> One received his wealth through inheritance and really isn’t doing much with it
Seems very naive - what would doing a lot with it even mean? It's definitely not under their mattress and even if it's sitting in a bank at 0.1% it's being invested by the bank. Otherwise it's going to be in some mix of stock, bonds, and private investments. Don't see how that's much different than the entrepreneur who sold their company for $X,000,000 and doesn't reinvest all of it into their next company
It's the difference between dumb and smart money. Dumb money is passively invested, while smart money is actively invested into endeavors like startups, where the investor can make a difference beyond merely providing money.
That's not my definition (nor the typical definition I think) of "dumb money". To me, dumb money is late money chasing a piece of the action at stratospheric valuations, or chasing a scheme the investor has no hope of understanding.
Money invested in AAPL/AMZN/FB is no more or less passive and no more or less "dumb" than money invested in VTSAX, IMO.
In other words, I can "hire" the active managers of those companies on my behalf as an investor.
So - and I'm only halfway facetious here - an entropy tax? I wonder if it's useful or interesting to think about markets in terms of energy but confess to not having the economic or physics background to make it a reality.
I think the connotations you're ascribing to "dumb money" and "smart money" apply only to investor financing in startups. IIRC, active investing is an overwhelmingly "dumb" way for the average individual to invest their own cash.
That would be the exact opposite of my definition of smart and dumb money. How many people have lost their shirts actively investing in business ventures, versus people who invested in boring, long-growth dividend-paying stocks?
if it's being invested by a bank or a wealth manager it's going to be invested in existing companies, whose operations will be squeezed and distorted to provide the maximum possible return as fast as possible.
This is more likely to kill jobs and prosperity than it is to produce them. It's also one of the prime causes of market bubbles.
If it's being actively invested, the investor has the opportunity to build new companies.
If it's redistributed by the government, the government can spend it on improving critical infrastructure, which is an easy way to create jobs and improve economic activity of all kinds. It can also invest it in new tech and R&D, which eventually trickles down to new opportunities for innovation.
I think you're trying to hint towards the Financial Instability Hypothesis, but you're misstating it. You seem to be implying that any credit-driven financing at all is inherently distortionary.
trickles down
Trickle-down economics works for government spending, eh?
> if it's being invested by a bank or a wealth manager it's going to be invested in existing companies, whose operations will be squeezed and distorted to provide the maximum possible return as fast as possible.
What do you mean by that? Existing companies raise capital to fund things like R&D, Capex, and entrances into new markets. All of these promote economic and technological growth and generally result in the creation of jobs.
> This is more likely to kill jobs and prosperity than it is to produce them. It's also one of the prime causes of market bubbles.
I'm not sure why you think investment causes job destruction. It's quite likely that there is less capital (for production) currently than would exist at the so called "golden level of capital". Increased investment would actually help rectify this (at the cost of current consumption). See a model like the Solow growth model for more information on this.
> If it's being actively invested, the investor has the opportunity to build new companies.
Unfortunately, many people have neither the desire nor the capability to successfully build companies and are able to enjoy returns on their money precisely because financial markets exist to invest in.
> If it's redistributed by the government, the government can spend it on improving critical infrastructure, which is an easy way to create jobs and improve economic activity of all kinds. It can also invest it in new tech and R&D, which eventually trickles down to new opportunities for innovation.
What makes the government better at job creation and R&D (with the exclusion of basic research) than the private sector? Greece has shown that governments can, in fact, allocate resources rather poorly [1].
Name me a firm that's struck out in a moon shot, please. All I see is jerkwads making the next iPhone wannabe-killer or social app. I don't see much in spaces like energy (fusion has a few startups but VERY FEW compared to your standard SV social app crapfest).
It isn't at all different. The amount of money the entrepreneur didn't invest into the next company or spent, is the amount he will be taxed as wealth.
This way, the entrepreneur has incentive to spend it or do more investments instead of keeping it in the bank where it would be taxed.
This incentive leads to inequality decreasing by the economy being more active.
I spent my money to buy dollar bills. A overall poor investment because of the expected lost, but an investment all the same.
Money is always invested, even if you have it invested in the generic dollar instead of some other product. While it is common to think of the dollar as not being an investment, I find considering it an investment that is constantly losing value due to inflation to work better in my mental model.
So you're saying that everything not spent or invested into a private company (that you actively manage?) is subject to a wealth tax. Seems like a risky idea because you're putting enormous incentives on increasing riskier investments. But you do realize that whether I put my money into a bank, or a stock, or anything other than a non-private company, it's not just sitting there, being dumb?
Switzerland has been following the suggested approach, and it seems to work well. There's no capital gains tax (for private investors), but a wealth tax instead. Another advantage beside the mentioned incentive to invest is that tax revenues are less volatile.
Don't know about Switzerland, but in the Netherlands where there's also a wealth (or rather, net worth) tax, most property held for personal consumption (art, jewelry, cars, boats) are exempt. Their value in the aggregate is relatively low (compared to real estate and financial property), so the lawmakers decided it was not worth the hassle to tax those.
Real estate is taxed separately, and municipalities run yearly appraisals. But I think that's pretty routine in most developed countries?
For real estate, each region is free to define their own valuation rules. In Zurich, either 70% of the previous transaction value is used, or a conservative value based on size and location, whichever is higher. This value is often also the basis for the self-rent-tax. (In Switzerland, the amount you could earn by renting out a self-inhabited property is taxed as income. Not doing so would give homeowners an unfair advantage in comparison to renters.) Paintings and jewelry are only taxed if they make an unusually high share of your wealth, i.e. if you are a collector. Again, the exact guidelines vary depending on where you live.
Here are the official guidelines for valuing real estate in Zurich (in German):
http://www.steueramt.zh.ch/internet/finanzdirektion/ksta/de/...
Note that you do not have to apply these rules yourself. Instead, the local tax office performs the calculation and notifies you about the result. If you disagree, this result can be contested, but generally, you do not need to familiarize yourself with all the details.
The problem with the argument "<Some Scandinavian country> implemented this policy, and it works great" is that it assumes a policy that succeeds in one country will succeed in any other.
Switzerland is vastly different from a large country like the United States. Consider just a few factors: population size, geographic area, and ethnic homogeneity. Switzerland population is 2% the size of the United States population. Its land is 0.5% the size of that of the United States. Perhaps most importantly, Switzerland is far more ethnically and culturally homogenous than the United States. The gene pool of Switzerland traces back centuries; America is a nation of immigrants. The cultural homogeneity of Switzerland removes any friction in policymaking due to cultural disagreements or economic disparity. [1]
Implementing a new policy in Switzerland is rightfully much easier than implementing one in the United States. The constraints of Switzerland allow more flexible bureaucratic structures and policymaking, with more predictable results, than the constraints of the United States.
A policy that succeeds in Switzerland, a geographically small, culturally homogenous area, may not succeed in the United States, a geographically large, culturally heterogeneous area, for any number of reasons arising from these differences. Only an irresponsible argument would compare policy success across the two countries without first acknowledging their vast differences.
Yes, it is harder to implement changes in a large system than in a small system. However, you should note that Switzerland is more culturally diverse than the United States by a number of metrics, including immigration. For example, 25% of the Swiss population are foreigners, three times as much as in the US. Also, Switzerland has three official languages. Consequently, there is no national TV station or newspaper that can reach the whole country at once. But if it helps you, I'd like to mention that France also has a wealth tax and that Germany had a wealth tax until 1997.
Of course he does! And I'm already mentally preparing to part with a large share of that money which I have left after paying the income tax, the capital gains tax and those other taxes. ("The rich" will not mean Warren Buffet or Ron Garret who have the money to dodge a new tax, it will mean those who failed to spend everything earned.)
Pensions don't work. The fact that they're disappearing is proof of that.
The entire concept of being legally required to provide a certain monetary benefit in 2060 based on someone's work now is crazy.
> 401K are not pensions and well it is scary.
Why? Your benefit is based on the actual money you have. That's just math, as opposed to smoke and mirrors with pensions where the money may or may not actually be there 50 years from now.
Pensions work 100% but they cost money SO instead of paying pensions we have more profits which benefits the wealthy? The whole stock market profits the same people. That people have to pay into the market for them to have a retirement plan also benefits the same wealthy people.
When people's 401K fail then the government has to pay for the companies for not providing for their employees.
Don't pensions rely on the market in order to remain solvent? Where does the supposed gain come from? Either it comes from the markets, in which case the workers are better off investing in the market directly, or it comes from the people paying into the system today, in which case it collapses as soon as the debits exceed the credits.
Pensions rely on payments. Now those payments do get invested. Pennsylvania just didn't make payments for 10 years for teachers and state workers and that kind of causes problems.
Also 65 might be to low a number now but that is another issue.
Direct wealth taxes at the federal level are considered unconstitutional unless they are carried out in proportion to each individual state's wealth. It is a really strange aspect of constitutional law that may prove complicated for the Sander's tax plan.
There's a alternate hypothesis [1] put forward that increasing inequality is mostly due to an increase in housing costs.
If this is the case, then it would likely be better to implement land taxes. Land taxes are probably better than most taxes for a variety of reasons, but if we are directly looking to decrease inequality land taxes would strike at the root cause.
I am not an economist, so I'm not equipped to evaluate either set of claims. Is there anyone here who might know what they're talking about who can weigh in?
It would be a fair way to fund socialized medical care, as almost all medical care is provided to locals. Care is mostly rationed today on a large scale based on the wealth of the local area so very little would change other than cutting out many extremely wealthy and politically influential middlemen like insurance companies. People who hate the moral and ethical idea of pooled medical costs could trivially move into the wilderness where there's unfortunately no medical care at all other than long ambulance rides, therefore the prop tax paid to the local medical offices (which don't exist) would be quite low, which is kind of a self correcting problem. Much as we have "over 55 only" communities for places that refuse to fund elementary schools.
The biggest problem with prop tax is the general social aversion to kicking people off "their" land. As if any land is truly privately owned, LOL, and the government messing with the rent is going to shine quite a bright light on that little social problem. You'd need some kind of plan to deal with temporarily un and under employed vs permanently un and under employed landowners, not to mention enormous numbers of homeless elderly retired people.
What's to stop land-owners who are renting their land from just increasing the rents? I can't see that not happening, and that would have a big impact on poor renters. That would really only hit people who own their own homes, or who own land that they aren't renting.
>What's to stop land-owners who are renting their land from just increasing the rents?
The supply of land is fixed is the difference. If you tax a good with fixed supply, the price of that good will tend to decrease.
A good that is not fixed will tend to increase in price after a tax, because the higher costs will tend to reduce supply.
>I can't see that not happening, and that would have a big impact on poor renters.
Taxing improvements reduces the incentive to build--costs rise--which is why property taxes can be passed on to renters.
Because land is fixed in supply (keep quiet, Kansai International Airport!), it isn't actually possible to pass on a land value tax to renters. Land taxes actually make land cheaper to buy (though with an ongoing tax obligation).
>That would really only hit people who own their own homes
The tax falls on those who own land, who tend to be the wealthiest in society. Because its a tax on land value, those with the most valuable land pay the brunt of the tax.
Think of Midtown Manhattan; the land owners there would pay a large proportion of the taxes in NYC since they have a comparatively large portion of the land value.
Someone in deep Queens would have relatively low taxes since their land is not nearly as valuable, even for the same acreage.
>or who own land that they aren't renting.
If you own land you aren't renting in a high value area, yes, it punishes you for that by design. Think vacant lots in the city center. If you own such land, you are likely rich.
If you are attempting to use NIMBY rules to prevent development, it will utterly destroy you. I think this is a feature, not a bug.
> If you tax a good with fixed supply, the price of that good will tend to decrease.
If anybody else found this claim to be counter-intuitive, the wiki article on 'Land value tax' helped me understand. [1]
I am not convinced. The biggest problem I see is the practical one of appraising the value of the land, which depends on what the land will be used for. A landlord will almost always outbid a homeowner when buying a plot of land, because the landlord intends to monetize the land, while the homeowner intends to live on it.
A land value tax would favor monetization over personal use, increasing rental prices and expanding the size of the "renter class" while shrinking the size of the "homeowner class". The result would be an effective increase in the relative price of owning a home compared to renting one.
Paying rent is obviously economically inferior to owning property, and any policy that encourages rental growth over homeowner growth will only increase the inequality gap. Only the wealthiest benefit from increased rental volume.
Actually, the ethically and morally right thing to do would be to respect people's right to keep everything they earn. Good causes should prove they are good causes and be funded voluntarily. Forcing people to fund things causes conflict.
"Rights" are all arbitrary rules in an artificially constructed system. As an organism in the state of nature, the only "right" you have is to use your natural abilities to kill, eat, and steal from other organisms. When you impose a social organization that takes away that right, which is the only truly fundamental one, any rules you layer on top of that are arbitrary.
Consequently, society can, consistent with ethics and morality, recognize a right to hold property, and just as consistently recognize exceptions to that right such as for payment of taxes.
What is your basis for "ethics and morality" that doesn't include recognizing the rights of the individual? Some kind of utilitarianism? Intuitionism?
I certainly hope you didn't mean "It is therefore consistent with ethics and morality that society can...", which would mean your first paragraph implies there are no moral or ethical limits on what 'society' can do.
Of course societies are limited in what they can do by ethics and morality--by their own ethical and moral constructs. Or by those of other societies that might use force to impose other ethical and moral constructs on them.
Is it "morally wrong" when another animal eats those eggs, or is this not a particularly useful example?
This thread is pretty weird. Rayiner isn't saying anything shocking; he's recapitulating political philosophy that most of us learn in high school. It's one thing to debate Rousseau vs. Hobbes, another to act like the concepts of the general will and the state of nature are novel.
Saying we designed society this way with such and such constraints and trade offs is like saying meerkats do the same thing in their societies, which is ridiculous. Nature isn't as cutthroat as the quote suggested. Clearly outside of humanity, love and stable societies exist also. I don't think this argues against rayiners point but adds to it.
Actually that's inconsistent. Using coercion to take something (a.k.a. theft) is wrong. Taxes are paid at the threat of violence, therefore to levy taxes is morally wrong.
That is your view. Now write a constitution based on that. Or, perhaps you find a constitution, or basic law, that has a viewpoint on rights to be superfluous.
The US constitution was written with a point of view: that people have rights, and that those rights are unenumerated. You might think that's rather artificial. But so is government, in general.
The U.S. Constitution assumes that people have "rights" but does not articulate a theory of what those rights are. Do they exist in the state of nature, as Locke believed, or do they arise from recognition by society? The Constitution takes no position on that.
The Declaration of Independence does take a position on that, however - that those rights are given by God, and therefore that no human has the authority to take them away.
In the context of the thread, this sounds suspiciously like an argument that the US constitution was written without recognition of property rights. But of course nothing could be further from the truth.
Not at all. Property rights are not listed. Nor is the right to travel. Nor the right to use math to obscure there contents of a document, etc.etc. Yet these are all rights.
Not only were the authors of the Constitution zealous believers in property rights, but many of them believed that property rights extended to the ownership of people.
This is a thread questioning the intrinsic merit of property rights, and I read your comment as suggesting that the Constitution might somehow refute property rights. It clearly does not.
Not all of them. And some who did, gave up on slavery.
Are they men? Then make them citizens and let them vote. Are they property? Why then is no other property included? The houses in [Philadelphia] are worth more than all the wretched slaves that cover the rice swamps of South Carolina....The admission of slaves into the representation when fairly explained comes to this: that the inhabitant of Georgia and South Carolina who goes to the coast of Africa and, in defiance of the most sacred laws of humanity, tears away his fellow creatures from their dearest connections and damns them to the most cruel bondages, shall have more votes in a government...
Its not possible in general to earn anything without the existing systems in the background, ranging from national defense to roads to police to medical care to education. This is the Robinson Crusoe problem. If you rely on the police to not get robbed on the way home from work with "your" money then you have a moral obligation to pay your share of their salary.
Another problem with volunteering is half the population is below median and most of the world's population is pretty stupid and live outside organized society, indicating a voluntary society would only be sustainable if participant IQs were limited to perhaps 120+. People who are proven to have poor time preference or inability to socialized in a civilized manner can't be relied on to volunteer appropriately and need the gun and whip to behave appropriately, including ethical and moral "volunteering". So you end up with a clone of the existing system where smart enough people can cheat the system if they are unethical enough, or if they feel the system is unethical enough. Cheaper and simpler to leave the system alone than to rebuild it ending up in the same place anyway.
Given that, it should always be possible to opt out and go full Amish WRT refusal to fund the "real education system" or whatever... however note that even they have more or less non-optional tithing which is an income tax by another name.
No. If you volunteered into a contract with a company or group who would protect you, then you would indeed have a moral obligation to pay. It's theft to levy taxes for involuntary services. Explain to me how a mafia boss coming into your store and offering you protection is different than your much-better-equipt government.
Your second paragraph is an excellent argument against democracy.
What people earn depend on the society they live in, it's not morally acceptable and as such shouldn't it also be legally acceptable to keep it all to yourself when you rely on what others built and in the education and infrastructure paid by others to achieve that wealth.
If you want to keep everything to yourself without giving anything back then go live in the middle of the rainforest. Let's see how rich you get without the wealth that other people created around you in order to be able feed your own wealth.
That only make sense if people were 100% responsible for the money they make. This is of course not the case. Instead it's a combination of the opportunties society provide for them, the work of others and ones personal abilities and choices.
Mark Zuckerberg didn't create the Internet, Bill Gates didn't create the computer, IBM didn't create electricity, most land owners don't create the rising value of their land (especially true when it comes to urbanization)
If you want to keep 100% of what you earn you must find a way to be 100% responsible for what you produce.
> A wealth tax, however, would shift the tax burden more onto the less active wealth holder. This, in turn, would give him a lower rate of return, and capital would shift to the more active individual. In other words, the redistribution would be a reallocation to more productive means. As the authors point out, however, this would also mean an increase in wealth inequality.
Interesting to think about the social and economic consequences of this kind of change. Charities would probably be less capable of operating in perpetuity on endowments, individuals would no longer be able to invest their wealth and live off the rent. The economic status of all individuals within the upper and upper-middle classes would in effect be constantly sinking, and they'd be expected to make their way on their merits within the market economy. Money would be reallocated towards people who could do more with it. It would be a shift towards a world with a much more cut-throat, highly meritocratic, highly competitive model of capitalism.
It also introduces nuance into the debate around Thomas Pikkerty, you're not just talking about capital growth, but also about passive and active investment. I doubt many people defend the passive growth of capital over and above the general growth of the general economy. If you really can put your money in property, or in an index fund, and with very low risk grow your wealth at a rate higher than the rest of the economy, that is clearly a problem - it is an economic tendency towards aristocracy. But if you're creating a system where passive capital is falling away, and the funds flowing in each generation towards people who can deploy the capital most effectively, that is a different moral issue, and a different trajectory for the future of the economy, and society.
Wealth tax shifts revenue streams towards those who benefit the most financially from tax expenditures.
Folks with significant wealth need the benefits of well run, stable government to hand on to that wealth. The proportionally pay little or nothing for that benefit. Poor people survive no matter what. Middle class people bear the burden of paying for everything.
Wealth would effectively become a burden - it will cost you time and money to maintain it. So I wonder if people will aspire less to become wealthy in the first place?
I suspect fewer people will go all-in building a startup in their twenties if the wealth wasn’t going to effectively secure their future?
> shift towards a world with a much more cut-throat, highly meritocratic, highly competitive model of capitalism
This is fairly optimistic. the expected merit and competition might just instead be elitism, corruption and cronyism. Since wealth means power, the wealthy can always find ways to break the rules...
I have long been wanting this kind of taxation to happen. It seems the most fair as the wealth increase created from ex. owning lots of land or building is mostly done by the rest of society not by the individual purchase of a building.
So basically we should tax money that lazy and give tax breaks to money that are actively working.
This also correlates with how economist normally want the economy to work. When everyone spends money wealth is created. You could say that people who make less money are better citizens from that perspective in that they are more likely to keep the economy going than those who just let it sit and collect in the background.
The problem is how do you deal with systemically created lazy money? Right now, some banks are just sitting on money since there's not much in terms of opportunities to invest. It seems to me the problem is that money effectively ceased to have any real value in the economy post-2007/8.
It's not so much my reaction to that sort of action but rather how the people who affect the market would react that matters. Let's say tomorrow all the govts of the world got together and said X amount of dollars in banks will be null and void of value (no taxes, just removed entirely from the market). Can you imagine the economic contraction that would occur? If you think the Great Depression or earlier panics were a problem this hypothetical situation would practically implode a century's worth of growth.
The reality is that we're stuck in a disaster of our own making. Partly because money has no value (no commodity backing) and partly because since we decoupled value from money we thought we could print more of it to spur growth. But growth doesn't come from the money, it comes from the labor to produce goods and the goods which save time when we labor. You can't shortcut your way to growth. It comes from those sources and nowhere else. The rest is purely speculation driven or illusory in general. And it gets worse you think about the hard reality that people don't want more things. Consumerism doesn't fix the problem either as private debt keeps ballooning people realize their finite resources (wages from their own labor) is dwarfed by credit payments. So, bing bang boom the whole thing falls down.
>It seems the most fair as the wealth increase created from ex. owning lots of land
If you want to charge people for profiting from land, it seems a land tax would be the best way to do it. It's essentially a property tax, except instead of taxing the land and the improvements, only the unimproved land value is taxed.
This allows capturing some of the economic rents by society as a whole in a way that has very little distortion and is essentially avoidable only by moving.
Moving would mean not taking advantage of any of the benefits or improvements of the area, so the only way to avoid it would be to give up the benefits. A wealth tax, by contrast, could be avoided by moving wealth to another country.
Since a large amount of wealth is tied up in land, a land tax is a sort of wealth tax by proxy, but with virtuous effects of promoting additional development and investment and punishing things like land speculation. It's a progressive tax too.
The wealth of the US middle class is already taxed heavily. In my part of the country it runs at about 3%. This tax is more commonly known as a property tax. Since the middle class carries most of its wealth in the form of equity in home, this wealth tax falls disproportionally on them.
You might pay 13-30% of your income in property taxes, but you almost certainly pay <5% of you property's value, which is what the 3% in the parent comment was referring to.
People ought to be able to enjoy the wealth they've earnt over their lifetime without having to defend it from the state.
But when they die, IMO their wealth ought to be redistributed to society. Their own kids didn't earn it any more than the neighbour's kids did. I'm okay with increasing inheritance tax provided we simultaneously reduce income tax rates. That would produce a fairer society where people are more productive.
There will be those who (fairly) contest the double taxation aspect of inheritance tax, but please consider the benefits to society of reducing income tax as a result of raising inheritance tax.
Parents could argue that it's up to them what they give their kids. That's true. But watch "Made in Chelsea" to see what happens when kids get a large inheritance. Horrendous! :-)
Obviously tax collection is also an issue here - people will naturally try to avoid inheritance tax, and it will be very hard to stop them. No easy answers to that.
What would be the difference between inheritance and just giving your children money as long as you are alive? Would you be barred from that as well? So you could spend your money on whatever you want, but not give it to a very particular group of people?
If I understand correctly, there are limits to how much you can give your kids before taxes kick in. It used to be something like $10K/year and $150K/lifetime above the $10K/year. And if you used the $150K/lifetime, it cut into what they could inherit without taxes.
IANAL, and that was a while ago. I don't know what the current rules are.
The inheritance tax already kicks in at a pretty high rate above $5 million and change. Are you advocating for an even higher rate? Close to 100%? If so, keep in mind that inheritance and gifting (while still alive) are directly connected. A 100% inheritance tax means you functionally prevent people from giving any sizable amounts of property to any other person (sans spouse presumably). This has a lot of implications. Even under such a system, if I am a wealthy parent, can I invest in a child's startup? What's the difference between a legitimate investment versus a transfer of wealth masked as an investment? Can I buy a 5th house in the city in which my child lives and allow them to live there rent free forever, or will the Government want to impute rental income? Will we create a new layer of (expensive, game-able) bureaucracy to decide what's fair use versus unfair use? Will the fact that effective transfers of wealth now require a higher degree of sophistication make inequality even worse?
My point being that these types of taxes tend to introduce a lot of complexity, cost, and inefficiency (and that's before considering the inevitable loopholes that lobbyists pay to include). And ultimately, lots of unintended consequences. I agree that the tax system can and probably should be used as a tool to encourage more equality but let's do it in a simpler and more efficient way, like land value and other consumption taxes.
Absolutely right on the complexity and loopholes. As I said - very hard to collect this in practise. But then again there are ways of legitimately avoiding income tax too.
The double taxation argument never really made sense to me.
If the same person is taxed twice for the same money then yes. But if you give money to your child when you die you are not going to be taxed twice. Instead you were taxed and your child will be taxed.
If you are against taxation on inheritance based on the argument of double taxation then you are also against the idea of taxation for almost any other use of money.
If go to work, get a salary is taxed on it and then go out and buy something for those money then you could might as well claim that it's double taxation. Following that logic.
That's of course not how it works.
If I inherit money my parents made I am getting those without having done anything besides being lucky this was my dad.
Of course there should be a tax on that, especially for all those who claim that it's unfair that you work hard and get taxed.
People who claim that tax on inheritance is double taxation are confusing the money with the involved parties.
Interesting related fact: in much of Europe, children have a legal right to a big fraction of their parents' wealth after they die [1]. The Gates/Buffett/Zuckerberg scheme of giving almost everything would be illegal, and in some cases children can sue to recover donations made during their parents' lifetimes.
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[ 5.9 ms ] story [ 185 ms ] threadSeems very naive - what would doing a lot with it even mean? It's definitely not under their mattress and even if it's sitting in a bank at 0.1% it's being invested by the bank. Otherwise it's going to be in some mix of stock, bonds, and private investments. Don't see how that's much different than the entrepreneur who sold their company for $X,000,000 and doesn't reinvest all of it into their next company
Money invested in AAPL/AMZN/FB is no more or less passive and no more or less "dumb" than money invested in VTSAX, IMO.
In other words, I can "hire" the active managers of those companies on my behalf as an investor.
Dumb money is money from people who actively invest it dumbly. For example, buying into pets.com because the internet seems cool.
Might be different now.
Doing whatever the person saying that phrase wants, which clearly takes precedence over the goals of the person who actually made the money.
This is more likely to kill jobs and prosperity than it is to produce them. It's also one of the prime causes of market bubbles.
If it's being actively invested, the investor has the opportunity to build new companies.
If it's redistributed by the government, the government can spend it on improving critical infrastructure, which is an easy way to create jobs and improve economic activity of all kinds. It can also invest it in new tech and R&D, which eventually trickles down to new opportunities for innovation.
trickles down
Trickle-down economics works for government spending, eh?
What do you mean by that? Existing companies raise capital to fund things like R&D, Capex, and entrances into new markets. All of these promote economic and technological growth and generally result in the creation of jobs.
> This is more likely to kill jobs and prosperity than it is to produce them. It's also one of the prime causes of market bubbles.
I'm not sure why you think investment causes job destruction. It's quite likely that there is less capital (for production) currently than would exist at the so called "golden level of capital". Increased investment would actually help rectify this (at the cost of current consumption). See a model like the Solow growth model for more information on this.
> If it's being actively invested, the investor has the opportunity to build new companies.
Unfortunately, many people have neither the desire nor the capability to successfully build companies and are able to enjoy returns on their money precisely because financial markets exist to invest in.
> If it's redistributed by the government, the government can spend it on improving critical infrastructure, which is an easy way to create jobs and improve economic activity of all kinds. It can also invest it in new tech and R&D, which eventually trickles down to new opportunities for innovation.
What makes the government better at job creation and R&D (with the exclusion of basic research) than the private sector? Greece has shown that governments can, in fact, allocate resources rather poorly [1].
[1] http://www.businessinsider.com/kyle-bass-chief-bank-economis...
This way, the entrepreneur has incentive to spend it or do more investments instead of keeping it in the bank where it would be taxed.
This incentive leads to inequality decreasing by the economy being more active.
Going a step up, over a reasonable short term, true blue chip stocks are almost gold in terms of stability. Tax them or not?
Money is always invested, even if you have it invested in the generic dollar instead of some other product. While it is common to think of the dollar as not being an investment, I find considering it an investment that is constantly losing value due to inflation to work better in my mental model.
Real estate is taxed separately, and municipalities run yearly appraisals. But I think that's pretty routine in most developed countries?
Here are the official guidelines for valuing real estate in Zurich (in German): http://www.steueramt.zh.ch/internet/finanzdirektion/ksta/de/... Note that you do not have to apply these rules yourself. Instead, the local tax office performs the calculation and notifies you about the result. If you disagree, this result can be contested, but generally, you do not need to familiarize yourself with all the details.
Switzerland is vastly different from a large country like the United States. Consider just a few factors: population size, geographic area, and ethnic homogeneity. Switzerland population is 2% the size of the United States population. Its land is 0.5% the size of that of the United States. Perhaps most importantly, Switzerland is far more ethnically and culturally homogenous than the United States. The gene pool of Switzerland traces back centuries; America is a nation of immigrants. The cultural homogeneity of Switzerland removes any friction in policymaking due to cultural disagreements or economic disparity. [1]
Implementing a new policy in Switzerland is rightfully much easier than implementing one in the United States. The constraints of Switzerland allow more flexible bureaucratic structures and policymaking, with more predictable results, than the constraints of the United States.
A policy that succeeds in Switzerland, a geographically small, culturally homogenous area, may not succeed in the United States, a geographically large, culturally heterogeneous area, for any number of reasons arising from these differences. Only an irresponsible argument would compare policy success across the two countries without first acknowledging their vast differences.
[1] https://www.washingtonpost.com/news/worldviews/wp/2013/05/16...
http://www.cityam.com/1416252493/financial-crisis-saw-uk-bec...
It's questionable whether a) there is growing inequality and b) more equal times (eg the 70s in the UK) were preferable for anyone.
I am wondering if your talking about UK and not US? In US it is not questionable the gaps are certainly greater.
http://www.cbpp.org/research/poverty-and-inequality/a-guide-...
https://www.washingtonpost.com/news/wonk/wp/2015/05/21/the-t...
> b) more equal times (eg the 70s in the UK) were preferable for anyone. (Soft science?)
In terms of poverty we could certainly do MUCH better.http://www.nytimes.com/2014/01/05/business/50-years-later-wa...
In terms of working middle class. Does anyone even have a pension anymore? 401K are not pensions and well it is scary. Also the rate of pay has stayed stable despite to record profits. http://monthlyreview.org/2014/01/01/the-plight-of-the-u-s-wo...
The entire concept of being legally required to provide a certain monetary benefit in 2060 based on someone's work now is crazy.
> 401K are not pensions and well it is scary.
Why? Your benefit is based on the actual money you have. That's just math, as opposed to smoke and mirrors with pensions where the money may or may not actually be there 50 years from now.
When people's 401K fail then the government has to pay for the companies for not providing for their employees.
http://time.com/money/3624637/401k-retirement-problems-getti...
And no it's more like "pensions work 75%"[0]
[0] http://abcnews.go.com/blogs/business/2013/04/insolvent-union...
Also 65 might be to low a number now but that is another issue.
Meaning that the system collapses if you don't have new people continually paying into it?
I think that already has a name.
Last time I looked PA has millions of people.
Everyone knew thats how it works, that why the rich people do it that way. Piketty just put some numbers behind it.
The problem with Piketty is more his solutions. Those are based on an false premise that it's just a matter of different politics and legislation.
If this is the case, then it would likely be better to implement land taxes. Land taxes are probably better than most taxes for a variety of reasons, but if we are directly looking to decrease inequality land taxes would strike at the root cause.
I am not an economist, so I'm not equipped to evaluate either set of claims. Is there anyone here who might know what they're talking about who can weigh in?
[1]http://www.mit.edu/~mrognlie/piketty_diminishing_returns.pdf
The biggest problem with prop tax is the general social aversion to kicking people off "their" land. As if any land is truly privately owned, LOL, and the government messing with the rent is going to shine quite a bright light on that little social problem. You'd need some kind of plan to deal with temporarily un and under employed vs permanently un and under employed landowners, not to mention enormous numbers of homeless elderly retired people.
The supply of land is fixed is the difference. If you tax a good with fixed supply, the price of that good will tend to decrease.
A good that is not fixed will tend to increase in price after a tax, because the higher costs will tend to reduce supply.
>I can't see that not happening, and that would have a big impact on poor renters.
Taxing improvements reduces the incentive to build--costs rise--which is why property taxes can be passed on to renters.
Because land is fixed in supply (keep quiet, Kansai International Airport!), it isn't actually possible to pass on a land value tax to renters. Land taxes actually make land cheaper to buy (though with an ongoing tax obligation).
>That would really only hit people who own their own homes
The tax falls on those who own land, who tend to be the wealthiest in society. Because its a tax on land value, those with the most valuable land pay the brunt of the tax.
Think of Midtown Manhattan; the land owners there would pay a large proportion of the taxes in NYC since they have a comparatively large portion of the land value.
Someone in deep Queens would have relatively low taxes since their land is not nearly as valuable, even for the same acreage.
>or who own land that they aren't renting.
If you own land you aren't renting in a high value area, yes, it punishes you for that by design. Think vacant lots in the city center. If you own such land, you are likely rich.
If you are attempting to use NIMBY rules to prevent development, it will utterly destroy you. I think this is a feature, not a bug.
If anybody else found this claim to be counter-intuitive, the wiki article on 'Land value tax' helped me understand. [1]
I am not convinced. The biggest problem I see is the practical one of appraising the value of the land, which depends on what the land will be used for. A landlord will almost always outbid a homeowner when buying a plot of land, because the landlord intends to monetize the land, while the homeowner intends to live on it.
A land value tax would favor monetization over personal use, increasing rental prices and expanding the size of the "renter class" while shrinking the size of the "homeowner class". The result would be an effective increase in the relative price of owning a home compared to renting one.
Paying rent is obviously economically inferior to owning property, and any policy that encourages rental growth over homeowner growth will only increase the inequality gap. Only the wealthiest benefit from increased rental volume.
[1] https://en.wikipedia.org/wiki/Land_value_tax
Consequently, society can, consistent with ethics and morality, recognize a right to hold property, and just as consistently recognize exceptions to that right such as for payment of taxes.
I certainly hope you didn't mean "It is therefore consistent with ethics and morality that society can...", which would mean your first paragraph implies there are no moral or ethical limits on what 'society' can do.
Even birds build nests, and magpies defend their children in nests agains humans, too.
This thread is pretty weird. Rayiner isn't saying anything shocking; he's recapitulating political philosophy that most of us learn in high school. It's one thing to debate Rousseau vs. Hobbes, another to act like the concepts of the general will and the state of nature are novel.
The US constitution was written with a point of view: that people have rights, and that those rights are unenumerated. You might think that's rather artificial. But so is government, in general.
This is a thread questioning the intrinsic merit of property rights, and I read your comment as suggesting that the Constitution might somehow refute property rights. It clearly does not.
Are they men? Then make them citizens and let them vote. Are they property? Why then is no other property included? The houses in [Philadelphia] are worth more than all the wretched slaves that cover the rice swamps of South Carolina....The admission of slaves into the representation when fairly explained comes to this: that the inhabitant of Georgia and South Carolina who goes to the coast of Africa and, in defiance of the most sacred laws of humanity, tears away his fellow creatures from their dearest connections and damns them to the most cruel bondages, shall have more votes in a government...
Another problem with volunteering is half the population is below median and most of the world's population is pretty stupid and live outside organized society, indicating a voluntary society would only be sustainable if participant IQs were limited to perhaps 120+. People who are proven to have poor time preference or inability to socialized in a civilized manner can't be relied on to volunteer appropriately and need the gun and whip to behave appropriately, including ethical and moral "volunteering". So you end up with a clone of the existing system where smart enough people can cheat the system if they are unethical enough, or if they feel the system is unethical enough. Cheaper and simpler to leave the system alone than to rebuild it ending up in the same place anyway.
Given that, it should always be possible to opt out and go full Amish WRT refusal to fund the "real education system" or whatever... however note that even they have more or less non-optional tithing which is an income tax by another name.
Your second paragraph is an excellent argument against democracy.
If you want to keep everything to yourself without giving anything back then go live in the middle of the rainforest. Let's see how rich you get without the wealth that other people created around you in order to be able feed your own wealth.
Mark Zuckerberg didn't create the Internet, Bill Gates didn't create the computer, IBM didn't create electricity, most land owners don't create the rising value of their land (especially true when it comes to urbanization)
If you want to keep 100% of what you earn you must find a way to be 100% responsible for what you produce.
That will be hard.
I.e. two platforms that made it possible for them to build their businesses on.
Interesting to think about the social and economic consequences of this kind of change. Charities would probably be less capable of operating in perpetuity on endowments, individuals would no longer be able to invest their wealth and live off the rent. The economic status of all individuals within the upper and upper-middle classes would in effect be constantly sinking, and they'd be expected to make their way on their merits within the market economy. Money would be reallocated towards people who could do more with it. It would be a shift towards a world with a much more cut-throat, highly meritocratic, highly competitive model of capitalism.
It also introduces nuance into the debate around Thomas Pikkerty, you're not just talking about capital growth, but also about passive and active investment. I doubt many people defend the passive growth of capital over and above the general growth of the general economy. If you really can put your money in property, or in an index fund, and with very low risk grow your wealth at a rate higher than the rest of the economy, that is clearly a problem - it is an economic tendency towards aristocracy. But if you're creating a system where passive capital is falling away, and the funds flowing in each generation towards people who can deploy the capital most effectively, that is a different moral issue, and a different trajectory for the future of the economy, and society.
Folks with significant wealth need the benefits of well run, stable government to hand on to that wealth. The proportionally pay little or nothing for that benefit. Poor people survive no matter what. Middle class people bear the burden of paying for everything.
I suspect fewer people will go all-in building a startup in their twenties if the wealth wasn’t going to effectively secure their future?
This is fairly optimistic. the expected merit and competition might just instead be elitism, corruption and cronyism. Since wealth means power, the wealthy can always find ways to break the rules...
So basically we should tax money that lazy and give tax breaks to money that are actively working.
This also correlates with how economist normally want the economy to work. When everyone spends money wealth is created. You could say that people who make less money are better citizens from that perspective in that they are more likely to keep the economy going than those who just let it sit and collect in the background.
The reality is that we're stuck in a disaster of our own making. Partly because money has no value (no commodity backing) and partly because since we decoupled value from money we thought we could print more of it to spur growth. But growth doesn't come from the money, it comes from the labor to produce goods and the goods which save time when we labor. You can't shortcut your way to growth. It comes from those sources and nowhere else. The rest is purely speculation driven or illusory in general. And it gets worse you think about the hard reality that people don't want more things. Consumerism doesn't fix the problem either as private debt keeps ballooning people realize their finite resources (wages from their own labor) is dwarfed by credit payments. So, bing bang boom the whole thing falls down.
If you want to charge people for profiting from land, it seems a land tax would be the best way to do it. It's essentially a property tax, except instead of taxing the land and the improvements, only the unimproved land value is taxed.
This allows capturing some of the economic rents by society as a whole in a way that has very little distortion and is essentially avoidable only by moving.
Moving would mean not taking advantage of any of the benefits or improvements of the area, so the only way to avoid it would be to give up the benefits. A wealth tax, by contrast, could be avoided by moving wealth to another country.
Since a large amount of wealth is tied up in land, a land tax is a sort of wealth tax by proxy, but with virtuous effects of promoting additional development and investment and punishing things like land speculation. It's a progressive tax too.
But it's one that a globalized world where money can move freely must deal with somehow.
I think we will see this shift and that more and more countries will be working together closer and closer.
It's going to take time but I think it's unavoidable.
But when they die, IMO their wealth ought to be redistributed to society. Their own kids didn't earn it any more than the neighbour's kids did. I'm okay with increasing inheritance tax provided we simultaneously reduce income tax rates. That would produce a fairer society where people are more productive.
There will be those who (fairly) contest the double taxation aspect of inheritance tax, but please consider the benefits to society of reducing income tax as a result of raising inheritance tax.
Parents could argue that it's up to them what they give their kids. That's true. But watch "Made in Chelsea" to see what happens when kids get a large inheritance. Horrendous! :-)
Obviously tax collection is also an issue here - people will naturally try to avoid inheritance tax, and it will be very hard to stop them. No easy answers to that.
IANAL, and that was a while ago. I don't know what the current rules are.
https://www.youtube.com/watch?v=MRpEV2tmYz4
My point being that these types of taxes tend to introduce a lot of complexity, cost, and inefficiency (and that's before considering the inevitable loopholes that lobbyists pay to include). And ultimately, lots of unintended consequences. I agree that the tax system can and probably should be used as a tool to encourage more equality but let's do it in a simpler and more efficient way, like land value and other consumption taxes.
I agree with raising consumption taxes.
If the same person is taxed twice for the same money then yes. But if you give money to your child when you die you are not going to be taxed twice. Instead you were taxed and your child will be taxed.
If you are against taxation on inheritance based on the argument of double taxation then you are also against the idea of taxation for almost any other use of money.
If go to work, get a salary is taxed on it and then go out and buy something for those money then you could might as well claim that it's double taxation. Following that logic.
That's of course not how it works.
If I inherit money my parents made I am getting those without having done anything besides being lucky this was my dad.
Of course there should be a tax on that, especially for all those who claim that it's unfair that you work hard and get taxed.
People who claim that tax on inheritance is double taxation are confusing the money with the involved parties.
[1] http://www.economist.com/node/14644403