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Old 12-01-2012, 09:12 AM   #41
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A wealth tax has the advantage that by taxing accumulation it can correct for the inordinately preferential tax rates that have enabled the 1% to sequester most of the productivity gains in the US for the past 30 years or so. However, I expect the enforcement problems would be formidable. Valuation of many kinds of real property would be impossible to verify on a large scale, particularly property held outside the country.
Agreed, there would be lots of schemes to hide the wealth. In as much as a wealth tax discourages thrift I'm against it. I'd far rather see passive income taxed at the same rates rise to be the same as those on earned income.
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Old 12-01-2012, 09:17 AM   #42
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I think we already have a yearly" extra wealth tax on income. Granted it is not on "assets" but still it is an extra tax none the less. It's called the AMT. Alternative Minimum Tax. Has grabbed me every year since I can remember. I'm sure it grabs a lot of us here. Where we the stopping point be.? It's anyone's guess. The more little buckets they tax, the harder it is to navigate. Just wish they would come up with one tax and leave it at that.
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Old 12-01-2012, 09:24 AM   #43
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"Tax the rich
Feed the poor
Till there are,
No rich no more" (Ten years after)

Said it earlier: The flaw in the assumption is that the rich will just sit there and write a bigger check. The reality is that the rich have all sorts of options to avoid these schemes. (Uh....that's one reason they're rich!)

Good luck to anyone who thinks it'll change.
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Old 12-01-2012, 09:28 AM   #44
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Do I understand him correctly?

Let's tax accumulated wealth after the fact (punish savers & investors and progressively reward consumption) vs modifying tax code so people know the rules going forward - both of which can reduce wealth/income inequality. Dodges will be possible in either case.

Aren't we still suffering from the worst recession in 80 years in which over consumption/leverage played a substantial role?
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Old 12-01-2012, 09:35 AM   #45
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Do I understand him correctly?

Let's tax accumulated wealth after the fact (punish savers & investors and progressively reward consumption) vs modifying tax code so people know the rules going forward - both of which can reduce wealth/income inequality. Dodges will be possible in either case.

Aren't we still suffering from the worst recession in 80 years in which over consumption/leverage played a substantial role?
Yes, you do understand him correctly. This punishes savers. Especially those of us who invested and already paid bookoos capital gains taxes (20% even) on assets in our taxable accounts. Taxes that would not have been owed under the new scheme.

But I don't see this radical change happening, so I can't waste time worrying about it.
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Old 12-01-2012, 09:57 AM   #46
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Not only that, but in many cases the income that generated that wealth has already been taxed and the wealth is the cumulative effect of what was leftover the first time.

I guess their scheme would be to just continue to tax until no wealth is left.

I agree, it is so radical that it has zero chance of ever becoming reality.
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Old 12-01-2012, 10:31 AM   #47
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Not only that, but in many cases the income that generated that wealth has already been taxed and the wealth is the cumulative effect of what was leftover the first time.

I guess their scheme would be to just continue to tax until no wealth is left.

I agree, it is so radical that it has zero chance of ever becoming reality.
A wealth tax is not radical, we already have one in real estate taxes. Some countries also tax other forms of wealth. IMHO US tax reform should start by modifying the basis of taxation to that of residence and remove the citizenship aspect, remove the vast majority of deductions and also tax all income an gains at the same progressive rates. So if you are in the 35% income tax rate, your dividends and capital gains would also be taxed at 35%.
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Old 12-01-2012, 10:44 AM   #48
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... and also tax all income an gains at the same progressive rates. So if you are in the 35% income tax rate, your dividends and capital gains would also be taxed at 35%.
In some recent threads, we showed (and even convinced someone to change their view of this), that capital gains tax can be very unfair at any straight %. Unless it is adjusted for inflation, a 'gain' may actually be a loss.

I do agree with you on simplifying the tax code. I still think there is a problem on defining what makes up 'income' - I don't think it is as simple as it sounds. As I've said many times, I think 'spending' is a much better measure of someone's ability to pay. And to be pragmatic, since you can't get blood from a rock, taxes probably need to come progressively from those with an ability to pay. Or like that old quote, "Q: Why do you rob banks? - A: 'Cause that's where the money is."

One problem with progressive income tax: One year I had a very large cap gain (poor tax planning on my part). I was taxed like I was a rich person, yet, I spent no more that year than any other. I knew I wasn't rich - it was just a timing thing. So why am I taxed the same as someone who makes that $$$ every year? The same can be said of people in very volatile businesses, maybe they have one good year out of three, and they plan accordingly? Not fair, I say.

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Old 12-01-2012, 11:21 AM   #49
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A wealth tax is not radical, we already have one in real estate taxes. Some countries also tax other forms of wealth. IMHO US tax reform should start by modifying the basis of taxation to that of residence and remove the citizenship aspect, remove the vast majority of deductions and also tax all income an gains at the same progressive rates. So if you are in the 35% income tax rate, your dividends and capital gains would also be taxed at 35%.
I couldn't disagree more.

Real estate such a a poor proxy for wealth that suggesting that a real estate tax is a wealth tax is naive. The person whose entire net worth is tied up in a highly leveraged McMansion is treated as wealthy yet a person of the same income who LBYM and has a modest paid for home and $10m in investments would not.

The issue I have with non-preferential rates for dividends and capital gains is that that in that vast majority of cases they arise from corporate income that is distributed or retained so it has already been taxed.

We would agree on eliminating most deductions though.

One out of three ain't bad.
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Old 12-01-2012, 02:51 PM   #50
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Egad.....you still pushing this productivity poppycock? Nobody is buying....
Um. Not so much. Khufu has a point, and has identified one of the factors involved. There are others... His point is ideologically unacceptable to many folks, and probably not worth discussing here at the risk of bacon on the hoof appearing.

I am a big fan of maple smoked bacon, though...
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Old 12-01-2012, 02:52 PM   #51
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The estate tax seems like a pretty effective wealth tax, without the retirement problems a yearly tax would create. Never seemed fair to me, but it seems better than a 1%/year wealth tax. What a PITA to have to figure something like that every year. It's bad enough trying to cope with the estate tax for that matter. I've spent more creating our revokable trust that I have spent cumulatively on Turbo Tax. I'd like something simple.
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Old 12-01-2012, 02:54 PM   #52
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Old 12-01-2012, 02:56 PM   #53
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Do I understand him correctly?

Let's tax accumulated wealth after the fact (punish savers & investors and progressively reward consumption) vs modifying tax code so people know the rules going forward - both of which can reduce wealth/income inequality. Dodges will be possible in either case.

Aren't we still suffering from the worst recession in 80 years in which over consumption/leverage played a substantial role?
Yup. That's the economic risk of a wealth tax. Most places that have such a tax use fairly high thresholds and progressive rates to try and avoid the worst of this.
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Old 12-01-2012, 02:58 PM   #54
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Old 12-01-2012, 03:01 PM   #55
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Um. Not so much. Khufu has a point, and has identified one of the factors involved. There are others... His point is ideologically unacceptable to many folks, and probably not worth discussing here at the risk of bacon on the hoof appearing.

I am a big fan of maple smoked bacon, though...
I'm partial to hickory smoked, myself.
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Old 12-01-2012, 05:29 PM   #56
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Something else that might be on the table in the tax reforms is FICA. I'd remove the phase out of the tax above a certain income level, and you might argue for a progressive FICA tax. I'd combine that with an increase in the starting age for SS and Medicare for those currently under 55. Maybe a year for those between 40 and 55 and a couple for those younger.

The costs of Medicare and Medicaid also need to be addressed to bring them closer to those in other developed nations. There's no reason (other than vested ones) that the US should spend twice as much per capita on health care as other nations. US residents get a really raw deal when it comes to health care.
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Old 12-01-2012, 06:35 PM   #57
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. . . <Para. Snip>

* * * <another Para. Snip>

One problem with progressive income tax: One year I had a very large cap gain (poor tax planning on my part). I was taxed like I was a rich person, yet, I spent no more that year than any other. I knew I wasn't rich - it was just a timing thing. So why am I taxed the same as someone who makes that $$$ every year? The same can be said of people in very volatile businesses, maybe they have one good year out of three, and they plan accordingly? Not fair, I say.

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Did anyone else have the opportunity to employ income averaging back in the day? It was designed to deal with this very issue. We used it when we were just starting out, but I believe it was axed in '86 as part of the base broadening/rate decrease. Needless to say, it hasn't come back as much of that law was undercut over the years.
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Old 12-01-2012, 07:26 PM   #58
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I was able to use it a few years. Averaging in my military pay to my civilian.
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Old 12-01-2012, 07:46 PM   #59
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Did anyone else have the opportunity to employ income averaging back in the day? It was designed to deal with this very issue. We used it when we were just starting out, but I believe it was axed in '86 as part of the base broadening/rate decrease. Needless to say, it hasn't come back as much of that law was undercut over the years.
AFAIK, income averaging is very restricted these days. Farmers, I think, can use it - and military according to last post.

But pre-1986, my income was just on an even, steady rise. Averaging would not have applied.

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Old 12-01-2012, 08:04 PM   #60
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Yup. That's the economic risk of a wealth tax. Most places that have such a tax use fairly high thresholds and progressive rates to try and avoid the worst of this.
That's right. The threshold matters a lot. While everyone here who has been saving for retirement imagines his lifetime savings being looted for the benefit of people who can't pay their credit card bills, the issue at hand is quite different. Consider the case of Michael Bloomberg, the mayor of NYC. When he became mayor about 10 years ago he was worth two or three billion dollars. At the time of the financial crisis I noticed with interest that the estimate of his wealth had risen to eleven billion dollars. The most recent estimate I have seen is that he is now worth twenty-five billion dollars. That's a truly extraordinary and, in fact, excessive rate of wealth accumulation. Bloomberg benefited from the Bush tax cuts, the preferential tax rates on investment income, and the income cap on the payroll tax among many other systematic rewards for the rich from the tax system. Bloomberg is not an outlier, at least not among the 1%.

So, in my opinion clawing some of that back through a wealth tax would be a worthy policy goal, both for the revenue itself and also to reduce the current level of inequality in the US which is threatening the foundations of democracy. Bloomberg, for instance, by using his money got the city council to modify the city charter to permit him to run for a third mayoral term. He didn't bribe politicians, which is illegal, but he did make contributions to many non-profit organizations in the city who then publicly supported his campaign.

The concentration of wealth threatens the American consumer economy as well, since people like Bloomberg can't spend it fast enough to keep the economy going. But politically I don't see a wealth tax going anywhere. I think raising income tax rates is a better idea along with reducing or eliminating preferential rates on investment income and eliminating the payroll tax cap, for starters.
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