Wealth taxes?

[mpeirce]

http://www.nytimes.com/2013/07/21/business/wealth-taxes-a-future-battleground.html

IF you’d like to know where American political debates are headed, the data suggest a simple answer. The next major struggle — in economic terms at least — will be over whether taxes on personal wealth should rise — and by how much.
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Which will we end up with? Wealth taxes, consumption taxes (VAT), or maybe just higher inflation - pick one.

(Or maybe all of the above...)

 

[bUU]

We're going to need to be creative to address revenue shortfalls in a manner that doesn't cause more revenue shortfalls. Consequently any kind of wealth tax probably should be limited to real property. Consumption taxes are regressive in the absolute, so to preclude driving more people into destitution any such new taxes would need to be distinctly progressive, either luxury taxes or sin taxes or some such. I don't see anyone who would benefit from inflation, but perhaps I'm missing something. A fourth option is to start vigorously negotiating with those who provide what the government pays for, either directly or indirectly, forcing prices down wherever there are significant profits being earned at the public expense, as Medicare already does.

 

[pb4uski]

WADR, "revenue shortfalls" only occur because expenses>revenues. Perhaps a better solution is to reduce expenses rather than increase revenues given the current levels of taxation and progressiveness of tax rates.

If a person, family or business had a revenue shortfall IMO they would probably focus effort not only on increasing revenue (second job, more OT, increase sales, etc.) but also on tightening their belt on the expense side. For some odd reason, many in government give that side of the equation short shrift.

 

[timo2]

WADR, "revenue shortfalls" only occur because expenses>revenues. Perhaps a better solution is to reduce expenses rather than increase revenues given the current levels of taxation and progressiveness of tax rates.

If a person, family or business had a revenue shortfall IMO they would probably focus effort not only on increasing revenue (second job, more OT, increase sales, etc.) but also on tightening their belt on the expense side. For some odd reason, many in government give that side of the equation short shrift.

This is because most people don't want to cut programs that benefit them, and only want to cut programs that affect other people. The resulting chaos is why little government spending ever gets cut.

 

[bUU]

True. There is a very substantial amount of focus placed on that side of the equation, just without agreement. I think recent "American political debates" have revealed a lack of consensus regarding spending, and I doubt that is going to change, leaving the quandary that the OP outlined.

 

[Midpack]

Unless the economy achieves some unheard of growth, income & consumption taxes will have to increase and spending will have to decrease. I'd defy anyone to actually look at our actual federal revenue & spending and sanely conclude otherwise (showing specific $).

"Wealth" has already been taxed to begin with. Taxing wealth will further discourage savings and move more assets offshore I'd imagine...but that might not stop our "leaders" from taking the easy route.

 

[bUU]

move more assets offshore

Something that is hard to do for real property.

 

[FIRE'd@51]

Consequently any kind of wealth tax probably should be limited to real property.

Do you mean personal homes?

I don't see anyone who would benefit from inflation, but perhaps I'm missing something.

How about net debtors?

 

[pb4uski]

I didn't claim that reducing spending would be easy, just that it is a necessary part of the solution.

The crux of that problem that politicians today do not have the political courage of the politicians of yesteryear. The government needs to be somewhat like a good parent and say no and set limits for its children. Individuals, families and businesses make such hard decisions all the time.

IMO taxing wealth runs the risk of destroying capitalism over the long run since it reduces the incentive to save and invest and increases the incentive to spend and become dependent on government. It gets back to unfairness of Sally Saver being forced to subsidize Sue Spender's lack of financial discipline.

 

[bUU]

I didn't claim that reducing spending would be easy, just that it is a necessary part of the solution.

I don't think saying it is necessary is going to make the difference. I think those arguments have all been played out, and what we have now is going to be the way things are going to be going forward, until something different is introduced into the discussion.

The crux of that problem that politicians today do not have the political courage of the politicians of yesteryear.

I don't believe that there is any objective way of measuring that, and so I don't think there's any real meaning to the contention. If anything, I take the absolute nature of the log jam to mean that the politicians have more political courage than in the past - courage to stick by their ideological imperatives even at the risk of being labeled an opponent to compromise.

The government needs to be somewhat like a good parent and say no and set limits for its children.

That, again, could be turned on its head to label any one or more of the perspectives as the "child's" perspective, with any one or more of the other perspectives as the "parent's" perspective.

Individuals, families and businesses make such hard decisions all the time.

And I think this makes so clear how a nation is categorically different from individuals, families and businesses.

IMO taxing wealth runs the risk of destroying capitalism over the long run since it reduces the incentive to save and invest and increases the incentive to spend and become dependent on government.

And the counter-arguments are myriad and varied. It's just more rhetoric - not something different.

It gets back to unfairness of Sally Saver being forced to subsidize Sue Spender's lack of financial discipline.

Which is no more compelling argument than those that highlight the unfairness of a system that institutionally creates beggars out of hard-working citizens. Again, it's just more rhetoric - not something different.

 

[ERD50]

... Consumption taxes are regressive in the absolute, so to preclude driving more people into destitution any such new taxes would need to be distinctly progressive, either luxury taxes or sin taxes or some such. ...

Actually, one high profile consumption tax proposal (fairtax.org) addresses this with a monthly 'pre-bate'. It similar to the way the standard deduction works so that people below X income pay no FIT. The 'pre-bate' is a payment that offsets the tax for a basic spending level.

I'm not saying this is workable, or has a snowball's chance of being implemented, but it addresses the regressive issue.

Consequently any kind of wealth tax probably should be limited to real property.

I don't think it is so simple. What if I have a substantial pension, worth several million $ as an equivalent annuity, and I rent a luxury home? No 'wealth tax'? What if I have zero pension, but I earned and saved enough money to pay cash for that same luxury home. Now I pay a 'wealth tax'?

-ERD50

 

[timo2]

IMO taxing wealth runs the risk of destroying capitalism over the long run since it reduces the incentive to save and invest and increases the incentive to spend and become dependent on government. It gets back to unfairness of Sally Saver being forced to subsidize Sue Spender's lack of financial discipline.

But wealth (in the broad sense) is the only thing that can be taxed. Part of the unwritten social contract is that the taxes don't give some capitalists the edge over everyone else. That is where the 'get rid of tax breaks' argument comes in.

 

[pb4uski]

...Which is no more compelling argument than those that highlight the unfairness of a system that institutionally creates beggars out of hard-working citizens. .....

WADR, you're hopeless. I believe the vast majority of hard working citizens would not be beggars, but we have already had this debate.

 

[bUU]

Actually, one high profile consumption tax proposal (fairtax.org) addresses this with a monthly 'pre-bate'. It similar to the way the standard deduction works so that people below X income pay no FIT. The 'pre-bate' is a payment that offsets the tax for a basic spending level. I'm not saying this is workable, or has a snowball's chance of being implemented, but it addresses the regressive issue.

It sure does, but I agree with you that it is not clear whether such a suggestion could ever get traction. If nothing else, a cash flow crunch could motivate a regressive Congress from reneging on the intent of the prebate. It seems to me that there would need to be a means of accomplishing the intent of the prebate without risk of the government going back on its obligation.

I don't think it is so simple. What if I have a substantial pension, worth several million $ as an equivalent annuity, and I rent a luxury home? No 'wealth tax'?

Your landlord pays it for you, and passes that cost on to you, and there's no blood-from-stone scenario in the luxury home sector. Other posters have explained why any other kind of wealth tax will fail, eventually.

 

[bUU]

WADR, you're hopeless.

That's a rather rude remark, even qualified as you have - unwarranted just because you hold a different opinion. Please understand that your preference is not an edict the rest of us all have to all kowtow to. Thanks.

 

[MichaelB]

Come on. everyone knows that hopeless, with a married couple, is expecting both spouses to be ready to leave at the same time.

Discussions on taxes, especially those that don't exist, aren't hopeless, but they are endless.

 

[timo2]

WADR, you're hopeless. I believe the vast majority of hard working citizens would not be beggars, but we have already had this debate.

Not to go OT or get in-between a previous argument, but the large number of service workers receiving food stamps means that large numbers of hard working citizens are indeed beggars. Maybe not the majority, but there are many. Just sayin....

 

[Midpack]

I hope Porky comes along soon. Just sayin...

 

[REWahoo]

Discussions on taxes, especially those that don't exist, aren't hopeless, but they are endless.

Not to mention fruitless.

 

[Gatordoc50]

Before you end the thread, can someone help me with the new SWR of this goes thu?

 

[ERD50]

Your landlord pays it for you, and passes that cost on to you, and there's no blood-from-stone scenario in the luxury home sector.

OK, that's essentially how property taxes work now.

But that gets tricky with making it progressive, no? Property taxes, at least AFAIK, are not progressive, so not an issue.

But if my landlord owns one house, or ten, his 'wealth' is different. House #1 might just push him into the start of the 'wealth tax', but the 10th one would presumably be totally into the bracket, and maybe in a higher bracket.

-ERD50

 

[pb4uski]

But wealth (in the broad sense) is the only thing that can be taxed. Part of the unwritten social contract is that the taxes don't give some capitalists the edge over everyone else. That is where the 'get rid of tax breaks' argument comes in.

Where in heck do you get that wealth is the only thing that can be taxed? Income can just as easily be taxed.

Not sure what tax breaks you are referring to but if you are referring to the preferential rate for qualified dividends and capital gains, much of the reason for the preferential rate is because the income has already been tax at the corporate level and the same income would be taxed twice if not for the preferential rate.

 

[timo2]

Where in heck do you get that wealth is the only thing that can be taxed? Income can just as easily be taxed.

Not sure what tax breaks you are referring to but if you are referring to the preferential rate for qualified dividends and capital gains, much of the reason for the preferential rate is because the income has already been tax at the corporate level and the same income would be taxed twice if not for the preferential rate.

Because in my own little world, not being caring to mimic economists, my definition of wealth is not limited to just financial wealth, but includes everything economist exclude from their wealth categories, like household wealth and income as soon as it is in your pocket.

regarding tax breaks, I specifically meant the breaks that promote favoritism in the marketplace.

 

[bUU]

To be fair, I think it is very important to distinguish between wealth and income. By considering the latter part of the former, you're missing very important nuances that make all the difference between understanding what people are saying to each other and utter confusion. Economists are not excluding income from "wealth categories". Rather income is a different measurement of money from wealth, and in the end the money implied by income generally ends up also measured as wealth (if it still exists).In the extreme, a tax on wealth and a tax on income can tax the same exact dollar twice in the same year (but only one year). The reality is that taxing income and taxing wealth have radically different impact on behavior, so they need to be addressed separately to ensure the taxation doesn't actually accomplish the opposite of its intention.

 

[timo2]

To be fair, I think it is very important to distinguish between wealth and income. By considering the latter part of the former, you're missing very important nuances that make all the difference between understanding what people are saying to each other and utter confusion. Economists are not excluding income from "wealth categories". Rather income is a different measurement of money from wealth, and in the end the money implied by income generally ends up also measured as wealth (if it still exists).In the extreme, a tax on wealth and a tax on income can tax the same exact dollar twice in the same year (but only one year). The reality is that taxing income and taxing wealth have radically different impact on behavior, so they need to be addressed separately to ensure the taxation doesn't actually accomplish the opposite of its intention.

Thanks, Point taken.