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2% Asset Tax Can Eliminate All Other Taxes


By Patrick   Follow   Wed, 2 Nov 2011, 5:54am PDT   13,431 views   100 comments
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If the total value of all US assets is about $200 trillion, and the total tax revenue in the US (federal, state, and local combined) is about $4 trillion per year, then it follows that a simple tax of 2% on all US assets would pay all taxes.

So we could eliminate the income tax, the sales tax, the inheritance tax, and the current property tax.

Here's one estimate of all US assets at $188 trillion:
http://rutledgecapital.com/2009/05/24/total-assets-of-the-us-economy-188-trillion-134xgdp/

Here's US federal tax revenue at $2.7 trillion:
http://en.wikipedia.org/wiki/Federal_tax_revenue_by_state

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?

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PockyClipsNow   Thu, 3 Nov 2011, 9:16am PDT   Share   Quote   Permalink   Like   Dislike     Comment 61

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

Thats how it works. Never worked any other way.

Patrick   Thu, 3 Nov 2011, 9:23am PDT   Share   Quote   Permalink   Like   Dislike (1)     Comment 62

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.

DaninNV   Thu, 3 Nov 2011, 1:08pm PDT   Share   Quote   Permalink   Like   Dislike (2)     Comment 63

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?

SFace   Thu, 3 Nov 2011, 1:30pm PDT   Share   Quote   Permalink   Like (1)   Dislike     Comment 64

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.

rooemoore   Thu, 3 Nov 2011, 1:35pm PDT   Share   Quote   Permalink   Like (1)   Dislike     Comment 65

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!

russell   Thu, 3 Nov 2011, 1:56pm PDT   Share   Quote   Permalink   Like   Dislike (1)     Comment 66

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.

Kevin   Thu, 3 Nov 2011, 2:22pm PDT   Share   Quote   Permalink   Like (1)   Dislike     Comment 67

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.

Natedawg   Fri, 4 Nov 2011, 1:28am PDT   Share   Quote   Permalink   Like (2)   Dislike     Comment 68

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.

Patrick   Fri, 4 Nov 2011, 1:41am PDT   Share   Quote   Permalink   Like (1)   Dislike (1)     Comment 69

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.

thunderlips11   Fri, 4 Nov 2011, 2:51am PDT   Share   Quote   Permalink   Like (1)   Dislike (1)     Comment 70

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.

david1   Fri, 4 Nov 2011, 3:24am PDT   Share   Quote   Permalink   Like (2)   Dislike     Comment 71

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.

¥   Fri, 4 Nov 2011, 5:38am PDT   Share   Quote   Permalink   Like (2)   Dislike     Comment 72

david1 says

That is where the calculation gets tricky because companies would self report and it would be difficult for the taxing authority to track.

This is why asset taxes are a bad idea. The only asset we really have to tax is land. Can't hide that.

REpro   Fri, 4 Nov 2011, 6:13am PDT   Share   Quote   Permalink   Like   Dislike (2)     Comment 73

It may work well. Simple, transparent tax system is very crucial for healthy economy.
Many states currently have property tax in 2% range of market value anyway. Those tax burners are directly or indirectly built into current price of goods and services through property rent costs or ownership (production plants, farms, offices, retail stores, and rental apartments). I don’t see it can make any significant impact on prices of goods and services we currently pay. Prices actually should be lower by elimination of sales tax. Employers may take some advantage on non-taxed salary, but system will bring more employment from another hand.
I will allow collection of this tax by states only and then they will give to “Uncle Sam” his share.

STPspending   Fri, 4 Nov 2011, 2:07pm PDT   Share   Quote   Permalink   Like (2)   Dislike     Comment 74

Why not just stop spending $ you don't have..?? Geeze, it doesn't take any thought whatever to tax, tax, tax. Taxing on assets is the worst thing that could ever happen. As someone else stated, there is no such thing as a FAIR TAX, just a TAX. If instead, we put a tax on the purchase of everything and not on the ownership, that would more fairly tax those that have the where with all to make the purchases. To tax on ownership would put a screeching halt on a lot of buying and thereby send an already dying economy to the grave yard. Wow, cannot believe anyone other than the corrupt Congress could come up with something this obnoxious...

FortWayne   Fri, 4 Nov 2011, 2:14pm PDT   Share   Quote   Permalink   Like (1)   Dislike (1)     Comment 75

sounds reasonable to me. Although I'd think some Washington crooks will quickly find ways around this system with some financial trickery as they do with the current system.

¥   Fri, 4 Nov 2011, 2:25pm PDT   Share   Quote   Permalink   Like (2)   Dislike     Comment 76

STPspending says

Why not just stop spending $ you don't have..??

"We" have it, actually.

The top 0.1% made 3% of the national income in 1980 -- and 8% now.

8% of $10T is$800B, knocking them back to 3% via taxes would close the deficit by half.

However, if "we" stop spending trillions on government, the entire current middle-class economy will collapse completely.

Government is serving as the central redistributor in the system, keeping the flows moving.

Cutting government spending would eliminate gov's role as the debtor of last resort that is keeping the postwar system in place.

http://research.stlouisfed.org/fred2/graph/?g=3br

Shows how YOY debt take-on pushed near $2T to stop the deflationary collapse of 2009.

That looks like a lot, but adding in financial debt (yellow), household debt (cyan), and corporate debt (red):

http://research.stlouisfed.org/fred2/graph/?g=3bv

shows how the system as a whole levered up 1995-2008.

Our entire system is fundamentally fraudulent, and reforms are going to require people understand that the status quo is simply unsustainable.

We can't fight $2T wars without paying for them. We can't just let health care run up to 20% of GDP without aggressively regulating the market. We can't continue running a $500B/yr trade deficit without hollowing out our own domestic economy.

And we can't cut taxes to prosperity.

To tax on ownership would put a screeching halt on a lot of buying

LOL. For every non-buyer there must a non-seller who still owns the asset.

The problem in this country is that the wealthy own too much of everything already, not not enough.

It's really quite refreshing that the 99% movement is absolutely nailing this point, something that was obfuscated and BSed about for many years here as our Gini index rose and middle america sank further and further into debt to support its way of life.

Wow, cannot believe anyone other than the corrupt Congress could come up with something this obnoxious...

And I can't believe people online are defending the current system. Oh wait, yes I can. Money is power.

pkennedy   Fri, 4 Nov 2011, 2:44pm PDT   Share   Quote   Permalink   Like (1)   Dislike (1)     Comment 77

I haven't read this whole thread, but this is exactly how muslims pay their tithe at years end, tally up all bank accounts, estimate house worth, etc.

bill1102inf   Sat, 5 Nov 2011, 2:35am PDT   Share   Quote   Permalink   Like   Dislike (1)     Comment 78

I LOVE IT!!! There are still people who think farmers don't make any money!!! LMAO!!!!

Patrick   Sat, 5 Nov 2011, 2:42am PDT   Share   Quote   Permalink   Like   Dislike (1)     Comment 79

Bellingham Bill says

david1 says

That is where the calculation gets tricky because companies would self report and it would be difficult for the taxing authority to track.

This is why asset taxes are a bad idea. The only asset we really have to tax is land. Can't hide that.

“Nessuna soluzione . . . nessun problema!„

Yes, land does have that large advantage of being impossible to hide, but would the numbers still work?

If land is maybe one quarter of all assets, you'd have to charge an 8% land value tax instead of a 2% tax on all assets.

That sounds harsh. Do you have different numbers?

bill1102inf   Sat, 5 Nov 2011, 2:51am PDT   Share   Quote   Permalink   Like (1)   Dislike     Comment 80

How to track 'assets', every asset in existence would have an asset tracking number with an owner tied to a federal database. Land, house, car(if we are doing cars), bank accounts, brokerage accounts.

The biggest problem is determining how much an asset is really worth. Because 99% of assets are only worth what the next person is willing, AND ABLE to pay for it. The ability (and therefore price) comes via leverage manipulation via the 1% banksters. For instance, if you were only able to get a house for 5%/5yr mortgage prices would be MUCH lower than 1%/40yrs (Super bubble).

Unfortunately the value of all assets are determined by their ability to be financed. Cars, land, houses, buildings, planes, trains, automobiles, securities, futures, gold, silver, oil, gasoline, corn, wheat, cows, pigs, etc.

Everyone should realize that the value of say 'GOLD' has almost nothing to do with supply and demand but rather what the credit markets allow it to be. There is about a 10:1 leverage ratio for gold futures. Which means, you can control 100OZ (170,000) for about $17,000. and many people use leverage for their 17,000, so they put up say 1700, borrow 17,000 then trade 170,000. This is extremely nonsensical and bubblefantasmagasmish.

What really needs to be done is to default all debt, reissue currency and let the cards fall where they may.

bill1102inf   Sat, 5 Nov 2011, 2:53am PDT   Share   Quote   Permalink   Like (1)   Dislike     Comment 81

The problem with doing this like 'Muslim Countries' do, is that we have massive DEBT and they have NONE. Therefore we have had massive INFLATION, wheras they have not, except for the inflation that WE exported to them, via our debt creation.

¥   Sat, 5 Nov 2011, 4:33am PDT   Share   Quote   Permalink   Like (1)   Dislike     Comment 82

Patrick says

Yes, land does have that large advantage of being impossible to hide, but would the numbers still work?

Add up all the land value and get back to me : )

Plus the severance taxes on natural resources (just like the communists up in Alaska have), and EM spectrum rights (us *giving away* our airwaves last century was a rip-off on the order of us giving away all that land to railway companies in the 1800s).

The Fed says there's only $25T of real estate in this country.

Divided by 130M households, that's only $200,000 per household. Seems low, way low.

Patrick   Sun, 6 Nov 2011, 7:22am PST   Share   Quote   Permalink   Like   Dislike (1)     Comment 83

Maybe the Fed is talking about land owned by private households. There is a certainly a lot of land owned by corporations, religious institutions, and the federal government.

bill1102inf says

Unfortunately the value of all assets are determined by their ability to be financed.

Yes, that's clearly true for housing, where government-sposored mortgage debt drives up the price of houses.

¥   Sun, 6 Nov 2011, 11:32am PST   Share   Quote   Permalink   Like (1)   Dislike     Comment 84

Patrick says

Maybe the Fed is talking about land owned by private households.

$16.2T, or ~$125,000 per household. What a joke.

http://www.federalreserve.gov/releases/z1/current/z1r-5.pdf

Dan8267   Mon, 7 Nov 2011, 11:47am PST   Share   Quote   Permalink   Like   Dislike (1)     Comment 85

Would all assets be taxed? What about my collection of vintage dildos and butt plugs? How would they be assessed? Purchased price or current market value?

cc0   Mon, 7 Nov 2011, 4:06pm PST   Share   Quote   Permalink   Like   Dislike (1)     Comment 86

Dan8267 says

What about my collection of vintage dildos and butt plugs?

I'd suggest (not that the constitution allows this) that the assessed value be the amount of insurance you carry on these items. If you think it's worthless, so does the gov't. If you have a $5M policy, that's the amount you pay the tax on. Since the government wants to be in the insurance business, it can take the tax directly from your insurer so you don't even have to file a form.

Dan8267   Tue, 8 Nov 2011, 1:48am PST   Share   Quote   Permalink   Like   Dislike (1)     Comment 87

cc0 says

Dan8267 says

What about my collection of vintage dildos and butt plugs?

I'd suggest (not that the constitution allows this) that the assessed value be the amount of insurance you carry on these items. If you think it's worthless, so does the gov't. If you have a $5M policy, that's the amount you pay the tax on. Since the government wants to be in the insurance business, it can take the tax directly from your insurer so you don't even have to file a form.

If that's the case, I'd have to pay taxes on my body at the assessed value of several million, the typical limits for health and life insurance (very approximate).

cc0   Tue, 8 Nov 2011, 2:02am PST   Share   Quote   Permalink   Like (1)   Dislike     Comment 88

Dan8267 says

If that's the case, I'd have to pay taxes on my body at the assessed value of several million

As it turns out, the Supreme Court has ruled that people aren't property. At least for non-corporate individuals.

Dan8267   Tue, 8 Nov 2011, 9:08am PST   Share   Quote   Permalink   Like   Dislike (1)     Comment 89

cc0 says

Dan8267 says

If that's the case, I'd have to pay taxes on my body at the assessed value of several million

As it turns out, the Supreme Court has ruled that people aren't property. At least for non-corporate individuals.

Wait a second. If people aren't property and corporations are people, then corporations can't be property and stock holders, particularly preferred stock holders, are slave owners!

Holy shit! Arrest everyone with stock in Goldman Sachs!

Kevin   Wed, 9 Nov 2011, 1:17pm PST   Share   Quote   Permalink   Like   Dislike     Comment 90

david1 says

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.

The assets you report on a 10-k aren't the same thing as total assets under your control (it's a snapshot that you do at tax time, and gets to ignore most of your inventory) . How do you account for a shipment of computers sitting in a warehouse for a month? Is it not an asset until someone buys it? When a company declares bankruptcy, their inventory certainly counts as an asset in court. It's complicated.

Amazon did make 1.47 billion in 2010, but they're on track to make substantially less in 2012 for a variety of reasons. These things happen when margins are tiny.

Patrick seems to have changes his definition of assets to a subset of things, which is fine, but I don't believe that subset equals the original $200T figure, so the 2% tax wouldn't work.

tovarichpeter   Sun, 10 Mar 2013, 7:53am PDT   Share   Quote   Permalink   Like   Dislike     Comment 91

Henry George was right!

drew_eckhardt   Sun, 10 Mar 2013, 10:17am PDT   Share   Quote   Permalink   Like   Dislike     Comment 92

Yeah, Patrick says

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?

It would double the amount of money responsible people need to accumulate to sustain the same standard of living in retirement that they did during their working years - as a rule of thumb you can safely spend 4% of an appropriate portfolio which would be 2% with the tax thus doubling the requirements.

That'd be real difficult with a 30% (real stock market returns have run 7% after inflation since 1950) cut in stock appreciation.

Patrick   Sun, 10 Mar 2013, 10:31am PDT   Share   Quote   Permalink   Like   Dislike     Comment 93

drew_eckhardt says

It would double the amount of money responsible people need to accumulate to sustain the same standard of living in retirement that they did during their working years

But they would accumulate money from work FAR faster than they do now, since there would be zero tax on income from labor.

I think it would work out much better for responsible people than the way things are now.

curious2   Sun, 10 Mar 2013, 11:04am PDT   Share   Quote   Permalink   Like   Dislike     Comment 94

Some countries have this tax, and it's a bad idea for several reasons. First, it requires you to provide the government a continuously updated list of everything you own of value, and where they can find it. Second, it has never resulted in eliminating all other taxes, it only becomes one more tax in addition to all others. Third, it discourages saving and investing, driving people to spend their $ on depreciating assets like flashy cars. Fourth, it drives capital flight and disinvestment. There's more, these are just examples.

The land value tax was a better idea, because it doesn't invade privacy, and isn't subject to concealment and enforcement issues, and the land itself can't be exported out of the jurisdiction.

thomaswong.1986   Sun, 10 Mar 2013, 11:12am PDT   Share   Quote   Permalink   Like   Dislike     Comment 95

Patrick says

2% Asset Tax Can Eliminate All Other Taxes

how do you sell 2% of your assets which is churning revenues/sales for your company.
so what the point of buying new assets...

anyway.. many corporate assets are already taxed at higher rates both real and personal property ...

Patrick   Sun, 10 Mar 2013, 11:15am PDT   Share   Quote   Permalink   Like (2)   Dislike     Comment 96

I prefer the land value tax myself, actually.

Just because you can't hide land.

curious2   Sun, 10 Mar 2013, 11:24am PDT   Share   Quote   Permalink   Like   Dislike     Comment 97

cc0 says

I'd suggest (not that the constitution allows this) that the assessed value be the amount of insurance you carry on these items.

An excise tax on insurance would resolve the constitutional issue, and it would be much better than subsidizing insurance as we do now. There would also be a certain symmetry, i.e. the property that you want specially protected you pay tax on, and it would effectively be optional because if you don't insure the property you don't have to pay the excise tax. But the insurance industry would fight it tooth and nail.

drew_eckhardt   Sun, 10 Mar 2013, 1:00pm PDT   Share   Quote   Permalink   Like   Dislike     Comment 98

Patrick says

But they would accumulate money from work FAR faster than they do now, since there would be zero tax on income from labor.

Initially (which the real estate agents would like) although it's not enough to compensate over a typical working life.

You want 20 years final salary saved ($1M for a family with the $50K median income) for a 4% annual draw to yield 80% of your final salary during retirement under the current scheme and 40 years with a 2% asset tax ($2M) counting for half your allowed draw. Arithmetic dictates that most of that come from growth not contributions.

Planning on spending through the principal and saving less is imprudent because without suicide we can't put bounds on the length of retirement. Circumstances can force early retirement. I know people who stopped working before 55 due to disabling medical conditions which weren't considered sufficiently disabling for Social Security. Senior positions are less numerous and available. Junior people are more attractive for junior positions due to salary history, malleability, and being at a better performing psychological arousal level due to inexperience which means market forces can end peoples careers past 50. You can live a long time - 3 out of 4 of my grandparents made it past 90 without the medical care available in 2033 and the one who died young still reached 88.

Assuming historic (a real 7% from the stock market since 1950) returns $1 saved by a young person today grows over the 40 years remaining until retirement to 15 current dollars which is $0.60/year indefinitely. In the asset tax scheme $1 would yield $6.90 and $0.14 in income. The young person would need to set aside over $4.28 for each dollar they would have saved with the present tax situation. To match the 10% of income they should (that number is low) save now they'd need to set aside 42% which is is unlikely since money going into current federal taxes which might come as take-home pay doesn't constitute 32% of their salary (Although marginal tax rates are high, exemptions and deductions make the real rates extremely low with the median 4 person household paying just 5.8% in Federal income tax and both halves of FICA + Medicare totaling just 15.3%. Even $150K without a mortgage deduction isn't enough for a married couple to break 25% total in the current scheme). Employers not funnelling what they were spending on FICA/Medicare into salaries and additional inflation due to the take-home pay increases make coming out ahead in that situation even less likely.

Growing older the retirement contributions needed to hit the same target date remain high. In the final years before retirement the $50K/year family would need to contribute $45K/year to retire at the same time they would under the current scheme with $5K/year contributions.

In theory there's always Social Security; although even with delayed retirement that can be limited to 30% of pre-retirement income (up to the wage cap; less beyond it), the survivor from a dual income couple looses all of the dead spouse's benefits, and there's increasing pressure to means test it so "millionaires" who provided for themselves are likely to receive nothing

While costs often decrease in early retirement they may not stay low. Private rooms in California nursing homes average $90K/year and can break $150K/year in urban areas. "Medicare for millionaires'" days may be limited.

Of course this is irrelevant. The vast majority of people don't save enough for retirement and wouldn't care about such changes. Whether they care is also irrelevant because the congress critters aren't writing laws for them - they're doing that on behalf of the 0.4% who make campaign contributions past the FEC mandatory reporting threshold. Fortunately retirement savers do well in the same situations as the people (natural and otherwise) buying elected officials.

A 2% asset tax may also have undesirable effects on entrepreneurial ventures. Everyone I've met who started a business with the realistic potential to grow to large size with a lot of well-paid domestic employees did so after saving enough they no longer needed to work for a paycheck. The asset tax doubles the size of pay-off needed to make that happen or delays the ability to work indefinitely for free 15 years into the future.

Companies yet to produce profits can be worth hundreds of millions or even a billion dollars (due to arithmetic - it's total shares multiplied by the last per share price. When a reputable entrepreneur sells VCs 25% post-money for a $10M series-A by definition that's a $40M company even though it's spending $6 - $12M/year to make and start selling a product) even when they're loosing tens of millions each year. A 2% asset tax could radically multiply those losses ($10M/year operating loss, $100M market cap, $20M tax, $30M/year loss) and shift gains away from employees who might become entrepreneurs to investors as the investors add more money sooner resulting in increased dilution.

Reality   Sun, 10 Mar 2013, 2:02pm PDT   Share   Quote   Permalink   Like   Dislike     Comment 99

John Bailo says

Because in order to have a rational "Free Market" you have to exactly determine the value of things.

If the value of things can be exactly determined, why would there be a market at all? Free or otherwise. If an apple is exactly 25 cents everywhere, why would anyone move it from the orchard to the supermarket?

It is not at all easy to assess the value of illiquid assets like houses. I just recent bought a house on the open market MLS listed for weeks, yet tax assessor in that particular town insists the valuation is 3x what I paid! I'd love to flip it to the town this very moment for half of the assessed value!

That's why asset tax is fraught with valuation problems. The value is extremely difficult to assess . . . in fact price discovery is the very function of a market place. To think that tax assessors know the best smack of the good old soviet style central planning, where the central bureau has massive table for the "correct price" for everything, yet not much gets traded at those officially "correct prices."

In addition, the tax itself would affect valuation. For example, if something yields only 2% return a year, a 2% asset tax would make it worth exactly zero! An example would be a currently $1M house that can collect $20,000/yr rent (after insurance, water, sewer and maintenance repairs, but before tax), if the property tax were $20,000/yr, how much is the house worth? ZERO!

Mick Russom   Tue, 12 Mar 2013, 1:45am PDT   Share   Quote   Permalink   Like   Dislike     Comment 100

Some people hold assets they might not be able to afford to keep at 2% load. Also, some people might own something very expensive and would have to liquidate it or the position to afford to pay 2%. Also, value is subjective and market driven. Whats the value of a priceless heirloom or a numismatic coin.

I do think those with massive wealth/power power/wealth need to pay into the system a bit more than currently, but stuff like this is tough.

I would say a consumption tax and a luxury tax is probably the best way to go with exemptions for life staples on the consumption side.

However, our idiot corrupt moron government would just spend the extra revenue and load the system even further.

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