Taxing wealth a way to tax Roth IRAs?

[Chuckanut]

So, how could the government back then finance anything? It's a conundrum.

Perhaps not.

A few things we didn't finance back then if my history is right

The world's most powerful standing army
Assorted wars on foreign soil that go on for decades (Iraq cost a Trillion dollars IIRC)
Safety net social programs to help the poor
School lunches (gotta soak up the excess farm production)
War on Terror
Ethanol in gasoline (gotta keep those corn farmers in Iowa happy)
Long lived retired folks who collect SS for decades (Yikes, that's us!)
Medical care for those old folks (Yikes again!)

But, I know what you mean about people who complain about taxes. I had a coworker who complained constantly about high taxes in my state. He had four kids in public school at about $10,000 a year for each kid. Where did he think the money for that came from? Perhaps an overly generous Tooth Fairy? I can assure you he did not pay $40,000+ in taxes.

 

[mpeirce]

So, how could the government back then finance anything? It's a conundrum.

Mostly tariffs.

When there were big expenses, like the civil war, other schemes "helped" like fiat money (greenbacks), issuing bonds, and even a 3% income tax - it was repealed in 1871.

 

[NW-Bound]

Yeah, it is kind of a back to the future moment, no?

I actually learned about this taxation thing in college, when I took a course called "Government finance and taxation". It was very interesting. But the internet knows all, so here is a bit more about how the US govt. was funded before income taxes. There were actually a few more sources than tariffs, such as excise taxes. They all are still in place (tariffs too), so yeah, govt. has expanded.

https://pocketsense.com/united-states-government-funded-prior-income-tax-12769.html

Thanks.

A quick look at the link, and I did not have to go far to see the following fact. There goes the thought that a wealth tax would not be constitutional. When Congress wants money, they can change the Constitution.

A federal income tax had been enacted in 1861, but was struck down as unconstitutional by the Supreme Court in 1895 as it was found to be a direct tax outside the constitutional constraints. Congress removed these limits in 1913 with the passage of the 16th Amendment, which allows it to impose income taxes specifically, "without regard to any census or enumeration."

 

[JoeWras]

But, I know what you mean about people who complain about taxes. I had a coworker who complained constantly about high taxes in my state. He had four kids in public school at about $10,000 a year for each kid. Where did he think the money for that came from? Perhaps an overly generous Tooth Fairy? I can assure you he did not pay $40,000+ in taxes.

Right.

Taxes always come back to what services we want, collectively. I know there is graft and waste. But put that aside, because that pretty much happens everywhere. It ultimately comes down to what we want from our government vs. private or semi-private concerns.

It is one reason I'm getting nervous here in North Carolina. We have an influx of people from other states that want more from government because that is what they are used to. That simply means more taxes.

Wrong or right, it doesn't matter. It is just reality. And it may make me move.

 

[NW-Bound]

I am not one of those who do not appreciate the public services that I am getting. But we still have to keep asking if the money spent is actually worthwhile.

In Denmark, college education is free. And college students are even given some stipend money while in school. The result is that many just hang out and do not want to graduate. Can you blame them though, for choosing an easy life? Or perhaps they have no motivation to graduate, because there's no job?

See: https://www.businessinsider.com/den...-eternity-students-who-never-graduate-2017-11


When I was at the university, I took summer courses in order to get out to work as soon as possible, while I was doing menial work on Friday and Sunday nights for money. There were high-paying jobs waiting for me, and I could hardly wait to get to it.

When I looked at my earning records to figure out my SS benefits, I saw that the 1st year out of graduate school, I made $25,049 in 1980. I was surprised when I found out that it was more than $80K in today's dollars. Wow. It was not too bad because the economy was not doing that well then. I did well to go to work ASAP.

Maybe I was lucky. Maybe those Danish students would be more willing to get out of college if they had the same opportunity to good jobs.

So, how do we create good jobs? That's important, compared to just having free education. There's no point in educating people just to have them sit around.

 

[Luck_Club]

Most people agree that taxes are necessary, but cannot agree on whom to tax and how much.

Actually, they agree on whom to tax: anybody but themselves. How much: as much as needed.

Recent transplant back to Florida. I was pondering taxes today. Went to the DMV to register a boat and trailer. 15 minutes in and out by the way. Speaking with the nice young lady about trade in tax treatment. She said in a dealer no issue net amount is taxed. $100 boat $80 trade in tax is only on the $20. Private transactions I SAID WONT WORK. She corrected me and said well you could do gifting

Long story short I was wondering how can Florida survive with no income tax and low property taxes

Point is; if the function of government is reduced, so is the need for tax revenue.

 

[Chuckanut]

Thanks.

When Congress wants money, they can change the Constitution.

Not quite.

Amendments require a 2/3 vote of both the House and the Senate on a resolution to amend the Constitution, or the states have to call for a Constitutional Convention (again a 2/3 requirement).

Then 3/4 of the states still have to ratify the amendment to the Constitution. Interestingly, the President is not part of the process. (The founding fathers must have really, really not trusted monarchs.)

https://www.archives.gov/federal-register/constitution

Since the President does not have a constitutional role in the amendment process, the joint resolution does not go to the White House for signature or approval.

 

[NW-Bound]

OK, it takes more than Congress to change the Constitution. I can see that the hurdle is quite high.

But that hurdle was overcome before. At that point in 1913 when income tax was passed, 48 states were already present except for Alaska and Hawaii. Super majority was reached in Congress and with the States.

It would be interesting to learn how the political atmosphere was back then. Too bad there was no Youtube then for me to learn about the debate back then on this issue.

 

[Senator]

People like to point to other countries to say the US tax is still too light.

In the USA, we have one of the highest "capture Rates" of income taxes. That is, most of the earned income is reported to the IRS and taxes are paid on it. Many other countries are using cash, or barter for income. Or their version of the IRS is susceptible to bribes and tax evasion is not only common, but expected.

Greece is a fine example of this.

 

[NW-Bound]

Yes, an interesting subject. I would suspect Greece to be a bad example, but read about Italy long ago, before there was an EU.

Just now, did a quick search, and the problem is known by EU officials. Which countries top the list? Not Greece in terms of euro amounts, because its economy is smaller.

See the list in this link: https://www.statista.com/chart/17133/tax-evasion-cost-to-eu-countries/.

Of course the US has this problem too, particularly with small family businesses. I don't know how one can estimate the severity of this in a country.

 

[ncbill]

Back to (theoretical) wealth taxes, if implemented I bet real estate becomes more popular given its more opaque valuations.

E.g. I've put my recently-deceased relative's home up for sale.

Listed for $300k, tax value closer to $200k, based on comp sales in the neighborhood, adjusted for square footage it should sell for $250k-$275k.

So what's it worth for "wealth tax" purposes?

 

[Alan]

Not a wealth tax but the UK has a much lower threshold for inheritance tax. £1m for a couple. By converting all our tax deferred money to Roth money is one of the mechanisms we are using to lower our net worth.

 

[MarieIG]

Even if it started at $50,000,000 do you really believe it would never get lowered?

In 1913 (when the 16th amendment was ratified), the top tax bracket was 7 percent on all income over $500,000 (roughly $12 million in today’s dollars).

Funny how that didn't stick.

This is exactly right.

Not only would it get lowered, and rapidly at that, the requirement to provide one's NW could be used for a plethora of purposes, which would effect those on this forum.

Oh no Sir/Madam: You don't get those ACA subsidies, your NW is too high.

Be careful what you wish for . . .

 

[Chuckanut]

The interpretation of tax laws can also be used to increase taxes.

In my area there is currently a big fight going on over car tabs. A recent voter approved increase in car tabs is being contested over how to calculate the value of the car. It seems the government bureaucracy is using an outdated method of determining a car's value that results in higher car values and significantly higher taxes. They simply are not depreciating the vehicles fast enough. We're talking billions of dollars over the 30 year life of the law that increased the tax rate.

In the meantime, the government entity has signed contracts for goods and services that assume the extra funding from higher car tab rates. Their argument seems to be "We signed these deals, so it doesn't matter if the tax is unjust/illegal, it has to stay". Are we having fun yet?

As usual, the courts will decide what happens.

Note: in case you're wondering the government entity based a car's initial value on the MSRP, rather then the price the vehicle actually sold for. In most cases that means the vehicles are over valued when the tax is calculate.

 

[HFWR]

The limits will have to be drastically lower to affect me... [emoji41]

 

[socca]

The limits will have to be drastically lower to affect me... [emoji41]

IF all taxpayers are required to report Section XXX net worth each year and IF you like to prepare your own tax return and IF you have difficult to value assets (e.g. partnership interest, stock in a closed corporation, beneficiary of a trust, etc.), THEN a new personal net worth reporting requirement could be a huge burden even if you owe no wealth tax.

Having just lived through trying to comply with the new Qualified Business Income Deduction (Section 199A), further increases in the complexity of the U.S. tax code would not be welcome.

 

[NW-Bound]

Indeed, the cost of tax preparation on the part of the tax payers and also the cost of administration by the government is one of the reasons many countries abolished wealth tax.

In 1990, twelve countries in Europe had a wealth tax. Today, there are only three: Norway, Spain, and Switzerland.

The past France wealth tax ended up having a lot of exemptions. Part of it was because a lot of people with inherited assets but cash poor had problems paying the tax. So, family heirloom was excluded, and so were antique furniture, rare paintings, farm and forest lands, etc...

I wonder if these exclusions then caused people to stock up on antiques and paintings, etc...

The wealth tax in the US will not have any exclusions, as planned by its proponents. The first $50M will be exempted, according to plan. A serf like myself probably can get away with a sworn statement that I have no $50M. However, someone with assets of $40M may have to provide a list of everything that he owns to prove that he is not hiding anything anywhere to stay below $50M.

And the government will have tax inspectors to comb through records to see if he has not bought and concealed something valuable, such as those Hermès $275K bags, or a rare painting or historical artifact purchased abroad. Hidden gold coins, ownership in some private enterprises, Arabian horses, rare stamps, Ming-era vases?

This is going to be interesting.

For more on the proposed US wealth tax, see the following piece by NPR, which also describes a proposed 40% exit tax for people renouncing US citizenship.

https://www.npr.org/sections/money/...s-such-a-good-idea-why-did-europe-kill-theirs

 

[explanade]

They’re going to have a hard time passing any kind of tax increases.

Polls show people want the rich to pay more but the rich just buy off the politicians.

The most recent tax cuts were very unpopular.

They went through with it anyways.

 

[NW-Bound]

First, we have to define "rich".

The proposed cut-off is $50M. How many people in the US are above this level?

The only report I have been able to find so far dated back from 2015, and it says there are 55,000 American individuals with a networth greater than $50M.

See: https://www.theguardian.com/money/2...-wealth-in-hands-population-inequality-report

The next question is the total asset held by these 55,000 individuals, relative to the total asset of all Americans. I have not been able to find a number.

The reason for the question is to get a feel of the effect of the proposed US wealth tax compared to other countries. France went as low as 800,000 euros, and did not raise that much money from their wealth tax. Will we get enough money from the $50M+ crowd, or will we need to go lower?

 

[explanade]

Well you hear claims like he top 1% has 50% or more of assets and the top .1% is like 20% of assets.

Ok looked I up, 1% has 40% o assets.

https://en.m.wikipedia.org/wiki/Wealth_inequality_in_the_United_States

From that wiki also:

Senator Elizabeth Warren proposed an annual tax on wealth in January 2019, specifically a 2% tax for wealth over $50 million and another 1% surcharge on wealth over $1 billion. Wealth is defined as including all asset classes, including financial assets and real estate. Economists Emmanuel Saez and Gabriel Zucman estimated that about 75,000 households (less than 0.1%) would pay the tax. The tax would raise around $2.75 trillion over 10 years, roughly 1% GDP on average per year. This would raise the total tax burden for those subject to the wealth tax from 3.2% of their wealth under current law to about 4.3% on average, versus the 7.2% for the bottom 99% families.[79] For scale, the federal budget deficit in 2018 was 3.9% GDP and is expected to rise towards 5% GDP over the next decade.[80] The plan received both praise and criticism. Two billionaires, Michael Bloomberg and Howard Schultz, criticized the proposal as "unconstitutional" and "ridiculous," respectively. Warren was not surprised by this reaction, stating: "Another billionaire who thinks that billionaires shouldn't pay more in taxes."[81] Economist Paul Krugman wrote in January 2019 that polls indicate the idea of taxing the rich more is very popular.[82]

So 75,000 households, le than .1% of households would pay the wealth tax which would generate $2.75 trillion over 10 years.

I don’t know if Warren also backs Bernie Sanders’. financial transactions tax, which would hit far more people, probably IRAs and 401ks.

 

[NW-Bound]

I found some more info.

According to another source that defines Ultra High Net Worth as $30M, in 2016 there were 73,110 such individuals. That number is consistent with the 55,000 number of $50M in 2015 as reported above.

These 73,110 individuals control assets worth $8,719 billion. The total wealth in the US is $113 trillion in 2018.

This means individuals with $30M+ hold roughly 8% of the total assets. Let's call it 10% because they got richer from 2015 to 2018.

If we tax 1% of that 10%, we are redistributing only 0.1% of the total wealth each year! And that's for the $30M breakpoint, while they talk about $50M which is quite higher.

I think they will find that they need to raise the tax rate, or lower the threshold to much below the $50M to make it worthwhile.


See:

https://www.brookings.edu/blog/up-front/2019/06/25/six-facts-about-wealth-in-the-united-states/

Millionaires in U.S.: Americans with $30 Million Net Worth | Money

 

[NW-Bound]

Well you hear claims like he top 1% has 50% or more of assets and the top .1% is like 20% of assets.

https://en.m.wikipedia.org/wiki/Wealth_inequality_in_the_United_States

The top 1% net worth breakpoint is $10M, quite lower than the $50M level proposed.

The wealth held by those with between $10M and $50M is a lot more than the total held by those with $50M+. It's because there are more of them.

If you go down to $5M or $2M, you capture even more wealth.

So, you either raise the tax rate to more than 1% or lower the breakpoint to make it worthwhile.

 

[explanade]

There will be attempts to hide assets of course.

Or play games with valuations.

Just in the news the Sackler family of opioids fame are trying to settle law suits in which they would pay some billions of their wealth, estimated at $12 billion or more.

They were caught trying to transfer a billion, probably out of the country.

 

[marko]

In addition to this scheme there is the "tax cap gains annually and at the ordinary income rate" as well as the "dramatically lower the inheritance tax exemption" idea currently floating around.

What bothers me is that within the subtext of all these ideas is that there is a punitive tone to them. While couched in 'fairness' there seems to be more of a goal to simply punish those with greater wealth.

Yet, as I've often maintained, the rich have plenty of options to dodge such things. The predictions of income generated always naively assumes status quo vs the work of clever accountants, lobbyists, corporations and trusts. It always sounds good but most often falls far short of the mark.

Wake me if any of these ideas ever come to pass.

 

[HadEnuff]

I'll be anxiously awaiting all the comments and strategies from those on this forum with a net worth of >$50M on how they plan to protect their nest egg.

I'm going to keep "blowing that dough" in order to stay below that ceiling.