How would a "wealth tax" work?

Great Debates
#1

I believe I read about this in Spin-Free Economics by the chief economist at IHS Global. The basic idea was to incentivize investing as opposed to sitting on a pile of money. How would something like this work? Could we incentivize (I guess that’s not a real word, but it’s perfectly cromulent) investing in a business over investing in secondary markets? Would we want to? I’d like to keep the discussion as apolitical as possible, but it seems to me that economics is somewhat inherently political.

Thanks,
Rob

#2

Nobody sits on a pile of money, so I’m unsure how that would work. What it sounds like you mean is to make people less risk adverse right now in the current climate, but I’m unsure how wise that would be, to be honest. I’d need to see more details.

#3

For many people, their house is their major asset. Would this wealth tax apply to a house?

And ISTM that a push towards “investing in a business over investing in secondary markets” isn’t going to do much to encourage investments - diversification is a way of managing risk, and pushing me to put all my eggs in one basket means I am going to need a much better ROI before I lend money to the owner of a local 7-11 rather than putting it in mutual funds.

IalsoSTM that any kind of wealth tax is going to be hard on older voters. They tend to have accumulated the most assets. And they vote pretty consistently.

Good luck getting re-elected after enacting legislation that Grandma loses 5% of her life savings every year.

Regards,
Shodan

#4

It would seem to me that one way to encourage more risk-taking in investments is through an inflationary monetary policy. If your money is losing value at 2-3% (rather than the 1% or so it’s been doing lately) you better start trying to grow it.

As to a wealth tax, as far as I know the few in existence just tax the total amount of a household’s net assets. They don’t make any distinction between the types of assets.

#5

I can’t think of exactly how at the moment, but I wonder if existing businesses would be able to recharacterize investments in them as “new investments” rather than secondary markets. (Perhaps by spinning off shell companies for capital investments that they were going to do anyway, rather than using general company funds for this.)

#6

The property tax many of us already pay is a wealth tax. When a pensioner has to sell their home due to the increased value and taxes on it, that is a more efficient allocation of resources. Is it a good thing?

#7

Well theoretically, we could tax income over a certain level differently depending on how it is used. The idea would be to discourage the simple accumulation of funds and keep the money moving about in the economy. So we would tax interest from savings and other privately held liquid assets heaviest, invested assets like mutual funds etc on a median level, and directly invested interests very little or not at all. A huge stumbling block though would be ensuring that these directly invested assets are actually real, working companies and not simple shells.

#8

I see no reason to believe, in the current political climate, that a wealth tax would be framed in such a way as to impact the assets of the majority, even the majority of elderly people. Exempt IRA accounts and personal residences valued under, say, $1mil, and you’d be most of the way there.

#9

You’re not talking about economics, really. You’re talking about the tax code, which is indeed political.
How would it work? It would put political pressure on people to invest in the “right” industries, with “right” being determined by the yahoos in Wash DC. Terrible idea.

#10

Why do you insist that economic incentives must be directed at specific ‘winners’? If you are just referring to the normal results of the political process then I don’t have much of an argument. But certainly objective criteria could be used to determine what type of investments should be incentivized without naming specific beneficiaries.

#11

Yes and no.

Think of it purely free market terms. Guy gets a great job, buys a big house on credit. Guy gets fired from this job and gets a lesser-paying job. What happens to the house? He has to sell it and move to a smaller house.

Okay, same thing when taxes go up. It’s all part of the uncertainty of economics. California tried locking in property values for tax purposes; didn’t work out all too well.

Other options: the guy could take in a rent-paying tenant in one of his spare rooms.

#12

Lots of people already pay wealth taxes in the form of real estate taxes. In many cases they’re wrapped up with their mortgage payment. So this already happens.

I think the issue is about expanding this concept. Maybe I’m wrong, but I think wealth so exceeds income that the rate should be considerably lower than the income tax rate. But installing a general wealth tax in this country will just make other countries wealthier.

#13

It’s a lot harder to conceal property than it is to conceal income.

(I suppose, though, that vandalizing one’s own property, or simply allowing it to decay, would become a rough-and-ready way to decrease one’s tax burden…)

#14

Not really. People already pay property taxes on their homes and any homeowner can tell you that letting their house get shitty does nothing to decrease the county’s assessed value.

I could see it leading to a surge in the financial industry as bankers come up with expensive plans to make rich people’s wealth appear less valuable. Like by trying to discount an assets worth by making it less liquid as people already do with estate planning.

#15

Sure they do. They just do it by “investing” in stuff with little or even a negative rate of return.

#16

Your link doesn’t work for me for some reason, but taking a loss on some investments isn’t the same as sitting on a large pile of money. Nobody (who want to keep their wealth) is going to just sit on their money and have it do nothing. They may shift it into less risky ventures, or put in in low yield but stable things like T-Bills or bonds, but they aren’t just going to sit on it.

#17

A wealth tax at a high enough rate (wouldn’t have to be that high, say !% or less) would be the ideal form of taxation, It would lessen the benefits of inheriting wealth and increase the benefits of earned income. It would also be so low that anyone actively earning money would not see a significant barrier to accumulating more wealth.

The only problem with this form of taxation is that the wealthy can move their money and citizenship anywhere and often do already. In order for something like this to work you would actually need international agreements or crash our economy, which isnt going to happen anytime soon. It’s something to work toward I say though.

#18

Slavery. That’s the key. You make the rich into slaves, and don’t allow them to take their money and wealth somewhere you can’t confiscate it! Brilliant!

Definitely. Make it so that you can steal the money regardless of where they go…but you better make sure YOU get to steal it, not some other country, otherwise they will get all the loot. I wonder if any countries would be foolish enough to create a haven for the evil rich to flee to and bring their wealth with them without the threat of confiscatory taxes on it…

I mean, what would happen THEN? Freaking rich would be there, with all their wealth and capital, and how would that end for the country that created such a haven?? Dogs and cats living together…total CHAOS!!!

#19

Yes, you’re right, the wealthy are in danger of being slaves where they get to still be rich, still do whatever they want, still have all the comforts that they have now, except certainly slaves since they now have to pay a different kind of tax than they used to. Completely similar to actual slavery like a lot of them profit from in outsourced manufacture and natural resource extraction. You’re not being absurd at all.

#20

I was being hyperbolic, as well as (attempting) to be humorous, actually. But you don’t see how absurd you were being (and you were serious, I was tongue in cheek) about wanting to ensure that the rich can’t get away WITH THEIR MONEY AND WEALTH from your confiscatory taxes?? I thought it was hilarious that you want to make sure the entire international community is on board with not allowing them to leave any one country with their wealth without having in place mechanisms to prevent this, and that you feel this is ‘something to work toward’. :stuck_out_tongue: