and most people in that league are good enough at estate planning to get around it.

Income is the source of new wealth. And since the metric is annual instead of lifetime accumulation, it seems equitable enough. Unfortunately the progressive nature of our income tax has been torpedoed over the years by a raft of loopholes tweaking what is deductible and to what extent.

I recall when interest was deductible but that deduction was removed (wisely, I might add). Unfortunately, it was about that time that home equity lines of credit came along which became one of the unmentioned factors in the so-called "housing crisis" which had more to do with credit than housing. Too many home owners were using their equity as an ATM.

Another feature that vanished about the same time was income averaging, a great way to ameliorate the whiplash of an income spike. Typically when someone's income suddenly increases they use some of the gain to clean up some of the sacrifices of what was often a much lower income. I was able to take advantge of income averaging when I finally got a serious raise after five or six years of sacrifice. It was good to be able to get a better car and clothes for the children that my earlier lower income did not allow. Likewise, people who win at gambling, sports and entertainment get big incomes they cannot sustain them over a long period of time. So income averaging was a good feature that got eliminated.

Looking at wealth from the bottom side, it would be great if negative net worth (debts, in other words) could be factored into the income tax code. A newly-minted college grad couple who get well-paying jobs might have a combined income pushing six figures, but after factoring in a mortgage, student loans, insurance and car loans they have a negative net worth. And that's before children (child-care, etc.) enter the picture.

Thanks again for mentioning the difference between wealth and income.

[Carleton Wu]

It may be kind of flip, but Ive thought that one way to get valuations for property taxes would be to ask owners to set their own value- with the caveat that *anyone* can then buy the property for some premium over that value (eg 150% of the owner's claimed value).
The same could be done for cars etc.

One objection I can think of is sentimental value eg just because a property has been in one's family for generations doesn't mean one should have to pay ridiculously high taxes on it to keep it away from other people. Maybe the 'premium' could slide based on time of occupancy etc. (downside to that, if the circumstances of 'sentimental value' exist but the owner isn't actually attached, it'll serve as a de facto tax break).
Or maybe use a two-tiered process- either set your own value, or pay a fee to have the property etc assessed by the state & not subject to forced sale- with the expectation that the former would cost somewhat more and therefore most people would choose the latter.
(Another possible objection- very fluid property markets, if one is forced to set values annually they could actually turn into good deals after 11 months even with a premium on top).

[Brett Bellmore]

Why not flip that model, Carleton? Let the government value your property, with the proviso that YOU can require the taxing authority to buy your property at whatever they value it?

What troubles me about the notion of taxing people based on either wealth or income, is that both are pretty nearly completely uncorrelated with the costs you impose on government. Under both systems, even given a flat rate, with no progressivity at all, you end up with a functioning majority of the electorate who are paying only a small minority of the cost of government. And yet, by their votes, they control that cost!

Any time you disconnect paying for something from deciding how much of it is going to be purchased, you end up purchasing way too much of that thing. A dollar of added government spending might produce only 10 cents of added welfare to society, but if 51% of the voters are getting half that benefit, and paying for less than a tenth of the cost of it, it will be rational for THEM to buy it.

It's almost always rational to buy something, even if you're not sure you'll use it, if somebody else is footing the bill.

[hairshirthedonist]

And yet, by their votes, they control that cost!

You're a real hoot sometimes, Brett. Is that really how you think it works?

[bobbyp]

Any time you disconnect paying for something from deciding how much of it is going to be purchased, you end up purchasing way too much of that thing.

Great idea. Does it not logically follow that we should all have approximately the same amount of "skin in the game"? (i.e., if income and wealth were more evenly distributed, would not public choice outcomes be more optimal?).

Just asking.

[bobbyp]

It's almost always rational to buy something, even if you're not sure you'll use it, if somebody else is footing the bill.

Well, in that case you have shown that it is quite rational for a very small portion of the population (business community)to lobby and/or purchase the government to get outsized payback for their 'out of pocket' expenses that redistributes income upward. This theory would hypothesize that you would observe a small number of powerful people with most of the wealth and the majority of the people fighting over the leftovers.

Seems to have some validity if you ask me. Thanks, Brett.

[Frank Shannon]

This has long been one of my hobbyhorses. The biblical tax was 10% of what you had. I think rather than having the government asses your wealth, you are in the best position to do it, but then anyone who wants to should be able to buy you out for that value.

[hairshirthedonist]

Life is a toll road. I wanna drive it all night long.

[Lurker]

In Finland, we had a wealth tax until recently. It was low, but progressive. I think it was about .15 % for the net worth above 200 k€ and .25 % for the portion above 1 M€.

The system was pretty good at the problems you mention.

1) Houses and apartments were appraised according to a formula, wh. The home you lived in was tax-exempt.
2) One car per person was tax-exempt, unless you had an extraordinaly fancy car.
3) Stocks and similar financial assets were valued at 70 % of the median price during the fiscal year.
4) Certain retirement-type savings were tax-exempt, as well as any obligations (bonds) bought from the state.
5) Charities were tax-exempt.

In case of a sudden stock-market crash you could apply for a hardship allowance, where the tax office would estimate your capability of paying tax and would lower your due amount.

[Nigel]

if 51% of the voters are getting half that benefit, and paying for less than a tenth of the cost of it, it will be rational for THEM to buy it.

One problem with that argument is that the way most people determine their vote is "pretty nearly completely uncorrelated" with such considerations.

[hairshirthedonist]

I'm still trying to figure out what costs I impose on the government, via the USDA, whenever I buy a can of peas. Or, via the DOT, when I drive to work on I-295. The EPA with every breath I take. Do I cost OSHA anything when I wear my hardhat? FDIC by having money in the bank? The SEC by owning stocks?

Jeez, I just don't make that much money.

You know, I had an interesting thought. I'll bet there is some correlation between how much income or weath you have and how much you benefit from the common goods provided by the government. I mean, Sam Walton must be getting a lot more out of the US highway system than I do, right?

[Countme-In]

There are additional variables to consider in this Pavlovian equation of incentives and disincentives.

http://money.msn.com/now/post--more-sex-means-bigger-paychecks-study-says

We could provide tax deductions to encourage more income-producing canoodling, thus increasing output, not to mention putout, and then tax the resulting income on a progressive scale because, after all, it is unfair that some have more than others.

One innovation might be to encourage sex AT work, perhaps during the catnap periods now being introduced by some organizations quarters to improve productivity.

Casey Stengel was on to something when he observed that it's not staying out all night having it that explained Mantle's strikeouts, it was staying out all night looking for it.

Therefore the seventh-inning stretch during baseball games.

These findings may explain why income for the vast majority of Americans has flat-lined, if not dropped, over the past few decades, while the Koch Brothers continue to build their nest eggs at frightening rates.

I know my income has plunged in recent years, though I'm hard pressed to explain why McKinney Texas' is doing so well.

Of course, the Tea Party will object to this type of redistribution, but only because no one wants to have sex while being lectured ad nauseum about the Founders' refusal to mention the subject in the Constitution.

Now, some here have suggested permitting the taxpayer to estimate their own wealth, rather than government doing so, but if there is one thing we've learned in 230+ years of American history, it is that Americans will low-ball all income and wealth estimates if given the chance.

With my scheme, the government's income would soar because the second thing we've learned is that male Americans, at least, vastly overstate their incidence of income-producing sex to all within ear shot, which is why IRS agents should station themselves in bars whenever possible.

On the other hand, as Karl and Groucho Marx asked, "Where's mine?"

[bobbyp]

Sam Walton must be getting a lot more out of the US highway system than I do, right?

Sam? not so much. Perhaps his heirs? :)

[cleek]

you end up with a functioning majority of the electorate who are paying only a small minority of the cost of government. And yet, by their votes, they control that cost!

obviously, votes should be apportioned according to wealth: one dollar, one vote. just as the Founders intended.

[hairshirthedonist]

Sorry. Samuel Robson "Rob" Walton.

All those evil, rich people look the same to me, liberal wealth-hater that I am. (But those two really do look alike, right?)

[Turbulence]

An alternative to taxing wealth directly or taxing income is a progressive consumption tax, perhaps coupled with a pollution/carbon tax. I'm not sure how rigorous we could be about differentiating savings from consumption...I mean, if I buy a house, that's both an investment and a consumption good.

[Model62]

obviously, votes should be apportioned according to wealth: one dollar, one vote. just as the Founders intended.

I asked my City councilman to do something about the crumbling alleyway that runs behind my house and down the middle of the block. It's all potholey and when it rains, it drains poorly, and my and my neighbor's property is flooded.

The city councilman's aid emailed back and said the City was broke, but if I wanted to, I could get together with my neighbors, form a special assessment district, have the city do a study on the costs, then hold a district vote to determine whether or not to go forward with the plan (the City would sell a 20 bond, which would be repaid out of our district the city would manage the project, etc).

Here's why I mention it: Votes would be weighted according to assessed property value, which meant that the votes of the (absentee) owners of the several pieces of multifamily housing on the block would be more equal votes than the votes of the owners of the single family property owners who live here.

[hairshirthedonist]

From Turb's link:

Deficits also erode savings, choking off investment that drives economic growth.

I'd still like to know how this happens.

Deficits are outlays in excess of revenue. In our current system, they are offset by borrowing. So, yes, that borrowing, all other things being equal, takes up money that otherwise could be invested. But all other things aren't equal, because that money would have either been collected as taxes, meaning no deficit and no borrowing, or would not have been spent in the first place, meaning the dollars wouldn't have been spent into existence at all.

And the interest is someone's income, which can be invested.

(That's not to say I don't find a progressive consumption tax very interesting. I just take issue with that particular point.)

[Brett Bellmore]

"form a special assessment district,"

Do not form a special assessment district, if you can possibly avoid it. They give you an *estimate* of the size of the assessment before the vote, it's not binding, and after you've voted for it, they can jack it up as they like without your ever getting a vote on the matter again. Complain, they'll hold a hearing, ignore what you say, and then jack it up again to pay for the cost of holding the hearing.

At least, that's how it worked in Michigan when I went through it. Voting for one of those is like giving the local government direct access to your bank account.

[Carleton Wu]

Why not flip that model, Carleton? Let the government value your property, with the proviso that YOU can require the taxing authority to buy your property at whatever they value it?

I suppose that could work, but the main point of having the owner value it is that the owner is the person presumably already in the best position to do so, thus saving everyone in the exchange from having to pay someone to do it. It's not about the forced sale aspect, that's just to keep the owner's appraisal close to honest Ideally, a system like this wouldn't even require ant actual forced sales, just the threat of them.
Im not sure what the alternative model would offer. I suppose it's a guard against government overvaluation of property, but Ive only ever seen that briefly during large drops in property value, in my experience local government is pretty responsive to changing property values.

A dollar of added government spending might produce only 10 cents of added welfare to society, but if 51% of the voters are getting half that benefit, and paying for less than a tenth of the cost of it, it will be rational for THEM to buy it.

At least under a flat system, if I propose increasing government spending 10% I can anticipate an increase in my taxes of 10%. So it's more complicated than that- it depends on what the spending is for and whether I can afford to forgo that 10%.
Two other problems- first, you're concluding that the problem with America today is that wealthy people do not have enough influence over government?
Also, you're assuming that people are some kind of ideal economic maximizing agents, and we know that is not the case. So risks posed by such agents are not actual risks.

[Model62]

I was unhappy enough with the vote weighting, Brett, not to pursue it further. And after looking at the process -- with the City making all the decisions about design, contractors, etc, rather than involving members of the SAD* -- my thought was: if we have to do all the legwork to organize this thing, and all the paying for this thing, then 1), we're not letting the City manage it; 2) we're putting up toll booths.

------
*Heh

[russell]

So - the reason I was curious about this, and asked Ugh (who actually knows something about taxation) what his thoughts were, is that taxing wealth vs income has some advantages, to my eye.

Also, some disadvantages.

The advantages that I see:

The sheer size of the pie for wealth is much larger than for income. Total private net worth in the US looks something like $70 trillion, personal income something like $13 trillion. So, there's just a bigger base from which to draw revenue, which means that the tax rate could be lower.

Yes, it's just moving toothpaste around in the tube, but sometimes that's a good thing.

It would also be more naturally progressive, and so something approaching (or even achieving) a purely flat rate would still not create difficulties for less wealthy folks.

If the rate is 1% of your net wealth, and you have $10K in the bank, your liability is $100. If you own $100M in assets, your liability is $1M.

But the real advantage, IMO, is that taxing income has the perverse result of taxing - creating a disincentive for - the productive use of labor and capital.

Making stuff, doing useful things for people, and investing in all of the above such that you realize gains on your investment - the productive, wealth-producing activities of a healthy economy - are taxed.

IMO taxing wealth would take more of the burden off of folks who are engaged in productive, wealth-producing activities. It would provide an incentive for already-wealthy people to put their capital to productive use, rather than just sit on cash or sink it into luxury goods.

It would stimulate and incentivize useful, productive economic activity. It seems to me.

The largest and most obvious disadvantage to a tax on wealth is that it's likely not constitutional. So, that would have to be resolved, and almost certainly puts this in the category of non-starter.

But for the sake of argument, let's assume it could be overcome.

The issue of finding valuations for various kinds of property - fine art, etc. - can certainly be tricky, but people do it all the time, for example to insure them. It's doable.

Likewise, there are probably a million ways to game a wealth-based tax, but as far as I can tell they are no more or less intractable then the shenanigans we deal with now in taxing income.

The biggest problem I see is the case of folks who are rich on paper but don't have a big income.

So, you bought a house 25 years ago for $100K, now it's paid off and worth $500K, and you are living on social security.

The other big problem I see, which somewhat overlaps the first one, is liquidity. Some things are worth a lot on paper but are hard to sell, some things could be sold but you'd take a bath if you sold them right now, etc etc etc.

Those are definitely real issues, and could create hardship for folks who we would not want to be creating hardships for.

[russell]

Also, as sort of a follow-up to the 'wealth is a bigger pie' thing -

US federal tax revenue in 2012 was about $2.45 trillion.

Total US private net worth as cited above, about $70 trillion.

Were you to raise *all* federal revenue solely from a flat tax on net worth, you would be looking at a rate of something like 3.5%.

There are lots of cases - including the social security pensioner living in a paid-off house now worth a half million bucks, or the folks who have managed to cobble together $250K in their 401K - where doing exactly that would be problematic.

But it's not a barkingly insane idea.

[Countme-In]

A general point:

For those (not necessarily here) urging a highly simplified tax system, we can already see from this thread alone that complications, exclusions, exceptions, cut-off points etc will proliferate.

IMO, this is because our government is actually highly responsive to the citizenry, contrary to accepted opinion.

The tax code, AND all other legislation for that matter, are complicated and require thousands of pages of explanation because the government is trying to address the varied nature of the population's needs, desires, and situations.

Show me a tax code that can fit on a post card or a federal law cropped down to one page and I'll show you a despotic, one-size-fits-all, Kremlin-like decree.

YMMV ..... but anything over 1000 miles from mine is not, I repeat, not tax-deductible.

[russell]

The tax code, AND all other legislation for that matter, are complicated and require thousands of pages of explanation because the government is trying to address the varied nature of the population's needs, desires, and situations.

What the Count said.

And to clarify, in the example I gave upthread, I was not advocating for a one-size-fits-all flat tax on wealth.

For lots and lots of reasons, I don't think that would work.

I'm just curious about taxing wealth vs income as being a way to incentivize productive economic activity, while still meeting the need for federal revenue.

[Carleton Wu]

Why not flip that model, Carleton? Let the government value your property, with the proviso that YOU can require the taxing authority to buy your property at whatever they value it?

I suppose that could work, but the main point of having the owner value it is that the owner is the person presumably already in the best position to do so, thus saving everyone in the exchange from having to pay someone to do it. It's not about the forced sale aspect, that's just to keep the owner's appraisal close to honest Ideally, a system like this wouldn't even require ant actual forced sales, just the threat of them.
Im not sure what the alternative model would offer. I suppose it's a guard against government overvaluation of property, but Ive only ever seen that briefly during large drops in property value, in my experience local government is pretty responsive to changing property values. There are probably some cases where that's not true though.

A dollar of added government spending might produce only 10 cents of added welfare to society, but if 51% of the voters are getting half that benefit, and paying for less than a tenth of the cost of it, it will be rational for THEM to buy it.

At least under a flat system, if I propose increasing government spending 10% I can anticipate an increase in my taxes of 10%. Your theory seems based on the failure to account for the marginal value of money- my top dollar is worth less to me than my bottom dollar.
Your theory would seem to conclude that the problem with America is that the wealthy have too little influence over the political system. Id say that this is clearly false.
Finally, your theory assumes that people are rational actors motivated entirely by economic gains and losses, something we know not to be true. In theory a restaurant that offers free condiments should have every customer who walks through the door empty out the bin. In theory the 'need-a-penny' tray by the cash register in the convenience store should always be empty. etc.

[RepubAnon]

Any wealth tax would need to be able to dodge this type of issue:

How did Romney's IRA grow so big? http://www.reuters.com/article/2012/01/24/us-usa-campaign-romney-ira-idUSTRE80N04E20120124

(Reuters) - In the wake of news reports last week that presidential contender Mitt Romney owns an individual retirement account worth as much as $101 million, questions are growing over how it could have gotten so big when contribution limits are capped at $5,000 or $6,000 a year.

[Carleton Wu]

I'm just curious about taxing wealth vs income as being a way to incentivize productive economic activity, while still meeting the need for federal revenue.

I think there are two ways to think about this. In the short term, it just changes our behavior towards income (lower income taxes incentivize income, although degree always matters), so maybe that's an unadulterated good (absent edge case issues as several people point out). Existing wealth has already been accumulated so this won't change the past...
Long term though, you've not only incentivized income, you've also incentivized consumption over savings. And afaict that might not be good for us (might be good for eg Japan), at least once out of the liquidity trap economy. I suppose with a high enough floor this wouldn't effect that many people, but at that point you're probably also not raising that much money ergo not offsetting that much income tax. Also, the smaller the program, the less that the loss of everyone filing paperwork yearly or computing their total net worth is offset by a societal gain.

[byomtov]

Yet another problem is determining the value of privately owned businesses. There are lots of these, corporate and other, and some are very large. Professional partnerships, among many other businesses, fall into this category.

Even without a wealth tax there is an occasional need to value such enterprises for any of a number of reasons, and it is an expensive and often highly imprecise process. The cost of doing it for all such businesses, which would be required for a wealth tax, would be enormous, and the legal disputes interminable.

[CharlesWT]

"..., it drains poorly, and my and my neighbor's property is flooded."

Be careful about fixing such problems because the EPA might fine you heavily for destroying a wetland.

[Countme-In]

"because the EPA might fine you heavily for destroying a wetland."

Somehow, I don't know why*, I doubt that. Not if the flooding is caused by runoff from a long-standing public improvement -- the alley way.

More likely, federal government grants might be available to prevent the runoff if they are directed through the municipality's public works institution or through a special district.

*Why? Because it's tough to kid a kidder. ;)

[Brett Bellmore]

"Im not sure what the alternative model would offer."

Not having to worry about somebody taking your home from you? Eminent domain is bad enough exercised by government, your proposal would give it to EVERYONE.

So I buy a rundown house, (Closed last Monday, actually.) spend years improving it, just got back from tearing up the old carpet in preparation for laying hardwood floors.) get it just the way I want it, retire, AND SOME BASTARD TAKES MY HOME AWAY FROM ME.

That's what your proposal includes, that mine doesn't.

Actually, that's the basic problem with taxing property instead of income: Property doesn't necessarily involve an increased capacity to pay taxes. Here I am, planning on spending the next decade and a half on improvements which will render this house comparatively maintenance free, such as a fifty year metal roof. Planting an espalier'd orchard along the fence. Investments in property to ease my 'golden' years, but which will do diddly squat to give me added income.

And you'd have some bastard take it all away from me, just when I should be able to relax, pick some grapes, and kick back in the hammock. And I'd get some cash, sure, but would that cash buy me the perfect house for my retirement?

Nope.

[Countme-In]

https://www.youtube.com/watch?v=6sJCQ_BUksM

Brett and Sitting Bull: 2

Bastards: 0

[wj]

Rather than tax wealth annually, it would be far simpler to tax wealth once: at the point when it is inherited. Which we already do with estate taxes, wo no new mechanisms would be required.

And I would rather that we not discourage people from doing the kind of productive things which (generally, there are admittedly exceptions) create wealth. But just getting wealth, because you made a good choice of parents? Hard to justify that. Want to do somethign for your kids? Give them a good education. Give them stuff while you are alive. But if they want ot be wealthy after you're gone? They get to earn it themselves.

I'd incline to something like a $250K per heir exemption (with a maximum of $1,250K total), followed by an estate tax that starts at 75% and increases to 95% for however much of the estate (after exempt bequests) is over $1 million.

Anybody can get rich. But you have to make the effort yourself.

[jpe]

putting aside the constitutional defects and the dealbreaking valuation and liquidity issues, this would have the curious result of leading to property of all sorts being contractually encumbered with lock ups, buy-back provisions, and fractional interests. that's one thing we do in estate planning, and its inevitable that the practice would be more widespread in response to an annual wealth tax. and, as a matter of policy, we prefer outright ownership free of wacky restrictions. (hence the RAP or the founder's weird jihad against fee tails)

[Frank Shannon]

Countme-In mentioned something about my suggestion of having people estimate their own net worth. People wouldn't lowball their estimate of their own worth since anyone would be able to buy them out for that amount. (You wouldn't be allowed to say no to an offer of what you estimated your stuff was worth to you.) I stole the idea from Heinlein actually.

[Brett Bellmore]

I'll grant that, like my counter-proposal, it has the virtue of "one person cuts, the other picks the piece": You can't argue with a valuation you yourself assigned.

The downside is that it fundamentally abolishes one of the core characteristics of owning things: The right to decide about their disposition, to NOT sell them at any price if you don't feel like it.

As I remarked upthread, I've just closed on a house. I plan to make numerous long term improvements, with the idea that I'll get to enjoy them for a long time. I'll be making it into MY ideal retirement home. Not somebody elses.

If "my" home were subject to being, against my will, swapped for a pile of cash, would I do this? Would it be rational for me to spend the next decade setting up an orchard of epaliered trees, for instance? I've already experienced the heartbreak of having to move just as my previous orchard was starting to bear fruit, but at least the move was my own choice. This wouldn't be, remember. And I would lack remaining time to do it a third time around.

In a system where I actually get to OWN a home, I can fit it to my own preferences. In a system where 'my' home is subject to being alienated from me at any moment, how could it make sense for me to make long term improvements? Especially somewhat idiosyncratic ones, like that orchard? It's not like I'm so wealthy I could afford to value the property highly enough to just buy an equivalent one with that amount of cash. For one, equivalent homes basically don't exist. For another, the only reason I can afford the improvements is that I'm an accomplished DIYer, doing the work myself.

So my capacity to create these improvements does not translate into the capacity to buy them from somebody else.

You would, with this scheme, transform us all into renters in our own homes.

So, no, indeed HELL NO.

[Slartibartfast]

Being obliged to sell your property at its estimated value is an infringement on freedom, no?

What if it was your grandmother being forced to either sell or pay taxes at an inflated rate?

Florida had to cap the rate of property tax increase, because while wealthier people were paying more taxes as their property gained in value (which most would see as a good thing), poorer retirees on fixed incomes were losing the ability to stay in homes they had lived in for decades.

Cool ideas sometimes have uncool consequences that bear consideration.

[hairshirthedonist]

I pay more than 10% of my pre-tax income in property tax here in NJ. I wouldn't like to pay more than that, though it wouldn't make much difference if it were replacing my income taxes in roughly the same amount.

But the point is people somehow manage to live in NJ, the most densely populated state in the nation - including my grandmother, who's on SS and has lived in her house for over 70 years, FWIW.

[Tony P.]

Serious question, Brett: do you pay property tax on the house? If so, how is the tax assessed?

I ask because I don't take it for granted that everyplace in the country levies property taxes, or that property tax is always proportional to the "market value" of the house.

--TP

[Brett Bellmore]

Yes, 4% on assessed value, which will have reset with this sale.

I think the ideal "tax" is a user fee on services you can decide you don't want. Some such services involve externalities, such as the possibility that your home, on catching fire, might ignite the neighbor. That could be dealt with by insurance, but even if it couldn't, that's no excuse why taxation shouldn't scale to the costs you impose on the government levying them.

[hairshirthedonist]

In Brett's scenario, a penniless person can be beat to a pulp without police intervention, since the penniless person can't afford to pay for the police to step in.

If life were entirely some sort of zero-sum game, maybe Brett's proposal could make sense, even if heartlessly. As it stands, it's just plain stupid. Everyone would be worse off for the sake of some abstract notion of fairness (or something).

[Tony P.]

So, Brett: do you expect the assessed value to go up, down, or sideways after you do all the improvements you plan on?

Your notion that taxes should basically be user fees is about as sensible as your notion that "ownership" of things like real estate is a strictly personal matter that "government" has nothing to do with. Somewhere, in some "government" office, there is a piece of paper that defines your property boundaries more or less to the inch. "Government" is what keeps your neighbor from encroaching on the property you "own". You may not count that as a "service", but it's probably the main service that government provides to you. And it takes the whole panoply of government power to protect your property rights -- everything from the Registry of Deeds to the Air Force.

Speaking of which, let's keep in mind that Russell is not musing about a federal wealth tax on top of an income tax, but instead of an income tax.

--TP

[worn]

Brett's example of the owner-improved residence is quite a good one IMHO, and as liberal as I am find it hard to get my mind around the rather onerous possibility of anyone* being forced to sell their home under such circumstances.

* or, for the sake of fairness, would those eligible to buy your house out from underneath you have to reside in whatever taxing district is in question?

Talk about an opportunity to exploit asymmetrical information. Under this proposal all homeowners are forced to monitor in detail the comparative housing prices in their area. For example, I've got a sort of ball park idea of what my house might bring. But is this number accurate at this moment, given that I've got one of the smaller ones on the block (in need of painting, no less) and that our real estate market has finally started showing signs of prices rising again? I'm guessing my accuracy (without research) would only be within 50k or so. So it's pretty easy foresee a whole cottage industry of folks who monitored the news looking for items like zoning changes, proposed new development, and other items that can make one's property more valuable minus any action - or even knowledge - on the owner's part.

My guess is that in real life this would manifest itself as many seniors and undereducated folks getting turned out of their housing. And I think this would be quite the suboptimal outcome.

[byomtov]

I think Brett's objection to the "value it yourself" property tax scheme makes sense. Identical houses can have much different subjective values to their owners, and it does seem unreasonable to tax someone extra because they have friends in the neighborhood, or their workplace is nearby, for example.

OTOH, letting homeowners refuse to pay for fire protection is nuts. Insurance? Your neighbor has as much right to assign subjective value to his house as you do to yours. Will your policy cover that? Will a money payment make up for deaths or serious injury caused by the fire you let spread? And even if it's "only" property damage, who is going to sell you an unlimited liability policy, because that's what you're going to need.

Requiring you to pay for fire protection is really not much different than requiring you to comply with codes that reduce the chance of fire to begin with. You live in a neighborhood. You have obligations to your neighbors, no matter what libertarians think.

[CharlesWT]

Since the government is doing it anyway, the simplest way to finance government is to do away with all taxes and just inflate the money supply.

[byomtov]

Inflation?

[Countme-In]

Since some conservatives altogether dislike the idea of the government printing money, I propose a compromise:

The money stock now existing for the entire private economy, threaded through the banking system by the Federal Reserve and the U.S. Treasury, would be frozen in place this Friday, never to be restarted again in perpetuity.

Federal government operations would be provided for by printing money at say 23% of the current money supply (purtin near the size of government now with increases during times of war and to account for population growth and special needs).

In exchange, the private economy would not be taxed a cent, however all contractors, including those for defense, would provide whatever the government requires .... gratis.

Because they are patriots. Voila, no inflation caused by government demands on the private economy.

This scheme, of course, relies on the providers of simple plans and easy answers, like myself and CharlesWT, knowing what the hell we mean when we use the terms "money supply, "inflate, "finance" "doing it anyway" "do away with" "is", "and", and (whatever that means) "the".

;)

This comment will fit on the back of a post card when converted into law, so no one has an excuse for not reading it.

[jpe]

of course, a call option for everyone but the owner (eg, I value my property at $X and give everyone a right to buy it for $X) would require public disclosure of everyone's assets, which is such a stupid idea that it really isn't worth discussing.

[bobbyp]

Since the government is doing it anyway, the simplest way to finance government is to do away with all taxes and just inflate the money supply.

You need taxes in a fiat currency system to create a demand for the currency.

[Frank Shannon]

I disagree

[Frank Shannon]

I disagree

[Frank Shannon]

Interesting, the first time I tried to post it said my session had expired and I needed to refresh the page.

[Brett Bellmore]

"In Brett's scenario, a penniless person can be beat to a pulp without police intervention, since the penniless person can't afford to pay for the police to step in."

I call this "the presumption of evil"; It's applied to anything a conservative or libertarian has to say, when interpreted by a liberal.

Since we're evil, after all, all ambiguity and omissions in anything we say is most reasonably interpreted as indicating some evil viewpoint. Sometimes the presumption of evil is so strong, it overcomes the actual denotation of what we've said, imposing an interpretation contrary to our actual statements.

I think the "just" level of taxation is that people should pay their own share of the costs they impose on the government. But it is not justice we aspire to, but mercy, no?

So I propose that we have a system where, below the level of income people pay on the basis of capacity, at a fixed rate, and that this fixed rate should continue up to the income level where holding the actual amount of the tax constant would pay the bills.

And to keep that level as low as possible, I propose that the government only spend so much as is actually necessary. Much smaller military, dump all elective spending. The classic "nightwatchman" state of libertarian theory.

None of which involves the poor being legally robbed or beaten. In fact, I'd gladly donate to a fund to arm the poor, so that they'd be dangerous to attack.

[Countme-In]

"And to keep that level as low as possible, I propose that the government only spend so much as is actually necessary."

The words "possible", "necessary", "smaller", and "all" are moving targets by the minute, not fixed points in a subjective (mistaken for objective, universal, absolute, forever binding) ideology. Somewhere between the Marxist maximum and the Libertarian minimum.

In other words, "Who says?"

You says.

"None of which involves the poor being legally robbed or beaten. In fact, I'd gladly donate to a fund to arm the poor, so that they'd be dangerous to attack."

Well, if it's legal, what's the problem?

In the second place, your statements over the years regarding black-on-black violence, particularly among gangs, taken at face value, might prove that your charitable impulses will end up in a bloodbath.

But, I'll play along. Your charity should give every poor family a brand new SUV, a set of steak knives, and a year's supply of arsenic too, given your statements regarding the likelihood of murder by SUV, knives and poison equaling murder by gun, should the government confiscate the latter.

Plus, I can see some uses for the poor being heavily armed, say among fast food workers on the picket lines when they are denied a living wage, or among poor, mostly Democratic voters in either Carolina and Texas when access to the voting booths is circumscribed, or among those who can't afford medical insurance when the Republican Party dismantles Obamacare wholesale.

Come to think of it, I'm warming to this charity idea.

What shall we name it and will it take it take donations in kind, say AK-47s?

[Lewis Carroll]

"I think the "just" level of taxation is that people should pay their own share of the costs they impose on the government."

Then in principle you should agree with Ugh's wealth tax idea, since libertarians generally acknowledge the protection of property rights (and enforcement of contracts) to be one of the most fundamental functions of government. E.g. more wealth that needs protecting ---> more $$ due the gov for protecting your assets.

[russell]

I think the "just" level of taxation is that people should pay their own share of the costs they impose on the government.

How does that actually work?

I've never had a fire in my house. What is my share of my local fire deparment budget?

I didn't fly for many years. What was my share of the FAA budget?

I don't have kids of my own, and my stepson is 30 years old. What is my share of the education budget, at any level of government?

The proper answer to none of those questions is zero, because I certainly derive some benefit from all of those things.

My house would worth a lot less than it is now if there were no fire department in my town. Ditto for the local school system, and likewise the economic picture in my area would be a lot suckier if we did not have the fairly robust educational infrastructure that we do have. Such as it is.

Even when I didn't fly, I derived some benefit from the availability of safe, reliable air transit for shipping, mail, etc. My wife would have been unable to pursue her consulting career without the ability to travel to client locations literally around the world.

How do you put a number on 'my share' of any or all of that?

Many folks on this thread have noted that a tax on wealth is problematic because it's hard to find a good value for certain kinds of goods, or for a privately owned business.

Those are really good points.

What you suggest takes that problem to some kind of Nth power.

Sounds good on paper, in real life it's plainly not feasible.

[CharlesWT]

"... a living wage, ..."

Speaking of moving targets...

[Countme-In]

True.

Sideways to down in recent decades.

Let's try up for a change.

[bobbyp]

I call this "the presumption of evil"; It's applied to anything a conservative or libertarian has to say, when interpreted by a liberal.

I will lay you 8 to 5 that if you took a random set of 50 "conservatives" and also 50 "libruls" and charged them with writing an essay setting forth the other's political philosophy, that an impartial panel would find the libruls have a much more accurate grasp of how "the Other" thinks.

Hands down.

[hairshirthedonist]

I call this "the presumption of evil"; It's applied to anything a conservative or libertarian has to say, when interpreted by a liberal.

I call this "the presumption of the presumption of evil."

[Countme-In]

I call anything a conservative or libertarian has to say "the evil of the height of presumption", or maybe the "the height of the evil of presumption."

Or, I'm planning to going forward. But only for adult consumption, he presumed.

Given the sundering of the Republican Party into the conservative End-Times, Christian Taliban, Muslim Brotherhood religious right on the one hand and the libertarian, libertine, Ayn Randian, corporatist right on the other hand and the rigid, insane, NRA, Tea Party, Egyptian-military-depose-a-Democratically-elected-President-by-any-means-necessary right on the third hand and the once reasonable, now unrecognizable but panicking and yet pandering to the base "base" traditional conservative elite on the fourth hand, I think what we have here is a Shiva-like octopus (a gentle creature, I apologize for dragging him into it) of too many hands too busy working overtime, each with the presumption that all of the other hands are the Evil ones within their "Party" to be silenced, shunned, primaried, and exiled from the so-called Republican Party ... the Beast with too many backs that should all of the aforementioned hands ever manage to agree and shake on it, will visit Evil on the United States of America and the hands they then cut off will be mine and yours.

I exempt the few conservatives here from that diatribe, even Brett, who have thrown up their hands and wandered dazed into our midst at OBWI to be mildly entertained in the interim before the trouble starts, which it will as soon as the Republican Party decides who they are, the Muslim Brotherhood or the Egyptian Military.

[Carleton Wu]

On the one hand, I do agree that it'd be a pain (infringe on freedom, etc) to have a forced sale of one's home. There are idiosyncratic changes (including needed ones eg accessibility), neighbors, commutes, schools, etc.
Im not saying this is necessarily a good idea. But the idea does include a large kicker on top of the assessed price (I said 25% above, could be more)- the idea is that if you're house-hunting in neighborhood X, the houses that are actually for sale should be much, much better deals than a forced sale- unless someone drastically lowballs their tax value.
So if you do have a forced sale, it would ideally yield enough to buy a similar house nearby, make any adjustments/improvements to match your current home, with some left over for your trouble. There are some things you can't really recreate: the history of a home, an orchard, a particular view, the specific neighbors you have, etc.
[Another flaw just occurred to me- if you *want* to move or don't mind moving, you could lowball the tax assessment intentionally, figuring the 'forced sale' price around your ideal sale price. A tax break for folks who don't mind moving...]

And hey, what if this replaced eminent domain? It would mean that the state didn't have any special power ordinary people don't have. And since eminent domain would happen at the bonus price, people who lose homes etc to the government at least get compensation well above market value as opposed to the raw deal they get now.

[Another issue- how do you deal with inspections? Is a forced sale 100% committing or can you back out with a loss of some up-front money when you find out the house was built on a superfund site/incipient sinkhole/indian burial ground?]

Rather than tax wealth annually, it would be far simpler to tax wealth once: at the point when it is inherited. Which we already do with estate taxes, wo no new mechanisms would be required.

Id mostly agree if it wasn't so easy to hide wealth during these transfers. Of course, that seems to be a function of every single friggin tax being written with the intent of letting the genuinely wealthy wriggle out of paying most of it somehow, so I guess that's not a specific objection to inheritance taxes (except insofar as, being a single rare event, it's that much easier to build one-off financial structures such as trusts to meet the tax-avoidance requirements).
Second problem, any inheritance tax has to include a tax on giving while alive, or else it's trivial to circumvent.

Also, as life expectancies get longer and longer, inheritance taxes will get less useful. Not a big deal today, but could be important in 50 years or so. Might as well build a tax code for the future.

[Carleton Wu]

I call this "the presumption of evil"; It's applied to anything a conservative or libertarian has to say, when interpreted by a liberal.

As a rule of thumb, anything that conservatives do that really annoys me is probably also done by liberals but doesn't annoy me as much for various reasons.
ie people who cut me off in traffic are likely either "you stupid &%^#er" or "you stupid conservative &$&%er", depending on whether they have a Bush bumpersticker or not.

I get a chuckle whenever I read something like "liberals always jump to conclusions" or "conservatives like to use ad hominems rather than engage in reasonable debate".

[Speaking of which, did the Romney campaign just not emphasize bumperstickers? I think I still see at least as many Bush/Cheney ones as Romney ones...]

[hairshirthedonist]

Someone once told me, with no sense of irony, that black people were racist.

[bobbyp]

Show me a powerless people, and I shall show you an incurable grievance likely to meet the lowest of expectations.

[russell]

Regarding forced sale, if I'm not mistaken in most places where there are, or were, wealth taxes, your primary residence was exempt.

That is, was not included in the computation of your wealth.

So, if you buy a house for $50K, and thirty years later it's worth $500K, lucky you. End of story.

There have been many very good objections to the idea of taxing wealth in this thread, but the spectre of throwing granny (or Brett) to the curb seems among the less compelling.

The most telling objections seem to be:

1. disincentive to saving
2. difficulty of figuring out what you're worth
3. liquidity

And yes, I understand that 'force sale of your home' generally comes under the 'liquidity' heading, but if the value of your home (primary residence, presumably up to some cap) is excluded from the calculation of your personal wealth, I think in the great majority of cases that solves the problem.

That one, anyway.

[Carleton Wu]

Excluding the primary residency is also distorting though... Imagine a family like the Romneys buying a 150M piece of property in Arizona and calling it their primary residence to keep it excluded from a wealth tax.
That is, any loophole, however well intentioned, is likely to become a vehicle for the very wealthy.

I think that, in most taxation circumstances, we're better off rebating or otherwise paying people to compensate, rather than carving out exemptions. The mortgage interest deduction is a case in point- ostensibly starts as a way to subsidize home ownership, ends mostly going to wealthier people who could easily afford to buy homes without government help. If it had started as a payment or low-interest loan to first-time homebuyers, I suspect it'd have been much harder to morph it into a giveaway to the already well-off.

[russell]

I hear what you're saying, but basically everything is distorting.

Including, for that matter, Brett's mythical 'night watchman' model.

Public life is a matter of choosing the best possible distortions.

In the case of a hypothetical exemption for primary residence in the context of a hypothetical wealth-based tax, I would imagine there would be a reasonable cap.

So, maybe you only get to exempt the first $500K of your $150M home.

[Carleton Wu]

True that everything is distorting, and I like the cap idea. We're going to need a few varieties of cap/exemption before a wealth tax could work, just didn't want to include anything that would function as too big of a loophole.

[CharlesWT]

While it has its own problems, another way is to replace all federal taxes with a federal sales tax and sending everyone a check, funds transfer every month to alleviate the low end regressiveness.

[bobbyp]

.....or we could have a system that does not permit a small minority to accumulate vast wealth to begin with, usually due to government policy, I might add.

Just a thought, communist (small c) that I am.

Regards,

One of the No True Scots

[dr ngo]

Throwing Brett to the Curb!?

Nah, I'll just wait for the movie.

[Rob in CT]

Rather than tax wealth annually, it would be far simpler to tax wealth once: at the point when it is inherited. Which we already do with estate taxes, wo no new mechanisms would be required.

And I would rather that we not discourage people from doing the kind of productive things which (generally, there are admittedly exceptions) create wealth. But just getting wealth, because you made a good choice of parents? Hard to justify that. Want to do somethign for your kids? Give them a good education. Give them stuff while you are alive. But if they want ot be wealthy after you're gone? They get to earn it themselves.

I'd incline to something like a $250K per heir exemption (with a maximum of $1,250K total), followed by an estate tax that starts at 75% and increases to 95% for however much of the estate (after exempt bequests) is over $1 million.

Anybody can get rich. But you have to make the effort yourself

I might quibble with the exact details, but this is basically right, IMO.

Tax inheritance (above a fairly low exemption amount) and tax it progressively. I'd probably start with a lower marginal rate but ramp it up pretty quickly.

Actually, a caveat: I think this is clearly morally correct. I'm not sure of the real-world results and, therefore, I have to accept the possibility of unintended consequences. Like wealthy people doing even more than they do now to stash their money offshore, for instance.

...

The problem with the sales tax with prebate scheme is that it's progressive only at the low end. It then flattens out, and does absolutely nothing to alleviate the accumulation of great wealth in the hands of a few, which I think is dangerous. You can indeed design a consumption tax that doesn't completely screw poor people, which is nice. I still think we need more of a check on the creation and perpetuation of plutocracy.

[russell]

Way way back in the early days, we ran things on tariffs and luxury taxes.

Imported wines were taxed. Tobacco, whiskey, carriages (with larger ones taxed at a higher rate than smaller ones), all taxed.

Tariffs were set at levels that would make today's free-global-marketers crap a great big brick.

That's how the founders rolled. I've often thought that maybe we could try that.

No mortgage deduction on second homes. No property tax deduction on homes other than your primary residence. Surtaxes on third, fourth, fifth homes and so on.

Surtaxes on private jet ownership, whether outright or as a share. Surtax on recreational boats, with a progressive rate so that folks who want a beater to bang around in on the weekends can still afford to do so.

Surtax on golf club memberships, private club memberships, meals luxury foods wines spirits cigars clothes and jewelry above some common-sense baselines.

And a nice tariff on anything made offshore. China, India, Pakistan, Vietnam, wherever. WalMart can source their stuff from domestic manufacturers. It would cost more, but folks would make more. A win/win.

Let's get originalist! Any takers?

One enduring problem is the reluctance if not refusal of folks to actually pay their taxes. That kind of gamesmanship seems to happen largely at the upper end, frex Romney's blimp-like 401K balance.

I pay mine, I'd appreciate it if they'd pay theirs, too.

I share Rob in CT's concern that the rise of a truly plutocratic class is FUBARing the good old USA. Not an uncommon sentiment in the very early days, either, as a point of fact.

I don't care if folks have a lot of money. I don't like the way it influences public policy.

If you're looking for distortions, that's where I would start.

[cleek]

Any takers?

seconded

[hairshirthedonist]

You guys obviously hate, hate, hate rich people. It's just mean.

[CharlesWT]

You could condense your policy proposal a great deal by just saying "A surtax on economic activities, life styles and people I don't approve of."

[hairshirthedonist]

Or you could condense it a great deal by just saying "Taxing people where it will cause the least actual human suffering."

(Oh, I love anticipating the predictable - "people I don't approve of." Heh.)

[Slartibartfast]

Tariffs were set at levels that would make today's free-global-marketers crap a great big brick.

My personal POV on this is that if you're going to levy large tariffs on imported goods, you need to be braced for retaliation in kind.

And a nice tariff on anything made offshore. China, India, Pakistan, Vietnam, wherever. WalMart can source their stuff from domestic manufacturers. It would cost more, but folks would make more. A win/win.

Sure. But again: it's best to be braced for the fallout, not all of which you will correctly anticipate. My personal preference would be, as regards this: baby steps.

[Turbulence]

I think the idea of moving to a founders' taxation model is...very bad. The founders' didn't have our ability to efficiently tax anything but the stuff they taxed. That doesn't mean that what they ended up taxing is some particularly good set of things to tax. I mean, the founders' treatments for disease were also not good and not something we should replace modern medicine with.

When I look at countries like Pakistan, where very very people pay any taxes and government services are basically zero, I can't imagine wanting to emulate that model.

[russell]

You could condense your policy proposal a great deal by just saying "A surtax on economic activities, life styles and people I don't approve of."

I have no problem whatsoever with wealthy people spending their money however the hell they want. I really and truly do not.

I neither approve nor disapprove. I don't care. Other than the implications, if any, for public matters, it doesn't cross my radar.

Live it up.

I'm just looking for the sweet spot Adam Smith referred to in The Wealth Of Nations, and that HSH cites.

In fact, I don't even couch it in the moral sensibility language that Smith used.

I simply observe that the margin utility of a dollar to a wealthy percent is puny compared to the marginal utility of that same dollar to a poor person.

And when I think about taxation, I work from there.

If you would like to make a response that addresses that point, it might be interesting.

If you just want to call me a killjoy, you're talking to the wrong guy.

And seriously, if you're ever curious to know what The Founders were about at a hands-on level, I recommend you to the United States Statutes At Large. It's a record of laws passed by Congress before the US Code was assembled in the 1870's.

They didn't sit around and pontificate about Liberty And Justice all day, they had bills to pay. It's worth a look.

No link, if you're interested you can find it in about one minute.

[russell]

My personal preference would be, as regards this: baby steps.

I think the idea of moving to a founders' taxation model is...very bad.

All noted.

To be honest, I'm just spitballing to see if I can find any concept of taxation that doesn't make half the people in the room break out in hives and wave their Gadsden flags.

What is a fair basis for taxation?

Income I guess, but NOT TOO MUCH or the job creators will all go Galt.

Property and wealth is out, it's unconstitutional and too complicated.

Tariffs are generally out, they inhibit free trade and annoy our neighbors.

Luxury taxes are no good, that's just hating on the rich. There's not big enough pie there to make much of a difference, anyway.

What's left?

For any basis of value, any stock or flow you care to name, there is a line stretching out the door of people who will moan and b*tch if you tax it.

And an even longer line of people ready to sell you 1,000,000 clever financial stunts to let you avoid whatever taxes are levied.

The solution of the moment appears to be to defund stuff until it breaks, then we can complain about how crappy government is, and that will give us another excuse to b*tch about taxes.

So you tell me what makes sense.

What is a fair base for taxation? What will fund what we have signed up to do through public effort, without being too much of a drain on the economy, and without presenting too much of a disincentive for productive activity?

Or, conversely, what will you remove from the list of things we've signed up to do through public effort, that won't end up being a kick in the nuts to half (or more) of the people in the country?

At the national level I hear nothing constructive on this topic from the elected conservative leadership. Nothing at all.

[Turbulence]

CharlesWT, do you believe that the declining marginal utility of money is true? Or do you think it is a liberal conspiracy? Do you even understand what that phase means?

[Countme-In]

Tax hives, Gadsden flags, moaning, bitching, and clever financial stunts.

Taxing breathing would be fair to all; still, the rich and republicans would hyperventilate --- solution: a hyperventilating surcharge.

Of course then the same folks would hold their breaths and turn blue; you'd have to tax blue and self-asphyxiation as well.

Expect an end run at that point, not unlike the Citizens United decision: a redefining of breathing altogether so as to exempt only certain productive breathers from the taxation.

Fast food workers, of course, would minimize their breathing, perhaps confining inhaling to working hours and exhaling to their leisure time -- not a big change from now, given their choices.

"At the national level I hear nothing constructive on this topic from the elected conservative leadership. Nothing at all."

Tax nothing and you'd get less of it from the elected conservative leadership, but revenues would rise because it will a long time before the elected conservative leadership does more than nothing, sadists and nihilists that they are.

Turb wrote: "The founders' didn't have our ability to efficiently tax anything but the stuff they taxed. That doesn't mean that what they ended up taxing is some particularly good set of things to tax. I mean, the founders' treatments for disease were also not good and not something we should replace modern medicine with."

However, they possessed the precise foresight to know what an automatic weapon with large capacity clips could do to a building full of school children.

By comparison, their incompetence on the tax and disease fronts are mysteries for the ages.

[CharlesWT]

Quiz: Which famous economist are you most similar to?

[Countme-In]

Contrary to the Reagan's epigrammatic "If you want less of something, tax it" (he claimed to have gone Galt after the "Bonzo" movie, but in reality the studios and chimps everywhere got fed up with him long before the rest of us), taxing whining, moaning, and complaining about taxes is an elegant solution.

The whining, moaning, and complaining regarding taxation is at full maximum productive throttle regardless of the level of taxation (tea back when, no income tax before 1913, one percent income tax after 1913, 91% marginal income taxes from World War II until 1961, 70% marginal income tax until 1981, and levels hovering in the high 20 to low 40 percentiles since.

No similar fluctuations in whining, moaning, and complaining. Nope, full bore every moment from start to finish.

The beauty of this tax would yield precisely the opposite effect Reagan predicted; my God, government offers would be flooded as the usual suspects whined, moaned, and complained at new unheard-of productive levels, so much so that you could probably reduce the tax rate to 90% half way through the first day, which would keep the dollar level of taxes equal to the 100% taxation rate, due to never-lessened whining, moaning, and complaining of Rush Limbaugh, Grover Norquist, the U.S. Chamber of Commerce, and the House Republican caucus alone.

I predict a 100 percent across the board tax on whining, moaning (about taxes; moaning caused by other pursuits would be subsidized), and complaining about taxes, especially now in the internet age, would have deficits across the board paid off by next Thursday and a few days later government rainy day coffers would be brimming such that we could declare a few holidays expressly for tax-free whining, moaning, and complaining.

A whining, moaning, and complaining heat map overlaid on lj's Sunday map would match purtin-near exactly.

[Countme-In]

I dub this scheme "Kvetching-Side Economics".

[CharlesWT]

"..., do you believe that the declining marginal utility of money is true?"

Yes, though, for a given amount of money, the perception of that marginal utility is likely to vary depending on who has it. The perception of a layabout who is pissing away an inheritance is probably going to be a bit different from the entrepreneur who is trying to scrap together as much money as he can to get his enterprise going.

[bobbyp]

I think the idea of moving to a founders' taxation model is...very bad-Turb

Indeed. As I understand it, slaves were not taxed, an anomaly we have overcome. At the very least, 3/5 of their output should have been subject to tax of some sort.

The whining, moaning, and complaining regarding taxation is at full maximum productive throttle regardless of the level of taxation-da'Count

Since the supply of kvetching, whining, and moaning is inelastic with respect to the level of taxation there is absolutely no reason not to raise it. I call this the laughter curve.

Yes, though, for a given amount of money, the perception of that marginal utility is likely to vary depending on who has it-CharlesWT

So, when Bill Gates kicks in some pocket change (say $250million) to build his house those dollars have a different marginal utility than if he put them into a startup? Can you take the differential of that utility equation? It does not appear to be a function that can be handled by marginal utility theory. Therefore it is invalid.

[Turbulence]

CharlesWT, if you really believe in the marginal utility of money, why did you write "You could condense your policy proposal a great deal by just saying "A surtax on economic activities, life styles and people I don't approve of"? It is after all sufficient to explain russell's proposal, so why would you assume that he just wanted to soak people he didn't approve of?

[russell]

ok, so, some additional comments on my luxury tax proposal.

the first thing to note about the luxury tax proposal is that the luxury goods market is simply not a big enough pool of $$$ to make a dent.

that's unfortunate, because the second thing to note is that, unlike the wealth tax proposal and taxes on unearned income (which we have now), luxury taxes incentivize saving and investment.

don't buy the bentley, don't pay the tax.

any tax regime that does not end up hitting wealthy people more than it does not-wealthy people is probably not going to work well, because wealthy people have more money.

nobody is singling them out because we think they're nasty, it's just logically how any sane tax regime is going to skew.

brett's 'pay as you go' proposal is probably the only reasonable counter-example, however for a wide variety of reasons it's just not that practical.

the idea that wealthier people should pay a higher proportion of what they have in taxes is not a new or radical idea.

as noted upthread, the sainted adam smith thought it a splendid idea, and since he was thinking and writing before the idea of marginal utility was common, he expressed it simple moral and humanistic terms.

among more modern economic concepts, the idea of marginal utility describes the same phenomenon very aptly, and does so without the moralistic baggage. if that makes it any easier to swallow.

a dollar matters less to a wealthy person than it does to a not-wealthy person, and much much less than to a poor person. this is a commonplace observation about basic human experience.

so if people suggest that wealthy people should shoulder a larger burden of whatever tax regime folks come up with, it's not evidence that they hate the rich.

it's just common sense.

[hairshirthedonist]

The flip side, according to supply-siders, is that the people who make lots of money are the investors, the job creators, the ones who make the economy grow. Every dollar you take from them is a dollar that doesn't get put to good use, which ultimately hurts the people lower on the economic ladder, having neither the goods and services the producers would make available for purchase, nor the jobs those producers would create to allow the workers to purchase those goods and services.

Of course, we all know the marginal propensity to consume is higher for those with lower incomes, so every dollar you take from those people reduces demand for the goods and services the producers would make available for purchase.

So there's really no one to tax, since taxes go to the government, which, of course, can't possibly put a dollar to good use, at least certainly not as good of use as the Almighty Free Market.

(This is not my model, so I use the conventional paradigm that taxes actually pay for things in a monetary system that relies on fiat currency.)

[russell]

Every dollar you take from them is a dollar that doesn't get put to good use

This assumes, among other things, that dollars spent by the public sector are not put to good use.

Look, Warren Buffett famously pays taxes at a lower rate than his secretary.

Mitt Romney pays taxes at a rate comparable to me. Maybe a bit lower. And that's just the years we have tax records for.

That's freaking nutty. IMVHO.

I have no big issue with wealthy people. Some of my best friends, as the saying goes, are wealthy. By some highly reasonable metrics, *I* am wealthy.

It just strikes me as fair that, for a given overall tax burden, that wealthier people would bear proportionately more of it.

Where for 'fair' please read just, sensible, practical, and humane.

Supply siders can pound sand.

There are, certainly, economic and social circumstances where removing impediments to production is the right policy, but that's not what the 'supply siders' are about.

In my opinion. I'm not a mind-reader, I just look at how people behave and draw the obvious conclusions.

[hairshirthedonist]

I meant to go back and put scare quotes around "producers," which may have made it more obvious that I, too, find supply-siders to be excellent sand-pounding candidates.

[byomtov]

The flip side, according to supply-siders, is that the people who make lots of money are the investors, the job creators, the ones who make the economy grow. Every dollar you take from them is a dollar that doesn't get put to good use,...

Implicit here is that money going to the government does not "get put to good use."

Also implicit is that investment occurs in the absence of customers. It doesn't.

I see no reason why we need to treat the wealthy as revered "job creators," who we dare not upset lest they take their job-creation blocks and go home.

[hairshirthedonist]

I see no reason why we need to treat the wealthy as revered "job creators," who we dare not upset lest they take their job-creation blocks and go home.

And we all know they constitute a fixed set of people, except when they die or when a new one is born. It's not like someone else wouldn't want to step in and take up the slack if John Galt #N decides it's not worth his time to make his (N+1)th dollar.

[hairshirthedonist]

It looks like I doubled my negatives there, and, since I was being sarcastic, the whole shebang was negative to begin with - would, not wouldn't.

[Carleton Wu]

I view the "job-creators" meme to be symptomatic of an economic view that is the mirror opposite of Marxism- Marxists effectively deny the function of capital in creating wealth, and these folks ('supply siders' doesn't quite capture it) deny the function of labor. A job is a gift, it's a philanthropic gesture, it's an act of generosity by the job-creator to the sad plebe.

Whereas according to their own economic doctrines, a job is an exchange of value between two parties. We should no more praise the employer for having a job to fill than we should praise the employee for filling it.

And that's not even getting into what kinds of economic activity is useful versus parasitical... a la Mitt Romney "I had enough money to fill a swimming pool with cocaine. But did I? I did not. I bought a company with that money. Then I looted that company's pension and sent it into bankruptcy, and now have enough money to fill three swimming pools with cocaine. You're welcome, by the way."

[Carleton Wu]

Looping back to 'how to tax', I suspect (ie prognosticate without facts or even considerable reflection) that we're in a phase of history where capital growth will continue to outpace income growth. Not only because of the skewing of the allocation of economic growth to the haves, but also bc older folks getting older but staying alive (and thus, living on investments). A trend I expect to continue, and therefore...
I expect that even if/when wages pay catchup with capital in terms of growth, individuals will want to devote more and more of their current wages to their future longer and longer retirement.
There are some other things supporting that trend- we have better financial controls now, so even when we have Great XXXX(X)ssions, we lose 50% of our market value rather than 90%. We're much better about hedging risk. etc.
[I also think that the whole concept of 'retirement' is going to continue to change to the point that it means something more like 'shift from major money-accumulation phase to make-some-money-doing-what-you-love phase, or second-career phase, extended-vacation-between-careers phase, etc]

Anyway, that makes me think that we may need to re-evaluate where we get our taxes from anyway. Either considering investment income as taxable as normal income, or taxing wealth directly.