Saturday, August 6, 2011

Headline: "US Credit Rating Downgraded 1 Notch" leaders of the financial industry, the same financial industry that needed U.S. government help three years back. And how did the government help? It took upon itself much of the risk of debt held by the financial sector, so that finance would not fail. The government took that "toxic" debt upon itself.

This is the financial industry's way of saying "thank you"? Tax the bastards.

I read this once, somewhere: After World War II, Germany imposed "a one-time wealth tax." It was a way to correct imbalances in the economy.

We could do that.

Today, I'd even make it punitive.


Jerry said...

Why one-time? People benefit from most of the spending in direct proportion to their net worth (i.e. the purpose of military, police, social programs, etc. is largely to protect peoples' property from threats foreign and domestic - which the benefit from in direct proportion to the amount of property they have).

I think just replace the annual income tax (and all other taxes, for that matter) with an annual flat tax on net-worth.

Jazzbumpa said...

Jerry -

It's an interesting idea. I've never seen a real analysis of it, though.

Any time I see the words "flat" and Tax" used together, I get a very bad feeling. You would definitely need a tax-free lower limit.

Also, I think there are a lot of ways to hide wealth. And how do you evaluate investments - mark to market? How often? When? There can be quite a difference between July 5 and August 5.

Further, since wealth is the product of accumulated income, over the long run, why should one be favored over the other?

Jerry said...

The "flat tax" on "income" is a scam because 1) income inequality is much less great than wealth inequality (i.e. it's a tax on the wrong thing), and 2) they always want a tax on only part of the income - usually something like, "income from wages", but not investments, capital gains, etc (i.e., it's not flat). So both of those things disproportionately skew the burden onto people with lower wealth (who make all of their income from wages rather than the stock market). We'd have to try it and see in order to be sure, but i think a net-worth tax could be flat.

You could set a "standard deduction" / lower limit if you wanted to (50k?, 100k?). But I think it would be less necessary than one might expect ... a lot of poor people don't have much in the way of net-worth. And if the rate was, say, 10% (i just made that up, i don't know what it would have to be set at), the tax paid by someone who doesn't own a house would probably be about the same as he pays now (or maybe less) when you add in sales tax and all of that.

I agree that it would be harder to implement than an income tax. But I think it's worth a try - it might be possible to work out all of the details (e.g. tax the "average wealth you had over the year", so that you don't have to worry about the july/august issue; etc). There would be a lot of details to get right.

But mostly, I just think it makes sense. Do the police only try to prevent theft of the wealth you gained this year? No way, they try to protect all of it. Every year. The yearly fee you pay for that service should be proportional to the total that you have - not just what you gained this year.

Even things like labor regulations -- they weren't put into place because the government is full of nice guys or something. They were put into place because the absence of them eventually resulted in violent uprisings (which are bad for business). Surely, the wealthy benefit the most from living in a stable, secure society.

As to your last point - they're just not mathematically the same, unless you're spending 100% of your income. e.g.:

Assume: Income is $100 for each of 10 years; you spend half of it and save the other half.
case 25% income tax:
year income this_tax wealth cumulative_tax
1.00 100.00 25.00 0.00 25.00
2.00 100.00 25.00 25.00 50.00
3.00 100.00 25.00 50.00 75.00
4.00 100.00 25.00 75.00 100.00
5.00 100.00 25.00 100.00 125.00
6.00 100.00 25.00 125.00 150.00
7.00 100.00 25.00 150.00 175.00
8.00 100.00 25.00 175.00 200.00
9.00 100.00 25.00 200.00 225.00
10.00 100.00 25.00 225.00 250.00
11.00 100.00 25.00 250.00 275.00

case 25% wealth tax:
year income this_tax wealth cumulative_tax
1.00 100.00 0.00 0.00 0.00
2.00 100.00 12.50 50.00 12.50
3.00 100.00 21.88 87.50 34.38
4.00 100.00 28.91 115.63 63.28
5.00 100.00 34.18 136.72 97.46
6.00 100.00 38.13 152.54 135.60
7.00 100.00 41.10 164.40 176.70
8.00 100.00 43.33 173.30 220.02
9.00 100.00 44.99 179.98 265.02
10.00 100.00 46.25 184.98 311.26
11.00 100.00 47.18 188.74 358.45

(I don't really think the wealth tax should be 25%, just an example to demonstrate that they're different, without having to use the word "integration: .)