I could imagine a wealth tax movement getting strong enough and that or the threat of it might eventually be able to change things ... :fingers crossed:
Or maybe if the trend of folks no longer working continues for long enough with enough force ...
The labor class has gotten screwed so severely for so long opting out of the labor economy is probably the most rationale option available for the majority of earth's human population ...
It's how Anglosaxon civilization may end, but there are Western alternatives with better democratic oversight, such as the Rhineland model. They are creaking under the strain of Anglosaxon propaganda though.
There are many sub-cultures within the anglo-saxon-sphere, some of them cooperative, egalitarian, pluralistic, strongly democratic.
Call it for what it is, using whatever terminology you want ... capitalist, neo-liberal, oligarchic ... just use something more specific and more accurate than "anglo-saxon" if you want terms to actually have some meaning.
At core, the issue is that the people who hack the law are way, way, way smarter and more motivated than those who write the law. The hackers in this case typically aren't doing anything illegal. They're just exploiting the system crafted by lawmakers.
This is part of the reason the best tax system is one that is super simple. Once you add in exceptions and complexity, you necessarily create loopholes. Government needs to be humble about the reality that the adversary will always be smarter and willing to work harder.
Another way to look at it is government jobs just need to pay better and have much more prestige. In some Asian countries, government jobs are the most coveted of all. Imagine if we lived in a reverse world where the smartest people clamored to work at the local ministry of economy and working at the big banks was seen as second-rate. Companies would no longer outsmart the government, and voters would understand that the extra tax income more than pays for the more expensive top-of-the-line people. A man can dream..
> Government needs to be humble about the reality that the adversary will always be smarter and willing to work harder.
But often the lawmakers themselves exploit these loopholes. A big part of the problem is that the "adversary" includes the people making the law, which does not create well-aligned incentives.
There is a huge difference between taxing capital gains (net profit from investment each year) and taxing capital (direct tax on your entire net worth). The former is an effective tool to tax the wealthy by adding new capital gains tax brackets. The latter is how Western civilization ends because you will no longer own anything free and clear after income taxes. The Government will have the ability to take your capital when and how they wish.
It varies but many state and local governments collect personal property taxes on based on the vehicle’s value. What’s notable is US property taxes are generally regressive. 3.6% for the bottom 20% down to 0.7% for the top 1%.
And you could adjust yearly, don't want those multi-millionaires to feel too much burden. Who will creat the jobs!? Won't somebody think of the jobs?!?
That sounds histrionic because real property is already taxed in many states, and short of taxing wealth, the government can do many things to devalue your assets.
Putting aside the issue of the current trajectory of increasing inequality and its destabilizing effects on national security, the obsession Americans have with owning things "free and clear" is a reflection of a kind of privilege. The US is blessed with an expansionary economy, stable financial system, strong rule of law, military power, and respect for individual rights. These all form the basis of this belief that private property rights are absolute. They are never absolute, always subject to the goodwill of the social contract and the laws of physics. What good is owning things free and clear when there is a marauding militia outside your Capitol, or your land lost all value because of the environmental damage externalities of the economy?
There's currently a vast number of people renting who are not "choosing" not to own. Many of them want to own, but lament that no matter how hard they work, prices are out of reach and rising faster than they can ever hope to save.
Some pray for a price crash, after they saved for a mortgage deposit but prices went up so it's not enough any more. Meanwhile rent is a substantial part of their income, and often costs more than a mortgage for the same property would, so they would choose a mortgage if they could, but can't get one.
Many of them live in poor quality conditions too, unable to improve or repair the property they are in, and at constant threat of eviction on the landlord's whim, and face difficulties finding a similar place to rent when it happens.
For most of them, the work they are skilled in either cannot be done remotely, or is low paid work (eg remote call centre worker).
There is also the not entirely trivial problem that moving to a completely different location with low prices and higher supply typically means low wages and fewer jobs, along with losing all your friends and family network, which is crucial if you are already struggling, and doubly so if you have a young family.
This increasingly affects more older people approaching retirement age, who worry about how they are supposed to pay rent when they are too old to work. The pension won't cover it. They are not choosing to not own.
I don't see how feudalism would help there, beside ensuring the people you are talking about are killing themselves in the fields.
I also don't see how more and more regulations ensure this won't happen, as it most likely had the exact opposite effect: prevent new wealth from establishing itself (high regulation preventing blooming wealth from building enough momentum to escape taxes) and enshrines "old" money. Regulations gives a clear advantage to people already established.
I'm arguing against "there are plenty of affordable homes" in a useful sense, and the implication that most people who don't own have chosen not to own.
I'm not arguing that feudalism is part of the solution.
Real property is taxed usually 1-2%, but depreciation of around 4% is allowed also, which along with 1031 exchanges makes real property investments fairly tax efficient. If financial instruments had a corresponding wealth tax, it would probably come with corresponding escape valves otherwise their value would quickly collapse. Newton’s 3rd law has a pretty strong analog in how economic behavior responds to taxes.
Would you tax wealth held as cash also? A 1-2 % negative interest rate on cash would decimate banks.
A negative interest rate is the most natural solution.
Money is just a way to reresent a bar tab. You don't own the money because money is a claim to the labor of someone else. It is essentially a debt.
People want that debt to last forever even though that is impossible as people age and die or their productivity is lost through unemploynent.
The truth is that your money is rotting all the time. By cutting spending they run into the illusion that their money can buy more things.
But money only starts rotting when it is actively used. So there is a delay between the current purchasing power and the decline in purchasing power after you have spent it.
Negative interest rates merely eliminate the delay. They aren't taking anything away from you that existed in the first place. They are taking the part that wasn't real to begin with. They are shattering an illusion that many people believe in so they want to shoot the messenger.
There is no store of value. Just 7 billion hard working humans. If they don't work your dollars buy you nothing. Currencies are worthless, it's the people that give them value.
Property taxes are a significant burden on people with fixed incomes. It amounts to a permanent rent, and requires an income. It amounts to a form of servitude to the government I think.
Sales tax? Income tax? There's a difference between what is ideal and what is practical, but just because the ideal isn't immediately practical isn't an excuse to continue with the unideal indefinitely.
How would you deal with people living in one tax locale and working/shopping in another?
Taxing real property to fund improvements and services adjacent to that property makes the most logical sense. I don't buy the argument that people on fixed income are somehow hurt by this. If someone on a fixed income owns a giant house and can't pay property tax on it, that implies they need to liquidate that property or rent it out to pay for the improvements around that property that support its value. Thanks to federalism, Americans actually have a choice of different places to live that tax property at different rates with correspondingly different levels of local services, so people are free to own in states with very low property tax in places that don't have much in the way of improvements.
That's bullshit. Americans provide a huge safety net to seniors. Most states have property tax relief for seniors, HELOCs are available, and there are many other support services and discounts for seniors for other costs of homeownership. American senior homeowners have extraordinary privileges protecting them from displacement and financial distress.
I was not just referring to seniors. But good to have an authority such as yourself to reassure me that there are plenty of hoops for seniors to jump through to get relief from the govt imposed rent you're comfortable with.
That is quite a big leap to go from "taxing capital" to "Western civilization ends because you will no longer own anything free and clear after income taxes."
> The Government will have the ability to take your capital when and how they wish.
Then the "rich" will no longer own anything, officially, their company will. There is no difference between having $1 billion in cash and being the director and fully controlling a $1 billion "company".
As long as money is power I think we would have to rely on those with the money wanting to give up some of the power. Of course, there are other forms of power the penniless can and have resorted to in the past.
I have read that in the past paying taxes was a sort of pride, a kind of score-keeping among the rich. Just recently I saw an anime (JoJo's) where the influential senator was trying to reassure himself how powerful and successful he was and one of the lines was something like "I pay more taxes than anyone!". I don't know if this was meant to be a reflection of modern Japanese culture (it was set in 1989) but it felt archaic.
I no longer live in the US, but once held permanent residence status. I plan on running a little experiment: submit randomly generated tax returns to the irs. I'll keep you posted.
I actually love this idea, since I'd expect the outcome to be that the IRS sends you a letter saying "we noticed you said $5 for field 29-c but we already knew the number was $7 and have corrected it for you"
I made a dyslexic number transposition and California sent me a letter almost exactly like that. It makes me livid
It's not as easy to fix as it seems at first glance. Imagine I put up $1 million, and you are a chef, and we go into business together. You get 20% of the restaurant company for being the brains of the operation. In 10 years we sell it for $2 million. You get $400k. I get $1.6 million. Should my gain be capital gains? What about yours?
Some folks feel that all human labor and human capital should be taxed as income.
Others think it would be distasteful if on the successful exit outlined above, the chef had to pay higher tax on his 20% ownership than the capital provider ie said folks think that everyone should pay the same tax rate on the sale of the business.
Others think that in my example the chef has brought capital to the table in the form of skills/knowledge learned, ie human capital. So, everyone is getting taxed on capital in the same way. The chef gets his monthly salary taxed as income, which is payment for labor.
None of these positions are obviously flawed. It's pick your poison. Creating a tax system isn't easy.
Thats not the same thing. Imagine there is a 3rd person whos whole job will tell you that they "know" when to sell the restaurant. For this, they will charge a 1%/year flat fee based on the current value of the business. They'd average 15k/yearly for 10 years. They also charge carried interest on your paper gains, so 10% performance on your 100k/year average gain, another 10k/year.
They are effectively making a salary for labor but only paying 0-20% on 25k/year from our business depending on how many other clients they have. This is much lower than the 10-37% most workers pay on their labor.
I'd argue that the business sale is capital gains. I never said it wasn't in my original post.
Carried interest and a fixed flat fee to manage an investment (which most people call a salary) should not be taxed as if they are capital gains.
There are situations which are quite simple and, I agree with you they seem to be taxed the wrong way. It's just harder to fix than it seems because the spectrum of what people actually do when involved in a business is wide. Most situations are something in between your example of a person who "knows" and mine of a chef.
The chef in my example "knows" what kind of food to create for a given area - ie the intersection of demographics/tastes, the existing competition, locations etc. That expertise is equivalent to your "knowing". The chef might not even actually work day to day - he/she just had the initial insights. Now the chef has moved along the continuum towards a finance person.
In almost all the modern successful PE operations, the teams are industry specialists (ie if you look under the hood at Blackstone, KKR etc, the people are organized by industry). They actually know a lot about the operations, what can be improved, what needs to be thrown out etc. They are something in between my "chef" and your "person who knows". By and large, they aren't timing markets. Even VCs are becoming industry focused as opposed to generic. Many are former founders. They have stepped down the continuum toward being a "chef".
ie, most folks are in the grey area.
WRT business sales - at least for PE/VC folks, the carried interest is calculated on the business sale. There are some situations where they can write things up or down, but it washes out - ie they can't just write it up arbitrarily - the value of the asset, and hence their capital - needs to have actually gone up.
In Evicted: Poverty and Profit in the American City by Matthew Desmond, the author shows not only that there is money to be made renting housing to the American lower class, but also that it is in fact more profitable than renting to their more economically well off counterparts.
This is not because they have more money to part with but because they can be squeezed harder.
The wider concept seemed counterintuitive to me at first but I see various implementations abound in the wild the harder I look. This article shows one example.
Someone I knew in the used car business told me that it was not unusual for a single car to be sold and repossessed multiple times. Each time, the dealer pocketed the down payment, which was typically more than they had originally paid for the car.
Some trucking companies require you to lease your truck. If you get fired before you paid off the lease you dont't get to keep the truck. Barely anyone stays around long enough and if they do the boss can just fire them before the lease ends.
What I don't get is usually the poorest part of the population is the biggest recipient of financial aid - which means. The government has a direct incentive of going after these people, why don't they do it?
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If it's supposed to be funny, I really don't have time for it so I left without reading
I cannot imagine a judge concluding you are free from your obligations while retaining whatever consideration you received from Bob corp because Jim who works in the mail room read your blog.
Almost all the examples are agreements without consideration (e.g. “I get to sell your data”, a common “browsewrap “agreement””). Cory Doctorow's agreement is as valid as they.
At least if someone enters into an agreement to share their data they actually have the right to share said data unlike privileges reserved for Bob corps officers not Sam the secretary.
This is the most obvious problem but there is also the implied covenant of good faith that is clearly violated by trying to trick Sam the secretary into giving up agreements entered into by Sam's boss and a third party.
I think you vastly overestimate the validity of such an agreement.
"Monetarily sovereign countries don't tax to fund their operations. Rather, they tax to fight inflation"
Another way of putting this: we are paying the interest on their loans. That is, the only thing that would be different without taxes is higher interest rates.
> Another way of putting this: we are paying the interest on their loans.
No. Most of the money (more than 90%) is issued by private banks, and most of that is for private companies. the taxpayers are paying interest on those loans.
When something flows around in a circle, no matter how big the circle or how long it slows to a stop at certain points, it's not always easy to say where it starts and where it ends up.
You could in theory replace the interest rate with a tax. Private banks put their profit margin on top. Governments always issue 0% debt.
It is a slightly less broken system than the one we have today (no endless nominal growth required) but functionally it is identical. So your idea is a good approximation.
My view is capital gains rates should be capped at some reasonable gain per year. So, for example, you'd pay the capital gains rate on the first 10% per year you earn on an investment. If you hold it 10 years, that would be scaled up appropriately (1.1 ^ 10). Then, once you make more than that, you'd pay regular income taxes.
That would avoid the issue of incentivizing gambling while not disincentivizing investment in the economy. Notably, it would also require founders of big tech companies to pay mostly income taxes, since their cost bases are so low (which I believe is appropriate).
Taxes should also probably be due on assets once they've been held for some period of time (say 5-10 years), whether they sell the assets or not. This would avoid the phenomenon where fantastically wealthy people borrow money against their stock holdings to avoid ever paying taxes, then use estate planning tricks to pass the money on to heirs.
If you hold 6 months, the hurdle rate would be ~5%. If you hold 18 months, it's ~15%. You can't avoid the tax by churning, unless you're phenomenally lucky at market timing. The hurdle rate isn't 10%. It's 10% per year. That makes a huge difference. There is no incentive to churn your holdings. Quite the contrary, as the percentage taxed at a lower rate goes up each year.
People do tax-loss harvest, but they're taking a risk because they have to stay out of the stock for 30 days, and during that time who knows what will happen. I'd be interested in a more concrete example of exactly how someone could do what you're saying to come out ahead. So far you just keep saying vague things. What exactly would someone do under my system to sidestep it?
You just purchase another stock right away that correlates or matches the one you sold. Sell Vanguard total market and buy Fidelity total market. No need to stay out of the market for 30 days.
I don't buy that the reversion to income tax should happen on high percentage gains if the absolute gains are low. I think the tax could be made even more progressive. Something like:
The first $500k of capital gains get current cap gains treatment. After that, all gains are taxed as regular additional income.
This is gross double taxation: they already paid taxes when they earned the money you are investing, and you are suggested taxing them again at high rate.
What frustrates people is the percentage paid of income, not the absolute total. People don't like that a person earning $100k pays more as a percentage in tax than does someone earning $10M a year.
I realize the document you shared shows a 25.4% rate paid of AGI for top 1% versus 14.6% for the top 50%. There are a bunch of problems with this though. For starters, people earning under $100k a year have social security tax applied to their entire incomes. High earners also are very likely to shield large amounts of their AGI from taxation in various ways. Poorer people also pay property tax, sales tax, etc.
Anyway, no one is going to argue that a person making $10M who pays $4.5M in tax (or whatever the federal + state statutory rate is) is paying too little. The issue is super-rich people who basically pay nothing. Even the page you linked indicates to me that those in the 90-99 percentile are paying a higher percentage than those in the top 1%, when you count the factors I mentioned above.
FWIW I'm in the top 1%, but I'm not Mark Zuckerberg. I know some of the tricks, because I use them.
Beyond just anecdotes of the rich “paying no tax”, do you have a data source to show it’s widespread? All I see are individual examples that are often “off years”.
The latest data I saw from the IRS showed a consistent progressive tax rate right up to the top 0.1% (who pay the highest effective tax rate).
Even the Propublica article showed that Elon paid $500M in taxes when he sold $1.5B in shares.
I mean, at this level we're only talking about a few thousand people. So, studies are going to be hard to come by. Really, all you need is a thought experiment and to read about how it works for super-rich people. They typically never sell their stock. Instead, they borrow against it and use that for spending money. There was a recent article about Zuckerberg's estate planning, which was similar to what Sheldon Adelson apparently used. Some sort of complicated trust that projects returns on assets to avoid taxes or some such.
Again, just a number of anecdotes. I heard Bezos just borrows money to avoid taxes but then read he sold tens of billions of Amazon stock a couple years back paid taxes on it. So which is it?
And of course we have data. These rich folks files taxes with the IRS. And the top 0.01% would be tens of thousands of tax payers, not a handful.
A question to you: Would it help if we gave up income taxation and switched to expense taxation of natural persons? I am trying to think long-term and visionary.
The idea behind this: even the super rich consume. One might have a big yacht which costed a few hundred million dollars. If the state can enforce taxation of expenses of natural persons, the man with the yacht would have to pay a percentage of his expenses with the yacht.
I know there are many loopholes, but let's think about them and try to close them. One of them is pushing expenses abroad. To close the loophole declare that moving money abroad to a country which doesn't do expense taxation counts as expense. And let's try to this in many countries of the world.
I also know that super rich tend to consume less as a percentage to their wealth. But surely they consume a lot more and more expensive things than the general populace.
After all, people are people and it doesn't really matter what complicated structure of incorporations they have created to evade taxes. It doesn't matter, too, whether something is a salary or capital gain. Finally they will use part of the money to consume. Then strike hard and extract a percentage as tax.
I know there's value-added tax, this is similar, but the target is different. And I know this idea is somewhat vague. I just wanted to outline the principle here: expense taxation.
And 13% of income. Perhaps the problem is that poor people are poor because they make bad financial decisions, not because rich people are kicking them down.
I won't get into detail but this is not true at all.
The US is a buyer market for labor. If you get ahead through hard work you just kick someone else down the ranking.
Given a seller market for labor capitalism can absorb an infite amount of poor, lazy, dumb, bad decision making, slacking people and pay them good wages in the process. The stronger the seller market the easier it is to exploit people upwards the economic ladder.
Considering the paradox of competition it is entirely possible that once every person is making "good financial decisions" everyone is worse off in the end.
Poor people indeed often make bad decisions (not necessary financial, but like taking college degree they don't need or staying with their parents until they are 40).
But realistically it's much easier to save money when your income is $10K per months vs when your income is $1K per month.
The UK did a great thing recently: there's semi-mandatory private pension contributions: it is 8% total (you can opt-out, but you need to explicitly do that). So even folks making poor financial discussion will own some wealth.
AFAIK in the US there's no minimum contribution to 401k.
The problem is super rich people don't make income. if an asset keeps making money you probably don't sell it. you just borrow against your assets at a lower rate than your assets increased in value.
I'd also like to know the answer to this. I understand one method that property investors use, borrow more money to buy more property and keep leveraging up and up hoping you exit before s crash.
You do eventually need to pay the loan, though at the very least you're able to control when. You can avoid selling into a down market, realize gains in a more tax efficient year, or keep holding the assets as they appreciate faster than the interest rate of your loan against them. Rates are pretty low; I wasn't super-familiar with the terms but quick web searches show threads confirming 2%, one even down at 1.26% given interest rates are so low right now.
A huge win in terms of generational wealth under current law is if you keep the loan until you die, the loan still needs to be paid off but your heirs inherit the assets with a step up in basis to the new value, so capital gains are never paid. For this strategy you can search for "buy, borrow, die." Addressing this was in Biden's proposed budget but we'll see if it actually passes... there's likely to be a ton of pushback even though there are some carve-outs for family farms, family businesses, primary residences, etc.
Consider a landlord who takes an interest-only business mortgage to purchase a buy-to-let property.
In good times for landlords, the rent pays the mortgage interest and some more which is profit for the landlord.
Even if there is a slight loss, when property prices are rising the landlord does ok because they can refinance against the higher valuation.
This loan never needs to be paid off, as long as there's enough rent and/or refinancing to keep paying the interest. Both the bank and the landlord profit from keeping this arrangement as long as they want it, it can even be passed down generations or sold to someone else, as an ongoing business.
People with $10M are more likely to be entrepreneurs. So, society should attempt to increase the number of people with $10M. Currently it taxes wage slaves heavily, including those on a trajectory to have $10M and become entrepreneurs. Yet, when a billionaire dies, why should their heirs receive their billions? With 100% estate taxes over $10M, the tax burdens can be transferred from the hard working member of society, to the idle rich heirs.
The extreme estate taxes would result in a more equal society, while incentivizing those more likely to drive it forward.
They have much more orders of magnitude of unproductive free money lying around.
Even so, they do pay less. Bezos claimed a tax credit for his children, FFS. Why are Amazon workers subsidizing their boss, they are the the ones that should be receiving the money.
> Private equity's playbook is to borrow giant sums by putting up other peoples' companies as collateral (yes, really). Then they use that money to buy the company they mortgaged, and pay themselves a huge dividend.
Perhaps im missing something, but isn't that how most debt works? You want to buy a house, car, etc. Bank puts up the money so you can purchase the asset, in exchange, they have a claim to the asset until you pay back the loan. Seems pretty reasonable to me, and i don't see how PE is different from the type of arrangement ordinary people do.
I guess im wondering if this is all bad. If the cost to buy the company is less than what could be wringed out of it in the short term, doesn't that mean its basically on its way to ruin anyways. For the private equity thing to work it has to be cheap enough that the whole is basically worth less than the sum of its parts. Maybe a company like that should die, or maybe its already dead. After all, the point of a company is supposed to be you make more money than you put in - if the expected value in the long tern is less than its short term value, something has gone very wrong for the company.
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[ 3.8 ms ] story [ 194 ms ] threadOr maybe if the trend of folks no longer working continues for long enough with enough force ...
The labor class has gotten screwed so severely for so long opting out of the labor economy is probably the most rationale option available for the majority of earth's human population ...
There are many sub-cultures within the anglo-saxon-sphere, some of them cooperative, egalitarian, pluralistic, strongly democratic.
Call it for what it is, using whatever terminology you want ... capitalist, neo-liberal, oligarchic ... just use something more specific and more accurate than "anglo-saxon" if you want terms to actually have some meaning.
Using a system (or the law) in ways it was not intended to be used can be considered hacking.
Claiming "whatever tax credit" is not a "loophole" but merely claiming what the law allows you to claim.
Note - it’s still legal.
So your idea is to punish people for doing legal things?
This is part of the reason the best tax system is one that is super simple. Once you add in exceptions and complexity, you necessarily create loopholes. Government needs to be humble about the reality that the adversary will always be smarter and willing to work harder.
But often the lawmakers themselves exploit these loopholes. A big part of the problem is that the "adversary" includes the people making the law, which does not create well-aligned incentives.
It varies but many state and local governments collect personal property taxes on based on the vehicle’s value. What’s notable is US property taxes are generally regressive. 3.6% for the bottom 20% down to 0.7% for the top 1%.
https://en.wikipedia.org/wiki/Property_tax_in_the_United_Sta...
Ah, so no growth, no taxes. I see what your did there.
Then everyone would be able to own 25,000,000 worth of stuff free and clear.
Given the speeding up of inflation, reaching $25m will happen in no time...
Putting aside the issue of the current trajectory of increasing inequality and its destabilizing effects on national security, the obsession Americans have with owning things "free and clear" is a reflection of a kind of privilege. The US is blessed with an expansionary economy, stable financial system, strong rule of law, military power, and respect for individual rights. These all form the basis of this belief that private property rights are absolute. They are never absolute, always subject to the goodwill of the social contract and the laws of physics. What good is owning things free and clear when there is a marauding militia outside your Capitol, or your land lost all value because of the environmental damage externalities of the economy?
Sure, let's go back to feudalism !! Yeah!!
Moreover, because some people choose not to own doesn't mean it shall be imposed by force to a whole population.
Some pray for a price crash, after they saved for a mortgage deposit but prices went up so it's not enough any more. Meanwhile rent is a substantial part of their income, and often costs more than a mortgage for the same property would, so they would choose a mortgage if they could, but can't get one.
Many of them live in poor quality conditions too, unable to improve or repair the property they are in, and at constant threat of eviction on the landlord's whim, and face difficulties finding a similar place to rent when it happens.
For most of them, the work they are skilled in either cannot be done remotely, or is low paid work (eg remote call centre worker).
There is also the not entirely trivial problem that moving to a completely different location with low prices and higher supply typically means low wages and fewer jobs, along with losing all your friends and family network, which is crucial if you are already struggling, and doubly so if you have a young family.
This increasingly affects more older people approaching retirement age, who worry about how they are supposed to pay rent when they are too old to work. The pension won't cover it. They are not choosing to not own.
I also don't see how more and more regulations ensure this won't happen, as it most likely had the exact opposite effect: prevent new wealth from establishing itself (high regulation preventing blooming wealth from building enough momentum to escape taxes) and enshrines "old" money. Regulations gives a clear advantage to people already established.
I'm not arguing that feudalism is part of the solution.
Would you tax wealth held as cash also? A 1-2 % negative interest rate on cash would decimate banks.
Money is just a way to reresent a bar tab. You don't own the money because money is a claim to the labor of someone else. It is essentially a debt.
People want that debt to last forever even though that is impossible as people age and die or their productivity is lost through unemploynent.
The truth is that your money is rotting all the time. By cutting spending they run into the illusion that their money can buy more things.
But money only starts rotting when it is actively used. So there is a delay between the current purchasing power and the decline in purchasing power after you have spent it.
Negative interest rates merely eliminate the delay. They aren't taking anything away from you that existed in the first place. They are taking the part that wasn't real to begin with. They are shattering an illusion that many people believe in so they want to shoot the messenger.
There is no store of value. Just 7 billion hard working humans. If they don't work your dollars buy you nothing. Currencies are worthless, it's the people that give them value.
Though it's certainly a privilege to own land.
Taxing real property to fund improvements and services adjacent to that property makes the most logical sense. I don't buy the argument that people on fixed income are somehow hurt by this. If someone on a fixed income owns a giant house and can't pay property tax on it, that implies they need to liquidate that property or rent it out to pay for the improvements around that property that support its value. Thanks to federalism, Americans actually have a choice of different places to live that tax property at different rates with correspondingly different levels of local services, so people are free to own in states with very low property tax in places that don't have much in the way of improvements.
Can you justify that at all?
Then the "rich" will no longer own anything, officially, their company will. There is no difference between having $1 billion in cash and being the director and fully controlling a $1 billion "company".
https://www.bloomberg.com/news/articles/2021-05-12/manchin-o...
I have read that in the past paying taxes was a sort of pride, a kind of score-keeping among the rich. Just recently I saw an anime (JoJo's) where the influential senator was trying to reassure himself how powerful and successful he was and one of the lines was something like "I pay more taxes than anyone!". I don't know if this was meant to be a reflection of modern Japanese culture (it was set in 1989) but it felt archaic.
There is a huge variety of solutions. War isn't inevitable it is merely the easiest way.
I made a dyslexic number transposition and California sent me a letter almost exactly like that. It makes me livid
I think the current administration could fix these things easily but we are talking about all kinds of other things while ignoring low hanging fruit.
Some folks feel that all human labor and human capital should be taxed as income.
Others think it would be distasteful if on the successful exit outlined above, the chef had to pay higher tax on his 20% ownership than the capital provider ie said folks think that everyone should pay the same tax rate on the sale of the business.
Others think that in my example the chef has brought capital to the table in the form of skills/knowledge learned, ie human capital. So, everyone is getting taxed on capital in the same way. The chef gets his monthly salary taxed as income, which is payment for labor.
None of these positions are obviously flawed. It's pick your poison. Creating a tax system isn't easy.
They are effectively making a salary for labor but only paying 0-20% on 25k/year from our business depending on how many other clients they have. This is much lower than the 10-37% most workers pay on their labor.
I'd argue that the business sale is capital gains. I never said it wasn't in my original post.
Carried interest and a fixed flat fee to manage an investment (which most people call a salary) should not be taxed as if they are capital gains.
The chef in my example "knows" what kind of food to create for a given area - ie the intersection of demographics/tastes, the existing competition, locations etc. That expertise is equivalent to your "knowing". The chef might not even actually work day to day - he/she just had the initial insights. Now the chef has moved along the continuum towards a finance person.
In almost all the modern successful PE operations, the teams are industry specialists (ie if you look under the hood at Blackstone, KKR etc, the people are organized by industry). They actually know a lot about the operations, what can be improved, what needs to be thrown out etc. They are something in between my "chef" and your "person who knows". By and large, they aren't timing markets. Even VCs are becoming industry focused as opposed to generic. Many are former founders. They have stepped down the continuum toward being a "chef".
ie, most folks are in the grey area.
WRT business sales - at least for PE/VC folks, the carried interest is calculated on the business sale. There are some situations where they can write things up or down, but it washes out - ie they can't just write it up arbitrarily - the value of the asset, and hence their capital - needs to have actually gone up.
This is not because they have more money to part with but because they can be squeezed harder.
The wider concept seemed counterintuitive to me at first but I see various implementations abound in the wild the harder I look. This article shows one example.
He sells 'em owner-financed strictly to them that's got no kind of credit,
'cause he knows they're slackers and they'll miss that payment,
then he takes it back.
- From Choctaw Bingo, by James McMurty.
https://www.youtube.com/watch?v=4U2eDJnwz_s
(And yes, monied interests have Many Dems in their back pockets as well.)
If it's supposed to be funny, I really don't have time for it so I left without reading
This is the most obvious problem but there is also the implied covenant of good faith that is clearly violated by trying to trick Sam the secretary into giving up agreements entered into by Sam's boss and a third party.
I think you vastly overestimate the validity of such an agreement.
https://en.wikipedia.org/wiki/Down_and_Out_in_the_Magic_King...
I'm still not reading his blog though because I'm not a lawyer and I find that disclaimer profoundly uninteresting
Another way of putting this: we are paying the interest on their loans. That is, the only thing that would be different without taxes is higher interest rates.
https://www.sifma.org/resources/research/us-treasury-securit...
No. Most of the money (more than 90%) is issued by private banks, and most of that is for private companies. the taxpayers are paying interest on those loans.
It is a slightly less broken system than the one we have today (no endless nominal growth required) but functionally it is identical. So your idea is a good approximation.
Did you read the article that says the wealthiest 0.01% pay interest on loans instead of taxes on gains?
Interest takes zero effort to collect. Taxes take huge expensive bureaucracies and constant harassment of citizens.
Taxes do not control money supply any more than high interest rates. It’s just a question of where the newly-created money ends up.
https://en.m.wikipedia.org/wiki/Leona_Helmsley
She was off by some years or not rich enough.
That would avoid the issue of incentivizing gambling while not disincentivizing investment in the economy. Notably, it would also require founders of big tech companies to pay mostly income taxes, since their cost bases are so low (which I believe is appropriate).
Taxes should also probably be due on assets once they've been held for some period of time (say 5-10 years), whether they sell the assets or not. This would avoid the phenomenon where fantastically wealthy people borrow money against their stock holdings to avoid ever paying taxes, then use estate planning tricks to pass the money on to heirs.
Make an investment in a new technology? Best to sell before your returns are 10% (or 20% in 2 years, etc), then immediately buy back in and repeat.
No doubt this would seriously disincentivize long term investment.
Edit to add color:
If you hold 6 months, the hurdle rate would be ~5%. If you hold 18 months, it's ~15%. You can't avoid the tax by churning, unless you're phenomenally lucky at market timing. The hurdle rate isn't 10%. It's 10% per year. That makes a huge difference. There is no incentive to churn your holdings. Quite the contrary, as the percentage taxed at a lower rate goes up each year.
If you think your return >10% in a year, sell, pay lower tax, rebuy and reset your tax basis. Repeat.
The first $500k of capital gains get current cap gains treatment. After that, all gains are taxed as regular additional income.
https://taxfoundation.org/publications/latest-federal-income...
And I believe the top 0.1% pay a significant share as well (too lazy to Google it).
I mean, are we lumping in multimillionaires into the “little guys”? If so, that’s an amazing feat considering the median income is $60k/yr in the Us
I realize the document you shared shows a 25.4% rate paid of AGI for top 1% versus 14.6% for the top 50%. There are a bunch of problems with this though. For starters, people earning under $100k a year have social security tax applied to their entire incomes. High earners also are very likely to shield large amounts of their AGI from taxation in various ways. Poorer people also pay property tax, sales tax, etc.
Anyway, no one is going to argue that a person making $10M who pays $4.5M in tax (or whatever the federal + state statutory rate is) is paying too little. The issue is super-rich people who basically pay nothing. Even the page you linked indicates to me that those in the 90-99 percentile are paying a higher percentage than those in the top 1%, when you count the factors I mentioned above.
FWIW I'm in the top 1%, but I'm not Mark Zuckerberg. I know some of the tricks, because I use them.
The latest data I saw from the IRS showed a consistent progressive tax rate right up to the top 0.1% (who pay the highest effective tax rate).
Even the Propublica article showed that Elon paid $500M in taxes when he sold $1.5B in shares.
And of course we have data. These rich folks files taxes with the IRS. And the top 0.01% would be tens of thousands of tax payers, not a handful.
The idea behind this: even the super rich consume. One might have a big yacht which costed a few hundred million dollars. If the state can enforce taxation of expenses of natural persons, the man with the yacht would have to pay a percentage of his expenses with the yacht.
I know there are many loopholes, but let's think about them and try to close them. One of them is pushing expenses abroad. To close the loophole declare that moving money abroad to a country which doesn't do expense taxation counts as expense. And let's try to this in many countries of the world.
I also know that super rich tend to consume less as a percentage to their wealth. But surely they consume a lot more and more expensive things than the general populace.
After all, people are people and it doesn't really matter what complicated structure of incorporations they have created to evade taxes. It doesn't matter, too, whether something is a salary or capital gain. Finally they will use part of the money to consume. Then strike hard and extract a percentage as tax.
I know there's value-added tax, this is similar, but the target is different. And I know this idea is somewhat vague. I just wanted to outline the principle here: expense taxation.
https://mishtalk.com/economics/net-wealth-distribution-the-b...
The US is a buyer market for labor. If you get ahead through hard work you just kick someone else down the ranking.
Given a seller market for labor capitalism can absorb an infite amount of poor, lazy, dumb, bad decision making, slacking people and pay them good wages in the process. The stronger the seller market the easier it is to exploit people upwards the economic ladder.
Considering the paradox of competition it is entirely possible that once every person is making "good financial decisions" everyone is worse off in the end.
But realistically it's much easier to save money when your income is $10K per months vs when your income is $1K per month.
The UK did a great thing recently: there's semi-mandatory private pension contributions: it is 8% total (you can opt-out, but you need to explicitly do that). So even folks making poor financial discussion will own some wealth.
AFAIK in the US there's no minimum contribution to 401k.
A huge win in terms of generational wealth under current law is if you keep the loan until you die, the loan still needs to be paid off but your heirs inherit the assets with a step up in basis to the new value, so capital gains are never paid. For this strategy you can search for "buy, borrow, die." Addressing this was in Biden's proposed budget but we'll see if it actually passes... there's likely to be a ton of pushback even though there are some carve-outs for family farms, family businesses, primary residences, etc.
Consider a landlord who takes an interest-only business mortgage to purchase a buy-to-let property.
In good times for landlords, the rent pays the mortgage interest and some more which is profit for the landlord.
Even if there is a slight loss, when property prices are rising the landlord does ok because they can refinance against the higher valuation.
This loan never needs to be paid off, as long as there's enough rent and/or refinancing to keep paying the interest. Both the bank and the landlord profit from keeping this arrangement as long as they want it, it can even be passed down generations or sold to someone else, as an ongoing business.
The extreme estate taxes would result in a more equal society, while incentivizing those more likely to drive it forward.
Yes, this will never work……
Even so, they do pay less. Bezos claimed a tax credit for his children, FFS. Why are Amazon workers subsidizing their boss, they are the the ones that should be receiving the money.
Perhaps im missing something, but isn't that how most debt works? You want to buy a house, car, etc. Bank puts up the money so you can purchase the asset, in exchange, they have a claim to the asset until you pay back the loan. Seems pretty reasonable to me, and i don't see how PE is different from the type of arrangement ordinary people do.
I guess im wondering if this is all bad. If the cost to buy the company is less than what could be wringed out of it in the short term, doesn't that mean its basically on its way to ruin anyways. For the private equity thing to work it has to be cheap enough that the whole is basically worth less than the sum of its parts. Maybe a company like that should die, or maybe its already dead. After all, the point of a company is supposed to be you make more money than you put in - if the expected value in the long tern is less than its short term value, something has gone very wrong for the company.
I stand corrected, but isn't the proposal for a 15% tax on profits?