I didn’t say it would benefit the economy. It would increase tax revenue, and extract more money from the rich.
But also see the second part of my post that you responded to.
Yes! Which is why I favor focusing on income and not assets. I think taxes should be on income that results from an economic transaction, rather than assets and gifts. (As mentioned above, I would rather that my county tax some of my income tacked onto my state income tax rather than tax my real estate, which is my only residence. I don’t know why that has become the standard method for localities to raise revenue.)
Well, okay. I strongly disagree. We have two large problems: a significant increase in the concentration of wealth, and a government that is unable to raise sufficient revenue for what most folks recognize as its legitimate purposes. Fortunately, you can actually use those problems to solve each other! But only with a wealth tax.
This article sums it up nicely, IMHO.
Property is a tangible thing that creates a continuous flow of services. A property tax is essentially a tax on the value of that flow of services that the property creates, kind of like a sales tax when purchasing a good.
Taxing paper wealth, just for existing, is something else entirely.
It is a spectacularly bad idea for reasons that are difficult to explain in brief. It represents a thorough misunderstanding of what taxation actually is.
I mean, sure. And also working productive jobs and earning income is really good for the economy, so we should ideally tax earned income at 0% as well.
Except that we need taxes to finance the government, so they have to come from somewhere. That article doesn’t remotely make the case that capital gains are somehow more important to the economy than earned income, and the general argument for progressive taxation suggests that we should tax capital gains higher since they go almost entirely to rich people.
Which, by the way, indexing the basis to inflation and taxing them as normal income would do. There’s still a temporal tax structuring advantage to capital gains over earned income, but whatever.
I don’t buy that argument. Real estate provides “income” in the form of imputed rent, but lots of other untaxed wealth also provides a flow of services, but is untaxed. If you own fine art, you get the benefit of looking at it whenever you like, something that poorer museum-goers pay lots of money to do. But we don’t tax art.
If you own a yacht, you can go sail whenever you want. Poorer people have to rent boats. But we don’t tax boats.
Also, I disagree with that argument behind taxes in general. It’s not required that taxes are applied only on flows of services generated from tangible assets, and historically, we didn’t tax property based on that kind of argument. We taxed property because until very recently, property == wealth, and it was relatively easy to administer, since the basic function of the modern state is to verify and enforce property rights. Now that wealth is significantly disconnected from real estate, it makes sense to update the tax rules. Property was never taxed because of imputed rent. That’s a retroactive rationalization. Property was taxed because that’s where the money was. Now that the money is elsewhere, tax elsewhere.
Taxes are both to raise revenue and to dissuade people from doing things that society would like done less. The accumulation of massive dynastic wealth inequalities is a thing that is bad for society (arguably), and so it’s reasonable to tax.
I specified paper wealth.
We could. And it wouldn’t be nearly as bad an idea as taxing paper wealth.
No.
Property was taxed because that’s where the resources were.
This is a completely different thing. This is not “argument”. This is not theory but factual observation.
The yardstick that we use to measure a thing is not the same as what is being measured.
It is absolutely necessary to distinguish between money as the yardstick (unit of account) compared to money, or financial securities, as paper wealth (store of value), compared to the actual flow of services that exist. I’ve already linked to a somewhat longer version of this explanation.
I can continue to flesh this out, but none of this is “argument”. It is pure observation. And it is absolutely necessary to have this foundation of observation before discussing taxation.
It seems like you’re taking exception with my colloquial phrasing of “that’s where the money was” meaning money as distinct from actual wealth value. Obviously, yes, money is not the same as wealth. My point is that property used to be the only major store of wealth, which is why it was taxed. And now it’s not.
I’m not sure why you think wealth in “paper wealth” isn’t as real as real estate. The value of stock and bond holdings are real claims on real assets and real ownership rights, just like real estate is. They just don’t happen to map to land. Companies are real wealth. They’re a bundle of lots of different things, but they’re real, and they’re actually valuable.
I read this post and I think you make a good case, but I think that you are partly incorrect, and you are incorrect because you are undercounting things that are hard to count, and because the total production of society is not static; it depends on who owns the assets.
I’ll use a (somewhat fictionalized) Jeff Bezos as my example. Jeff probably owns some fine art. We generally don’t treat fine art as adding any “production” to the economy, but clearly it has some kind of “imputed museum-fee” value to it. People are willing to pay money to go see fine art in museums, so there’s obviously some value that it generates by existing and being viewed. How much time does Bezos spend looking at his paintings? Probably very little (he’s a busy guy), so we could argue that his imputed art-income is low. But not nothing. That value is uncounted.
Now, look what happens when we tax (massive amounts of) wealth. He probably (eventually) sells some of those paintings. At some point some of them end up in museums where they are enjoyed by more people paying entrance fees. The actual and measurable production of that wealth has increased because it was transferred from someone with lots of wealth who had a low propensity to consume its imputed production to an institution that would exploit its value for income. Merely by moving wealth around, the economy was improved.
This, by the way, is one of the arguments for taxing property. You want property to be put to its best use determined by the market, not for someone really rich to just sit on it and not do anything with it.
Or think about his yacht. Again, Bezos is a busy guy. How many yacht trips does he really take? What if instead of owning a yacht that got little use, he rented a yacht when he wanted, and someone else rented it the other times. Economy improved!
And, now, for the really intangible stuff. What does it mean to be fabulously wealthy? Well, it means you get to direct the control of things. How much is it worth to Bezos to be able to walk in to Amazon and decide to devote a division to a new project? I’m not sure. But your economic model describes that as worth $0, which I think is probably not correct. I would personally pay a lot of money to get to establish a new division of Amazon directed to my goals, even if I got none of the financial reward it generated.
How much is it worth to him to own a newspaper (above and beyond the revenue generated by the newspaper, obviously)? Well, it has some kind of strategic value in the “never argue with a man who buys ink by the barrel” sort of way. That’s uncounted by your model.
And on and on.
Great wealth translates into all sorts of power and option value in ways that’s basically uncounted as economic production. Some of that option value is worth a lot more to the market in general, and we should tax the wealth that provides it to make a more efficient use of resources (like we tax property). Some of it is even more nebulous but still obviously valuable in a way that you’re just not counting.
Claiming that an argument is a purely observable fact on the ground is a nifty way to win a debate, but, sorry, this is still an argument. It’s an economic theory that (in my opinion) is a good one, but incomplete.
You make some excellent points here, but some of them (not all, but a few) are tangential to what I’m saying. At least, I believe so based on my first reading.
I’ll try to give your response the reply it deserves, and you can tell me whether I’m mis-reading you at all.
Tomorrow I will try to do this.
I don’t mind if they pay their due in paper money, be it bundles of 100$ bills or checks. Electronic transfers also seem OK. I am sure they could do that.
That article is full of flaws.
Like every other country in the world, the United States mainly taxes income as it is realized. … Capital-gains taxation is an exception to this rule
.No, it is in line with the rule. Capital gains are taxed only when they are realized.
But as all investors know, deductions for losses (net of gains) are limited to $3,000.
No. First, this applies only if you have a net loss for all your realized transactions. If you have $1 million of gains from one sale, then $900 thousand in losses on another, you have a net gain of $100 thousand. Good investment management includes liquidating some losers in a year when you have a lot of gains you can offset. Second, they are limited to $3,000 in a year. If you have more than $3,000 of net losses in a year, you can roll those losses over to offset future gains, or deduct them in future years until they’re exhausted.
Yet the IRS requires me to report my [gambling] win as taxable and denies you the right to deduct your loss.
He is comparing capital gains to how gambling winnings and losses are treated for tax purposes. You can deduct gambling losses to the extent of winnings in the same year. If you have a net gambling loss, you can’t deduct any of it, nor roll it over to next year.
The capital gains tax is a transactions tax. It applies only when the holder of an asset sells it. As a result, the tax discourages asset sales. We want assets, whether real estate, mineral rights, intellectual property or something else, to flow to their highest valued uses. By interfering with this process, the tax makes the entire capital market less efficient than it otherwise would be
I am not an economist, but as a layman I find this doesn’t hold water. Equity holdings is different than corporate capital investments because they don’t contribute to generating revenue. Real estate, mineral rights, and IP are capital assets used in production that results in revenue. Equity holdings do not. They are held only in anticipation that they will increase in value for future sale. I see value in allowing stock to be freely traded, but the argument is different than the one saying that assets should flow their highest-valued uses.
I am one of the nation’s leading thinkers on health policy.
Whenever anyone starts their bio by saying, “I am one of the nation’s leading…” he isn’t.
Mostly so local officials can “excuse” how shitty the schools are in poor neighborhoods.
“We just can’t help it! If those lazy slackers would just mow their lawns twice a week their schools would be that much better!”
Why don’t you sum it up nicely? Why do you think it’s ok to force people to click on a link to understand what you’re on about?
No. ‘No’ to links as responses to a discussion. No.
ETA: That REALLY fucking pisses me off a motherfucking lot. I’m not directly addressing you now, D’Anconia; it’s a lot of people. It happens way too much all over the SDMB.
Ten or 15 years ago the vast majority of Dopers would be raising high hell at that practice. Now people act like I’m a crazy crank for calling it out.
Assets should flow to their highest-valued uses.
Buggy whips, or Ford Motors?
Blockbuster Video, or Netflix?
Gas powered cars, or electric?
I agree but if I buy stock in a company it does not stimulate production or fund research in the company. The choices you list are driven by consumer demand, not stock sales.
I agree, of course, that there is diminishing marginal utility. More for Bezos – all else equal – is not as beneficial as more for someone who lives on two dollars a day. (There are complications here about the exact dynamic trade-off over time but we can skip that as nom-essential.)
And so I also agree that a “fixed pie” of “20 trillion” of output (not paper, but actual output, a list of stuff produced) can potentially lead to higher “real wealth” if the output is allocated differently. This is actually a very slight shift from what I was trying to talk about – which was pure observation, a list of “things produced”, which would actually include looking at art – to using a bit of theory to evaluate the “value” of that annual production according to who is enjoying what particular things. But the theory is essentially correct, so there is no bother in making that slight shift.
My own example was that particular extreme hypothetical, a Richie who enjoyed “100k dollars of consumption” – this is a list of stuff, but for convenience “100k of consumption” – both before and after massive wealth taxation.
I’m returning to this hyper-stylized example, not because it is realistic (it is, of course, nothing of the sort) but because it is the very extremity that I’m using to make these observations. The extremity brings clarity to certain points.
In that example, if Richie had been enjoying a painting worth “10k” of consumption before the tax, then he would be enjoying the same painting after. In this extreme hypothetical, Richie simply does not own a set of paintings that would be worth “110k” of annual enjoyment to other people. Not to begin, and not to end.
And this is, in fact, merely observation.
There is zero theory, and zero modeling, in that post. It’s being stipulated as a set of possible (but not remotely plausible) events happening. I’m pointing at the consumption of resources. “Look at these resources before, and now look at them after. Look at the allocation of output before, and after. They are the same.”
100k of consumption = 100k of consumption is a tautology, not a model.
“Observation” might not be entirely the right word, because what I’m “observing” are essentially a stylized scenario expressed in a hyper-stylized way. I am describing this hyper-stylized scenario with the one tediously precise language I know capable of talking sensibly about this topic.
100k = 100k (or MV = PY, or A = L + E) is mere definition, and it is tautological. It is true by definition. What I am saying in that linked post is the same. It is all true, because it has been defined to be that way. While theoretically other languages could exist to describe all of this accurately, I have studied this for more than twenty years and I have seen no other language that is even remotely close to suitable. I am not saying “I define myself to be correct”. I am saying “These definitions are standard in the field because they are a precise way of describing things.” And then I am using those definitions to describe a hyper-stylized scenario to show the meaning – the definition – of what “taxation” is in terms of real resources.
The world becomes more comprehensible when it is described precisely. If there were an alternative language of similar precision, I have never seen it.
Your response is astoundingly good. You are, in fact, extremely close to grasping my main point. The language did its work. Any confusion that persists is from lack of clarity on my part, because you clearly read that very closely and carefully.
Taxation is ultimately the re-arrangement of who gets what in that long list of stuff that is produced every year. In the extreme hypothetical, there is no such re-arrangement from this person. You note these things are hard to count. That’s very true. But the accounting had already been done, so to speak. Whatever the government “spends” from seizing all that paper is going re-arrange the annual output of the country from people who are not Richie. It does not re-arrange from Richie because his behavior does not change.
Richie has simply not been taxed.
He lost some paper. He’s almost certainly furious about that. We could call that emotional disutility a “tax” but it is not part of the annual list of stuff he consumes, which other people might have consumed instead. His list of consumed stuff remains the same. And so no-one can possibly gain from Richie’s loss of paper. If anyone else gains in consumption out of that annual list of production, it will be at the expense of someone else who is not Richie.
You expand on that hypothetical picture, and you do so in an effective and sophisticated way.
Now, your broader point is that a real Bezos is going to have consumption well in excess of 100k, and parts of that “consumption” are going to be in intangible forms, such as in the thrill of executive leadership and the cachet of owning a newspaper (although I find it somewhat hard to imagine anyone giving a crap about owning the Washington Post, he must have bought it for some reason).
You are absolutely and totally correct about this. No doubt whatever about it.
There are some forms of wealth that create streams of consumption for their owners, which are not counted as streams of consumption for regular tax purposes. And it’s also very true that I did not list any of these in my extreme stylized hypothetical (which is, again, not a model). Possession of the “paper” that represents this kind of cachet is legitimately different from owning, say, boring corporate bonds.
Again, this is completely and totally right. I do not dispute any of this.
The problem is that the utility argument moves in exactly the wrong direction for executive leadership. In fact, I almost introduced exactly that executive leadership example into that linked post because it helps underline my point. But then I cut it because it was theoretical and not observational, and in that previous thread I was trying to make a very important observational point that most people fail to notice. (In this thread, of course, I am going further and making an argument.)
The entire reason why Bezos is in a position to gain “utility” from directing Amazon departments – which he no doubt does, as you say – is that he founded Amazon. It did not exist before him. You say “I would personally pay a lot of money to get to establish a new division of Amazon directed to my goals, even if I got none of the financial reward it generated.”
Okay.
How much would you pay? Would you pay with years of your life, leaving a lucrative New York finance job on the chance that a long period of drudgery might, with extremely low probability, result in a successful corporation such that you could direct entire new departments? Have you actually tried to do this? Have you personally walked away from steady high-paying employment in a prestigious field to create a startup? If so, then I salute you. I’ve never considered doing such a thing for a second.
Because the opportunity cost of such an endeavor is way more than money. It’s taking your previous life and setting it on fire for a dream.
This is now theoretical, but still solidly so: The person who gains the most utility from the subset of “intangible production”, not counted in regular figures, is the one who actually fucking did it. And it’s not just Bezos the founder. Major corporate CEOs are all insane. They’re a bunch of crazy assholes who live, breath, eat, and shit the stupid lives they lead. They are in the positions they’ve achieved because they are not sensible people. They don’t know anything else. Approximately zero percent of them are wise enough to spend more time with that which matters most.
That paper wealth is just paper. It’s (mostly) not part of the list of annual production. It won’t provide resources to anyone else because it’s not resources. But it is part of the monster’s package, his reason for being. It’s a key part of the crazy-ass rationale for why he’s doing what he’s doing.
You’re destroying a particular form of “intangible utility” which is quite demonstrably greater for him than for you, unless you also chose this same insane life path. The gain for this is absolutely nothing. There are no transferable resources there. You get no return whatever for taking the paper, except perhaps some brief money illusion.
It’s pure “utility” destruction. No-one gains as much as is lost.
This hasn’t yet mentioned the fact that you’re taking away investment power from the people who (on average) have proven themselves most capable at the allocation of capital.
I should say here that the Washington Post example is different.
A beautiful and fantastic example. It supports exactly the case you’re making here. Ownership of that particular newspaper represents cachet above and beyond the mere ownership of equity.
It’s also chicken feed compared to Amazon. Professional sports franchises are also a clear example of… what do we even call this? “Luxury ownership good”? (Hey, that’s a pretty decent term…) But in terms of actual tangible resources, these industries simply aren’t very big.
If we’re going theoretical now, I can essentially seal the case.
It’s more abstract and harder to explain. I didn’t for a moment consider mentioning it for the previous thread. But you clearly followed the logic of those previous observations and definitions, and you offered true and sophisticated observations on top of them, so it’s worth getting into here.
There is a trade-off between consumption and non-consumption.
That which we consume is not saved for the future. (This is of course by definition, but this definition leads into the theory.) Annual output is either consumed, or not consumed. Seeds produced in a year are either planted, or eaten. The seed corn is saved for the future planting, or else frittered away in the present.
The ownership of paper wealth – representing the ownership of firms and their capital equipment – ultimately comes from non-consumption. There is no other way. If Bezos sells some of his Amazon paper to bake the world’s biggest chocolate cake the size of Rhode Island, then the productive resources used to make that cake are taken from other people, out of that previously mentioned list of annual tangible production. He outbids them all for access to productive resources, because he can, and the resources are consumed and gone for his own idle amusement, rather than invested and saved, or used for the consumption of those who have less, and so would benefit more from that consumption. The seeds are consumed instead of planted, and they are consumed by the person who least needs them.
The Keynes hyperinflation joke is relevant:
It became a seasonable witticism to allege that a prudent man at a café ordering a bock of beer should order a second bock at the same time, even at the expense of drinking it tepid, lest the price should rise meanwhile.
This American Life had an evocative story on hyperinflation. Literal nightmares.
These are extreme examples/jokes of the loss of future purchasing power. Far end of the spectrum. I bring them up because even when doing theory, it can help to focus first on the extreme case. The logic of the extreme case is intuitively obvious. But the logic of the moderate case is exactly the same – only on smaller scale.
The loss of future potential purchasing power pushes toward alternatives, which is to say, more present consumption of resources. This can be either direct consumption for utility – a chocolate cake the size of Rhode Island – or the consumption of present resources to prevent the loss of future resources: millions spent on accountants and tax lawyers doing jobs that would not exist in a world of more sensible government tax policy.
Randomly destroying people’s future purchasing – which they are not even using for present consumption – automatically pushes toward more present waste. We have seen this over and over and over again. If Bezos consumes more today, that is a “tax” on other people who aren’t Bezos whom he outbids for present resources. If the Bezos class consumes 999 million dollars of resources to avoid a billion dollar tax, that is pure waste for literally everyone. The tax is ultimately avoided, Bezos loses 999 million of paper he’d rather keep, and the entire rest of society loses 999 million of present resources in a “tax” that wasn’t aimed at them but boomeranged back around to concuss the back of their heads.
There is no chance that the presumed tax revenue gained from a Warren wealth tax, measured in real terms, will be greater than the resources thrown into the bonfire.
Now this is all “argument”.
It’s a lot more abstract, based in theory and historical and international comparisons. It’s harder to explain and to understand. You can tell people that if you turn the knob to 11, it will be ear-drum-destroying loud, and they will nod and follow along; but if you then tell them that the knob turned to 2 will still make some noise, a certain unfortunate subset will be mired in confusion about how that could possibly be true.
And a wealth tax isn’t even a 2. A wealth tax is really fucking loud. A 2% wealth tax is something like a 60% rate on long-term unrealized capital gains. That’s so high you won’t see it outside of basketcase countries where the thieves in charge steal from the people in the name of The People. It’s even a tax on capital losses, just at a lower rate.
It is a direct tax on the non-consumption of present resources. It is literally a tax on saving resources, instead of consuming them.
Yes, the Washington Post is a potential exception. But it’s a teaspoon poured into a bathtub. Even more than that, “cachet” is not a resource that is transferable in the same way that physical productive capacity is transferable. Which is – of course – why the post in the other thread excludes it. The government taxes for public policy goals, not (we should hope) because such-and-such person own too prestigious a brand.
There are a lot of reasons why “capital” is taxed so “lightly” (even beyond what I’ve listed here), and that’s just capital income. There is a reason that when the US lowered its corporate tax rate, the new rate is now close to the Swedish rate. The Swedish tax the living hell out of themselves… but the corporate rate is close to 20%. The French went for confiscatory marginal rates under their previous socialist president, and even the nominal tax revenues were meagre, and perhaps negative growth from previous years. Growth of real revenues, using the kind of theory you so aptly cite, would have been outright negative.
The following comment does not include you, but it is still worth making this point: All of this happens, and will continue to happen, because people cannot distinguish between nominal tax revenues and real incidence. They can’t look past the veil of money to see the real resources underneath.
I kept that previous post in the other thread to observation because it simplified the presentation. It made the difference stark to highlight it.
You have added relevant theoretical complexities in an intelligent and careful manner. This point is also very well made:
This, by the way, is one of the arguments for taxing property. You want property to be put to its best use determined by the market, not for someone really rich to just sit on it and not do anything with it.
Now this is exactly right, and in fact it’s directly related to the point that I’m also making here.
Physical property creates a flow of services.
Paper (generally) does not.
The capital goods that the paper represents do, in fact, create a flow of services. And those services are, in fact, already taxed – often multiple times. That is normal. Taxes exist to redirect production. The key with physical property is that the person possessing it is using or consuming the output themselves, which means taxing that value is easy. (There are other arguments about land vs property taxes that I’ll skip here – there are always more complications.) While that is also true of some select types of cachet firm ownership – the Washington Post, sports franchises – it isn’t true of the vast majority.
And even if it were, the alternative to consuming the delicious luxury of owning an NFL team is consuming other resources in society that other people are presently using. Better that the empty calories of cachet are consumed in paper ownership, rather than something useful that other people need. The kinds of things taxes should be used for. The eggs for the New-Jersey-sized cake have a better use than frivolity. That is an argument based in theory. It is not pure observation. But it’s a good argument because it’s a good theory.
(Don’t get me started on public funds being used for stadiums for valuable private sports franchises.)
You wrote an excellent post.
It is thoughtful. It makes many excellent points.
But this is a dead easy case. Most things aren’t, but this is. It isn’t even close. There is a potential case for lowering even capital income taxes more than now. I’m not convinced that logic is correct, but the logic is fairly straightforward.
Tax their conspicuous consumption.
If the goal is to tax the rich? Tax the living hell out of their consumption. Fly a stupid rocket on a joy ride? Tax that shit. It’s hard, politically, to do this. Very hard. Try to do it anyway. Paper can be moved-around/reprinted/redefined in a way that the consumption of resources can’t be as easily. (Not if things are kept simple, anyway: If resources are consumed, then it is consumption. It doesn’t matter if it was a business trip.) And if they try to dodge a progressive consumption tax by not consuming? That means they’re burning fewer resources, which leaves more of the remaining production for others, rather than less. The “fixed pie” results in “higher total wealth” when more of it is available for lower-wealth consumers, exactly as you say.
Taxing the non-consumption of resources is going to lead to more consumption of resources. It is going to do the exact opposite of its intended goal.
There’s more that can be added. Wealth as a form of self-insurance. The nuance of intertemporal substitution vs income effects. These are all “relevant” parts of the discussion, too, but they are more rounding errors.
The bottom line is that we should, in general, want capital allocated by those who have demonstrated the most past success, while simultaneously we should want the holders of that capital to park their asses on it rather than burning it all in a bonfire. If they get warm tingly sensations from holding paper with big numbers on it, instead of spending it on crap, THAT IS GOOD. Such people have generally sacrificed all other fine things in life to swim around in their cold vault of paper.
It does, even if it’s indirectly. No one would invest in an IPO if they didn’t think they could sell shares at a higher price in the future.
I appreciate the kind words, and also the effort you put into this post. I generally agree with the vast majority of your post, so I’ll just make comments on a few parts of it.
Yes, taxing people who have created vastly successful businesses is likely a less efficient distribution of resources. I agree that those people have proven to be very good at the allocation of capital.
The challenge is to make a consumption tax that is progressive. Poor people consume a much higher percentage of their wealth than rich people, and it’s fairly tricky to make a consumption tax progressive. There are all manner of “luxury” consumption taxes that have been attempted and have mostly failed, because the market is a lot more flexible than the tax laws. But anyway, I agree in principle that a consumption tax is a good idea. Logistically and politically it may be effectively impossible.
This is trending into an argument that Bezos deserves to direct Amazon, that he worked hard and risked to build it up, and thus it would be somehow immoral for any amount of that control to be wrested from him due to a tax.
Which, sure, fine, Bezos obviously did take a lot of risk and I did not and that’s why I’m not a billionaire. But my point is that the ability to direct Amazon is value that accrues to Bezos, and it accrues to Bezos if he uses it to continue to build a value-creating business or if he decides to make that state-wide pancake. Only one of those things is “consumption” under your model, but both are value in mine.
To draw the parallel to real property, which we both agree is worthy of being taxed: If I own a plot of land and do nothing with it, I’m not consuming anything. I’m not exploiting it economically in any way. I’m just sitting on it. Yet, I owe taxes on it. Not because it’s generating a flow of services, or requiring any public expenditures on my behalf, but because it is valuable and a valid use of taxes is to tax value. I could use it to build houses, or to harvest timber, or to do whatever. I might have worked hard my whole life and took great risks to buy that land, or I might have chosen my parents well and received it as a gift or inheritance, or whatever. Doesn’t matter. Just like it shouldn’t matter to the tax authorities whether our vastly wealthy person built his company as Bezos did or inherited it like the Waltons did.
Because we don’t tax wealth based on whether or not the owners earned their wealth, nor on whether they are consuming or exploiting their wealth. We tax it because it’s there, and because government requires taxes to run.
Does this result in inefficiencies? Yes, of course. All taxes do. A wealth tax that reduces the amount of control Bezos has over Amazon will likely make it a less effective company in the long run, because Bezos is really good at what he does. But income taxes dissuade people from working (and, sometimes, based on their relative incomes, from marrying). Sales taxes discourage otherwise beneficial economic exchanges, and so on.
I tend to agree that a 2% annual tax on wealth would be ruinous; I understand how compound interest works. And yet! The resources of the world are increasingly under the control of a smaller and smaller slice of humanity. It is bad for people who are efficient allocators of capital to lose control of capital, but it is also bad for a tiny fraction of humanity to continue to accumulate more wealth and power.
Wealth is power. To use a military analogy, focusing on consumption alone is focusing only on hard power, the actual expenditure of resources to achieve one’s goals. But there is also soft power. Bezos doesn’t have to turn the Washington Post to his personal ends to project power. Zuckerberg doesn’t have to tilt elections; the fact that he is able to is power enough.
Just like the owners of vast tracts of land have power. They get to choose what is built, who lives where. Tax value. Tax wealth. Tax power. Not because it represents consumption, but because the continued accumulation of it in few hands is dangerous.
I agree that progressive consumption taxes are difficult. I said so myself, very briefly, in that long post.
I would only add that the difficulty of doing something good is not a justification for doing something bad. A legal tax on non-consumption resources is going to tax the consumption of everyone else’s resources. Who is actually targeted is different from the legal target.
Economic incidence of taxation is not the same thing as legal incidence.
It’s worth pointing out that in the most competently administered high-tax, high-spend countries of the world, like the Nordics, maximum marginal income rates are very high, and begin at relatively “low” income levels, by US standards. Yet corporate rates aren’t high.
There are trade-offs here that are not immediately visible to people, but that does mean they don’t exist.
I’ve seen proposals for what might create an effective administration of more strongly progressive taxation, but they never get anywhere. The subject is technical. People get bored.
I hope to make the topic ever-so-slightly less boring.
I do not claim success.
While a deontological argument of that kind could be made (and could be explored elsewhere), that isn’t the thrust of the point here.
People have different moral intuitions. But there is some variety of sensible moral “systems” or viewpoints which all point the same direction.
In either a utilitarian or “efficiency” viewpoint, we want capital allocated by those most capable of allocating it. We don’t have crystal balls to know who this is in any given moment. The information we have about capital allocation comes from past success, and from current real-world outcomes. Any loss of the ability to allocate capital among those who previously proved successful will – on average, most of the time – result in a worse outcome.
So yes it is “immoral” according to a utilitarian viewpoint to wrest even a marginal amount of control away, but precisely because even a marginal change is, on the balance of probability, likely to be negative when all costs and benefits are “measured”. (This “measurement” requires some theory. But this part of theory, at least, has minimal working pieces.) A deontological viewpoint of “You should not take what is not yours” also fits snugly on top of that, it is true, but that hasn’t been my argument.
The consumption side of this also has a moral viewpoint: it will change the trade-off between allocation of capital and current consumption. The creation and preservation of capital is non-consumption. Taking that paper leads to more consumption. The lost consumption will be suffered by the public at large, not just Bezos.
“Capital” is also not a fixed amount. It is not necessary to take from the past successes in order to have more. All it requires to have more capital – and therefore more people thrilling with capital ownership – is to create more production without consuming it. More saving is more capital, in the aggregate.
Nope.
A land-value tax has no inefficiencies (beyond the owner of the land having a sad), nor a properly calibrated Pigouvian tax.
Human beings didn’t personally create the original value of the land they possess, and so there is no loss from taxing even the full value, 100%, of the value of unimproved land, supposing that exact number was known. (There is also a potentially significant deontological difference here: it is easier to understand the “right” to own Amazon, compared to the “right” to own land.)
And Pigouvian taxes not only do not create inefficiencies, but diminish already-existing efficiencies. They create government revenue by reducing inefficiency, instead of increasing it. (This ignores administration costs, finding ideal rate, etc etc etc.)
But even more than that, consumption taxes vs non-consumption taxes aren’t on remotely the same level of inefficiency.
Consumption taxes today reduce consumption today. The end. Non-consumption taxes reduce capital formation, which is used to produce future streams of consumption out into the indefinite future, and which also improve the productivity of labor, and therefore create higher average wages off into the future. This means that they tax consumption – everyone’s consumption, not just the legal target of the tax – repeatedly off into the future indefinitely.
There is no comparison here.
(I guess I could note that it is not within the US that wages have been increasing so sharply from more capital allocation in recent decades, and inequality diminishing. That might be bad from an “America First!” perspective, but it’s hard to find fault with it from a utilitarian or efficiency perspective that balances the interests of all human beings equally, regardless of where they live. A person might win a presidential election ignoring efficiency in this way, but I’m not sure we’d like the result.)
Wealth is power when it’s tossed around, not when it’s paper in a vault.
For example, it is possible to advocate a stiffly progressive consumption tax on election spending from individuals, either directly or via gifts to PACs etc. This could even go above 100% at the highest levels of spending. And it could be administrated within already-existing campaign finance regulatory structures.
The problem with most targeted luxury taxes (e.g. yachts) is that the demand for specific luxury items is very elastic. The rich want to conspicuously consume, but it doesn’t much matter what that consumption is. (The best progressive consumption tax proposals account for exactly this.) But if wealth used for influence has elastic demand, then so what? That means there is much less of it if it’s taxed. And if it has inelastic demand, then the amount of taxes raised would be staggering. And it would be a hellaciously more “efficient” tax, as these things go.
I am probably going to leave it here for now, unless you have specific questions. This is a lot of stuff to chew on.
At very least, even if you disagree, I hope I’ve made made clear that I’m not a raging ideologue. I think human beings have significant responsibilities to each other and that an ideal tax system, whatever that would look like, should represent that.
It’s okay for rigid logic to lead us to strange conclusions, as long as we start with basic facts and moderate moral premises that most people would agree with. There is, yes, a lot that we don’t know about tax policy. Nevertheless, we have learned some important things, and these nuggets of insight are not sufficiently appreciated.