Your point is lost in the extreme corner-caseyness of your example, I’m afraid.
That said, enormous assets that don’t provide income (remember, Warren’s proposed wealth tax comes in at $50 million) are almost by definition useless hoarding of wealth, and it would be much better for the society and the economy if that wealth was put into working, either through the taxes or voluntarily.
Second homes… that’s a different argument.
Your point earlier was that the sale of an asset is of greater use/value than just holding (or hoarding) it.
Yet you don’t apply that to assets like homes.
Chad_Boudreau, how is liquidity academic in the examples I mentioned? It’s in fact a very real issue with predicted and possibly unintended consequences.
And LurksNoMore why are these cases (of no-to-minimal earnings) extreme? Plenty of assets legitimately don’t generate income after the initial purchase, for both regular people and the rich: homes, cars, motorbikes, technology, jewellery, antiques, paintings, yachts and so on. Their value isn’t just economic yet a wealth tax assess them in purely economic terms.
In the case of assets such as company stock, the economic value is often greater than earnings, so you’ll end up with an inability to pay the bill through those earnings, resulting in the effective enforced sale of the asset (if it’s publicly traded) and all the problems that raises. A company’s earnings may vary year-on-year yet the wealth tax is constant. This can impact staff pay or jobs entirely and investment in the business.
Or consider a company like Amazon that is notoriously a low-profit business. In 2017 its profits were $3bn which is less than Bezos’ entire wealth tax bill under Warren’s proposals and of course Bezos would only have access to the portion that represents his ownership of the company. It’s not enough, therefore you end up with asset sell offs if it’s publicly traded and if not…
And I’ll also add the questionable situation of someone effectively being forced to reduce their ownership of their own creation, possibly to near zero, in order to pay such a tax.
Wealth taxes are just another form of income tax, since it’s the income from the asset wealth that is used to pay it, only regular income taxes are linked to the actual income that’s generated, whereas wealth taxes are dislocated from it.
While the tax system is broken, and governments are quite likely not getting the revenue that they should be receiving, the solution is to fix that broken system, simplify it and remove the ways taxes can be avoided and evaded. Then governments should have enough revenue to do what it needs to do. The solution is not to add another incredibly complex, if not unworkable tax that will lead to so many negative consequences.
Your retconning doesn’t change the outcome. They’d have to sell off some paintings.
First, let’s not confuse that term with a “forced sale”, which is a debt collection process enabled by court order. There is no debt or collection involved here, just paying a tax. And a reminder that taxation with representation is not theft.
So, this generic term really amounts to selling off some stuff when the bills go up. It’s sad, but it happens all the time, usually to people who don’t have a net worth over $50-million.
The question then becomes, does this tax inflict undue hardship on most people who’d have to sell off some assets to save it? Here’s the proposal:
a 2 percent annual tax on household net worth on all dollars above $50 million. An additional 1 percent surtax would kick in above $1 billion in income. Wealth is defined in the plan as “all household assets … including residences, closely held businesses, assets held in trust, retirement assets, assets held by minor children, and personal property with a value of $50,000 or more.”
Let’s take a closer as to whether the that progressive tax will send anyone to the poorhouse.
(That was me. Hint: taking an even tinier subset of a tiny subset of a very small number of taxpayers who would be affected by this proposal makes it sound less scary, not more. Moving on…)
Using your ridiculous example, let’s assume a more modest $100-million in paintings to make our indolent heir more relatable to the average American. Bowing to reality a bit, we won’t assume that all the paintings are a complete set, but that half are. All are worth a minimum $500k. All generate $50k/annum in income for our hero, plus the (apparently still) exhorbitant upkeep expenses for the items.
Here comes Warren’s Wealth Tax Act of 2022. What happens? The tax bill will be $1-million, which means one or two paintings (let’s say one). Our hero is not going to break up a complete set, so he sells them from the other half of the collection. With the painting goes a maximum $1000 of annual income, but also all the costs to maintain the item – a wash if not a net gain on annual income.
But of course now he’s worth only $99-million and has to do without owning a painting. It’s unfair and a tragedy, and obviously we can’t let something like this happen!
Foreign buyers. Museums. Americans who are much wealthier than the seller. There are enough options.
So? If the item is some kind of American national treasure, the law could prevent it from being sold to a foreign buyer. Otherwise there’s nothing wrong about them buying items that often weren’t created in the U.S. in the first place.
That’s not what I said at all, I said the purchase of an asset is the important part the ownership is not. I did not advocate for everyone always selling everything they own to buy new stuff, that doesn’t even make sense and is taking what I was talking about to a ridiculous extreme.
Here are some interesting stats:
https://journals.sagepub.com/doi/abs/10.1177/1745691614549773
“I feel like I’m at a firefighters conference and no one is allowed to speak about water.”
My big takeaway from that poll is that those people are not upper management material. They seem to have a really poor grasp on numbers and reality in general. It would be best if their input was not taken into account by the board.
What would you conclude from a poll like this?
Question: How much does the average car cost?
Answer: $5K
Question: How much do you think the average car should cost?
Answer: $2K
Labor isn’t the same kind of commodity as a car. It’s just not.
Hypothetical #1
If my founders shares in my startup company, are worth $300M when Warren applies her wealth tax based on that $300M valuation and I sell enough shares to pay that tax this year…what happens when my idea becomes a bust and the value of my shares falls to $2M a year later. What kind of tax credit do I get?
Hypothetical #2
In commercial real estate, huge properties go up and down in value with every single uptick or downtick in Interest Rates on US Bonds. That’s how the market establishes the value of shopping centers and office building every day. So, because interest rates are ZIRP my properties might be worth a gazillion, but when ZIRP ends they will go back to some natural value. Why should I have paid a tax at the artificial peak paper value?
Conclusion
The effect of this will be that when an asset rises steeply in value it becomes a good idea to liquidate it at once and spend the proceeds (on parties, jet charters, what have you). Is this a good or bad thing for the economy?
My point wasn’t that cars are exactly like people- I could probably come up with some differences if I was pressed on it. My point was that the people getting polled have an extremely bad sense of what they are being polled about. I mean seriously- Spanish people are off by a magnitude of 43x on what a CEO makes. They honestly thought that a CEO makes around $60-$100K?
Secondarily, a ratio between CEO pay and median worker pay doesn’t really make sense. Some companies like Microsoft employ high skilled workers like software engineers and have an overall median salary of $137K and some companies employ a large number of lower skilled workers like Chipotle with with median pay of $19K. Does this mean that the CEO of Microsoft should earn 7.2 times more than the CEO of Chipotle just because that is the ratio of the median employee pay? Apples and oranges. In the table reference, Brian Niccol should earn $120K according to US poll participants, even though he was responsible for the 60% increase in value. Investors rallied behind the stock just because he was hired and they had confidence in him. How do you lure a guy like that away from a competitor if you’re bound by salary controls? Free tacos for life?
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