If Wealth Is Justified, So Is a Wealth Tax(project-syndicate.org)
project-syndicate.org
If Wealth Is Justified, So Is a Wealth Tax
https://www.project-syndicate.org/commentary/wealth-tax-rebutting-billionares-arguments-by-katharina-pistor-2019-12?
39 comments
And that’s why you tax their shares of the company as well ?
I'd like to understand this better. My understanding is that the Netherlands has had a wealth tax on assets which are not financial assets for some time. And income from financial assets is taxed at 25%.
https://en.wikipedia.org/wiki/Taxation_in_the_Netherlands#We...
https://en.wikipedia.org/wiki/Taxation_in_the_Netherlands#We...
For the 2022 tax proposal: You take your invested net worth at January 1st. That is everything besides your saving account and first home. So the value of your second home, artwork you bought as an investment, stocks, bonds, money loaned out, money in the HOA. A 5.33% gain on your investments is assumed which is taxed at 33%. So effectively 1.75% of your invested net worth has to be paid as a tax.
Debt such as a mortgage can be subtracted but not at the full 5.33%. So if you have a mortgage of €200,000 and a second home that is worth €200,000 then you owe about €1400 in tax each year, despite not having any net worth at all.
Debt such as a mortgage can be subtracted but not at the full 5.33%. So if you have a mortgage of €200,000 and a second home that is worth €200,000 then you owe about €1400 in tax each year, despite not having any net worth at all.
A progressive property tax might be a better option, simpler to implement and more targeted. And by suppressing the speculative return on real estate, it should have the additional effect of making housing more affordable in urban areas, benefitting the middle class in those areas while not penalizing those in rural areas and the suburbs.
It’s part of the tax proposal, mortgage debt will not be fully deductible against your net worth.
A wealth tax that doesn't exclude an amount typically invested by a middle-class worker is a non-starter.
There are already tax benefits for your primary residence (which, for many people is their largest share of wealth), so there should be at minimum tax exemptions on your 401k, IRA and maybe ~200-400k invested through other means.
There are already tax benefits for your primary residence (which, for many people is their largest share of wealth), so there should be at minimum tax exemptions on your 401k, IRA and maybe ~200-400k invested through other means.
A wealth tax exists already, it's called inflation.
We're talking about money collected by a government. That isn't inflation.
If government is borrowing money printed by central banks, which causes inflation, it really looks like a wealth transfer from people with savings to the government - i.e. a wealth tax.
The understanding of wealth that leads to conclusions like these is based on a misapprehension.
You don't "have," wealth, you are responsible for it, and in particular, for growing it by investment in productive assets. If you don't, it literally evaporates.
The wealth tax argument is like seeing a transport truck and saying, "look at all the metal, rubber, and fuel that person has, surely they would not be harmed if we made them contribute some of it to give to our supporters!" without thought to what it carries, the purpose it serves, or whether it's still useful after being hobbled.
There are some people who seem to think being rich is like Scrooge McDuck swimming in a pool full of coins and treasure.
If you want to know what wealth taxes look like in practice, we have wealth taxes today, cities impose them, and they are called property taxes, and they have a huge impact on the viability of businesses and the lives of seniors, families, and renters. They are complex dynamics.
If progressives want to recapture money from wealthy people they could capture it indirectly on a greater scale through reducing the impact of globalization by enforcing tariffs in national economic zones, favouring domestic industry, and facilitating regional growth instead of scavenging it. Modest luxury taxes that are not distorting or prohibitive, or designed to engineer culture captures the most via a progressive federal sales tax (VAT).
People who say this won't sufficiently deprive billionaires of their privilege would be tipping their hand, as if that's the true goal, why bother to use the legalisms of a wealth tax as a pretext at all?
You don't "have," wealth, you are responsible for it, and in particular, for growing it by investment in productive assets. If you don't, it literally evaporates.
The wealth tax argument is like seeing a transport truck and saying, "look at all the metal, rubber, and fuel that person has, surely they would not be harmed if we made them contribute some of it to give to our supporters!" without thought to what it carries, the purpose it serves, or whether it's still useful after being hobbled.
There are some people who seem to think being rich is like Scrooge McDuck swimming in a pool full of coins and treasure.
If you want to know what wealth taxes look like in practice, we have wealth taxes today, cities impose them, and they are called property taxes, and they have a huge impact on the viability of businesses and the lives of seniors, families, and renters. They are complex dynamics.
If progressives want to recapture money from wealthy people they could capture it indirectly on a greater scale through reducing the impact of globalization by enforcing tariffs in national economic zones, favouring domestic industry, and facilitating regional growth instead of scavenging it. Modest luxury taxes that are not distorting or prohibitive, or designed to engineer culture captures the most via a progressive federal sales tax (VAT).
People who say this won't sufficiently deprive billionaires of their privilege would be tipping their hand, as if that's the true goal, why bother to use the legalisms of a wealth tax as a pretext at all?
Plus a large proportion of the top <whatever>% of rich people are only in that category for the one year due to some kind of event like selling a house or business or cashing out a lifetime of investments.
"When a man tells you he got rich through hard work, ask him: Whose?"
Don Marquis
Very few people make wealth through individual effort (musicians, football players, Buffet?, etc). Most everyone makes by:
- The sweat of others (factory workers, etc)
- Skimming money from a business
It boggles my mind that investments in which you get money while you sleep/sit on your ass get taxed less than income for actually working.
Very few people make wealth through individual effort (musicians, football players, Buffet?, etc). Most everyone makes by:
- The sweat of others (factory workers, etc)
- Skimming money from a business
It boggles my mind that investments in which you get money while you sleep/sit on your ass get taxed less than income for actually working.
It boggles my mind too. I know the arguments for it. The "rewards of previous hard work" ignores inheritance (plus other kinds of favoritism and/or luck). The "risk premium" argument has some merit, but doesn't come close to justifying the "all of it" premium that we're actually close to. Other arguments ignore power or information asymmetries, various kinds of market failure, etc. None of them even come close to matching the obvious point that work should be rewarded more than non-work. The direct fruits of individual labor should be the last thing we tax.
> Buffet
Nothing against Buffet, seems to be a great guy, and he worked hard, but I wouldn't call his efforts "individual". He is the epitome of making money on investments.
> It boggles my mind that investments in which you get money while you sleep/sit on your ass get taxed less than income for actually working.
This is probably because it takes more discipline to initially accumulate the assets to invest than it takes to simply show up to work.
Nothing against Buffet, seems to be a great guy, and he worked hard, but I wouldn't call his efforts "individual". He is the epitome of making money on investments.
> It boggles my mind that investments in which you get money while you sleep/sit on your ass get taxed less than income for actually working.
This is probably because it takes more discipline to initially accumulate the assets to invest than it takes to simply show up to work.
You're right. (Hence the question mark.)
Unrelated to article content, but related to the question: Wealth is justified by the fact that it is okay to pursue what's best for you. Wealth tax (if worked as intended) would incentivize the opposite - don't save and invest. You can only pursue what is best for you only if its to the level your government decided its okay
Maybe I would be more on board if I felt the government could properly manage the additional funds this would generate. It's not like they have a great track record with what they already have.
DC has something like half of the 10 wealthiest counties in the whole country. Why is that?
DC has something like half of the 10 wealthiest counties in the whole country. Why is that?
>Maybe I would be more on board if I felt the government could properly manage the additional funds this would generate. It's not like they have a great track record with what they already have.
Whenever I hear someone saying we need to increase taxes, I always refute their point with something along these lines. A lot of people seem to be under the impression that simply throwing money at a problem may solve it.
A few weeks ago there was another story posted on HN that related to multinationals shifting profits to tax havens. Someone commented about how they don't mind paying their taxes as they got public services in return, and that if someone doesn't like paying taxes they should stop and forgo the use of said services. I responded saying that most people probably don't mind paying taxes however they are getting angry that they aren't getting the bang for their buck. The person's response was that we should give fund the IRS to collect MORE tax revenue.
I'm willing to bet that the government is receiving enough in taxes already. Unless we solve the root problems of gross misspending, unaccountability, etc. giving them more money won't solve anything and instead anger more people, and leave many others with mediocre public services and claim they can't function properly because they're 'underfunded'.
Whenever I hear someone saying we need to increase taxes, I always refute their point with something along these lines. A lot of people seem to be under the impression that simply throwing money at a problem may solve it.
A few weeks ago there was another story posted on HN that related to multinationals shifting profits to tax havens. Someone commented about how they don't mind paying their taxes as they got public services in return, and that if someone doesn't like paying taxes they should stop and forgo the use of said services. I responded saying that most people probably don't mind paying taxes however they are getting angry that they aren't getting the bang for their buck. The person's response was that we should give fund the IRS to collect MORE tax revenue.
I'm willing to bet that the government is receiving enough in taxes already. Unless we solve the root problems of gross misspending, unaccountability, etc. giving them more money won't solve anything and instead anger more people, and leave many others with mediocre public services and claim they can't function properly because they're 'underfunded'.
I couldn't agree with you more. People seem to forget that the power to tax someone comes from the barrel of a gun or the threat of prison. Maybe everyone should work for some part of the government for a short time in their life, so they can see how horribly inefficient they are.
It would be much more courageous to propose legislation that held their feet to the fire financially, than just finding more places to take money from.
It would be much more courageous to propose legislation that held their feet to the fire financially, than just finding more places to take money from.
The article's thesis seems to be that concentrated ultra-wealth is largely the "product of law" on the one hand, so lacking corresponding laws on the other end is unbalanced.
Up to a certain point, one can try to make a case that one's accumulated wealth is the product of their own work. This is a simplification, and usually wrong, but let's go with it. Let's say that your first ten million is because you work hard. Let's say your next ten million is because you were in the right place at the right time. Let's say your next ten million is do to good choices you made before you realized how important the choices would be. Now let's say your next ten million is due to... uh... more hard work. And the next ten million too!
At some point, one has to admit there's more going on here than hard work or a good idea. The article lays out that above a certain point--call it the fifty million I laid out above, or go twenty times that and call it a billion--a large part of your accumulated wealth is the direct result of laws and legal protections, and that set of laws is currently unbalanced.
Up to a certain point, one can try to make a case that one's accumulated wealth is the product of their own work. This is a simplification, and usually wrong, but let's go with it. Let's say that your first ten million is because you work hard. Let's say your next ten million is because you were in the right place at the right time. Let's say your next ten million is do to good choices you made before you realized how important the choices would be. Now let's say your next ten million is due to... uh... more hard work. And the next ten million too!
At some point, one has to admit there's more going on here than hard work or a good idea. The article lays out that above a certain point--call it the fifty million I laid out above, or go twenty times that and call it a billion--a large part of your accumulated wealth is the direct result of laws and legal protections, and that set of laws is currently unbalanced.
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I think people would be better served focusing on waste in government. If I were a billionaire why would I want my taxes just to go to the countless big consulting firms incentivized to work slowly to get the most billing hours?
Because the billionaire owns (at least a share) in said consulting firms, and isn't constrained by tax laws and borders in the same way that the underclasses are?
I think I see what you are saying - maybe I shouldnt have restricted it to billionaires. Everyone should aware of where and how effectively their tax dollars are being use.
Wouldn't a wealth tax result in only the ultra rich being able to afford to own large, illiquid assets like farm land, etc?
The law protects that property, but isn't that the justification for the progressive tax scheme that we already have? If someone has ownership in a business that is earning them millions in income, then they are paying a much higher effective tax rate.
By that argument (the argument of the headline, at least), then if voting is justified, so is a poll tax.
Are those millions taxed once or every year. How many times can you tax the same dollar bank note.
> How many times can you tax the same dollar bank note.
As fast as it can be used for transactions that are subject to tax - sales, payroll, inheritance, etc. In a world where High Frequency Trading exists, that number's almost infinite. The whole "double taxation" argument has always been stupid because every dollar already gets taxed many times throughout it's lifetime. I'd love to hear an argument for why taxing money at rest is worse than taxing it in motion, considering the principle of "tax bads not goods" and the fact that hoarded money is worse for the economy. Want to try and make one?
As fast as it can be used for transactions that are subject to tax - sales, payroll, inheritance, etc. In a world where High Frequency Trading exists, that number's almost infinite. The whole "double taxation" argument has always been stupid because every dollar already gets taxed many times throughout it's lifetime. I'd love to hear an argument for why taxing money at rest is worse than taxing it in motion, considering the principle of "tax bads not goods" and the fact that hoarded money is worse for the economy. Want to try and make one?
> I'd love to hear an argument for why taxing money at rest is worse than taxing it in motion
One argument is that money in motion has a reasonably high level of liquidity, more or less by definition, and, in many cases, a reasonably high level of divisibility.
If the wealth that you're taxing has similar attributes then fine. But a significant amount of wealth doesn't have those attributes. Wealth taxes that affect illiquid and/or indivisible assets can have an effect well beyond what they intend.
You see this in inheritance taxes. The tax may be reasonable but may also lead to the forced selling of family homes if sufficient disposable assets aren't available.
One argument is that money in motion has a reasonably high level of liquidity, more or less by definition, and, in many cases, a reasonably high level of divisibility.
If the wealth that you're taxing has similar attributes then fine. But a significant amount of wealth doesn't have those attributes. Wealth taxes that affect illiquid and/or indivisible assets can have an effect well beyond what they intend.
You see this in inheritance taxes. The tax may be reasonable but may also lead to the forced selling of family homes if sufficient disposable assets aren't available.
> One argument is that money in motion has a reasonably high level of liquidity
Fair enough. I believe that's outweighed by other concerns, but it's a reasonable argument made in good faith. Thank you.
Fair enough. I believe that's outweighed by other concerns, but it's a reasonable argument made in good faith. Thank you.
> You see this in inheritance taxes. The tax may be reasonable but may also lead to the forced selling of family homes if sufficient disposable assets aren't available.
This is a benefit, not a drawback. If the million dollar house is just sitting there, unmaintained, and occupying a large plot of land, it's most certainly being underused.
Nor are the inheritors entitled to live in the family house in perpetuity. Society may well find a better use for this house, and inheritors will almost certainly be better off with smaller houses that they can afford.
This is a benefit, not a drawback. If the million dollar house is just sitting there, unmaintained, and occupying a large plot of land, it's most certainly being underused.
Nor are the inheritors entitled to live in the family house in perpetuity. Society may well find a better use for this house, and inheritors will almost certainly be better off with smaller houses that they can afford.
It's not double taxation, it's exponential taxation. For N years of wealth, you lose (1-k)^N. Double taxation is just a higher rate of taxes, but this accumulates.
There's some element of being unable to just check out, maybe. If you Rip Van Winkled, being totally out of the system for a while (say you moved abroad), then when you returned, you would owe nothing under money-in-motion taxes in most places, but you'd owe an exponentially large share of your money under a wealth tax. I honestly can't articulate why I think that's bad, but can't shake the opinion that it is.
That said, I'm certainly fine with a wealth tax for people at the level of "OMG holy shit you have so much money," which Warren is proposing (and Sanders, sorta). I'm fine because the harm of having your stuff taken isn't real harm since it's designed to never take enough that you aren't still super rich. The harm of losing your gold toilet isn't harm in the same sense as a poor person losing their home, though it's the same act. It's difficult to articulate concisely.
There's some element of being unable to just check out, maybe. If you Rip Van Winkled, being totally out of the system for a while (say you moved abroad), then when you returned, you would owe nothing under money-in-motion taxes in most places, but you'd owe an exponentially large share of your money under a wealth tax. I honestly can't articulate why I think that's bad, but can't shake the opinion that it is.
That said, I'm certainly fine with a wealth tax for people at the level of "OMG holy shit you have so much money," which Warren is proposing (and Sanders, sorta). I'm fine because the harm of having your stuff taken isn't real harm since it's designed to never take enough that you aren't still super rich. The harm of losing your gold toilet isn't harm in the same sense as a poor person losing their home, though it's the same act. It's difficult to articulate concisely.
Taxing money at rest is called inflation. (Not literally) It mostly hurts people who are currently invested i assets denominated in that currency — which happens to be most regular folks.
And issuing more money is probably the fairest way for governments to pay for things. Decouple monetary policy from fiscal.
And issuing more money is probably the fairest way for governments to pay for things. Decouple monetary policy from fiscal.
Two different things. Taxes raise revenue, increasing the government's ability to pay for things. Inflation erodes the government's ability to pay for things. You as a consumer/taxpayer might experience the two similarly, but to say they're the same (and therefore that having one reduces need for the other) is ridiculous.
[ETA after parent ninja-edited instead of responding properly. Above is a response to the original flippant one-sentence version.]
It's a bit strange to point out that inflation mostly hurts "regular folks" and then advocate the inflationary tactic of issuing more money in lieu of taxes. Is that really so fair, or good, or practical? I'm not totally against deficit spending, but it's a bit like a shotgun where a readily-available scalpel might be a better choice.
[ETA after parent ninja-edited instead of responding properly. Above is a response to the original flippant one-sentence version.]
It's a bit strange to point out that inflation mostly hurts "regular folks" and then advocate the inflationary tactic of issuing more money in lieu of taxes. Is that really so fair, or good, or practical? I'm not totally against deficit spending, but it's a bit like a shotgun where a readily-available scalpel might be a better choice.
That is why I said “not literally”.
Literally inflation is defined as an increase in the Consumer Price Index.
Colloquially, however, inflation is the word used to mean the government printing money and spending it into the local economy. That by definition increases the government’s ability to pay for things.
Meanwhile taxes are simply there to remove money from the economy. Imagine if the government took all the collected tax revenues and burned it in a giant hole, then issued fresh crisp bills to pay for things. It would pretty much clear things up what the relationship is.
The idea that our federal taxes are what is used to pay for federal spending is outdated ever since we got off the gold standard:
https://en.wikipedia.org/wiki/The_Grace_Commission
Their conclusion back then was: With two thirds of everyone's personal income taxes wasted or not collected, 100 percent of what is collected is absorbed solely by interest on the federal debt and by federal government contributions to transfer payments. In other words, all individual income tax revenues are gone before one nickel is spent on the services that taxpayers expect from their government
Let me summarize my own position:
1. A generally accepted unit of currency (most often fiat, but can also be M2, M3 money, credit cards, bitcoins, etc) represents a high-probability chance that if something (eg food) is available then that amount of it will be available to you.
2. The job of an economy is to distribute resources. We have a constraint that we want humans to have their basic needs met. So far, wages have worked reasonably well but we have had to introduce disability, social security and other welfare schemes for poor people. As automation increases, demand shocks for human labor may appear in various sectors, making wages a far less reliable way to get money to the people.
3. Thus, we must gradually move towards simply printing money an giving it to people (Universal Basic Income or a series of Single Payer systems for various necessities). We must have it in place so we can ramp it up as wages become worse and worse for a growing underemployed class.
4. Then we either have to deal with rising prices OR tax someone. Tax who? The most obvious would be pigovian taxes and fines, to finally stop destroying the environment and polluting rivers and CO2. But after this, we will have to tax the most RESILIENT sources of accumulating capital, namely the rich and corporations.
So you see, you are thinking backwards. The 21st century economy will be built by thinking “how will everyone eat” and working backwards from there.
Money in the hands of person X doesnt disappear when she spends it. It just moves one hop. Taxes are there to either punish certain behavior or fight accumulation of money in one particular sector without everyone in that sector quit and walk away or stop building better robots. That is a sustainable economy and proper description of the role of taxes and money.
Literally inflation is defined as an increase in the Consumer Price Index.
Colloquially, however, inflation is the word used to mean the government printing money and spending it into the local economy. That by definition increases the government’s ability to pay for things.
Meanwhile taxes are simply there to remove money from the economy. Imagine if the government took all the collected tax revenues and burned it in a giant hole, then issued fresh crisp bills to pay for things. It would pretty much clear things up what the relationship is.
The idea that our federal taxes are what is used to pay for federal spending is outdated ever since we got off the gold standard:
https://en.wikipedia.org/wiki/The_Grace_Commission
Their conclusion back then was: With two thirds of everyone's personal income taxes wasted or not collected, 100 percent of what is collected is absorbed solely by interest on the federal debt and by federal government contributions to transfer payments. In other words, all individual income tax revenues are gone before one nickel is spent on the services that taxpayers expect from their government
Let me summarize my own position:
1. A generally accepted unit of currency (most often fiat, but can also be M2, M3 money, credit cards, bitcoins, etc) represents a high-probability chance that if something (eg food) is available then that amount of it will be available to you.
2. The job of an economy is to distribute resources. We have a constraint that we want humans to have their basic needs met. So far, wages have worked reasonably well but we have had to introduce disability, social security and other welfare schemes for poor people. As automation increases, demand shocks for human labor may appear in various sectors, making wages a far less reliable way to get money to the people.
3. Thus, we must gradually move towards simply printing money an giving it to people (Universal Basic Income or a series of Single Payer systems for various necessities). We must have it in place so we can ramp it up as wages become worse and worse for a growing underemployed class.
4. Then we either have to deal with rising prices OR tax someone. Tax who? The most obvious would be pigovian taxes and fines, to finally stop destroying the environment and polluting rivers and CO2. But after this, we will have to tax the most RESILIENT sources of accumulating capital, namely the rich and corporations.
So you see, you are thinking backwards. The 21st century economy will be built by thinking “how will everyone eat” and working backwards from there.
Money in the hands of person X doesnt disappear when she spends it. It just moves one hop. Taxes are there to either punish certain behavior or fight accumulation of money in one particular sector without everyone in that sector quit and walk away or stop building better robots. That is a sustainable economy and proper description of the role of taxes and money.
> That is why I said “not literally”.
Not until after I had responded.
> That by definition increases the government’s ability to pay for things.
For that one thing, but at the expense of reducing that same ability for everything going forward.
Funny that you use "since we got off the gold standard" as a dismissal, then cite a document from that time as supposed proof of your point. This is just sophistry. The funny thing is that I actually agree with a lot of what you say about e.g. Pigovian taxes and UBI, but I don't think it's productive to misrepresent the relationship between inflation and taxes, or make self-contradicting claims, or gaslight people about what you had said earlier. Opposing points of view are fine, but you seem to be undermining something close to my own.
Not until after I had responded.
> That by definition increases the government’s ability to pay for things.
For that one thing, but at the expense of reducing that same ability for everything going forward.
Funny that you use "since we got off the gold standard" as a dismissal, then cite a document from that time as supposed proof of your point. This is just sophistry. The funny thing is that I actually agree with a lot of what you say about e.g. Pigovian taxes and UBI, but I don't think it's productive to misrepresent the relationship between inflation and taxes, or make self-contradicting claims, or gaslight people about what you had said earlier. Opposing points of view are fine, but you seem to be undermining something close to my own.
Why not just respond to what I actually said? I am not gaslighting anything. I originally hit edit after posting to clarify my words. Now I’m done so please address my points 1 by 1
I cite a document from after we got off the gold standard to support my point because I tend to prefer to support points I make with strong and easy-to-follow evidence
I cite a document from after we got off the gold standard to support my point because I tend to prefer to support points I make with strong and easy-to-follow evidence
The most recent proposal for the Netherlands is a 1.75% tax on your invested net worth on January 1st of the year. Even when the market went -10% in the year before. But even at the market average of 5% per year that is a big hit. If your average Joe puts €200 a month in index funds for 40 years, the end sum is €304,000 without wealth tax or €198,000 with wealth tax. That is a big difference on the type of additional pension a person can build. We have tax deferred accounts but those have very low limits for the average earner.
But the upper class don't care about it. They have the means to put their money in a shelter or company and let it grow against a much lower tax rate.
* €200 a month, 5% market average and 1.75% wealth tax