patrick.net

Net assets? Talk about a way to encourage borrowing...

Not net assets. ALL assets.

So if you borrow to buy a house, you still do pay the 2% on the house each year.

So if you borrow and buy a house, you pay the 2% on the house each year.

How would you value those assets, purchase cost or current market value ?

Current market value.

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?

First off, If I am a retiree and spent my life working and accumulated wealth, which was subject to income tax already on that path and now you're going to clobber me again with an asset tax now that I'm done earning income?

Financial assets are pretty liquid and I'm sure they would be taken elsewhere around the world and that 200T in assets as claimed will shrink to 100T easily.

A 2% asset tax is hardly "clobbering" anyone.

Especially since you'd pay 0% income tax, and 0% sales tax. And 0% inheritance tax.

No capital gains tax either. No dividend tax.

Seriously, you could come out ahead, even in retirement.

SFace says

Financial assets are pretty liquid and I'm sure they would be taken elsewhere around the world and that 200T in assets as claimed will shrink to 100T easily.

Nope, not going to happen. First of all, most of those assets are not mobile (think land, factories, office buildings) and second of all, the US economy would probably boom with zero income taxes and zero sales taxes. And an incentive to spend.

Anyway, you'd owe the tax as a US citizen even if you moved assets abroad. Unless you give up citizenship and leave. Which is fine. You could do that now anyway.

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

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 if follows that a simple tax of 2% on all US assets would pay all taxes.

The problem with this math is that taxes are inversely proportional to valuations.

Slap a 2% federal LVT on land and land prices will fall immensely, and there goes your $200T total asset value.

Another problem with the math is that there's only $72T in asset value, according to the Fed:

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

You can throw in the $40T non-financial businesses hold, but that's double-counting.

Dunno what assets "financial" businesses hold, LOL.

SFace says

Financial assets are pretty liquid and I'm sure they would be taken elsewhere around the world

No SFace, you gotta stay with us! What would we do without your rent-seeking ways?

immigrant says

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

True, if they spend it all right away. Except that they have to live somewhere, and so part of their rent would go for the asset tax.

Bellingham Bill says

Slap a 2% federal LVT on land and land prices will fall immensely, and there goes your $200T total asset value.

According to the link at the top, tangible assets are a quarter of all assets. And land is probably only half of that quarter.

I'm not sure land values would actually fall though. With zero income taxes and zero sales taxes, business would be booming, so the economy would expand.

It's an attractive idea on the surface - but actual implementation would create massive, (let me repeat) MASSIVE change (probably catastrophic).

I am not talking about people "not liking it". That could probably be managed.

No, it is how we value assets that would be radically changed. I think the first effect would be that it would knock probably around 60% off the value of all assets within the first 2 years of the tax starting.

With the 2% flat asset tax their will only be ONE value test for 99% of assets (I am sure there will still be some asset classes or circumstances under which this will not be true, but I am confident of the 99% where it will) - and that is the test

Will it cover the tax and still be worth owning ?

For example - with the flat asset tax, the property bubble would have never ever ever happened.

Typical Scenario : $450,000 Residential House

Rental PA (maybe) : $20,000

Asset Tax : $9000

Leaving $11000 for debt maintenance, insurance, property care and all other costs.

How about traditionally high value assets that are slightly speculative but generate sporadic / little direct income ? (usually the domain of the upper middle, if not the genuinely rich).

A large block of land in a very nice rural area (that is becoming "the cool place") with a luxury lodge-ish building on it.

This is the kind of thing that has great asset value now (say 3-5 Mil) that can be held relatively low cost (if you have a bit of cash and borrowing for it is bundled in other operational borrowing). This is such a discretionary asset, where it is purchased with the thoughts of "well, I reckon the place is getting popular, unlikely I will loose on it, and I like the place, and I can hold it without it hurting".

Now the first thought will be "I need to stump up a hundred grand every year just to have it, before ANYTHING else". Keep it for a decade and I will have dropped a mil into the place before any improvements or maintenance. Watch how quickly that kind of asset stops being worth 5 mil.

I reckon the idea should be given a go just to see what happens :D

Curdmudgeon says

I reckon the idea should be given a go just to see what happens :D

what we could do is add-in depreciation credits for capital investment, and it would become a LVT : )

According to the link at the top, tangible assets are a quarter of all assets.

Ah, you're counting the $60T of debt that banks own. 2% tax on debt is a 2% rise in interest rates debtors pay right there (but that's not a bad idea).

But $200T / 130m households is $1.5M per household. Doesn't sound too far off I guess. Hell, after 400 years here we should have tons of wealth accumulated, no?

The bottom 90% owns 30% of the wealth in this country, and this 2% tax on assets will hit them hard since 60% of the total principal residence wealth is held by the bottom 90%, and a 2% tax on that would crush real estate values.

So under an asset tax, aren't homeowners going to have to pay a tax while renters don't have to pay? I don't like the idea of that. How are renters going to have skin in the game?

I like this idea.

It would cut down a lot on speculation.

Perhaps it would cut down on the dependency on appreciation of an asset as a passive revenue-generator. Why would you want to buy and hold some land in hopes you could flip it in a few years to developers?

Hmmm... yes.

Is there any history on such a system?

Wouldn't it be a wash? 47% now pay no Federal Income Tax, and approximately 47% are renters (give or take a couple of percentage points). Seems to me it would work quite well. I like the "2% Solution" much better than 9-9-9.

Today's book recommendation: A Bull in China, by Jim Rogers.