I read a thing recently where some ancient societies used to have a 2-3% tax on wealth, rather than taxing peoples' income. This had the net effect of discouraging hoarding of wealth (but probably incentivized hiding wealth).

Seems like it would solve the Buffet problem, where rich people who have their money parked in investments can avoid taxes until they realize their gains.

Back of the envelope, seems to me like a 4.5% tax on wealth could replace current income tax, would basically prevent hoarding of wealth, you'd be able to apply it as a "flat rate" (since poor/middle class often have 0 or negative wealth), wouldn't deter voracious capitalists from trying to make more money, would encourage people with money to find ways of investing it and generally promote more flow of money in the economy.

[Edited on November 4, 2017 at 5:17 PM. Reason : ]

11/4/2017 5:17:07 PM

Initial read I like this idea. Will have to think on it for a bit.

11/4/2017 5:20:15 PM

I'm average middle class Joe with a wife, mortgage, 2 cars (both paid for), 2 kids, $10k on the credit card, $10 of student debt, and $25k retirement savings (IRA and 401k).

How do I calculate my wealth for tax purposes?

11/4/2017 7:43:53 PM

^ that person is completely worthless in this tax set up

11/4/2017 8:04:19 PM

^^
Net worth

Assets-liabilities

Assuming you just bought the house and put $50k down
$50k+25k+$30k (value of 2 used cars)-$10k (student loan debt)
*
4.5%

~$4275 in taxes

This number goes up as your house value and other savings increases

Bank is also paying taxes on the portion of the value of your house they own

11/4/2017 8:47:23 PM

Wouldn't this just encourage people to carry as much debt as possible?

11/4/2017 8:55:33 PM

Isn't that the current state of affairs?

11/4/2017 9:17:44 PM

Not like the wealthy aren't already doing that. Rich people don't spend their own money. They leverage existing assets to attain more. That's why trickle down economics is so stupid.

11/4/2017 9:18:38 PM

^^^
So?

Someone owns that debt- they’ll be paying the taxes.

11/4/2017 9:27:24 PM

genius

11/4/2017 9:40:19 PM

Quote :

"Someone owns that debt- they’ll be paying the taxes."

Love it

11/4/2017 9:47:37 PM

I'm into it

11/4/2017 10:44:50 PM

I assume you are asking why don't we do it as a general question, not as a historical one. We don't have it in the US because it would likely be considered a "direct tax," which would require that the taxes be received proportionally to population, which would be damned near impossible due to the uneven distribution of wealth.

As for whether or not it's a god idea in general, I'd say that few people would truly be comfortable with taking 2-3% of what you have. It's one thing for the government to take a slice of your earnings... It's entirely another for it to take a slice of your house. It would likely lead to extremely perverse incentives regarding consumption. If you subscribe to the theory that taxing something leads to less of that thing, it's going to have a negative effect on wealth overall, as a nation. At a minimum, you will have to have a floor on where it applies, or else you'll have the middle-class mortgaging their houses to pay their tax bills, while putting heavy pressure on small family businesses, whose main assets are the buildings themselves.

Even dumber, the rich will evade it by just creating a corporation, putting all their assets in it, and calling it a day. Unless you also want to go down the route of a "corporate wealth tax," which would possibly have even more perverse incentives, there's no way to avoid this.

Likewise, accumulated wealth can be helpful for the financial system when it provides capital for investment activities of other firms. As in, I stick a bunch of my money in the bank, the bank provides loans to businesses, yada yada yada. Lessening wealth across the whole country (as such a tax would certainly do), and disincentivizing savings, is going to affect that in negative ways.

There's also an argument that income can be harder to hide than wealth, so it's easier to tax. Yes, a big house is a dead giveaway that you've got wealth, but unless you're just sitting on your money, you've got it coming in, and that takes far more effort to hide, because you've got to constantly hide it. You stick money in an offshore bank once, and it's hidden forever. The drug dealer has to hide every last transaction. In general, money in movement is much easier to see than money at rest. There's two parties to a transaction, one of whom doesn't care to hide it for taxation purposes because it doesn't affect him. A bank account? Only one person cares about that, and he's probably not exactly thrilled to have it taxed.

I'd also think that you can more easily take higher percentages of people's income than of their possessions. It's hard to see the effect of a 10% tax on your income over time, but it's fucking obvious what happened when the gov't comes in and taxes 2-3% of your shit every year. Congress would be much more able to raise taxes on income than on wealth. Hell, that's practically one of things the colonies rebelled against.

There would be huge difficulties in calculating net worth. You think income is hard? Try figuring out net worth... I've got no clue what mine is, yet I know damned well what my income is.

Finally, if you did this, the super rich would just move all their money into foreign banks to avoid the tax, and our financial system would collapse. This would mean that the entirety of our nation's liquid wealth would be held in other nations. We probably don't want all of our banks to be foreign companies, outside the reach of US regulation.

If your goal is to reduce wealth accumulation, there are certainly much better ways to accomplish that than a wealth tax. At the very least, there's ways to accomplish it that are far less likely to end up with pitch-fork-wielding citizens storming the halls of government.


Edited to add:
One could also argue that we currently DO have a kind of "wealth tax." It's called inflation. It doesn't directly bring in tax revenue, but it does serve as a reason not to just let you stuff sit around collecting dust. That we have some mega-rich people sitting around collecting money through investments and not through gainful employment is directly because of this tax. It's also because of an ineffectual income tax policy, which treats their "income" as "special." You wanna hit that money? Put a limit on how much of that money per year you can earn tax-free (so as not to discourage retirement savings), and tax it as regular income, same as if the fucker had been paid it by an employer. THAT will have far less negative consequences than taxing accumulated wealth. It's also more likely to get through Congress.

[Edited on November 4, 2017 at 11:12 PM. Reason : ]

11/4/2017 10:50:41 PM

They already take a slice of your house via property taxes. Corporations would pay the tax as well, I'm assuming here.

[Edited on November 5, 2017 at 12:16 AM. Reason : a]

11/5/2017 12:16:36 AM

Holy fuck what a bad idea

11/5/2017 12:31:44 AM

^^ I'm assuming at a federal level, and not at 4.5%, like moron is suggesting. Also, "house" was shorthand for "all your shit," but yeah, I get the point.

11/5/2017 12:43:16 AM

Quote :

"I assume you are asking why don't we do it as a general question, not as a historical one. We don't have it in the US because it would likely be considered a "direct tax," which would require that the taxes be received proportionally to population, which would be damned near impossible due to the uneven distribution of wealth."

More just trying to see what pros/cons people come up with.

Quote :

"As for whether or not it's a god idea in general, I'd say that few people would truly be comfortable with taking 2-3% of what you have. It's one thing for the government to take a slice of your earnings... It's entirely another for it to take a slice of your house. It would likely lead to extremely perverse incentives regarding consumption."

But for the majority of people, gov. already takes more of their wealth than this. Anyone whose income primarily is from wages pays more than this in taxes.

Quote :

"If you subscribe to the theory that taxing something leads to less of that thing, it's going to have a negative effect on wealth overall, as a nation. At a minimum, you will have to have a floor on where it applies, or else you'll have the middle-class mortgaging their houses to pay their tax bills, while putting heavy pressure on small family businesses, whose main assets are the buildings themselves."

I'm not sure how you're figuring this would happen. For a middle-class person, they aren't paying income tax, so their effective income increases by 10-20%. this should easily cover the 2-3% of a middle class person that has their house paid off. I could see though how a retiree w/ no income could be worse off.

As far as small businesses, they too would have more income to cover their taxes. If they can't cover their taxes because of poor income, then I think it's a benefit of this tax scheme that they have to sell their business, let someone else buy it and try to make it productive. This is how capitalism works.

Quote :

"Even dumber, the rich will evade it by just creating a corporation, putting all their assets in it, and calling it a day. Unless you also want to go down the route of a "corporate wealth tax," which would possibly have even more perverse incentives, there's no way to avoid this."

I can't think of why corporations should be excluded from this-- they would have more income available.

Quote :

"Likewise, accumulated wealth can be helpful for the financial system when it provides capital for investment activities of other firms. As in, I stick a bunch of my money in the bank, the bank provides loans to businesses, yada yada yada. Lessening wealth across the whole country (as such a tax would certainly do), and disincentivizing savings, is going to affect that in negative ways. "

This doesn't stop accumulated wealth from accumulating. It does make merely accumulating wealth a more costly thing, which is a good thing, and it also incentives people with wealth to take more aggressive investments.

I think you might be overstating the "wealth lessening" impact of this too-- people still have enormous incomes now despite income taxes.

In general, I view wealth flowing to new ideas more rapidly to be a driver of innovation and thus more wealth (think Google/facebook/apple/boston dynamics/etc).

Quote :

"There's also an argument that income can be harder to hide than wealth, so it's easier to tax. Yes, a big house is a dead giveaway that you've got wealth, but unless you're just sitting on your money, you've got it coming in, and that takes far more effort to hide, because you've got to constantly hide it. You stick money in an offshore bank once, and it's hidden forever. The drug dealer has to hide every last transaction. In general, money in movement is much easier to see than money at rest. There's two parties to a transaction, one of whom doesn't care to hide it for taxation purposes because it doesn't affect him. A bank account? Only one person cares about that, and he's probably not exactly thrilled to have it taxed."

Yeah this is the biggest negative to me. Especially with cryptocurrency-- wealth is very easy to hide.

Quote :

"I'd also think that you can more easily take higher percentages of people's income than of their possessions. It's hard to see the effect of a 10% tax on your income over time, but it's fucking obvious what happened when the gov't comes in and taxes 2-3% of your shit every year. Congress would be much more able to raise taxes on income than on wealth. Hell, that's practically one of things the colonies rebelled against."

Yeah this is true too. People would be far more sensitive to tax hikes on wealth-- but is this a bad thing?

Quote :

"There would be huge difficulties in calculating net worth. You think income is hard? Try figuring out net worth... I've got no clue what mine is, yet I know damned well what my income is. Finally, if you did this, the super rich would just move all their money into foreign banks to avoid the tax, and our financial system would collapse. This would mean that the entirety of our nation's liquid wealth would be held in other nations. We probably don't want all of our banks to be foreign companies, outside the reach of US regulation."

The easy solution is to tax offshore wealth too, and require banks to report anyone transferring it.

Quote :

"If your goal is to reduce wealth accumulation, there are certainly much better ways to accomplish that than a wealth tax. At the very least, there's ways to accomplish it that are far less likely to end up with pitch-fork-wielding citizens storming the halls of government. Edited to add: One could also argue that we currently DO have a kind of "wealth tax." It's called inflation. It doesn't directly bring in tax revenue, but it does serve as a reason not to just let you stuff sit around collecting dust. That we have some mega-rich people sitting around collecting money through investments and not through gainful employment is directly because of this tax. It's also because of an ineffectual income tax policy, which treats their "income" as "special." You wanna hit that money? Put a limit on how much of that money per year you can earn tax-free (so as not to discourage retirement savings), and tax it as regular income, same as if the fucker had been paid it by an employer. THAT will have far less negative consequences than taxing accumulated wealth. It's also more likely to get through Congress. "

Wealth accumulation is a big problem right now, I think we need a much higher top marginal rate, capital gains taxed at marginal rate, and something that disincentives speculation on real estate, too much money is spent on financial derivatives vs direct investment, too few people control the direct investment markets, and the current GOP tax plan is doing nothing to help any of these issues.

11/5/2017 1:56:15 AM

Quote :

"Someone owns that debt- they’ll be paying the taxes."

What if it's a bank in another country?

11/5/2017 1:23:37 AM

Quote :

"I'm not sure how you're figuring this would happen. For a middle-class person, they aren't paying income tax, so their effective income increases by 10-20%. this should easily cover the 2-3% of a middle class person that has their house paid off. I could see though how a retiree w/ no income could be worse off. As far as small businesses, they too would have more income to cover their taxes. If they can't cover their taxes because of poor income, then I think it's a benefit of this tax scheme that they have to sell their business, let someone else buy it and try to make it productive. This is how capitalism works."

The retiree with no income is the exact problem with this idea. If you tax income, the taxation stops when there's no income. If you tax wealth, the taxation stops when the person has absolutely nothing left. I also think you're casting aside the small business issue too easily. Saying "they should just sell their business if our tax scheme destroys them" isn't exactly indicative of a good tax scheme. Even worse, you'll contribute to the pooling of wealth at the top by destroying small businesses.

Quote :

"I can't think of why corporations should be excluded from this-- they would have more income available."

Then you need more imagination. Corporations have a ton of their "wealth" tied up in buildings. The very first thing that would happen is that every single corporation in the US would move overseas. And that includes the people who move all their wealth into corporations, which you then won't be able to tax.

Quote :

"This doesn't stop accumulated wealth from accumulating. It does make merely accumulating wealth a more costly thing, which is a good thing, and it also incentives people with wealth to take more aggressive investments."

Moving to more aggressive investments? Like risky mortgages? There's something to be said for lower-risk investments and savings, and a wealth tax, even you agree, would move people away from that. It would ramp up the velocity of money (which can be a good thing), lead to useless spending, and cause economic havoc, as few would have any assets hanging around for a rainy day, all while increasing the possibility of just such a rainy day by promoting massive bubbles in every conceivable economic sector.

Quote :

"I think you might be overstating the "wealth lessening" impact of this too-- people still have enormous incomes now despite income taxes."

Which is the real problem here (as I stated earlier). "Income" is being gamed. Stop the gaming of income, and you might begin to make a dent in wealth pooling at the top.

Quote :

"The easy solution is to tax offshore wealth too, and require banks to report anyone transferring it."

This works great, except that all of our banks have now gone offshore, outside the reach of US regulation. It's also not going to a damned thing when people create corporations in other countries to hold their wealth.

11/5/2017 9:55:33 AM

The most obvious problem is that much wealth is illiquid. So you would need income proportionate to your wealth to pay the tax. This same problem exists for property taxes, but you have "circuit breakers" that exist to protect people from losing their homes. Triggering a fire sale of illiquid assets to pay taxes would be disastrous. It's like in Monopoly when you get some hotels built and draw the street repairs card. If you don't have the cash, the damages are much greater than simply the cost of the tax.

Another obvious problem is that people will simply hide or move their wealth out of reach.

[Edited on November 5, 2017 at 10:35 AM. Reason : ?]

11/5/2017 10:33:00 AM

^
The first one is only really a problem for poor retirees, I don’t see it as a critical flaw in this type of plan

11/5/2017 10:39:11 AM

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

11/5/2017 11:31:25 AM

Seems like this would completely destroy any incentive to save.

Average market returns are 7%. Your wealth tax would lower that to 2.2%.

Saving and checking accounts would have negative interest rates. Of course, this is easily avoided by not putting money in the bank.

Building on needing an income proportional to wealth (^^^): Maximum net worth would be limited by how much wealth tax you can afford to pay. A household that can afford to save 20% of income would be limited to a maximum net worth of about 4.4 times annual salary (i.e, that's where 20% of salary equals 4.5% of net worth). A $60k/yr household could never accumulate more than about $267,000 in assets.

I'm also curious how far down the rabbit hole of calculating net worth you want to go. All this shit in my house is worth something. Where do I stop?

11/5/2017 4:32:33 PM

Quote :

"Seems like this would completely destroy any incentive to save."

Yea, but just imagine the economic growth that would cause.

11/5/2017 5:49:50 PM

lol keynesians

11/5/2017 6:24:09 PM

You know another word for keynesians? Economists. Literally every single one.

11/5/2017 6:48:45 PM

^ Literally? except for all those nobel prize holding economists that aren't, of course.

11/5/2017 7:23:53 PM

^https://krugman.blogs.nytimes.com/2011/10/17/nobel-lies/?_r=0

I mean, there are crackpots who call themselves scientists that don't believe humans cause global warming. Or flat-earthers that call themselves astronomers. So I suppose there are "economists" that call themselves non-Keynesians, my bad! The truth is that "Keynesian economics" isn't even a phrase you ever hear among economists, it's just called economics.

Not to mention, we just had global experiment in Keynesian vs. non-Keynesian economic theory in the wake of the financial crisis. The countries that implemented austerity measures are still in dire straits, the ones that used stimulus measures (like ours) are doing just fine. Pretty definitive.

11/5/2017 7:39:17 PM

Keynesian calls for surpluses in good times and deficits in bad times. Which countries did that?

And, the austerity countries...didn't they just happen to be ones whose governments were on the verge of financial collapse? Your argument that the only thing that caused their bad economic outcomes was the austerity is to suggest financial collapse has no impact upon economic outcomes, which is absurd to the point of madness.

As for wealth taxation, it is easier to hide wealth than it is to hide income. I suspect that is why we tax income: it is corrosive to society to only tax honest people.

12/3/2017 3:09:10 PM

so is taxing work

12/3/2017 5:03:36 PM

taxing wealth is a tax on work just as much as taxing income. That said, I find no moral qualms with taxing wealth over taxing income, per-se, other than that it won't tax cheats, criminals, or liars.

12/3/2017 10:09:39 PM

Seems to me the biggest issue is taxing people who are "house poor" for various reasons. Say you were working a great job at a great company. You buy a nice house, in a great neighborhood, and you've been paying off the mortgage for 20 years so you have a pretty good amount of equity. Even better the area has been building up and your house value has been going up year over year. Let's say you bought it for $250k and it's now worth $400k. You should have a mortgage payment of ~1200 / month and you would have about $340k in "wealth". And then you get laid off, at Christmas, you're out of work and burning through your savings just to keep paying the mortgage and the bills. Oh you have your 6 month emergency fund, heck you were smart and you have a 12 month fund. You're sitting on a nice 14k emergency fund to pay your mortgage until you get back on your feet (which you've also been paying wealth taxes on). And then your tax bill comes for the year. 4.5% of your equity is ~15k. Your tax bill eats your entire emergency fund in a single go. So your can choose, do you pay your taxes and become homeless and destitute because you can't pay the mortgage, or do you pay your mortgage and become homeless and destitute because you can't pay your taxes?

Also, wouldn't this place huge disincentives on improving property? Not just in terms of maintaining, but upgrading too. Wouldn't it incentivize putting off any property improvements as long as you can? Basically any improvement that doesn't have an annual and ongoing ROI of at least the taxable amount is an improvement that will be less likely to be done.

Edit:
------

Quote :

"But for the majority of people, gov. already takes more of their wealth than this. Anyone whose income primarily is from wages pays more than this in taxes."

Doesn't this seem like a good argument for not doing this then? If we assume that per this, the majority of people are already paying more than this, and then we also assume that the majority of people don't have a whole lot in the way of net worth (middle 20% is ~65k per https://www.census.gov/content/dam/Census/newsroom/releases/2014/cb14-156_net_worth_graphic.pdf), wouldn't that mean the tax would either have to be much higher or the government would have to operate on much much less tax revenue?

[Edited on December 4, 2017 at 12:17 AM. Reason : taxes]

12/4/2017 12:11:59 AM

Would retirement savings be considered wealth? I ask because retirement savings is only wealth until you retire, then it is income. Seems to me it would be unfair in a situation like this to tax retirement savings since you are banking on it being your (potentially) only source of income once you retire.

12/4/2017 7:22:50 AM

^^ Taxes are taxes. The IRS will happily accept your house as partial payment on your wealth taxes. That way, you won't have to pay taxes next year.

^Wealth is wealth. of course retirement savings will count and be taxed. That said, I would have personal deductions, like the first $50k is tax free. After-all, the poor don't have much wealth or income. Many of them will cost more to tax than revenue will be collected.

12/6/2017 3:30:43 PM

Do away with income tax entirely and make it all consumption based. This getting double taxed on both ends sucks.

12/7/2017 2:46:42 PM