Describe to me the economy where this is disastrous. I have about 200k in assets, may wife and I make about 200k a year. I think we’re doing pretty well but not insanely well. At 10% asset tax we would pay 20k a year in taxes. Not until our assets reached about 600k would this really start to even out even close tot he taxes we pay now, and getting there would be a lot easier. We would probably look at asset hoarding as an actual liability instead of the unmitigated good we see it as now. That would stimulate the economy as others acted with the same pressures in mind. Wages would go up making the total assets holdable without sliding backward even higher.
I guess the downside is: no more Paris Hiltons, no more billionaires, easier time for working poor people to get into the middle class and have enough to support their families, easier time for the working middle class to get into the upper classes. Dang that sounds like a real hellscape.
Now granted, you soften this just a little in the remainder of your post but … Really? I have to believe that the majority of people who live paycheck to paycheck are not living beyond their means, they’re just trying to live. <anecdote deleted>
You’re making some pretty wicked assumptions about folks who don’t earn a very big wage.
Are you familiar with the word consumption? People bought houses bigger than they could afford. Then took any equity out of them to spend. People spent. The US had a negative savings rate going into the recession. People foreclosed because they couldn’t cover the difference on their mortgage. Consumer credit was a huge part of the problem because after they defaulted on their homes, and their cars, they defaulted on their credit cards.
How is it that you don’t know any of this?
Sure, we could also use more tax revenue.
And those wouldn’t be taxed, so they wouldn’t end up paying as much of their income in taxes. Isn’t that a good thing? Someone that spends 100% of their income on food clothing and shelter would pay 0% of their income in taxes. The more a person has to spend on extras the more a person pays in taxes. Sounds pretty progressive to me.
Nope, the current level of government spending is way too high. I’m suggesting that it’s a good way for a government to make revenue that allows income taxes to be lower.
And a balanced budget, and UHC, and a lower unemployment rate…
Yup, transition sucks, people get over it.
Anything else about him you feel relevant?
I assume we’ll still have duty and import laws. Canadians can only do so much cross border shopping.
Let me know when that happens, doesn’t look like it will be this election cycle, maybe 2016.
Because what you call “unearned income” others call capital gains. Back in 1921 the US government decided to tax capital gains differently than earned income and it’s been that way ever since. Glad we cleared that up.
Because hedge fund managers make a lot of money for the people who make laws. Remember:
Damn those middle class people saving money! Spend spend spend! What kind of a fool puts away 6 months living expenses anyway? Don’t they know they are hurting the economy. If they lose their job they can always get a bunch of government money right?
You’d have to make the Social Security payments huge to help old people cover all the tax they’d be paying on all the assets they’ve accumulated. It’s one of the major downsides to property tax. A person’s net worth goes up as they age independently of their income. You’d have people that got laid-off getting hit with massive tax bills.
On the other hand, if it discouraged my mother from accumulating so much shit I think it would be a great idea.
The issue with the rich is that capital gains tax is a lower rate than income tax and most of their income is capital gains. If you were to tax passive capital gains as if it were income, a lot of the income tax disparity becomes a non-issue.
Your tone implies that Voyager assigned some kind of moral culpability to non-savers, but that doesn’t appear to be the case. The effect of higher rates of saving on economic recovery is an issue distinct from the blameworthiness of an individual who decides (in this or that instance) to save. Not that I, myself, have any particular insight into this question — I don’t. Nevertheless if it is true that saving is harmful, the remedy wouldn’t be torches and pitchforks, it’d be policies that sway behavior.
That argument fails for the same reason that diminishing marginal utility arguments fail: if person A purchases the television and person B does not, you can only conclude that A values the TV more than whatever else person A can afford. You can’t use the purchase to conclude anything about how A values “dollars” relative to B. (Not that anyone besides Scrooge McDuck values dollars per se.) Maybe B hates TV and only ever goes to the movies.
(That said, the diminishing marginal utility argument has something going for it, viz. that it’s probably not far off from the truth. It’s undoubtable that $1,000 removed from my bank account would have more of a negative effect on my well-being than the same amount removed from Bill Gates’s. From that realization it’s only a hop, a skip, and a jump to the reasonableness of progressive taxation. IMHO.)
I wasn’t criticizing them. I was just pointing out that their reducing spending - perfectly reasonable - hurt the economy. Do you deny that?
And, as I said above, the root cause of the calamity was people trying to spend (and being encouraged by the government to do so) while their income stagnated due to a number of reasons, including a frozen minimum wage and union busting.
And the bad loans you object to were pushed by banks to enable high interest mortgage debt to sell. Around here the banks were advertising home equity loans on the radio every few minutes.
Anyhow, thanks for admitting that your support of the consumption tax is not to have a fairer tax, but to have a reduced tax to starve the beast. And speaking of starving, those on food stamps will surely thank you. Typical voodoo economics - we cut the tax on the poor, set things up so that we cut the tax on the rich, don’t increase the tax on the middle class, and wind up with the same amount of money.
Marginal utility has to be summed over purchases. The classic example is that your first ice cream cone has more utility than your fifth.
In your example, a guy might value a tv highly, but he won’t value a fifth TV nearly as highly (no matter what the cable ads who seem to think people have TVs in every room will tell you.) The second guy won’t value his tenth movie of the week nearly as highly as the first. Money is just a counter in this case. Mrs. Marcos clearly had low marginal utility for money, since her thousandth pair of shoes can’t be worth as much as her first, even for her. The utility there is having them, not using them, just like the guy who has 20 cars.
A sales tax would work wonderfully if it it included all sales. All, as in sales of property, stocks, and other financial instruments. That will never happen so instead a consumption tax is offered. Since the vast majority of people consume the majority of their income they’ll bear the brunt of taxation while those who need only to consume a miniscule portion of their income, and can write off a large portion of what they do consume, will pay very little. So it’s a dumb idea. And since it’s a dumb idea we’ll probably end up doing it some day.
And as you approach retirement and have $2m in assets, you are hoping to get about 6% income from that - 3% to offset inflation and 3% to spend (or spend a bit more if prepared to draw down capital). Unfortunately, you have to pay 10% asset tax, which way exceeds the growth, and hence your retirement savings now diminish rapidly.
Yes. The point here, though, is that the subjective valuations between persons A and B are strictly speaking incomparable. Person A won’t value his fifth TV as much as his fourth, but that doesn’t mean that he values his fifth TV — or his thirtieth — more or less than B values her first. I do think that this doesn’t give us the whole story (see the “strictly speaking” clause).
Thats all you got? Easy solutions, social security pretty much does it already. Some other government programs of allowing retirees a lower tax ate until their death at which point they get retroactively taxed for anything left. The next generation can make their own money on their own merits.
The economy where all the rich people take their ball and go home (i.e. move to Canada or England).
Is home equity part of what you consider wealth?
And NONE of that was the cause of the current financial crisis.
It wasn’t a main street driven collapse, it was a wall street driven collapse. We’ve had this discussion before and yes individuals are culpable for borrowing money to buy homes they cannot afford but imprudent lending on this sort of scale is NEVER the fault of the borrowers it is the fault of the lenders. Lenders had an incentive to make imprudent loans because of market failures. Those market failures were the cause of the collapse.
I don’t see where our savings rate went negative or are you using some special definition of savings rate that gets you to that conclusion? I don’t think it matters because a negative savings rate isn’t what would have gotten us here.
Mostly because its not true. Secondly, are you proposing a consumption tax on purchasing homes?
Not nearly as much as we need consumption. We are suffering from an aggregate demand problem.
You can’t fund the government with a luxury tax.
Please cite for how our current government spending is significantly higher than it was under Bush taking into account the effects of the recession (higher food stamps and unemployment benefits, shit like that). And the OP isn’t talking about a hybrid tax system (I can get on board with that if properly structured), the conservatives want to REPLACE the income tax with the national sales tax. THATS what we are talking about here
Yes, but you have a hybrid system not a pure consumption tax system which is what the OP is advocating.
BTW your unemployment rate is 1% lower than ours.
We tried for UHC and the conservative free market types shut us down.
We wanted to move towards a balanced budget (we could get there in very short order if the economy recovered) but the conservative free market types who insisted that revenues would be increased over their dead bodies (to the point where they were holding extension of tax cuts for 98% of the country hostage until we also extended them for the top 2% of the country).
Transition to a hybrid system is MUCH MUCH easier than replacing your income tax system with a consumption tax system. What do you do about basis and recapture and and deferred income? I’m starting to get the feeling that you have missed an important point of this argument.
After they make all their money here, why would they have to continue to live here? Why not just retire in Canada, hell at least you guys have UHC?
And how do they catch your purchase of a diamond ring or when you drive a car across the border?
I think there is a very good chance that we will see reform on capital gains rates and the carried interest exception.
Reagan was able to do it in 1986.
Are you under the impression that dividends are “earned income”?
You do realize that dividends are also taxed at 15% right?
You know that Reagan’s last act in office was to eliminate the capital gains rate differential right?
You do realize WHY there is a capital gains preference right? There are several arguments but the best ones are not really valid anymore now that our tax system is relatively flat.
Nope. As 10% exceeds historical returns of portfolios ranging from 100% stocks all the way through to 100% bonds, nobody would ever be able to save for retirement as taxes would consume more than the growth. And that’s before taking into account the further erosion caused by inflation.
Does what, and how? Are your “easy solutions” simply not to impose the asset tax in all the situations where it would be a disaster?
What are these programs so I can study how they work?
Sure - but for each person there seems to be an experimentally derived curve for each thing. Money is the common denominator. Because of our limited time marginal utility kicks in even if we buy only one of lots of things.
That is not to say that we can provide a perfect level of progressive taxation that makes it absolutely fair for everyone, of course. The principle is pretty clear. And I think that most people who have had different levels of income can see marginal utility of cash pretty clearly. If they don’t resist for ideological reasons, that is.
I agree with the idea of taxing net worth. A small [del]amount[/del] percentage, and probably a progressive schedule (top rate of 2.5%, say) with generous personal exemptions, but as supplement to the transactional taxes we have now.
Blaster Master, you made a really good post. I just have one problem:
I’m actually in favor of exceptions and incentives. I want the ownership class to be incentivized to spend money. I think we should do like Truman and Eisenhower: marginal income taxes (for those who make 10 million+ annually) of 75% or even 91%, with write-offs for certain kinds of spending. Better to make it a clear choice between economic growth (spending) and economic stagnation (saving), than to have a relatively low rate with no incentive to spend.
Consumer spending is driven much more by perceived affordability (how much one makes, how much of it is discretionary, how confident one is in future income) than by sales tax ramifications. If the imposition of sales taxes replaces income tax withholding from one’s paycheck, the basic perception of the consumer won’t change.