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Tax Reform My Way – Soak The Super-Rich – They Are Already Soaking Us

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Our tax system is a complicated morass of different approaches to raising revenue (and rewarding some). We tax income (but mostly salary – capital is taxed at a much lower rate). We tax consumption (sales or VAT taxes) but mostly on goods (not services) and with (in Kansas) more exemptions than one can count. We tax wealth but only in the form of real property. Capital accumulation by other means is not taxed at all once accumulated.

The tax reforms we hear about are almost all directed at the income tax. Admittedly, that system is unfair in the extreme. It is however, the only tax that by its progressivity seeks to indirectly tax the accumulation of wealth through salary. While such reform is needed, we need to guard against a system that in the end reduces the tax on the wealthiest by increasing it on the middle class.

I propose a mildly progressive tax on accumulated wealth. Accumulated wealth would include stocks, bonds, commodities, personal property, vacation homes and the like. I would apply the tax to the net value. I would exempt the first $2 million. For every $1 million in increased net worth above that my tax would increase on the margin by 2.5% until it took 30% of what is there.

Sounds draconian? Well, nobody would ever be reduced below a net worth of $2 million (and that would be inflation adjusted). The impact on the really rich would initially be dramatic but would decline as the residual net value declined. My tax would not discourage investment as it applies to the net, which means it only applies if you make a lot of money from the investment.

My tax would certainly reach a lot of money currently not taxed in any manner and used primarily to foster government borrowing. It would clearly reduce the need for this given the potential additional revenue raised. It would almost certainly reduce the indefensible mal-distribution of wealth in this country. It would fall heaviest (and almost exclusively) on the top 1% who hold approximately 35% of all our wealth. I estimate the tax would bring in almost $1 trillion a years for at least a decade.

Implementation would not be that difficult. Investment houses already track most stocks bonds and commodities and report the portion in tax preferred accounts to the IRS today. Expanding that reporting would not be hard or particularly expensive. Tracking personal property, second homes and the like would be more problematic but not an insurmountable challenge. In short, implementation would be no more difficult than that required to track salary.

Is this legal? Well, if we can tax salary at one progressive level, capital at another, real property at another, then I cannot see any real legal impediment to taxing accumulated wealth.

Now, as is apparent from my blogs, I am not a large government fan. In my tax system, the income tax (after rational simplification) would be reduced significantly on the middle so that the whole system could be revenue neutral (or whatever we wanted).

From the left, is this not a more equitable way to raise revenue? From the right - well you will hate the idea The one thing I will bet my bottom dollar on is that you will not see such a proposal from either of the two entrenched political parties. They benefit from the “investment” made by the super-rich in the party coffers each election cycle. Elites look after themselves.

So, what do you all think?

Comments

Eybea Opiner 4 years ago

Why not confiscate all the wealth of the "super rich" and throw them in jail to boot? After all, Bill Gates has not contributed anything to society, nor has Warren Buffet. I would like to be the guy to break down Ted Turner's door and take his stuff. All those Hollywood guys better watch out, too. Le Bron James? Make him play basketball for minimum wage.

What is it in the Lawrence water that makes everyone so envious that they are willing to confiscate the fruits of the labor of other people under the guise of "fairness?" What makes taking anything from anyone fair?

cozy 4 years ago

"What makes taking anything from anyone fair?"

You really just ended your statement with this sentence? Really? How do you think Madoff's fortune was acquired?

scott3460 4 years ago

Of course, taking the value of a person's labor and paying him less than it is worth and calling the difference your profit is a form of confiscation, as well. What make that fair?

independant1 4 years ago

You are going to need sales taxes, both Federal and State, income tax, and a lot of other kinds. It’s a great country but you can’t live in it for nothing. Will Rogers

booyalab 4 years ago

Ok, I'll entertain the idea that the rich don't help society at all. But what harm do they cause? And at exactly what income level do people turn into monsters? So are they decent at $199,999 then start terrorizing small children at 200,000? Or do people turn rotten incrementally? So, say, they stop paying attention to petty traffic rules like yield signs at $100,000, laugh at and begin referring to 5 digit income individuals as "poories" at $150,000, deliberately run over animals at $200,000. I'm just trying to understand this empirically. Someone want to help me out?

ScottyMac 4 years ago

The flat tax is a tax increase on the poor and a tax cut for the rich. Why do you support tax increases?

ScottyMac 4 years ago

You mean to imply the poor don't pay taxes?

scott3460 4 years ago

According to the US Census, the population of the state of New York grew at 3% during the period from April 2000 to July 2009. So, perhaps, New York does not provide a good example.

gudpoynt 4 years ago

You have to admit, your doomsday scenario IS somewhat hyperbole, since the US would not be confiscating property in the same manner or context as was the case with the Soviet Union. Your scant explanation of how the proposed shift in tax burden would end all investment is dubious at best.

gudpoynt 4 years ago

I think you got the author's math wrong. Here's my understanding of what he's saying. If I'm missing something let me know.

He's saying that $2M of your net worth is tax free, after that a progressive 2.5% is applied for ever $100M, up to 30%. So if you had $102M in net worth, your "wealth tax" would be 2.5% of $100M, or $2.5M in cash. If you add $100M to make your net worth $202M, then your "wealth tax" rate would go up by 2.5%, raising it to 5%, and you'd pay 5% of $202M, or $10.1M. If the max is 30%, that is 12 increments of 2.5%, so you wouldn't get taxed the full 30% until you had acquired $1.202 Billion, at which time you'd pay $360.6M in "wealth tax".

You're argument is that one who makes a $100M investment would have to come up with 30% in cash to cover the taxes. That's not the case as I see it. You'd only need the 30% if you had over $1.2 billion, at which point your taxes would be over three times that of your $100M investment.

If you only had $100M (or let's bump it up to $102M for simplicity), and you invested $100M of it in, say, an oil refinery, keeping only $2 in your bank account, then yes, you would be screwed because you'd owe $2.5M in taxes. Of course this also assumes that large wealth holders interested in making large investments would inexplicably become unaware of their end of year tax liabilities.

gl0ck0wn3r 4 years ago

Two words: flat tax.

A progressive tax - particularly the type you outline - is too complicated and creates incentives to find legal methods to reduce one's tax burden. Your plan could be easily avoided by creating an LLC and simply showing losses. Done.

Ron Holzwarth 4 years ago

You need another line:

"And no food to feed the poor."

Flap Doodle 4 years ago

In 2006 the ultra-rich band U2 moved their music publishing business to Holland to avoid paying the taxes that would have helped feed the poor in Ireland.

labmonkey 4 years ago

One thing that is hard for me to fathom... why does the the government and most liberals outside of government act like our money is theirs to begin with... that we are lucky to be allowed to keep what we do?

I agree with LO. What incentive would the rich have to invest their wealth instead of just socking it away into savings? The reason for investing over hoarding is that over time, investing has a much better track record of return on the dollar over just saving it. All this would do is make the rich hoard their money and not invest or purchase big ticket items (which create jobs).

gudpoynt 4 years ago

Despite the recession, there is still plenty of privately owned wealth right here in the US. So why isn't this wealth being invested? And why are so many on the political right convinced that if they are allowed to continue to collect unprecedented levels of wealth (even greater disparity in distribution since just before the great depression) then surely they will invest it any day now? If they're not investing with the surpluses they currently have, why would they be prone to invest an even greater surplus?

The rich ARE saving rather than investing. As we speak. That's what's going on. Just because they have capital to invest doesn't mean that they are going to make risky investments with it. And domestic investments will continue to be risky as long as demand stays low. And demand will stay low until the middle class get's their disposable income back.

Money always trickles up. Always. It will only trickle down when those allowing it to do so have a good idea that even more will trickle back up as a result.

A vast majority of economists agree that the one clear and most beneficial way to stimulate the economy at this point is the extension of unemployment benefits. Why? Because durn near 100% of unemployment benefits will get pumped immediately back into the economy through the purchase of inelastic goods (necessities). People cannot afford to save their unemployment benefits. Analysts have said that every dollar spent on unemployment benefits generates about $1.50 (conservative) to $2.00 (liberal) in economic growth.

Contrast that with the same analyses saying that tax cut extensions for the wealthiest 2% will only generate about 40 cents of economic growth for every dollar spent. Why? Because they're not spending it. They're waiting for demand to go up. They're waiting for a better time to invest.

Continued tax relief for the middle class, as expected, results somewhere in between. Likely, a modest increase in demand for elastic goods (non-necessities, such as new cars, electronics, vacations, etc), a lot of paid down debt and savings (neither of which do anything to stimulate the economy), and modest growth of small business investment.

The argument for somewhat higher taxes on the very wealthy (NOTE: allowing the tax cuts to expire for the highest bracket would result in an increase from 35% to 39.5% -- at salaries of over $2M or more, that's hardly a dictatorial riches-to-rags scenario), is more about tax efficiency than it is about class war. You just don't get much bang for your buck in terms of economic growth by letting so much money linger at the tippy-top of the wealth distribution curve, particularly in a recession.

gudpoynt 4 years ago

"Gov't debt is crowding out investment...."

Splain.

"Not anymore....stimulus ... is going the way of the dodo... supply creates demand."

I've heard a chorus of economists agree on this point (about the efficiency of extending unemployment benefits vs. tax cuts for the top 2%) since the tax cuts became a daily news story. There are plenty of supply-side economics advocates out there (most of them Republican, true), but stimulus having gone the way of the Dodo?.. hardly.

"..first you go work and earn money, then you go and spend it, not the other way around"

1) Clearly, it DOES sometimes go the other way around, for a lot of people.

2) Demand (for a business) == The ability for a consumer to spend. Or... a "supply" of dollars leads to a greater "demand" for goods and services, which leads to a greater "supply" of goods and services. Overproducing a supply of goods and services does not increase demand for them. Duh.

"... if this were actually true, all we would have to do to achieve permanent prosperity is just have everyone not work and collect unemployment benefits!"

1) It's not a myth that a larger percentage of money spent on unemployment benefits will make a faster return to economic circulation than that same money going to an already wealthy individual who is currently (and wisely) refraining from investing in a demand-deprived market.

2) By recognizing this non-myth, I in no way suggest that having everyone not work would lead to permanent prosperity. Give me a break. Pushing a suggestion to a ridiculous and unrealistic extreme, and then pointing out that it, too, would not work, is a pretty weak argument. It's a page out of the Palin Manifesto. I have faith that you can do better.

"Savings is the key to economic growth..."

I agree. But spending is key to economic activity, and a major inhibitor of growth right now is stagnation. And no, spending doesn't have to be foolish and wasteful. If the gov't spends money on unemployment benefits, then a vast majority of that money goes to support suppliers of inelastic goods, and does so usually within a week of issuance. Not only that, it keeps people afloat. You talk about public spending getting out of control, imagine the strain on social services if we cut off the only lifeline for several million of Americans. The unemployed can't simply be ignored. Nor can they simply "go get a job", as there is a huge shortage of them at the moment, which is apparent if you've been looking for one for a while.

The advocates for letting tax cuts expire on the wealthiest 2% are aguing that it amounts to an inefficient (some might say foolish and wasteful) use of resources that could otherwise be better applied, since it's very likely that the wealthiest 2% are not going to re-invest their surplus of wealth, just like they haven't been re-investing it of late.

George Lippencott 4 years ago

Somebody asked my motive. Self defense! If the insatiable demands of the left on here for more and more are not thwarted then taxes must go up and up. If the whining of the right on here that taxing more heavily the poor super-rich - pick one 1.) they will leave; 2.) the economy will be destroyed for lack of investment 3.) they deserve all the money they earned; is honored then either benefits must be cut or taxes increased – for somebody.

To the left who do you want to tax to get what you want (to include the environment, poverty, jobs, recreation, redistribution and so on infinitum)? To the right who do you plan to tax if you can not stop the left? Is it not eerily consistent that the right seems more than willing to cut benefits on the middle to avoid taxes and the left is more than willing to retroactively “means test” benefits on the same middle to protect their every growing program?

Wife and I are squarely in the upper part of the middle middle. Are the wife and I really so paranoid to assume the answer to all the above is the wife and I (and the rest of the middle and upper middle). We decline the honor. The battle is joined!

notorious_agenda 4 years ago

Democrat Dictionary: "Super Wealthy" = "Small Business"

George Lippencott 4 years ago

Not in my book. Top 1% however thye earn it

George Lippencott 4 years ago

Well Larry Native, data is essentially correct. What you leave out is that the top 1 % holds 36% of the wealth. How can it be that they only pay 19% of the taxes if they hold that much of the wealth? Could it be they get preferential treatment on taxes (capital gains) and other tax shelters not worth it for/available to the average bloke? Somebody else can add in the small amount of wealth held by the bottom. Is that because they don’t work hard or because wealth brings wealth? I do have a problem with how little the lower income earners pay. Last time I looked the bottom two cohorts actually pay nothing while the lowest cohort gets a bunch back (EIC). Wanting more when you do not pay for it is an old American pastime

Well LO, I suspect they could sell the stock and bonds they hold and the middle class could buy them with the reduction in their taxes that was part of my proposal. I would love to see the data as to actual investment by the super rich in business ventures. Data I have seen suggests that a lot of their wealth (not all) is invested in non taxed government securities that help those governments provide more goods and services than the revenue they take in from taxes would allow. It is not only the Chinese that benefit from our deficit spending. Some data I have seen suggests that the super-rich, when they invest in business, do so in international companies and the investment goes off shore.

George Lippencott 4 years ago

This I totally agree with! To limited income blogers on this list $250K sounds like a lot. On the east coast (west too) It is chump change

George Lippencott 4 years ago

LO

They are not investing in the US anyway. Tax them progressively in relation to wealth as we do the middle and upper middle. Use the proceeds for the government to invest or incentivize the middle to invest in domestic business. At least something gets done that way

You throw around a lot of theory. Here is George's rule. In a democracy you can not operate in a manner that appears unfair to the majority and survive. Taxes not only must raise revenue they must be perceived as equitable or you will have a true taxpayer's revolt.

Take all the incentive out of the tax system by essentially collecting a set percentage of all income no matter the source (including transfers). Could be flat or it could be progressive as long as there is only one tax rate per income level. No non taxable income - period. No or limited deductions (phase them out so as to not destroy the economy by doing so precipitously. If you want to subsidize something do so through the appropriations system where it is visible.

Employ my wealth tax to recapture all the un taxed wealth accumulated by the super-rich. After a few years the only people who would be super-rich would have earned it the same way as everyone else - no preference as we have had for several decades. My tax proposal would be of limited duration anyway because the accumulation of wealth would be limited in scope so after about a decade only few would pay my tax anymore (phase it out then).

You act as if no one would be motivated by accumulating $2 million coupled with income of up to $350K per year with in existing income tax rates. My earlier blogs suggest additional tax rate steps above that. Kind of similar to pre-Reagan.

Now tell me again how the economy tanked in the fifties and early sixties (pre Johnson)???

George Lippencott 4 years ago

And the world ends. Only the rich can save us

George Lippencott 4 years ago

gudpynt.

My rate is on the margin. At $3M you pay $25K At $4M you pay $150K and so on until you take 30% of the margin above that point. If I did my own math right that would mean 30% on all above $14M. You would still keep 70%+ - until next year.

George Lippencott 4 years ago

Liberty_One (anonymous) replies

Of course. The middle has more money to invest toward their own and their children's future. The super rich have less money period. Much better wealth distribution. 35% of the wealth should not be in the hands of 1% of the people. If capitalism depends on that - let us try something else!!!

independant1 4 years ago

The rich?

The number of U.S. households with a net worth of $1 million or more -- excluding wealth derived from a primary residence -- grew 16 percent last year, according to a new report by the Spectrem Group, a Chicago-based consulting firm. After a 27 percent decline in the number of millionaire households in 2008, the ranks of U.S. millionaires swelled to 7.8 million last year.

And it was an even better year to be an "Ultra High Net Worth Individual," defined as someone with a net worth of $5 million or more. That population grew 17 percent in 2009 to 980,000.

"The nation's millionaires -- together with its Ultra High Net Worth households -- are bouncing back from the recession. Following a sharp decline in 2008, both groups saw their numbers advance nicely in 2009, with the U.S. millionaire population rising to 7.8 million. While still well short of its all-time high of 9.2 million in 2007, this year's growth in the millionaire population is nevertheless welcome news for an economy still working to recover," said George H. Walper, Jr., president of Spectrem Group in a statement.

from - http://www.huffingtonpost.com/2010/03/09/number-of-us-millionaires_n_491942.html

Getting The Things You WantJobs, Work, and MoneyBorrowing and LendingYou and Financial ServicesGetting the Right DealRunning your own Business

How do people get rich? It’s a question with endless answers. Some of the most obvious ways you can get rich are:

•inherit it •win it •marry it •invest successfully in the stock or property markets •develop your talent or skills to the degree that they become highly sought after, or •establish a successful business. The media delights in sharing stories of the few who have fluked wealth through the lottery and sudden Hollywood stardom. But the reality is, getting rich generally requires hard work, discipline, guts and patience.

from - http://www.dollarsandsense.com.au/JobsWorkMoney/how_people_get%20_rich.asp

independant1 4 years ago

worldwide rich

distribution of millionaires in the main regions of the world:

North America – 2.9 million
Europe – 2.8 million
Asia-Pacific – 2.4 million
Latin America – 0.3 million
Middle East – 0.3 million
Africa – 0.1 million

origin of the wealth of the millionaires around the world:

Business / business sales – 37% Wage income – 24% Inheritances – 18% Investments – 10% Restricted stocks/stock options – 9%
Other – 2%

from - http://ww-success.com/blog/index.php/2006/10/16/millionaires-in-the-world/

independant1 4 years ago

from same cite above

If you want to increase your chances of becoming a millionaire, here are some interesting statistics:

61% of millionaires are more than 56 years old, although only 15% of the world-wide population belong to this age bracket 84% of millionaires are married 83% of millionaires have children

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