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September 23, 2006

Comments

Don McArthur

Q. - Why would we choose either, instead of a consumption tax?

A. - Because it sets the stage for the buying and selling of power and influence.

Jesus Reyes

Because the "wealth" class "game" the political process.

John Robb

Personally, I wouldn't damage anything that represents economic velocity. Wealth, on the other hand, represents stasis and therefore is the best source to tax (if the deed needs to be done). You could even set the bar high: no tax unless you exceed $1 m in combined assets. Seem like a much, much easier system to enforce since the pool of targets gets much smaller. It also reverses the aging tax base problem. The old finance the old.

mark safranski

While your point on velocity is well-taken John, a wealth tax would have all the negative aspects of an income tax and then some.

The level of state intrusion to verify assets ( and what "counts" as taxable assets, the critical political question) would of necessity, be extreme. $ 1 million ain't a whole lot of wealth these days either - I see MC-UMC strivers getting socked by this tax while corporate entities accelerate the movement of tangible assets overseas. Not to argue that the current system doesn't do these things already

The history of the income tax and its progressive advocates ( like Cordell Hull)is worth a review in terms of how new tax platforms tend to mutate away from their original conception.

phil jones

Presumably because if you tax a fixed asset it looks like you're taking something away something the person already has.

Whereas if you skim something off a dynamic income stream it seems like you're taking it from something the person hs never had their hands on. That's probably easier for people to accept.

If you tax consumption you hit the poor consumer disproportionally. Everyone pays the same tax on the consumed item, but by paying the same tax the poor actually have a higher relative cost than the rich. (The tax is a larger proportion of their income and paying it has a higher opportunity cost, it prevents them doing more other things in their lives.)

When you tax income proportionally it seems you can balance things so the relative "hurt" is the same for everyone.

Done right, there's no question that income tax *is* more egalitarian. The problems with it are simply aliasing errors in going from the continuum of incomes to discrete tax brackets.

John Robb

Mark and Phil, points taken. However, a wealth tax with a high bar makes the tax enforcement problem much easier in one major aspect: it reduces the base ten-fold (or more). It is also pure meritocracy. You are always forced to move forward if you want more and it radically reduces the burden of getting to a point where you are self-sufficient. Resting on your accumulated wealth and passing that on to those that don't earn it would be extremely difficult.

Federalist X

we do have a wealth tax (or did), the estate tax (or "death tax" depending on if its your estate or your dad's).

doesn't work very well, and instead of transferring assets overseas as mark states, the simple fix is to issue debt and make the asset worthless on paper.

you think we have an asset bubble now? if you got rid of the income tax and replaced it with an asset tax, you'd make the problem ten times worse.

bobw

This is the most coherent and intelligent comment and thread I've read on any subject for months. Thanks, John, and all the other contributors above. I've never gotten past the naive position that a progressive income tax, along with a restored, real tax on corporate profits, was the answer. The devil always seems to be in the details, and the myriad ways accountants get around these taxes.

I dont believe at all that either tax would discourage new investment or "growth", but I understand from some of the comments above that there are other factors to consider in the equation.

One aspect of the question not yet mentioned here: what alternative is most likely to be sellable to the electorate? In my view, "redistribution of wealth" SHOULD be a reasonable concept for the majority, but, as Lakoff points out, self-interest and facts arent always the way people make decisions.

colin fletcher

I quite like the idea, but like the posters above, I think there are some hurdles to overcome.

I guess the biggest one, which mark already mentioned, is that as soon as you tax wealth the wealthy are just going to move it all somewhere else. The proponents of globalization have ensured that it's easy to move money in and out of the country and I can't think of a bigger incentive for them to do that than to levy an estate tax every year.

Another perhaps more subtle issue would involve the political consequences of having only a small group of people shouldering the financial burdens of the state. I can imagine how such a scenario might devolve such that those people would feel more entitled to the freedoms and priviledges of citizenship than the freeloading masses, and from there it's just a short hop to some people being more equal than others, etc.

The wealth tax, though, is quite similar to the ideas of Henry George, who proposed tax on land that would be equal to the amount of wealth that it generated without any effort from the owner. I haven't read enough to be able to completely describe what he was suggesting but I've read enough to know that it's worth checking out. It's difficult to move land out of the country. :)

Northman

Tax on Land. You mean like Property Taxes?

Governments already tax certain kinds of wealth, but they rarely have anything to do with the net worth of it's owner, with the exception in the US of the estate tax.

The questions I have about this idea just seem to keep multiplying. My first thoughts were about farmers who don't tend to make much money, but have land and equipment worth a great deal. Selling off their land to pay taxes, and then having to sell the rest because they don't have enough left to make enough income would probably look bad.

Also the whole housing boom. What happens when the house you bought relatively cheap becomes worth too much for you to live in it?

Do you base business taxes the same way? It would have to be for sole proprietors and partnerships, so presumably corporations would have to work the same way. Can you imagine GM or Ford having to pay taxes based on their assets rather than sales?

Is there any example of this being tried before anywhere?

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