Why a Wealth Tax is a stupid idea ...and populism

ssu

First I'd like to ask if any others here have ever paid wealth tax, a tax based on the market value of assets that are owned?

I have.

My country once decided that wealth with the market value of over roughly 200 000 USD would be taxed with a 1% wealth tax. The only thing exempt from this wealth tax was homes that people lived in, because otherwise there would have been simply far too many people having to pay the wealth tax (as typically the only wealth people have is their home). Once my grandparents decided to give away their summer place, an old farm house with a small patch of woods and fields, my wealth went well over that 200 000$ line. That is, if there would have been an eager buyer for an old country house without running water and with an outhouse back then that would have paid the market the price, as on a fire sale the estate wouldn't be anywhere close to those values. Real estate deals were and still are very rare there. I was a young student and didn't have much income, and really didn't want to sell part of the land or cut the woods that would take 40 years to grow back. The rent income from the fields was about 50 dollars, which was good considering otherwise, as I'm no farmer, in a few years the tiny fields would be pushing birches and be a coppice. The wealth tax would have been considerable compared to my non-existent income taxes, but I managed to squeeze my wealth either below or very close to the 200 000$ line, so in the end it wasn't a big hazzle for me. In the end the tax was so hated that a new administration THAT EVEN HAD THE SOCIAL DEMOCRATS got rid of it (but didn't, get rid of the inheritance tax, which still can go up to 33%). But the thing told me very clearly that I was labeled being part of 'the hated rich', not a commoner, by leftists.

My personal anecdote shows the problem when estimated wealth, not income, is taxed. I don't object taxing income and taxing larger incomes more than smaller ones. So progresive income taxation, fine. The wealth tax is totally different and very problematic. The arbitrary nature of just how the market value is estimated creates a real problem. Not all wealth creates income annually and not all wealth is divisible. Many occasions a business holder can have no income but have losses, more expenses than income. But for a wealth tax that doesn't matter at all. The biggest losers are people who we call farmers. They are basically millionaires, assuming if they sold everything and thus couldn't then continue at all with their livelyhood, yet their earnings can be similar to an assistant in McDonalds. Hence many times they are left out of the realm of tax...which just makes everything very confusing. Also, just where you put the threshold line of the wealth tax creates a huge incentive not to grow one's wealth over that line. Or simply to hide it. And what ought to be telling is that it's a tax that has been tried in countries like Austria, Denmark, Sweden, Germany, Luxembourg, France and my Finland and then has been abolished. In the Finnish case, and I have to repeat this because it sounds so incredible, with Social Democrats sitting in the administration and holding the chair of the finance minister and then deciding to abolish the tax. This ought to tell just how bad it is, because Finnish government loves taxes,
the social democrats even more.

Yet the tax itself is genuine populism: it is marketed as "ordinary people" against the "rich", it's always marketed as being a tax only for the tiny spec of the filthy rich. They can 'surely' pay for it as they aren't doing their share. Yet the more smaller is the group that the tax is meant for, the more it does send a message of basically what wealth isn't acceptable. It is also very ideological, as this tax is very close in my view to genuine socialist ideology. And it doesn't create wealth.

Now it's interesting that the idea of wealth tax is floated even in the US. I haven't followed it closely, but at least Warren and Bernie Sanders have proposed it. If somebody knows more about this, it would be interesting to hear your comments. All I can say is that if a wealth tax is implemented in the US, the only winners are the tax advisors and the wealth managers, who will have a great new market for their services!

And just how bad the idea is, consider that Donald Trump has proposed it: In 1999, Trump supported a wealth tax more severe than anything Elizabeth Warren is proposing. (Evidence of the populism, I'd say.)

Comments? I guess there are people who have different thoughts than me about the subject.

NOS4A2

↪ssu

Good explanation. It is a horrible idea. One can be technically wealthy but effectively poor and your farmer example is a good one.

I feel the same way about any inheritance tax. There is actually a homeless guy in my town who recently became very wealthy when his grandmother passed away. The point is not every wealthy person was born in the lap of luxury and privilege.

I don’t like taxation at all but any “tax the wealthy” proposal reeks of envy and animus.

tim wood

↪NOS4A2

Spoken like Louis XIV. Look out for Jacques, lest he make a 16 out of you!

NOS4A2

↪tim wood

Let them eat cake.

tim wood

Now it's interesting that the idea of wealth tax is floated even in the US. — ssu

There are asset taxes: excise and real estate taxes. At the federal level, the graduated income tax seems a kind of asset tax.

Thomas Jefferson suggested that all ownership should fall under the concept of usufruct, and the underlying property "returned" after its owner's life. See The Earth Belongs in Usufruct to the Living for details.
https://jeffersonpapers.princeton.edu/selected-documents/thomas-jefferson-james-madison

Presumably there be an upper limit on what an individual in a community may own. For example, he obviously cannot own more than it. But how much of it can he own, should he own? And shall that be controlled, and how, and by whom? And for what end or purpose?

Pretty clearly it is not in the interests of the individual to impoverish his state or community to the point where it no longer can provide the services that even the individual might value.

These thoughts can be developed at length, but I think the thrust of them is that taxes are necessary, and as long as equitably applied, it really doesn't matter too much their form. For example, the US states of New Hampshire and Massachusetts, although both New England states and sharing a border, are culturally very different places (in New England, in the NE US, it is often enough to go from one city or town to another, for even a radical change in culture). Massachusetts is sometimes called Taxachusetts for its high taxes paying for a high level of services. New Hampshire, on the other hand, is known for a relatively low level of public services, and no sales tax, and no state income tax. New Hampshire is, then, supposedly the place to live relatively cheaply, because of the lack of sales or state income tax.

But guess which state is the cheaper to live in, and which the more expensive? Answer, they're about equal! The moral of the story is that some services are essential; they have to be paid for and will be paid for one way or another. The "trick" in New Hampshire is that property taxes make up most of the difference, and consequently are much higher in New Hampshire than in Massachusetts. It's not all that simple, but close enough.

praxis

I understand that another problem is simply that the wealthy, with their privileged position, are good at sheltering their money from taxation, so it's very difficult if not impossible to do.

Frank Apisa

A "wealth tax" makes sense to me...although I would exempt a fairly large amount. And while praxis is correct, the laws can be written in a way that penalizes hidden money to the point where it would be foolish to hide much. AND ANYTHING HIDDEN CAN BE DISCOVERED.

Pfhorrest

As a libertarian socialist I agree that wealth taxes are a horrible idea. Any taxes should be at time of sale, so the market can reveal the actual value; therefore, income taxes. And ideally, they should only be levied, if at all, on unearned income, i.e. from rent.

Maw

Now it's interesting that the idea of wealth tax is floated even in the US. I haven't followed it closely, but at least Warren and Bernie Sanders have proposed it. If somebody knows more about this, it would be interesting to hear your comments. All I can say is that if a wealth tax is implemented in the US, the only winners are the tax advisors and the wealth managers, who will have a great new market for their services! — ssu

Both Bernie and Warren's Wealth Tax don't really start hitting meaningful numbers until you get into the .01% wealth bracket, whose assets obviously shadow than $200K. Their proposed wealth tax increases sharply as you travel further down the funnel of the ultra-wealthy (i.e. .001% through the top 400 wealthiest Americans). The top 1% of wealth owners also make the majority of their money through owned assets [i.e. wealth], not through [labor] income, so yes, that should be taxed.

Pfhorrest

make the majority of their money through owned assets [i.e. wealth], not through income — Maw

How is it that “making money” doesn’t count as “income”? Proceeds from rent, lending, etc, are income (unearned income, but still). Proceed from sales are income. What “money made” is not “income”?

Micah Ian Wright

It's funny how poor people are the main ones arguing for a wealth tax.

Maw

How is it that “making money” doesn’t count as “income”? Proceeds from rent, lending, etc, are income (unearned income, but still). Proceed from sales are income. What “money made” is not “income”? — Pfhorrest

It does, but I was referring to labor income vs. capital wealth.

Pfhorrest

↪Maw

So tax people highly on their unearned income (rent, interest, etc) and you should be covered on accounting for people gaining wealth by having wealth, without any of the problems of taxing people just for having wealth. (We don’t want to tax people on proceeds from selling off wealth, because that’s what what we want to encourage them to do: sell capital for cash and spend the cash buying labor so the laborers can spend that cash buying capital and so the distribution of capital equalizes over time. It’s the rent and interest cycle that throws that process off, so we want to tax the hell out of that — up to 100% eventually, in my opinion).

ssu

As a libertarian socialist I agree that wealth taxes are a horrible idea. Any taxes should be at time of sale, so the market can reveal the actual value; therefore, income taxes. And ideally, they should only be levied, if at all, on unearned income, i.e. from rent. — Pfhorrest

Seems that libertarian socialists understand the point. Of course these are sales / income / capital gains taxes. And here the discourse and the problems and incentives are closer to the ordinary debate around taxation than with a wealth tax.

VagabondSpectre

↪ssu

Wealth taxes are a great idea; not at all populism.

I'm not sure from which lands you hail, but it sounds like a tax on wealth above 200k is obviously stupid (200k is nowhere near "rich"; not even visible to the naked eye when compared with the wealth of the "super rich"). Bernie wants a 1% tax starting at wealth above 32 million USD. A wealth tax in America would simply not touch farmers (who are already heavily subsidized), and if you had inherited some lands worth millions, you would have a much harder time gaining sympathy for the situation you were in. I'm straining to make the link between your own anecdote and American wealth gaps + Bernie's plan.

Hoarded wealth doesn't create new wealth, it just helps with winning larger shares of the newly created wealth, and therein lies the problem.

ssu

Both Bernie and Warren's Wealth Tax don't really start hitting meaningful numbers until you get into the .01% wealth bracket, whose assets obviously shadow than $200K. Their proposed wealth tax increases sharply as you travel further down the funnel of the ultra-wealthy (i.e. .001% through the top 400 wealthiest Americans). The top 1% of wealth owners also make the majority of their money through owned assets [i.e. wealth], not through [labor] income, so yes, that should be taxed. — Maw

That's how any new tax is introduced.

It's first small and doesn't apply to the commoner. And especially with the wealth tax every time it is marketed that it doesn't matter for the commoner.

So above you were talking about 0,001% of the population, that's 3 280 people (if I count correctly), you are talking about about really a small group of people. Let's just think that the tax was only for them. How do you think that the next wealthiest person, the American 3281st richest guy (likely), would feel? Would the 30 000th richest guy feel secured also? How about the 3 millionth rich guy or girl? Or the 30th millionth rich guy or girl? Top decile wealth is on average still 1,1 million USD, so you are still talking about millionaires. The 30 million are still a small minority.

I'm not sure from which lands you hail, but it sounds like a tax on wealth above 200k is obviously stupid (200k is nowhere near "rich"; not even visible to the naked eye when compared with the wealth of the "super rich"). — VagabondSpectre

The reason why the amount was 200K in USD was that then 5 Finnish marks was 1 USD or so, hence that 200K was 1 million Finnish marks. Hence the tax was deliberately a tax on millionaires. If you got wealth worth a million FIM, why shouldn't you pay? Millionaires ought to pay wealth tax!!! And now a labour union would introduce a wealth tax on everything over 100K euros with the exception, of course, of one's home. Simple reason, the vast majority of people don't have wealth over 100K euros besides their home.

And let's make another thought experiment: Let's assume that everybody had to pay a wealth tax. So if your unemployed and your home is foreclosed, but you still have this minibus (that the government decides is worth 9K) where you sleep, well, have to pay 90$. Wouldn't that sound fair?

I'm straining to make the link between your own anecdote and American wealth gaps — VagabondSpectre

I'm giving you just an example of what a heavily taxed welfare state is like. On the other hand I have free universal health care and have studied in the university a master's degree without having to pay any tuition costs ever. If I would be broke, unemployed and would have no home, the welfare system would provide me small but decent housing. I wouldn't have to beg on the street. So I guess that's a plus. And the conservatives are just fine with all that. What they aren't fine with is a wealth tax.

Anyway, knowing the American system, I think that the tax revenues of a wealth tax would be dismal and likely be squandered of in foreign wars or in a currency crisis when the rich scramble away with their money. So it's not a great idea in my view.

frank

My personal anecdote shows the problem when estimated wealth, not income, is taxed — ssu

I think your story is of a community that isnt used to what we call "property tax" in the US. Yes, it hurts, but it's very common here and has been for so long that we're used to it. It's the way cities and counties finance roads and schools and all the other outlandishly socialist things we do.

Where I live you have to report any upgrades to your dwelling in case the government needs a bigger cut.

And we also pay sales tax and both state and federal income tax. They tax the hell out of us.

ssu

↪frank

We do also have property tax, naturally.

But that tax isn't as high as the wealth tax at all. It's more like a fee.

You see, a tax even as low as 1% can be very high. Just think about if for some reason you would own a van Gogh painting and really liked it. Now, how much is 1% of a van Gogh? 1 million or so?

frank

↪ssu

The average property tax in my state is 0.9 percent (and it's one of the lower taxes states). I told you it hurts.

ssu

↪frank

:worry:

That is a wealth tax, if the properties are taxed on market value, not on a lower price.

frank

That is a wealth tax, if the properties are taxed on market value, not on a lower price. — ssu

The "tax value" of a property is usually lower than what the house would sell for (unless the market sucks). You can appeal the tax evaluation if you think it's too high. That's what you should have been allowed to do. Your local government should have lowered the value considering the state of the market.

VagabondSpectre

The reason why the amount was 200K in USD was that then 5 Finnish marks was 1 USD or so, hence that 200K was 1 million Finnish marks. Hence the tax was deliberately a tax on millionaires. If you got wealth worth a million FIM, why shouldn't you pay? Millionaires ought to pay wealth tax!!! And now a labour union would introduce a wealth tax on everything over 100K Euros with the exception, of course, of one's home. Simple reason, the vast majority of people don't have wealth over 100K besides their home.

And let's make another thought experiment: Let's assume that everybody had to pay a wealth tax. So if your unemployed and your home is foreclosed, but you still have this minibus (that the government decides is worth 9K) where you sleep, well, have to pay 90$. Wouldn't that sound fair? — ssu

I get what you're saying, but I'm not interested in over-taxation. You're making a slippery-slope argument that cannot aptly be applied to Bernie's plan. Yes, wealth taxes have been poorly coded and implemented in the past, and failed, and yes it would be a bad thing to burden the poor even more than they already are...

Accounting for some amount of inflation, a similar figure to Bernie's opening number would be nearly 100 million Finnish marks (Shirley would have a hard time drumming up sympathy at that level). I agree with the principle that it is unproductive to tax existing wealth, but after a certain threshold of wealth concentration, it becomes unproductive *not* to tax it. The earning power of the middle and lower class isn't going anywhere, while corporate and upper-elite profits have never grown faster.

In short, sometimes when we let the chips fall where they may, things get so screwed up that we need a do-over, whether by vote or by force. Once Besos has a personal wealth of over 1 trillion dollars (probably will never happen because he will start giving it away to charities and causes of his choosing), would you agree with me then?

If we one day find ourselves utterly without lands and viable livelihoods due to the extraordinary concentration of ownership, would you participate in efforts to redistribute wealth? I know this sounds outlandish, but as automation and AI advance, human labor is fast becoming uneconomical. What will we do once Amazon and Walmart no longer require human associates to operate their businesses? Yang proposes a universal basic income (after-all, people people buy less stuff as unemployment and underemployment rise) so that we can carry on existing as we are now, but Bernie's plan seems more direct.

If not wealth redistribution, then what? Even if we amply apply anti-trust measures to the corporations that are essentially more powerful than some nation states, there's still no promise that wealth owned by them will trickle down to the rest of us. I get that impeding on individual ownership rights is a serious action, but I see no other remedy. Wealth creation is not a zero sum game, but it is not an infinite sum game either. In Finland you have universal healthcare, but American's don't. Raising taxes on everyone could pay for it, but this would diminish the earnings of the bottom class even further. A wealth tax on the actually rich could pay for it, among other things (such as education). Is there really so big a difference between slowing the flow of gold to the dragon (income tax) vs reducing the size of its hoard (wealth tax)?

I think that the tax revenues of a wealth tax would be dismal and likely be squandered of in foreign wars or in a currency crisis when the rich scramble away with their money. So it's not a great idea in my view. — ssu

Bernie's estimate is something like 4 trillion in 10 years. The rich are always going to scramble away with their money. Always. That's how most of them got rich (not by creating wealth, but by winning and keeping it better). Washington admin failures not withstanding, at least this way the middle and lower classes get something.

VagabondSpectre

At the obvious risk of sounding like Karl Marx, I think that the crucial value of a wealth tax is that it addresses concentrated ownership of the means of wealth production.

Money makes money in today's world (eg: economies of scale, automation, investment power, interest), and the market does not regulate itself in such a way that it is immune to catastrophe (the catastrophe of economically dispossessed masses, or a world run by corporate super-powers chasing self-interest regardless of any ethical ramifications). The meme that Amazon payed 0 dollars in corporate tax exemplifies this; they have so much influence and sway that they can basically make demands from cities or nations in exchange for the divine mana of jobs. We can try to legislate against them, and in game-like fashion they will still get away with whatever they can. Given the impending economic vulnerabilities of climate change and the end of oil, governments and the working class is set to lose even more bargaining power against them. At some point, the unequal power dynamic between the working class/governments and the super-entities they depend on to maintain the status quo, begins to undermine and insurrect functional democracy (we're already about 90% of the way down that road).

What will give first?

frank

at least this way the middle and lower classes get something. — VagabondSpectre

I dont think so. The wealthy would just leave. That's the great weakness of socialism. If it's not global, it will fail.

frank

Given the impending economic vulnerabilities of climate change and the end of oil, governments and the working class is set to lose even more bargaining power against them — VagabondSpectre

I think the present nation state complex is going to collapse in a few centuries. It will be a dark age for a while.

Maw

So tax people highly on their unearned income (rent, interest, etc) and you should be covered on accounting for people gaining wealth by having wealth, without any of the problems of taxing people just for having wealth. — Pfhorrest

As I understand it, the ultra-wealthy (top 0.1% and beyond) don't necessarily have or generate income, earned or not, that can be taxed at high levels to reflect their exorbitant wealth, and that a wealth tax is a more useful tool to in taxing the ultra-wealthy. It's not about "just having wealth", a wealth tax can be implemented for different groups. Sanders' wealth tax begins at $32M and Warren's at $50M with just a 1% and 2% tax to start.

That's how any new tax is introduced. — ssu

Well that's simply not true.

It's first small and doesn't apply to the commoner. And especially with the wealth tax every time it is marketed that it doesn't matter for the commoner.So above you were talking about 0,001% of the population, that's 3 280 people (if I count correctly), you are talking about about really a small group of people. Let's just think that the tax was only for them. How do you think that the next wealthiest person, the American 3281st richest guy (likely), would feel? Would the 30 000th richest guy feel secured also? How about the 3 millionth rich guy or girl? Or the 30th millionth rich guy or girl? Top decile wealth is on average still 1,1 million USD, so you are still talking about millionaires. The 30 million are still a small minority. — ssu

lol is this slippy slope slop really going to be your argument against a wealth tax?

VagabondSpectre

↪frank

I say good riddance to bad rubbish regarding the elite exodus.

Where you see future collapse, I see change and opportunity (an industry shakeout) and corporations likely see this too. For example, whoever can most successfully diversify into the alternatives that climate change and the end of oil demand, will see a market where most of the competition has relatively quickly collapsed, and that they are in the best position to expand and capture a greater overall "market share". I want this adaptive process to occur, but I don't want one or two mega-corporations controlling everything at the end of it. And if one or two mega-corporations is how it has to be for whatever reason, then its stock and stake holders should not be just a small handful of wealthy elite.

So if Amazon et al left quickly enough, they would leave behind their market share (their customers in America) which would create an absolute bonanza for other retail/sales businesses and logistics firms (firms and businesses that create value for the society it serves, rather than trying to create the most value for themselves). Amazon is actually an amazingly efficient business, but the amount of money Besos can extract from it is unethical

Brett

↪VagabondSpectre

Amazon is actually an amazingly efficient business, but the amount of money Besos can extract from it is unethical — VagabondSpectre

Why do you think it’s unethical?

VagabondSpectre

Why do you think it’s unethical? — Brett

The short answer is wealth inequality within and without the United States. It gives him incredible power that he can either abuse or waste. He could spend all his money trying to get to space, and even succeed, while others cannot afford chemo therapy.

Something or someone will give...

Maw

Why do you think it’s unethical? — Brett

Probably because Amazon's "innovative" two day delivery service, with which it used in part to capture a nearly 50% market share in e-commerce, was build on brutal working conditions.

Banno

↪Micah Ian Wright

Might it be because the poor shoulder the greater part of the tax burden?

But that's not something folk want to talk about.

Why a Wealth Tax is a stupid idea ...and populism

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