[jmorrow977]

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.

[Terr_]

One big issue is feasibility: It's much easier to track, meter, and tax income as it changes hands than it is to track/meter/tax accumulated wealth.

[jmorrow977]

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.

[aetherson]

A huge amount of wealth is tied up in land, which is ultra difficult to assess the value of without actually selling it.

[daurnimator]

land is already valued for "tax" purposes as council rates.

[ryanmarsh]

This is like a litmus test for the right answer. We immediately jump to feasibility. We know it'll work, it'll just be hard.

[Terr_]

> This is like a litmus test for the right answer. We immediately jump to feasibility.

Uh, I don't see how that follows. Sometimes "it is not feasible" is first objection simply because it's the easiest to articulate and support.

I mean, not everything is equivalent to a proposal to, say, kill all the poor: https://www.youtube.com/watch?v=owI7DOeO_yg

[dasil003]

There was something subtly hilarious about seeing a Vanguard investment ad before that clip.

[danieltillett]

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.

[mjevans]

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.

[specialist]

opinion that taxes on income are a bad idea

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.

[chii]

>unearned income, aka capital

capital isn't unearned - it has to have come from somewhere (perhaps the grandfather generation).

[specialist]

It's a technical phrase, not a value statement.

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".

https://en.wikipedia.org/wiki/Unearned_income

This covers the policy debate part, which you may be referring to:

https://en.wikipedia.org/wiki/Unearned_income#Taxation

[charlesdm]

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

[rayiner]

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.

[charlesdm]

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).

[SilasX]

Doesn't seem natural to me, in that most wealth is indivisible, non-fungible, etc. It's the "oh, just give me half the baby" problem writ large.

That said, land value tax and seigniorage seem like the best taxes on many metrics.

[wyager]

This is a literal protection racket. Usually people at least make the effort to use euphemisms so it's not so obvious.

[humanrebar]

> Second point against a pure wealth tax: some of that wealth might be tied up in very illiquid assets

Isn't this an argument against real estate taxes in general, which are universally accepted? There are mechanisms to recover those taxes eventually.

[jmorrow977]

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.

[daurnimator]

Wow, that's actually a really good idea.

I think I have a new thing to wishfully ramble about at the pub.