I’m assuming there’s a gotcha here. But why would you be taxed on money you saved from a previous year’s income?
I haven’t seen anyone arguing that people should have their savings taxed. Care to point out any examples?
The argument I have seen is that the money people earn via investments should be taxed at the same rate as money earned via income. Or presumably money earned via other sources.
It’s not a morality issue. It’s basic reality. If we want to spend money we’ve got to make money. This applies to governments as well as people.
I think wealth based taxation would be pretty difficult to administer. Trying to assess everything everyone owns every year would add a substantial overhead to taxation administration, plus presumably some fraction of people would contest the assessments every year, and everyone would have an incentive to try and make all their crap look less valuable then it really is. And you’d have incentives for people to make arangements to not own goods, but instead have some other, preferably tax free, entity own them and just lease them out or something.
It also runs into the problem that a lot of wealth is non-liqiud, so even if you own a million dollar boat, you don’t necessarily have the cash sitting around to make the tax payments on it.
Basically the same problems you run into with property taxes, but extended to a much larger class of goods.
The current US scheme of relying on taxation of income is pretty elegant in comparison. Income is usually in the form of cash, so its easy to assess its value and its liquid pretty much by definition.
The only advantage I can see to a wealth tax is that it keeps people from sitting on assets rather then developing them. But a combination of inflation and practicality seems to keep this from happening too much in the real world, so I don’t really see how it would be worth it.
He paid taxes on the revenue in the first year when he won the lottery. What he’s asking about is whether he should pay taxes again the second year on the money that’s left over from his previous year’s winnings.
I think you’re missing something here. The original premis was:
(bolding mine)
So Bricker is saying that in the year he made (OK -won ;)) this money he paid income tax on it. No one is suggesting he doesn’t pay income taxes on that money, just that in subsequent years if he has no income he pays no income tax.
And I am asking for an example of a lottery winner who did just this and didn’t have to pay taxes the nest year. I’m not saying it isn’t true…but a cite would answer the question.
If you have reasonable income based taxation, the wealth based taxation works itself out, since every penny of that wealth has been taxed already. Seems fair to me. Wealth can count in whether the government gives you subsidies such as food stamps or loans through FAFSA (the bane of my existence for 8 years) but that is different.
It should be noted that if you actually spent some of your money you would be paying taxes on it in most states. And by taking a lump sum and not investing it you are ripping yourself off relative to taking the annuity method most lotteries offer.
I don’t really see the problem. You pay taxes on your income, and your wealth is used to assess your eligibility for certain government-based aid (financial aid for schools, Medicaid, food stamps). Seems a pretty reasonable policy, and one that has served us pretty well over the years. Adding SS benefits to the means-tested pile would potentially be a good idea as well.
Wealth taxes pose some benefits (encouraging movement of money, potentially has less impact on consumption rates) but the downsides (difficulty of enforcement in particular) generally outweigh them, IMO.
? If someone did as Bricker supposes, and puts his (after tax) winnings in the closet, why on earth would he be taxed the next year on the money in his closet?
On the other hand, there are plenty of examples in Canada where lottery winners don’t pay taxes on their winnings. This is how it works up here. Win 10 million on the 649, and you won’t pay income tax. Put the 10 million in your closet, and you won’t pay income tax the next year because you have no income. Put the 10 million in an investment account, and pay taxes on the income you earn.
As has been said, I think that the tax you pay on this income from your investments should be taxed at the same rate as income from salary or any other sort of income.
According to the OP, he will have paid $70M in taxes before getting his $80M check. That’s a lot of taxes. And you’ll pay tax on everything you buy, assuming you live in a state with a sales tax. If you sit on most of the money until you die, your heirs will pay tax on their inheritance. Plenty of opportunity for the government to get a share.
That’s your wealth and income tax right there. It’s really the same thing, since you can’t accumulate wealth without income. If you happen to get lucky and buy a rug for $25 that Antique Roadshow appraises for $500k, that supposed $500k doesn’t do you any good unless you sell the rug. When you sell the rug, you’ll pay tax. You could maybe borrow against it, but whoever is loaning you money will pay tax on the interest earned.
ETA: Not $70M in tax. I missed the part about the home. But still, it’s going to be close to that.
IIRC, France has a wealth tax - which is why in that famous Marseilles bank job, a lot of the take went unreported. It was money in safe deposit boxes hidden away from the tax man. The trouble with wealth tax is it eats away at your assets. Is that good policy? If it is big enough to generate worthwhile revenue, it will destroy assets quickly. What’s the plan then? If you own a $1M house and fall on hard times, you have to come up with $X cash or sell the house? Pretty much force retirees or the unemployed to quickly downsize?
I prefer the idea of an inheriance tax. Allow a certain exception limit, like family farms, family homes, and businesses under a certain size. I forget who it was that said, “I want to leave my kids enough money so they can do anything, but no so much that they can do nothing…” That would be the model for an inheritance tax. You can enjoy your success, but your kids have to do something too. What did Hery Ford II or III ever do for the amount of money they have?
So to answer the OP - great, no income, no taxes; but let’s say you’re 30. If you spend the remaining 1.2M at $30,000 a year, that will last until you are 70. Then what? Invest it, say you get 5% - $60,000/year, incredibly optimistic. Still not a fantastic income, say $45K after tax? Even a combination of nvestment and drawdown does not give you a fantastic income. The best investment is a modest paid off house, which substitutes for thousands in rent or mortgage every year for the rest of your life. $20,000/yr is not a lot but it’s better when you pay no rent to live.
Completely ridiculous. If someone has $1.2 million in the bank, or in investments, you do not deserve to have food stamps.
Thinking back to the OP, I think it would be unconscionable for someone with vast amounts of cash, but no income, to claim things like the EITC to get thousands of dollars in tax refunds.
individuals come into the world without any wealth
any wealth one accrues in their lifetime can be said to derive strictly from the laws and environment provided by society. All the business savvy in the world won’t help a body keep money from a bunch of guys with guns
therefore, people who accumulate a lot of wealth in their lifetime have benefitted more than others from society. Whether it’s because they learned how best to game society, or because the existing society is uniquely suited to reward their natural talents and inclinations, or because society let their parents accumulate and keep a lot of wealth to hand down to them is relatively irrelevant
since they benefit more from society, it’s only right that they contribute more, to the tune of just how fortunate they were.
FWIW, I’m not sure I actually believe in this (and I’m quite certain I don’t give much of a shit about taxes or economics), but I don’t really see a flaw in this line of argument. It might be a bad idea to do it or lead to terrible consequences like the Job Creators committing collective seppuku, but it’s justifiable from a philosophical P.O.V.
That being said, short of hiring a gaggle of auditors* to estimate each individual’s total worth on an annual basis I don’t really see how feasible/enforceable a general wealth tax would be in practice.
that’s the proper collective noun, BTW. A passel of accountants, a murder of lawyers, a gaggle of auditors
