I’m not sure why this is considered some giant revelation. Anyone who owns and holds stocks that do not pay dividends is aware that you only pay capital gains taxes when you sell. Why is this a surprise?
I’m not against heavily revising the tax code, but I’m not sure a wealth tax is the way to do it. I’d rather we tax the utility of money rather than the quantity (e.g., a billionaire who spends millions on cancer research will not have that money taxed, but one who spends millions on yachts and super cars will pay 90% tax). Society could then vote to determine what things should have high and low taxes.
This might come as a surprise to folks who do not own stocks and are not aware of the difference between income and (unrealized) capital gains. According to this article [1] from 2020, about half of American families owned stocks. But only 14% own stocks directly, the rest is through retirement accounts.
The media does their part with sensationalist headlines like "Jeff Bezos got 100B richer during the pandemic". Without some financial literacy, someone might interpret this that someone handed Jeff Bezos a 100B paycheck.
I think you’re missing the point of the article. Everyone here understands that unrealized capital gains aren’t taxed. That’s what the article is about. It’s saying, “look, this is the result of the tax policy” - staggering gains in wealth with essentially negligible tax burden. It seems unfair, because it is unfair.
So, we all understand it, but maybe some of us think that because it is, it must be. I’ve never understood that point of view.
> Without some financial literacy, someone might interpret this that someone handed Jeff Bezos a 100B paycheck.
Which is exactly the reaction those kinds of headlines are fishing for.
A 100b check is very different than your already massive business booming more and making you richer because you own a huge share of it and that share is now worth more.
They seem to be suggesting it's better the money is earned through ownership. Which is funny as I'd lean the other way and say that beyond a point, allowing such large income through ownership and not actual work is a bad idea.
Note: Bezos and Musk, could ask for a hefty salary so they may work out to similar total income, unless someone else could run it cheaper and better. While hedge funds and inherited wealth that only own and don't contribute would receive less.
And it's worse than just 'assets not cash' - Amazon might not be the best example, but even so there's no way can dump ~1/10th of it without moving the price; even ignoring disclosure requirements and the effects of insider selling, it'd be way down just on that volume (10x 30d average).
I think wealth coffers are past the upper limit of what can be construed as reasonable even in the most anarchic of capitalist societies.
Just like on the monopoly board, one cannot win when all the spaces are already owned - that’s the situation we fundamentally have. A wealth tax is necessary.
> Just like on the monopoly board, one cannot win when all the spaces are already owned - that’s the situation we fundamentally have.
Monopoly has a fixed game board with no possible means of expanding or changing the spaces the player can land on. The real world is constantly at risk of disruption from changes in technology and geopolitics that can substantially change the competitive landscape.
That doesn't work out in practice. "The richest families in Florence in 1427 are still the richest families in Florence" https://qz.com/694340/the-richest-families-in-florence-in-14... The headline tells you what you need to know. The disruption thing is just a chimera to fool gullible people into thinking that rich people actually earned what they got and that the system is fair. It absolutely is not.
The richest families in the US are certainly not the richest ones from 1950 let alone 1427. The largest companies by market cap are Apple, MS, Google, Amazon, and FB... None of those businesses existed a generation ago let alone the technology that powers them or even their business models. At least some of the founders of those companies are immigrants. There is no reasonable extrapolation from wealthy families in Florence to "disruption is just a chimera to fool the gullible" in SV.
The three richest families in the US are (according to a simple Google search) the Waltons, Kochs, and the Mars. These three families were already in the 1950 very wealthy. I don't know enough to say whether they were among the richest, but for sure they weren't poor.
True, in monopoly those with nothing aren’t allowed to take back the means of production by force when all changes create further and further wealth inequality.
The same outlets that publish those headlines also publish ones like “Company XYZ made billions in revenue and paid zero in taxes”, completely glossing over payroll tax, deferred losses, and credits for capital investment.
Payroll tax is paid by employers on behalf of their employees. That is, it is the employees money that pays the tax - not the employers. VAT works similarly.
There’s two halves to payroll tax. One paid by the employee that is deducted from their paycheck. The other is paid by the employer and counts as an expense against revenue.
Employees do not get to deduct the second half from their taxes. It’s considered to be paid by their employers.
This one makes me so mad, because it's always some ignoramus comparing taxes with revenue and ignoring the fact that if the company paid zero taxes then most or all of that revenue was ploughed back into the local economy. Jobs, construction, equipment, etc. all mean that cash lands on everyone, and then people swallow the spin and complain about it.
Now, if they were making billions in profit and paying zero taxes then that's different.
> Now, if they were making billions in profit and paying zero taxes then that's different.
Some companies are, and are very clever in hiding that (offshoring profits, etc.).
Other companies (and their boards apparently) are content with "merely" overcompensating their executives, who then have their own teams of accountants and lawyers to avoid paying taxes. The companies themselves aren't running much profit, on the promise of a better stock price and future growth. In some cases this is legitimate because they are indeed investing in their own infrastructure or intellectual property.
You omit the fact that billionaires supposedly never realize their gains, yet they somehow are able to afford mansions and planes (not company owned).
The gains are realized, but due to various loopholes untaxed diaposable cash is created.
How does this happen and why is it legal?
Obviously there are ways (e.g. borrowing money against stock) - but maybe this should be closed?
If you are a regular person your wages are taxed and then you build a house using taxed materials.
If you are rich you borrow money against shares to a trust in a tax haven and then that trust builds a home for you as a company (so not even tax on materials) and you get an untaxed home where you can live.
Definitely the significant difference. It's not just that the ultra wealthy can stash money in these sort of asset havens and avoid taxes, it's that they can somehow use them as liquid as cash.
Your average person may have access to some of the asset storage options, like wealth stored in their 401k or even purchasing stocks directly. What we can't do is use those assets as if they're money in a bank account and avoid tax. I can lower my income by stashing money in my 401k and defer taxes until I retire but when I retire, I will pay taxes and between now and then, those assets can't be touched for much beyond an emergency without incurring fees, taxes, etc.
Wealth is very different than income but if wealth can be utilized just like income (liquidated) yet not taxed, something is off in the tax system and this is what people get cranky about. If the assets weren't as liquid and usable in place of cash and had to be tucked away or otherwise taxed, less people would be cranky.
For all intents and purposes for the ultra wealthy, that wealth is readily accessible, well above the amount of money they could need or most could even want which people equate to their income. They might not quickly liquidate their entire estate but they can liquidate or borrow against large enough portions that they can do about anything they want.
I’m confused how using their assets to borrow against lets them avoid taxes. If they borrow $10M for a yacht, they still have to presumably back that money back at some point to whomever they borrowed from. And to get that money from their assets, they will have to pay capital gains taxes on it. What am I missing?
> The gains are realized, but due to various loopholes untaxed diaposable cash is created.
How does this happen and why is it legal?
I'm sure there are loopholes, but at some level it also demonstrates how stupendously wealthy the super rich are that financing their lifestyles (i.e. houses) often requires a tiny fraction of their overall wealth.
From the American perspective, they still have too much to spend on corrupting politics and justice hiding behind "spending money is free speech." There needs to be a 90% tax bracket and we should subject capital gains to normal tax brackets if percentage of gross income is, say, 50% or higher. This makes more sense to me versus total wealth tax. Also reinstate a meaningful inheritance tax (aristocracy-prevention tax)
The lack of a wealth tax means they just get to pick and choose when they take their income out of their assets, always at the most favorable time. Capital gains going up wouldn’t make much of a dent in someone paying under 5%.
Oh really? But car parts are just 20% so let‘s just cut the Veyron in half before delivery. And the yacht is better privately rented from that Serbian shell company whose business model it is to just own one boat and rent it to a single person.
Rich people are smart and greedy. And if they aren‘t, so are their tax advisors.
There is a massive case for simplicity in tax code, even if it does not fit perfectly.
Minimum gloval tax, revenue tax, Tobin tax, high inheritance tax (with significant tax free minimums) and a land value tax would be way harder to cheat and easier to implement.
The only one you can’t actually cheat is property tax. The government can send someone there and seize the asset. Everything else can be avoided or fought.
I think what we are seeing is the beginning of the slow destruction of the nation state which was built to fight existential and total wars. The only thing higher tax rates are going to do is push wealth out of some countries and into others, unfortunately. Why doesn’t the U.S. just invade the Bahamas and stop tax avoidance? Once you realize why, you’ll realize that just taxing more won’t work.
Whether we like it or not, I think the standing down of the nation state from wars in the past is going to lead to a collapse of welfare states and social programs (I don’t use these terms negatively so don’t assume I’m “against” these programs), and continued fragmentation of large national and international organizations. Some people are very happy with their nation (Norway or Switzerland or something), others aren’t (United States, China). Those who aren’t are going to move their wealth to somewhere that is advantageous to them. Even China doesn’t stop this. Wonder why housing prices are so high in Vancouver?
Most people for most of history haven’t lived in anything approaching a nation state. It’s a new thing, and it is likely in my view to be temporary. It’s hard for us to see because it’s what we were born into and our perspectives are short term.
What about the following proposition - any publicly traded company must issue, every calendar year, new shares worth of 2% of the total shares outstanding, and transfer them to the tax office.
That's essentially a 2% wealth tax on the stock market, borne equally by all shareholders, regardless of their residence. Maybe I'm just naive, but I don't see any accounting magic to avoid such a tax.
But then again - there's one agenda that unites left and right across the developed world - no wealth taxes.
The tax office where? In the United States? Maybe companies would just stop “going public” or would become publicly traded in another jurisdiction. Or maybe France doesn’t like that China says French companies have to issue 2% per year in new shares to operate in China. Or better yet, how do you do this in all countries? Is it 2%/year in all countries?
Etc. I think there are a lot of scenarios to think through.
-edit-
Didn’t downvote you BTW. Shame on those who are when you’re just having a discussion. We really need to get rid of that as a tool.
A land tax (a special case of a property tax) is probably among the more avoidance-resistant taxes. There should be numerous others which might exist, particularly in regulated financial industries.
I'd just say you can think of it in colloquial terms. China is a nation state, as is France, Germany, Russia, Venezuela, etc. Some are looser than others, some are stronger. Along these lines I think ethnicity and homogeneity play a part but not always.
There's some room for argument about who and what are nation states - does the Bahamas qualify as a nation state or just a convenient government? Are some countries stronger nation states? What's the difference between countries and nation states? Is there one? There are probably some items to explore there for me too.
Maybe there's something you have in mind you want to discuss with respect to the concept of the nation state?
The US used to have a lot more "luxury taxes" on things like yachts. They got repealed "because they were hurting jobs in the industry" (e.g. the yacht industry). Leading Democrats at the time led the repeal push...
What would be ideal, in some ways, is a progressive consumption tax, with the hard parts being defining consumption (e.g. is cancer research consumption?) and actually measuring it....
I’m not sure why this is considered some giant revelation.
The very first paragraph:
ProPublica is a nonprofit newsroom that investigates abuses of power. The Secret IRS Files is an ongoing reporting project.
(Among other things) "News" tends to be bad news. This is a well known fact and if you try to google up studies on news and mental health, it will likely auto-complete (or auto-suggest) a phrase for you.
Not to say it isn't a valid criticism and not to suggest it's in any way untrue, but among other things, I have had a class in journalism and I'm a writer by trade and recent years have been very hard on traditional news outlets. The competition for eyeballs is really fierce and lots of publications are struggling to survive or outright going under, much to the detriment of the quality of journalistic writing you can find today.
Writers are being paid less in real terms. They can't do the kind of research they used to do. Etc.
I think replacing income tax with a progressive consumption tax is something worth considering (or at least modeling out). Currently the bottom half of W2 earners in the US don't pay any income tax and the wealthiest only pay capital gains.
It doesn't seem fair that the upper middle income earners carry so much if the tax burden (at least as a percentage of their wealth). We also need to get away from the idea of taxation "as punishment" and think about it in terms of "what does funding the system actually require".
No one type of tax is the best. The key to effective taxation is to have many different kinds of tax so that there's no way for the rich to avoid paying any taxes at all by reorganizing their financial affairs. So if you avoid one kind of tax, then you'll have to pay more of a different kind of tax. So a progressive consumption tax is perhaps a great addition to income tax, not a substitute.
> The key to effective taxation is to have many different kinds of tax so that there's no way for the rich to avoid paying any taxes at all by reorganizing their financial affairs.
Or just tax less to increase the wealth floor where avoiding it becomes useful thereby decreasing the number of people who do it thereby reducing the losses. You're basically reducing amplitude of the tax curve in order to capture a wider range. The billionaires may be stupid rich but there's so few of them they make up a negligible percent of public coffers.
Nobody bothers registering their car out of state to save a $50 fee. Nobody bothers putting their house in a trust to save a couple thousand in taxes. Not hard to extrapolate from there.
I'm for government having a consistent, reliable revenue stream. For a given amount of tax revenue many smalln types of tax should be better than a few big ones.
Economic distortion as a result of taxation is primarily due to tax avoidance activities by those who can afford to (large corporations and the rich), so a system that makes it not worth the effort should minimize economic distortion, too.
No way that would be manipulated and abused by the politicians and the wealthy. I think at some point we have to accept that people are going to game any system (on all sides and angles). Resource competition is the base problem.
LVT would make it much more difficult. LVT does not value based on the improved properties on a site--in the purest form, it is a tax based on the land alone. A vacant lot would have the same tax as a lot with a tall building.
Worse, if you build an improvement which makes the location more valuable (for example, a tech company building their headquarters and creating demand for nearby residential space) then you pay LVT on the value you created. LVT proponents like to pretend that they only want to tax the "intrinsic value" of the land, as if the entire concept of intrinsic value were not thoroughly discredited long ago, but in practice only the physical structure would be exempt from the tax as an "improvement"—anything else would be too subjective. Perhaps if LVT were only assessed on the value of similar unoccupied land far away from all improvements it might be more reasonable… but that would not fulfill the LVT supporters' objectives.
> Worse, if you build an improvement which makes the location more valuable (for example, a tech company building their headquarters and creating demand for nearby residential space) then you pay LVT on the value you created.
How is that worse when that's how you are currently taxed? The more value you create, the more money you make, the wealthier you are, the more you get taxed. Except if you're currently a billionaire tax dodger, you can't dodge any more.
> How is that worse when that's how you are currently taxed?
It's worse from the point of view of the LVT proponents' argument that the tax is based on the "intrinsic value" of the land and not improvements contributed by the property owner. You're correct that it's not that different from an income tax, but LVT is supposed to be more "fair" than an income tax specifically because it taxes "unearned" natural resources and not the owner's contributions. An income tax, of course, is designed to be exactly the opposite: a tax on earnings from economic activity.
This is not to say that an income tax is objectively better than LVT, just that LVT and property tax have more in common than some prefer to admit, mostly because the practical/legal definition of "improvement" (i.e. buildings and other physical changes to the property) does not encompass all economic value created by the owner.
You would never get forced out by developers. You'd sell up because you can't afford the land value tax. This puts that property to a more efficient use. Whoever takes over your property will pay the high taxes, and wherever you move will have lower taxes.
You have it completely backwards. LVT would solve that, because all the people using the little parcels of land for a single family home would no longer be able to afford the taxes on their land. They'd sell to developers who'd have to build huge apartment complexes, making housing affordable again.
LVT ensures that each unit of land is put to its most productive purpose.
There are clever ways of addressing gaming, for example, to counter undervaluation there could be a rule that says that if you value your land at $X then anyone is legally allowed to force you to sell it to them for $X.
This works both ways. If the government overvalues your land at $X then you can force them to purchase it from you for that much, for example.
> There are clever ways of addressing gaming, for example, to counter undervaluation there could be a rule that says that if you value your land at $X then anyone is legally allowed to force you to sell it to them for $X.
That doesn't work. Just because I inherited my fathers beloved VW Beetle[1] that's only worth $1000 doesn't mean that I want to part with my father's beloved VW Beetle; it means much more to me than the official valuation.
Same goes for any other property - boats, land, etc.
I don't understand the objection. If it's only worth $1000 absent sentimental value then no one will offer to buy it from your for anything more than $1000, therefore you would only pay property taxes on $1000 of value.
> I don't understand the objection. If it's only worth $1000 absent sentimental value then no one will offer to buy it from your for anything more than $1000.
No, but you could be forced to sell at exactly $1000.
And, of course, some people are just mean.
A person who wanted to punish their ex could, by force, buy a beloved item for more than what it is valued for, simply as retaliation against their ex.
Your wedding gifts are typically as close to worthless as possible as far as money goes, and yet someone with a grudge against you could simply take it off you for a small cost to themselves.
So, no, confiscating things from people with "fair reparations" to give them to other people is simply a no-go.
If you cannot understand the objection at this point, then you never will.
> No, but you could be forced to sell at exactly $1000.
No you couldn't. You can't be forced to sell at all unless you are unwilling to pay land value tax on the offered value.
Anyway, I'm proposing a simple game theoretic construct that can address the problem of under- and overvaluation of property with regard to property taxes. I am not a president about to sign a bill into legislation. I acknowledge that this idea requires refinement before it would work in practice. I just thought people would find it interesting.
> No you couldn't. You can't be forced to sell at all unless you are unwilling to pay land value tax on the offered value.
So, under your proposal, you would have to value your property at the sentimental value it has for you, which for some things is infinite.
My theoretical dad's VW would have to be "valued" at $1500, and if I think someone with a grudge against me is willing to pay that, I'd have to progressively increase the tax I pay on it just to keep it?
This is a very bad idea; in fact, I cannot think of a single state that ever experimented with such an idea. If no state, even failed states, thinks it's a good idea I don't see what refinement you could make that turns it from a bad idea into a good idea.
This is a game theoretical idea that shows how to address under- and overvaluation of property. How to refine it into a practical system is an open question but I'm sorry, I just don't see how your example of inheritance of a Beetle scuppers the whole thing.
Property taxation being used to unfairly seize objects of mere sentimental value seems an easy to problem resolve compared to the problem of imposing property taxation at all. The real reason land value tax hasn't seen much use in any jurisdiction is that it massively advantages the common person above the wealthy landowner, so there are huge structural pressures against it.
So rich people could just take whatever land they wanted, or am I misunderstanding you? If Big Ag wants my family farm, there’s nothing I can do but shut up and accept the money?
If Big Ag offers to buy your family farm for $10M then you have two options:
1. Sell it to them for $10M
2. Pay land value tax on it as though it were worth $10M
What other meaning does "land value" have than what someone is willing to pay for it?
(Roughly. There has to be some hysteresis and other frictional factors inserted to make it workable. My comment was not supposed to be interpreted as a finished piece of legislation, just a rough idea of how to prevent gaming.)
In your scenario, Big Ag just needs to offer an amount that causes the tax burden to be unbearable for the person who currently owns the farm. That’s not “the value of the land” but the cash flow of the owner at a moment in time.
I presume it would be easy to set up systems of mortgages to pay land value tax. In fact I imagine that in practice land value taxation would be indistinguishable from paying a slightly higher mortgage, for most people. In fact given the downward pressure it would impose on property prices it could easily mean people end up paying less than what they would pay as mortgage under the current system.
Say the tax is 10%. You already have a mortgage on the property, and not a lot of other assets. "Big Ag" offers 20 times what the property is worth to buy you out and eliminate a competitor. The tax (10% of 20x) would be double the standard market value. No bank is going to let you borrow double the ordinary market value in addition to what you already owe to cover the tax. You have no choice but to sell.
There are many implausible aspects to this scenario.
Firstly, the tax will be nowhere near 10% p.a.. The order of magnitude yield on real estate is 5%. Unimproved land will be less, of course. 1% seems to be a more likely order of magnitude for LVT rate.
Secondly, would "Big Ag" really offer 20x the intrinsic value of the property? Seems unlikely.
Thirdly, who wouldn't be dancing for joy to receive 19x the value of their property in cash (after paying off a possibly hefty mortgage)?
Finally, if you are sitting on land that has economic value but you are refusing to unlock that economic value then yes, LVT is a pressure to sell. That's (part of) the point of LVT.
The rate was, of course, fictitious. Feel free to use a different estimate.
> Unimproved land will be less, of course.
Unimproved land would be more since a higher tax rate is needed to bring in the same tax revenues if you exclude the value of the improvements.
> Secondly, would "Big Ag" really offer 20x the intrinsic value of the property?
To eliminate a competitor? I don't find that implausible at all. They wouldn't pay that much for an arbitrary plot of land, but it's not the land that they're paying for here.
> Thirdly, who wouldn't be dancing for joy to receive 19x the value of their property in cash…?
Presumably the owner who didn't want to sell the land at the ordinary market value in the first place. Maybe it's been in their family for generations, or they just really despise Big Ag and don't want them to get it. Maybe cash just isn't all that valuable to them.
> …then yes, LVT is a pressure to sell. That's (part of) the point of LVT.
And that is part of what is wrong with LVT. Property owners have the right to keep their property no matter who wants it or how much they are willing to offer. Regardless of the reason.
> > Firstly, the tax will be nowhere near 10% p.a..
> The rate was, of course, fictitious. Feel free to use a different estimate.
The scenario fails with a different estimate. If one chooses 1% p.a. then it's even less plausible that "Big Ag" is going to offer 200x the value of the property!
> > Unimproved land will be less, of course.
> Unimproved land would be more since a higher tax rate is needed to bring in the same tax revenues if you exclude the value of the improvements.
Interesting. I hadn't considered that. I'm hard for me to understand the implications. Anyway, you seem to be suggesting 10% of the total property value (including improvements), which is far higher than would occur in practice.
> Property owners have the right to keep their property no matter who wants it or how much they are willing to offer. Regardless of the reason.
Right, so I think your objection is to LVT at all, not this particular strategy of countering under- and overvaluation. That's a reasonable position. I don't agree, but I'm sympathetic. Your particular objection about "Big Ag" buying the family farm seems a too precise and implausible objection to the very vague system I laid out.
(Or intended to lay out. If readers misinterpreted my comment then I take full responsibility and apologise!)
After they do this a few years in a row, the family will be bankrupt from paying property tax and the "Big" firm will be able to buy the farm for less than it was originally worth.
That works fine (and by "fine" I mean it can be implemented, not that it will produce the desired result) if you're managing authoritarian society where everyone is under the government's thumb but anywhere with a shred of democracy will vote out politicians who violate their property rights like that.
Some people don’t view anyone as having a “right” to something they had no hand in creating.
Earth existed, then humans existed: why does any one human have a claim to this finite resource of planetary surface area?
LVT says no human has intrinsic ownership of land, that it is “held in common”, and so no one ought to be able to monopolize the gains of its unimproved benefit. Make as much money as you want by your productive use of the land, or pay the market value if you don’t: but don’t horde it to yourself without paying your share.
I can understand how land value taxation could be interpreted as violating property rights but I can't see how the method I outlined for establishing property values is any greater a violation of property rights.
In both cases if you keep your property if and only if you pay your land value tax! Of course, this method needs some work to be palatable, but that's negligible compare to making land value tax itself palatable.
I’m not against heavily revising the tax code, but I’m not sure a wealth tax is the way to do it. I’d rather we tax the utility of money rather than the quantity (e.g., a billionaire who spends millions on cancer research will not have that money taxed, but one who spends millions on yachts and super cars will pay 90% tax). Society could then vote to determine what things should have high and low taxes.