wealth tax

[smjsl]

Well, I don't think this "FIRE and Money" forum will exist if this professor's ideas come to pass... and this is from New York University's Stern School of Business ... Wonder how many students this guy teaches... Please note: this is not about politics - just about basic ability to FIRE in an environment that he is proposing. I am guessing there is not much of a chance for most of us if our returns have these extra costs in the form of the wealth tax: he suggests to [-]penalize[/-] tax anyone saving over 0.5M - at least for now, and I am sure once this door is open, depending on future needs, tax rates and limits will be easy to change accordingly.

Taxing Wealth Is the Answer for Boosting Long-Term Growth: Daniel Altman | Daily Ticker - Yahoo! Finance

 

[nun]

This is an interesting idea as the elimination of income tax might spur spending. However, that might generate inflation and certainly wouldn't encourage thrift. But 1% on savings between $500k and $1M sounds ok.

 

[pb4uski]

I think you are right that it would discourage ER.

I actually would have only paid less than 1/2 of what I paid in income taxes during my last few working years under this scheme so I don't see where it could raise enough revenue.

But I would pay a lot more than what I currently pay in retirement.

It would also seem to discourage saving and investment and encourage consumption - I don't think it is a good idea.

 

[jayc]

This guy is a part time prof with no real exposure to the real world. Too bad that he is exposed to business students (for them). Just another talking suit folks, nothing to see here.

 

[Andre1969]

I just pulled up my records, and in 2011 I paid $9,223 in federal income taxes. If I'm doing the math right, under that proposed system of taxing wealth, it looks like I'd have to have $1,211,150 in "wealth" to hit the break even point.

I wonder if this would include your home? We already pay property tax, but that goes to state/county/local.

Overall though, sounds like a bad idea to me. A Pandora's box just waiting to be opened.

 

[GrayHare]

the Cayman Islands are all for this idea

 

[donheff]

I have no idea whether this proposal would actually raise sufficient revenue to replace income tax but it certainly wouldn't whack us. The article states, " Current assets including large nest eggs would not be subject to the new tax, says Altman, and he stresses that his proposal would replace the current tax regime, not add to it."

 

[FIREd]

I never liked the wealth tax - I come from one of the few countries in the world that still has such a tax. It makes no sense to me.

 

[ERD50]

I have no idea whether this proposal would actually raise sufficient revenue to replace income tax but it certainly wouldn't whack us. The article states, " Current assets including large nest eggs would not be subject to the new tax, says Altman, and he stresses that his proposal would replace the current tax regime, not add to it."

It is hard to see how this would work if you exclude current assets? Does that mean Bill Gates would pay no wealth tax, and no income tax at all, as long as he spends any gains to keep his wealth from growing?

Add in that he is probably using a static model, and I bet wealthy people will find ways to turn their 'wealth' (however the heck they measure that) into something of value to them, but is not counted under this proposal.

And, as was mentioned in other threads - is the present value of a stream of pension payments considered 'wealth'?

Originally Posted by Spokane2303
So, would a 1 to 2% wealth tax count the value of private and government pensions or would it exclude the value of our 401K and IRA's?

If I have $2M and decide on a 3.25% WR, I can pull inflation adjusted $65,000 a year. That would be an annual tax of $25K on my $65K withdraw (38.5%)?

Are they suggesting taxing a COLA pension at that rate? A non-COLA one at something less?

-ERD50

 

[NYEXPAT]

the Cayman Islands are all for this idea

+1
"Bring it ON"!

 

[marko]

Well, the war on wealth (or as he puts it "reducing wealth inequality") has only begun and assumes that personal success is a zero sum game.

Of course, he is missing one very important aspect: the wealthy always have a "work around". The aforementioned Cayman Islands is but one example.

The more money you have, the more options there are. That's why all those 'soak the rich' schemes always seem to fall short of projections.

Anyone remember the UK "tax exiles" of the 70's? Yeah, the gov't won big on that one didn't they?

Any why are all the great tax havens in such cool places?

 

[imoldernu]

The idea of a wealth tax is neither new, nor etched in stone. The Altman proposal is but one of many dozens of ways of taxing "wealth".

Wiki offers a fair overview here:Wealth tax - Wikipedia, the free encyclopedia
But this does not cover the possible scope of what could be a partial solution of the debt problem.
ie., this 1999 proposal by Donald Trump.

Revenue: In 1999, Donald Trump proposed for the United States a once off 14.25% wealth tax on the net worth of individuals and trusts worth $10 million or more. Trump claimed that this would generate $5.7 trillion in new taxes, which could be used to eliminate the national debt.[6] A net wealth tax may also be designed to be revenue neutral as where it is used to broaden the tax base, stabilize the economy and reduce individual income and other taxes.

(remember that in 1999, the US deficit was much smaller than it is today)

Another means of taxing nonproductive wealth is that used by India.
Filing wealth tax return: Things to know - Economic TimesSimilar to what we used to call Luxury Tax.

The wealth Tax would not necessarily be a one time, or an annual tax. The tax rates would likely be progressive. I have seen some proposals that would not even touch the first 2 Million Dollars of wealth.

The taxable amount might not be based on total wealth, but some part of the wealth, as in the India tax, or it might involve some part of corporate assets, such as the dollars that corporations might wish to "repatriate" from foreign operations.

I think the first thing to be decided is whether or not the only source of tax revenue should come from earned income.

On another thread, I suggested that one possibility for a (wealth type)tax might be a limitation on inheritances which might be something like a maximum of 20 million dollars per person in the current and next two generations of a family. A dynasty tax.

If the final answer only involves a reduction in SS or Medicare/Medicaid and an increase in the highest tax bracket to 39%, I fear that we'll come up short.

If this isn't possible in the current congress, perhaps a start in investigating alternate ways of reducing debt should begin now. We can be assured that if this does not rise to discussion level, that there are interests who are at work to maintain status quo, or worse.

Just my opinion.

 

[rodi]

Pennsylvania used to have a tax on savings and investment accounts. I think it took the Longwood Gardens threatening to move to another state to end that. (Yes - they were threatening to sell off the land, move the plants, etc...)

I don't remember all the details... but the tax ended in the early/mid 90's.

 

[Culture]

Personally, I do not see a big problem with the concept of taxing wealth. Taxes are needed to run our society, and wealth taxes are not more or less fair than an income tax. The main negative that I see would be defining wealth. This would allow congress to define a whole new category of winners and losers. I expect farmers and ranchers would one again be declared winners.

However, if a wealth tax was in place, I would expect taxes on dividends, interest and capital gains to disappear, as these are effectively wealth taxes already.

A wealth tax actually makes sense in the sense that when you drop one of the legs of taxation (income, sales, property, etc), you are allowing some segments to avoid taxes, at the cost of others, who have to make of the shortfall.

The more important questions is: what percentage of the GDP should be state, local and federal spending? How this is collected is an important, but lesser issue.

 

[photoguy]

I always wonder why people suggest more and more things to tax, especially where it would be hard to prevent gaming/evasion instead of simply raising income tax. Income tax is simple to collect and it's difficult to under-report since for most people it comes straight off their paycheck. With a wealth tax I think there would be an incredible amount of manipulation when it comes to estimating the value of illiquid assets.

 

[Koolau]

At the risk of being called the "party pooper" or worse, I wonder why we don't consider how to cut some spending BEFORE we figure out how to get more tax revenue. Just a thought, and of course, YMMV.

 

[marko]

Well, this is all a fun and interesting intellectual discussion but the implementation of such a plan assumes a capable, competent and bold legislative leadership.

Last time I looked, they can't even agree on what time of day it is.

 

[gerntz]

Whatever taxes mix you pick distorts financial behaviors. If you want capital accumulation & thus investment, tax income & purchases. If you want spending, tax wealth.

 

[pb4uski]

At the risk of being called the "party pooper" or worse, I wonder why we don't consider how to cut some spending BEFORE we figure out how to get more tax revenue. Just a thought, and of course, YMMV.

+ 10,000 Amen!

My biggest concern is that Congress will capitulate to the approach the liberals are suggesting of passing legislation NOW to defer the middle class tax increases that would occur on Jan 1 if no action is taken but the liberals will stall, hinder and delay the reductions in spending that they claim they agree are needed and at the end of the day we will be in a worse position than if we fall off the cliff.

(BTW - I would directly benefit from the abovementioned middle class tax reforms but strongly believe that spending is a bigger problem than the level of taxes.)

Bottom line - I don't trust that the Congress will follow through with spending reforms so if I were in Congress I would insist that tax reform and spending reform be done together. If needed, do a six-month extension and kick the can down the road until comprehensive reform can be agreed.

 

[MichaelB]

Let's try to avoid the kind of language that seems to awaken Mr. Porky

 

[pb4uski]

Sigh......

I figured that was coming and tried to be careful with my wording but still make my point but alas, I failed. Busted.

 

[audreyh1]

This is an interesting idea as the elimination of income tax might spur spending. However, that might generate inflation and certainly wouldn't encourage thrift. But 1% on savings between $500k and $1M sounds ok.

That would so kill my retirement budget. 2% on savings above $1M means you only get to spend half of what you withdraw from your retirement nest egg assuming you withdraw 4% annually.

And I already paid a lot of capital gains taxes as I was building that nest egg.

Am I fooling myself to think this kind of "Wealth Tax" would never happen in the US?

 

[Loving Life]

Wow, as a ER (57) and very FI, I have seen this coming for years - most of the socialized countries of the world have done this in one way or another - here is my thoughts (worth about 2 cents) of the future taxing process

1. The taxes we pay right now will remain as they are (Give or take a few percentage points)

2. Within the next few years (or earlier) the wise goverment will hit us with a National VAT or sales tax that we will be told that this is a temp tax (to reduce defict, but we know that taxes never go away)

3. A national wealth tax will be institued that will hit all non - retirment funds

As a FI with a mid 7 figures in assets - what I have done is this: a) removed all non sheltered assets to the Isle of Man (Non-Tax British Protectorate) - I don't like the more famous alternatives, (I do pay US tax on all distributions - but the assets are held in a LLC were I control the distributions. (no tax until funds are distibuted to me) -- Since assets are in a non - US LLC, they will have no regulatory authority over them. Neither does the British Govt or EU - Also a smaller LLC in Dubai which is a 10% owner in the Man LLC.

To pay for all the give a ways / Large US Govt - a large amount of funds will need to be raised and I for one, will not participate in there actions.

 

[Lazarus]

That would so kill my retirement budget. 2% on savings above $1M means you only get to spend half of what you withdraw from your retirement nest egg assuming you withdraw 4% annually.

And I already paid a lot of capital gains taxes as I was building that nest egg.

Am I fooling myself to think this kind of "Wealth Tax" would never happen in the US?

Yet many people gladly give a money manager 1%.

 

[beowulf]

The main problem I see with this proposal is the creation of underground assets - namely valuable gems, minerals, etc. These can be easily bought off the books, would appreciate in value the more demand there is for them and would drain money from traditional savings and investments (and thus the ability of companies to expand). It's naive to believe that people with very deep pockets would just sit there and allow their non revenue producing assets to be taxed away. This is definitely a pie in the sky proposal by an academic who has no exposure to real people and the real world. OTOH, if the income tax is eliminated totally, the vast majority of Americans would come out ahead. Which is why it's an impossible scenario dollar-wise.