patrick.net

after 10 years, your assets are worth 81% of original value.
after 20 years, your assets are worth 67% of original value.
after 30 years, your assets are worth 54% of original value.
after 40 years, your assets are worth 44% of original value.
after 50 years, your assets are worth 36% of original value.
after 60 years, your assets are worth 30% of original value.
after 70 years, your assets are worth 24% of original value.

i would just invest outside the US and hide all my assets from this ridiculous taxation or just move out of the country.

i never thought of housing in this perspective, but after 30 years of owning, its value has decreased to 74% of original value at a 1% tax rate (excluding all other factors like inflation, appreciation, etc). 84% @ 1% after 15 years

A 2% tax on all assets is simple and fair, and pretty easy to verify for large assets (real estate, stock, bonds). Why not do it?

A very interesting idea. Like most ideas , it would probably have unintended consequences.

Possible scenario: the top 0.1% would likely sell their assets (to avoid the tax) and use the cash to buy politicians. Remember, the U.S. has the best government money can buy. Wealth would then be measured by what % of congress an individual (or corporation) owns. The Forbes 500 might have to change how they define the worlds' wealthiest individuals.

Would politicians (in the back pocket of certain individuals) be considered assets and taxed as such? How would those "assets" be valued? The bribery market is fairly non-transparent.

The United States is not the best place to live. You have to work hard to live here. That you have to grow your own food here. It just does not grow out in the open. Maybe a few berries and some fruit. Land you can get plenty of here. You just go and stake it out. Thing is you have to plant and grow. It's a real pain and takes up most of your time.

Now South America Brazil its the same thing. Land is free. Many, Many Americans have moved there. No one says it of course. Food grows in many places without having to plant or harvest. It has much game. All you have to do is put together shelter. Why the hell anyone would be in a city out on the streets is way beyond me. No one bothers you and its really not like Africa with lions and tigers and that kind of animal. The Amazon basin is really, really fertile. Why people sit around and bitch about a land that is filled with nothing but brambles and fields which this is a country of fields is beyond me. There is nothing much of food here unless you put a lot of work into it.

Insanity.

Not the idea, the comments.

This already exists. It's a combination of property tax and something like Florida's Intangible Tax: http://www.kulzick.com/fintti.htm

I should say former tax. http://dor.myflorida.com/dor/tips/tip07c02-01.html.

Terrible idea: I am not sure where you get the $200 T figure but that figure is extremely volatile since our economy runs on funny money, fractional reserve lending, federal government subsidized speculation, and other factors. When the entire housing market gets hit by 30% that is going to have an affect on the the tax receipts.

It is also has terrible incentives built into it that would encourage people to spend a larger percentage of their income on consumption immediately. Why put $10,000 per year away for retirement if the govt. is going to steal 2% of that every year until you retire. Instead, you should spend the $10,000 on a luxury vacation, and let the govt. take care of you when you get to retirement. After all, it is already being floated that people who manage to put enough money away for retirement in addition to the mandatory money they pay into SS should get docked SS benefits.

Also, can you imagine the epic corruption that would be built into the assessment role? I live in Cook County (where you grew up), and the assessment procedure is anything but fair.

A much better idea is a flat tax on consumption (sales or VAT). It is NOT regressive. A rich person can save as much money as he want without paying tax but he will never be able to enjoy his money without being taxed. Money is nothing but paper until it is spent. In order for rich people (or their heirs) to ever enjoy the mountains of cash they sit on, they will need to spend it, at which time they will be taxed. Although rich people can spend less of their income than you or I, every dollar they refrain from spending is a dollar's worth of goods and services that they do not deplete and thus remain available to rest of society.

I mean why work for someone else. When you can walk outside your door and get food that is already there. Solar power. Fish and hunting. Everything is there.

9-9-9 or any flat tax is a step in the right direction because they create more efficiency in collecting taxes which is one of the problems we have now. Tax codes only get more complicated to create more IRS and tax preparing jobs which really don't produce anything. Everyone consumes: the rich, the poor the criminal etc. Once we tax assets the incentive will be to devalue assets which will ruin capital which will lead to collapsing the economy. But then remember, Patrick doesn't have a clue as to how a free market works.

immigrant says

so say someone makes 100k, doesn't own a car or a home, could end up paying no taxes?

I really don't like this part. It only encourages people to spend like drunken sailors and punishes responsible people who are mostly just trying to save for their retirement.

Hysteresis says

after 10 years, your assets are worth 81% of original value.
after 20 years, your assets are worth 67% of original value.
after 30 years, your assets are worth 54% of original value.

Only if you're just sitting on them without investing, denying the use of them to others. If you invest them and get anything over 2%, you're gaining. Remember that all income would be tax-free.

Kevin says

There is no accurate way to account for the majority of assets.

The stock market assigns a value to stocks every minute of every day. Bond market not much different. Real estate also not terribly hard. What would it sell for? Everyone knows, pretty much. Hell, they're obsessed with it: zestimates, etc.

Large cash bank accounts are especially easy to value.

Auntiegrav says

How, exactly, do you justify a tax on assets to someone who is losing money with those assets already?

Uh, perhaps it's not the best use of capital if they're losing money.

wthrfrk80 says

Would politicians (in the back pocket of certain individuals) be considered assets and taxed as such?

They should be! Not quite sure how to value them.

uvafitz says

Why put $10,000 per year away for retirement if the govt. is going to steal 2% of that every year until you retire.

Because the first $50K is completely free of both the asset tax and income tax. And because investing is much easier without any income tax. You just need to find something that pays more than 2%, like 10 year bonds, stocks that pay dividends over 2%...

Free the Markets says

9-9-9 or any flat tax is a step in the right direction

Nope, 9-9-9 is a big step in the wrong direction, toward giving the ultra-rich an even larger share of everything, until they own ALL of it and we're all their permanent slaves.

zzyzzx says

. It only encourages people to spend like drunken sailors and punishes responsible people who are mostly just trying to save for their retirement.

You forget that the income tax would be zero percent. Zero! Instead of losing 20% or 30% to income taxes off the top every year before saving anything, you lose nothing and so can save much more quickly, especially since the first $50K of assets would not have the asset tax either.

It's a strong incentive to save at first, but then a relatively small tax on idle wealth, to encourage it to be invested at better than 2%, or spent. Which is the right thing to do.

Hysteresis says

after 10 years, your assets are worth 81% of original value.
after 20 years, your assets are worth 67% of original value.
after 30 years, your assets are worth 54% of original value.

Only if you're just sitting on them without investing, denying the use of them to others. If you invest them and get anything over 2%, you're gaining. Remember that all income would be tax-free.

90%+ of people are terrible investors. look at the terrible returns of the average 401k.

we really don't need more incentive for amateurs (mis)investing their hard earned money.

instead of taxing, we should just cut government programs. spend less, tax less. simple. i'm all for self sufficiency because i'm getting screwed supporting all the morons that can't support (let alone invest properly for) themselves.

It's a strong incentive to save at first, but then a relatively small tax on idle wealth, to encourage it to be invested at better than 2%, or spent. Which is the right thing to do.

Break even (same amount of taxes as current) is an ROA of 2%/current tax rate. At current tax rates of 25% federal and 7% state, 6.25% ROA. That is, a 100,000 investment that you make 6.25% return on currently, or $6250, pays $2000 in taxes on that return. The exact same tax you would pay on a 2% asset tax.

Asset values are nothing more than the present value of the future expected cash flows (or the dollar value of its utility) from it.

The asset tax discourages leverage (and debt taking). It remains to be seen if this disincentive to debt taking (and loss of consumption through debt) would be overcome by the increased consumption and capture of the deadweight loss that would arise from the elimination of consumption and income taxes.

Hysteresis says

i'm getting screwed supporting all the morons that can't support (let alone invest properly for) themselves.

No, you're getting screwed supporting the ultra-rich who tax you every day much more than you pay into any program like welfare. The ultra-rich use their control of all the productive assets to make you dependent on them. Seriously, what you pay to non-productive rent-seekers is like ten times as high as what you pay to the poor.

zzyzzx says

It only encourages people to spend like drunken sailors

Actually, now that I think about it, it's a GIGANTIC benefit to working people who want to save.

HUGE, like nothing bigger has ever happened in the history of the universe! Just look at it this way: if you make $100K/year, right now you get taxed (fed, state, sales, property) at least 30% of that. So maybe you spend $60K and can save $10K/year.

With the 2% asset tax, instead of saving $10K/year, you can now save $40K/year! Sure, 2% will get clipped off the amount over $50K each year, but while you're working, your savings rate is about FOUR TIMES as large.

Patrick, you make a compelling case for the 2% asset tax.

Who knows, maybe even some rich would go for it if ALL income taxes (like capital gains, income, and dividend taxes) were eliminated like you are proposing.

According to the following Wikipedia article, the Swiss (of all people) have a "wealth tax" which I think is the same basic idea as an "asset tax". http://en.wikipedia.org/wiki/Wealth_tax

I like this idea a lot. I've always thought it is unfair that a hard working productive person is taxed more than as an idle rich person. I've never been a fan of income tax, because it discourages people to work hard and seek to make more income. Our current tax code forces people to get as rich as they can and then make all their money from dividends.

I would consider dropping it to 1% (less scary) and adding a tax on pollution as in cap-and-trade.

Then we are encouraging people to work hard, pollute less and do things with their money instead of sitting on it. Done, now lets go re-write the tax code.

According to the article, there are some compelling arguments against the asset tax:

1) difficult to value non-liquid assets (like privately-held businesses and works of art, antiques, etc)

2) high management/administrative costs (although given how complicated our income tax is already, maybe this is a moot point)

3) capital flight (for obvious reasons)

4)government incentive to cause inflation (bigger numbers mean more tax revenue without any real increase in wealth).

5) retirees/elderly have most of their income from assets and must liquidate them faster just to pay the tax.

I would rather disclose my income and expenses on a tax return than my assets. The valuation issues would be horrendous. Think about the owner of a small business, the "value" of that business at any given time is not the balance sheet book value, but the present value of the future profits of the business at least as defined by the IRS. That can change dramatically with the changing economy or fortunes of the business. Same with investments in non-traded assets. Talk about a system ripe for abuse by both the tax payer and the taxing authority. This is a very common problem with the estate tax for privately held business owners and thier estates. The service values the business at some outlandish amount, and forces the estate of the business owner to challange their valuation. This would happen every year under this plan.

MarsAttacks! says

We already have a 2% assets tax. It's implemented via currency debasement.

Ack! Acck!

True! Good point.

Spokaneman says

This would happen every year under this plan.

Simple enough solution: The taxpayer has the option of paying the 2% tax or selling the asset to the taxing authority for the taxable amount. This would force the taxing autority to slightly undervalue all assets. If the taxpayer wants to sell at the lowered value, the taxing authoirty can flip the asset for a profit.

How about the bloated federal government quits their outrageous spending to 1/2 of what is today. (2001 spending level was 1/2 of what it is today) and make that tax 1%?

This seems like a bad idea to me. You should tax people on what you don't want them to do and you should take people for externalities they generate. For example, the tax on gas should be raised significantly because we want people to drive less (less dependence on foreign oil) and so they pay for the externality they generate (drivers generate fumes which pollutes the air, increases global warming). A soda tax is also a great idea, so Americans consume less sugar, are less fat, and have lower future healthcare costs.

Bob S says

How about the bloated federal government quits their outrageous spending to 1/2 of what is today.

Got any cuts in mind?

We could cut the military 50% -- that would save $400B/yr or whatever. But say goodbye to the south and midwest's economies, especially Texas'.

We could cut social security 50%. That would also save $400B/yr. Of course, most places would start looking like Leningrad 1942, but who needs old people anyway. If they're healthy enough to cash their checks they're healthy enough to get back to work!

We could cut medicare 50%. That would slaughter the health care sector and its 14M+ jobs.

http://research.stlouisfed.org/fred2/series/CES6562000101

Jobs, who needs jobs anyway. Unemployment for all!

Or we could cut $250B/yr from "welfare". $50B from food stamps, $60B from the 99 weeks of UEC, $35B from Section 8 (actually a good idea, LOL), $90B from "other" (probably also a good idea).

Thing is, if you want to cut $250B/yr from welfare, that's going to impact 16 million households quite severely, and just push more and more people over the edge.

There's another $500B/yr of spending outside the above categories, so we could cut that by half probably without losing anything important. But that only lowers the deficit to closer to a trillion, doesn't begin to solve the fiscal problem.

Our core problem is the working class doesn't have any money any more, the rich people have it. Just cutting spending doesn't really fix that.

Keep thinking.

PRIME says

This seems like a bad idea to me

ie "don't tax me -- tax that guy behind the tree!"

Interesting proposal. I think France has something like this but it also has income and other taxes. Lots of people have cash or cash equivalents earning very little because of extremely low interest rates, much less than 2%, so they would get hosed. I think that money would go overseas. Haven't read all your comments, but would ownership of foreign assets be taxed? Also, corporations or others earning money overseas would pay both income and wealth tax, whereas they currently they offset US income tax with income tax paid in foreign countries.

Also, Patrick, the tax drag of a 2% wealth tax is massive. It doesn't sound huge, but it is because the tax is levied annually and it is on the principal and interest. Assume a 20 year time horizon and 10% return on an investment for a $1 investment. (FV = future value)

FV with 2% wealth tax = (1.1 * (1-.02))^20 = 4.49
FV with no tax = (1.1)^20 = 6.73

Tax drag = (6.73 - 4.49) / 6.73 = 33.3%

The tax drag is large because there is a compounding effect of taxes that are applied each year.

Bellingham Bill says

This seems like a bad idea to me
ie "don't tax me -- tax that guy behind the tree!"

This is a meaningless response, so you are getting ignored

Other people here were claiming that asset prices would fall.

that was me, actually. In isolation, doubling the property tax would cause home prices to fall. But removing all other taxes overpowers this increased tax.

The average home price is around $300,000 in most populated counties in CA. 2% tax on that would be $6000 pa. Median household income is around $60,000, so the tax burden on that is $9000 for payroll taxes, $4000 for fed, ~$3000 for state, $3000 for property tax, $1000 in sales taxes, $21,000 in total, so ceteris paribus disposable income will increase $15,000/yr under the new regime.

Divided by 5% interest rate, that's another $300,000 in home value "affordability" these tax cuts offer.

Rents would certainly go up much of that $15,000 in tax savings at least. The beautiful thing about being a landlord is that the money comes to you!

If your renters don't like your price they're free to go live under a bridge or maybe buy a boat and try living in the Bay.

PRIME says

This is a meaningless response, so you are getting ignored

heh, that quote was from:

http://en.wikipedia.org/wiki/Russell_B._Long#Specialist_on_tax_law

I forgot that it was from the son of Huey P Long.

And I didn't know that NO got their football team as a kickback for getting the AFL/NFL merger through Congress.

PRIME says

FV with 2% wealth tax = (1.1 * (1-.02))^20 = 4.49
FV with no tax = (1.1)^20 = 6.73

Tax drag = (6.73 - 4.49) / 6.73 = 33.3%

The tax drag is large because there is a compounding effect of taxes that are applied each year.

And people wonder why how the top 0.1% ended up with all the money after ~30 years of Reaganomics.

Interest never sleeps, we need more "drags" on wealth concentration, no?

Oh, I forgot, you've "ignored" me, so I can answer that for you -- yes, of course we need to limit the concentration of wealth in this country. It's completely obvious.

As someone who has worked hard for his assets (and has been horrified to see Patrick go from a housing blog to a Democrat sounding board) this is actually a fairly good idea.

All liberals are terrified of flat taxes - claiming they hurt the poor and middle class. This is despite ample evidence that the truly wealthy are smart enough to arrange their affairs to pay little tax.

The reason I like it is that it leaves the actual poor with no assets alone and that it goes after rent seeking behavior. I engage in major rent seeking behavior but a KNOWN penalty is easy to work with. What I hate is the endless fiefdoms I deal with that have their hands out.

The huge benefit of this too is the frankly worthless human beings I deal with on a daily basis who have inherited their wealth and would get their butt handed to them by something like this. They have zero clue how to run a business but are increasingly the only people you meet running US businesses. These clowns boast about being in the 1% and work a couple of hours a day and then go home and get stoned. Their grandparents were super smart and hard working but a couple of generations later you get people that would be homeless to lower middle class in charge of real businesses.

No other taxes. 2% on wealth. I can handle it, bring it on!

I think we might get this new tax..... but also keep all existing taxes.

Thats how it works. Never worked any other way.

m1ckey6 says

The reason I like it is that it leaves the actual poor with no assets alone and that it goes after rent seeking behavior. I engage in major rent seeking behavior but a KNOWN penalty is easy to work with.

Yes, it does also have the advantage of being a very easy to calculate tax. Whether you should invest in something or not just comes down to whether you can probably make more than 2% on it.

PockyClipsNow says

I think we might get this new tax..... but also keep all existing taxes.

That would be horrible. The point here is to make tax law very simple and very fair.

What I'm really afraid of is all the exemptions that would grow like some kind of fungus on this clean and simple tax. First one group then another would claim special treatment, and eventually we'd have the same gnarly thicket of tax laws that we do now. NO ONE should be exempt beyond the first $50K. Not churches, not grandma, and most especially not the "job creators" who somehow haven't created any jobs despite their ever-lower income tax rates.

How about a "Consumer Tax" A flat rate on everyting that is purchased... that way it is fair to ALL. The drug dealers, corporations, individuals... you would be taxed on what you could afford to purchase. Everyone would be equal... no tax Loophold for the corporations attorneys to figure out how to not pay any taxes.

My thoughts.... what is yours?

There is no such thing as fair tax anyway. What's fair to you may be god awful to someone else. There's revenue need and it's just a question of who pays for it. That's one of the basic question of government, who pays, who benefits.

From that perspective, a single tax be all solution is idiotic. Whether it is a tax based on income, consumption, ad valorem tax, excise or whatever. There's a theory behind each tax and who generally takes the tax burden. It's like a company having one line of revenue, or one customer which is extremely stupid way to run a business or government. In other words, I want revenue coming from many different source "different type of tax" and different type of customers. "tax base". That's just basic common sense.

I think the current tax system is brilliant as it takes a little bit from everyone where no one tax cause changes in behavior. Albeit, I do believe that the super rich needs to be taxed more on their income.

Not Sure says

DaninNV says

How about a "Consumer Tax" A flat rate on everyting that is purchased... that way it is fair to ALL. The drug dealers, corporations, individuals... you would be taxed on what you could afford to purchase. Everyone would be equal... no tax Loophold for the corporations attorneys to figure out how to not pay any taxes.

My thoughts.... what is yours?

I'm sorry but your idea sucks. It's simply too practical and just too fair. Everyone would be able to do their own taxes without accountants!. Implementing it would be far too easy and besides it makes far too much sense. And it would just be too affordable for the average consumer! The entire concept sounds simply UN-AMERICAN. Where are your morals, by God? Can't you take this idea back to the workshop and retool it a little... you know.. try to fuck-it-up a bit so that it sounds more complicated and harder to understand?

No, it's a great idea. It would probably have to be about 15 - 20%. Of course the fucking lazy poor would complain, cause there food bills would go up - so a $1.20 instead of a $1 at mcdonalds - but for us rich it would be sweet. I spend most of my money in europe and the south pacific. Sweet!

I like the 2% asset tax idea but also fear it would get mucked up with exemptions. One idea for retired folks would be to possibly defer some of their tax and sell the asset after they die or move to a nursing home - basically what sensible states did instead of enacting prop 13 yrs ago. What about coroporations? Do Apple and GE pay 2% of their assets every year? If you eliminate state and local taxes how would cities and states get revenue? Anyway, I love the simplicity of it and it sounds a lot more fair than the current system.

david1 says

The argument could be made that if the sales tax is eliminated, then retailers could raise their prices 6-7% to capture the deadweight loss...

Unlikely.

Companies like Amazon bring in less than $500M in profits annually but have to churn through $50B in inventory.

You could exclude unsold inventory as an asset, but then you're not actually taxing all of the wealth, so 2% wouldn't work.

The same goes for any capital intensive, low profit business.

What this will do is encourage folks to hide their assets in gold coins, international bearer bonds, and artifacts/art that can be easily re-sold. Billions of dollars would instantly go off-shore or underground. Billions. Tax me once, shame on you --- tax me twice, shame on me. We won't get fooled again.

Anyone with any sense would quickly find ways to hide their assets.

Will Big Brother then send out squads of jack-booted investigators to see if you are hiding any gold krugerrands in your sock drawer? Will they demand to see what you've got hidden in your safe deposit box? Grandma's diamond jewelry? -- how dare you not declare that asset so we can tax it. Send in the IRS to count the stamps in Junior's stamp collection and assess a value to it.

This would instantly set off a massively accelerated underground economy to buy and sell goods out of the sight of Big Brother. Who would benefit? The mafia would absolutely love it! They already function on a cash only, off the books economy (think drug trade, where billions of dollars worth of cash purchases move through the economic underworld). Money would flow to gold (as in hard assets, not mining stocks) and it would be buried in a coffee can in the back-yard.

This would be economic suicide -- billions going off-shore, billions more taken out of circulation, and a crushing de-incentive to investment, improvement and saving. The economy would collapse within 10 years.

Natedawg says

Send in the IRS to count the stamps in Junior's stamp collection and assess a value to it.

No dood, nothing like that! I'm just thinking of the obvious large income-producing assets (meaning assets that make the rest of us work for the rent-seeking 1%):

* real estate
* stocks
* bonds
* big bank accounts

It's all stuff that people very deliberately register to prove ownership of.

John Bailo says

We already assess property. The only other thing left is stocks, bonds and cash...all held in banks or other databases.

Yes, exactly. Actually, this thread started from your idea John.

Natedawg says

The economy would collapse within 10 years.

With no income tax or sales tax? I think the economy would boom.

This is a fantastic idea.

Since the tax is assessed on assets, even moving abroad and disclaiming your US citizenship wouldn't help.

You could move to Hong Kong to live off your strip mall rental income, but you'd still owe 2% on the value of the strip mall. Or your company you owned that owned the strip mall would (since nobody owns a strip mall directly, I would think).

Natedawg says

They already function on a cash only, off the books economy (think drug trade, where billions of dollars worth of cash purchases move through the economic underworld).

Drug Lords have so much cash, they have to launder it, they don't leave tens of millions in cash in their basements in Colombia or Mexico. Even the ones on the lower rungs of the ladder. They buy apartment buildings, retail buildings, bonds, etc. Many banks are flush with the cash holdings of laundered drug money.

With the asset tax, their mansions and "olive oil" business property, organized criminals couldn't evade taxation.

Kevin says

Companies like Amazon bring in less than $500M in profits annually but have to churn through $50B in inventory.

You could exclude unsold inventory as an asset, but then you're not actually taxing all of the wealth, so 2% wouldn't work.

This all fine and good except for the fact that the numbers are all completely made up. According to their 10-k for 2010, amazon had 18.7 billion in total assets and 1.47 billion in net income before tax. So under the 35% corporate tax rate, they should pay 514 million in income taxes. A 2% asset tax would give them a tax bill of 374 million. They paid 352 million in taxes because they have write-offs and credits, plus their accountants must be good....all in all, an asset tax for amazon would have increased their taxes by 18 million, which would be about 1.2% of income before tax.

Now that asset number is just a snapshot of their assets on one particular day, while the correct calculation would be to talk the average value throughout the year. That is where the calculation gets tricky because companies would self report and it would be difficult for the taxing authority to track.