patrick.net

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.

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.

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.

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...

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.

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.

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.

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

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?

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.

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.

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.

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.