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[McTraveller]

You'd have a hard time selling a tax system in which the ultra-rich can manipulate via fiscal chicanery the tax returns of people who depend on them financially.

Can you elaborate? I'm not sure what you mean here - how would you manipulate this? The tax forms have two entries on them: What was your total income this year, and what is your total wealth?  I also can't see how you'd ever game the system - if you are super wealthy you'd have to falsely make it look like other people have more wealth than they do to be of benefit to the wealthy.  This seems difficult to accomplish - do you have an example?

The initial concept also gets rid of most of GAAP to get rid of nonsense like "paper" losses - basically you can only count real losses in wealth (e.g,. you sell something for less than you paid, or it got destroyed).  If anyone else acquired an asset, that counts as an increase in wealth on their sheet - so you can't just trade assets around to dodge tax or mess with the redistribution.  The formulae are such that even if you did mess with the distribution, it wouldn't reduce your tax burden anyway.

Personally I'd abolish tax brackets altogether and instead establish a function in which tax rates are equal to (1-(federal poverty level/income)^k), for some budgetarily useful k < 1. Let tax rate approach 1 as income approaches infinity.

(EDIT NOTE: I'm not being entirely serious, although step functions are responsible for a lot of economic strife.)

That doesn't work because it's too easy to have "no income".  In my concept you can't hide income or offset it with a loss; whoever gets the income is taxed on it - there is no un-taxable income.

The trouble with a tax rate like you proposed as it still doesn't provide incentive to the wealthy to increase others' wealth - that is, it's one-sided.  One of the goals of my system was to make it beneficial for the rich to increase everyone's wealth to reduce their tax burden.  In a hard-progressive system, the wealthy have no incentive to increase anyone's wealth from a tax standpoint.

[Trekkin]

-snip-

Suddenly I'm confused. If total income is manipulable in my tax plan, how is it not in yours? Particularly since assets can be shuffled around more easily than income to be hidden via staggered tax filings, so manufactured losses give you another way to manipulate your "total wealth."

That aside, though, my point was that, on the poor end, the person in your example getting 12/26 of the distribution doesn't know they're getting 12/26 the distribution instead of 12/25 or 13/27 since they don't know what the total wealth is going to be, and that uncertainty has a cost in terms of their ability to budget. It is, I think, preferable from a kitchen table budget standpoint if everyone can know how tax is going to influence their budget ahead of time insofar as their income can be predicted by making their tax burden dependent on their income alone.

[McTraveller]

-snip-

Ahhh... ok yes.  So when I say things are based on wealth I'm assuming it's either everyone evaluated at the same time (to avoid that staggered crap) or based on an annual average.  Also, I was envisioning - though I never said so understandably how would anyone know? - a system where depreciation or changes in wealth do NOT count as income loss.  This is more like personal income - if I earn $50k in a year, but my car breaks and I have to buy a new one, I don't get to count the loss of the personal vechicle as an income deduction.  In the proposal I have, it would reduce your wealth, but not income.

As for the gaming the denominator in the fraction - yes that would all basically be deferred by a tax year, so you knew what you'd be getting in distributions the next year.

So there are several points - the incentive to increase others income, just not your own, as well as making wealth losses no longer be able to offset income.

I bet if we all combine these ideas we'd have something that is cool but totally something no legislature would ever enact...

[wierd]

Hmm.. There are two discrete forms of wealth.

1) capital liquidity based wealth (eg, what grows without limit in the banking system. Amusingly, this also covers owning other people's debts.)
2) Physical commodities in excess of those required to stay alive or perform a vocation. (You know, things like yachts and caviar, pearls, diamonds, and the luxury of a full hired domestic staff for your 20+ mansions. Also all those rental properties that Orange Idiot is so fond of.)

I would propose a 4-quadrant assay to determine a "real wealth" value, based on the current "lowest poverty extant" baseline.


Actually impoverished or low-income people will naturally also have fewer luxury goods (careful, some expensive items can be manipulated to be luxuries, but they might not be. For instance, an entry level coder, or even a college student with crippling debts, might own some high powered computing equipment. Care needs to be taken to ensure that "neededness" covers vocational requirements as well as baseline existence/viability requirements (food, shelter, medical care, et al). Likewise, they will also have the least total capital liquidity. (nearly all of their wealth is tied up in physical objects; many struggle to own their own home, and it is a major investment for them.

We could take the lowest value holder, and put them at the zero point at the bottom left of a 2-axis graph, with "% physical commodities owned as luxuries" as the vertical, and "% of capital as free capital" as the horizontal axis.

We could then grade and plot every citizen on where they sit on this metric, with absolute distance from the zero point being what determines your "Wealthiness" score.  The absolute wealthiest would score very high on both metrics, and would be in the far right upper corner of the scatter.

Armed with such a "floating unit" "wealthiness" value to grade on, we can construct a coherent progressive tax.

Hiding investments or ownership of properties (My 1mo old son owns all those properties Your Honor! Honest!), or trying to disguise capital wealth as debts (Got 30 million dollars?  Want a sweet deal? Come to my bank, and I will lend you 60 million, on condition you make a non-interest rated long term deposit of that 30 million, and keep it there for 10 years!  WOW, look how quickly you just turned 30 million into a 30 million debt! Of course, you play golf with the board of directors for a major bank, because you are fucking loaded, and so can get such absurd deals quite easily, but what's a little fiscal manipulation between friends?) would need to carry some pretty intense punishments of course.

[Reelya]

I don't think you need the two axes, that's just over complicating things. Large assets have a market value, so you can factor that into the main wealth Axis. A yacht is a liquid asset since there is a clearly-defined marketplace for yachts. so yachts really aren't any less liquid than real estate or stocks. In any case, if you want to get currency instead of those assets, you need to work through a broker or marketplace to find a buyer for all those things.

A lot of smaller assets have no resale value, for example if you bought "$5000 worth of books" then if you tried to sell them, you might only get 5% or 10% of the retail cost. Poor people tend to have more of these types of assets rather than e.g. yachts, where merely buying a yacht doesn't instantly devalue it by 90%.

If you're going to add a second axis, it would probably be better to split that into cost-to-replace value vs current market value, rather than the two types of assets that rich people own (financial assets vs physical assets).

[wierd]

It covers a useful dodge.

"I will purchase, and hold 5 million units of your product for 30 days at a market critical period for you, after which I will re-sell them back to you at cost." (AKA, I am willing to give you free wearhousing services (and let you pad your sales figures early in a product launch!), in exchange for being able to dodge my taxes.)

If the cost of warehousing a valuable durable good is less than the cost of the excise of the tax, it would be very popular indeed.  The second axis prevents that.

[Reelya]

So Sanders is saying we need a 70 (or is it 77?) percent inheritance tax.  Now, regardless of your feelings on inheritance tax, what makes me scratch my head is, how do they come up with these numbers?  It doesn't seem like those numbers are based on any kind of closed-loop control to achieve some outcome, but are merely arbitrary or targeted to reach a revenue target or something.

Because inter-generational inheritance is the key contributor to creating a "useless class" similar to the slack-jawed English aristocracy. America had such high-tax laws in the past precisely because the Founding Fathers desired to avoid creating an embedded aristocracy. Actual aristocratic nations in Europe lack such high inheritance taxes as liberal nations did, because they are run by and for the aristocrat's benefit. Such laws have little to do with revenue raising: there are much better sources of revenue-raising than inheritance tax out there. They are everything to do with shaping the type of society you want to live in that gives everyone opportunities, not just luck of the draw for having the "right" parents.

These laws are designed to level the playing field on a per-generation basis, such that success for each generation is merit-based rather than accident of birth. By only giving the child a percentage of their parent's wealth, they're still mega-rich, but this now requires them to get off their asses and work if they desire to become as rich as their parents were. The seed-line of the slackers will eventually recede back to "normal" wealth levels, leaving more room at the top for those with intelligence and drive. High inheritance taxes are therefore more conducive to maintaining a meritocracy among the elite.

Here's a thought-experiment on the topic: How high should inheritance taxes be? Well, one way to look at that would be to see how a multi-generational family would fare under different laws.

Imagine someone inherits 1 billion dollars, and the inheritor is the laziest person imaginable. They stick the money in an investment account, then live off part of the interest. Meanwhile, the rest of the interest accrues in the account. If, that person ends up with more than $1 billion dollars (inflation-adjusted) to pass on to their children, you perhaps have a problem here: a family was rewarded with an ever-growing share of national wealth while contributing literally nothing to anything. Probably, the tax system should be set up to make such laziness harder.

[Dunamisdeos]

bleh bleh bleh taxes bleh

This is actually all very interesting to me, joking aside. Carry on please.

[wierd]

So Sanders is saying we need a 70 (or is it 77?) percent inheritance tax.  Now, regardless of your feelings on inheritance tax, what makes me scratch my head is, how do they come up with these numbers?  It doesn't seem like those numbers are based on any kind of closed-loop control to achieve some outcome, but are merely arbitrary or targeted to reach a revenue target or something.

Because inter-generational inheritance is the key contributor to creating a "useless class" similar to the slack-jawed English aristocracy. America had such high-tax laws in the past precisely because the Founding Fathers desired to avoid creating an embedded aristocracy. Actual aristocratic nations in Europe lack such high inheritance taxes as liberal nations did, because they are run by and for the aristocrat's benefit. Such laws have little to do with revenue raising: there are much better sources of revenue-raising than inheritance tax out there. They are everything to do with shaping the type of society you want to live in that gives everyone opportunities, not just luck of the draw for having the "right" parents.

These laws are designed to level the playing field on a per-generation basis, such that success for each generation is merit-based rather than accident of birth. By only giving the child a percentage of their parent's wealth, they're still mega-rich, but this now requires them to get off their asses and work if they desire to become as rich as their parents were. The seed-line of the slackers will eventually recede back to "normal" wealth levels, leaving more room at the top for those with intelligence and drive. High inheritance taxes are therefore more conducive to maintaining a meritocracy among the elite.

Here's a thought-experiment on the topic: How high should inheritance taxes be? Well, one way to look at that would be to see how a multi-generational family would fare under different laws.

Imagine someone inherits 1 billion dollars, and the inheritor is the laziest person imaginable. They stick the money in an investment account, then live off part of the interest. Meanwhile, the rest of the interest accrues in the account. If, that person ends up with more than $1 billion dollars (inflation-adjusted) to pass on to their children, you perhaps have a problem here: a family was rewarded with an ever-growing share of national wealth while contributing literally nothing to anything. Probably, the tax system should be set up to make such laziness harder.

I hate to be a shitlord, but thats not an answer to his question.

He wanted to know what method was used to derive that percentage; Is it based on some arcane but perfectly sound economic theory--- or is it just some politicians "gut feeling" value on what will be most effective.

[Reelya]

The earlier part of my post was directed at the statement "merely arbitrary or targeted to reach a revenue target or something". They were showing that it's not arbitrary, it has a clear policy goal.

The rest of my post was presenting a rationale for why you'd pick a specific level, especially the last paragraph. You want a level at which some idle rich people aren't just getting richer and richer per generation.

I laid out the basis for choosing a number already, but you can plug more detailed numbers into those assumptions to get an actual figure. For example, if you assume a return on investment of 3% over inflation (a figure i got by googling "average interest rate on investments 2000-2020" which gave me a 5% return and assuming 2% base inflation), and that a typical modern generation length is ~35 years (purely based on the fact that wealthier people typically have kids later, but definitely before 40) after receiving their inheritance, then 1 billion will be 2.81 times larger (already inflation adjusted) by the time the next generation inherits it. So, each generation would be able triple as rich as the last one purely because they stuck their money in some investment portfolio. An inheritance tax of about 67% would in fact put that family in a steady-state of actual wealth over the long term, unless they did in fact get off their assess and do more than the bare minimum to earn more. And the numbers I've put in there (3% pa adjusted growth in investment value and a 35 year gap between generations) were basically the first approximation figures I came across rather than hand-picking them to match Sanders policy recommendation.

[Reelya]

3%? These days you could muster up to 10% without accruing much risk.

Yeah, but the point was to prove Sanders point with some fairly conservatively-chosen numbers. Even at 70% inheritance tax, the "reference family" of lazy billionaires will keep getting richer compared to everyone else, even if they merely stick it in bank account that accrues a 5% return rather than invest it carefully as you've suggested. At 10% returns, and assuming 2% inflation, so 8% real growth, if you taxed an inheritor of $1 billion 80%, he'd be back to $1 billion (more actually, but inflation-adjusted as 1 billion) within 21 years. So, that family could procreate a new generation every 21 years, pass over all their wealth, pay out the 80% tax each time, yet still grow ever-richer for eternity - despite doing no other productive work and generally being a drain on resources.

Hence, the reason that these suggested inheritance-tax figures sound so excessive. They take into account compound interest.

Personally, I'm not in favor of having a separate inheritance tax. I think it would be better to reform the income tax system and count inheritance as income, while closing loopholes. There are too many loopholes with inheritance tax that make it easy to dodge.

[McTraveller]

I think those examples show that an inheritance tax still does not do anything to address any kind of issues like wealth inequality or the incentives of the ultra-wealthy.  It is just kind of a damping effect or speed bump, not a structural change.

I suppose such a tax change could be part of an overall systematic approach, but it won't have any meaningful effect in isolation (now, it will have a large media effect, yes...).

I'm somewhat opposed to taxing disbursements from foundations or trusts as income, because there's very little difference (mechanically) between that and taxing a withdrawal from a savings account.  I get taxed on the interest I earn on my savings, but I don't get taxed (other than sales tax) when I write a check.  So why should withdrawing from a "fancy" savings account be any different?  Just because I envy the size of that savings account?

Now don't get me wrong - I want systems that minimize abuses, but I don't think arbitrarily treating different sizes of accounts differently is the way to go; I'd rather have a system that uses the same exact rules for everyone but in a way that has better incentives.

[Frumple]

Eh, I'm struggling to not respond with just a "fuck that". You're going to have a hell of a time, if it's possible at all, to make a ruleset that applies to every one exactly the same without either fucking over the people at the bottom or functionally doing fuckall to the people at the top. You can't really get around that when you're dealing with both cases where, say, 30-50% taxation means they're omnifucked and cases where the folks involved can lose 70+% of their everything and barely have any substantial impact on their lifestyle (and not because they already have sod all). You kinda' need progressive taxation schemes and whatnot, and to not treat people with wildly different circumstances the same.

Any case, we could probably stand some speed bumps and dampening effects at the mo', at the end of the day. Probably wouldn't hurt, give a bit more leeway to hammer other things out.

[scriver]

Just tell your rich folks to move to Sweden, we don't tax rich people at all any more

[Frumple]

We tax citizens abroad anyway, heh. Seem to recall there's even something for expats.

Though I guess if it'd make them feel better while still getting their share out their pocket, then whatev', let 'em go. Smaller region to rummage through if we need to find them, if it comes to it...