It seems obvious to me from reading extensively around this that we have very little basis for arguing the case for free will. Our entire existence: our personal lives, our business lives, our investments, our health, our wealth - are driven by luck.
I run a successful small business in the UK. I can squint and pretend that everything about this success is down to me, but the reality is:
I'm white
Middle class
Have a great family
Have had the luck to have a wonderful family background including supportive parental influence as well as a generational (mother + grandparents) financial safetynet all the way through my life.
Have (so far) had great luck as far as health is concerned.
Are ANY of these things down to me and my skill? No, none. They are down to luck.
Am I a good business person? Yes, I like to think so. What's that down to? Luck.
So for me, now, to turn around and say "No, I'm not paying my taxes. I don't believe in taxes. I don't believe in helping those less well off than me. I don't believe in helping people. I don't believe in the state"...? That is bullshit. Utter, total bullshit. And it makes me f*g sick when I see people gathering vast quantities of wealth and then somehow making out that they are somehow separate from the [majority] of people in this world who really badly need help.
We should all be getting off our fat, lucky arses and doing more to help people instead of squirreling away our wealth and pretending we're somehow special. And we should start by taxing the bejesus out of the wealthy. They [we] [I] can afford it.
Rant over. As you were.
A year later, come back and let us know how far your luck got you.
I'm from a working class family in the UK, most of whom are on benefits and half are immigrants. My sister is a single mum (by choice), because she wanted to move out and in the UK the only way to really do that if you're working class is to have kids and hope the government gives you a home.
My partner's mum is earning around £45,000 and lives in a £500,000 house. She's also a single mum and has never worked a day in her life. She has done pretty well though because she (reluctantly) had 5 kids and managed to get one diagnosed with autism despite most GPs believing he doesn't actually have autism – you only need one doctor to give you a diagnosis, so she just keep trying until she got it. A few months back she was thinking of getting a job (not because she needs the money, but because she was bored while the kids were at school). The guy at the job centre told her not to get a job because it wouldn't make financial sense given what she's receiving from the government. Another nice perk is that she gets free food from the food bank every week which she'll often give to us because she doesn't actually need it – sometimes she'll get some nice deserts from M&S so it's worth getting either way. In fact, most of my family go to the food bank despite not needing to do so because why not?
In contrast me and my partner live in a very small home, which we work full time to afford. We can't afford kids, but we hope one day we might be finically secure enough to have at least one before we turn 35. Not that we'd want to, but if I'm honest I'm doubtful whether we'd ever be able to afford 5 kids or live in a £500,000 house like her mum.
As someone from the working class I can honestly say I have no idea what my upper-middle class colleagues are talking about when they talk about wealth inequality. Apart from me only people I know who are my age who don't live with their parents are those that had kids. If fact most of the time those in my family who have had children live in much nicer homes than my middle-class colleagues. Thankfully I consider myself somewhat lucky that I'm weirdly good with computers which allowed me to get a middle class job despite the fact software development would typically be out of reach for someone from my background.
What upset me the most though is that when I lost my job a few years back I received very little government help because I had around £10,000 saved up to pay taxes (I had to fill self assessment at the time). Apparently if you have savings that disqualifies you from help. I recently found out the reason my sister blew all her savings on a BMW after having her kid is because that way she had a better chance of being given a house by the government.
Sometimes I wonder if our welfare state would actually help the working class more if it focused on incentivising people to make good decisions rather than having as many kids as possible and spending everything you get on cars and holidays. As far as I can tell the system right now doesn't actually help the working class, that is unless you're content living on welfare your whole life. In my experience the middle class is completely detached from how hard it is if you're from a working class family a want to simply make an honest living instead of following the more traditional working-class route of not working and having children. As far as I can supporting this system is just propagating a system that leads to further poverty and income inequality.
I see this reasoning bias in many middle-class positions though. For example, most of my middle class colleagues seem to think drugs are harmless and that's presumably because they do them now and again at parties, but they're not the kind of people who would allow drugs to consume their lives. Yet, just yesterday I had my partner crying to me because both her mother and brother are addicted and abusing drugs. I also have alcoholics and drug users in my family. There is a very clear reasoning fallacy going on here, specifically how the middle class just assumes that working class people act like they do. But they don't. Most working class will prefer living on welfare if you give them the option because they don't have many options and that's all they know. Just like many will abuse drugs if you allow them because these aren't people who make the best life decisions, especially if they're not incentivised to make the right decisions.
I'm sorry if this comments comes off as overly emotional, but it does upset me having to watch this cycle of poverty happen over and over again in my family. What the working class needs are good incentives to work and negative incentives to have children they can't afford or to abuse drugs. They also need good opportunities, so if you're a business owner I'd urge you to consider hiring some people from less well off backgrounds who may not having a university degree, etc but who you can train up and get on the right path. This push for more people to go to university has also done a lot of harm to the working class – you get automatically ruled out from a lot of jobs (including software development roles) regardless of your experience simply because you weren't privileged enough to go to university.
However the required growth rate to justify the tax cut was estimated by 6.5. Even when the economy was good before the pandemic it never got above 4.5 percent. And now we're not even close.
Maybe a wealth tax is not the best idea but based on the current economic realities and the budget deficit what is a better alternative? Conservatives will say "cut the budget or spending" but which expenditures are you going to cut?
It might be a bad idea but compared to 23 trillion dollar? The super wealthy have benefitted from how many tax cuts and yet we are still running a massive deficit. Many like to say 'its a spending problem' but then ask them where to cut spending and usually its spending that does not affect them. Plus you need to factor in the affects of austerity on the economy, as the UK has tried it and it did not work, which will reduce revenue and make the deficit and economy worse.
Hate it all you want but it should be on the table as an option to stop the bleeding. Bring on the downvotes.
We can look at France, which used to have a wealth tax, after they elected a socialist in 1981. https://en.wikipedia.org/wiki/Solidarity_tax_on_wealth
It not only failed to raise the expected revenue, it was estimated it actually led to a net negative revenue due to capital flight and a higher percent of French people renouncing citizenship. Because it was unpopular and didn’t raise much money, in 2017 it was abolished.
There are some types of wealth taxes that I believe can succeed, such real estate taxes and inflation (which operates effectively as a tax on unspent money). How about instead of proposing wealth taxes which have failed in the past and cause strange incentives, we try to hit our inflation targets first?
https://www.linkedin.com/pulse/why-how-capitalism-needs-refo...
Think about what a wealth tax means. Say I found a company like WeWork (bear with me and try to forget the shenanigans pulled by their CEO). Things are going pretty well and before you know it, we raise money at a $200 million valuation and my stake is 50%. On paper I'm now worth $100 million dollars, but that money isn't in my bank account... it's an imaginary number that my investors decided to invest at. Based on E. Warren's wealth tax plan, I now owe 2% of my wealth above $50M. So where do I get that $1 million from? I don't have cash or liquid assets, so likely I have to dilute my shares to get some personal money. No problem... investors will understand.
So I go on for a few years paying some taxes on my new wealth, 3-5% of my equity a year. Now, the company has grown and we raise a big amount of money. Say Softbank gives us $5 billion at a $20 billion valuation, and i've been diluted to 25% at this point, but now I'm worth $5 billion on paper. Under EW's plan, I owe 3% of my wealth above $1 billion, plus 2% of wealth between 50M and 1B. My tax bill is gonna be $139,000,000. Again, my wealth doesn't exist in the bank... it's in my private shares. But okay, I raise money from investors to dilute my shares and pay taxes... at this point they expect it.
OK... now I make plans to take my company public. Finally I'll have some real liquid money and paying these taxes will be easier, because I can just sell shares on the open market. But wait, I put some feelers out and the market thinks my company isn't worth $20 billion... it thinks it's worth $10 billion. Do I get a refund for past tax payments?
The point is that the government will have a very hard time determining what things are worth. It's easy to tax income or sales, because those are known values. The price of WeWork, or a Picasso for that matter are not. So what's gonna happen? I can guarantee that billionaires are gonna come up with a 1000 ways to claim that they are worth much less than they are. They'll start taking companies private. They'll put money into hard-to-value and illiquid assets. Some will revoke their citizenship and move elsewhere. On the whole, it may not gonna be great for the economy, even though in a sense there's a moral justness to it.
There are better ways to tax the wealthy. Higher capital gains taxes and estate taxes to name a few (estate taxes run into the same issues as wealth taxes, but at least it doesn't burden people to value their property every year).
Have cash? Inflation (cheapens govt debt) Own Property? Property Taxes. Own Equity? capital gains on realization of profits Get Dividends? Dividends are taxed. Income? Taxed.
Virtual every form of wealth is taxed. The question should be how much should it be taxed, and enforcement. A wealth tax is a nice song and dance around the issue and cannot be reasonably implemented hence why it's in the zeitgeist.
Property tax would make more sense as a tax on limited resource than as a wealth tax.
Given the amount of future debt we've taken on, it's probably a good thing to have growing deferred income too.
Many people do, it is the organizing principle of most modern civilization after all but that does not mean it is indeed inherently "fair" or "good".
You can see it as a subscription fee for the service of upholding private property rights instead.
We can argue about what fair is all day but it hard to say that someone who accrued $1B has contributed fairly. Warren Buffet acknowledges as much in his famous quote about his secretary paying more in taxes than he does.
Let's not let perfect be the enemy of good when it comes to equitable contribution.
All of the tricks Buffet jumped through to get his taxes that low were intended to encourage that behavior, whatever it was. So his reinvestment of profits in the company, investments in clean energy, contributions to charity, profit losses due to forgiving debts owed by people in disaster zones...whatever it all was.
Someone making laws figured all of that was "fair."
If someone followed the given rules, dealt fairly and openly with others and made 1 billion dollars they did it fairly. The huge amount of money does not make it unfair in any way.
See, my definition of "fair" is followed the law and didn't deceive others. Obviously yours doesn't agree which kind of proves my point, doesn't it.
I know this isn't always the case with everyone. And especially investors have a case that higher corporate taxes reduce the value of their investments, possibly to the point of not making them.
But this incentive is so blatantly obvious in other cases and so rarely understood. I can only assume that the vast majority of people think businesses are taxed like people. You pay taxes on all of your income. But businesses only pay taxes on their profit. It's a big, big difference that changes the incentives.
On the other hand, lowering corporate taxes also generates a cascade of tax avoidance, since you have higher profits that generate the need for more complex tax avoidance schemes to reduce taxation on that large amount of money.
Tax evasion breaks this system. Profit is taken out of the system and stores offshore, where it doesn't create any value.
Tax evasion is bad. Investing is good.
Honestly, the tax holidays royally piss me off especially coming from a party that "embraces law and order" - it's essentially like pardoning a bunch of robbers - except the actual robbers stole far less money.
It sounds like if taxes are high, I invest and play for time, waiting for some administration to offer me a tax break so I can take money out. Is a targeted tax break then also a chance to extract profit?
A better option would be to remove corporate incomes taxes entirely. Only tax the outflow instead, which would be simpler to implement and easier to deal with at all levels.
And the lower the incentive to make new investments.
And the higher the incentive to engage in socially wasteful tax-avoidance accounting.
Some people think it is good for the economy, its not objectively true. If a company invests in itself instead of giving out dividends it's making a choice upon the shareholder, which in turn could mean the company invests in something less efficient than the shareholder could find.
> n the other hand, lowering corporate taxes also generates a cascade of tax avoidance
Unless corporate taxes are 0, and you save all of this issues plus get to fire a lot of corporate layers.
Not at all clear to me this is the case.
It’d be insane to have it any other way for businesses. Whole swathes of low margin businesses would be impossible to operate. For example a super markets average margins are 3-5%.
Corporate tax is (generally) on profits because you can deduct costs. It allows for the flow of money to efficiently find a sub supplier for the parts of a good or service.
The real scam is when things like health insurance premiums are deductible for a company but not for an individual.
To be fair, that this "scam" is still alive today is mostly by accident.
It stems from WWII times, when stateside laborers were uniquely low in supply and high in demand, and when labor had ridiculous bargaining power.
Laborers couldn't really ask for higher wages, because that was politically impossible (appearing to be extorting wartime needs for money was/is a faux pas).
So companies began competing on "benefits": health, accidental death and disability insurance among them.
To help ease the burden on employers and employees, the IRS allowed businesses to "temporarily" deduct insurance premiums. (This relief came against the backdrop of unprecedented wartime tax hikes).
Postwar, it was unfeasible to remove this measure, as the majority of Americans who had insurance got it through their employers: it would upset both businesses who have to pay more, and employees who lose insurance.
Later, some government (I forget which...) signed this stopgap measure into the tax code, making it permanent.
Regardless of the interesting history, I agree with you, it should be universally deductible.
Taxes low? Start up something new, get it going. Taxes go up again? Sell it off (if they haven't already) and go back to early retirement doing whatever.
Maybe it is largely the type of business that behavior changes. Their last venture was starting up an aquaponics farm in a borderline urban / suburban area, though I haven't kept in touch and it appears to have been sold off to another family.
Inflation can put a bit of a wrinkle in this, since if you get $20M for your business and then you find that that's worth the equivalent of $2M in 5-10 years it can crimp your early retirement.
Sure — if you're already wealthy enough to get by without any income, that might make sense. But for most business owners the alternative is "work for someone else", not "return to early retirement".
Sure, they may feel that way. But the person who bought the business off them is still incentivized to behave in the way that the GP post describes.
I know you aren't arguing against higher taxes, but my response to that is... and? Does Target benefit more from some random hedge fund buying up $20 million of their shares? Or from consumers buying $20 million in goods from them? Once a company has gone public, unless they're trying to do another round of funding, the share price is almost meaningless beyond the ghost of being taken over by another entity.
This belief that institutional investors mean more to the health of a business than ACTUAL SALES is baffling to me (not saying that's your stance).
Investors making money means more money to invest, which creates more companies and services.
That cash reserve is needed if we're to self fund big projects and in case of down-turn, lawsuit or other unforeseen event if we are to avoid immediately laying people off.
The alternative is to raise money which dilutes founders and employees who own stock or vested options.
You won't encounter this issue if you're early stage or if you are "going for growth" by running at a loss and raising money in successive rounds. But it is a huge problem if you are a self funding small or medium sized business.
> a wealth tax creates a perverse incentive to not invest back in the company.
This is arguably a "good thing" because one could argue that it's "unfair" that large, high revenue / high income corporations allocate so much capital in our economy. It would arguably be better for them to pay the taxes and instead have that capital be allocated by a democratically accountable body: the government.
That isn't really the societal win you're making it out to be though. If you "pocket" profits, i.e. pay them to investors, the investors just go out and invest them again in something else. Which is actually better, because it reduces concentration of wealth inside of corporations. Instead of one corporation growing ever larger because they have to invest internally or be subject to punitive taxes, you get many new independent companies being formed as investors seek out new opportunities for the money they receive as dividends.
The other problem is that there are many forms of investment that are taxed differently. Government bond interest typically isn't taxed. Real estate appreciation typically isn't taxed until sale, which means they can be deferred indefinitely. Investing in foreign corporations will be subject to the tax rates in those other countries. So if you increase the domestic corporate tax rate, investment moves from domestic companies to things like real estate speculation and foreign companies, which may not be desirable.
Moreover, multinational corporations arrange for profits to be declared in whichever jurisdiction has the lowest taxes, so increasing the tax rate on domestic corporations disadvantages them against multinationals that won't be paying those taxes.
The reverse is actually true. Historically, the lower the tax rate, the more investment you get in real estate speculation and other passive income streams because it's now more efficient to simply not invest in productive activities when you can just get effectively free money without doing any work.
The higher the tax rate, the more businesses invest in actual business activities, because they get more expenses they can use to offset income they may earn, and because passive activities generally don't generate enough of a return to be worth the investment compared to (re)investing in an actual business.
You can only invest so much into a grocery store. The entire point of us having free markets is so that capital can move around. Locking it down into once place is the exact opposite of what you want to do.
See https://en.wikipedia.org/wiki/Double_Irish_arrangement for a historic example.
Why buy a stock if Biden will take 1% of it annually? May as well just buy rapidly depreciating status symbols instead.
A business that is not making a profit does not pay income taxes. I don't have a single client that has voluntarily turned down making a profit because they'd had to pay some income tax on it.
The only time business income tax rates make a difference is when the business is choosing between multiple profit-generating activities and wants to maximize the net (post-tax) income by minimizing its tax burden.
There is a strong case for allowing immediate, or faster, write-offs for capex spending in preference to lowering corporate tax rates because of this effect.
Except in Washington State.
I could imagine some reasonable arguments for having a low tax like that around.
People are taxed the same way. There are all kinds of ways to spend your money before paying income tax on it. Most obviously, on health "insurance".
You're already a business owner. You're faced with decisions on what to do with an already existing business, not whether to start a new business, and in what state or country to do that.
Where do you live that taxes are as volatile as petrol prices? Taxes change in Ireland but in terms of decades.
This creates a surveillance society on every possession and purchase, and facilitates confiscation and intimidation, an encroachment on our liberty. In fact, that the IRS and the government have a view on every single financial transaction due to the Patriot Act already has a chilling effect on freedom (consider donations). A wealth tax would absolutely be a massive and unnecessary further encroachment upon liberty as the majority of Americans would ultimately have to detail and report their assets to show they do not qualify, while the wealthy would very likely be able to largely anyway cheat on their wealth tax by manipulating valuations of their assets.
> Some other European countries have discontinued this kind of tax in recent years: Austria, Denmark (1995), Germany (1997), Finland (2006), Luxembourg (2006) and Sweden (2007).
source: https://en.wikipedia.org/wiki/Wealth_tax#Historical_examples
The WSJ has their take https://www.wsj.com/articles/where-wealth-taxes-failed-11572.... Criticisms within the same wiki article can probably shed extra light into why https://en.wikipedia.org/wiki/Wealth_tax#Criticisms
Any sensible wealth tax proposal in the U.S. would probably have to pair it with a similar tax on the transfer of assets abroad.
The real inequality we have today is being perpetuated by outdated regulations, primarily from the 1930s. It's also being perpetuated by people that invest in Warren Buffet-style "value" stocks, which extract actual rents from people, while delivering no technological improvements. Housing is 80% of the inequality problem, and if we are going to fix that, we have to stop making it illegal to build enough homes for people that need them. And to do it cheaply enough, we have to turn to automated custom home manufacturing, which means overcoming the objections of labor unions.
For example, I just saw this in the LA Times - "Labor unions, environmentalists are biggest opponents of Gov. Brown’s affordable housing plan":
https://www.latimes.com/politics/la-pol-sac-labor-enviro-hou...
NB: I think we need new, distributed structures to replace labor unions, because the goal they serve is an important one. The existing ones concentrate power at the top, and have become just another corrupt institution.
Or is it an ad hominem even if the "hominem" is a class (wealthy people) instead of a person?
To the extent that they do it for themselves alone, which is making an assumption about intent.
Many wealthy people honestly believe that low taxes drive economic growth that is good for all.
This organization is not living up to it's name if it's only taking the easiest potshots imaginable at one side of the issue.
Those two things are not the same, nor even necessarily correlated.
You know what'd be nice? Consent. I'd like to be consented before my value is forceful removed from me. I'd like to pick an efficient charity to give this money to.
Today, my neighborhood's roads get paved the same as Jeff Bezos's neighborhood. If taxes were voluntary, then I might not be able to afford more than dirt roads for my house, whereas I bet Jeff's house would be fine.
Instead of increasing entitlements or adding yet more taxes - we lower the size of the government spending UNTIL it matches where most people pay for the services received in a more scaled manner.
Source: https://taxfoundation.org/summary-latest-federal-income-tax-...
Progressive taxation of someone earning $100k per year in San Francisco or NYC is hardly fair. At least prior to covid19 causing a crash in the rental market one could expect to pay ~$2500 a month to share a 2bedroom place. That's spending 42% of take home pay to have roommates! Not to mention everything else costs more, a meal out, riding the bus, getting your bicycle repaired, clothing etc.
$400k per year is about what it takes to run a middle class family w/ 2 kids in such a city. -- They're already paying $162,121 in taxes annually.
When we progressively tax those who actually have less than the median after CoL, we're being unfair (IMO)
The solution to the problem is not taxing people in SF less. This is the same flawed idea that the solution to houses being unaffordable is to have a mortgage interest deduction and (previously) a property tax deduction for home-owners.
All this did was make houses and land more expensive to make up for the tax deduction.
I full agree that housing costs should not be deductions.
Another way to think about it is that in a high CoL markets, not only does a marginal dollar buy you less marginal goods (such as a burrito), but you also are likely in a higher marginal tax rate making it geometrically worse.
The news ensures rote reinforcement and education of the class system for the masses, while celebrities act as a sort of failsafe to avoid things like the 18th century French revolution.
individual celebrity popularity is permitted to ebb and flow, however a general aversion to or boycott of celebrities acts as a canary in a coal mine, alerting the most wealthy and opulent to the existence of a systemic backlash against the fundamental tenents of class inequality and, most importantly, the ruling class of wealth. This sort of unilateral distaste for celebrities was last seen during the COVID quarantine when celebrities insisted solidarity with their fans while sequestered in lavish mansions or private estates. the acrid contrast between pawns forced to work multiple jobs and elites who merely benefitted from the inconvenience of isolation in paradise produced a widespread backlash. In response, celebrities were recalled by media owners and a greater focus was put on thanking "essential workers" in media (print, tv, and billboards) as well as the Amazon news piece, which acted to repair and maintain the US populations perception of wealth as a net-good.
Here are the facts that aren't in dispute:
1) Other countries that have tried wealth taxes have started abandoning them, most recently France and Sweden: https://www.cato.org/publications/commentary/why-europe-axed....
2) There is little economic consensus on whether wealth taxes would be efficient or hamper economic growth: https://assets.aspeninstitute.org/content/uploads/2019/09/We....
3) Economists do generally agree, however, that consumption taxes on individuals are the most efficient and least distortionary strategies: https://www.npr.org/sections/money/2012/07/19/157047211/six-...
> Three: Eliminate the corporate income tax. Completely. If companies reinvest the money into their businesses, that's good. Don't tax companies in an effort to tax rich people.
> Four: Eliminate all income and payroll taxes. All of them. For everyone. Taxes discourage whatever you're taxing, but we like income, so why tax it? Payroll taxes discourage creating jobs. Not such a good idea. Instead, impose a consumption tax, designed to be progressive to protect lower-income households.
4) Warren's and Sanders' proposed wealth taxes would be dramatically higher than anything a developed country has attempted (up to 6% and 8%). And even based on the candidates' own projections, they would raise not very much money (under $300 billion per year, or less than 1/6 of what would be required to fund Medicare 4 All).
5) Billionaires just don't have that much money in the aggregate to warrant such an outsized attention in tax policy. All the wealth of all U.S. billionaires adds up to $3.4 trillion. Even if you confiscated it all in one go, that would fund the local, state, and federal governments for a bit over six months, without even accounting for the new spending proposed by Warren and Sanders.
Same reason we don't have a Federal property tax.
https://en.wikipedia.org/wiki/Direct_tax#U.S._constitutional...
There's actually a decent amount of precedent that holds the property tax as a direct tax, and therefore unconstitutional on the federal level. Even a liberal court would make this decision I think.
NPR and PBS in the US.
And it has real consequences for the spirit of democracy. It opens up the idea that people can literally vote to take other people's stuff and give it to themselves. That process will not have any good results for anyone.
Dismantle the IRS, ditch all of the complexity.
You're using "income" as your input variable to calculate "fairness", but you could just as easily use "disposable income". Someone making $25,000 per year might have a disposable income of $0. Asking this person to kick in $5000 seems ludicrous.
I honestly don't know how you could assess fairness without looking at ability-to-pay:
(income) - (basic survival needs) = (money leftover you can potentially contribute to the government)
This is obvious, fair, and is why most nations have progressive taxation structures.
That, or a progressive tax with a ceiling at 20%.
I fully agree with a flat tax w/ 0 baseline deduction.
but we still need a definition of what is "take". Afterall , paying 20% tax on $100 receipts makes no sense if it cost me $105 in expenses already.
BI sucks but even they said as much for why Europe has scrapped most of their wealth taxes:
https://www.businessinsider.com/4-european-countries-wealth-...
The US is a country with a terribly funded IRS. They can barely audit those who obviously don't pay their taxes. If you are someone with 10 or 100M of assets it's easy and obvious to hide them in assets that can't be tracked.
I'm sure there's a theoretical tipping point where they become too bloated to do their job well, but their current levels of funding are far below that.
People who subscribe to the "wealthy people should pay their fair share" meme would probably be better off directing their efforts toward advocating for more IRS funding, than for changing laws and closing loopholes. The laws are already there - we just need to properly fund the folks that enforce them.
Wealth taxes are great in theory but tough to implement. The value of large pools of assets can be easily reduced by marketability and liquidity discounts. See the real estate industry. I’d like to see wealth taxes work but I think having value accrue to people over capital is a better approach.
Its the problem with income-taxes, naturally government increases expenditures without need for legislation. It's a bad rule. This is why I think government should be financed by flat-expenditures: sum of costs / people and send a bill. This framing would make government very sensitive to increase of expenditures.
Sure, eat the rich, but you are left with the same question the sort people who advocate that kind of thing never seem to ask themselves, which is, "and then what?"
There is simply no other way to align interests of the wealthy.
The founding fathers, including a handful of those quoted in the linked post, were highly critical of democracy and even of men who didn't own multiple house like they did.
We just narrowly missed out on having a constitution which only allowed land owners to vote. There were even years long debates on whether votes should be proportional to the amount of land owned.
Using the founding fathers to argue for state enforced equalization of outcomes is plainly absurd.
Can it be also an incentive to work less, since most of the results of your hard work will be taken from you in form of taxes, or you would need to 'hide the profits' potentially forever?
Let me introduce you to how private equity works. They have figured out how to hide the profits by buying out the original owners!
They buy companies by having them borrow heavily to "invest" in buying out the previous owners. And then try to keep the corpse of the company looking good enough that they can flip to someone else. The trick is that debt payments count against profits so the new owner saves on taxes.
The people who set up the deal get paid in a variety of ways. But in the end what they get paid tends to be roughly proportional to how much money no longer goes to Uncle Sam. So when you see someone who got rich in private equity, like Mitt Romney, it isn't a bad approximation that their personal wealth reflects how much money the US no longer receives in taxes due to the deals that they structured.
Note, if you're over 50 you may remember the "junk bond kinds" of the 1980s. That's the same thing as private equity. They just rebranded themselves after their actions gave them a bad name.
I mean wealth per se isn’t an issue. In the grand scheme of things what material goods you have matter little. It’s the unreasonable and unbalanced command over actual capital that create issues.
E.g. in NZ you buy property, but the local government taxes it, so you are essentially paying a small lease. Enough so that some retirees with no income have to downsize because the rates are a significant burden.
A wealth tax seems impractical on many levels, including the increased burden of trying to document the value of your items for people of modest wealth levels. Unique or thinly traded luxury items have value that can't really be known until they are sold, which is why capital gains are taxed at the time of a sale. I'm thinking of a rare coin that might be $75,000 or $100,000.... you can't know the value until it goes up on the auction block. Same thing applies to real estate, antique cars, artwork, etc.
However, to combat the side-effect of wealth tax requires global governance, which in today's day and age, seems like a pipe dream.
Just like a small business is less regulated than a large one (often), or how smaller incomes are taxed simply while those with more money/more complex assets get audited more - the ultra-wealthy will certainly have more of their assets audited, and yes, they will have side channels to evade taxes. That doesn't mean we don't try to tax them.
When someone out in the open owns 75 cars, a private jet, and a $250,000,000 townhouse in Manhattan and another $5 billion in stock, it's pretty damned simple and not wholly intrusive to look at that and say "alright..."
I'm not defending the entire concept of a wealth tax, but I am saying it isn't as dire for _everybody_ that you say it is.
By the way it was replaced 2 years ago on a tax on real estate wealth only.
Really the only area of significance I can think of where the problem is not solved is having to report your artworks, I guess? Something that doesn't affect most people.
> wealth tax is a colossal privacy and administrative burden on _every single taxpayer_
I have not seen a single wealth tax proposal that doesn't have a gigantic cutoff where it would do nothing for 99%+ of the taxpayer base. Most proposals have a floor in the tens of millions.
> Assets must be accounted for when calculating wealth, so the tax service will be required to track and value assets including vehicles, homes, and material good etc. for every citizen to see if the wealth tax would apply to them -- if we didn't report material goods, the wealthy could sock money away in expensive cars, artworks, jewelry and other material non-real-estate assets as they already do for investment.
I will admit to not knowing much about a wealth tax, so maybe there is an established solution here. But it seems like the default would be a privacy and administrative burden even on those people not paying the tax.
It doesn’t matter what the floor is, you still have to report all your assets to the IRS to prove you don’t meet it.
Income tax is already an administrative burden on every single taxpayer, and it works fine.
Do you imagine that people don't already track and value their vehicles and homes and other high value material wealth? That strikes me as unusual.
I just did some quick research and it looks like the tax failed in Europe [0]. Thousands of millionaires in France just left the country and eventually it was just axed and declared a failure.
Which seems interesting -- the measure of success of a wealth tax seems to be how many rich people stay.
[0] https://www.npr.org/sections/money/2019/02/26/698057356/if-a...
Only in the US would non-wealthy people actively and aggressively advocate on behalf of the ultra-wealthy.
You say this, yet you don't provide a single citation for any of your arguments.
> There is a very strong case that one reason for sluggish economic growth is the concentration of assets and wealth in so few hands, and the continuing stagnation/decline in wealth/living standards/etc of bottom 40% of the US when measured in things like "healthcare", "education" etc. A redistributive wealth tax that was well structured could be a huge boon to GDP growth.
This seems plausible, but not self-evident. Give us evidence.
[1] https://www.sciencedirect.com/science/article/abs/pii/S03057...
I've seen this talking point twice now this week. What's the alternative? We all live in crowded multi-family buildings? We all live in squalor for the sake of a few saved acres in a country with vast amounts of land?
It's frightening that many people cannot imagine proper city planning when other countries (the Netherlands come to mind) demonstrate that it can be done and improves quality of life immensely.
It sounds like you've never been in an apartment building. Some are crappy, sure, but plenty are pretty nice or at least decent (the building, the apartments will be what the residents make of them).
Many other things need to be in place and fully functional for a high wealth tax to work and even then, it is likely to work for a 10 to 30 year period, only to serve as a dragging anchor at a later stage. I would argue that many of the challenges in Europe from a technological innovation standpoint, can be partially derived in high taxation.
It is also difficult to determine what is the right amount of taxation while taking into account the importance of incentive mechanisms. Also, at what point do tax hikes stop?
Some of the key real solutions to many of societies challenges is to have its populace be more active in all of its inner working, helping them to better understand the constraints and opportunities as opposed to being a bunch of people getting of top of their little soap box. There is also a major need for strong reforms to tackle nepotism, corruption and laziness at all levels of society.
- I think wealth can be created and isn't always a zero sum transfer
- I think we want to incentivize wealth creation
- I think economic growth constrained by protection for human rights and environmental destruction is the best way to improve the quality of life for the most people the fastest.
- I think wealth taxes disincentivize a lot of these things with knock on effects (forcing people to liquidate their company equity, etc.). It's also repeatedly taxing the same money every year eventually down to whatever the cap is.
I'd rather set taxes/caps at generational wealth transfer if you're going to try and incentivize something - might as well go after dynastic wealth and the children that benefit from it without creating anything. I think focusing on housing and land use/zoning would also directly benefit more people by fixing existing perverse incentives.
PG writes about some of this in essays, Tyler Cowen's book Stubborn Attachments was also interesting on the growth aspect (though wealth taxes aren't specifically mentioned).
Why do we think wealth will be better allocated by a government? This money is largely already taxed either via capital gains or income. I'd suspect a lot of our problems are problems of incentives and competing priorities, not of available cash flow for government programs.
That's my take anyway, I suspect a 'hate the rich' motivated reasoning position pushing the idea of a wealth tax more than any serious thinking about incentives and what it might do. It seems political.
(I am nowhere near the level where the proposed tax would start and probably never will be.)
Like that the market value of an asset can fluctuate wildly and become untethered from the actual rational value of the asset.
So imagine you're Bezos or Musk and you're not trying to be super rich per se but just trying to build a company according to your vision and so you have a bunch of equity in the company (so that you can control it) but no matter how loudly you proclaim that the market is overvaluing your stock the price keeps going up and now you have to sell lots of shares in order to pay the wealth tax assessed against your equity and you don't have a controlling vote anymore and your vision for your company just dies.
And maybe the hordes of people who think no single person should have a controlling share of a billion-dollar company are right - I don't know. But I'm pretty sure a large fraction of people who build companies (like Bezos or Musk) are doing it to build an enterprise, and not for the cash. Otherwise they'd just stop and have fun with their private jets at a certain point. So if a wealth tax were not going to let them keep control of their enterprise beyond the first decade, they probably would opt not to waste their time building it at all.
And maybe that's fine, but I'm not sure what society looks like in a world where people don't want to build companies.
Lots of people scream that we should tax the wealthy but I do not follow how you tax someone whose wealth comes from large ownership of a big company...?
To some degree, wealth taxes break down the idea of private property ownership. "Your right of ownership is secured by law, but if you own too much, we'll take some of it away." I know that's not the way it's sold. But that is one aspect of the reality of it. I am in favor of the continued existence of private property rights, and for that reason I don't like a wealth tax.
Also, such things tend to grow with time. You're going to tax those with more than a billion dollars? Seems OK, no relevance to me, and those people can afford it. You need more money this year, and you're going to tax those with more than 10 million? Well, I don't have that, either, but it's getting closer. Need still more money, and so you're moving it to a million? I might, by then, especially if inflation kicks back up.
On the other hand, you could make a reasonable case that the existence of a wealth disparity of the magnitude that exists today is a threat to our society, especially if it can be inherited.
So I lean against a wealth tax, but I can also see reasons for it...
Not easily convertible to cash.
Doesn't fix the government's spending pattern or plug its budget hole unless it resorts to full on expropriation.
Not competitive.
Both physically and online, as someone who grew up not poor but far far from rich i.e. I've still only been abroad from the UK twice in my (so far short) life, I am absolutely sick of rich people saying "I'd pay more tax if I could" as a throwaway gesture. I increasingly think an underlying motive of why I study fairly intensely is just to end up better than those who were born better than me.
If you really believe that, put your money where your mouth is.
This data is sourced from the federal reserve's survey [1].
[0]: https://dqydj.com/average-median-top-net-worth-percentiles/
Are you really suggesting that taxing someone based on their views is a good idea.
The thing I'm trying to call out is that they might not want to wipe out GenX-ers like me, who invested their personal savings into TSLA, and are working to use the wealth to actually help people rather than to buy fancy clothes, condos and yachts.
https://www.youtube.com/watch?v=rIAZJNe7YtE
(Something to understand here is Weinstein's argument about WWII, embedded growth obligations and institutional decline...)
There's already enough homes (in the USA, at least) to house all the homeless people in the country. Unfortunately, giving homes away wouldn't be profitable, and profit is all that seems to matter.
I was looking for the lucky duckies argument to rear its head. The Intercept has an article which does a great job of eviscerating it[1]
> ...when you take all U.S. taxes into account — federal income taxes, federal payroll taxes, federal corporate taxes, the federal estate tax, federal excise taxes, and the plethora of state and local taxes — the U.S. tax system is just mildly progressive.
> If the U.S. tax system were perfectly flat, the share of taxes paid by each group of Americans above would be equal to their share of income.
> Instead, the top 1 percent — with an average income of about $2 million — made 20.9 percent of America’s income, but paid 24.1 percent of America’s taxes. Few people will perceive this as a monstrous injustice.
> Meanwhile, the middle 20 percent of Americans— with incomes between $41,000 and $66,000 per year — make 10.9 percent of America’s income and pay 9.4 percent of America’s taxes. The bottom 20 percent, making less than $23,000, make just 2.8 percent of America’s income and pay 2 percent of America’s taxes. That is, the “lucky duckies” of the right’s imagination who pay little to nothing in income taxes are still paying a significant portion of their income in taxes overall.
[1] https://theintercept.com/2019/04/13/tax-day-taxes-statistics...
From a post transfer perspective, America’s tax system is firmly progressive, but less so than European countries. The other side of that is that in America you have the opportunity to do quite well for yourself if you aren’t in one of the aristocratic elite families. That isn’t really the case in many of these European social democracies. Not only is there a safety net below you, but there is also a net above you as well.
Nearly 50% pay no federal income tax. It's worth making that statement precise in this case, because saying they pay no federal tax is just a lie.
But what matters is income tax (for individuals).
Per wikipedia
https://en.wikipedia.org/wiki/File:US_Wealth_Inequality_-_v2...
Eyeballing this chart suggests that the top 10% have more than 69% of the wealth, so paying 69% of the taxes seems like a good deal for them.
The gap between the rich and poor is growing, and has been doing so since 1980.
r > g is the biggest long term problem facing capitalist democracies.
That should be a lesson in how much of our taxation system is regressive not a lesson on how little Buffet is taxed.
Buffet and his secretary both pay a couple hundred dollars of tax to register their used cars or a couple dollars of tax on a pack of smokes or a couple tens of dollars fee for some government service or a buck here and there for toll roads and those things are a much larger fraction of the secretary's income. The less you make the more these "fixed fee" taxes screw you.
Cutting entitlements and putting MORE of a financial burden on people who have nothing isn't going to fix the problem. AT BEST it'll result in massive social unrest and the end of the American Experiment.
"I know you can't afford healthcare, and can barely afford food, but we're going to need to take away your food stamps, and your subsidized housing because Larry Ellison just can't afford another 1% increase in taxes". That's what you're going with?
https://taxfoundation.org/summary-of-the-latest-federal-inco...
The top 1% of US taxpayers control over 60% of the wealth. If they're only paying 21% of the tax burden they are GROSSLY under-taxed.
https://www.bloomberg.com/news/articles/2019-11-09/one-perce...
Also, how about the game of entrepreneurship? I'd much rather play that game on a playing field where there are a lot of customers who are well off.
it doesn't have to be if Marxists don't stir it all the time
So, probably not affected much by a wealth tax.
> $400k per year is about what it takes to run a middle class family w/ 2 kids in such a city.
What? The median household income in NYC is about $63k.
My step mother told me that she "can't possibly be in the 1% because she doesn't even have a gardener."
The latter is absolutely not a given and the former is only really safe if you invest the money in something that isn’t really an investment in the business.
Phrased differently, if you had a magic cash printing business like this that can safely scale up with more money you would be absolutely stupid to not do it regardless of the tax rates.
But the Double Irish (and similar structuring) is no longer permitted and would be treated as an illegal tax scheme today. (It's grandfathered in for companies already using the structure.)
Generally, between BEAT, GILTI, global transfer pricing policies, and the rise of nationalist economic policies, it's now riskier and more expensive to switch to a global corporate structure than to just keep everything in the US.
I used to do a lot of outbound structuring work, and now (post TCJA) almost everything is inbound, compliance, or restructuring existing foreign operations to more tax-friendly foreign jurisdictions (i.e., moving out of China to Vietname, etc.)
As such, I wouldn't call it a failure. France remains one of the richest countries in the world.
It seems to be presented here in such a way solely to critique Elizabeth Warren's politics.
Multi-millionaires who are motivated to leave over such a small percentage of their wealth don't strike me as people who are [good for/investing in] the local economy, anyway.
I also think a substantial amount of the revenue from such lease should be tunneled back into the economy as a public dividend. Also for ideological reasons. But in practice to allow for higher prices (100% of market value would be ideal) while not impacting the retirees you mention quite as much.
Frankly, I don't care what the plan is. I just want to see a less inequality and a stronger middle class.
Many countries already have self reported high value assets as part of their tax filing process. Pretty easy to add a self-reporting step "Do you have over $25M in assets"? Most people can confidently leave that unchecked so they don't even need to waste any ink. Lying would be tax fraud and is already possible in the current system anyways.
Money isn't a protected class. Why do you act like it is?
Compared to America, I think they're much more likely to end up taxing the snot out of their own billionaires (both imported and domestic).
Not just politically impossible, illegal:
>> World War II disrupted those trends. As demand for everything — particularly labor — climbed, Congress passed the Stabilization Act of 1942, which allowed the president to freeze wages and salaries for all the nation's workers. A day after its passage, President Franklin Roosevelt issued an executive order invoking these powers, which applied to "all forms of direct or indirect remuneration to an employee," including but not limited to salaries and wages, as well as "bonuses, additional compensation, gifts, commissions, fees."
But there was an exemption of massive proportions slipped into a fateful clause: "insurance and pension benefits" could grow "in a reasonable amount" during the freeze."
- https://www.chicagotribune.com/opinion/commentary/ct-obamaca...
And, relevant to today's discussion:
>> By slapping corporations with tax rates of 80 or even up to 90 percent on any profits in excess of prewar revenue, Congress all but guaranteed a frenzied search for loopholes.
Also interesting to note that the change in question wasn't a switch from workers paying for their own health insurance to it being paid for by employers. Prior to WW2 less than 10% of Americans had any form of health insurance, by the end of the war it was close to 30%.
I’m for it being universally not deductible. Or at least not deductible for corporations.
The idea is that it forces everyone onto a common public individual market as there would be no tax or cost advantage of corporations to self-insure or provide insurance.
Longer term this gives better mobility to workers and lowers costs of the individual market by bringing in 100M+ healthy people (which lowers the average risk weight cost of insurance).
If it were not deductible for anybody, fewer people would have health insurance. If you're in that pool, it's good for you, because it would probably be cheaper. But fewer people would be insured, so it's overall bad, right?
Am I'm missing some part of your argument?
The idea of making it universally deductible/subsidized for individuals seems to be the path that we're on right now.
Case 1: If you purchase health insurance on the exchange, and are very poor, you can get fully-subsidized plans. (Not to mention if you qualify for medicare).
Case 2: The most plausible proposals of "Medicare for All" are basically expanding the pool of people who qualify for zero-premium medicare advantage plans. This keeps insurance individualized and operated by private companies to maintain quality improvements driven by capitalistic-competition, although the government is the ultimate payer.
Case 3: the government (yes, even the current administration) has taken several steps to encourage employers to subsidize the costs of employees purchasing insurance individually, rather than as a group [see https://www.takecommandhealth.com/ichra-guide].
This is certainly "arguable." One of the very few things economists agree on is the market's are better at allocating capital than governments. That's one of the core functions of markets.
"Do you have assets in excess of $X million?"
If you claim you don't, and the IRS has reason to suspect you do, you're opening yourself to a brutal audit and potential jail time.
Most people would not have to deal with this.
I believe the problem is this: we hardly ever describe the end state. We don't define a metric that we look to achieve and then what we change about the policy when we've achieved it. So what happens is bloated bureaucracies become established and fight for self preservation, even if the mission they were on is complete.
Is having saved 200.000$ in 30 years (not so bonkers) being rich?
Hasn't this been thoroughly debunked by economic mobility studies? The US regularly ranks below many European countries by this metric, and the nordic countries tend to dominate in this regard.
It makes sense to look at these payments to the extreme low income brackets as insurance against revolution. People will put up with a lot of misery, but there comes a point where they start getting angry about it, and as a bonus they're well armed in the US.
You would have had to make it explicitly clear that you were talking about something other than the rest of the comments (the whole world) for your comment to be read as such.
Anyway, comparing wealth between the developed world and the developing/less-developed nations is tricky, and needs to be done with care. I don't think using that number in this context is useful.
"If you are enrolled in an employer-sponsored health insurance plan, your premiums may already be tax-free. If your premiums are made through a payroll deduction plan, they are likely made with pre-tax dollars, so you would not be allowed to claim a year-end tax deduction." [2]
[1]: https://www.nerdwallet.com/article/taxes/self-employment-tax... [2]: https://www.investopedia.com/are-health-insurance-premiums-t...
Do they mean if for example a company pays $5000/year in employee insurance, they can subtract $5000 from their tax bill? If so, that's a tax credit right?
As I understand it, a "tax deduction" is a deduction on taxable income (in the case of an individual) or profit (in the case of a company).
How many families/people are wealthy on the basis of the earnings of a regular person in 1870 and their incredibly compounded wealth? The answer is likely none.
So by 2020, based on the savings from a series of people working ‘regular person’ jobs, most of my great grandpas descendants who are in my dad’s generation are very well off, several are millionaires (I’m excluding my dad because he was the smart one in the family and went to medical school, his job pays far more than a ‘regular person’ job). And this story is not at all uncommon across the US. The reason you don’t hear it is because there’s a big (especially in the Midwest) cultural aversion to discussing wealth or showing it off.
I'm suggesting, that everyone can feel empowered, because assets or dollars invested today can be worth considerably more after inflation in the future. This should give EVERYONE hope.
Plus, wtf? Why should I be the grandfather's grandfather? If I work hard, I should be rewarded, if I'm lazy I shouldn't be. What my ancestors did or didn't do should be irrelevant and what I do should be irrelevant to my forebears. That's because this is the 21dt century, we're capitalist and meritocratic and pursue the American Dream. We're not a 10th century feudal system monarchy!?
I don’t know if this scales all the way up when all the big co’s move their HQ’s offshore. Perhaps we need diff positions for diff business sizes.
If you pay for an expense with pre-tax income (i.e., in December, assuming a calendar tax year), that reduces your tax liability on your profits for the year, for an effective discount of X% on that expense (where X is your effective tax rate).
If you buy that same expense with post-tax income (i.e., in January of Year 2), you don't get the effective discount, and you won't know until the end of Year 2 if it will reduce your Year 2 taxes. Also, you have to wait a year to get any tax benefit out of the expense.
The cost of waiting just a few weeks can be huge. This is why many companies (or corporate departments) choose to blow the remainders of their budgets rushing through projects at year end rather than just taking the time to do things properly after the holidays.
Dividends are thus actually preferred by most investors, and buybacks generally only advantage the biggest investors.
Additionally, corporations don't get special capital gains rates but do get dividends received exemptions for dividends from related company, so in many cases corporate shareholders would prefer dividends over share buybacks.
Buybacks are big not for tax reasons (because in most cases, companies make buybacks out of borrowed funds, not profits), but because they artificially inflate the stock price, which increases the value of the executive compensation packages of the executives that authorized the buyback.
Historical equities compound growth almost entirely comes from constantly reinvesting dividends to buy more shares which compounds to increase future dividends. So as an example, take a company that returns 5% of their share price and an investor pays a 20% tax rate allowing them to reinvest 4% after tax money to buy more shares. After 40 years, they'd have 1.04^40=4.8 times the proportion of the company. If the same company spent all of its money buying back shares, you'd have 1.05^40=7.039 times the company. Now you still have to pay that 20% on gains once you sell so after you'd have (1.05^40-1)*.8+1=5.83 after selling but that is still a 21% benefit for share buybacks in that example.
Also, I wouldn't call that "artificially inflate the stock price". They are reducing the number of outstanding shares thereby increasing the earnings per share which increases the amount that can be returned to each share such as through higher dividends. It is effectively reinvesting the dividends for you back into the company.
Looking at behavior in the extreme case is only valid if behavior scales smoothly up to that limit.
Obviously there are ways to break that, like tax evasion, but hopefully there are other ways to deal with that.
At 100% tax rate I would expect that pattern to be magnified. As a board member, I'd use my success to hire or partner with anybody I had the slightest positive feeling for, until there is just enough money left over that I don't have the biggest target painted on my forehead.
I live in the suburbs now, and with regard to noise it's no better than the apartments except my first crappy apartment, and the brief time next to the obnoxious neighbors. My next door neighbors on one side are great, on the other side they're dicks and fight constantly and loudly. Across the street are two houses one with a muscle car and the other some kind of loud motorcycle, both are project vehicles. So I get to hear them revving their engines in the evening (too early to warrant filing a complaint, but still very obnoxious).
There's nothing magical about apartments that make them bad, or houses that make them good. The best you could hope for with regard to general quality of life (particularly noise and pests caused by poor hygiene from your neighbors) is to live in the country hundreds of feet (at least) from neighbors with trees in between. But then you forfeit access to everything else since nothing is close without having to drive.
By reducing the expected outcome of a new venture, taxes discourage marginal entrepreneurs from starting businesses.
Wealth tax is really rough because you can lose money on an asset AND lose more w/ the taxation on the capital base. At least with an income tax it's, hypothetically, only in the case of profit.
Wealth Tax is kind of like mandatory quotas. Income tax is like sharecropping.
Consumption is like sharing your goods consumption with society (think Potluck)
Vices is actually a disincentives structure for things proven to be societally disastrous or distasteful
And of course the devil is in the details entirely, because loopholes and policy can change it entirely.
And before the 1940s, federal taxes were dramatically lower.
Also, the people I am speaking about were most definitely born before the 90's. More like 50's or 60's.
So if you try to game the system by not claiming a vacation home, it just becomes public property.
Thoughts?
The LLC with the innocuous name of 123 Main St LLC which is the owner of the property at 123 Main St definitely has an owner, and it might not be a tax resident because the LLC is owned by 123 Main St Limited in the Cayman Islands and the ultimate beneficial owner, who is still unknown at this point, may not be an American to begin with.
So just applying heuristics to "hey that house doesn't appear in our tax records get it boys" would create more problems than you think.
And this also circles back to "not competitive". If your country has problems with expropriation people will stop coming there, and others will leave.
But also note, the US constitution does protect against expropriation in the 5th amendment. When rich people start being the subject of civil asset forfeiture the 5th amendment will suddenly start applying again.
3 and 4 are the real problems with a wealth tax.
The fundamental issue is that the government spends too much money. The politicians and the voters who support them refuse to support cuts in the magnitudes necessary to bring that situation back in hand. Many don't even believe it is a problem. On top of all that, the programs they refuse to cut, at every governmental level, are exactly the programs that suck up the most money. Medicare, Military, Police and Fire, on and on.
99.999% of all voters are like the family in the financial advisor's office who are willing to cut the trips to Starbuck's or go to a cheaper gym. So they feel they are being responsible. But they tell the financial advisor that the kids' private school tuition and the $50,000 cars they drive are not up for discussion. (Lord help you if you have the temerity to bring up the biggest issue of all, the $500,000 house they live in. You better have you kevlar on for that discussion.)
What can you do with people like that?
What they actually mean is "I wish you made me pay more". Because they can't bring themselves to write a check to -give- it away, but -do- feel they should have to pay more. Part of that is the social aspect; why should I, as a rich person, be paying more than other people of similar wealth? But I support all of us paying more.
Let's be clear, there are three kinds of mindsets here:
"I don't want to be taxed at all" - lots of lobbying and such to keep taxes on the rich low, and lots of loopholes.
"I think people of my bracket should be taxed higher, but I am going to avail myself of every existing loophole and itemization I can" - doesn't want to feel like a sucker, but agrees people in their bracket, themselves included, should pay more.
"I think people of my bracket should be taxed higher, and I'm going to give money away anonymously or similar to put my money where my mouth is, even if others of my bracket are not" - a unicorn.
I think I should be taxed more but I also don't think that me voluntarily paying 1% more tax will change anything. However everyone playing 1% more tax will so fundamentally change everything that it's worth doing.
I don't say "I'd pay more tax if I could" I say "I should pay more tax and so should everyone else earning as much as me"
>I increasingly think an underlying motive of why I study fairly intensely is just to end up better than those who were born better than me. You might want to consider the fact then that social mobility is generally higher in countries with higher tax rates.
I frankly think that the American model of free enterprise with reasonably few restrictions made most to improve the well-being of its population.
Arguably a wealth tax would create an incentive for everyone to do this which I would argue is probably bad since then the company controllers have less skin in the game.
Generally I think a wealth tax creates a ton of these perverse incentives with little true upside.
I'm a little confused about this though. If class A shares have all the votes (while most shares are class B shares), what prevents the market from valuing the class A shares at an extremely high value and the class B shares not at all? When the company finally gets big and stops growing, the source of its value to shareholders will be the dividends that it pays and it will be the voting class A shareholders that decide how dividends are allocated.
Basically they’ve thought of these things and controlled for them already.
Should we move the goalposts again?
The two adult two child family is not a median american family. It's a much-larger than normal family. Of course if you apply their deductions to an average income, you get a very low tax rate.
It's not typical.
> Earning below $100k will get you subsidized college, right?
That's more reflective of the insane inflation in college costs (and our typical "socialize things, but in the silliest possible way" approach in the States) than what lower/middle/upper class thresholds are.
My other big question is how this interacts with monetary policy. Inflation tends to preference financial capital by a.) lowering the real cost of outside credit and b.) causing dislocations within the economy that create opportunities for new startups. That could offset higher corporate taxes to some extent, while if combined with low corporate taxes it could spark a mania.
I don't see this holding true. Can you explain how?
Like, yes as a personal investor you now have less to invest, because you are taxed more on your income. But of the money you have left after tax, investment is still investment. There's no other way to make money of your money then to invest it. So as long as you don't spend all the money immediately, the incentive to invest it is there.
Also, the companies you invest in will be incentivized to reinvest in themselves, thus their stock growth potential will be higher, so a good time to invest in them.
Finally, the biggest investors arn't individuals, but investment firms, and because they themselves are a company, they themselves are like all others more incentivized to reinvest into their business, thus they are more likely to want to take their profit and invest it some more, instead of cashing it out as revenue.
Suppose you have $40,000. You can buy some stock in a domestic corporation, or buy some stock in a foreign corporation, or put a down payment on a house, or buy a new car, or invest in government bonds, or ten other things.
If you raise the domestic corporate tax rate, option one becomes less attractive compared to all the other ones.
Not quite. The fact that taxes are about to go up has already taken a huge chunk out of the sale value of the business. You want to sell it when taxes are low and not about to go up.
The purchase price of real estate is ultimately deductible as depreciation, as is mortgage interest, and any profits from rents get reinvested into buying more real estate which becomes deductible as depreciation again. Also, real estate speculation is commonly done using LLCs (passthrough, no corporate income tax anyway).
Most real estate companies are partnerships or REITs due to special tax provisions. But most of their investors are corporate entities.
Generally, profits from rent are not reinvested in buying more real estate because they simply aren't sufficient for that. Real estate is a cash flow game: real properties are purchased through commercial mortgages, and rental income services the debt. Generally, profits arise when real properties are sold for appreciated values. Because of this, real estate investment flourishes in low tax years: as a result of depreciation, the cost basis of the real property has been reduced, so the taxable income from the sale has increased.
The structures are generally the majority of the value of the property.
> Mortgage interest is not included in the basis of real property or in depreciation. It's just another deductible expense.
Nonetheless it's a major expense and fully deductible. They also get to deduct property maintenance etc.
> Most real estate companies are partnerships or REITs due to special tax provisions. But most of their investors are corporate entities.
A group of ten individuals who get together to buy an apartment complex are not a corporation. Moreover, if the investors are a corporation, it's still one less layer of indirection -- for a corporate investor, if the real estate holding company were an S Corp you would be paying corporate income tax twice.
> Real estate is a cash flow game: real properties are purchased through commercial mortgages, and rental income services the debt.
This is true until the debt is paid, but then isn't that the point? They get to deduct the interest and depreciation and maintenance, and wipe out their rental income.
> Because of this, real estate investment flourishes in low tax years: as a result of depreciation, the cost basis of the real property has been reduced, so the taxable income from the sale has increased.
That would result in real estate sales in low tax years, i.e. willingness to divest rather than willingness to invest. During the high tax years people would want to buy/hold and continue speculating to continue to defer paying the high taxes on the appreciation.
The difference being that the former is low risk and can grow the business, while the other has a good chance of triggering penalties that wipe out the savings and could even result in jail time for one or more executives.
Consider that the historically highest rates of tax fraud are during the current administration, despite historically low levels of tax on corporate income.
This is not the case, and in the event such an opportunity is available, companies would pursue it regardless of the tax environment, because making some money net of tax is better than no money whatsoever.
What such a policy would actually do is incentivize a massive mis-allocation of capital while simultaneously resulting in lower tax revenues. I fail to see how this makes anyone better off.
I'm not the guy from above, but responding with "I disagree with you so are you sure your opinions are your own" is dismissive and doesn't lead to a more interesting or thoughtful discussion. Instead, asking WHY he believes gives you the opportunity to engage in the discussion, maybe change your views a little or change the other persons' a bit.
That's why comments like that are annoying, they're a way to dismiss discussion instead of engaging in it, and engaging in discussion is the point of this silly site.
I'm someone who also isn't wealthy and disagrees with wealth taxes. Responses like that one aren't an honest attempt to engage, and I'd also ignore it and move on :)
We have to be able to ask these questions and assume they’re not attacks to have productive dialogues.
Can't speak for all companies, but higher tax rates generally means more money invested in tax avoidance. If for example, your tax rate was 95% of your income it would be rational for you to put a lot more effort into finding ways to avoid those taxes than if the taxes were 1%.
>...The difference being that the former is low risk and can grow the business,
Low risk? Investing in your business can grow the business or it can be money that could have just as well be thrown away. Lots of businesses have failed because they did bad investments, tried to over-expand, etc.
>...while the other has a good chance of triggering penalties that wipe out the savings and could even result in jail time for one or more executives.
There are no penalties or jail time associated with tax-avoidance - you probably mean tax evasion which is a crime.
>...Consider that the historically highest rates of tax fraud are during the current administration, despite historically low levels of tax on corporate income.
How much tax fraud is there with corporations? According to the IRS:
>...The Internal Revenue Service (IRS) has identified small business and sole proprietorship employees as the largest contributors to the tax gap between what Americans owe in federal taxes and what the federal government receives. Small business and sole proprietorship employees contribute to the tax gap because there are few ways for the government to know about skimming or non-reporting of income without mounting more significant investigations.
https://en.wikipedia.org/wiki/Tax_evasion_in_the_United_Stat...
Another source says:
>... Even though corporate misdeeds grab a lot of press, corporate underreporting accounts for only $67 billion of the tax gap, or 14.8 percent.
https://money.howstuffworks.com/personal-finance/personal-in...
It's funny because I'm a tax consultant for a living, and that's simply not been my experience. Businesses want to avoid paying taxes when possible, but it's generally not worth their effort to play tax games. A business doesn't pay taxes unless it's making profits, and it would have to be making sufficient profits that the millions they'd spend on consultants and maintaining tax avoidance strategies every year exceeds the actual tax liability by a material amount. For most businesses, that's not worth it.
Tax rates don't drive business decisions. The only time they matter is when a business is choosing between multiple otherwise equal or similar options and tax issues are the primary differentiators.
There are no penalties or jail time associated with tax-avoidance - you probably mean tax evasion which is a crime.
There are penalties associated with numerous tax avoidance strategies if the tax authority disagrees with your position; it's not necessary for the position to rise to the level of tax evasion. But on that note, there have been a number of tax avoidance strategies that were legal for years but deemed to be tax evasion after the fact, resulting in hefty fines and criminal sentences for those involved.
The Internal Revenue Service (IRS) has identified small business and sole proprietorship employees as the largest contributors to the tax gap between what Americans owe in federal taxes and what the federal government receives.
No citation was provided for that statement in wikipedia. Additionally, that statement conflicts with what the IRS has actually said about the tax collection gap being approximately $500 billion. https://www.irs.gov/newsroom/the-tax-gap. Based on Propublica reporting, at least $100 billion of that $500 billion is wealthy individuals like the Sackler family.
Even though corporate misdeeds grab a lot of press, corporate underreporting accounts for only $67 billion of the tax gap, or 14.8 percent.
True, but I wasn't saying that corporate tax evasion is higher than other types of tax evasion. I was comparing corporate tax evasion now to corporate tax evasion in other times. Measured against itself it's at historically high rates.
I'm just imagining the 1950s cottage industry in compensating executives with a company car, personal assistant outside of work, etc before the IRS caught up?
And all the present day shenanigans with Amazon/Apple etc hiding profits in Ireland?
The present day shenanigans were Apple and Amazon (note: Apple takes historical credit for being the first tech company to implement this structure) hiding profits in Ireland through the double dutch or similar structures. However, the EU has already attempted to crack down on the use of that structure and deemed it illegal. Companies that currently use the structure may be grandfathered in as a result of EU court decisions but no new companies can get implement the structure. Apple especially has been hoarding money overseas and not doing anything with it. In contrast, companies with higher tax rates have been very active about spending their overseas money rather than bringing it back to the US, precisely to avoid paying the higher taxes that repatriation would incur.
Yes, it's counterintutive. But it's how the world actually works.
https://www.taxpolicycenter.org/briefing-book/what-are-sourc...
https://www.cbpp.org/research/federal-tax/policy-basics-wher...
As an engineer, I've found there are two types of 'engineering minds'. Literalists, which cannot get too far past the scope fo the statement. They tend to dissect and add detail; and Expanders, who take it far beyond the original meaning. They tend to "yes, and" a solution (in the improv comedy stance) and expand it in different directions - but are remiss with detail.
And good discussions happen with both insights.
Whether or not that is a good idea, I don’t know.
Fine, he pays some of that to the government, and maybe sells slightly more. I don't see the problem.
If, in fact, your wealth only comes from ownership in a company and you have no other source of wealth, then yes you would be encourages to sell your shares to pay the wealth tax.
I don't see why this is a problem. That's kinda the point of a wealth tax, that yes you do get taxed on your wealth.
[0]: https://www.reuters.com/article/us-space-bezos/bezos-is-sell...
Yes, I would expect that if I had 100k shares of amzn (300 million dollars of net worth), and we implemented a wealth tax, the IRS would tell me "You have to pay us $300k or so" each year on that wealth. If that means I sell some stock, then sure. That means, btw, if I live 60 more years and gain zero more dollars of wealth, I still have 280 million dollars left of my original 300 mil. I still have plenty of shares left.
You clearly don't understand the point of a wealth tax or how the rate rises progressively with wealth it is if you don't understand why we'd be taxing ownership of wealth, and why this wouldn't negatively impact most people.
> If that is the case no one would ever buy any shares of any company...
I currently don't have over 50M of net worth. A wealth tax would not impact me, so I'd still buy stock just as I do now, with no difference. If my stocks did so well that I had millions of dollars, I'd now be able to pay a wealth tax, and have on problem with that. I'd also keep buying stocks if they got me from a net worth of almost nothing to $50M, and all I had to do was pay a small percentage each year along the way.
And if I have my shares, I don't want to sell them. I currently own X number of shares of dozens of companies, I don't have IRS breathing down my neck to sell them, why should Bezos have them breathing down his?! I pay taxes when I sell my shares, not just due to the fact that I own them...
I don't necessarily think it leads to purchasing status symbols. Depreciation already kind of incentivizes that, so I don't think there's anything fundamentally game-changing there.
And, depending on what is actually done with the money that Congress has decided to appropriate, it may be redistributed to consumers who will buy more of whatever that publicly traded company produces, or pay off the national debt, or do other things that can increase the health and growth of the economy. (Or not.)
Probably because trading stocks will still leave you with a lot more money than if you threw a tantrum, took your toys home and hid your money under your mattress - no plan that I've seen has investors paying capital gains at the level of their equivalent income - investment is still heavily subsidized.
Capital gains happen on money that has already been taxed as income. Capital Gains tax is less because it's round 2 of the taxation game.
Also taxing assets on their capital means people will not invest in capitally intensive projects. For example building a new housing complex returning 3% per year (after inflation) is 33% less interesting with an additional 1% wealth tax (on the capital) ...
For example: say you purchased 100 shares of Tesla stock a decade ago and sold it today for lots of capital gains. But Tesla has never posted an annual profit on a tax basis, and thus the "income" underlying the shares you sold was not taxed.
In fact, the capital gains rates were never about avoiding double taxation. It was simply a giveaway to Republican donors by the Reagan administration.
You probably mixed up capital gains and dividends. The logic behind giving dividends special rates (including a 0% rate for certain inter-corporate dividends) is that the corporation paying the dividend has already paid an income tax on those profits, so the shareholders should not be subject to full tax on the shares of the profits they receive, but should still pay some tax to account for the benefits of using the corporate form.
We already have wealth taxes, only very narrowly targeted.
Because the stock will allow you to avoid paying taxes. By investing revenue in investment, as a company, you can avoid paying tax on the money. So if you're a small or medium sized business, you have two choices:
1) Cash out and buy a rapidly depreciating status symbol with the money, but get taxed on it at a higher rate.
2) Reinvest the money in growing your business.
At least that's what I understood from OPs reasoning.
Edit: Also spending money in depreciating status symbols is also a contributor to the economy.
Yes, for a single iteration, but it's a vicious cycle of shrinking the pie.
versus creation of new (true) assets makes the pie bigger. A bigger pie means the tax slice grows and there is more to go around. I agree that, for example, Bezos having $300Bn locked up in non-taxable is not ideal too. Ideally that would have been taxes as an "income" as it grew.
Maybe something like the required minimum distribution from 401k would be a good solution?
Your original claim was "Actually, history bears out that higher tax rates result in corporations re-investing more of their profits in the company and less in tax-avoidance accounting."
To claim that as tax rates go up, companies are less concerned about the amount of tax they pay is an extraordinary claim and requires extraordinary evidence.
>...Tax rates don't drive business decisions.
I agree. If there are investment opportunities companies will make them.
>...I was comparing corporate tax evasion now to corporate tax evasion in other times. Measured against itself it's at historically high rates.
Where are the numbers for recent years? Your source says the tax gap and compliance has stayed pretty much the same since they started trying to estimate it:
>...The latest estimates for tax years 2011, 2012 and 2013 show the nation's tax compliance rate is substantially unchanged from prior years.
For corporate tax rate, I think it depends if you're planning a growth investment or a dividend based one. For growth, capital tax rate shouldn't affect you at all, since you'll mostly target companies running at close to no revenue or even declaring losses, but growing very fast.
For dividend investment, it would, since the companies will have less profit post tax, but if you think about it holistically, that's like the best thing to tax. You have a well established business, that's no longer growing or doing so very slowly, and it is making excess money even after paying all its employees and expenses. It seems a very good place to take from and redistribute.
Think about the alternative sources of revenue for the government here? What could be better then that?
There are two issues there. The first is that it's a long-term fail, because the "cash cow" stage is where investors make back their money that was invested during the growth stage in a company that wasn't then paying dividends. If you tax them away, the market value of the company crashes as soon as it hits the cash cow stage, and then who is going to invest at the growth stage when that's their ultimate outcome? So you destroy investment in new companies.
And the second is that it promotes malinvestment, because rather than paying dividends to investors who reinvest them in promising new companies, you create the incentive for the corporation to remain in the growth state indefinitely and use all of its profits to continually expand, even into markets outside of its competency. Then you get huge inefficient conglomerates, which is much as we've seen.
What you really want is to make dividends a tax deduction from corporate income tax, but still taxable to the shareholder. Then they cancel out from a government revenue perspective but you lose the perverse incentive to grow the corporation without bound.
> Think about the alternative sources of revenue for the government here? What could be better then that?
VAT actually works really well. You get to a similar result from the other side: VAT and corporate income tax are really almost the same thing, but instead of deducting dividends from corporate income tax, the corporation has to collect VAT but there is no income tax on the dividends. And it has the further advantage that it's paid to the jurisdiction of final sale rather than wherever a multinational corporation contrives its "profits" to be declared.
That's the point of a wealth tax, to in fact tax that checking account too. You seem to misunderstand how it would work and what the intent is. It doesn't treat your checking account differently from company ownership; both are wealth, a wealth tax suggests taxing both.
> I don't have IRS breathing down my neck to sell them, why should Bezos have them breathing down his?
You shouldn't if you're not wealthy (as in you have under 20 mil net worth). If you're wealthy, you can afford to pay a wealth tax, and your money will help those poorer.
Why shouldn't we be taking money from the rich and helping the entire country? Why should our country continue to have a wider and wider economic divide?
Anyway, the IRS absolutely would breath down your neck to give them money if you owed them taxes. If all your assets were stock, and you somehow triggered a large tax liability, you'd have to sell some stock to pay the IRS. That's already true. It's perfectly possible to trigger a tax liability larger than your liquid assets now, and have to sell stock to cover it.
But that's rare now. And with a wealth tax that would still be rare. Most people with 20MM+ net worth have liquid assets, or the ability to easily liquidate assets.
You're arguing about an edge case that almost certainly doesn't effect you in any way.
With a buyback, you have fewer shares after the buyback. If you "reinvest" in the company you give up all the proceeds you received to buy back the shares that you just sold to the company. But you've paid taxes as a result of the initial buyback so you have less money than you received to reinvest, and now presumably the shares are all more expensive as well. Your position is economically worse off if you reinvest than when you started, because you have the same amount of shares (or fewer) but paid some tax to get there.
With a dividend, you can keep the dividend, or buy more shares of the company or some combination of both. Your economic position is improved either way regardless of the amount of tax you pay.
Not sure who "you" is but the company will have fewer shares outstanding, investors who don't sell will have the same and those investors will also now own a greater % of the company as well as a greater earnings per share.
> If you "reinvest" in the company you give up all the proceeds you received to buy back the shares that you just sold to the company
I am 100% not saying that as that would eliminate the benefit. The benefit is to long term investors who buy, hold and reinvest dividends and reinvesting dividends to buy more stock is key as that is where the historical exponential returns are because it increases your ownership share and future dividends.
That is where my example numbers come in because you can only reinvest to buy more shares and thus your ownership % the dividend amount minus tax amount whereas the company can spend the entirety of a dividend buying shares to remove them from the outstanding market. The difference between those two numbers (1.05 and 1.04 in my example) then compounds and effectively goes towards increasing share prices which do eventually get taxed but they get the benefit of compounding while the owner holds.
Also, while you need quite a few shares, you can estimate and sell the percentage of shares a company is buying back in order to keep the same % ownership thus acting like a dividend so I myself would prefer all companies I invest in to never give out dividends and only do buybacks unless their P/E ratio is truly absurd.
In most cases in the past decades, buybacks were accomplished using loans rather than profits, leaving the companies in worse financial positions. More than half of the companies that engaged in buybacks in the past decades are either bankrupt, declared bankruptcy in 2020, or are underperforming the market. Only a handful of companies that engaged in buybacks are doing okay, and those companies also issued dividends (see for example, Microsoft).
You're shifting the goalposts. First you were claiming that taxes don't generally spur avoidant behavior. Now you're claiming they do[1], and we want that.
Which is itself dubious. I'm pretty sure "we" don't want people to unilaterally exempt themselves from taxes by relabeling consumption as a business expense. (In the extreme case, imagine you can just pass on every desired purchase as a "wish list" to your employer and they buy it for you, "as a business expense" leaving you with no taxable income. Obviously the IRS has to crack down on that, and no one would call that "things working as intended".)
And we definitely don't want real resources going to gaming of the tax code, which is socially wasteful.
[1] and in the next paragraph, the tack of "but it's cool, they're gonna crack down on that later".
We're talking about different types of avoidance. I'm talking about real business spending, i.e., on facilities, equipment, employees, etc., as a means of tax avoidance. High taxes encourage this type of spending because (a) businesses that are growing are going to do this anyway and (b) they effectively get a discount for this anyway if they're making enough money to actually pay taxes.
But most people are referring to tax avoidance strategies like IP shifting, off-shoring, etc. I'm saying, that based on my professional experience as a tax advisor for a decade, that these activities are not motivated by high tax rates, and indeed were highest during periods of lower tax rates. (In the examples I mentioned above in the earlier comment, the companies weren't engaging in tax avoidance strategies, they were making business investments. The difference is that tax avoidance is entirely or primarily motivated by avoiding taxes and is pursued despite the lack of an actual business need; business investment may be motivated in part by avoiding taxes but is primarily driven by actual business needs and will not be pursued absent a business case for the spending.)
Which is itself dubious. I'm pretty sure "we" don't want people to unilaterally exempt themselves from taxes by relabeling consumption as a business expense
I don't understand where you're going with this. You brought up examples that are considered legitimate business expenses by the tax code, and have been for decades. Hell, they're the basis for all the in-office perks tech companies gave their employees pre-COVID. If you have an issue with whether they should be deductible on moral grounds, that's a separate discussion.
And again, my argument is based on how my clients, and US businesses in general, have actually responded to tax cuts and tax increases, and not to how they were theoretically expected to behave by people who aren't actually running successful businesses.
The forced spending by the end of a fiscal tax year is often offset by delivery or implementation contracts to mitigate the damage of having to time the purchase for tax purchases.
But the point is that a business with a higher tax rate has a greater incentive to spend money, and to spend more of it.
And as a practical matter, history has demonstrated that businesses actually invest less during periods of low tax than they do during periods of high tax, even though they have more cash to spend. It's counterintuitive but multiple major tax cuts have borne this trend out.
Certainly considered in isolation this investment sounds attractive. In conjunction with the benefits of paychecks and dividends being spent elsewhere in the economy it’s less certain.
If a firm eyeballs a project that is likely to have a good return, they will pursue it regardless of the corporation tax rate at present. Meaning that whether the corporate tax is high, low, or nonexistent, it's better to make money than not make money.
Given this, if a firm cannot see any good opportunities to pursue, incentivizing mass investment in zero or negative return projects, while coincidentally incentivizing lower government revenue is unlikely be a net good for society. That seems to me to be a encouraging massive destruction of wealth and also encourage enormous mis-allocation of capital.
Reinvestment in a corporation is only naturally incentivized when that strategy appears to give the biggest RoI and not all money uninvested from markets, companies etc. will necessarily be reinvested in another venture.
See: https://fred.stlouisfed.org/series/M2V
Our current policy is to paper over bank liquidity or other problems by printing money. Big institutions and the mega-rich are hoarding massive quantities of cash. The economy as a whole would be better off if billionaires were doing stuff with their money rather than hoarding shares.
"Hoarding" is nonsense.
Most of the corporate cash isn’t in equity funds, it in US Treasury debt. Apple holds >$50B of treasury securities, for example.
The low inflation monetary policy has some benefits, but combined with our ass-backwards tax system also makes for strong disincentive to do anything with excess cash.
The effect is almost identical.
Depends, unless you're talking about very large structures like office buildings, factories, or malls in which case the structures are definitely worth more than the land. For most residential and small-to-midsize commercial plots, it depends on where the land is. In states like HI, CA, NY, and NJ, the land is worth more than the structures on top of it, and that is triply true in cities like LA and SF.
Nonetheless it's a major expense and fully deductible.
Yes, it's generally a real property company's biggest expense. But as far as business expenses go, it's not that big compared to the expenses another business would face. (My real estate clients included a number of REITs, including a major mall chain, and the owners of a number of LA, NY, SF office towers.)
They also get to deduct property maintenance etc.
Generally, no. Under a triple-net lease, they would not get to deduct these costs because they're not paying them. Most commercial properties are leased on a triple-net basis, so the tenant is paying maintenance costs.
A group of ten individuals who get together to buy an apartment complex are not a corporation. Moreover, if the investors are a corporation, it's still one less layer of indirection -- for a corporate investor, if the real estate holding company were an S Corp you would be paying corporate income tax twice.
My statement was directed to the real world, in which most investors in REITs and real estate partnerships are corporate entities, not to a hypothetical situation.
Also, I'm not sure if you are aware of this but an S-Corp does not pay corporate income taxes, so there's only a single layer of tax whether they use an S-Corp, LLC, REIT, or LP, or GP. They're all flow-through entities for tax purposes that are differentiated primarily by their legal/compliance burdens.
This is true until the debt is paid, but then isn't that the point? They get to deduct the interest and depreciation and maintenance, and wipe out their rental income.
Yes, that's the point, but more to the point, that's the entire point of real estate investing. You make your money selling the real estate, but it's a holding game until then; you just care that you make enough in rental income to pay your debt service costs (it's not that you wipe out your rental income with expenses, it's that your expenses are covered by the rental income). This is why property owners can let storefronts remain vacant for years, so long as their rental income from the building is otherwise covering debt service.
That would result in real estate sales in low tax years, i.e. willingness to divest rather than willingness to invest. During the high tax years people would want to buy/hold and continue speculating to continue to defer paying the high taxes on the appreciation.
Right, but the flip side of you divesting is someone else investing, at appreciated costs from you paid.
The exception of course is those real property companies that are not engaged in speculation but are primarily in the business of being landlords. They have actual businesses, and correspondingly tend to spend more on upgrades during periods of higher taxes. (See, e.g., LA's or SF's office markets: prior to the TCJA tax cuts, billions or hundreds of millions spent on improving existing office buildings but since then essentially zilch.)
Or large apartment complexes. But isn't that where most real estate investing goes? Detached single family homes are mostly owner-occupied.
> Generally, no. Under a triple-net lease, they would not get to deduct these costs because they're not paying them. Most commercial properties are leased on a triple-net basis, so the tenant is paying maintenance costs.
But then the tenant is paying correspondingly less rent, which means less taxable income to the property owner. It's a wash either way.
> Also, I'm not sure if you are aware of this but an S-Corp does not pay corporate income taxes
You're right, I meant C-Corp.
My point being that if the investor is a "corporation" in the sense that it's paying corporate income tax itself, that has little to do with the thing it's investing in. If it buys ownership of a REIT and the REIT itself doesn't pay corporate income tax, and the corporate tax rate is high, that's more advantageous than the same corporate investor buying shares of Union Pacific, whether or not the entity doing the investing then pays corporate income tax on the income it receives from the investment.
> Yes, that's the point, but more to the point, that's the entire point of real estate investing.
It's one of the two options. Option one, you zero out your taxable income while building equity, and then sell to liquidate. Option two, you zero out your taxable income while building equity, then once the loan is paid off you get to keep the rental income, which can be used as down payment on additional properties if you prefer to invest further rather than pay the tax and spend the money.
> Right, but the flip side of you divesting is someone else investing, at appreciated costs from you paid.
The point being that high turnover during periods of low taxation isn't a result of people wanting to get into the real estate market, it's a result of people wanting to get out. So it tends to cause housing to become more affordable rather than inflating a bubble because people hold who would rather sell if not for selling incurring a major tax bill.
> They have actual businesses, and correspondingly tend to spend more on upgrades during periods of higher taxes.
That's evidence of what I'm saying -- when corporate taxes are high, people move investment from businesses to real estate. Making improvements to real estate is investing in real estate. Lower taxes and they stop because they make more to invest the same money in other businesses.
In terms of absolute deals? Yes. In terms of dollar value? Not even close, commercial property far exceeds residential property.
But then the tenant is paying correspondingly less rent, which means less taxable income to the property owner. It's a wash either way.
Generally, no. That's not how triple-net leases work. Tenant pays market value, and maintenance costs on top of that.
It's one of the two options.
In your hypothetical, sure. But in the real world, you don't make enough money in rent from one property to use to pay a down payment on the other, and actual real estate investment companies don't pay down the loans; they take out balloon mortgages and just pay interest on the loans until they sell (or refinance before the balloon). I've done this for enough real property investor clients to know how they actually think.
That's evidence of what I'm saying -- when corporate taxes are high, people move investment from businesses to real estate. Making improvements to real estate is investing in real estate. Lower taxes and they stop because they make more to invest the same money in other businesses.
No, it's not. Because all businesses make more investments in their businesses during periods of high taxes. And specifically in my example, I wasn't referring to real estate investors, but companies that actually manage buildings with the intent of being landlords and making their money from commercial leases, not from selling their buildings.
Changing personal income tax rates has a lagging effect on economic spending, because they're spread out over time so that effect ends up being very small on a monthly or bimonthly basis (i.e., the periods over which a person generally receives a paycheck). Generally, consumers don't even notice the change until the file the taxes for the year.
Businesses have had low taxes since the Reagan administration, albeit brief periods of higher taxes during the Clinton and Obama administrations. Notably, business investment was at its highest levels during those periods of high taxes, and the economy grew at its highest rates since the post-WWII reconstruction era. During the periods of low taxes, US businesses actually accelerated off-shoring labor to foreign facilities, and the decline of Detroit and the Rust Belt can be directly correlated with the Reagan tax cuts.
I used that number since that was the number the parent comment saw as being obviously too much already, so I didn't need to use a higher number.
I do think 0.1% would already be pretty appreciable. That's already several 10s of billions a year. The current budget for all of the IRS is on the order of 10s of billions now, so I really doubt adding that new tax would be a net-loss.
And, of course, once you have a wealth tax and the sky doesn't fall, tweaking the number up over time is easier.
All BigCorp Ireland LTD has is a brokerage account full of ISIN codes.
How are those tbills delivering value to the shareholders?
And they pay interest to the holder...
The point is, the money isn't keeping out of the economy. It's loaned to the government who spends it.
If you want to raise money or reduce inequality there are better ways to do it. Income tax, capital gains, inheritance, etc...
That's not evidence. We have right-wing parties in Europe too. They introduce right-wing policies when they have power, such as the above.
So sure, the wealth tax would only be on "the rich" when it first starts out but I guarantee you the middle class will be hit by it eventually.
Plus, there's other reasons to be skeptical of wealth taxes, capital flight is a real thing.
Just on the face of it, sure if you're wealthier you have greater ability to move but that also means you probably like where you are because you chose to be there. Most of my high school friends dispersed around the country solely for job opportunities, not because they wanted to be somewhere.
[1] https://minnesota.publicradio.org/features/2011/02/documents...
> The New Jersey millionaire tax experiment offers a potent testing ground, given the magnitude of the policy change and the relative ease of relocating to a different state tax regime without leaving the New York or Philadelphia metropolitan areas. Using a difference-in-difference estimator, we find minimal effect of the new tax on the migration of millionaires.
Can anyone provide some examples of it happening in an economy like ours?
[0] https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1268381
[1] https://www.forbes.com/sites/jonhartley/2015/02/02/frances-7...
BTW, have you seen how expensive it is for high net worth individuals to renounce US citizenship?
God I hope not. How empty would we all be if we all wanted to have more money than the next guy.
Yep, that's why all of the rich people have left New York and California.
I hope to be wealthy and not pull up the ladder behind me.
It's possible for someone to think that it's unfair for some people to pay a huge amount of taxes unfairly, without they themselves thinking "one day I'll be rich".
And fairness aside, there's the purely pragmatic concern that multi-generational wealth concentration is bad for almost everything— bad for democracy, bad for fairness in media, bad for civil unrest, etc etc. Is taxing wealth an effective way to manage this? Maybe, maybe not. But anyone who wants to critique it should probably be willing to support _some_ plan for controlling wealth inequality over the long term.
I think the picture looks quite different if you look at things like quality of life indicators— and then it's (surprise!) nations like Denmark and Switzerland which top the list. I suspect it would be even more stark if you were able to measure class mobility— the number of people who have at least +x% inflation adjusted net worth over their parents at the same age.
So yeah, it's a little bizarre (and a very US-centric view) to just assume that "success" on a national level and socialist policies are mutually exclusive.
Judging by the amount of wealth in New York and California: obviously yes.
> Why wouldn't they leave if this wealth tax were suddenly imposed upon them?
Because they want what the taxes get them.
The thing is, that money which comes from the upper levels is extremely subject to the whims of those governments; it can fluctuate wildly depending who comes into power and what their priorities are. So without some guarantees around it, I can understand the municipalities wanting a stable source of income over which they have some agency, and out of which they can reap immediate benefit from growing the local economy.
Anyway, I'd love to hear from someone in Germany how this is resolved there; but I'd assume there'd need to be some pretty structured, long-term agreements around minimum amounts, percentages of new growth, and so on.
For the taxes, it's complicated, because there are some taxes for which the cities and states can decide the amount, and others (for example VAT), from which they get a certain fraction, but the amount is decided on the federal level.
Edit: Let me add: Property taxes are very strangely regressive. You pay it whether you rent or own, and there is a minimum apartment cost, so you'll always pay, while a low income might not be taxed at all. Then, often, there is a sudden jump from apartment complex to SFH.
