I'm coming around to the opinion that taxes on income are a bad idea. Income flows to people as they're trying to accumulate wealth, trying to climb from lower to middle to upper class. Higher taxes on income, especially highly progressive taxes, make it harder for people to move between social classes.
The focus on income tax creates a situation where the person who makes $200k/yr but has a net worth of $0 gets taxed far more than the person whose investments bring them $100k/yr and they have a net worth of $2,500,000.
Oh, and their lifestyle might be about the same despite the disparity in income, because one of them needs to work for a living so they'll need to live somewhere close to jobs, pay more for transportation, etc.
Higher income tax is great, if you're already wealthy. If I was wealthy, I'd be very happy people if stay focused on that. But I think taxing accumulated wealth is a much better way of leveling the playing field over time and also making sure capital stays in productive use. France already has something like a 0.5-1% "solidarity tax" on wealth, and it's a progressive tax.
According to Piketty, the return on capital has historically been around 5% per year, and returns are better at scale. For multi-billion dollar funds, the rates are around 9-10%. The "Financial Independence/ Retire Early" people who plan for pessimistic scenarios say to expect 4% return. Let's say it's reliable to expect 2-3%.
At $10M a person can expect about $200-300k in income. If we have a wealth tax of 1% their investment income after taxes reduces to $100-200k. If they want to maintain their previous standard of living, they need to make about $100k per year.
At $100M let's say economies of scale start to happen and even in a pessimistic scenario you can expect a 4% return. If we have a 2% wealth tax at this point, the person can still expect an investment-only income of $2M per year.
You can see where this is going. At $1B with a 5% pessimistic return, 3% wealth tax, $20M investment income. At $10B with a 6% pessimistic return, 4% wealth tax, $200M investment income.
The nice side effect of this is that the mere scale of capital doesn't provide competitive advantage. The wealth tax should be designed to even out the advantage of scale so that larger accumulations of capital need to be put to best use.
Putting some numbers on the napkin... The US has an aggregate net worth of $85 trillion dollars. The federal budget is $4 trillion. Assuming a power law distribution of net worth, let's guesstimate an average 2% tax on that $85 trillion, which comes out to $1.7 trillion. We could roughly cut income taxes in half or eliminate them except at very high levels ($1M+) if we used a wealth tax instead.
The important thing to note here is that the wealth tax still leaves about 2% investment income, it doesn't reduce the total over time. I think it's great that people can accumulate wealth and then live on it, or pass it on to the next generation. But it would be great if we can keep the income at around 1-2% so that the nearly guaranteed increase in accumulated wealth is the same or less than the growth rate of the economy, meaning that people who build businesses today have the ability to reach the same heights as those who built businesses yesterday, without extraordinary luck or blunders by those with wealth.
Feasibility is a valid concern. Here's what I think.
Stocks are traded on public exchanges. Land and buildings stay in one place. Private jets need to land at airports and they each have a tail number. Most things to be sold efficiently are sold in public marketplaces. There are probably some assets that are hard to track, just like there is currently income that is hard to track. Some people are paid in cash and don't report it. A whole multi-billion-dollar black market of drugs, prostitution, etc. exists that is largely not income taxed. It happens. But in general income tax works, and a wealth tax would too.
Actually it is much harder to tax income than wealth hence why there is so much tax avoidance. The simplest way is tax the asset directly and let who ever owns it pay the tax. The block of land is taxed, the bank account is taxed, the bond is taxed, the factory is taxed, the truck is taxed, the cow is taxed, the patent is taxed, the copyright on a movie is taxed, etc, etc.
If you did this you would not need a very high tax rate (my guess is something around 1%) and it would encourage efficient allocation of assets. Of course the owners of all these assets won’t be happy and since they are very powerful this idea has zero chance of ever being adopted.
I actually /really/ like this idea. It also implies that anything of such value must be registered and that it only gets taxed that one time.
For the intangible things I would say that an open bidding process every census period would be a good way of judging what the market thinks it's worth. Adjustments might be necessary for changes in the constitution of an asset. (E.G. There's now a building, discovered natural resource, or it's part of a different sized lot unit.) Approximations in resource description could be used to round up/down and group together the units in an area for some anonymity and consistency.
To prevent collusion in 'sitting' on an area those who own it would also be required to bid in buying it back. If they come out over the median bid then they get their land back (but are taxed at the rate they sold it for), if they don't then they can keep the land but get taxed at the 95th percentile bid rate for that area. The top 1% of bidders would also have the option of buying any asset forfeitures within that area at the price that they listed. That would also be the assessed tax value of that land for that period.
Do you mean earned income, aka labor? vs unearned income, aka capital?
If you are advocating the shift of tax burden from labor back unto capital, reversing policy of the last 35 years (Reaganomics), then I agree with you.
Unearned income refers to income received by virtue of owning property (known as property income), inheritance, pensions and payments received from public welfare. The three major forms of unearned income based on property ownership are rent, received from the ownership of natural resources; interest, received by virtue of owning financial assets; and profit, received from the ownership of capital equipment. As such, unearned income is often categorized as "passive income".
I'm all for higher taxes on capital, maybe with some exceptions on the amount of capital gains tax to pay on your first €10m. But honestly, a wealth tax is just demotivating. Not every wealthy person invests their new found riches. It makes sense only to tax gains from investments, but only gains. Not making money on your capital? No problem, you don't pay. If you are, you do pay extra tax. I don't even think it's a bad idea to group income and capital gains together, as long as you can offset losses from capital against taxes on income.
Second point against a pure wealth tax: some of that wealth might be tied up in very illiquid assets (say, a castle worth €20m), meaning you might not be able to keep them because you have to pay the annual wealth tax. Or in say, art, which can be highly volatile in its valuation. This will automatically lead to disputes with tax authorities about valuations, etc etc. Not exactly fun to deal with + it's hard to enforce/verify
I think wealth is a very natural thing to tax. The state creates and guarantees to protect a property right in land/personal effects/corporate equity/etc. In return, it taxes you 1-2% of the value of that property right each year.
With the exception of the US, who taxes its citizens globally, I would assume this would push many people to move abroad to a country without a wealth tax. France is great and all, but I wouldn't want to be a tax resident there. If you're worth €50m, it's just too expensive.
Given you already paid capital gains tax (or income tax) when you generated that wealth, there's also the double taxation component. Wealth taxes (at least to me) seem like a great way to punish people who are doing well.
At the end of the day, we're living in a globalised world, where borders matter less and less (at least in the west).
Right. For example, if we don't like the idea of someone with wealth but no income needing to sell off part of their land or stocks every year, we could attach a debt to them that would be paid later when they eventually do sell some of their assets, or upon their death, etc. This could be arranged like a government loan with a low fixed interest rate, so if they wait 10 years to pay their taxes they'd owe their taxes plus some reasonable interest rate.
And a major reason workers are spent out is because of high rents. If the US would build enough housing in the major employment centers that the highly skilled workers wouldn't spend 90% of their after-tax income on fixed expenses, they'd have more money to spend to drive other businesses.
All the disposable income is being sucked into rents, and eventually that will make the economy run slower and slower, fewer sales to be made, businesses to close, more people to be unemployed, in a feedback loop until all the capital is held on one side of the table and there are a bunch of unemployed people on the other side who are willing to work, able to work, and want to buy things, but have no capital.
You are assuming the answer. (The old phrase for this was "begging the question"). Someone could easily ask "Why don't the landlords, who get all that money from rent, spend it on something, and thus drive growth?" And you can easily answer that: the wealthy spend less of their income, they save more, therefore the high profits from rent increase the savings glut, etc, etc, etc.
But you should state the answer directly rather than assuming it under a layer of indirection.
In your example, aren't you implying that landlords and other wealthy individuals aren't simply not spending, but actually hoarding cash?
Most wealthy individuals aren't holding cash, they put the money in a savings account or investment that has a return. This money appears to be held to most people, but even money in a savings account makes its way back into the economy by affecting the reserve requirements of banks. Its a proportional effect, because reserve requirements are greater than 0% but lower than 100%, but it still contributes.
If they actually are hoarding, the question is why and in the past that is usually because savings returns and investment returns are expected to be negative. In which case, thats the problem to solve.
In theory that money in a savings account or investment vehicle gets circulated back into the rest of the economy, but I think what we're seeing is that cash is tied up in some sort of buffer/holding effect in the financial sector, basically accumulating in ineffective places. The bulk of the money certainly doesn't seem to be circulating through the hands of individuals where it would likely spur more economic activity than we're seeing now.
This is a really interesting observation. I've never heard someone mention a "buffer/holding effect" before, but that makes a lot of sense.
I wonder if it's something like... the average individual spends half of whatever cash they have available every year... but the average business that takes investment lets 6 to 12 months of it sit in accounts. I realize the bank would then loan against the money in those accounts, but is it "turtles all the way down"?
I'll have to refresh my understanding of fractional reserve banking, but I don't think a loan from Bank A being put into Bank B and so on can lead to infinite money supply. If I remember correctly it somehow leads to some multiple of the input money being generated. Here's a Wikipedia article about it:
At some point all the institutions sitting on their money eventually does result in that money being sat on, and not being circulated through the economy.
Money creation in practice differs from some popular misconceptions — banks do not act simply
as intermediaries, lending out deposits that savers place with them, and nor do they ‘multiply up’
central bank money to create new loans and deposits. (...)
Whenever a bank makes a loan, it
simultaneously creates a matching deposit in the
borrower’s bank account, thereby creating new money.
>Most wealthy individuals aren't holding cash, they put the money in a savings account or investment that has a return.
Not necessarily true, given what the yields on savings accounts have been recently. Yes, a completely rational actor will invest capital in whatever market is currently generating the highest rate of return. But people are not rational actors. More specifically, people tend to be extremely loss averse - they will go to far greater lengths to avoid a result of -$1 than they will go to achieve a result of +$1, even though the delta (a dollar either way) is exactly the same for both situations. This loss aversion only gets worse when you scale up the numbers to -$1,000,000 and +$1,000,000.
This is why higher levels of inequality are correlated with lower growth. Capital owning rentiers are entirely happy with a 2% (or less) rate of return, so long as the risk of a negative rate of return is negligible. Meanwhile entrepreneurs who can generate much higher rates of return (but with a correspondingly higher probability of negative returns) are starved for capital.
While you're right the wealthy people don't usually hold all most of their cash in their mattresses or checking accounts, that's not the definition of "hoarding cash" in the context of the story posted here.
In corporate finance and equities analysis, the term "cash equivalents" includes very liquid short-term investments like US treasuries, CDs and money-market accounts.
> If they actually are hoarding, the question is why and in the past that is usually because savings returns and investment returns are expected to be negative. In which case, thats the problem to solve.
Er, no. The question is why companies -- which traditionally need to borrow money to operate -- are keeping large amounts of savings (earning positive but still very small returns) instead of increasing their capital expenditures by building factories, or writing more software, etc.
Land, or housing, Rent are ridiculous in the 20th century. Depending on where you live you may finally get the bad taste of this medicine.
I remember some journals ( it was Financial Times or Wall Street etc type ) making the relationship case. Stating people has actually been making less money when rent is deducted.
The cost of living is high, people used to say this without putting things into perspective. Cost of Foods / Transport and Rent may be high in London, but you do get a higher minimum wages. Compared this some South Asia Countries where Cost of Foods and Transport is low but Rent is exceptionally, and there may be no minimum wages or wages are comparatively low.
Our of the all four cost of living, Food, Transport, Clothes and Home, Home takes the biggest cost percentage. More then 50%. And it happens that only Home; Land, Rent / Property prices is an investment option out of the 4, and are suspected to be driven up and down by market / monopoly / government.
The world needs to start looking into Property market and tax on its profits, both selling or leasing. As well as allowing % of rent to be deducted in tax calculation.
I strongly believe, that anyone making more then the average median income ( so called middle class ) should be able to afford to buy or rent a house, that has heating in winter and can afford a 10 min Hot shower without skimming on their entertainment like movies, and be able to have decent meals a week while making some savings. The world we are at now are having middle class passing more of their wealth into property market and their living standard aren't that much different then lower class.
Instead of injecting money top-down through the Federal Reserve and large banks, they could inject it bottom-up in selected industries. Invest $1 trillion in biotech. Some will succeed and produce amazing advances. Most will fail, but they'll still drive employment, education, services, etc. targeting that industry, driving down the cost of inputs to the biotech sector for decades.
Of course, this can be done not completely blindly, by investing 10 to 1 with existing investors, or providing a guarantee to return 50% of lost capital, or having milestones companies need to hit, or have experts in the field provide "votes" toward getting higher levels of funding after examining their progress so far.
We don't want governments trying to pick winners, or generally even having an industrial policy at all. Their track record has been far worse than private investors. And politically it's impossible to justify when a large government investment fails. For example, look at Solyndra.
At better approach to stimulating demand would be to offer a cash prize or a guaranteed purchase contract for specific innovations that meet defined criteria. For example, what if the US federal government offered to purchase 10 million doses of a 90%+ effective Zika virus vaccine at $100 per dose? I'll bet that would encourage private investors to take a gamble.
Well, if the government is going to drop money from helicopters, I would at least prefer they ATTEMPT to do so in a way that might lead to some scientific advancement. They could also just send everyone a check for $1000, but although that would create some demand, it wouldn't likely lead to investments in long-term payoff high-risk science. I understand and somewhat sympathize with the idea that we don't want the government telling us to do with our money, and maybe we should let people spend that $1000 however they want, but I'm proposing trying to kill two birds with one stone here and also at least ATTEMPT to put the money initially in the hands of people trying to create something rather than just consume some basic goods.
But then the money would be going to engineers and other educated people, who already have decent incomes and job prospects. There is no benefit to the poorer classes with that system.
You are suggesting what already exists, plus a guarantee. How does your guarantee change behavior? We already have the expectation of payoff for success, that's how we got to this point to begin with.
For starters, have you visited every major city in Europe, including historically famous cities, sites of historical battles, capitals of smaller countries? Sampled the local cuisine in each? Tried the local hobbies? Danced in a local club? Walked the Via Appia in Rome, visited the site of the "300 Spartans" battle against the Persians?
For closer to home, assuming you don't want to travel the world or you've already done that, I personally don't think I'd ever get tired of just enjoying life. Going to my favorite places, watching the city below from the top of a large hill, alternating favorite restaurants, continuing to spend time with friends, reading new books, and continuing scientific and intellectual pursuits.
If you want to discuss this further feel free to email me at [email protected].
As I said, "things that interest me". Social clubs, traveling, and world historical landmarks are great if that's what interests you and I'm happy for people who enjoy those sorts of things. Learning new things is one thing we can both agree on as always being worthwhile.
All that being said, the best "new thing" I can think of is finding creative ways to serve others using what I know about. My blog is one such way though there are no doubt others as well. Giving to the world is a pretty good way to beat back boredom.
Commenting a long while after the thread was active, but... there's no reason we couldn't rename other rounds too. The seed round could be the "traction round" and the Series A-Z rounds would be the "scale rounds". Before you have traction, you basically just have a concept, so you have a "concept round".
You could make a delete button which merely opens a popup to explain that they do not save it in the first place. That way if they're looking for a delete button, they'll find it, but it will give them the right information.
I agree, that's definitely part of the problem. "Closing ranks" to protect each other is, I think, an inherently loyal and noble response, but it has to be tempered by humanity and reason, and that does not seem to be happening.
There is probably also a strong element of fear- as mentioned in the article, many of these police really are trained in aggressive response, and that becomes both muscle memory and instinct, it genuinely does.
I think many great officers imagine the "what would I have done" and in their doubt and worry over that hypothetical, provide a unified front against the repercussions of justice for their fellow officers, in case the same should ever happen to them.
"Never rat on your own" comes ingrained with the Y chromosome. Nobody likes a snitch. And being branded as one is for a lifetime and it shuts you outside of all social networks. For obvious reasons spies get a pass here. Throw some "Real man deal with their own problems and not call authority" and you have potent silencing mix. It is hard to verbalize, but it is real.
