Wealth tax and the future

[EscapeVelocity2020]

@BicycleB Thanks for the reply.  I'm still surprised by how your #1 (first paragraph, before the rest) seems to conflict with everything else.  For instance, if you had vast wealth, you would give it away, yet you think 2% of wealth beyond 50 million is an excessive 'indirect contribution that the government imposes' (quotes being mine).

[BicycleB]

@BicycleB Thanks for the reply.  I'm still surprised by how your #1 (first paragraph, before the rest) seems to conflict with everything else.  For instance, if you had vast wealth, you would give it away, yet you think 2% of wealth beyond 50 million is an excessive 'indirect contribution that the government imposes' (quotes being mine).

I can see the conflict!  :)

I guess I just want to accumulate the power to have impact that the wealth represents, then put it to the highest use found by me instead of having it slip away before I can decide the allocation at my own pace. Also, if it's going to be taken from me, it loses the excitement of being a voluntary gift.

I respect the importance of the government's spending. I am happy to pay a fair amount of tax. I would be even happier if I felt the vast medical and military portions weren't so wildly wasted. But if the medical and military expenses were at the right level, the tax rate would be lower and we'd all have good health care, plus we could have a clean carbon-free power grid.

I just think there are better ways. Which we won't find by focusing on a high tax. Because as long as we think a high tax will solve it, we won't tackle the real problems.

Hence my prior call toward stating what will the wealth tax solve, and how will it do so. Perhaps the proposals will convince me, or lead to a different solution. Even if they don't, we'll get a clearer picture of what provisions might be attached for using any money that actually gets collected. If a wealth tax is to pass, I want it to accomplish something besides enriching the plutocrats' tax accountants.

PS. Am I the only one who assumes this wealth tax will be assessed annually?

It just occurred to me that if everyone else assumes that it would be assessed one time only, that would explain why everybody else in the thread views 2% as low instead of high. If it were only assessed once - in effect, if it were a one time tax of 2% that only applied to increases in savings and investments and unmortgaged real estate - that would seem low to me too.

Incidentally, someone raised the question of whether the wealth tax would apply to unrealized gains. I have been assuming it would...

[rocketpj]

Note that if a person has $25 of wealth over the $50 million threshold, and their investment of that $25 produces $1 of pretax income, the wealth tax on that amount is 50 cents.

Wait, what?

A wealth tax at 2% of assets over $50 million dollars would not be 50%.  It would be 2%, or in the case of having $25 over the threshold it would be 50 cents. 

Yes, in the case of having $25 over the threshold the wealth tax would be 50 cents. Thank you, that's what I've been trying to say.

And the income tax on $1 of dividends would be 20 cents. I've been supposing that the 4% rule applies, so calculating that $25 x 4% produces $1 of dividends.

So the total tax resulting from the marginal $25 of wealth above $50 million would be 50 cents + 20 cents = 70 cents. 

70 cents is 70% of a dollar. In effect, a marginal 70% tax rate.

70 cents is 70% of a dollar, but you are talking about $25, and 70 cents is only .028 of $28, so a marginal 2.8% rate.  But I suspect you are not really wanting to address the question directly.

[BicycleB]

Hi, @rocketpj. I addressed it directly to Sol upthread at length. I am being as direct as I know how. Obviously your math is correct. So is mine. I just think that the important thing is to compare the total tax resulting from the marginal wealth above the $50 million (including the income tax on the income it produces) to the marginal income, not just to the amount of marginal wealth.

Both comparisons are important. I think the most significant comparison is to the income, because it helps us realize that in the event that both the income tax and the wealth tax apply, then most of the marginal income would be taken as one tax or another.

[rocketpj]

Except that wealth is taxed differently from income.  Which is the whole point.

In practice, we see money derived from wealth as income - the 4% withdrawals.  But the fact is that the 4% withdrawal is a drawdown of the total wealth.  If we don't withdraw it, the wealth grows.  It is not income, it is just a decision to have less wealth.  Dividends are also classified as wealth.

If your total wealth has dropped, as it will sometimes in equities, you would pay less wealth tax.  If it drops below $50Million, then you would pay nothing.  At no point would you pay income tax on withdrawn wealth.

[BicycleB]

Except that wealth is taxed differently from income. 

I get that. Respectfully, please see all replies to Sol.

In practice, we see money derived from wealth as income - the 4% withdrawals.  But the fact is that the 4% withdrawal is a drawdown of the total wealth.  If we don't withdraw it, the wealth grows.  It is not income, it is just a decision to have less wealth.  Dividends are also classified as wealth.

You make a good point that not all investments' growth is counted as income during any given year. What income would be generated certainly depends on the investment. As mentioned upthread, I originally used an example of wealth that was invested in stock. My example then supposed that all of the 4% expected withdrawal would appear as dividends. If it appears as capital gains, same tax rate. So for my example, your point is correct that perhaps dividends would be lower and the stockholder wouldn't sell, producing a lower income tax rate than I calculated. Though I presume that eventually the stock would be sold and gains taxed, or transferred at death and partially captured by estate tax, perhaps some of the wealth would be principal and thus untaxed.

IRL the investment might be bonds, with interest taxed at a higher rate. Or any number of other things. Whatever it is, though, I imagine the general effect of the income tax as being in the ballpark of my example, and the income amount as similar. I detailed my very simple reasoning upthread already (basically, 4% is MMM standard, so I used it as a ballpark estimate).

If the wealth tax on the marginal wealth over $50 million is 2% and the typical return is 4% on that marginal wealth, then the taxpayer would end up paying as wealth tax an amount roughly equal to half their typical return from the marginal wealth. Since I think they'd eventually pay some income tax too, it just seems high to me.

Fwiw, my replies to EscapeVelocity2020 have background on why it feels high and how much I want to help those of us in the 99%.

If your total wealth has dropped, as it will sometimes in equities, you would pay less wealth tax.  If it drops below $50Million, then you would pay nothing.  At no point would you pay income tax on withdrawn wealth.

Very true!

[BicycleB]

  Dividends are also classified as wealth.

"Dividends are income for the year."

https://www.investopedia.com/ask/answers/033015/there-difference-between-capital-gains-and-dividend-income.asp

"Investment income. This generally includes interest, dividends..."
https://www.irs.gov/publications/p550#en_US_2017_publink10009823

[Indexer]

$50mil is a lot of money, but what happens if that arbitrary figure becomes $5mil, or $500k?

Why do people keep saying this?  Literally no one is suggesting we tax assets under $50 million, so why even talk about it?  I think it's more likely that an eventual wealth tax would start at a larger number, not a smaller one.

People keep saying this because they don't believe the cut off would remain at $50 mill. It might start there, but I doubt anyone, even you, believes it would remain at that level forever.

-Income taxes were originally only applied to the rich. Now the middle class pays them.
-The AMT was originally meant for the rich, but it lacked an inflation adjustment so it started impacting the middle class.
-Several posters in this thread have remarked about other countries' wealth taxes, and they don't have 50 million in assets so there is already precedent for wealth taxes on lower amounts. I wonder how many of those wealth taxes started at as a tax only on the very rich and then impacted the upper middle class?


It's easier to get the idea started at 50 million. Then once it's started and accepted by the people politicians start to think... "Hmm... we can get significantly more money if we start taxing money over 1 million! Then we can fund XYZ social program."

That concern is why this proposal is getting so much resistance. I don't want a wealth tax on assets over 50 million because I am concerned it would eventually impact assets over a much smaller amount.


I agree the rich should pay more, but couldn't we accomplish the same thing by increasing the tax rates on investment income for the very rich? That tax already exists, we just need to change the %.

[bwall]

People keep saying this because they don't believe the cut off would remain at $50 mill. It might start there, but I doubt anyone, even you, believes it would remain at that level forever.

-Income taxes were originally only applied to the rich. Now the middle class pays them.
-The AMT was originally meant for the rich, but it lacked an inflation adjustment so it started impacting the middle class.
-Several posters in this thread have remarked about other countries' wealth taxes, and they don't have 50 million in assets so there is already precedent for wealth taxes on lower amounts. I wonder how many of those wealth taxes started at as a tax only on the very rich and then impacted the upper middle class?

Here's how I see the points you mention:
1) When income taxes were originally applied, there was no middle class. The rich were the only ones who could pay. I might even go as far as to suggest that it was precisely the taxation of the rich 100 years ago that helped build the middle class in the USA. In this case, taxing wealth above $50m could also help strengthen the middle class.
2) AMT and the middle class: Thanks, Grover Norquist! By making it political death for anyone in the GOP who raises taxes, the middle class is now affected by this tax. The solution is simple; index for inflation. But when your mantra is 'Government is broken', then the best way to promote that narrative is to ensure that government never gets fixed.
3) No other country in the world has the level of wealth as the USA does. Highest number of billionaires and billionaires with the most money. Not even close. So, it only stands to reason that other societies have lower thresholds of wealth taxation, if they tax wealth at all.

The USA is the best country in the world to invest money and earn profits from that investment. Even with a wealth tax above $50m in place, the wealthy will still invest in the USA and still achieve better results than elsewhere. Japan and the EU are offering negative interest rates and Switzerland is at zero percent. So, I could park $1 billion in US treasuries yielding 2.5%, pay the wealth tax of 2% and still be better off than if I'd invested in the treasuries of other currencies. Under no circumstances would I park $1billion with the communist government of China (or Russia), no matter the interest rate involved, unless I wouldn't mind if I lost the entire amount.

[sol]

I don't want a wealth tax on assets over 50 million because I am concerned it would eventually impact assets over a much smaller amount.

Um, then vote against it?  That's how this process works.  You don't automatically oppose all income taxes because you are worried they might go up in the future, you vote on the proposal on the table today.  And then if you don't like some future proposal, you vote against it. 

You're not giving congress a blank check to pass any tax rate they like, you're giving them permission to tax assets over fifty million dollars, and only assets over fifty million dollars.  You can support the death penalty without supporting roving murder squads, and you can support drug sentencing reform without supporting handing out free heroin to kindergartners.  It is only the super rich who are cultivating this perception "don't crack the door or they'll come for you next!" because that's the only way they can generate majority support for a policy that really only affects a few tens of thousands of people in the entire country.  Don't fall for it!

[wenchsenior]

I used to fall for 'slippery slope' arguments when I was young, but they seem completely and utterly illogical to me now.  If preventing a slippery slope was a valid reason for not doing something, we wouldn't make any societal rules about anything more black and white than things like straight-up first degree murder. No speed limits, no limits on weapons, no food regulation et al. ad nauseum.  It's a dumb argument. 

Look at the proposal. Evaluate the proposal. Support or don't support.

[Telecaster]

-Income taxes were originally only applied to the rich. Now the middle class pays them.
-The AMT was originally meant for the rich, but it lacked an inflation adjustment so it started impacting the middle class.
-Several posters in this thread have remarked about other countries' wealth taxes, and they don't have 50 million in assets so there is already precedent for wealth taxes on lower amounts. I wonder how many of those wealth taxes started at as a tax only on the very rich and then impacted the upper middle class?

It's easier to get the idea started at 50 million. Then once it's started and accepted by the people politicians start to think... "Hmm... we can get significantly more money if we start taxing money over 1 million! Then we can fund XYZ social program."

--At one time  estates were taxed at top rate of 55% with a $675,000 exclusion.  Now the top rate is 40% with a 10% million exclusion.

-- And at one time the top marginal income rate was 90% now it is 37%.   

-- At one time capital gains were taxed at 35%.  Now it is 20%.

--At one time IRAs were limited to $2,000 and had a 15% excise tax on accounts above $1 million

--At one time tariffs were placed on virtually all imports.  Now most imports are only lightly taxed, if at all.

I agree that it is possible that a wealth tax could start at $50 million and be lowered in the future.  But it is also possible the floor could be raised in the future, or the tax might go away entirely.   

[Sorinth]

I can see the conflict!  :)

I guess I just want to accumulate the power to have impact that the wealth represents, then put it to the highest use found by me instead of having it slip away before I can decide the allocation at my own pace. Also, if it's going to be taken from me, it loses the excitement of being a voluntary gift.

I respect the importance of the government's spending. I am happy to pay a fair amount of tax. I would be even happier if I felt the vast medical and military portions weren't so wildly wasted. But if the medical and military expenses were at the right level, the tax rate would be lower and we'd all have good health care, plus we could have a clean carbon-free power grid.

I just think there are better ways. Which we won't find by focusing on a high tax. Because as long as we think a high tax will solve it, we won't tackle the real problems.

Well Sen. Warren doesn't really control what the media will focus on, it's not like her only proposal is a wealth tax, she's supported and proposed a number of things from universal healthcare, to universal childcare, to fighting climate change, etc...

The focus is on the wealth tax because it drives views, and is the easiest target for the opposition to attack.

[Norioch]

There's nothing novel, or immoral, about a wealth tax. It's not novel because we already have property taxes on real property, and inflation which functions a lot like a tax on net cash. It's not immoral because people with a lot of wealth are getting more benefit from the existence of a stable and functional civilization than poor people. Billionaires have a lot more to lose if society collapses than homeless people do. It's justifiable that they should pay more in taxes. With all industries becoming increasingly automated it seems inevitable that a wealth tax will eventually become a matter of necessity.

The problems will be the constitutionality of a wealth tax and expatriation. We'll probably need a constitutional amendment to be able to implement a wealth tax the right way. We'll also probably need to tax US citizens on all of their worldwide wealth (like we already tax them on all of their worldwide income) to solve the problem of capital flight, and we'll need to pair it with a very large one-time tax on people who renounce US citizenship, and we'll need some sort of strong permanent monetary disincentive on people who have formerly renounced their US citizenship to prevent a glut of billionaires form renouncing their citizenship the day before the law goes into effect.

[Bloop Bloop]

I don't think it's a given that automation will lead to mass starvation. I think automation will just lead to a lot of decently paid jobs (e.g. transport jobs) being displaced and workers being moved onto lower paid jobs. That doesn't call for a wealth tax. There's no law saying you need a decent job - as long as you're not starving it's not someone else's role to fund your existence.

[Norioch]

I'm imagining a future where the entire concept of a "job" is obsolete because *everything* is automated and there is literally no task which humans are more efficient at than AI-controlled machines. And in a rationally structured society, that *should* be a good thing. But it won't be a good thing if 500 people collectively own 99.999% of the wealth on the planet and are fine with letting the rest of the population starve or die in prison.

[Bloop Bloop]

There are many jobs that I suspect will never be automated, at least not for many lifetimes - therapist, teacher, wealth manager, tax adviser, trial lawyer.

I think if a lot of jobs were displaced by automation there'd probably be a rise in low-paid maintenance type roles which would still provide a wage that would prevent starvation or poverty.

It's something we can worry about when we get to that stage. I have a very sanguine view of inequality.

[Norioch]

There are many jobs that I suspect will never be automated, at least not for many lifetimes - therapist, teacher, wealth manager, tax adviser, trial lawyer.

I think if a lot of jobs were displaced by automation there'd probably be a rise in low-paid maintenance type roles which would still provide a wage that would prevent starvation or poverty.

It's something we can worry about when we get to that stage. I have a very sanguine view of inequality.

All of the things you listed are already being automated (I think specifically *trial* lawyers are still human for the time being, but automation has eliminated tons of other legal jobs). We're getting to that stage now and solutions will take time to come to fruition. We need to start worrying about it now.

[Indexer]

Thank you Sol, bwall, wenchsenior, and Telecaster for replying to my post.

I agree I can vote against it and that tax rates do go up and down over time. There is one very important point in my post I would still like your opinions on.

For the reasons I stated I see this getting a lot of resistance in the US. I presented the same argument that would likely run 24/7 on the news and cause concerns for people in the middle class. Given the resistance a wealth tax would run into, combined with the calculation complexity, wouldn't it be more feasible to just change the existing tax rates on investment income?

Most investments pay dividends, income, capital gains distributions, or result in capital gains when sold. If those distributions are on average about 3-4% and the current capital gains rate tops out at 20% you could raise the top tax rate to 50% and the extra revenue would give you a very similar result to a 1% wealth tax.   (3.5%X(0.5-0.2))= 1.05%

It's a lot simpler, doesn't require new tax laws, doesn't require calculating net worth, accomplishes the same thing, and it wouldn't be a concern for the middle class because they rarely run into much investment income anyway(since their investments are tax deferred.)  It should be a really easy sell to the middle class, "billionaires are paying a lower tax rate than you because investment income is taxed at a lower rate than labor, let's reverse that!"

Why not just do that?

[BicycleB]

The problems will be the constitutionality of a wealth tax and expatriation. We'll probably need a constitutional amendment to be able to implement a wealth tax the right way. We'll also probably need to tax US citizens on all of their worldwide wealth (like we already tax them on all of their worldwide income) to solve the problem of capital flight, and we'll need to pair it with a very large one-time tax on people who renounce US citizenship, and we'll need some sort of strong permanent monetary disincentive on people who have formerly renounced their US citizenship to prevent a glut of billionaires form renouncing their citizenship the day before the law goes into effect.

Might be constitutional without an amendment.
https://www.latimes.com/business/hiltzik/la-fi-hiltzik-warren-wealth-tax-20190125-story.html

Those other points are all clearly excellent. To my eye, Senator Warren's website addresses them impressively well. If passed in the form she suggests, I think you'd get everything you suggest.

https://elizabethwarren.com/ultra-millionaire-tax/

[sol]

wouldn't it be more feasible to just change the existing tax rates on investment income?
...
It's a lot simpler, doesn't require new tax laws, doesn't require calculating net worth, accomplishes the same thing, and it wouldn't be a concern for the middle class because they rarely run into much investment income anyway(since their investments are tax deferred.)  It should be a really easy sell to the middle class, "billionaires are paying a lower tax rate than you because investment income is taxed at a lower rate than labor, let's reverse that!"

Why not just do that?

Is it really easier to accomplish, though?  Recall the knock down drag out fights we have over even modest adjustments to our current tax code.  I can't imagine doubling the capital gains rate would ever get majority support.  The wealth tax, by contrast, is conceptually simple and guarantees that the middle class never has to do anything or worry about it, because it only applies to people who have armies of accountants anyway.  All of the complexities you worry about are only bothersome to people who are so rich they will just pay someone else to be bothered for them.

[bwall]

There are many jobs that I suspect will never be automated, at least not for many lifetimes - therapist, teacher, wealth manager, tax adviser, trial lawyer.

Technology is already replacing teachers and wealth managers as we speak (o.k.... read/write)

Therapists are now on call via the internet, which definitely means more competition among therapists but it may also result in more work in the aggregate for therapists (and a healthier society).

Simple tax advisors are already being turbo-taxed out of business. Complex stuff still remains. I think the bar exam may be a hurdle for automated trial lawyers still.

[Telecaster]

It's a lot simpler, doesn't require new tax laws, doesn't require calculating net worth, accomplishes the same thing, and it wouldn't be a concern for the middle class because they rarely run into much investment income anyway(since their investments are tax deferred.)  It should be a really easy sell to the middle class, "billionaires are paying a lower tax rate than you because investment income is taxed at a lower rate than labor, let's reverse that!"

Why not just do that?

I agree, it would be much simpler, and unlike a wealth tax we're reasonably certain what the side effects would be.

[Sorinth]

Thank you Sol, bwall, wenchsenior, and Telecaster for replying to my post.

I agree I can vote against it and that tax rates do go up and down over time. There is one very important point in my post I would still like your opinions on.

For the reasons I stated I see this getting a lot of resistance in the US. I presented the same argument that would likely run 24/7 on the news and cause concerns for people in the middle class. Given the resistance a wealth tax would run into, combined with the calculation complexity, wouldn't it be more feasible to just change the existing tax rates on investment income?

Most investments pay dividends, income, capital gains distributions, or result in capital gains when sold. If those distributions are on average about 3-4% and the current capital gains rate tops out at 20% you could raise the top tax rate to 50% and the extra revenue would give you a very similar result to a 1% wealth tax.   (3.5%X(0.5-0.2))= 1.05%

It's a lot simpler, doesn't require new tax laws, doesn't require calculating net worth, accomplishes the same thing, and it wouldn't be a concern for the middle class because they rarely run into much investment income anyway(since their investments are tax deferred.)  It should be a really easy sell to the middle class, "billionaires are paying a lower tax rate than you because investment income is taxed at a lower rate than labor, let's reverse that!"

Why not just do that?

A large portion of their wealth will never be sold off, Bezos isn't going to sell most of his Amazon stock and therefore would never get taxed on it until he dies and it becomes subject to an inheritance tax. Since he could easily live another 30-40 years, should the government really have to wait that long before collecting taxes? And even then what about a guy like Gates who plans on donating all of his wealth, in his case the government won't ever get their slice.

As to whether it's easier or not, it's questionable, either way there will be major opposition so you might as well go for whichever tax is better on the merits.

[Telecaster]

There are many jobs that I suspect will never be automated, at least not for many lifetimes - therapist, teacher, wealth manager, tax adviser, trial lawyer.

I think if a lot of jobs were displaced by automation there'd probably be a rise in low-paid maintenance type roles which would still provide a wage that would prevent starvation or poverty.

It's something we can worry about when we get to that stage. I have a very sanguine view of inequality.

But we already have enough therapists, teachers, wealth managers, tax advisers, and trial lawyer.  If more people want those jobs because they aren't likely to be automated, then that will bid wages down.

It will be some years before vehicles are automated, but there are something like 3.5 million truck drivers in the US.   But there won't be 3.5 million new maintence jobs because the number of trucks won't increase.   In fact, the number of trucks might go down because robots don't need to sleep.  Similarly Amazon employs something 300,000 people in their fulfillment centers, which aren't great jobs, but they aren't terrible either.   If those jobs get eliminated by automation Amazon isn't going to hire 300,000 maintence workers.

There is a ray of hope here.  Historically, labor market disruptions caused by automation were only temporary, and automation allowed workers to become more productive, which increased the value of the worker's labor.   Maybe that will what happen in this case as well.   That trend can't continue forever, however.  If everything automated there would be no jobs at all.   Maybe we're at the point where automation no longer increases labor value.  I don't know for sure, but it seems to be the increasingly looking that way.  We haven't seen wages increase (except for the very wealthy) for a couple decades now.   

Why does this matter?   We've seen the end result in societies where the standard of living is declining.  Usually ends with torches and pitchforks.   

[sol]

If everything automated there would be no jobs at all. 

I understand why it seems that way, but I think this is pretty clearly untrue.

Jobs aren't a function of what production the economy needs.  We can't think about them is terms of "what needs doing" the way we could in 1890s, because since then we've pretty conclusively convinced ourselves that new jobs will materialize out of thin air.  Whenever you have idle people and idle cash sitting around in the same ecosystem, jobs will magically appear as people do stuff in exchange for that money.

Automation didn't give us fewer youtube stars, or bloggers, or social media managers.  Those are jobs that previously didn't exist, until someone figured out there was money to be made by doing them.  They are not the result of changing trends in automation, so much as changing trends in how people choose to spend their money.  By making new choices with their spending, they created new jobs to receive that money.

So what does it matter if every single manual labor job in the world is done by a robot?  You think people won't pay money to go to sporting events?  To participate in online communities?  As long as people have money, they're going to spend it on something.  I agree that lots of that spending is going to end up in the hands of a super-wealthy minority, but lots of it is also going to end up being traded around local economies too and it's not like our current manufacturing economy doesn't have this exact same problem.

And as we've previously discussed, there are many many jobs that are valuable precisely because they are being done by a human being.  A digital recording of symphony is not the same thing as attending a symphony performance.  Porn does not compete with prostitution.  We still watch the NFL even though a robot can throw a football ten times as far with perfect accuracy.  And as long as people continue to spend money on these sorts of things, both the performers and all of the associated supporting jobs are probably safe.

I suspect that the popular concept of robots automating away human jobs is too simplified for other reasons, too.  Maybe we should be less worried about ditch diggers or office workers trying to carve out some portion of their work that can't yet be done by robots, but probably will be someday, and more worried about the ways in which technology obviates entire industries.  Like if we still traveled by horses and I was a stable boy worried about robots taking over my horse shit shoveling job, I probably shouldn't try to pitch myself to my boss as offering a uniquely compassionate human touch to the horses that a robot shit shovel can't provide, and more worried about how automobiles are going to cause a mass extinction of horses in general.  Sometimes it's the big technological phase changes, not the gradual shifts, that cause industries to die.

[Paul der Krake]

The "robots will do everything, even programming other robots" trope is quite funny.

We've spent trillions of dollars and twenty years on trying to keep websites from crashing too much, but somehow there's going to be a point where everything works all the time?

Fat chance.

[Indexer]

A large portion of their wealth will never be sold off, Bezos isn't going to sell most of his Amazon stock and therefore would never get taxed on it until he dies and it becomes subject to an inheritance tax. Since he could easily live another 30-40 years, should the government really have to wait that long before collecting taxes? And even then what about a guy like Gates who plans on donating all of his wealth, in his case the government won't ever get their slice.

As to whether it's easier or not, it's questionable, either way there will be major opposition so you might as well go for whichever tax is better on the merits.

Thank you for pointing out that we already have a wealth tax called the inheritance tax!  Should the government have to wait? It's getting the money either way and people die each year so it should even out. Consider, if you kept taking 1% off the top that slows down compounding, which means he wouldn't have as much to tax when he passes. Mathematically it works out similar to a mutual fund with 1% expenses and we have all seen the math on how that can cripple long term growth. I might have to math that out, how much would a wealth tax decrease the inheritance tax revenue once you consider compounding? 

I think you also identified a likely unintended consequence of this. Super philanthropists who plan on gifting away 90%+ of their wealth, like Gates and Buffet, might speed up their gifting to put even more money into their foundations to limit the wealth taxes.

Math:

1. Estate tax
PV: 1,000,000
Growth%: 5% (being modest)
Time: 30 years
FV: $4,321,942.38

Estate tax:  40%   $1,728,776.95

2. Wealth tax 1%
Had to use a spreadsheet to take into account the payments keep changing since they are 1% of the new value each year. Still assuming starting value of 1 million, 5% growth, 30 years.

Total tax payments at 1% of value each year: $560,849.38
Value at end: $3,243,397*

Estate tax: 40% = $1,297,359

Total of estate tax + wealth tax: $1,858,208.

Okay, the wealth tax + estate tax does give you higher total revenues, BUT you went through all that political trouble to increase the total cumulative revenues over 30 years by 7.5%?  That's a lot less than 30%, which is around what you would expect out of a 1% wealth tax X 30 years. Adding the inheritance tax(our existing wealth tax) back into the total calculation shows an additional wealth tax is likely not the best way to raise revenues.


* I used a spreadsheet to make the annual payment calculation easier, but I also used a TMV equation to check my work at the end.  I still got $3,243,397 as my future value in case anyone wants an easy way to check the math.

PV: 1,000,000
Growth%: 4% (5%-1% tax)
Time: 30 years
FV: $3,243,297

[Boofinator]

And even then what about a guy like Gates who plans on donating all of his wealth, in his case the government won't ever get their slice.

That would be fantastic! By all accounts Gates is getting more bang from his bucks than the government could ever hope to achieve. (Don't worry, the government isn't going broke anytime soon.)

[EscapeVelocity2020]

Okay, the wealth tax + estate tax does give you higher total revenues, BUT you went through all that political trouble to increase the total cumulative revenues over 30 years by 7.5%?  That's a lot less than 30%, which is around what you would expect out of a 1% wealth tax X 30 years. Adding the inheritance tax(our existing wealth tax) back into the total calculation shows an additional wealth tax is likely not the best way to raise revenues.

People seem to miss the main point of a wealth tax which is to reduce inequality and hoarding of wealth.  Inheritance taxes only address dynastic wealth (and fail miserably, given all the loopholes and a 'once a generation' application).  I also think folks underestimate just how much the IRS knows about household wealth.  If Forbes can compile a reasonable list of net worth figures with fairly limited resources, incentive, and access to private data, I'm sure the IRS will figure it out.  But even just getting started on wealth tax collection and improving over time is more reasonable than throwing up our hands that there is nothing to be done about the rich getting richer while public goods and services are underfunded leading to stiffing teachers, college students, people in need of medical care, etc.

America is the richest country on Earth and yet we have a tiny portion of the population enjoying the vast majority of the gains.  And by enjoying, I mostly mean getting to sit on larger and larger piles of unused, un-circulated wealth. 

And to the last post about the government not going broke, it's already broke and going even more broke faster - https://www.npr.org/2019/02/13/694199256/u-s-national-debt-hits-22-trillion-a-new-record-thats-predicted-to-fall

The U.S. government's public debt is now more than $22 trillion — the highest it has ever been. The Treasury Department data comes as tax revenue has fallen and federal spending continues to rise. The new debt level reflects a rise of more than $2 trillion from the day President Trump took office in 2017.

[Bloop Bloop]

I don't agree with the fundamental premise that we should reduce inequality.

I agree we should be using tax to fund public spending so that everyone has food, water, clothes, a roof, education and medical care. I also believe we should have an estate tax to reduce dynastic inequality. Perhaps the estate tax money could go to programs (such as tuition scholarships) that benefit talented but poor children, and their parents. It's important in a meritocracy that we give poor parents a helping hand with their children's education.

Beyond that, I think inequality is good. Life would be boring if there were not winners and losers.

[Indexer]

I also think folks underestimate just how much the IRS knows about household wealth.  If Forbes can compile a reasonable list of net worth figures with fairly limited resources, incentive, and access to private data, I'm sure the IRS will figure it out.

Forbes is estimating, and many of the top richest people(Bezos, Buffett, Gates, etc.) have their assets in publicly traded companies making it very easy to determine net worth. Even if they are wrong by hundreds of millions of dollars they might get a message from the people they ranked wrong, but probably not even that. If the IRS is off by even tens of thousands of dollars it will likely end up in court.

I think you're overestimating the capabilities of the IRS. They are chronically underfunded, don't have the resources to audit as many returns as they would like, and are notoriously bad at evaluating complex assets like private businesses.

In many cases a valuation company will be hired to appraise a business. Doing this for every medium to large sized business every year is something the IRS doesn't currently have the resources necessary to accomplish.

I don't agree with the fundamental premise that we should reduce inequality.

+1

[Boofinator]

And to the last post about the government not going broke, it's already broke and going even more broke faster - https://www.npr.org/2019/02/13/694199256/u-s-national-debt-hits-22-trillion-a-new-record-thats-predicted-to-fall

The U.S. government's public debt is now more than $22 trillion — the highest it has ever been. The Treasury Department data comes as tax revenue has fallen and federal spending continues to rise. The new debt level reflects a rise of more than $2 trillion from the day President Trump took office in 2017.

I'm of the opinion 1) A sovereign government which prints its own currency cannot effectively go broke and 2) The taxes that come from Bill Gates' expenditures through his fund (from the people earning the income who do the work) will effectively pay more taxes than he would have paid had he simply saved the money.

[BicycleB]

Math:

1. Estate tax
PV: 1,000,000
Growth%: 5% (being modest)
Time: 30 years
FV: $4,321,942.38

Estate tax:  40%   $1,728,776.95

2. Wealth tax 1%
Had to use a spreadsheet to take into account the payments keep changing since they are 1% of the new value each year. Still assuming starting value of 1 million, 5% growth, 30 years.

Total tax payments at 1% of value each year: $560,849.38
Value at end: $3,243,397*

Estate tax: 40% = $1,297,359

Total of estate tax + wealth tax: $1,858,208.

Okay, the wealth tax + estate tax does give you higher total revenues, BUT you went through all that political trouble to increase the total cumulative revenues over 30 years by 7.5%?  That's a lot less than 30%, which is around what you would expect out of a 1% wealth tax X 30 years. Adding the inheritance tax(our existing wealth tax) back into the total calculation shows an additional wealth tax is likely not the best way to raise revenues.


* I used a spreadsheet to make the annual payment calculation easier, but I also used a TMV equation to check my work at the end.  I still got $3,243,397 as my future value in case anyone wants an easy way to check the math.

PV: 1,000,000
Growth%: 4% (5%-1% tax)
Time: 30 years
FV: $3,243,297

Interesting calculation!

Raises the question of whether tax avoidance will be more effective re the wealth tax or the inheritance tax. I have read that there are a lot of ways to avoid estate tax. That it only raises about $20 billion/year suggests that the avoidance works... $20B is much less than the $275B/year projections for the wealth tax. Would the wealth tax be successfully avoided, too? Or more valuable because of being harder to avoid?

https://taxfoundation.org/estate-tax-provides-less-one-percent-federal-revenue/
(I just found their link as the source of the stat)

https://www.vox.com/policy-and-politics/2019/1/24/18196275/elizabeth-warren-wealth-tax

[EscapeVelocity2020]

I don't agree with the fundamental premise that we should reduce inequality.

I agree we should be using tax to fund public spending so that everyone has food, water, clothes, a roof, education and medical care. I also believe we should have an estate tax to reduce dynastic inequality. Perhaps the estate tax money could go to programs (such as tuition scholarships) that benefit talented but poor children, and their parents. It's important in a meritocracy that we give poor parents a helping hand with their children's education.

Beyond that, I think inequality is good. Life would be boring if there were not winners and losers.

So we basically agree.  A wealth tax (especially 2% on amounts over $50M) will hardly reverse existing inequality, but it might slow the growth of inequality in the future.  Hard to tell, actually, but I'm a bit shocked if people think the proposed wealth tax will have a large effect on inequality.

[Bloop Bloop]

No, we don't agree. I like inequality and I don't want any measures to curb it; I'm all for winners and losers. Unless you can show me that we need tax revenue because people are dying in the streets, I don't believe we need any additional revenue.

I support an estate tax, not a wealth tax for the reason that an estate is passed down (thus unearned wealth) whereas wealth is amassed by its earner.

I would have no problems with an estate tax. You can't take it with you. But I would hope that the proceeds of the tax go towards scholarships and tuition for intelligent but poor children and their families, rather than reducing inequality in general.

[Sorinth]

I also think folks underestimate just how much the IRS knows about household wealth.  If Forbes can compile a reasonable list of net worth figures with fairly limited resources, incentive, and access to private data, I'm sure the IRS will figure it out.

Forbes is estimating, and many of the top richest people(Bezos, Buffett, Gates, etc.) have their assets in publicly traded companies making it very easy to determine net worth. Even if they are wrong by hundreds of millions of dollars they might get a message from the people they ranked wrong, but probably not even that. If the IRS is off by even tens of thousands of dollars it will likely end up in court.

I think you're overestimating the capabilities of the IRS. They are chronically underfunded, don't have the resources to audit as many returns as they would like, and are notoriously bad at evaluating complex assets like private businesses.

In many cases a valuation company will be hired to appraise a business. Doing this for every medium to large sized business every year is something the IRS doesn't currently have the resources necessary to accomplish.

You do see the irony here right? We can't tax wealth because we can't pay the tax collectors.

[Sorinth]

A large portion of their wealth will never be sold off, Bezos isn't going to sell most of his Amazon stock and therefore would never get taxed on it until he dies and it becomes subject to an inheritance tax. Since he could easily live another 30-40 years, should the government really have to wait that long before collecting taxes? And even then what about a guy like Gates who plans on donating all of his wealth, in his case the government won't ever get their slice.

As to whether it's easier or not, it's questionable, either way there will be major opposition so you might as well go for whichever tax is better on the merits.

Thank you for pointing out that we already have a wealth tax called the inheritance tax!  Should the government have to wait? It's getting the money either way and people die each year so it should even out. Consider, if you kept taking 1% off the top that slows down compounding, which means he wouldn't have as much to tax when he passes. Mathematically it works out similar to a mutual fund with 1% expenses and we have all seen the math on how that can cripple long term growth. I might have to math that out, how much would a wealth tax decrease the inheritance tax revenue once you consider compounding? 

I think you also identified a likely unintended consequence of this. Super philanthropists who plan on gifting away 90%+ of their wealth, like Gates and Buffet, might speed up their gifting to put even more money into their foundations to limit the wealth taxes.

Math:

1. Estate tax
PV: 1,000,000
Growth%: 5% (being modest)
Time: 30 years
FV: $4,321,942.38

Estate tax:  40%   $1,728,776.95

2. Wealth tax 1%
Had to use a spreadsheet to take into account the payments keep changing since they are 1% of the new value each year. Still assuming starting value of 1 million, 5% growth, 30 years.

Total tax payments at 1% of value each year: $560,849.38
Value at end: $3,243,397*

Estate tax: 40% = $1,297,359

Total of estate tax + wealth tax: $1,858,208.

Okay, the wealth tax + estate tax does give you higher total revenues, BUT you went through all that political trouble to increase the total cumulative revenues over 30 years by 7.5%?  That's a lot less than 30%, which is around what you would expect out of a 1% wealth tax X 30 years. Adding the inheritance tax(our existing wealth tax) back into the total calculation shows an additional wealth tax is likely not the best way to raise revenues.


* I used a spreadsheet to make the annual payment calculation easier, but I also used a TMV equation to check my work at the end.  I still got $3,243,397 as my future value in case anyone wants an easy way to check the math.

PV: 1,000,000
Growth%: 4% (5%-1% tax)
Time: 30 years
FV: $3,243,297

Well if you look at how much is raised currently through the inheritance tax and how much a wealth tax is expected to raise and it's not at all comparable. So clearly the inheritance tax isn't doing as good a job at raising revenue as a wealth tax would.

Now maybe the philanthropist would speed up their giving, but it's extremely unlikely that they would put themselves below the 50m threshold. For example in 2017 Gates donated 4.6 billion, yet his networth increased by 4 billion that year. Gates could double or triple how much he gives and a wealth tax would still be generating billions from him alone. And in any case, speeding up donations is likely a positive outcome.

[Indexer]

You do see the irony here right? We can't tax wealth because we can't pay the tax collectors.

Yes I see it. The one department within the Government that pays for the rest of it is underfunded. Giving the IRS an extra dollar would likely bring in more than a dollar in revenues. Any business would recognize the problem in an instant, but congress... not so much. Add this to the list of things we should improve before resorting to a wealth tax.

Well if you look at how much is raised currently through the inheritance tax and how much a wealth tax is expected to raise and it's not at all comparable. So clearly the inheritance tax isn't doing as good a job at raising revenue as a wealth tax would.

The current inheritance tax is limited by all of the legal loopholes for avoiding it. I won't disagree with you there. It likely raises more money for CPAs and attorneys than the government.

Given the math, I think it's safe to say fixing the estate tax would raise significantly more money than a wealth tax.

My opinion: the current estate tax is a sham created by politicians. They get to pretend to their constituents that they are taxing the super rich, but they also include so many loopholes in the law that anyone with decent connections(CFPs, CPAs, attorneys) will be able to avoid it. It's really a jobs program for accountants and attorneys.  The exact same thing could happen to a wealth tax.

[EricL]

I don't mind taxing the super wealthy (even if that group grows to include me) if we can use the money wisely and well.  My biggest beef with big taxation is that the money seems to go to bureaucrats and the military.  California is a great example where we get taxed quite a lot but rarely see much benefit from it. 

[bwall]

I don't mind taxing the super wealthy (even if that group grows to include me) if we can use the money wisely and well.  My biggest beef with big taxation is that the money seems to go to bureaucrats and the military.  California is a great example where we get taxed quite a lot but rarely see much benefit from it.

I think that California sees a lot for it's tax dollars. Amazing beaches that are cleaned regularly (state tax dollars), great state parks (no federal dollars), very clean air (thanks, CARB!), (over?)protected coastal areas (California Coastal Commission), plans for high-speed rail (love it or hate it, you can see your tax dollars at work). I will readily admit there is room for improvement, but that is the case everywhere. (Except Norway where they have a sovereign wealth fund worth $1 trillion for only 4 million people).

Not many other states can offer this.

[sol]

The one department within the Government that pays for the rest of it is underfunded. Giving the IRS an extra dollar would likely bring in more than a dollar in revenues. Any business would recognize the problem in an instant, but congress... not so much.

Oh, they totally recognize it.  The republican party has been pretty explicit about wanting to reduce government revenues in order to create a fiscal shortfall, as an excuse to create deficits they can blame on "the welfare state".  They have long since figured out that people really like our social safety net, and will not vote to end it unless there is a true crisis.  So, they've been trying to manufacture the crisis.

Paul Ryan and friends led this charge, even going so far as to publicly make this the explicit reason behind the 2017 TCJA.  They knew it would blow up the deficit, and were happy to do it because they thought they could use the coming fiscal crisis as an excuse to cut medicaid and medicare.  Paul Ryan devoted most of his career to this idea. 

You're right that the IRS brings in much more revenue than it costs.  I've seen estimates that suggest they bring in anywhere from 4x to 28x as much money as they spend, depending on whether you look at the agency as a whole or just the budget for tax collectors.

[LennStar]

The one department within the Government that pays for the rest of it is underfunded. Giving the IRS an extra dollar would likely bring in more than a dollar in revenues. Any business would recognize the problem in an instant, but congress... not so much.

Oh, they totally recognize it.  The republican party has been pretty explicit about wanting to reduce government revenues in order to create a fiscal shortfall, as an excuse to create deficits they can blame on "the welfare state".  They have long since figured out that people really like our social safety net, and will not vote to end it unless there is a true crisis.  So, they've been trying to manufacture the crisis.

To be fair, that is not something they have invented. That is one of the cores of neoliberal economics, albeit the least spoken about for obvious reasons.

[WhiteTrashCash]

I guess when I really think about it, I'm not in favor of a wealth tax on folks like us who work hard day in and day out, give up luxuries to live simply, and invest every penny they can to build a future for themselve. I am in favor of a wealth tax on the folks who were born into wealth, never work a day in their lives, and drink martinis at 9 am on a Monday morning while sunning themselves on the deck of a yacht they didn't have to work to purchase. If the distinction is made between those two groups, then a wealth tax is just fine with me.

[BicycleB]

I guess when I really think about it, I'm not in favor of a wealth tax on folks like us who work hard day in and day out, give up luxuries to live simply, and invest every penny they can to build a future for themselve. I am in favor of a wealth tax on the folks who were born into wealth, never work a day in their lives, and drink martinis at 9 am on a Monday morning while sunning themselves on the deck of a yacht they didn't have to work to purchase. If the distinction is made between those two groups, then a wealth tax is just fine with me.

The proposed wealth tax does not distinguish. No methods of doing so have been proposed. <--ETA: Thanks, @ixtap!

[ixtap]

I guess when I really think about it, I'm not in favor of a wealth tax on folks like us who work hard day in and day out, give up luxuries to live simply, and invest every penny they can to build a future for themselve. I am in favor of a wealth tax on the folks who were born into wealth, never work a day in their lives, and drink martinis at 9 am on a Monday morning while sunning themselves on the deck of a yacht they didn't have to work to purchase. If the distinction is made between those two groups, then a wealth tax is just fine with me.

That would be an inheritance tax.

[Indexer]

I guess when I really think about it, I'm not in favor of a wealth tax on folks like us who work hard day in and day out, give up luxuries to live simply, and invest every penny they can to build a future for themselve. I am in favor of a wealth tax on the folks who were born into wealth, never work a day in their lives, and drink martinis at 9 am on a Monday morning while sunning themselves on the deck of a yacht they didn't have to work to purchase. If the distinction is made between those two groups, then a wealth tax is just fine with me.

That would be an inheritance tax.

+1

I thought the same thing when I read that.

[Bloop Bloop]

As I said earlier, I'm all for an inheritance tax. The second generation should have to make their own wealth, not sponge off their parents' wealth or assets.

But within any given person's life, I think he or she should get as much as (or as little as) he or she has worked for.

[WhiteTrashCash]

I guess when I really think about it, I'm not in favor of a wealth tax on folks like us who work hard day in and day out, give up luxuries to live simply, and invest every penny they can to build a future for themselve. I am in favor of a wealth tax on the folks who were born into wealth, never work a day in their lives, and drink martinis at 9 am on a Monday morning while sunning themselves on the deck of a yacht they didn't have to work to purchase. If the distinction is made between those two groups, then a wealth tax is just fine with me.

That would be an inheritance tax.

+1

I thought the same thing when I read that.

You'll have to pardon me. "Inheritance" isn't really part of my vocabulary.

[sol]

As I said earlier, I'm all for an inheritance tax. The second generation should have to make their own wealth, not sponge off their parents' wealth or assets.

But within any given person's life, I think he or she should get as much as (or as little as) he or she has worked for.

You'll have to be way more precise about it than that.  Remember that Donald Trump was worth approximately six million dollars by the time he was 13 year old (in 1950s dollars!), even though his parents were still alive and he had inherited nothing.  They just "paid" him for his "work" for the family business, effectively transferring assets to him and avoiding the inheritance tax.  Much of that so-called work was things like loaning money his father had given him back to his father's company at crazy interest rates; Donald Trump was a six year old banker.

So rich people have lots of ways to give their kids a leg up, besides inheritance.  Donate a building and get your kid into Harvard.  Buy him his first ten rental properties as gifts, then pay him a salary to manage those properties while simultaneously paying a property manager under sublet.  Max the gift tax every year tax free, and then pay him a "salary" on top of that to be executive vice president of playing video games in your room all day.

So what a person "has worked for" is kind of arbitrary description, since wealthy families ensure that their kids are also wealthy long before any inheritance tax would possibly go into effect.  This is why I think a wealth tax (at a sufficiently large starting asset value like $50million) is the only way to go.  Inheritance taxes are a joke, easily avoided by anyone who is rich enough to be subject to them in the first place.  I also think that $50million is probably more than enough money for any one person to possess before society starts asking them to give something back in the form of higher taxes.