Daktoria wrote:If you want to claim that incentives can be negative, then it defeats the purpose of the word.
Then the purpose of the word hath been vanquished. I'm not making anything up when I say incentives can be negative, and I didn't make up the term "negative incentive". This tangent is semantic anyway, call it what you will, and focus on the substance.
Daktoria wrote:If I'm irresponsible in the moment and you're responsible over time, it would contradict your responsibility to expect you to afford my irresponsibility.
Savings is self-recommending, and is a good idea even if the returns are diminished somewhat (and as I argued to Phyllo, they may not be). Moreover, if we maintain the progressive tax system we have, and change only the means of calculating tax liability, it wouldn't be responsibility that would be punished, but accumulation. It would be like telling the ant that saving up for the winter is a reasonable thing to do, maybe even for several winters, but once you've saved up for more winters than you're likely to see, your savings isn't about being responsible.
. I hope you don't mind, you made a number of points that need responding to, and in the interest of not responding line-by-line I've tried to digest you post into a few larger objections. Let me know if I've missed anything or mischaracterized your argument:
omar wrote:... [I]t is an attack on a section of your voting population. Already you bring a moral prejudice to what should be a reasoned argument. We should reward success, entrepeneurship, risk-taking. We should encourage investment of capital, or as you put it "wealth". [. . .] You depart from a negative assessment on wealth. I don't see an argument here for this at all [. . .] To me it seems fair that tax should be a percentage of an individual's assets. Make it 15%, for sake of argument. The burden here would be the same but not the contribution. That is fair.
[. . .] Wealth is not something we simply are born into. It is the result of someone's work, genius, dexterity, foresight, and risk. It should be the person's right to do as she sees fit and not the prerrogative of a govt that did not earn it.
It was not my purpose here to argue in favor of progressive taxes. Most developed nations have some form of progressive taxation. I think there are good reasons for it (in particular, diminishing marginal value and the fact that some costs are fixed, both of which imply that a dollar is actually worth less to a wealthy person than to a poor person). But even if you aren't convinced, it seems like a fair assumption that we should tax the wealthy more than the poor, given that we try to do so.
I'd rather not try to defend that proposition here, though, so perhaps there is a better way to go about the discussion: given that a flat tax is the fairest way to tax, should the tax be calculated based on income or wealth? Both imply certain value judgements, and both affect different groups differently (e.g., the idle rich would prefer a tax on income, and the upwardly mobile poor would prefer a tax on wealth). I'd be curious to know your thoughts on that comparison.
I don't mean to take any position about where wealth comes from. Certainly some people get wealthy based on hard work and brilliance. But certainly others inherit wealth, or inherit cultural capital that makes the road to wealth significantly easier. No matter, the government needs to take some money out of the stores of personal wealth in order to pay for common goods. How that happens involves a lot value judgements and a lot of practical considerations. I don't see the utility for the discussion in questioning any exercise of government prerogative.
omar wrote:Without such consecions on capital you may lose the ability of others to remain "upwardly mobile". [ . . .] If you want to encourage the movement of wealth....well, you get more with honey than with vinegar, and that means giving tax breaks on philantrophic contributions, donations and community investment. Invite the wealthy to do what you ONLY HOPE the govt will do with the wealth they repossess.
I find the suggestion that government should offer targeted tax breaks to be at odds with your concerns about government prerogatives, Big Brother, and a 'fair' tax system of flat taxes. Minimizing government interference would mean minimizing the instances in which government effectively pays you to spend your money in certain ways. Targeted tax breaks are equivalent to government spending.
Moreover, it does not seem that we should expect the wealthy to spend their money in way which will reduce ascription (which will benefit their children). That would be irrational. And blanket tax breaks for anything that can be described as "philanthropic" will probably result in a lot of ballets and art museums getting funded, the proceeds and benefits from which will never flow to the urban poor.
If wealthy people want to give money, they still can. Indeed, they're encouraged to by a wealth tax, since doing so will reduce their liability. But for the same reason that we don't let people decide where their taxes will be spent, it is ineffective to substitute philanthropic giving for tax-funded programs.
omar wrote:Wealth is also not easily defined. [ . . .] The value of such things is not fixed either, while income dollars, more or less, have a determined value. If your system had been in place during the crash, the plight of the wealthy would have been passed right along to the govt, making it another victim and not a possible rescuer.
Wealth is difficult to define, but I think you understate the extent to which income is similarly slippery. First, if the value of the dollar tanks, the real value of income also tanks, while the value of things like a house or a stock might rise to compensate, maintaining the same real value. Furthermore, stocks, insurance policies, and other perks from jobs have to be tallied among income. The use of a company car or a company-owned condo must be included in income; indeed, virtually anything that needs to be appraised as personal wealth can also be earned as part of a benefits package, and in both cases they would need to be taxed.
As to how the tax base changes during a crash, could you say more about why a wealth tax has worse effects? The tax base made up of the working class dropped substantially during the crash, as the unemployment rate increased, and many of those who kept their jobs had their salaries cut. Moreover, since negative returns on investment are written off, the wealthy's liability similarly decreased. My guess is that the real effect of the crisis would be roughly the same, regardless the tax system.
omar wrote:[B]asically any investment would mean risk for me and none for the government, who will nonetheless enjoy the fruits of my saga. [ . . . ] Why should I risk my money. If anything I will risk hiding my money, since then, while I see no increases for me, there is no loss of wealth to the taxman. Sitting on cash will not necessarily mean loss of money, while increase wealth will be.
This is true, but as I argued above, the world is moving away from cash, so hiding cash under ones mattress is getting very difficult. Moreover, making declarations of wealth binding in court would make stashing any sizable amount of wealth undesirable: it couldn't be used as collateral on a loan, it couldn't be reported if stolen, and most of all it would sit in squallor while the market rose. Over the long term, cash is a losing investment, and that is likely to remain true with a wealth tax (especially if I am right that returns on investment would increase proportionally in response to the change).
omar wrote:I think that the broader issue is the increase of government oversight, reach and power. The state you are describing is nothing short of big brother.
Yes. But it is wrong to think that this proposal is all that different from the state we actually have. The cashless society is coming, it's cheaper and more efficient, it's easier to regulate and measure, it's easier to administer and police. I rarely carry cash, I rarely interact with cash, I rarely make a transaction that isn't immediately recorded in several computers. The wealth tax doesn't make a state of government oversight possible, it leverage the state of government oversight we're living in for a beneficial change in tax policy.
phyllo wrote:My figure of US net worth (2009) of $75 trillion almost certainly does not include federal assets and liabilities. [ . . . ] Net worth is difficult to calculate for an entire population but whether it is $65 or $75 trillion, it is not 3 times that figure ($202 trillion) which you want to use as a tax base.
Look again at your own source
for original figure. It lists as the total assets of "Households and non-profits" as $73.5 trillion. It further lists the assets of "Corporate businesses," "Other businesses," and "Financial businesses" as $30 trillion, $13 trillion, and $67.6 trillion, respectively. The $202 trillion figure included "Foreign investors," which I was wrong to include, but we're still left with a total asset base of ~$180 trillion.
phyllo wrote:Let's say a person earns $100K in a year and then nothing for the following 9 years. [ . . . ]
I'll grant what I think is the gist of this hypothetical (about which I'll say more in a minute), but when I said it was semantic, I was responding to it being characterized being "paid once" vs. being "paid repeatedly every year." All that your hypothetical shows is that if you change the basis liability, you will change what a person owes in taxes. If a person has a net worth of S100k, and then spends all her money, she will go from owing $5k to owing nothing. Taxes are assessed, on everyone, every year. If the basis of liability, no matter how it's calculated, is zero, then you will owe zero taxes. But you are still personally liable for your assessed taxes each year.
As to the 0-income individual owing taxes, why shouldn't she? Does she not use the roads? Is she not protected by the police and the fire department? Is he country not protected by the military? If someone earns a bunch of money and then decides to sit around, it does not seem that they are any less benefiting from the protection of government or from the public goods it ensures. Someone with $100k being reduced to $60k in ten years should not be alarming, the cost of living basically anywhere is much greater than that. And if we still find it problematic, it's an easy matter, as I've argued, to determine the percentage of liability based on wealth, so that the rate would fall from 5% to 4% to 3% to nothing, or what have you.
phyllo wrote:What happens when there is 0% return or a negative return? The investor has to sell stock in order to pay the wealth tax. [ . . . ] It's a benefit because tax payments are only required when revenue is generated ...the investor has cash on hand to pay the tax and does not need to sell assets to raise cash.
What about the CEO who accepts no salary, but is paid in stock options? What about the nanny who is paid in room and board? Either of these individuals will still owe taxes, and will not have been given cash on hand to pay the tax. What about someone who is paid as an outside consultant, so that no taxes are assessed at the time they're paid, and who invests all the money in their business? They will too will need to sell of assets or take out a loan to pay their taxes.
Will a wealth tax penalize anyone who does not plan for paying their taxes, or who has no cash on hand for whatever reason at the time they're taxes are due? Yes. Is the same true of an income tax? Yes.
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