Warren wealth tax may impact your small business or business planning

[SeattleCPA]

In this discussion we're saying "yeah, but the details matter. How will those details get implemented?" And that's what Wyden's paper I think is closer to answering.

Okay, you're right. That's a good point. :-)

[SeattleCPA]

^Taxing only realized gains would avoid this problem, thereby providing consistent incentives for small entrepreneurs to be productive.

+1

[maizefolk]

I think the way this thread is thinking about this politically is backwards. It's not that "we need something like Wyden's paper to spell out all the details before we can back Warren", it should be that "Until Warren can sell the idea of fixing CG taxes on the wealthy, Wyden's details don't matter."

This is a long and rambling tangent, but did you ever see any of the various episodes of start trek where the captain (whichever one one whichever series) is replaced by an alien doppelganger. The doppelganger will give stranger and stranger orders. Initially everyone assumes there is clearly a good reason they don't understand and everyone on the crew has a different breaking point. I feel like that basic plot has been recycled at least a half a dozen times in different iterations of star trek over the years.

Anyway, I guess my point is that different people will have built up different levels of trust in different politicians. So when a politician you have a LOT of trust in talks about a plan that, on its face, seems like it would have some very bad consequences, it's a perfectly natural reaction to assume that they'll have thought of all those things and have plans for dealing with them. When a politician who hasn't built up a lot of trust with you proposes a plan that, on its face, seems like it would have some very bad consequences, the perfectly nature reaction is to worry about those consequences if the politician ends up in an office where they can execute on that plan.

So I can see why, from your perspective, my response to the Warren tax plan (I'm worried until and unless there are details about how her plan deal with a lot of the apparent unintended consequences) seems backwards. I hope you can see why, from my perspective, your own response to the Warren tax plan also seems just as backwards backwards (you're not worried until and unless you see details of her plan and they don't include any plan for how to deal with the apparent unintended consequences).

Such is life.

[FIPurpose]

Anyway, I guess my point is that different people will have built up different levels of trust in different politicians. So when a politician you have a LOT of trust in talks about a plan that, on its face, seems like it would have some very bad consequences, it's a perfectly natural reaction to assume that they'll have thought of all those things and have plans for dealing with them. When a politician who hasn't built up a lot of trust with you proposes a plan that, on its face, seems like it would have some very bad consequences, the perfectly nature reaction is to worry about those consequences if the politician ends up in an office where they can execute on that plan.

So I can see why, from your perspective, my response to the Warren tax plan (I'm worried until and unless there are details about how her plan deal with a lot of the apparent unintended consequences) seems backwards. I hope you can see why, from my perspective, your own response to the Warren tax plan also seems just as backwards backwards (you're not worried until and unless you see details of her plan and they don't include any plan for how to deal with the apparent unintended consequences).

Such is life.

Heck, I wouldn't blame anyone for being a bit wary of this idea. I'm not saying the details don't matter, but we also all realize that the details don't get decided by any single legislator or the president. Why does the president put out a budget each year only for it to be summarily ignored? Often times these budgets are graded as some of the worst fiscally. The president isn't trying to tell congress what the budget should be, he's trying to set an agenda. He's trying to turn heads and influence certain decisions.

Warren not only changes the conversation, she got a lot of billionaires to come out and embarrass themselves into defending why they should really just get to keep hoarding it all. She gets to float these ideas and see which ones stick the best so that she can focus on those during the general campaign. And she gets to shut down the "How you gonna pay for it?"

I understand your perspective, but I believe it would be counterproductive to any presidential campaign to write too granular of policy.

Frankly, we all have 95% trust in our politicians, laws, and traditions. Politicians included, have no working knowledge of large swaths of law. Laws pass each year which are 100's of pages long, that none of us read, influence the companies and environment around us. Hanging our hat on a few details, on a mostly generic policy proposal, seems a bit premature. Others have stated that this makes Warren less desirable of a candidate which is sad to me. I prefer candidates that are willing to put ideas out there. I'd like to see Biden or Buttigieg (and I wouldn't expect anything from Trump) propose anything half as ambitious and have it not be riddled with blunders or giant gapping holes.

[SeattleCPA]

I think the way this thread is thinking about this politically is backwards. It's not that "we need something like Wyden's paper to spell out all the details before we can back Warren", it should be that "Until Warren can sell the idea of fixing CG taxes on the wealthy, Wyden's details don't matter."

This is a long and rambling tangent, but did you ever see any of the various episodes of start trek where the captain (whichever one one whichever series) is replaced by an alien doppelganger. The doppelganger will give stranger and stranger orders. Initially everyone assumes there is clearly a good reason they don't understand and everyone on the crew has a different breaking point. I feel like that basic plot has been recycled at least a half a dozen times in different iterations of star trek over the years.

Anyway, I guess my point is that different people will have built up different levels of trust in different politicians. So when a politician you have a LOT of trust in talks about a plan that, on its face, seems like it would have some very bad consequences, it's a perfectly natural reaction to assume that they'll have thought of all those things and have plans for dealing with them. When a politician who hasn't built up a lot of trust with you proposes a plan that, on its face, seems like it would have some very bad consequences, the perfectly nature reaction is to worry about those consequences if the politician ends up in an office where they can execute on that plan.

So I can see why, from your perspective, my response to the Warren tax plan (I'm worried until and unless there are details about how her plan deal with a lot of the apparent unintended consequences) seems backwards. I hope you can see why, from my perspective, your own response to the Warren tax plan also seems just as backwards backwards (you're not worried until and unless you see details of her plan and they don't include any plan for how to deal with the apparent unintended consequences).

Such is life.

Okay, I think any comment that can braid in a reference to star trek gets a special points.

Also this perspective from a tax guy who most recently helped clients deal with the absolute disaster that the newest international tax laws represent.... the folks who wrote and voted on those laws didn't pay enough attention to the details.

[Wolfpack Mustachian]

Anyway, I guess my point is that different people will have built up different levels of trust in different politicians. So when a politician you have a LOT of trust in talks about a plan that, on its face, seems like it would have some very bad consequences, it's a perfectly natural reaction to assume that they'll have thought of all those things and have plans for dealing with them. When a politician who hasn't built up a lot of trust with you proposes a plan that, on its face, seems like it would have some very bad consequences, the perfectly nature reaction is to worry about those consequences if the politician ends up in an office where they can execute on that plan.

So I can see why, from your perspective, my response to the Warren tax plan (I'm worried until and unless there are details about how her plan deal with a lot of the apparent unintended consequences) seems backwards. I hope you can see why, from my perspective, your own response to the Warren tax plan also seems just as backwards backwards (you're not worried until and unless you see details of her plan and they don't include any plan for how to deal with the apparent unintended consequences).

Such is life.

Heck, I wouldn't blame anyone for being a bit wary of this idea. I'm not saying the details don't matter, but we also all realize that the details don't get decided by any single legislator or the president. Why does the president put out a budget each year only for it to be summarily ignored? Often times these budgets are graded as some of the worst fiscally. The president isn't trying to tell congress what the budget should be, he's trying to set an agenda. He's trying to turn heads and influence certain decisions.

Warren not only changes the conversation, she got a lot of billionaires to come out and embarrass themselves into defending why they should really just get to keep hoarding it all. She gets to float these ideas and see which ones stick the best so that she can focus on those during the general campaign. And she gets to shut down the "How you gonna pay for it?"

I understand your perspective, but I believe it would be counterproductive to any presidential campaign to write too granular of policy.

Frankly, we all have 95% trust in our politicians, laws, and traditions. Politicians included, have no working knowledge of large swaths of law. Laws pass each year which are 100's of pages long, that none of us read, influence the companies and environment around us. Hanging our hat on a few details, on a mostly generic policy proposal, seems a bit premature. Others have stated that this makes Warren less desirable of a candidate which is sad to me. I prefer candidates that are willing to put ideas out there. I'd like to see Biden or Buttigieg (and I wouldn't expect anything from Trump) propose anything half as ambitious and have it not be riddled with blunders or giant gapping holes.

I guess this struck me so poorly because it has tremendous potentially to horribly stifle innovation, be a legal nightmare to enforce, etc. The concept of wealth tax alone has been rejected in numerous much more liberal countries than the US, and she not only proposes something similar but the unprecedented (as far as I am aware) proposal of a radical new tax where you are taxed when you haven't even made an actual profit yet. You throw out something like that, you better good and well have your ducks in a row, and she does not. That alone would be bad enough but couple it with it being used to justify that she can pay for what would be one of it not her signature legislative proposals and again, with a woman who has made economics her hallmark. IMO, it's inexcusable, and the only way I can see it working on a whole is simple base emotional appeal to everyone who wants to stick it to the rich and thinks it's not big deal because surely it won't affect them. Ridiculous...

[NorCal]

Anyway, I guess my point is that different people will have built up different levels of trust in different politicians. So when a politician you have a LOT of trust in talks about a plan that, on its face, seems like it would have some very bad consequences, it's a perfectly natural reaction to assume that they'll have thought of all those things and have plans for dealing with them. When a politician who hasn't built up a lot of trust with you proposes a plan that, on its face, seems like it would have some very bad consequences, the perfectly nature reaction is to worry about those consequences if the politician ends up in an office where they can execute on that plan.

So I can see why, from your perspective, my response to the Warren tax plan (I'm worried until and unless there are details about how her plan deal with a lot of the apparent unintended consequences) seems backwards. I hope you can see why, from my perspective, your own response to the Warren tax plan also seems just as backwards backwards (you're not worried until and unless you see details of her plan and they don't include any plan for how to deal with the apparent unintended consequences).

Such is life.

Heck, I wouldn't blame anyone for being a bit wary of this idea. I'm not saying the details don't matter, but we also all realize that the details don't get decided by any single legislator or the president. Why does the president put out a budget each year only for it to be summarily ignored? Often times these budgets are graded as some of the worst fiscally. The president isn't trying to tell congress what the budget should be, he's trying to set an agenda. He's trying to turn heads and influence certain decisions.

Warren not only changes the conversation, she got a lot of billionaires to come out and embarrass themselves into defending why they should really just get to keep hoarding it all. She gets to float these ideas and see which ones stick the best so that she can focus on those during the general campaign. And she gets to shut down the "How you gonna pay for it?"

I understand your perspective, but I believe it would be counterproductive to any presidential campaign to write too granular of policy.

Frankly, we all have 95% trust in our politicians, laws, and traditions. Politicians included, have no working knowledge of large swaths of law. Laws pass each year which are 100's of pages long, that none of us read, influence the companies and environment around us. Hanging our hat on a few details, on a mostly generic policy proposal, seems a bit premature. Others have stated that this makes Warren less desirable of a candidate which is sad to me. I prefer candidates that are willing to put ideas out there. I'd like to see Biden or Buttigieg (and I wouldn't expect anything from Trump) propose anything half as ambitious and have it not be riddled with blunders or giant gapping holes.

I guess this struck me so poorly because it has tremendous potentially to horribly stifle innovation, be a legal nightmare to enforce, etc. The concept of wealth tax alone has been rejected in numerous much more liberal countries than the US, and she not only proposes something similar but the unprecedented (as far as I am aware) proposal of a radical new tax where you are taxed when you haven't even made an actual profit yet. You throw out something like that, you better good and well have your ducks in a row, and she does not. That alone would be bad enough but couple it with it being used to justify that she can pay for what would be one of it not her signature legislative proposals and again, with a woman who has made economics her hallmark. IMO, it's inexcusable, and the only way I can see it working on a whole is simple base emotional appeal to everyone who wants to stick it to the rich and thinks it's not big deal because surely it won't affect them. Ridiculous...

From a practical standpoint (although not a rhetorical standpoint), there's a massive difference between the idea of taxing Net Worth over $50M and taxing unrealized capital gains as income for those with $4M or $16M or whatever net worth.

Taxing of Net Worth of $50M+ wouldn't create much in the way of bad incentives.   Those hit by the tax would be incentivized to talk-down the value of their assets instead of talking them up.  But given overall asset prices today, I can't see this being a horrible outcome.

Treating unrealized capital gains as taxable income would create some horrendous incentives.  As mentioned above, you would actually have many companies incentivized to shrink pre-tax profits and to slow their growth rate.  That's beyond idiotic.

[maizefolk]

I understand your perspective, but I believe it would be counterproductive to any presidential campaign to write too granular of policy.

Whether it's productive or counterproductive probably boils down to whether more of the democratic electorate have levels of trust that Warren is ultimately going to implement policy that avoids unintended and destructive consequences (regardless of what her published policies say or don't say) that are more like mine or more like yours.

If more of the electorate is in headspace more similar to yours, yes it's counterproductive. If more of the electorate is in headspace similar to mine it would have been better to either not to put out a tax plan, or to put out one that addressed potential unintended consequences and solutions that would be employed to avoid them.

For me personally, the plan for funding M4H was worrying enough sounding to flip my order of preference between Warren and Biden as potential nominees.* But I'm just one person, almost certainly not particularly representative of the overall democratic primary electorate, and, since neither it currently at the top of my list, my order o preference between Warren and Biden is likely a moot point anyway. (I figure that by the time I get a chance to vote the field will have narrowed substantially from where it is today so it's good to think about scenarios for who might still be in the running by then.)

[SeattleCPA]

I understand your perspective, but I believe it would be counterproductive to any presidential campaign to write too granular of policy.

...
Hanging our hat on a few details, on a mostly generic policy proposal, seems a bit premature. Others have stated that this makes Warren less desirable of a candidate which is sad to me.

The problem I have with the above argument is this: Warren's details show how she and her advisers think about entrepreneurship and active investing (like owning small rentals) and what they understand about small business and things like direct real estate investment.

And clearly, they don't understand these topics: They don't understand the compliance costs. They don't understand the liquidity issues. They completely miss fact their accounting needs to allow full carry backs of mark to market gains.

One can argue this doesn't matter. But it does matter to people running small firms, small scale landlords, and then the other stakeholders (employees, customers, vendors, etc) who do business with these folks.

P.S. Just because we haven't discussed it much in this thread, here is the "deep into the weeds" issue regarding the carry back thing. Small businesses fluctuate wildly in value. They spark up, die down, etc., etc. It is incredibly common for someone to see their business enjoy a few high income years ... and then have things return to normal. That common situation would inevitably mean many entrepreneurs--way more than just a couple of million people--pay mark-to-market ordinary income taxes on, say, $2M of income that they lose a year or two later. But Warren's proposal specifically allows only carry forwards. Not carry backs.

[FIPurpose]

I understand your perspective, but I believe it would be counterproductive to any presidential campaign to write too granular of policy.

...
Hanging our hat on a few details, on a mostly generic policy proposal, seems a bit premature. Others have stated that this makes Warren less desirable of a candidate which is sad to me.

The problem I have with the above argument is this: Warren's details show how she and her advisers think about entrepreneurship and active investing (like owning small rentals) and what they understand about small business and things like direct real estate investment.

And clearly, they don't understand these topics: They don't understand the compliance costs. They don't understand the liquidity issues. They completely miss fact their accounting needs to allow full carry backs of mark to market gains.

One can argue this doesn't matter. But it does matter to people running small firms, small scale landlords, and then the other stakeholders (employees, customers, vendors, etc) who do business with these folks.

P.S. Just because we haven't discussed it much in this thread, here is the "deep into the weeds" issue regarding the carry back thing. Small businesses fluctuate wildly in value. They spark up, die down, etc., etc. It is incredibly common for someone to see their business enjoy a few high income years ... and then have things return to normal. That common situation would inevitably mean many entrepreneurs--way more than just a couple of million people--pay mark-to-market ordinary income taxes on, say, $2M of income that they lose a year or two later. But Warren's proposal specifically allows only carry forwards. Not carry backs.

If you look at Wyden's plan there's a detail about how he suggests a 3-year lookback period to determine whether or not someone must implement mark-to-market accounting. ie. Someone must be eligible 3 years in a row before they must use this system. For illiquid assets such as RE, he also discusses a look back formula in order to determine CG taxes at sale so that they would be equivalent to a mark-to-market accounting.

However Wyden takes a good 15-20 pages to discuss a lot of these small details. Warren wrote a couple paragraphs. So anything you feel about "Warren's plan" is really more of assumption at this point. Just because she doesn't lay out all exemptions or exact income/wealth cutoffs, doesn't mean she intends for there to be no exemptions or reasonable exceptions. This is why I would look to Wyden's paper to get a better understanding of the smaller details. You mention "Warren's details", but really I don't see much of any detail. Most everything discussed in this thread has been gleaned from some of the papers or authors she cites, but goodness that doesn't mean she wholesale agrees with every sentence. I am of the opinion that people are assuming too much from what she means by "1%"

In fact, I checked her website again, they fixed the link to the paper she cites for her mark-to-market proposal:

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3452274

Here are a few quotes I found from it:

We first estimate a proposal that applies mark-to-market to publicly-traded assets, taxes the gains
on such assets as ordinary income, and makes no changes to the taxation of gains on illiquid assets.
We assume the top rate on ordinary income is 39.6 percent plus the Medicare tax or Net Investment
Income Tax (NIIT) of 3.8 percent. These are the rates that were in place until 2018; and current
law reverts to these rates in 2026. As summarized in Table 3, this proposal would raise new
revenue on the order of $1.7 trillion over ten years if it were limited to roughly the top 1 percent
(exempting additional income from the mark-to-market system, not total income, under about
$100,000), and assuming a tax avoidance rate of 15 percent.

However, publicly-traded assets represent only about one-fifth of assets held by the top 1 percent, excluding retirement accounts
and tax-exempt debt (authors’ calculations based on 2016 SCF). Further, this estimate assumes
there would be no change in the percentage of assets that are publicly-traded, but such a regime
would create vast incentives to privatize businesses and invest in other exempt assets.
Thus, we think the better approach is to apply an accrual tax to all assets but implement it only on
a retrospective basis for non-publicly-traded assets. There are a number of different ways to do
this (e.g., Shakow, 1986; Auerbach, 1988; Blum, 1988; Fellows, 1990; Cunningham & Schenk,
1992; Gergen, 1993; Grubert & Altshuler, 2016; Glogower, 2016; Miller, 2016). But under all of
these approaches, gains on illiquid assets would only be taxed when the asset is sold. One method
would be to treat the gain as if it were earned at a constant rate of return over the holding period,
with an interest charge for the value of deferring the tax payments on the gains (e.g., Blum, 1998).
Importantly, such a retrospective regime should also treat gifts, bequests, and charitable
contributions as a realization event in order to place illiquid assets on a similar footing to publiclytraded assets taxed on a mark-to-market basis. Otherwise, significant tax avoidance opportunities
would remain

limited to the top 1 percent of wealth holders (net worth over about $10 million)

I suggest to anyone that thinks they understand all the details of what Warren is proposing to skim through the paper, I think you'll find out that a lot of concerns that people here haven't even thought of are covered in this paper. He simplifies it in order to make the revenue estimation easier, but goes into a lot of detail about how to actually implement and what exceptions and rules would likely be necessary.

I remember I grew up in a church where citing anyone who wasn't from the denomination got you a talking to. Didn't matter if they made a salient point, they could point to a different paper by the same author and show that they weren't reading scripture correctly. Anytime you recommended a sermon, I was told as much that "you're recommending the man himself, so you need to know everything he has ever said"

[bwall]

I understand your perspective, but I believe it would be counterproductive to any presidential campaign to write too granular of policy.

...
Hanging our hat on a few details, on a mostly generic policy proposal, seems a bit premature. Others have stated that this makes Warren less desirable of a candidate which is sad to me.

The problem I have with the above argument is this: Warren's details show how she and her advisers think about entrepreneurship and active investing (like owning small rentals) and what they understand about small business and things like direct real estate investment.

And clearly, they don't understand these topics: They don't understand the compliance costs. They don't understand the liquidity issues. They completely miss fact their accounting needs to allow full carry backs of mark to market gains.

One can argue this doesn't matter. But it does matter to people running small firms, small scale landlords, and then the other stakeholders (employees, customers, vendors, etc) who do business with these folks.

Bold mine.
Your statement shows why politicians should never tell people what they're going to do. It worked out marvelously for Trump. He didn't tell anyone anything and BAM! he gets elected.

Someone like Warren puts some thought into something, tries to make the USA better, but then she's rejected on the grounds of 'they don't understand'. What does Trump understand about these things? Or anything? Yet, millions and millions of people love him and think he's doing a great job. Warren puts thought into policy, unlike Trump, and is rejected out of hand for her efforts. 

No wonder we have a President like Trump--we deserve him!!

"Democracy is the theory that the common people know what they want, and deserve to get it good and hard." H.L. Mencken

[SeattleCPA]

Warren wrote a couple paragraphs. So anything you feel about "Warren's plan" is really more of assumption at this point. Just because she doesn't lay out all exemptions or exact income/wealth cutoffs, doesn't mean she intends for there to be no exemptions or reasonable exceptions.

...

 This is why I would look to Wyden's paper to get a better understanding of the smaller details. You mention "Warren's details", but really I don't see much of any detail. ....

...
 I am of the opinion that people are assuming too much from what she means by "1%"

...I suggest to anyone that thinks they understand all the details of what Warren is proposing to skim through the paper, I think you'll find out that a lot of concerns that people here haven't even thought of are covered in this paper. He simplifies it in order to make the revenue estimation easier, but goes into a lot of detail about how to actually implement and what exceptions and rules would likely be necessary.

I think Warren, her advisers and her supporters need to eat their own dog food on this one. Sorry.

Listen, it's fine if you want to say, "We want to tax the top one percent and use the money for some really good social purpose." But then folks need to be honest and accurate and fully disclose.

Warren explicitly describes how the taxes work. Here's the exact quote, "Individuals would still only pay taxes on gains and could use current losses to offset future taxes."

I added the boldfacing. But two notes: You don't need much more text to write the actual statute... And if people don't know, they should: Only allowing carry forwards is catastrophic for entrepreneurs. Someone could book a $10M MTM gain in year one, experience a $10M MTM loss in year two, and then be bankrupt before they even filed their wealth tax return.

Again, it's okay if someone doesn't care about this. That's a policy position. But you need to rewrite Warren's plan to change this.You don't need more details.

FYI, I've read Wyden's proposal. And I'd be happy to discuss it. (We should do that in another thread though, right? One entitled "Ron Wyden's MTM Proposal"?)

BTW, I feel like I'm giving Warren's proposal more grace than it deserves to go to $4M as the threshold to the top one percent. The IRS wealth statistics give numbers that are WAY below that. Like $2M. And Saez and Zucman IMHO have tended to err on the high side in their accounting.

[SeattleCPA]

I understand your perspective, but I believe it would be counterproductive to any presidential campaign to write too granular of policy.

...
Hanging our hat on a few details, on a mostly generic policy proposal, seems a bit premature. Others have stated that this makes Warren less desirable of a candidate which is sad to me.

The problem I have with the above argument is this: Warren's details show how she and her advisers think about entrepreneurship and active investing (like owning small rentals) and what they understand about small business and things like direct real estate investment.

And clearly, they don't understand these topics: They don't understand the compliance costs. They don't understand the liquidity issues. They completely miss fact their accounting needs to allow full carry backs of mark to market gains.

One can argue this doesn't matter. But it does matter to people running small firms, small scale landlords, and then the other stakeholders (employees, customers, vendors, etc) who do business with these folks.

Bold mine.
Your statement shows why politicians should never tell people what they're going to do. It worked out marvelously for Trump. He didn't tell anyone anything and BAM! he gets elected.

Someone like Warren puts some thought into something, tries to make the USA better, but then she's rejected on the grounds of 'they don't understand'. What does Trump understand about these things? Or anything? Yet, millions and millions of people love him and think he's doing a great job. Warren puts thought into policy, unlike Trump, and is rejected out of hand for her efforts. 

No wonder we have a President like Trump--we deserve him!!

"Democracy is the theory that the common people know what they want, and deserve to get it good and hard." H.L. Mencken

The above is one way to look at this...

Maybe another way is that lots of Republican supporters said people didn't need to worry about some of the crazy stuff Trump said because Congress, the institutions, his advisers, etc., would temper his actual actions.

[bwall]

I understand your perspective, but I believe it would be counterproductive to any presidential campaign to write too granular of policy.

...
Hanging our hat on a few details, on a mostly generic policy proposal, seems a bit premature. Others have stated that this makes Warren less desirable of a candidate which is sad to me.

The problem I have with the above argument is this: Warren's details show how she and her advisers think about entrepreneurship and active investing (like owning small rentals) and what they understand about small business and things like direct real estate investment.

And clearly, they don't understand these topics: They don't understand the compliance costs. They don't understand the liquidity issues. They completely miss fact their accounting needs to allow full carry backs of mark to market gains.

One can argue this doesn't matter. But it does matter to people running small firms, small scale landlords, and then the other stakeholders (employees, customers, vendors, etc) who do business with these folks.

Bold mine.
Your statement shows why politicians should never tell people what they're going to do. It worked out marvelously for Trump. He didn't tell anyone anything and BAM! he gets elected.

Someone like Warren puts some thought into something, tries to make the USA better, but then she's rejected on the grounds of 'they don't understand'. What does Trump understand about these things? Or anything? Yet, millions and millions of people love him and think he's doing a great job. Warren puts thought into policy, unlike Trump, and is rejected out of hand for her efforts. 

No wonder we have a President like Trump--we deserve him!!

"Democracy is the theory that the common people know what they want, and deserve to get it good and hard." H.L. Mencken

The above is one way to look at this...

Maybe another way is that lots of Republican supporters said people didn't need to worry about some of the crazy stuff Trump said because Congress, the institutions, his advisers, etc., would temper his actual actions.

?

Are you really equating Trump's blatant lunacy outrageously offensive statements with some fine print buried in one of Warren's many proposals? If so, then I find H.L. Mencken's quote even more prescient:
"Democracy is the theory that the common people know what they want, and deserve to get it good and hard." H.L. Mencken

[FIPurpose]

Warren wrote a couple paragraphs. So anything you feel about "Warren's plan" is really more of assumption at this point. Just because she doesn't lay out all exemptions or exact income/wealth cutoffs, doesn't mean she intends for there to be no exemptions or reasonable exceptions.

...

 This is why I would look to Wyden's paper to get a better understanding of the smaller details. You mention "Warren's details", but really I don't see much of any detail. ....

...
 I am of the opinion that people are assuming too much from what she means by "1%"

...I suggest to anyone that thinks they understand all the details of what Warren is proposing to skim through the paper, I think you'll find out that a lot of concerns that people here haven't even thought of are covered in this paper. He simplifies it in order to make the revenue estimation easier, but goes into a lot of detail about how to actually implement and what exceptions and rules would likely be necessary.

I think Warren, her advisers and her supporters need to eat their own dog food on this one. Sorry.

Listen, it's fine if you want to say, "We want to tax the top one percent and use the money for some really good social purpose." But then folks need to be honest and accurate and fully disclose.

Warren explicitly describes how the taxes work. Here's the exact quote, "Individuals would still only pay taxes on gains and could use current losses to offset future taxes."

I added the boldfacing. But two notes: You don't need much more text to write the actual statute... And if people don't know, they should: Only allowing carry forwards is catastrophic for entrepreneurs. Someone could book a $10M MTM gain in year one, experience a $10M MTM loss in year two, and then be bankrupt before they even filed their wealth tax return.

Again, it's okay if someone doesn't care about this. That's a policy position. But you need to rewrite Warren's plan to change this.You don't need more details.

FYI, I've read Wyden's proposal. And I'd be happy to discuss it. (We should do that in another thread though, right? One entitled "Ron Wyden's MTM Proposal"?)

BTW, I feel like I'm giving Warren's proposal more grace than it deserves to go to $4M as the threshold to the top one percent. The IRS wealth statistics give numbers that are WAY below that. Like $2M. And Saez and Zucman IMHO have tended to err on the high side in their accounting.

I'll highlight this quote again:

Thus, we think the better approach is to apply an accrual tax to all assets but implement it only on
a retrospective basis for non-publicly-traded assets.

We don't have to talk about Wyden's paper. This is from the paper that Warren quotes directly from her site. Which more or less negates your premise that somehow Warren is mandating against any reasonable exception or allowance for not covering this "problem" you think you found. So no there is no problem for entrepreneurs. And even if someone had this problem in their publicly traded assets, we're talking about someone with greater than 10MM in wealth (as defined by Warren.) They would be able roll those loses across their entire investment portfolio.

These papers are also pretty clearly define what they mean by 1%, I showed what other Senators mean by 1%, and Warren seems to be using this same language. So no, I don't think you get to arbitrarily redefine these terms. You may disagree with Zucman et al and think the 1% technically should be everyone with over 2MM, but that's not how Warren, Wyden, Batchelder, or Kamin are using that term. So when they talk about this tax, they are necessarily not including anyone with wealth <10MM.

You took that one sentence and extrapolated a lot from it.

[FIPurpose]

Found that the source of the $10MM figure for top 1% comes from the Federal Reserve data.

https://dqydj.com/net-worth-percentile-calculator-united-states/ For 2019, it's likely closer to $11MM.

[SeattleCPA]

Are you really equating Trump's blatant lunacy outrageously offensive statements with some fine print buried in one of Warren's many proposals?

No, but if this turns personal, I'm out of here. Just so know...

What I mean--and you brought up Trump--is this: The idea that the process or institutions will polish off the rough edges isn't reliable.

So saying "Well, the rough edges of Warren's proposal will be sanded off" doesn't really work. At least for me. I assume she means what she says.

[SeattleCPA]

I'll highlight this quote again:

Thus, we think the better approach is to apply an accrual tax to all assets but implement it only on
a retrospective basis for non-publicly-traded assets.

You quote one of the three approaches for MTM in the paper.  But they describe three, right?

You assume Warren picks the approach the paper authors like.

But it looks to me (based on the revenue figures she uses) that she uses the approach I assume.

The other thing I'm influenced by is the other wealth tax plan, the original one, that Warren proposed. I read that to say the wealth tax applies to all assets. And then the interest charges with five year payoff and the special rules for highly illiquid assets? Those tweaks match the paper linked.

BTW, here's the actual paragraph we're focusing on:

I’ve already proposed closing that loophole for how capital gains are treated when shares are passed on to heirs. But we can go a step further. Under a “mark-to-market” system for the wealthiest 1% of households, we will tax capital gains income (excluding retirement accounts) annually, rather than at the time of sale, and raise the rates on capital gains to match the tax rates for labor income. Individuals would still only pay taxes on gains and could use current losses to offset future taxes.

Had the Senator wanted to apply mark-to-market as you describe, why not write the paragraph this way:

I’ve already proposed closing that loophole for how capital gains are treated when shares are passed on to heirs. But we can go a step further. Under a “mark-to-market” system for the wealthiest 1% of households, we will tax capital gains income from publicly traded stocks and bonds (excluding retirement accounts) annually, rather than at the time of sale, and raise the rates on capital gains to match the tax rates for labor income. Individuals would still only pay taxes on gains and could use current losses to offset future taxes.

[SeattleCPA]

Found that the source of the $10MM figure for top 1% comes from the Federal Reserve data.

https://dqydj.com/net-worth-percentile-calculator-united-states/ For 2019, it's likely closer to $11MM.

First, is that a median? Or the threshold? Big difference.

Second, SCF is the high number in these discussions. I think many (maybe all) of the economists agree with this. The problem is, survey relies on self-reporting of asset values and people estimate high. Also, sorry, not going to accept dqydj's calculations as a valid source. (Also okay for you to reject my blog's data regurgitation as a valid source.)

BTW I always suspected the exaggerated values in the SCF when looking at the numbers, but read some great research from Saez and Zucman where they discuss and I would say document well this error.

Full disclosure: The IRS numbers come in low. Lots of people (maybe all) think the IRS doesn't get the tweaks right for dealing with the mortality adjustment.

Zwick, who Saez and Zucman approvingly cite, comes in somewhere between IRS and SCF...

[FIPurpose]

I'll highlight this quote again:

Thus, we think the better approach is to apply an accrual tax to all assets but implement it only on
a retrospective basis for non-publicly-traded assets.

You quote one of the three approaches for MTM in the paper.  But they describe three, right?

You assume Warren picks the approach the paper authors like.

But it looks to me (based on the revenue figures she uses) that she uses the approach I assume.

The other thing I'm influenced by is the other wealth tax plan, the original one, that Warren proposed. I read that to say the wealth tax applies to all assets. And then the interest charges with five year payoff and the special rules for highly illiquid assets? Those tweaks match the paper linked.

BTW, here's the actual paragraph we're focusing on:

I’ve already proposed closing that loophole for how capital gains are treated when shares are passed on to heirs. But we can go a step further. Under a “mark-to-market” system for the wealthiest 1% of households, we will tax capital gains income (excluding retirement accounts) annually, rather than at the time of sale, and raise the rates on capital gains to match the tax rates for labor income. Individuals would still only pay taxes on gains and could use current losses to offset future taxes.

Had the Senator wanted to apply mark-to-market as you describe, why not write the paragraph this way:

I’ve already proposed closing that loophole for how capital gains are treated when shares are passed on to heirs. But we can go a step further. Under a “mark-to-market” system for the wealthiest 1% of households, we will tax capital gains income from publicly traded stocks and bonds (excluding retirement accounts) annually, rather than at the time of sale, and raise the rates on capital gains to match the tax rates for labor income. Individuals would still only pay taxes on gains and could use current losses to offset future taxes.

The only tax figure I see from Warren is that the mark-to-market accounting will raise $2T over 10 years which matches this graph I attached from the paper. Using the middle column which the author uses as the standard throughout the paper, the accrual tax including the retrospective for illiquid taxes adds up to over $2T. Looks to me like Warren is more or less following what this paper suggests.

[maizefolk]

Article in the Wall Street Journal today about the Warren tax plan that suggests some of our previous estimates were a little low. Obviously writers at the WSJ tend to have a more conservative perspective so I wanted to post here and see if things are being misrepresented.

Under Ms. Warren's plan, their unrealized capital gains outside retirement accounts would be taxed at 39.6%, just like ordinary income, plus an existing 3.8% investment-income tax. Add to that her new 14.8% investment-income tax to bolster Social Security...

I hadn't heard about the social security tax on investment income previously, and my assumption was that if we taxed capital gains as regular income it would just be taxed as regular income, not taxed as regular income and then have special capital gains taxes applied on top of that (the current extra 3.8% investment income tax for people with incomes >$200,000/year).

If correct, the interactions of all these factors would raise the effective wealth tax on billionaires with lots of unrealized capital gains to 6% * (1/(1-.396-.038-.148)) = 14.3%/year, rather than the 9.5-10% calculated earlier in the thread. It would also increase the potential consequences for people with closely held and illiquid investments when an unrealized capital gain increases was determined to have occured However, does  anyone have any info the 14.8% SS tax on investment or insight into whether the 3.8% investment income tax would be likely to still apply if Warren's plan would treat investment income as ordinary income?

Now I also want to point that that the same article brings up the idea FPPurpose has talked about of retroactively taxing unrealized capital gains at the time of sale as a policy Warren might adopt in the future which would address come of the concerns for how this policy would impact small business creation and valuation.

I'll also note that I don't agree with the assertion in the title of that article and think it's actively misleading. The way they get to 100% is to count the wealth tax as part of the tax on the investment income from an asset. Of course a wealth tax would sometimes tax you more than the value of the income you received from that asset. If nothing else in some years the value of stocks will decline and a wealth tax will still be charged so even a 0.01% wealth tax would be an infinitely high income tax if you look at it that way.

Original source: https://www.wsj.com/articles/elizabeth-warrens-tax-plan-would-bring-rates-over-100-for-some-11573819200
Alternative (non-paywalled) source: https://www.morningstar.com/news/dow-jones/201911152987/elizabeth-warrens-tax-plan-would-bring-rates-over-100-for-some

[SeattleCPA]

I'll highlight this quote again:

Thus, we think the better approach is to apply an accrual tax to all assets but implement it only on
a retrospective basis for non-publicly-traded assets.

You quote one of the three approaches for MTM in the paper.  But they describe three, right?

You assume Warren picks the approach the paper authors like.

But it looks to me (based on the revenue figures she uses) that she uses the approach I assume.

The other thing I'm influenced by is the other wealth tax plan, the original one, that Warren proposed. I read that to say the wealth tax applies to all assets. And then the interest charges with five year payoff and the special rules for highly illiquid assets? Those tweaks match the paper linked.

BTW, here's the actual paragraph we're focusing on:

I’ve already proposed closing that loophole for how capital gains are treated when shares are passed on to heirs. But we can go a step further. Under a “mark-to-market” system for the wealthiest 1% of households, we will tax capital gains income (excluding retirement accounts) annually, rather than at the time of sale, and raise the rates on capital gains to match the tax rates for labor income. Individuals would still only pay taxes on gains and could use current losses to offset future taxes.

Had the Senator wanted to apply mark-to-market as you describe, why not write the paragraph this way:

I’ve already proposed closing that loophole for how capital gains are treated when shares are passed on to heirs. But we can go a step further. Under a “mark-to-market” system for the wealthiest 1% of households, we will tax capital gains income from publicly traded stocks and bonds (excluding retirement accounts) annually, rather than at the time of sale, and raise the rates on capital gains to match the tax rates for labor income. Individuals would still only pay taxes on gains and could use current losses to offset future taxes.

The only tax figure I see from Warren is that the mark-to-market accounting will raise $2T over 10 years which matches this graph I attached from the paper. Using the middle column which the author uses as the standard throughout the paper, the accrual tax including the retrospective for illiquid taxes adds up to over $2T. Looks to me like Warren is more or less following what this paper suggests.

She may be... but seriously I can't reconcile all the numbers.

Also, that retrospective taxation of MTM income on illiquid assets is pretty complicated and some of the assumptions pretty self-serving.

[SeattleCPA]

Article in the Wall Street Journal today about the Warren tax plan that suggests some of our previous estimates were a little low. Obviously writers at the WSJ tend to have a more conservative perspective so I wanted to post here and see if things are being misrepresented.

Under Ms. Warren's plan, their unrealized capital gains outside retirement accounts would be taxed at 39.6%, just like ordinary income, plus an existing 3.8% investment-income tax. Add to that her new 14.8% investment-income tax to bolster Social Security...

I hadn't heard about the social security tax on investment income previously, and my assumption was that if we taxed capital gains as regular income it would just be taxed as regular income, not taxed as regular income and then have special capital gains taxes applied on top of that (the current extra 3.8% investment income tax for people with incomes >$200,000/year).

If correct, the interactions of all these factors would raise the effective wealth tax on billionaires with lots of unrealized capital gains to 6% * (1/(1-.396-.038-.148)) = 14.3%/year, rather than the 9.5-10% calculated earlier in the thread. It would also increase the potential consequences for people with closely held and illiquid investments when an unrealized capital gain increases was determined to have occured However, does  anyone have any info the 14.8% SS tax on investment or insight into whether the 3.8% investment income tax would be likely to still apply if Warren's plan would treat investment income as ordinary income?

Now I also want to point that that the same article brings up the idea FPPurpose has talked about of retroactively taxing unrealized capital gains at the time of sale as a policy Warren might adopt in the future which would address come of the concerns for how this policy would impact small business creation and valuation.

I'll also note that I don't agree with the assertion in the title of that article and think it's actively misleading. The way they get to 100% is to count the wealth tax as part of the tax on the investment income from an asset. Of course a wealth tax would sometimes tax you more than the value of the income you received from that asset. If nothing else in some years the value of stocks will decline and a wealth tax will still be charged so even a 0.01% wealth tax would be an infinitely high income tax if you look at it that way.

Original source: https://www.wsj.com/articles/elizabeth-warrens-tax-plan-would-bring-rates-over-100-for-some-11573819200
Alternative (non-paywalled) source: https://www.morningstar.com/news/dow-jones/201911152987/elizabeth-warrens-tax-plan-would-bring-rates-over-100-for-some

I think the taxes do stack. And then what happens when the realized income isn't income but rather a loss. So to use WSJ article numbers, taxpayer's $1000 generates $20 of dividends but experiences $100 of capital loss. The "income" is a loss or -$80... (minus $80) and in this case, taxpayer pays $54 in wealth taxes in a year when they actually experience $80 of loss.

I think this is actually the policy objective--and Senator Sanders deserves credit for explicitly saying he wants to do this--but the wealth taxes and high income tax rates will more quickly grind down an affected taxpayer's wealth when they get a bad sequence of returns.

BTW, one other thing I've wondered about--and which the WSJ paper doesn't seem to comment on based on my quick read--is the gross up.

If affected taxpayer has $1000 of founders stock (so zero basis stock basically) and there's not dividend income and no appreciation, he or she probably still pays tax. Why? Because to pay the 6% or $60 of wealth tax, they'll need to sell $120 of founders stock. Then $60 of the $120, they'll use to pay the income taxes. The other $60 they'll use to pay the wealth tax.

If there's actually a net loss of $80 in some year, the $1000 shrinks to $826. And that's before the taxpayer spends anything on personal expenses, investment fees, etc.

Bill Bernstein and some other guys did a critique of Piketty's math pointing out that the free market economy is pretty efficient at vaporizing dynastic wealth--it just takes a while. (Then use the example of Vanderbilt.) Layer on higher taxes, and surely the process accelerates. Here's my longer discussion of the issue, which includes links to relevant sources: https://evergreensmallbusiness.com/the-rich-get-poorer-the-myth-of-dynastic-wealth/

Two thoughts tangentially related to the wealth tax given usual course of dynastic wealth... First, if it's going to be gone in a generation or two anyway, is it that big a deal if wealth tax policies accelerate the natural process?

Second, if a policy does spend down the top .1%'s wealth using Medicare-for-All, who pays once that money is gone?

P.S. Here is the nonpartisan Tax Foundation's analysis: https://taxfoundation.org/elizabeth-warren-medicare-for-all-tax-proposals/#.XdIxafMoQmc.linkedin