I think this is going about things all the wrong way. The way to make a wealth tax work without the hassle of people hiding wealth is to have them declare the value of what they own. The way to keep people from lying about it is to make their declared values stand the test of the market.
So, here’s my proposed tax. Each person makes an accounting of their major possessions and assigns a value to them. There’s some threshold value so you don’t have to, say, list each can of soup in your cupboard, but you would have to list larger items, and there’s a “catch-all” for all the little things.
You pay the tax rate on your declared wealth on an annual or quarterly basis (or whatever).
If at any time, someone makes a formal offer to buy something you own at the price you declared or higher, you either (a) sell it to them or (b) increase your declared value above their offer, and pay back taxes at the new rate (and probably some kind of penalty to provide an incentive for people to get it right the first time).
The benefit of a wealth tax is that it distributes possessions efficiently. Just like property taxes make sure that land doesn’t languish away without being used, wealth taxes help distribute everything to the person who values it the highest.
I think this elegantly solves a lot of issues with a wealth tax (although probably not all of them), but I’m sure I haven’t thought through all of the implications. What problems do you see with this?
So, in order not to burden people with getting it right the first time, you penalize them later for not getting it right the first time. Sounds like a hole in your logic right there.
The other problem with such a tax is that if will force many people to sell their investments in order to pay the tax. You won’t be able to own stock without having the cash needed to pay a tax on it, or else you’ll probably have to sell some of the stock to pay the tax. I’m strongly opposed to taxes that force people into financial transactions they wouldn’t make without that tax.
Prop 13 was enacted because people couldn’t afford to pay their property taxes simply because the real estate market was hot. Multiply that many times over with the stock market. People will not be able to hold onto stock that is increasing rapidly in price. And then what do you do when the price plummets? Do they get a rebate on the taxes paid even if they don’t sell the stock?
I can see this being an enormous drag on the economy.
Another problem - this method does not recognize sentimental value. There are some things worth $X dollars by appraisal that you would be happy to get rid of, and other things you would keep at twice the offer. If you watch Antiques Roadshow you’ll know that some people with really valuable family heirlooms want to keep them. Would you force them to pay absurd taxes on them or else lose them to someone who might not care?
Every taxpayer would have to pay a lot for yearly appraisals. People tend to overvalue the worth of what they possess due to the Endowment Effect, so they might overvalue their property. Watchers of Antiques Roadshow also know many people undervalue their property - this would allow sharp dealers to swoop in and rip off unsuspecting owners of nice things.
I agree except for this. In states without Prop 13 your house only gets reassessed infrequently. Until that happens, you don’t pay more. When it does, all properties get reassessed, and rates are reset to provide more or less constant taxes. (If government grabs more, vote them out, don’t do something dumb like Prop 13). The normal way of doing it means people with houses of equal value pay more or less equal amounts, absent senior discounts. The way we do it in California means that the guy two houses down pays a lot less than I do, and I pay a lot less than the guy between us who just moved in.
But the OP is talking about annual taxes and having to assess annually, so the pre-prop 13 analogy is a good one.
That’s a feature of prop 13 that needn’t be reproduced, but my point was that desperate times get people to take desperate measures. Prop 13 passed as it was because even with it’s built-in flaws, it was preferable to the status quo.
The penalty for reassessment is to keep people from just declaring no value and hoping they get away without paying tax on the real value.
Under an income tax, if you want to sell stock that has gains, you have to sell more stock than you wanted to in order to pay the taxes. Those aren’t exactly equivalent, but they’re in the same ballpark.
In my opinion the downsides of Prop 13 greatly outweigh the benefits. Reasonable people can disagree on that. I don’t think there’s a moral right to keep living in a house that you’ve lived in. Whether rising taxes force you to sell or the roof caves in and you can’t rebuild it.
Seems like a minor brake on the exuberance of the stock market wouldn’t be all bad. Tax goes up when times are good, and down when times are bad.
No. But their future tax bills will be smaller.
This is a problem. Probably an insurmountable one, politically. I’m not under any illusions that this plan stands a good chance of meeting voter approval, especially given the sentiment that led to Prop 13 being passed.
I don’t think so. No one would have to pay anything for yearly appraisals. All they have to do is answer the question: If someone showed up with a suitcase of money and wanted to buy my “X”, how much money has to be in the suitcase for me to say yes.
They wouldn’t be legally required to get yearly appraisals, but the problems I mentioned would pretty much make it the sensible thing to do. You don’t want to overpay if something you own goes down in value, or underpay something that has become popular and risk losing it. I have somewhere over 5400 sf books and magazines. I can tell you their cover prices, but some I just bought used are nowhere near that in value, and my 1940’s Astoundings are worth a lot more then 25 cents each. Do I value the whole collection, or each item?
If it’s self reporting, I’ll just buy gold and bury it in the back yard, and claim to own nothing but my house and cars. I think there should be wealth taxes, but it’s not practical to have those taxes apply to the vast majority of Americans. They don’t have enough wealth to make it worth the assessment.
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They wouldn’t be legally required to get yearly appraisals, but the problems I mentioned would pretty much make it the sensible thing to do. You don’t want to overpay if something you own goes down in value, or underpay something that has become popular and risk losing it.
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If the penalties for raising your reported value after someone makes you an offer are set properly, they can be cheaper than the appraisal. A small amount of it could go to the spurned buyer (to offset his costs of making the offer, etc.) You won’t have to pay someone to figure out what your goods are worth because people looking for deals will do it for you.
It’s possible to cheat the system. People cheat on their income taxes, too. Generally, I bet they’d get caught the same way, by living a lifestyle that doesn’t make sense on paper. You can get away with underreporting income if you live like you don’t have it, and you can get away with underreporting wealth if you live like you don’t have it. You might have hard time selling that gold if you ever want to do anything with it and there are no records of you having ever owned it. If you really never sell it and just sit on it until you die, then it reverts back to the same state as any undiscovered mineral deposit on your land.