I was a little worried, are there any colorable constitutional problems with such a tax? If so it would be extremely vulnerable unless we de-pack the Supreme Court.
Oh hey, an LA Times explainer yesterday. The argument against it seems to be based on zombie doctrines - there is a 1983 ruling saying "Congress' power to tax is virtually without limitation." But I fear any argument, even a bad one, could get five votes at this point.
You have a constitutional amendment specifically for income tax, right?
The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration.
Returns on capital can therefore be taxed. Super straightforward.
But the question is: Can the capital itself be taxed?
It doesn't seem clear that wealth = income in the meaning of the 16th Amendment, but the 16th Amendment itself was in response to an 1895 Court decision that itself isn't followed anymore (even if it formerly may have applied to taxes other than those encompassed by the 16th).
Somebody on Twitter says yes, so I'm sure it can be.
So you make it an income tax- assuming people that rich are getting at least 2% nominal return annually you just make it a 100% income tax on income equal to 2% of their net worth.
Opinionated 16th says income from any source; returns on capital are income; you tax returns on capital at a rate progressing based on the size of the capital held by the taxpayer.
Just tax the income above $1b at a rate of 1000%. Next question!
Capital Gains taxes are legal. I wonder whether, if necessary, you could set up the wealth tax so that it was recorded year to year but paid when assets were sold (or transferred to a trust, foundation or estate).
16: That's more straightforwardly income from non-employment sources, I should think.
16: Why would you want to do that?
Comprehensive treatment of the constitutionality question here. And they conclude it's constitutional. I'm sure they're right, but I don't think it's so open and shut that five hack justices couldn't go the other way. It's still good law (from a 1920 case) that Art. I sec. 9.4 bars a federal tax on unrealized capital gains, and as recently as the Obamacare case the Court described taxes on personal property as the kinds of "direct taxes" that Art. I 9.4 requires be apportioned among the states based on population (though that was by no means a holding, of course). The linked article argues--persuasively!--that the 1920 decision was wrongly decided, a relic of the Lochner era. But surely that kind of thing is enough of a hook for mischief by five justices who want a reason to rule against a wealth tax. Even if the tax were written, like 12/14 suggest, as an income tax, there's nothing to stop them (other than a sense of shame, which they do not have) from seeing through that if they want to badly enough.
Not a lawyer, but I wanted to understand this better, so: I read a bunch of that Ackermann paper referenced in the LA Times, and other pages on the Hylton and Pollock. It seems pretty conclusive. To the Founders, as expressed by the Justices in the Hylton case, the only "direct taxes" (and thus exposed to the anomalous apportionment rule) were capitation and taxes on land. This was because the "direct tax" clause was a compromise in line with the three-fifth clause, to make sure the South, rich in slaves and not-very-productive land, wouldn't be taxed by the North so excessively that they would want out of the Union. In fact, in the Hylton case, Hamilton, arguing for the government, was willing to expand his original position and consider a more expansive view of "direct tax" that included any tax on wealth, but the Justices did not agree with this. This is what makes the Pollock decision so extraordinary.
In the years before Pollock Congress did issue apportioned real estate taxes and non-apportioned taxes on financial wealth. So arguably, there could still be some issues here if the goal is to have a tax of total wealth irrespective of its form, but I'm sure that can be worked around.
16: Why would you want to do that?
Only if it was necessary to resolve the question of constitutionality, but I'm going to hope that potchkeh's link is correct and that this isn't a concern.
But is there any particular reason to tax wealth instead of income? Don't the two almost always go together?
22: To put 23 another way, because high incomes have been insufficiently taxed for so long we can't bring back balance without adding some focus to accumulations, as opposed to just flows.
(Also: the Jubilee!)
23 -> 22. Someone might be sitting on a huge estate that they get only a comparatively small amount of income from; that gives them a significant amount of power, even if they choose not to use it (or choose to use it in a way that they don't receive much direct, consumable financial benefit from; compare retained earnings). At the extreme, that's an intolerable inequality.
Income changes hands, wealth doesn't. You don't want the gold sitting under Erebor, you want it circulating through Dale, Esgaroth, and Greater Mirkwood.
Haven't read the proposal, but couldn't this be evaded easily by converting wealth from one form to another?
Don't mind me. Just trying to bring the discussion down to my own level.
24 and 25 make sense. 26 seems idealistic. Lately, income changing hands has meant more income flowing from the masses to the wealthiest.
27: There isn't really a concrete proposal, but as previously bruited, this wouldn't be a tax on bank accounts - it would include real estate, trusts, etc. It would require a new form of IRS return to account for all assets and debts.
I suppose some people could be in a position to split up wealth among multiple family members. Lots of uncharted territory.
In Piketty's Capital in the 21st Century, he expresses a desire that there be a regime of tracking all significant wealth. This is useful not just to allow a wealth tax, but so that the government and researches have a much better idea of the state of economy. He even proposed a negligible wealth tax (like, $25/head for the median American) on everyone to bolster a system of regular reporting of wealth. Sure, some wealthy people will try to hide their wealth by converting it to a form that the government doesn't know about (e.g. not real estate, and not financial instruments in reputable brokers) but they'll be committing crimes, and the government will get better at enforcement over time. There's probably going to be complex issues with tax havens, but then that gets into Zucman's research about what regular countries can do to limit their influence.
29: Public spending is income to the recipients.
Bold prediction re 32: Public discussion of wealth tax and bitcoin prices will be positively correlated.
34: I'd expect cryptocurrency mining to be heavily regulated or illegal, enforced by monitoring electricity usage. There's also the issue that at some point, bitcoins will need to be transferred into usable assets that can be monitored. Both the transfer into bitcoin, and away from it, will have to be explained at tax time, unless those other assets are also off the books. Tax evaders would be creating a money laundering problem for themselves, which I suspect most millionaires can't or don't want to deal with. Tax havens might be involved, but the major economies could put high taxes on transferring assets from known tax havens.
As an economist, I would support a police state that monitored every single economic activity so that I could write terrific papers. I'm not sure that's a sufficient public policy purpose, though.
I have now been widely quoted in the media here calling for Monero to be made illegal. This was because a reporter asked a hypothetical question, and I answered "Governments could make Monero illegal."
35: KYC (Know your customer)/AML (anti money laundering) rules already apply to all crypto exchanges, and in theory all trans in-and-out of crypto are treated as asset sales/purchases for taxation. The machinery has to be worked-out, but the rules (at this point) are clear. Or so I have been assured by someone I trust on this subject.
On reflection, I don't want to know. Thanks.
Its like bitcoin but actually anonymous, instead of "everybody thinks its anonymous but really it sprays a trail of your financial breadcrumbs all over the internet."
16: Have you thought about how that would work if the assets weren't worth enough at time of sale/transfer to pay the accumulated tax? There's a similar issue with AMT on stock options that a bunch of unwary engineers got caught out by in the last tech boom, when they were part of an IPO that later crashed and burned before they were allowed to sell their stock.
Ah yes, from this options primer:
What can go wrong? Say you have 20,000 stock options at $5 per share in a stock which is now worth $100 per share. Congrats! But, in an attempt to minimize taxes, you exercise and hold. You wipe out your savings to write a check for $100,000 to exercise your options. Next April, you will have a tax bill for an extra $1.9 million in income; at today's tax rates that will be $665,000 for the IRS, plus something for your state. Not to worry though; it's February and the taxes aren't due until next April; you can hold the stock for 14 months, sell in April in time to pay your taxes, and make capital gains on any additional appreciation. If the stock goes from $100 to $200 per share, you will make another $2 million and you'll only owe $300,000 in long term capital gains, versus $700,000 in income taxes. You've just saved $400,000 in taxes using your buy-and-hold approach.
But what if the stock goes to $20 per share? Well, in the next year you have a $1.6 million capital loss. You can offset $3,000 of that against your next years income tax and carry forward enough to keep doing that for quite a while - unless you plan to live more than 533 years, for the rest of your life. But how do you pay your tax bill? You owe $665,000 to the IRS and your stock is only worth $400,000. You've already drained your savings just to exercise the shares whose value is now less than the taxes you owe. Congratulations, your stock has now lost you $365,000 out of pocket which you don't have, despite having appreciated 4x from your strike price.
I am 99.9% sure there is no way this could happen to me (largely because the possible numbers in my personal financial wading pool are orders of magnitude lower, unless reality dramatically changes), but it does have a Pascal's-wager quality that makes me nervous every time I think about it.
Have you thought about how that would work if the assets weren't worth enough at time of sale/transfer to pay the accumulated tax?
I did, but they add even more unnecessary complications if we believe that a straight wealth tax is constitutional.
Speaking of unnecessary complications -- there might be value to being able to declare a "speculative assets" tax-privileged account (handled like an IRA or similar) in which the assets would be exempt from the wealth tax, but would have higher capital gains tax on sale. So you could buy $1B worth of bitcoin, declare it as speculative assets, and not count it as wealth (but pay more if it actually goes up in value). We could bring back the tradition of rich people investing in films as tax write-off . . . (by which I mean that if people made drastic changes in behavior just to avoid the wealth tax that would be a sign that the implementation was flawed).
We could just cut to the chase and pass a law that says the government can take any amount of your money/assets/organs it wants to at any time. The Constitution is written in funny old language and phrasing: it could mean anything! Larry Tribe says so! The workings of economics, like those of Relativity, are complex and optional, anyway.
Irrelevant anecdote about my magic beans: almost two years ago my company got a new round of private equity funding, which resulted in a tender offer to buy up options at a price P (between $5 and $10). I did not sell off any of my dirt-cheap options, but a lot of my colleagues did. Three months later, I got another (smaller) grant with a strike price of P. I couldn't stop thinking about how pissed I would have been to sell the cheap options, pay the income tax on the sale, then have the equity firm sell me my own options back for a much higher price, and I briefly felt very smug. The end of this story is, of course, that the real options are the things you do or don't do to fight climate change and deal with the refugee crisis: I was offered those at a significant discount and sold them for a private-equity-funded tech job, which will eventually sell them back to me at a much higher price that includes eternity in hell.
You also have to count the friends you've met along way.
Indeed, Moby, I was riffing on that well-loved cliché. I know it's unsporting of me to set up my own punchline, but in this case it was morally unavoidable.
I'm just upset that I've never even had an options.
I can barely even get paid for a third of my pooping.
But your cheap house and home equity!!!
I am concerned that if I go, under cover of darkness, over to the vacant lot down the street and put a sign behind the No Trespassing sign that says URBAN MONEY FARM - NO HUMAN DWELLINGS ALLOWED, I will get in some kind of real trouble. I'd actually get a kick out of raising an occupation force, but because it's across the street from my kid's school it would need to be an extremely G-rated squatter community.
It's cheap, but if people sing show tunes, it's not big enough.
But seriously, you're fine, you appear to be doing socially valuable work and I sincerely believe you will come out ahead of me in particular financially, as will most commenters here. I just thought the story about almost being screwed by my own employer was darkly funny and yet horrible.
I'm still deciding how valuable what I'm doing now is.
I dropped the "Trump found out that the real wall is the friends you make along the way" joke on my family and now they think I'm hilarious.
Oh hey you know stuff about options? Can I play everyone's favorite game, get financial advice from the internet? I'm getting my first options ever next month but the company price is at an all time high so good chance they'll never be worth anything (even though they have some implied value- I'm owed $X worth of options so the implied price determines the number of options I get. I guess it's based on something that sounds like a bad maritime object?) Is there a way and is it legal to buy options in the opposite direction so that I'm guaranteed some fixed value whether the stock goes up or down?
Can you just sell them back upon receipt?
If you buy stock and short the same amount of stock, you can make sure you lose the transaction cost and keep the rest.
Good question, don't think so because nominally they are supposed to be an incentive for everyone to make the company do better. We also get RSU grants with the same idea but at least those have a guaranteed non-zero value except in the case of bankruptcy.
If there's a bankruptcy, the guaranteed value is even higher than zero?
I thought if an option had a negative value, you would just not exercise it.
That's correct but part of my pay package is being given the options with a nominal value assigned to them. So I can't technically lose money, but my contract is to get paid $X base salary Y% target bonus and $Z target value in options and stock grants. If I can actually lock in $Z at its nominal value instead of holding the risk it would be nice.
I just get one salary. They don't even separate out the part for paid time pooping.
I was trying to come up with a backronym, but I had started with the ones that include "S."
Fecal Outcome, one would hope.
That's good. But it occurs to me that FICA is a deduction from your gross pay, not income.
Occasional Allowance for Shitting, Distributed Inequitably.
They call it gross pay for a reason.
OT: Is there an actual song with the repeated lyric "I could be Jewish for you"? Asking for a friend.
Money Enabling Deuce, Including Complete Anal/Rectal Evacuation
As long as it's an actual song, I think my friend will be O.K.
I just thought the story about almost being screwed by my own employer was darkly funny and yet horrible.
I work for a nonprofit and last month, for the first time since I started working there a few years ago, I got an end of the year "please donate" solicitation. I can't tell if development failed to keep their contact lists organized or if organization really thinks people are going to offer up what are essentially voluntary salary reductions.
"the organization"
Anyway, my financial projection given my age, expected salary if I continue where I am, and local cost of living, has led me to conclude that i need a new job. I'd be ok with a higher salary even without the ability to "exercise my options" on company time.
https://www.youtube.com/watch?v=c4AOHdaTVBY
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NMM to Michel Legrand. Wrote a ton of great film scores among many other things.
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Let Myanmar be a lesson to us all:
A certificate of special honor was awarded to U Aung Ko Win, chairperson of Kanbawza (KBZ) Bank which has topped the list of taxpayers for seven consecutive years.
78.last:. Except in the short run, it's not really optional.
82: true, it's a biological imperative. But some companies still try to get out of paying you for that time.
81: I am sure the Myanmar army paymaster was truly grateful for their help paying out the performance-related burning down villages bonus.
56: Theoretically, if there was an active options market in the same company's stock, you could try to write a public call option for the same terms as the company option and pocket the premium you got paid for the call. (Writing a call means getting paid a premium in exchange for putting yourself on the hook to deliver the stock in the future if the other party pays you the option price. The idea would be that if they exercise, you would exercise your company option at the same price and give them the stock). In practice it's not going to work. Between differential tax treatments, having to satisfy the requirements to write a call in the first place, and the fact that you won't be able to replicate the terms of the company option exactly (good luck writing a public option that gets cancelled 30-90 days after you quit or get fired from your job) means that you probably won't be able to make money doing this, and could expose yourself to significant risk.