There was talk about renaming the Krugman thread for this purpose, but that seems to be going nowhere. Besides which, I feel the Krugman thread should be left to discuss Krugman while this thread can be used for more general economic discussion.
Discuss:
- The merits of competing theories.
- The role of the government in managing the economy.
- The causes of and solutions to our current economic woes.
- Comparisons between the economic systems of different countries.
- Theoretical and existing alternatives to our current market system.
edited 17th Dec '12 10:58:52 AM by Topazan
I posted about this before, but the justification for real estate tax goes way back to the idea that states (nations, countries) fundamentally own all land in their territory and grant the right to use it to individuals and businesses. In return for that, they collect a tax. This form of taxation has its roots in the farthest depths of history.
Business valuation (stock shares, etc.) is a much less tangible asset. You can't point to physical objects and say, for example, "This desk chair represents $10 of my company's $10 billion market value."
We don't tax businesses on their net worth anyway, despite corporate net worth vastly outstripping individual net worth. How would that even work? "Each year you must generate free cash flow equal to 5 percent of whatever the stock market thinks your company is worth or be forced to sell off parts of it."
Revisiting this just once more to settle a misconception:
Obviously not and I never said that. It was a private dispute. However, the fact that we're still talking about it is ample proof of the media amplification of the incident, and that is what I am talking about in the context of the broader attacks on him.
Edited by Fighteer on Jan 8th 2021 at 11:16:29 AM
"It's Occam's Shuriken! If the answer is elusive, never rule out ninjas!"Can you do that with your home? My mum's house has part of its value in the view you get out the front window, that view is as much a societal construct as the value of say a patent a company holds.
In the past direct one-of taxes on wealth have been done. Apparently during the world wars there was use of a Capital Levy or "Wealth Conscription". Hell the Cypriot government did it with some bank of Cyprus deposits back in 2013.
I've just had a look and a wealth tax really doesn't seem to be as radical as we've thought, according to Wikipedia 9 countries already operate some form of wealth tax.
Could you please just leave it? You're both going to insist on having the last word and it's horribly off topic.
“And the Bunny nails it!” ~ Gabrael “If the UN can get through a day without everyone strangling everyone else so can we.” ~ Cyran![]()
That is one of my arguments. I don't know if it is a legally sound one, but it makes sense to me. It relates to this
question, and the best answer I have is that real estate, having a fixed, tangible basis, changes value a lot more slowly than the stock market. Jurisdictions typically assess the taxable value of land and buildings annually and charge on that basis.
Obviously, there are historical cases of extreme real-estate volatility, such as in 2006, and those do indeed cause serious problems for tax authorities. I remember the county I lived in frantically lowering tax rates so homeowners (like me) wouldn't get hit with massive bills.
The equivalent for the stock market would be to have some regulatory or tax authority affirmatively state how much each share of each company is worth for tax purposes as of some fixed point in time during the year, and I can't even begin to imagine the clusterfuck that would turn into.
As for wealth taxes, my understanding is that those forfeitures were made directly from "offshore" bank accounts, which are basically like cash sitting under a mattress. They are liquid cash-equivalents and are relatively simple to tax: just debit an account and credit another.
Taxing stock and other intangible, illiquid assets is a lot more complex.
Edited by Fighteer on Jan 8th 2021 at 11:41:35 AM
"It's Occam's Shuriken! If the answer is elusive, never rule out ninjas!"I am under the impression that the argument explained by Fighteer is less about the volatility of stocks, and more about how difficult (if not impossible) it is to ascertain the value of a physical, tangible object, to the profit a company generates.
It has always been the prerogative of children and half-wits to point out that the emperor has no clothesIt's also the fact that the market value of a company is a highly subjective concept that is often not directly coupled to any tangible, physical asset or property. An analogy might be me declaring my net worth to be $1 billion because my family name has vast brand recognition, but having zero actual cash or assets to my name. Do I suddenly owe millions in taxes on my self-assessed value?
It is much more straightforward to levy taxes on the actual exchange of money: individual and corporate income, sales of goods and services, etc.. You can point to transactions and bank accounts and other objective, factual figures to determine the basis for taxation.
Edited by Fighteer on Jan 8th 2021 at 11:45:23 AM
"It's Occam's Shuriken! If the answer is elusive, never rule out ninjas!"Wikipedia's page isn't super detailed, though it does say that Norway at least does include "working capital" like stocks.
I have managed to find a Business Insider article on some of the wealth taxes that currently exist.[1]
As best I can tell they very much do count assets held in country, though the article does note the problem that countries face with people moving either assets or themselves abroad. I've also found something on Norway's one specifically.[2]
It seems like for a wealth tax to work it would require the government to be the one assessing the value of the assets. Which at least in the US doesn't seem possible between the taxpayer-reports-their-own-information-to-the-IRS nature of the US tax system, the IRS not having anywhere near the staffing necessary to do that for all the companies that exist here even if the threshold is set high, and the fact that states trying to do this individually will just cause more tax-burden-related flight to other states.
The damned queen and the relentless knight.Well, for one thing, if the U.S. implemented a wealth tax on stock holdings, the stock exchanges could very well pack up and move to another country.
Edited by Fighteer on Jan 8th 2021 at 12:01:59 PM
"It's Occam's Shuriken! If the answer is elusive, never rule out ninjas!"That's true, but the US tax system has the advantage that it doesn't care where you are, if you are a US citizen you owe tax.
I suspect that one deterrent to capital flight is the existence of a higher rate for assets out of country, if you stash your assets then you'll just end up paying even more.
“And the Bunny nails it!” ~ Gabrael “If the UN can get through a day without everyone strangling everyone else so can we.” ~ Cyran"I’ll restate my question from before, from both a practical perspective and a moral one what’s different about taxing ownership of a plot of land and taxing shares in a company?"
So we are off the financial transaction tax and back to a wealth tax, then? Practically and morally I don't think that there is a difference. Property only exists as a legal fiction established by tradition and law, and US case law, at any rate, has never distinguished between the two insofar as establishing the extent of property rights in this country.
I also don't think that the volatility of stocks is such a barrier, because computers. We can devise algorithms that will calculate the value of stocks and bonds against any price criteria you like, including average market price for the last twelve months before tax day. Tax law already specifies what assets count against taxable value and which do not: that's why you don't have to list your furniture when your property is being assessed.
And the idea that companies would move all there assets to another country to avoid higher taxes has been debunked. In reality, there are no real moral, legal or practical challenges that can't be overcome.
The real problem is economic theory and public opinion: the conservatives will claim that every penny taken away from investors also takes a job away from a real American. It's not true, it's been debunked many times, but this continues to be the justification for Republican tax and spending cuts to this very day.
As for labor theory, go for it. We've had that discussion in the past, but I think that there is still room for a new creative insight or two.
Edited by DeMarquis on Jan 8th 2021 at 12:24:07 PM
I'm done trying to sound smart. "Clear" is the new smart.I do think politically and mechanically a financial transaction tax would be easier to adopt for the US than a wealth tax. (Not easy, just easier.) I was more asking about how much more complicated a wealth tax would be to try gauge whether it's a case of "this is fantastical outside of an absolute meltdown of the entire US economy" or more "current circumstances make an FTT a better shot but things could realistically change enough in the near term to consider a wealth tax".
I think a simple way of avoiding that kind of capital flight would be to have a lower tax rate on US-based assets than foreign ones. I thought at first about a punitive surcharge on assets that are transferred from the US to overseas, but then I realized that that is way too easy to dodge (sell to a foreign subsidiary then transfer back overseas). I don't know how one could stop low-tax state or terriorial governments from just offering tax credits to offset what the federal government is doing, though.
Edited by megarockman on Jan 8th 2021 at 1:30:37 PM
The damned queen and the relentless knight.I too strongly advocate a financial transaction tax before a wealth tax. I am curious how Norway's system works, though. Is it assessed on net worth, change in net worth, or what? Are certain types of assets excluded? If someone doesn't have the cash to pay the tax, do they surrender their stocks?
I could see some kind of tax assessed on gain/loss in stock value over time, so you aren't taxing the basis, only the paper gain, but that implies that people who take losses in stocks would get refunds, which probably isn't what the wealth tax people are going for. It also wouldn't "reclaim" wealth earned before the tax was implemented.
I continue to have a fundamental ethical objection with taxing unrealized capital gains. First, it's not an actual gain until the asset is sold; second, it's double taxation since you also get taxed when you realize the gains. Maybe if the tax subtracts the basis, so you're only getting taxed on how much you earned, not your gross worth, that might at least be a little better, but either way there would be perverse incentives.
In fact, now that I think about it, the worst problem with a wealth tax on stock holdings is that we would encourage rapid trading and discourage long-term investment, which is exactly the opposite of what we want. If we combine a wealth tax with a financial transaction tax... it would certainly be an interesting experiment in dismantling stock markets. That could be a good thing in the end, but it would be leaping into a pit with no idea what lies at the bottom.
"It's Occam's Shuriken! If the answer is elusive, never rule out ninjas!""current circumstances make an FTT a better shot but things could realistically change enough in the near term to consider a wealth tax"
That one.
"I don't know how one could stop low-tax state or terriorial governments from just offering tax credits to offset what the federal government is doing, though."
I've never heard of a state that offered deductions specifically to offset federal taxes, and I suspect that state taxes are too low to act as offsets anyway.
"I too strongly advocate a financial transaction tax before a wealth tax. I am curious how Norway's system works, though. Is it assessed on net worth, change in net worth, or what? Are certain types of assets excluded? If someone doesn't have the cash to pay the tax, do they surrender their stocks?"
I don't know about Norway, particularly, but the original idea by Kenneth Galbraith involved a tax on the purchase of all securities and financial instruments. It's important to cover them all or else people will just shift their wealth into untaxed instruments. The tax is specifically on the money being used to purchase the instrument. It's a sales tax on securities. Ideally you tax all securities at the same rate, and offer deductions as incentives for certain types of investments. Many proposals would tax securitized debt and other "securities of securities" at a higher rate than corporate stocks and bonds, for example. These ideas became more popular in response to the 2008 financial crisis, which centered around securitized mortgages. Galbraith's goals was to reduce speculation as a proportion of the total economy (this was back in the 1930's, in response to the Great Depression).
Some people have proposed a tax on all financial transactions, including the purchase of consumer goods—like a sales tax but only a fraction of a percent, the idea being to spread the lowest possible tax burden across the widest range of taxable activities. I admit the idea appeals to the economic engineer in me, but it would have zero chance of ever passing the Congress.
I'm done trying to sound smart. "Clear" is the new smart.A sales tax on stock purchases would be almost precisely a financial transaction tax. It would have essentially the same effect.
"It's Occam's Shuriken! If the answer is elusive, never rule out ninjas!"Yes, that's what I said. Isn't that what you were asking about? A wealth tax is different—you have to assess the value of all the capital assets of the firm over some period of time. You could take the value on a specific day of the year, or calculate the average value over the course of the previous year, or whatever seems most appropriate (some business taxes are collected by quarter, because certain types of corporations are required to assess their net revenue quarterly). You can use the market valuation as recorded on some exchange, or averaged over a set of exchanges. Weights can be attached to different types of securities, or deductions offered, as incentives to certain types of investment.
People only get tax refunds if they had money withheld over the year and end up overpaying. No one gets a refund for simply losing money.
Unrealized capital gains: well, that's what a wealth tax is. If you have a fundamental objection to that, just stick to the FTT. The idea behind a wealth tax is that it is extremely easy to use capital assets as a kind of unofficial currency—like swapping property, except as easy as pushing a button. Of all people, the wealthy are closest to living without cash: rich people give things to each other all the time, on the understanding that this will be reciprocated in the form of introductions and opportunities. "Hey, you can totally use my chateau this weekend! By the way, can you introduce me to your client?" The rich live in a world of other rich people, and a lot of their relationships are based on what has been called a gift economy (this is one reason why they attend so many parties). Rich people support themselves with loans that are very long term and very low interest (and may never be expected to be paid back)—that's how Donald Trump has survived so long. "If you owe the bank $100 dollars, that's your problem; if you owe the bank $100 million, that's the bank's problem" which they will solve by loaning you more credit. It's well worth it to them, because they can sell the debt.
Remember that high finance operates according to entirely different rules than the rest of us. Two plus two isn't expected to equal four in that world, which is why we occasionally experience depressions and debt crises. This is called "volatility" among economists and one purpose of a wealth or financial transaction tax is to reduce that volatility.
I'm done trying to sound smart. "Clear" is the new smart.We're on the same page about the financial transaction tax. While I certainly agree with everything you said about how the wealthy conduct transactions, I still have trouble with the idea of a wealth tax on paper assets.
The small-c conservative approach to such vast wealth inequality was tried in the mid-20th century and worked quite well: a combination of high income taxes and high estate taxes. The stock market wasn't nearly as ubiquitous back then, never mind automated, so if we reinstate those and add an FTT, we could draw down the coffers of the rich over several decades without causing a massive disruption and without putting unnecessary barriers in front of people who are using their capital wealth to build useful things, which is after all the original justification for it.
This leaves offshoring of wealth as the last big ticket item to account for. I don't know how we'll handle that one without flexing our global hegemony.
Edited by Fighteer on Jan 8th 2021 at 6:49:15 AM
"It's Occam's Shuriken! If the answer is elusive, never rule out ninjas!"Yes, agreed, that is one of the biggest challenges, and it will require a very large scale international tax agreement to pull off. This wouldn't be impossible, the EU is already closer to taxing financial transactions and requiring full corporate disclosure than we are—the US, with our history of libertarian economic policies, is actually the tougher sell. If we could ever get the US and the EU on board, well, that's most of the world's financial transactions right there. Get China to go along and it's pretty much a done deal at that point (we can strong arm smaller economies with the threat of trade sanctions).
Edited by DeMarquis on Jan 8th 2021 at 6:48:39 AM
I'm done trying to sound smart. "Clear" is the new smart.Yes, you get strong armed all the time. In this case that would be a good thing, and a lot of smaller economies might jump on board simply because it makes good sense overall—still tax havens become tax havens because of the benefits of making rich people happy, and something will have to be done about them.
I'm done trying to sound smart. "Clear" is the new smart.Well. Problem is, to regulate tax havens, you would have to regulate the economic giants.
The overwhelming majority of corporations who use tax havens are from the U.S. Good luck telling either Republicans or Democrats to rein them in. And most of the Tax Havens are either European nations (Luxembourg, Ireland, Netherlands and one dependency, The UK with 4 British protectorates and 2 dependencies, and of course Switzerland).
Nations outside of this are some asian nations such as Macau, Hong Kong, Cyprus and Malta. There are of course others (Costa Rica has been considered on broader lists to be a Tax Haven, too.) but the vast majority of the money moves through those aforementioned ones, and they are adminsitrated by incredibly politically relevant figures that have every incentive not to.
It has always been the prerogative of children and half-wits to point out that the emperor has no clothesExactly! We all remember the Panama papers, right? That's why the US and EU have to take this step first, most of the wealth tax evaders come from those two places. In addition to simply passing a wealth tax/financial transactions tax, we will need a treaty to share tax information between nations. That would make it much harder to evade.
Edited by DeMarquis on Jan 12th 2021 at 10:36:12 AM
I'm done trying to sound smart. "Clear" is the new smart.

For the land to exist as a commodity it does require human action, specifically for it to have been incorporated into the territory of a sovereign nation.
That’s before we get to situations where the land literally only exists because of human activity, I’m assuming you don’t get an exemption to your property taxes if your property is on land reclaimed from the sea.
“And the Bunny nails it!” ~ Gabrael “If the UN can get through a day without everyone strangling everyone else so can we.” ~ Cyran