This seems to ignore the fundamental reason that billionaires don't pay taxes. It's not that governments don't try to tax billionaires. It's that they're able to avoid claiming income when they make money. But following this reasoning, they would likely develop ways to avoid claiming wealth as well. Consider, for example, Warren Buffet's own example of his California properties which have a taxable value well below their realistic market value. Similar sleight of hand would likely be employed (with a few strategically positioned lobbyists having lunch with legislative committees) in order to allow billionaires to minimize their taxable wealth.
The more practical approach, as I understand it, is a tax on securitization of assets: whenever someone takes out a loan against an asset for expenses (which is common among the wealthy to avoid realizing gains), a tax is assessed on the loan value. This makes the tax harder to avoid because it is assessed closer to the actual use of money, which is a documented event. While this may affect the second mortgage and "auto loan" industry, weakening predatory finance doesn't seem like that much of a bad thing.
A wealth tax doesn't need to be perfect to be better than not having one. The wealthy will always have access to the best lawyers and accountants who can find ways to gain an edge here and there. That's o; or at least it doesn't invalidate the approach.
Property tax is a fine example: sometimes properties aren't assessed in an ideal way (and to be fair some states also have very convoluted property tax schemes and credits) but overwhelmingly if you have very valuable property you pay more than someone with less valuable property.
Let's first change the law to not let them borrow against their unrealized assets tax free. In fact the tax to get a loan should be higher then if you sold your shares at a company to discourage this crap. Or limit the total amount or forbid it outright.
Why is it unthinkable to make billionaires generate some income to pay taxes? I pay property taxes on the "unrealized capital gains" of my house, and somehow I make it work.
> I pay property taxes on the "unrealized capital gains" of my house, and somehow I make it work
Is the tax assessed value of your house actually the same or higher as its most recent market value? If something happened that would put your house market value below its tax assessed value, then you typically won't have any "unrealized capital gains" at all.
Somehow I doubt that, it usually lags true market value by at least 3-5 years.
> Is the tax assessed value of your house actually the same or higher as its most recent market value?
Why does this matter? Set an "appraised" value of stock portfolios > $10m, make it like the "worst downturn last 100 years" or something, and it would be more fair than home appraisals, and still generate the money we need.
You don't pay property tax on unrealized gains in your house. You pay it on the appraised value of your house. If you don't like that appraised value, you can appeal it (and many people do), and it often doesn't rise nearly as much as the actual value of the house.
I do pay it on the unrealized gains though! As the value of the neighborhood/property increases, the appraised value goes up and my property taxes go up. This increases my taxes based on the increasing value of a non-income-producing asset.
"An appraised value" could work for companies too! Though, in fairness, for many billionaires the gains are pretty explicit i.e. we know the public stock price or the 409a valuation.
The appraised value is rarely very tightly linked to the actual value of the house. It gets adjusted once in a while, and if it's too high you can bring it down, but otherwise the appraisal tends to adjust with inflation while the house price tends to float relative to it.
I just don't understand how this has anything to do with the wealth tax. It's not an argument against a wealth tax, it's an argument in favor of a specific implementation: what value we're using to calculate the tax.
> It gets adjusted once in a while
It gets adjusted nearly every year for most people.
> if it's too high you can bring it down
No, you can't. Not really.
Personally, my property taxes are about 2.25% on a appraised value that is about 70% of the actual home value. This sounds great, let's use these numbers for a wealth tax.
> It gets adjusted nearly every year for most people.
For inflation, yes. Real re-valuations that mark the house to market are a lot more rare, and tend to only happen when a house is sold.
> No, you can't. Not really.
I have personally done this a couple of times, and all it tends to take is a nice letter explaining why the value is too high. At worst you need to get a new appraisal to support the letter. The value is rarely too high, though.
Property taxes in my area are also relative: the tax rate floats depending on how much the local government needs to raise. The sum of the appraisals for the city is added up, and your property tax is your proportional share of the total amount that needs to be raised. For me, that's usually around 1-1.5%.
This is all to say that property tax is not at all a tax on unrealized gains of your house. It's a tax on an imaginary number that occasionally adjusts to be similar to your unrealized gains, and often even has a rate that floats relative to it.
In the US, the tax code is such that you pay taxes on capital when you've lost capital too, not just on the gains. This doesn't happen with normal wage income hence why it is treated differently. The lower tax rates on capital reflect the reality that you are paying taxes on the losses too.
Tax rates ideally should be flat for all sources of income net of risk, loss, and inflation. To achieve this you either allow deductions for these, which are limited or non-existent in the US, or you lower the tax rates to offset the fact that you can't deduct these.
The tax reduction against income for capital losses rounds to zero for all practical purposes. Long-term inflation losses are not deductible at all in the US even though they can often exceed notional returns.
I haven't heard that you're taxed when you lose money. My understanding was that If I invest $10,000 in a taxable account, lose $1,000, and withdraw the remaining $9,000, I won't pay taxes on the $9,0000 (ignoring transaction fees).
The entire point of the article is about taxing the wealth of extremely rich people rather than income because the wealth is structured to not generate taxable income.
I think there are two considerations here: (1) fairness, (2) good economic policy.
It's certainly not fair to have such a large proportion of power concentrated in such a minuscule number of people.
It's hard to see how it's a good economic policy either. We want there to be capital available to be invested in further economic activities (I think we do, anyway; there are people who would debate that). But we don't want -- and certainly don't need -- so much of it in so few hands. A wealth tax is a way to drain some of that away.
It may be surprising, but wall street firms (for example) don't have a concept of "Unrealized capital gains". They mark to market on a daily basis and book the pnl and pay whatever tax. I know that at Goldman (where I worked) this is almost a religion, and I would expect it is the same at JPM and Morgan Stanley.
One reason the author is probably suggesting this is that there are a wealth of schemes whereby income can be deferred and tax avoided by use/misuse of unrealized gains.
> It may be surprising, but wall street firms (for example) don't have a concept of "Unrealized capital gains".
This is just false in my experience, well atleast for how you've stated it.
It may be true for some particular company but I don't know a single fund that doesn't track unrealized cap gains. Specifically around this time we start to look at how to defer realizing these gains till next year to push off the tax burden until the new year.
I mean, alot of large in the money option trades get written at this time of year just to lock in a price on a position that expires next year. We wouldn't do this if we didn't track unrealized cap gains.
Heck, the single largest impediment to growing wealth is taxes, we fixate an awful lot on the type of tax we pay and when we pay it.
Maybe you can expand on your response as it seems completely false to me that the concept of Unrealized cap gains doesn't exist.
To be clear I wasn't talking at all about buy-side. I was talking about big broker-dealers. They are all MTM as far as I know.
My point was that finance in and on itself doesn't depend on a concept of unrealized gains. It's perfectly possible to devise a system of taxation that just says you have to mark to market and then pay tax on that. There would for sure be complications around how you get valuations for illiquid investments etc.
Broker-dealers often have a short holding period anyway, so the use of MTM accounting is basically a wash and I imagine it's a lot easier than tracking exactly when you bought each security.
Things that banks and financial companies hold for a long time get a lot more care in terms of their accounting, in general.
It is true that they often choose mark securities to market on their balance sheets, and by doing that, they need to put that change in the balance sheet on their income statement. When that happens, in accrual accounting terms, it's income.
Those markings don't create cash, though. In cash terms, they are no different. Individuals are largely taxed in cash terms.
The mark-to-market value is notional, it is not a realizable gain. Having a vast amount of assets is precisely the part of the market where the gap between notional and realizable becomes quite large.
The proposal in the article is to tax wealth at an annual rate of 2%. Not realized gains. Not unrealized gains. Wealth.
Under such a system — unless I've badly misunderstood something — if a billionaire's assets decreased in value over the course of a year, they would still pay 2% on their assets. I can't think of any sense in which a decrease in the value of one's assets would be defined as income.
I have an opinion of the wisdom of a wealth tax, and I could be wrong. Regardless of my opinion, I think it's indisputable that a wealth tax and an income tax are different and that conflating the two makes a debate on the merits much more difficult.
Seems silly to debate a hypothetical tax you extrapolated from a single sentence.
The "billionaire's tax" Biden proposed earlier this year is closer an income tax that also includes unrealized gains and only if there are tens of millions in unrealized gains in that year.
That said: you pay property tax even if the value of your home declines. It's not that crazy.
The whole point of proposals like the one the entire linked article is about is to make it seem like vast sums of money can be raised from seemingly small taxes on a few wealthy people by definining those taxes as an annual percentage of total wealth rather than income. The framing is meant to trick readers into mentally comparing the 2% tax it proposes and the 0-0.5% tax it claims the wealthy are currently paying with the familiar 20-40% or more they have to pay on their own income, when in reality the two are calculated in vastly different ways and the article gives readers no way of putting it in any more meaningful context.
I'd compare the 2% tax to the average yearly gain in the stock market. Based on https://www.nerdwallet.com/article/investing/average-stock-m... it appears that the overage again is about 7% to 10% depending on how you figure it. The rule of thumb that I've heard in investing is 5%.
Therefore, my conclusion is that a 2% wealth tax on the ultra-wealthy on average wouldn't even keep them from gaining wealth; they would just increase their wealth more slowly.
I find the article pretty clear, though brief and not very well written. The actual report it's discussing is crystal clear.
The situation is that the wealthy keep getting wealthier without generating any taxable income. Obviously a minimum income tax rate could not possibly solve this problem unless we also redefine income.
I have a hard time believing that he didn't realize gains on the Tesla stock he sold to cover part of the purchase.
Twitter, the company, took out a loan as part of the financing to help Musk close. That is why Twitter desperately needs to return a profit. Because it now has to service that loan.
Those are different things.
EDIT: For reference it looked like he originally was going to back the loan with Tesla shares—so he wouldn't have to sell. It looks like he abandoned that idea and sold about $15.5B shares of Tesla to finance the deal. Maybe that's where the confusion is from?
https://www.aljazeera.com/economy/2022/10/28/how-elon-musk-f...
He used a margin loan for part of it (you can think of this as extracting money from unrealized gains, but it's kind of different), liquidated shares for part of it (realizing a gain in the process), and will pay interest on that margin loan (realizing a gain for each payment) for the duration of the loan. If he wants to pay off the loan, he will have to realize a gain. The margin loan is effectively tax deferral, not tax elimination.
The most scary aspect of unfettered accumulation of wealth would obviously be the consolidation of power. We're already seeing countries where the wealthiest citizens are saying "Screw this, I'll just move elsewhere, unless you fix those [tax] laws" - and the more powerful these people are, the easier it is to strong-arm politicians. Growth for the sake of growth, and all that.
I think we need to start treating extreme wealth hoarding as a mental illness. If someone has a net worth of more than a $billion for an appreciable amount of time, then they should be locked up to protect the world from their malfeasance and prevent them exploiting yet more people. A possible exception would be when someone inherits a vast fortune, and maybe they should be allowed some time to demonstrate that they are giving away wealth, though obviously a billion dollars is such an obscene amount of money that giving it away is going to take years.
I think we need to start treating indiscriminate internet commenting as a mental illness.
That is: You state that we should treat extreme wealth hoarding as a mental illness. Well, who are you? A mental health expert? Someone with input to the diagnostic manual? Do you actually have a basis for why we should take your opinion seriously? Or are you just some random person pontificating on the net, the same as I would be if I seriously proposed my first paragraph?
Then you advocate, not just treating it as mental illness, but committing them. Why? To protect the world from them. Um, not all fortunes come from malfeasance and exploitation. Save your outrage for the outrageous actions, not for the mere financial success. (Who did Warren Buffet exploit? What malfeasance did he do?)
But you have given us no reason to agree with your overheated characterization of the rich, let alone to agree with your proposed solution.
> I think we need to start treating indiscriminate internet commenting as a mental illness.
The damage caused by indiscriminate internet commenting is negligible (excepting the click-bait magnifying effects of certain social media networks). The damage caused by wealth hoarding is tangible and leads to corporations acting against the welfare of humanity in their pursuit of greed.
> You state that we should treat extreme wealth hoarding as a mental illness. Well, who are you? A mental health expert?
It's concerning that when posed with an opinion, you jump to an Ad Hominem point of view. Who I am is not important, and you should judge my comment on whether it raises an interesting point worthy of discussion or further consideration.
> Who did Warren Buffet exploit? What malfeasance did he do?
I don't know about him apart from what I just saw on Wikipedia, so I can't help dissect which people have been disadvantaged to gain him massive profits. There is mention of him being a philanthropist, but he is shown as sitting on a net worth of $117billion which can surely be put to better use than just him hoarding it.
However, your language indicates that you are trying to pick an argument, despite not actually providing any counter-argument, so I shall say "Good Day to you"
> The damage caused by indiscriminate internet commenting is negligible...
So that was an attempt to point out that, when you make claims like you did, with no supporting evidence, others can also make claims with no supporting evidence. Why should we take your claim seriously, and not mine?
But apparently that was a mistake, because you answered my "claim" as if it were a serious one, instead of a random thing thrown out there with the same structure as your claim.
My point was that anyone can claim that anything is a mental illness. Without something more to back it up, it's just someone pontificating on the internet.
The rest of my post was an attempt to get you to supply something to back up your position, because I didn't get it in your initial post.
> The damage caused by wealth hoarding is tangible...
Yeah? Then state what it is, and demonstrate that the damage is actual rather than theoretical. Don't assume that we all agree with you that it is.
> It's concerning that when posed with an opinion, you jump to an Ad Hominem point of view. Who I am is not important, and you should judge my comment on whether it raises an interesting point worthy of discussion or further consideration.
You're stating that something should be considered a mental illness. My evaluation of that claim depends a great deal on whether you know anything about what is or is not mental illness. So far, it looks like you are labeling <thing you don't like> as <other thing you expect your readers not to like>, with no actual connection beyond that. And that would have just been a bad rhetorical device, except that you went on to advocate locking them up. If you're going to advocate locking up people for mental illness, it matters a great deal whether you are a competent mental health professional.
> I don't know about him apart from what I just saw on Wikipedia, so I can't help dissect which people have been disadvantaged to gain him massive profits.
But, by saying "which people", you seem to be assuming that there are some. But again, you provide no evidence whatsoever, nor even an argument - you just state it as if it must be so.
> However, your language indicates that you are trying to pick an argument, despite not actually providing any counter-argument...
Well, see, my problem with your post was that you didn't provide an argument. You made a massive claim that was completely unsupported. The burden of proof was on you to demonstrate why we should take your claim seriously. You didn't even attempt to do that. My reply was an attempt (apparently a bad one) to point that out, and to try to get you to meet that burden of proof, so that we could have something of substance to talk about.
I think having stronger employee rights such that a company's leadership can't increase their own compensation disproportionately to that of the average employee. A CEO earning 350x the average worker in their company suggests that the worker isn't benefitting from the company's success the same way the boss is, despite them driving the company's value through their labour.
There's nothing inherently being wrong with a billionare, it's the gulf between the median income and their own that is a problem, so making an effort to prevent such people enriching themselves at the expense of increasing their staff's pay might help with that.
As it stands, workers don't have as much rights as they require, so the balance is skewed heavily away from them and towards an absolute minority of wealthy people.
> There's nothing inherently being wrong with a billionare
I disagree. The amount of money that a person can effectively use (or need) during their lifetime is likely to be less than half a billion. The people who have any kind of social conscience would reach their desired amount of wealth and wouldn't want to continue accumulating it as they know it's purely at the expense of other people and invariably the rich person has an extreme advantage in any negotiations. For someone to reach half a billion and then continue to exploit others to build their wealth higher and higher is clearly some kind of sociopath. Therefore, having a billion dollars is a clear sign that millions of people have been exploited by that billionaire.
> I think having stronger employee rights such that a company's leadership can't increase their own compensation disproportionately to that of the average employee
I like that idea, but it would need a way to count non-income benefits too. Also, using a mean average can be greatly skewed by the CEO's package, so maybe a median average would be more suitable.
> When two people enter a trade freely, they both come out richer. How is that at the expense of other people?
Firstly, there's the myth of a "free trade" - that requires both parties to have sufficient knowledge about the deal/product and to have equal bargaining power. That's a very rare thing with Capitalism as the richer party will have much better access to information (and also the influence to bury certain information) and will have a much better bargaining position in any negotiation.
Secondly - even though two parties trading with each other can both obtain an advantage from the deal, that's often at the expense of parties not involved with the deal e.g. I can go and buy cheap groceries at a discount supermarket, and would consider that both the supermarket and I benefit, but that will often be at the expense (or due to the exploitation) of the food producers and workers.
> You sound like a communist.
Thank you, but maybe "socialist" is a more acceptable political term
That’s the thing, though, labor isn’t entering into an agreement “freely”, they are entering into an agreement under economic duress.
You can’t freely consent if someone has power over you, and in a Capitalist system Capital has power over labor. Capitalism is therefore abusive and exploitative, by design.
For the record, I am not, nor have I ever been, a Communist.
That is just plain stupid rhetoric as a talking point. When are we going to start splitting up nations to prevent them from compromising their sanity for reaching multi-billion dollar budgets? Arbitrary caps inevitably run into problems, especially when they aren't inflation indexed.
Clearly there's a substantial difference between an individual and a nation of people.
So, what would you suggest instead of an arbitrary cap? Just carry on and let these individuals continue to destroy the world so that they can continue hoarding more wealth than they can ever use?
It's funny to me the number of people who agree that billionaires should have a significant amount of their money taken from them, but then hem and haw about exactly how we should take their money from them. "We have to make up rules to take the money, otherwise it's unfair!"
I get that otherwise we're kinda just as bad as China, but so many of our laws and tax codes have become so toothless to billionaires without some kind of major legislative reset. And I don't see that happening on its own.
It is actually an interesting report. here's a TL;DR:
- The objectives and scope of the report: The report aims to address the questions of global tax evasion and the effects of recent policies, using new data and research conducted by the EU Tax Observatory and its partners. The report focuses on the issues of international tax evasion and competition by multinational companies and wealthy individuals, and their consequences for government revenue, inequality, and globalization.
- The main findings of the report: The report establishes six new findings on the dynamic of global tax evasion and international tax competition, such as the reduction of offshore tax evasion by wealthy individuals, the persistence of profit shifting by multinationals, the weakening of the global minimum tax, the emergence of new forms of tax competition, the low effective tax rates of billionaires, and the revenue potential of a global minimum tax on billionaires.
- The recommendations of the report: The report makes six recommendations to address the issues identified in the report, such as reforming the global minimum corporate tax, introducing a new global minimum tax for billionaires, taxing wealthy emigrants, implementing unilateral measures to collect tax deficits, creating a global asset registry, and strengthening anti-abuse rules.
- The role and vision of the EU Tax Observatory: The EU Tax Observatory is a research laboratory hosted at the Paris School of Economics that conducts research on taxation with a focus on international tax issues. Its goal is to generate new knowledge, formulate proposals, and contribute to a more informed democratic debate. It also aims to become an IPCC for taxation, providing rigorous and global analysis of different policy options.
The moral reason to tax wealth is because gross (and accelerating) inequity is unfair. We're way past the era of the landed gentry extracting rents from the poors. Err, I mean we should be.
The practical reason to tax wealth is to keep the money moving. Idle capital (hoarding) is its own special badness.
Keep the money moving. Either the wealthy spend their money (R&D, philanthropy, building cool new stuff, ice cream for all) or the people will spend it for them.
People can be envious of the richest percentile when they are simply richer.
They start to look at them with hate only when according to usual metrics, a few become ever more rich while most actually see their wealth level decrease whatever the legal path they take.
This is not good for anyone, because history show that the next expectable step is blood bath, be it through mass repression or cutting heads of the perceived most privileged, a mixture of both being the most likely option.
Thank you for knowing that everyone on the planet has identical ideas in mind of which hard truths you're referring to, and so it was unnecessary for you to specify them or provide evidence as to why they are hard truths.
Taxation does not equal better quality of life for citizens. The only ones proposing this myth are the ones who need more revenue to justify the obscene amounts of debt they leverage with it - and, that's governments.
Government economists say the government needs more tax money. Very convincing.
Instead of making people dependent on social welfare systems, and funneling money to useless bureaucracies, how about we force the billionaires to put that money to use in the markets? Not just stocks and bonds. Most certainly not NGOs/non-profits (they siphon enough public money). Venture capital, urban renewal projects, interests that promote science + discovery.
Things like venture capital, research, and urban renewal projects could produce new technologies and companies (which might help the economy). However, they wouldn't necessarily do much to address inequality.
It's the difference between making a bigger pie and distributing the pie more evenly. As I see it, the best strategy is to try to balance both approaches.
The same governments that created this so-called inequality should receive billions to address the inequality they apparently created? I don't really buy that. And we all know that inequality, from a western perspective, means addressing "equity", which is a fancy term for wealth redistribution, likely along racial/ethnic lines, and not class.
1) They are not government economists, it’s an independent body.
2) With increased tax revenue from billionaires a government could choose to reduce the tax burden of non billionaires and keep total taxation the same.
Not exactly neutral parties in 'we need more tax money' circles.
> 2) With increased tax revenue from billionaires a government could choose to reduce the tax burden of non billionaires and keep total taxation the same.
A big IF ... I don't trust government to lower taxes in any regard.
The more practical approach, as I understand it, is a tax on securitization of assets: whenever someone takes out a loan against an asset for expenses (which is common among the wealthy to avoid realizing gains), a tax is assessed on the loan value. This makes the tax harder to avoid because it is assessed closer to the actual use of money, which is a documented event. While this may affect the second mortgage and "auto loan" industry, weakening predatory finance doesn't seem like that much of a bad thing.