Proposal for tax revolution: 3% income tax, 4% wealth tax(rayhano.com)
rayhano.com
Proposal for tax revolution: 3% income tax, 4% wealth tax
http://rayhano.com/post/30672762834/solving-the-uks-tax-problem
46 comments
> We already have a wealth tax. It's called "inflation." If the government wants to tax wealth, all they have to do is print money. The culture of living within your means and saving for the future basically died before I was born, so the point that this kind of policy punishes responsible citizens who are capable of living frugally, within their means, and saving the future is essentially moot.<
Not true, in the slightest. Inflation benefits those with income producing assets, like rental property. Inflation is a trick to make the rich richer. All the evidence points that way.
And let people be vague with wealth valuations. This is about being more fair, not being burdensome. Those with obvious wealth will finally pay a fair share of tax. Those who work hard will finally have some reward for their work.
The comment about cashing out your bank account every day is absurd. You pay 40%+ in income taxes right now. Would you not like to keep 97% of what you earn instead of less than 60%?
Not true, in the slightest. Inflation benefits those with income producing assets, like rental property. Inflation is a trick to make the rich richer. All the evidence points that way.
And let people be vague with wealth valuations. This is about being more fair, not being burdensome. Those with obvious wealth will finally pay a fair share of tax. Those who work hard will finally have some reward for their work.
The comment about cashing out your bank account every day is absurd. You pay 40%+ in income taxes right now. Would you not like to keep 97% of what you earn instead of less than 60%?
> Not true, in the slightest
Your opinion differs from the field of economics where they actually study this sort of thing. http://en.wikipedia.org/wiki/Inflation#General
> Inflation benefits those with income producing assets, like rental property
Huh? The value of an asset is determined by what it produces in the future, both actual income and utility. Inflation adds risks to that - for example for the income to remain constant, the rental prices charged have to go up by the rate of inflation each year which people hate. Inflation introduces volatility in the face value of money which makes things riskier (eg loans to buy/build the rental property have to take that into account).
> Inflation is a trick to make the rich richer. All the evidence points that way.
Inflation devalues savings which is what the rich have and the poor don't have. If you could produce any of this evidence (let alone "all the evidence") you'd completely revolutionize economics. (Or you could be wrong.)
> You pay 40%+ in income taxes right now
No. You pay it once at the point you earn it. With your scheme you keep paying the taxes over time. The longer you save it the more goes away in taxes.
Your opinion differs from the field of economics where they actually study this sort of thing. http://en.wikipedia.org/wiki/Inflation#General
> Inflation benefits those with income producing assets, like rental property
Huh? The value of an asset is determined by what it produces in the future, both actual income and utility. Inflation adds risks to that - for example for the income to remain constant, the rental prices charged have to go up by the rate of inflation each year which people hate. Inflation introduces volatility in the face value of money which makes things riskier (eg loans to buy/build the rental property have to take that into account).
> Inflation is a trick to make the rich richer. All the evidence points that way.
Inflation devalues savings which is what the rich have and the poor don't have. If you could produce any of this evidence (let alone "all the evidence") you'd completely revolutionize economics. (Or you could be wrong.)
> You pay 40%+ in income taxes right now
No. You pay it once at the point you earn it. With your scheme you keep paying the taxes over time. The longer you save it the more goes away in taxes.
And if you spend money on 'living well', that is a massive increase in GDP through money being recycled in the system... which is what fuels the economy. i.e. it's a good thing
Why don't I go around breaking all the windows in my town every night? All the extra money spent and being recycled through the system would fuel the economy - it must be a good thing?
This is known as http://en.wikipedia.org/wiki/Broken_window_fallacy
This is known as http://en.wikipedia.org/wiki/Broken_window_fallacy
There is absolutely no accounting for how people will react. The obvious example is that people will move their wealth elsewhere. It also isn't fair to the poorest, unless there is a separate mechanism enabling a minimum quality of life.
And it completely ignores how you would define things. For example if I have a bridge on my property, does that qualify as wealth? How exactly would I pay 4% of the bridge in taxes? If I invest in a new factory, am I going to have to pay 4% of that investment every year before the factory is even profitable? When I liquidate things to pay for taxes, is that going to count as income?
Since interest rates are less than 4% this completely discourages any form of saving unless the returns are at least 4% plus the rate of inflation. Although it isn't immediately apparent, savings are something that enables economic growth as the money is lent out again.
TLDR:
* People adapt around scheme you have so your numbers won't work in the real world the way your spreadsheet says they do
* It gets really hard to work out what actually constitutes wealth and income once people have to pay tax based on it - part of the reason for the complexity of the tax codes worldwide
* It will greatly discourage savings and investments
* People will avoid illiquid wealth since you'll have to keep coming up with 4% of its value each year
* You'll need an army of people to work out out how valuable things are.
Reducing tax rates is generally an admirable goal, as is simplifying tax codes. But if you start from almost nothing like this proposal you'll soon find yourself having to add lots of complexity back in, because it is complex.
And it completely ignores how you would define things. For example if I have a bridge on my property, does that qualify as wealth? How exactly would I pay 4% of the bridge in taxes? If I invest in a new factory, am I going to have to pay 4% of that investment every year before the factory is even profitable? When I liquidate things to pay for taxes, is that going to count as income?
Since interest rates are less than 4% this completely discourages any form of saving unless the returns are at least 4% plus the rate of inflation. Although it isn't immediately apparent, savings are something that enables economic growth as the money is lent out again.
TLDR:
* People adapt around scheme you have so your numbers won't work in the real world the way your spreadsheet says they do
* It gets really hard to work out what actually constitutes wealth and income once people have to pay tax based on it - part of the reason for the complexity of the tax codes worldwide
* It will greatly discourage savings and investments
* People will avoid illiquid wealth since you'll have to keep coming up with 4% of its value each year
* You'll need an army of people to work out out how valuable things are.
Reducing tax rates is generally an admirable goal, as is simplifying tax codes. But if you start from almost nothing like this proposal you'll soon find yourself having to add lots of complexity back in, because it is complex.
You are right about not being able to account for behaviour. I would love to sit down and model the macroeconomic possibilities, as well as the potential behavioural implications.
In response to some of your points, if you have little considerable wealth, the 3% income tax is an incredible incentive to earn.
But let's assume you have considerable wealth and will have a larger tax liability than you currently have (which is an incredibly small proportion of people - I have to work it out, but estimating that it is 3% of the population).
So you are part of the (estimated) 3% that will pay more tax. If you put those assets to work, then they earn an income to pay tax (which is what those who work have no choice in).
If you are sitting on your assets, then this encourages you to participate in the economy.
For those who are poorest, we have this problem in the UK where you have to earn £20,000 per annum to have the same lifestyle as being on social benefits. Why? Because of high income taxes. Those who are poorest will benefit from a massive increase in take-home-pay. That is the key aim of this proposal: encourage/reward people to work.
And yes, the spreadsheet is simplistic and implementing this would be much more complex. For example, economic assets like factories would have to be ringfenced as disposal of those would be detrimental to the economy.
Clarifications: wealth would be net (i.e. less debt)
When you say saving, do you mean sticking cash under the mattress or in a bank? Inflation is higher than interest rates right now; why is no one telling the US/UK governments to stop printing cash?
Investment in business yields a much better return than the stock market (which by the way is not investment - the investment happened when the shares were originally issued; if you buy shares on the stock market, you aren't an investor).
In response to some of your points, if you have little considerable wealth, the 3% income tax is an incredible incentive to earn.
But let's assume you have considerable wealth and will have a larger tax liability than you currently have (which is an incredibly small proportion of people - I have to work it out, but estimating that it is 3% of the population).
So you are part of the (estimated) 3% that will pay more tax. If you put those assets to work, then they earn an income to pay tax (which is what those who work have no choice in).
If you are sitting on your assets, then this encourages you to participate in the economy.
For those who are poorest, we have this problem in the UK where you have to earn £20,000 per annum to have the same lifestyle as being on social benefits. Why? Because of high income taxes. Those who are poorest will benefit from a massive increase in take-home-pay. That is the key aim of this proposal: encourage/reward people to work.
And yes, the spreadsheet is simplistic and implementing this would be much more complex. For example, economic assets like factories would have to be ringfenced as disposal of those would be detrimental to the economy.
Clarifications: wealth would be net (i.e. less debt)
When you say saving, do you mean sticking cash under the mattress or in a bank? Inflation is higher than interest rates right now; why is no one telling the US/UK governments to stop printing cash?
Investment in business yields a much better return than the stock market (which by the way is not investment - the investment happened when the shares were originally issued; if you buy shares on the stock market, you aren't an investor).
> If you are sitting on your assets, then this encourages you to participate in the economy.
No, it encourages me to pay people to work out how to reduce my tax liability through every legal scheme possible taking advantage of every definition and ruling, and considering every alternative. Those alternatives include sending the money elsewhere, schemes where I pay myself with my own money, getting assets valued at less (after all they depreciate by 4% extra per year), moving to another EU country that doesn't tax wealth (instant 4% gain doing that), schemes that are (borderline) illegal weighing the probability of being caught etc.
> For example, economic assets like factories would have to be ringfenced as disposal of those would be detrimental to the economy.
And so begins the complexity of your tax code. And a loophole for people with wealth to exploit. And now you have to increase your tax rates to take into account the wealth that isn't being taxed.
> Clarifications: wealth would be net (i.e. less debt)
Cool another loophole. Have a look at Larry Ellison sometime. What many people don't know is that he doesn't sell his shares in Oracle. Instead he borrows money against the value of his shares and is at over a billion dollars in debt.
> When you say saving, do you mean sticking cash under the mattress or in a bank?
Saving as in economics. http://en.wikipedia.org/wiki/Saving
> Inflation is higher than interest rates right now; why is no one telling the US/UK governments to stop printing cash?
Huh? When interest rates are low it encourages investment because the cost of money is low. It also encourages finding places with higher returns (remember housing bubbles?)
Money printed by governments that is at a higher rate than economic growth results in inflation, and less results in deflation. Neither is particularly desirable, although most aim for a little bit of inflation due to human nature. The US and UK central banks are independent and generally target an inflation rate which is why nobody has told them anything http://en.wikipedia.org/wiki/Inflation#Monetary_policy
> Investment in business yields a much better return than the stock market
It doesn't work that way. In general returns are correlated with risks. There are greater returns where there are greater risks. It would be rather foolish to take lower returns for greater risks or to offer greater returns for lower risks. Under your plan investments lose 4% per year all else being equal which reduces the potential returns. (Unless your tax code has yet more complexity.)
> stock market (which by the way is not investment - the investment happened when the shares were originally issued; if you buy shares on the stock market, you aren't an investor).
You aren't even trying now. It is true that the share issuer only gets money when the shares were first invested, but that does not mean that everyone buying shares after that point are not investors. At the simplest case a company produces dividends, so purchasing a share gives you access to those dividends. Your expectations are that the value of those dividends are greater than the NPV of the money you use to buy the shares. It is of course more complex than that - shares also reflect the assets of the company, dividends can be "paid" by increasing the share price instead of payouts, profits reinvested defer dividends and asset increases to the future etc. Going back to the original share purchasers, part of their investment reasoning is that they can sell in the future when their opinion of the risks/rewards do not match their desires. And finally the current price of shares set expectations of what value the company would get if it sold newly created shares. Note that most larger companies are constantly creating new shares such as through employee and manager incentive plans.
No, it encourages me to pay people to work out how to reduce my tax liability through every legal scheme possible taking advantage of every definition and ruling, and considering every alternative. Those alternatives include sending the money elsewhere, schemes where I pay myself with my own money, getting assets valued at less (after all they depreciate by 4% extra per year), moving to another EU country that doesn't tax wealth (instant 4% gain doing that), schemes that are (borderline) illegal weighing the probability of being caught etc.
> For example, economic assets like factories would have to be ringfenced as disposal of those would be detrimental to the economy.
And so begins the complexity of your tax code. And a loophole for people with wealth to exploit. And now you have to increase your tax rates to take into account the wealth that isn't being taxed.
> Clarifications: wealth would be net (i.e. less debt)
Cool another loophole. Have a look at Larry Ellison sometime. What many people don't know is that he doesn't sell his shares in Oracle. Instead he borrows money against the value of his shares and is at over a billion dollars in debt.
> When you say saving, do you mean sticking cash under the mattress or in a bank?
Saving as in economics. http://en.wikipedia.org/wiki/Saving
> Inflation is higher than interest rates right now; why is no one telling the US/UK governments to stop printing cash?
Huh? When interest rates are low it encourages investment because the cost of money is low. It also encourages finding places with higher returns (remember housing bubbles?)
Money printed by governments that is at a higher rate than economic growth results in inflation, and less results in deflation. Neither is particularly desirable, although most aim for a little bit of inflation due to human nature. The US and UK central banks are independent and generally target an inflation rate which is why nobody has told them anything http://en.wikipedia.org/wiki/Inflation#Monetary_policy
> Investment in business yields a much better return than the stock market
It doesn't work that way. In general returns are correlated with risks. There are greater returns where there are greater risks. It would be rather foolish to take lower returns for greater risks or to offer greater returns for lower risks. Under your plan investments lose 4% per year all else being equal which reduces the potential returns. (Unless your tax code has yet more complexity.)
> stock market (which by the way is not investment - the investment happened when the shares were originally issued; if you buy shares on the stock market, you aren't an investor).
You aren't even trying now. It is true that the share issuer only gets money when the shares were first invested, but that does not mean that everyone buying shares after that point are not investors. At the simplest case a company produces dividends, so purchasing a share gives you access to those dividends. Your expectations are that the value of those dividends are greater than the NPV of the money you use to buy the shares. It is of course more complex than that - shares also reflect the assets of the company, dividends can be "paid" by increasing the share price instead of payouts, profits reinvested defer dividends and asset increases to the future etc. Going back to the original share purchasers, part of their investment reasoning is that they can sell in the future when their opinion of the risks/rewards do not match their desires. And finally the current price of shares set expectations of what value the company would get if it sold newly created shares. Note that most larger companies are constantly creating new shares such as through employee and manager incentive plans.
> If you are sitting on your assets, then this encourages you to participate in the economy.
Ah yes. Old people living off their savings in a house that they own need to get out and participate in the economy.
Speaking of that house, suppose its value goes up $100k one year, goes down $100k the next, and then goes up $50k the third. How much tax have they paid cumulative at the end of that third year?
Also, companies don't pay taxes. They collect them.
As to inequality, it isn't the evil that you assume. Rich people buy things from poor people. They employ poor people, and so on. Pretty much everything started out as a luxury that only rich people could afford.
I note that you didn't consider the possibility that the tax revenues that you're trying to maintain are too high. > if you buy shares on the stock market, you aren't an investor).
So what? Folks who buy in the market are what makes investing profitable. They're the means by which investors get their profits. And, if investors can't get profits, they don't invest.
But I quibble. It doesn't matter that you don't understand people's behavior, incentives, and so on.
You had three numbers and a goal and came up with a table, so, so surely it's a worthy idea. You, or rather, "the engineers", will just have to work out a few details.
Ah yes. Old people living off their savings in a house that they own need to get out and participate in the economy.
Speaking of that house, suppose its value goes up $100k one year, goes down $100k the next, and then goes up $50k the third. How much tax have they paid cumulative at the end of that third year?
Also, companies don't pay taxes. They collect them.
As to inequality, it isn't the evil that you assume. Rich people buy things from poor people. They employ poor people, and so on. Pretty much everything started out as a luxury that only rich people could afford.
I note that you didn't consider the possibility that the tax revenues that you're trying to maintain are too high. > if you buy shares on the stock market, you aren't an investor).
So what? Folks who buy in the market are what makes investing profitable. They're the means by which investors get their profits. And, if investors can't get profits, they don't invest.
But I quibble. It doesn't matter that you don't understand people's behavior, incentives, and so on.
You had three numbers and a goal and came up with a table, so, so surely it's a worthy idea. You, or rather, "the engineers", will just have to work out a few details.
And thank you for the considered response.
Why would I bother investing money at all then? You can expect an annual return of around 7% on the stock market, subtract 4% wealth tax and 2% inflation and you're left with nothing in real terms.
Everyone (even the super-wealthy) would spend all of their income as soon as they earn it. Sounds great ("imagine all the production it would stimulate!") until you realize that no one is making capital investments. Factories rot, infrastructure decays, and innovation stops.
Everyone (even the super-wealthy) would spend all of their income as soon as they earn it. Sounds great ("imagine all the production it would stimulate!") until you realize that no one is making capital investments. Factories rot, infrastructure decays, and innovation stops.
If you have wealth right now, you have two options:
Sit on it
Invest it
Currently, if you invest it you are penalised by income and capital gains taxes in excess of 20%. Under my proposal, you are taxed at 3% for investing.
Sit on it
Invest it
Currently, if you invest it you are penalised by income and capital gains taxes in excess of 20%. Under my proposal, you are taxed at 3% for investing.
With current schemes you are only "penalized" for capital gains when you actually have them. If you buy an item for $100, and sell it ten years later for $110 then you pay taxes on the difference. With your scheme you would have spent $40 in taxes in the mean time.
Additionally with current schemes you can balance losses against gains (rules vary by country) and you aren't penalized for investing: eg money put into a factory doesn't incur taxes until it starts producing returns.
Additionally with current schemes you can balance losses against gains (rules vary by country) and you aren't penalized for investing: eg money put into a factory doesn't incur taxes until it starts producing returns.
Interesting.
Would you also not have suffered massive real loss from inflation over ten years eroding your return?
Would you also not have suffered massive real loss from inflation over ten years eroding your return?
Depends on the item. For example a car or a house also provides utility which is value extracted and not a loss. Most items should appreciate in line with inflation, all else being equal - after all inflation doesn't change real values, just the digits used to express that value.
And in this example if I sold it for $100 then no tax would be due at all under current schemes. In your case I still have paid $40 in taxes in addition to the losses from inflation.
And in this example if I sold it for $100 then no tax would be due at all under current schemes. In your case I still have paid $40 in taxes in addition to the losses from inflation.
Most of that wealth (ownership of non-corporate businesses and real property, to start) is completely illiquid. You can't sell 4% of your house.
But you can earn... surely you would earn and pay taxes, as you do now? The idea is to discourage those few who horde assets and do not participate in the economy.
There is a chance that some vulnerable people may be disadvantaged (like when losing a job).
There is a chance that some vulnerable people may be disadvantaged (like when losing a job).
Lets take a regular person in a 150k GBP house. They need to pay 6000 GBP every year in tax on that "wealth". They lose their job. Where does the money come from to pay wealth taxes? While unemployed they are "hoarding" their house (and car, and TV set, and laptop etc) and not participating in the economy.
What is this other than deferred taxation? If one earns 100k in year one, it is taxed as income at 3%. I put the net 97k in the bank and from next year onwards it will again be taxed as wealth at 4%, in perpetuity.
You're kidding me, right?
Currently, you would be taxed 40% of that 100k. So immediately you would only have 60k. Whatever you do with that: spend it, invest it, you only start with 60k, even though your earned 100k.
And most likely, you will diversify... spend some, invest some, save some.
Currently, you would be taxed 40% of that 100k. So immediately you would only have 60k. Whatever you do with that: spend it, invest it, you only start with 60k, even though your earned 100k.
And most likely, you will diversify... spend some, invest some, save some.
Firstly, not everyone pays PAYE. Having an accountant and structuring your finances in a tax efficient manner is not the preserve of the super rich.
What you describe is a perpetual tax. Cash exchanged for goods of value or other financial instruments still have intrinsic value. Anything classed as an asset would be taxed in perpetuity. I'm sorry, right now I think your proposal is absolutely absurd.
If you earn and invest in the same tax year would you be taxed twice? How does your model handle depreciation? What about property? Can debt finance, e.g. a mortgage, be offset from your taxable assets?
There are so many unanswered questions (and these are what popped into mind with 5 seconds thought) I have to ask, is it you who is kidding?
What you describe is a perpetual tax. Cash exchanged for goods of value or other financial instruments still have intrinsic value. Anything classed as an asset would be taxed in perpetuity. I'm sorry, right now I think your proposal is absolutely absurd.
If you earn and invest in the same tax year would you be taxed twice? How does your model handle depreciation? What about property? Can debt finance, e.g. a mortgage, be offset from your taxable assets?
There are so many unanswered questions (and these are what popped into mind with 5 seconds thought) I have to ask, is it you who is kidding?
It would be a deferred taxation but over 13-years instead of 1-year for the same amount of money earned, if and only if you haven't spent it all.
Everyone would just move their money out of the UK.
I'm sorry, but I'm going to be harsh with you: that's an incredibly ignorant comment.
Everyone would not move their money out of the UK, because:
- £3trillion is in UK property - that is going nowhere - a small proportion have wealth - those few who try to relocate will be replaced by many more economic migrants because this taxation is cheaper for those who work and expensive for those who don't
So no, everyone would not just move their money out of the UK.
Everyone would not move their money out of the UK, because:
- £3trillion is in UK property - that is going nowhere - a small proportion have wealth - those few who try to relocate will be replaced by many more economic migrants because this taxation is cheaper for those who work and expensive for those who don't
So no, everyone would not just move their money out of the UK.
The value of those illiquid things will go down and you'll get less tax for them all. Which tax will you increase when there is a revenue shortfall?
If a rich person owns properties worth 100 million GBP, or even a regular person owns a 100k GBP house at the start of this tax scheme, the value will go down because tax is essentially writing off 4% a year. Economics already covers topics like this - see discount rate and net present value. Heck there is even a Black-Scholes formula for how to value things in these kind of scenarios. And people with liquid assets can move them out of the country.
You talk of economic migrants, but remember that they need to actually have the money in the first place to buy things. And since others would be reluctant to make investments (eg factories) or savings (which provide loans) it would reduce the overall amount of work available.
If a rich person owns properties worth 100 million GBP, or even a regular person owns a 100k GBP house at the start of this tax scheme, the value will go down because tax is essentially writing off 4% a year. Economics already covers topics like this - see discount rate and net present value. Heck there is even a Black-Scholes formula for how to value things in these kind of scenarios. And people with liquid assets can move them out of the country.
You talk of economic migrants, but remember that they need to actually have the money in the first place to buy things. And since others would be reluctant to make investments (eg factories) or savings (which provide loans) it would reduce the overall amount of work available.
So currently £340bn of tax is taken from people. At the moment it is all in the form of income taxes.
With my proposal, we allow people to keep vastly more income (and therefore spend more).
The intention is:
Low-middle class pay much less tax
Upper middle class pay about the same
HNWI pay more (which is universally accepted as more fair, but never instigated with effective policy)
With my proposal, we allow people to keep vastly more income (and therefore spend more).
The intention is:
Low-middle class pay much less tax
Upper middle class pay about the same
HNWI pay more (which is universally accepted as more fair, but never instigated with effective policy)
We already have progressive tax rates which try to capture this.
The problem that is being struggled with is that HNWI don't have frequent taxable events, generally because they hold assets and make savings. However there is a perception they aren't providing value (which is mostly wrong).
Generally any scheme you come up with to get at them will also affect everyone else, and to a far greater degree since they have less money and diversity to start with. And the HNWI have far greater incentive to move their money and themselves, as well as pay people to work out how to retain their money. You can move to almost any country in the world by plonking down a lump sum as an "investment" or as savings. (eg see how Dotcom ended up living in New Zealand.)
The usual solution to this is to try tweaking the tax code, seeing what the effects are and repeating. However scumbag politicians and the people who vote for them distort that process, so it doesn't have the intended effect.
An actually representative democracy would be a good first step rather than tax rate changes. Watch this talk about the US - the UK pretty much follows behind a few years later https://www.youtube.com/watch?v=Ik1AK56FtVc
The problem that is being struggled with is that HNWI don't have frequent taxable events, generally because they hold assets and make savings. However there is a perception they aren't providing value (which is mostly wrong).
Generally any scheme you come up with to get at them will also affect everyone else, and to a far greater degree since they have less money and diversity to start with. And the HNWI have far greater incentive to move their money and themselves, as well as pay people to work out how to retain their money. You can move to almost any country in the world by plonking down a lump sum as an "investment" or as savings. (eg see how Dotcom ended up living in New Zealand.)
The usual solution to this is to try tweaking the tax code, seeing what the effects are and repeating. However scumbag politicians and the people who vote for them distort that process, so it doesn't have the intended effect.
An actually representative democracy would be a good first step rather than tax rate changes. Watch this talk about the US - the UK pretty much follows behind a few years later https://www.youtube.com/watch?v=Ik1AK56FtVc
A wealth tax? A good at 5000 with VAT is 6000 to buy that at 40% tax you need to earn 8400. With this system (assuming VAT remains, which in will because of EU law) you need to earn 6180 to buy the product a 2220 difference...but a 240 bill shows up every year for you owning said product (assume jewelry for 0 depreciation) so after 10 years you are better off on the old system.
Honestly this will simply encourage people to find loop holes in the system to avoid property ownership. And it's really what the right in the US mean when they say class warfare, it's just another clever way to shift the tax burden on the wealthy more. If that is what is wanted just shift up the 0 tax income limit and raise the top tax, no need to fuck around trying to seem like the goal is anything different.
Honestly this will simply encourage people to find loop holes in the system to avoid property ownership. And it's really what the right in the US mean when they say class warfare, it's just another clever way to shift the tax burden on the wealthy more. If that is what is wanted just shift up the 0 tax income limit and raise the top tax, no need to fuck around trying to seem like the goal is anything different.
Yes, you're right that this is shift of tax burden on the wealthy.
But wrong on the avoidance... how would you avoid property ownership?
But wrong on the avoidance... how would you avoid property ownership?
I live in Denmark, and can say there are many ways people do it here. Most common (from what I have seen as an American here) is to own a small business and use it to shift around ownership of things such as apt's and cars as tax on business is very different than personal...Google Danish car tax for more info on why.
Sell up and buy stuff abroad.
Or, since you mentioned above that the tax is on net property ownership, get a loan in the UK to the amount you own there, and buy stuff abroad with it.
Or, since you mentioned above that the tax is on net property ownership, get a loan in the UK to the amount you own there, and buy stuff abroad with it.
Capital flight is a really big risk with this idea. I don't see the ignorance in that comment but then I am not an economist.
Land wouldn't be moved but what about the other taxable wealth items such as insurance, corporate stock and bank deposits.
Land wouldn't be moved but what about the other taxable wealth items such as insurance, corporate stock and bank deposits.
There is no doubt that some individuals with massive wealth will consider leaving.
However, looking at the history of tax rises and the competitive landscape, people don't move.
Broken down:
UK top rate tax was raised from 40% to 50% two years ago. They said people would leave. No-one did. Actually, more wealthy from BRIC nations came to the UK
The US is the only competitive English speaking country for people from the UK to move to. And I'm sorry to say that US taxation is horrendous and massively uncompetitive.
So while capital flight is a risk, it is improbable.
However, looking at the history of tax rises and the competitive landscape, people don't move.
Broken down:
UK top rate tax was raised from 40% to 50% two years ago. They said people would leave. No-one did. Actually, more wealthy from BRIC nations came to the UK
The US is the only competitive English speaking country for people from the UK to move to. And I'm sorry to say that US taxation is horrendous and massively uncompetitive.
So while capital flight is a risk, it is improbable.
There is a stark contrast between income and wealth tax.
Income can already be circumvented by leaving money in corporations or paying out to subsidiary companies. There are so many ways people can declare lower income that the 10% becomes insignificant in the big picture.
Capital flight/wealth tax is a different ballgame, I think.
Income can already be circumvented by leaving money in corporations or paying out to subsidiary companies. There are so many ways people can declare lower income that the 10% becomes insignificant in the big picture.
Capital flight/wealth tax is a different ballgame, I think.
Currently Amazon and Google earn a lot of money in the UK. Yet they pay almost no tax, because only profits are taxed.
Under this system, both corporates will pay 3% on all UK based revenue, so that they pay the same proportion as everyone else.
More tax from the wealthy, and a reasonable proportion from those who are currently on the poverty line (which is many million people).
Under this system, both corporates will pay 3% on all UK based revenue, so that they pay the same proportion as everyone else.
More tax from the wealthy, and a reasonable proportion from those who are currently on the poverty line (which is many million people).
I don't follow. If Google was making $100m revenue with $99m expenses currently they would be paying the tax on $1m profit. Under your system if they are making $100m revenue they would pay $3m in taxes which would result in a net-loss of $2m?
Also, would the wealth tax be placed on the stockpile of cash/assets of businesses? I.e. their properties, bank deposits, and so on.
Also, would the wealth tax be placed on the stockpile of cash/assets of businesses? I.e. their properties, bank deposits, and so on.
Yes, that is exactly right.
But bear in mind Google's margin is 24%+
But bear in mind Google's margin is 24%+
*Grocery stores usually have 3-5% margins. I was using Google as a hypothetical if their margins were low.
So basically businesses would charge a sales tax (3%) increasing prices for the consumer.
Then the consumer would also pay 3% income tax. The consumers would pay 4% wealth tax. The business pays 3% revenue tax, taken from the consumer. The business wouldn't pay 4% wealth tax. Essentially the business would pay 0% tax, and the consumer would be on the hook for it all.
So a person who earns $50,000 and saves $20,000 per year would pay the following: Year 1, $1,500 on $50,000 Year 2, $1,500 on $50,000 $20,000 from previous year saved - 4% tax $800 a year $2,400 in total taxes. Year 3, $1500 on $50,000 4% on $40,000 = $1,600 $3,100 total tax
By year 20, the consumer who would have accumulated $400,000 would end up paying a total of 170k in taxes on savings, resulting in almost a 42% tax rate on their wealth.
So basically businesses would charge a sales tax (3%) increasing prices for the consumer.
Then the consumer would also pay 3% income tax. The consumers would pay 4% wealth tax. The business pays 3% revenue tax, taken from the consumer. The business wouldn't pay 4% wealth tax. Essentially the business would pay 0% tax, and the consumer would be on the hook for it all.
So a person who earns $50,000 and saves $20,000 per year would pay the following: Year 1, $1,500 on $50,000 Year 2, $1,500 on $50,000 $20,000 from previous year saved - 4% tax $800 a year $2,400 in total taxes. Year 3, $1500 on $50,000 4% on $40,000 = $1,600 $3,100 total tax
By year 20, the consumer who would have accumulated $400,000 would end up paying a total of 170k in taxes on savings, resulting in almost a 42% tax rate on their wealth.
Which is why tax flight would be a big risk.It compounds over time. You pay taxes on the same money year after year. Nevermind what happens if you save even more. Why stay in an economy that is dying from taxation when you could move to an area with a vibrant economy and avoid the tax.
The US and UK are slowly becoming dinosaurs. The amount of taxes they need to keep functioning as handout societies will be the end of them.
The US and UK are slowly becoming dinosaurs. The amount of taxes they need to keep functioning as handout societies will be the end of them.
Sorry, but my comment is spot on. If you don't know how the wealthy manipulate the tax system and believe you can somehow "trap" their wealth in a country, you just haven't been paying attention.
Would really appreciate thoughts AND please do post results here from the new tax calculator at the bottom of the post.
I can imagine several issues, but is hackernews the right forum to discuss tax reform? You can either go the respectable economic modelling route and be prepared to do a lot of work to justify it or perhaps try a tea-party forum where simplistic tax gets kicked around all the time.
Tax is complex because the more complex it is, the harder it is for people to reason and try to work around it. A good tax system is like a secure computer, with defense practised in depth. You might breach one layer but another will catch you.
Another issue is wealth is something that is difficult to assess and can cause severe disruption. Say for example you are a FB employee and get a nice asset boost in an IPO. You get a big tax bill, but your shares haven't vested. Now you owe the tax office a whole lot of money that you are unable to raise. By the time your shares vest, they might be worth a fraction of the tax bill.
How about if you start a business. You earn enough to feed your family and suddenly, your "business" is an asset which could be sold, so you get taxed on wealth you are now purported to hold. Is the tax office going to require you to assess how much your business is worth? What if they disagreed with you? You have a family home and its worth has gone up in a property boom. Now you have to pay 4% of the market value, but when the boom is over, you have been out of pocket of those extra amount without enjoying any benefit of it.
Tax is complex because the more complex it is, the harder it is for people to reason and try to work around it. A good tax system is like a secure computer, with defense practised in depth. You might breach one layer but another will catch you.
Another issue is wealth is something that is difficult to assess and can cause severe disruption. Say for example you are a FB employee and get a nice asset boost in an IPO. You get a big tax bill, but your shares haven't vested. Now you owe the tax office a whole lot of money that you are unable to raise. By the time your shares vest, they might be worth a fraction of the tax bill.
How about if you start a business. You earn enough to feed your family and suddenly, your "business" is an asset which could be sold, so you get taxed on wealth you are now purported to hold. Is the tax office going to require you to assess how much your business is worth? What if they disagreed with you? You have a family home and its worth has gone up in a property boom. Now you have to pay 4% of the market value, but when the boom is over, you have been out of pocket of those extra amount without enjoying any benefit of it.
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TLDR: author lacks basic understanding of both macroeconomics and the reasoning underpinning the complexity of modern tax systems (here's a hint: tax codes always start off simple and get more complicated to minimize evasion and loopholes.)
The idea would not work anywhere unless adopted everywhere; a perpetual 4% tax on wealth in one nation would lead to the immediate or near immediate flight of capital to other nations.
On the flipside, a 3% tax on income is generally too low to be meaningful except in ridiculously small European countries. At 3%, you might as well just not bother with an income tax because the cost of calculating and collecting the tax (both on the government and on taxpayers) would in most countries exceed the revenue brought in.
The idea would not work anywhere unless adopted everywhere; a perpetual 4% tax on wealth in one nation would lead to the immediate or near immediate flight of capital to other nations.
On the flipside, a 3% tax on income is generally too low to be meaningful except in ridiculously small European countries. At 3%, you might as well just not bother with an income tax because the cost of calculating and collecting the tax (both on the government and on taxpayers) would in most countries exceed the revenue brought in.
We already have a wealth tax. It's called "inflation." If the government wants to tax wealth, all they have to do is print money. The culture of living within your means and saving for the future basically died before I was born, so the point that this kind of policy punishes responsible citizens who are capable of living frugally, within their means, and saving the future is essentially moot.
Sales and income taxes are easy to implement because they're based around money actually changing hands. Property taxes are easy to implement because the physical thing that's being taxed is clear. General wealth taxes rely on accounting and valuation of illiquid assets, which is easily subject to gamesmanship.
If this was implemented, you'd just cash out your bank account every day, then tell the tax authorities you "spent" the money (in reality you keep a suitcase full of large bills under your mattress, but they have no way of knowing that). As long as you don't make a ton of money, and could conceivably be spending it on living well (vacations, movies, good food, alcohol, flowers for the significant other, etc.), how are they going to prove otherwise?
If you have more money, it gets more difficult to use that particular trick, but you'll also have more political power to get loopholes written into the law, and pay accountants to figure out how to make the loopholes work for you. And it'll also become more worthwhile to go to the trouble of keeping money overseas out of the range of taxation, or set up exotic financial structures like life insurance policies, trusts or derivatives, which don't have a definite value until they become payable.
I'm not an accountant, so some of the details might not be one hundred percent right, but it feels like that's a fair first approximation to what would happen.