How to implement wealth taxes
February 7, 2019 2:48 AM   Subscribe

The opportunity cost of firm payouts - "It is reported ad nauseam, when people point out that the US did very well under the high top marginal tax rates that prevailed from World War II through the 1980s, that those high rates were rarely paid. People bring this up as though it was some kind of policy failure. No, it was then and would be again quite the point of the policy. The purpose of very high tax rates at very high incomes is not to generate revenue. It is to make costly the practice of making payments to people who are already very rich relative to other things the payers could do with their money, and so reduce the opportunity cost of doing other things."

The case for more tax brackets - "Moreover, every company has to decide what to do with its revenue, and how to divide it among its workers. There's no point to paying the CEO and top management many millions if the government will just take it all. And it wasn't just the income tax that was damming up the flow of money to the top: Capital gains taxes were higher too, as was the corporate income tax. But that flow of money through companies doesn't just disappear. It still has to go somewhere. And the massive compression in inequality we saw circa 1960 suggests that where the money went was back down the income ladder. This isn't a question of government taxing more and then handing out the cash. It's a question of different tax designs forcing the job market to send the money elsewhere. And the more tax brackets you have, the more precisely you can redirect that flow."

A Wealth Tax Is Better Than Some of the Alternatives - "Warren's plan to tax those with wealth of $50m at 2% would affect 75,000 people and would raise about $275 billion a year = 8% of Federal revenue. Not a bad idea @Noahpinion argues. And a heavy inheritance tax would be even better."

The case for a higher estate tax - "Critics say it's a double tax, but that's largely not true for the biggest estates. For estates > $100 million, about 55% of the assets have never been taxed before. How is that possible? Well, unrealized capital gains held till death are never taxed. The heirs get a step-up in basis. In other words, if it weren't for the estate tax, over half of the wealth of the super-duper-rich would never be taxed."

Okay, Super Bowl is over, time for a thread on how to tax assets - "Tax stuff is one of the things where outsiders are like 'lol the old tax code is like a dinosaur, it needs to be revamped by my One Weird Trick'. But the taxes that have survived are much more like sharks, products of a really long evolutionary process. They've spent a long time up against the political, administrative, and economic challenges and survived, outlasting other experiments that were tried and failed. A wealth tax on venture capital or closely-held business would be short-lived if it ever got off the ground."

How to tax the rich - "And how to limit the economic damage."

The curious case of the missing wealth taxes - "If ability to pay matters, levies on wealth should be as ubiquitous as on income."

How would a progressive wealth tax work? - "In this paper, we discuss the merits and demerits of progressive wealth taxation in light of the international experience and economic theory. In short, a progressive wealth tax focused on the ultra-wealthy (households with more than $50 million in net wealth) could raise substantial revenues and the economic incidence of the tax would lie overwhelmingly on the richest families. After defining what a progressive wealth tax is, in section 2 we discuss issues of tax avoidance and evasion; in section 3 we discuss the real effects of wealth taxation on the economy; and in section 4 we make concrete proposals to administer a progressive wealth tax effectively in the United States."

So there's this meta-conversation about why Democrats are now comfy talking about dramatically higher taxes - "I think there are basically 3 main reasons: 1. Piketty, Saez, & Zucman's research; 2. The rise of the left, from Occupy to AOC; 3. Boring liberal wonk opinion."

also btw, what is wealth?
  • Anand Giridharadas: "Never underestimate the defensiveness of very rich people who believe they're progressive and who are willing to give back in any way they can — except by surrendering any of their privileges, advantages, or immunities."
  • Securing Our Borders With the Cupertino Wall - "The new NIMBY mayor of Cupertino made an entirely tasteless joke about building a wall around Cupertino and then making San Jose pay for it in his State of the City address."
  • "Wealth, therefore, according to them (The Tartars), consisted in cattle, as according to the Spaniards it consisted in gold and silver. Of the two, the Tartar notion, perhaps, was the nearest to the truth." --Adam Smith, Wealth of Nations, Book IV, Chapter 1
and speaking of opportunity costs...
  • The Global Legacy of Quebec's Subsidized Child Daycare - "With more than two decades behind it, the Quebec program that spawned an affordable child care model has some lessons for the rest of the world."
  • Policies to promote affordable housing - "Increasing housing availability should involve more than just allowing more housing to be built on a parcel of land — it should involve strong incentives to build more units quickly... The first is a land-value tax. This is basically an increased property tax with exemptions for construction and other improvements. The idea is to force urban landowners to use it or lose it — if they don't develop their property, they would simply be taxed for holding unproductive land."
  • A more important task than making San Francisco more affordable - "Reviving cities like Cleveland, Youngstown, St. Louis, etc., as well as uncountable small cities most people haven't heard of."
posted by kliuless (43 comments total) 99 users marked this as a favorite
 
The case for a higher estate tax - "Critics say it's a double tax

I've never understood this argument. All tax is double (or more) tax. When I buy something, my income has already been taxed, but I'm still paying sales tax. The company I buy from is then taxed on its profits, or they pay what I spent out as wages, where they are taxed again, so that the cycle can repeat.

I'm taxed on my income. If I then pay my money to someone else, they are again taxed on that income. Why should it be different for payments arising from my death instead of their work? I got taxed on it, and then I die, and they get taxed on it. How is this different to me getting taxed on it, then paying it to them where they'll be taxed on it again?
posted by Dysk at 3:35 AM on February 7 [25 favorites]


Reasonably, wealth should be taxed at a much higher reset than income to discourage hoarding and encourage that money to contribute to the economy. I’m sure it’s more complicated than that in practice, and I’m wary of “obvious things” in complex systems, but...
posted by GenjiandProust at 3:52 AM on February 7 [10 favorites]


I was fascinated by this article in Bloomberg about this exact subject and big show business names finding ways to avoid taxes, etc. Particularly, this stood out, regarding Bing Crosby

In about 1942, Crosby received a mandate to live on a mere $25,000 (half a million in today’s money). He was earning close to a million, yet always had to hustle to pay his taxes. This fact encouraged him to perform hundreds of troop shows, here and abroad, and to turn down all paid concert appearances, as the money would only go to the government anyway.

In other words: yes, working exactly as planned! Bing would rather essentially do charity work (perform for the troops for free, possibly the thing that did more than anything else to make him a beloved entertainer) than take paying gigs, since he would only see 10 cents of every dollar of his paid income anyway.

This is exactly what left anarchists have always been saying: people can just do stuff, we don't need to threaten them with homelessness to motivate them. In fact, after a certain level of comfort, people would rather work for free than small amounts of money. This makes perfect sense if you believe in the marginal utility of wealth. Obviously, Bloomberg is not trying to make this point, but you'll often see apologists for ownership accidentally make cogent left arguments.
posted by LiteOpera at 5:30 AM on February 7 [41 favorites]


The purpose of very high tax rates at very high incomes is not to generate revenue.

This may be true. The question of whether the positive distributional effects of top marginal tax rates or the revenue generated is the primary goal is a philosophical one: both generating revenue for public goods and shifting the distribution of income to a more equitable on are positive things. But it's worth noting that the numbers currently thrown around are pretty close to economists' estimates of the revenue-maximizing rates, which seem to be somewhere in the 70-80% range.

There's also a pretty simple Econ 101 argument that the revenue-maximizing rate is the correct rate for the very wealthy. Take the case of Dwayne "The Rock" Johnson. He makes about $10 million per movie, plus various other sources of income, for an annual income on the order of $50 million. The marginal utility of a dollar to The Rock compared to any non-rich person is effectively zero, so any transfer of wealth from anyone else to The Rock is effectively a dead-weight loss from a social utility perspective. On the other hand, people like The Rock's movies, so there's some social utility in not taxing him at 100% so that he continues to make movies, but how much to tax him? Well, if we live in an Econ 101 world where efficient markets correctly value all goods and services, then by definition, having The Rock get paid $10 million to appear in a movie creates precisely $10 million in social utility, exactly off-setting the deadweight loss from transferring $10 million from less-rich people into The Rock's pocket. But then the government comes in and takes some percentage of that money as taxes to go build bridges or otherwise provide public goods (or even just cut taxes on less-wealthy people). That means that the net social utility of paying The Rock to appear in a movie is exactly equal to the taxes The Rock pays.

Or to put it another way, at current rates there is no trade-off between redistribution and revenue. There's hardly even a trade-off with economic activity. We would have to get significantly above the 70% number currently proposed by AOC and others before we would need to have a conversation about whether we want to maximize revenue or redistribute wealth.
posted by firechicago at 5:35 AM on February 7 [6 favorites]


Holy moly, what a post. I don't know if I can read all this, but I sure am favoriting and bookmarking it to use as a resource or citation in the future.
posted by entropone at 5:39 AM on February 7 [5 favorites]


Absolutely, when people say rich folks will John Galt out and stop working if they can't make over 10,000,000 without a 70% tax, duh: no. They'll keep doing exactly the same amount of work one person (no matter how exceptional) can and put the money back into their companies. Thus pumping it into the economy and (just maybe) actually paying people below them.
This is still going to be one hell of a fight.
posted by es_de_bah at 6:20 AM on February 7 [8 favorites]


How is this different to me getting taxed on it, then paying it to them where they'll be taxed on it again?

maybe status quo bias and (hidden) predistribution, which MMT also helps address?
posted by kliuless at 6:42 AM on February 7 [1 favorite]


I'm not understanding how modern monetary theory makes the idea of "double taxation" make sense in an estate tax context, when there is no more doubling going on there than with any other tax? Like, you've just linked a giant picture of a bunch of categorisations of cognitive biases without any context as well. Help me out here, what are you trying to say?
posted by Dysk at 6:47 AM on February 7 [1 favorite]


Great post, thank you! I'm only through the first two links so far but they are great explainers!
posted by aka burlap at 6:48 AM on February 7


The case for a higher estate tax - "Critics say it's a double tax

I have always felt a useful compromise to appease the anti-taxxers would be eliminating estate tax on amounts under, say, 10 million for beneficiaries who are not already wealthy. It's a once-in-a-lifetime benefit, not a recurring dividend. To a struggling family, losing a big chunk of that windfall while billionaires dodge taxes so easily would sting terribly.

Also, no taxation on lottery winnings and your first home/car purchase - again, proportional to existing personal wealth.

Minor concessions like this would make progressive tax brackets much easier to sell.
posted by CynicalKnight at 7:07 AM on February 7 [4 favorites]


10 million is not a minor concession in my book. 1 million would be a lot. 100k would be more palatable. Per inheritor, of course. Very steep taxes beyond that to compensate for the freebie, also.
posted by Dysk at 7:12 AM on February 7 [6 favorites]


The current limit before Estate taxes in the US is $10.9 million per married couple
posted by fullerine at 7:12 AM on February 7 [15 favorites]


Guess all the anti-taxxers should be appeased and getting progressive taxation introduced should be a doddle, then.
posted by Dysk at 7:16 AM on February 7 [7 favorites]


those high rates were rarely paid. People bring this up as though it was some kind of policy failure. No, it was then and would be again quite the point of the policy.

This is partly true, but (admittedly I'm going to risk saying this without having read the full article) there's also the point that we had more generous deductions back then, so that part of it was fewer high payouts, but part of it was also a more narrow definition of what a payout was. This does not fatally undermine the argument, but it should be taken into account.
posted by praemunire at 7:54 AM on February 7


10 million is not a minor concession in my book. 1 million would be a lot. 100k would be more palatable. Per inheritor, of course. Very steep taxes beyond that to compensate for the freebie, also.

Not when everything over 10M is subject to the "Let your spawn earn their own fortune if they're not worthless" tier of 100%. Gotta get the horded money of a dead man back into circulation to keep inflation down. Remember, they're just borrowing those USD denominated notes owned by the Federal Reserve. Taxes are the vig.
posted by mikelieman at 8:25 AM on February 7 [3 favorites]


Isn't inheritance tax just a red herring? I thought that basically if your estate was large enough to get taxed it could easily afford to not get taxed.
posted by Pembquist at 8:54 AM on February 7 [5 favorites]


nothing seems more complicated than taxes, except perhaps death.

Though that said, an accountant friend (who was a tear-it-all-down sort of anarchist when we first met about thirty years ago) is of the opinion that all such complexity only serves the already rich and powerful, because they can afford better accountants. His solution that he's pretty sure would put him out of work:

A. Set a basic survival (with some degree of dignity) baseline income (say $15,000 for sake of argument). No tax paid on the first $15,000 you make.

B. Beyond that $15,000 -- you pay 25-percent on the dollar.

And that's it. Make a billion dollars in a year (plus 15 thousand), you pay $250,000,000 in taxes, but still get to bank $750,000,000. Make $16,000 -- you pay $250 dollars in tax and get to bank $750. The rich pay more without being "incentivized" to make less. The poor don't pay anything. The in-between pay something. The nation continues to function because it's getting enough revenue.
posted by philip-random at 9:11 AM on February 7


That's a flat tax.

We basically have that, except it has several steps, which are flat within bracket. And calculating the tax is literally looking up a number on a chart. It is not complicated.

The complication comes from defining and tracking what counts as "income".
posted by Pogo_Fuzzybutt at 9:53 AM on February 7 [17 favorites]


I have always felt a useful compromise to appease the anti-taxxers would be eliminating estate tax on amounts under, say, 10 million for beneficiaries who are not already wealthy. It's a once-in-a-lifetime benefit, not a recurring dividend. To a struggling family, losing a big chunk of that windfall while billionaires dodge taxes so easily would sting terribly.

Also, no taxation on lottery winnings and your first home/car purchase - again, proportional to existing personal wealth.

Minor concessions like this would make progressive tax brackets much easier to sell.


This is what makes these conversations so frustrating. We've already made all these concessions, and all the GOP has done in return is push the Overton window further right. The U.S. doesn't tax the first $10 million of inherited wealth. When the tax was eliminated during the Bush years, Dems offered concessions pushing that exemption as high as $100 million, and the GOP still refused to budge. At the $10 million threshold, you're talking about hundredths of a percent of the population, fabulously rich people whose wealth is largely comprised of asset appreciation that wouldn't otherwise be taxed. These aren't folks handing down the family farm; they're beneficiaries of decades of rampant undertaxation and wealth hoarding.

Meanwhile, your lottery winnings are INCOME. If it's the only income you make in a given year, then by gum, you pay no tax on the first $12,200 of it, and the marginal rates apply the same way they apply to everyone else. Home sales aren't taxed; if it's your primary residence, you don't even pay capital gains on the change in value of the house when you sell it.

There are two ways to manage the redistribution of wealth from the extraordinarily-rich to everyone else. One is progressive taxation. The other is guillotines. I know which one I prefer; do you?
posted by Mayor West at 10:15 AM on February 7 [17 favorites]


So much of effective wealth-rebalancing taxation is looking at what counts as income, and what is exempted. Because having a progressive tax regime ('progressive' in the sense of marginal rates of taxation increasing with income) will be severely limited in what you can achieve if you've exempted the kinds of income rich people have from it (capital gains/investment income, property sales, mortgages being deductible, etc, etc).
posted by Dysk at 10:26 AM on February 7 [2 favorites]


Guillotines it is!
posted by youthenrage at 10:42 AM on February 7 [11 favorites]


This is what makes these conversations so frustrating. We've already made all these concessions,

You can tell how many people are impacted by estate taxes, by the fact that most voters don't even know these concessions were made already. They have swallowed a bunch of inaccurate soundbites, and they'll never have any reason to learn any more, because they aren't inheriting a fortune.
posted by elizilla at 11:31 AM on February 7 [9 favorites]


Wealth taxes are an interesting idea and worthy of exploration, but would be very complex to administer and could have unintended consequences.

Estate taxes though are just a simple and obvious policy. In the UK we pay 40% tax on estates worth over £325,000. Pretty sure the rest of Europe is the same. The idea that you get the first $10m dollars without paying any tax is crazy. Who is this policy designed to protect? Those poor souls who only have $7m in the bank?

These Americans are crazy.
posted by greytape at 2:01 PM on February 7 [9 favorites]


>Those poor souls who only have $7m in the bank? <
One has to assume the struggle is real...



;)
posted by twidget at 2:09 PM on February 7 [1 favorite]


Meanwhile, your lottery winnings are INCOME. If it's the only income you make in a given year, then by gum, you pay no tax on the first $12,200 of it, and the marginal rates apply the same way they apply to everyone else.

One thing I learned about Germany is that your lottery winnings are not taxed, no matter the size of the jackpot, but it whatever is left is 100% taxed upon death, which I guess is a good way to keep people from hoarding lottery winnings. (That's so few people though, million dollar+ winners have to be what, maybe 1000 people per year?
posted by LizBoBiz at 2:49 AM on February 8


I'm not understanding how modern monetary theory makes the idea of "double taxation" make sense in an estate tax context, when there is no more doubling going on there than with any other tax?

just what was already pointed out -- The complication comes from defining and tracking what counts as "income". -- but in an oblique manner :P status quo bias just implies what counts as "double taxation" isn't a firm rule as much as what is commonly accepted -- just like the idea of "redistribution" (or the whole tax system for that matter ;)

so like the example of how wealthy folks can avoid income taxes by generating 'income' from their wealth by taking out (tax deductible) loans instead. like large parts of the financial services 'industry' is pretty much shifting the definition or classification of cash flows!

MMT helpfully reminds us that all this originates from government -- money supply (multiplied through the financial system) -- and comes back to it through taxation (consolidating treasury and central bank balance sheets). what constitutes "double taxation" along the way is semantics!
posted by kliuless at 10:37 AM on February 8


also btw... posted by kliuless at 10:56 AM on February 8


Social Welfare, Income Inequality, and Tax Progressivity: A Primer on Modern Economic Theory and Evidence
The economic literature on “optimal income taxation” addresses the question of how to design tax and transfer policy so as to maximize “social welfare,” which is some function of the well-being of all members of society. It clarifies how the social-welfare-maximizing policy depends on one’s philosophy of distributive justice, and on empirical evidence about the behavioral response to incentives, and thus provides a systematic way of evaluating the tradeoff between equity and efficiency. Here, I explain the key insights of the optimal income taxation literature in a way that should be accessible to those with a familiarity with introductory economics. Next, I present evidence on inequality in economic well-being the U.S., how it has been changing over time, and to what extent tax and transfer policies reduce inequality. I then consider different possible explanations for rising inequality, and discuss why different explanations may have different implications the efficiency costs of taxation.
posted by kliuless at 11:14 AM on February 8


The wonderful world of net wealth taxes (where they still exist) - "A levy used all too rarely could remedy 40 years of policy neglect."
A notable exception is Switzerland, where revenue from wealth taxes has risen in step with the increase in wealth, and which now generates almost twice as much as a share of national income than it did in the 1990s, according to the OECD.

There is a lesson to draw here, not just for the US but for European countries. The evidence shows that net wealth taxes can generate modest but not insignificant amounts of tax revenue even with low rates (as in Switzerland) or very high exemption thresholds (as in Warren’s plan). If countries without net wealth taxes are at all interested in their tax systems being responsive to the shifts in incomes and wealth that have happened since the 1970s, they should at a minimum look at (re)introducing wealth taxes. But all countries should also note that net wealth taxes have the potential of raising much more revenue than this — by combining Swiss-style lower thresholds with Warren-style rates. That sort of revenue could be used to lower, for example, income taxes on ordinary labour earnings.
posted by kliuless at 5:49 PM on February 9 [3 favorites]


"Estate taxes though are just a simple and obvious policy. In the UK we pay 40% tax on estates worth over £325,000. Pretty sure the rest of Europe is the same. The idea that you get the first $10m dollars without paying any tax is crazy. Who is this policy designed to protect? Those poor souls who only have $7m in the bank?"
Farmers, who often wind up with $7 million worth of land but $7 in the bank when they die.

Farmland is worth silly amounts of money and its almost a joke that farmers in the US are "land rich and cash poor." So when Grandpa farmer dies and wants to leave the family farm to one of his kids, that doesn't work if the government is getting a big cut. The business that is the farm almost never has anything close to the cash necessary on hand to pay a tax and, without protections, what happens is just coherent farms that make good business sense getting cut up to pay Uncle Sam until they no longer make business sense. Everyone loses if farmers, and family owners of similar asset rich but revenue poor small businesses, get targeted by taxes like this.

The high upper limit serves as a, not entirely redundant, extra protection to other ones that do things like specifically exempt farmland. What we want to avoid is, for example, the fucking insane inheritance laws in Belgium that don't have effective protections, ensuring that the only businesses that last get sold or go corporate.
posted by Blasdelb at 2:48 AM on February 11


I don't really see what's so insane about Belgian inheritance tax? But then I don't think being a relative makes you any more uniquely qualified or entitled to run a dead person's company (or farm) than you are to take untaxed ownership of their fortune...
posted by Dysk at 3:16 AM on February 11 [2 favorites]


Last time I looked at the research, there are no credible cases of family farms being lost due to the estate tax in the United States.
posted by postel's law at 4:06 AM on February 11 [5 favorites]


I don't really see what's so insane about Belgian inheritance tax? But then I don't think being a relative makes you any more uniquely qualified or entitled to run a dead person's company (or farm) than you are to take untaxed ownership of their fortune...
Farms being the canonical example for why we want relatives to be able to take over family businesses, its pretty easy to see how growing up on a farm could make you profoundly and uniquely qualified to run it right? A farm will obviously be run better by someone who trained their entire life to operate that specific piece of land in that specific context, who knows the deeper history of the land, and who can then train the next generation to run it after they come back from university. There are some kinds of wealth that absolutely should be generational where possible, given the value that deeper kinds of time than just one working lifetime adds. At least in the US, there are still a lot of businesses in addition to farms that benefit from this because we allow them to persist with tax laws targeted exclusively at the ultra rich whose generational wealth has negative rather than positive impacts on the economy.
posted by Blasdelb at 4:57 AM on February 11


A farm will obviously be run better by someone who trained their entire life to operate that specific piece of land in that specific context, who knows the deeper history of the land, and who can then train the next generation to run it after they come back from university.

I come from a very rural farming background, and that describes exactly none of the farm kids (now adults) I know. Yes, someone who's been training all their life to work a particular piece of land would be better suited, but in the modern world, that just isn't the reality of how family farms operate anyway, at least in much of Europe.
posted by Dysk at 5:20 AM on February 11 [2 favorites]


(I would have much less of a problem with inheritance tax exemptions on long-term employees of small family firms inheriting the company, with the exemption based kb the length of employment regardless of familial status. I just think the idea that "child of businessperson = same kind of businessperson" doesn't hold today. My uncle left his shipping company to his long-time lieutenant, not his kids. I know a mechanic who inherited the shop from his old boss - no family relation. Every farmer I know got their farm in a similar way, or is looking at leaving it to an employee instead of our jointly with the farmers' kids. We're a long way from your parents' job dictating what you do, and I just don't think it's a workable proxy for insight, experience, and skills - which are what your argument is really about - in this day and age.)
posted by Dysk at 5:28 AM on February 11 [1 favorite]


A farm will obviously be run better by someone who trained their entire life to operate that specific piece of land in that specific context, who knows the deeper history of the land, and who can then train the next generation to run it after they come back from university.

This doesn't seem so obvious to me. It's like proposing that aristocrats or noblemen and royals would govern best because they've been accustomed to having power and getting their way their entire lives. It could be true in any given specific case but it's not a firm enough correlation to elevate being an aristocrat or growing up on a farm as the determining favorable characteristic.

My (U.S.) perception is undoubtedly colored by having relatives who grew on farms but who just repeat the farming and farming-regulation-related political crap they see on Fox News, which turns out to be bullshit when I go and actually research it in real sources of information about agriculture. I'm sure that there are particular farm-related chores they did when they were kids which they could do well again, but those practices might well be obsolete and the experience does not seem to automatically extrapolate into broader acumen or sophistication regarding farm business or agricultural knowledge.

So I don't think the bit I quote above is a valid assumption, but there certainly could be other reasons to make tax laws preferential for genuine family farms, especially if combined with other policy measures.

German English-language documentary from last week about cutting-edge farming technology, most enjoyably including a giant mechanism like a slide projector carousel which is filled with cows to be automatically milked.
posted by XMLicious at 5:31 AM on February 11 [1 favorite]


I come from a very rural farming background, and that describes exactly none of the farm kids (now adults) I know. Yes, someone who's been training all their life to work a particular piece of land would be better suited, but in the modern world, that just isn't the reality of how family farms operate anyway, at least in much of Europe.
My understanding is that somewhere around half of American farmers inherited their land, which is the result of intentional policy protecting family farms in exactly these kinds of ways.

Also, to qualify for the 'special use valuation' that functionally exempts non-ridiculous amounts of farmland from estate taxation in the US, the person inheriting it must have materially participated in the farm business and must continue farming it as farmland for 10 years. There has got to be clever protections that would allow this to work for non-family members to be able to inherit too without turning the scheme into a farm-themed money laundry for the ageing wealthy.
posted by Blasdelb at 6:39 AM on February 11


The business that is the farm almost never has anything close to the cash necessary on hand to pay a tax and, without protections, what happens is just coherent farms that make good business sense getting cut up to pay Uncle Sam until they no longer make business sense.

No, they don't need special protection, they need better financial planning. There are all kinds of life insurance products that are sold specifically for estate planning purposes like estate taxes, and they're not that expensive, especially when bought before say age 55, and even cheaper than that if it is a joint last survivor policy. Wealthy people use these products all the time for that reason.
posted by LizBoBiz at 6:45 AM on February 11 [1 favorite]


Notably, if we were to pull this rug out from under US farmers, in 2012 62% of them were 55 years old or older and it is likely a larger percentage now.
posted by Blasdelb at 7:22 AM on February 11


Please stop using farmers as a broad class to defend high estate tax thresholds.

Stick with me here, because the dates are important.

1. When the CBO looked at this in 2000, before we went and hugely raised the estate tax caps, etc., there were a mighty 5308 estates of farmers considered per year. (This is using an extremely generous definition of "farmer", as the report notes. Even with their stricter definition, 40% of the estates had no farm assets!) Some of these paid no tax, etc.
- Median value: $987k.
- Average: $1 814k.
- 95th percentile: $3 182k.
So: note that the median farm fell entirely under the cap. No tax! (Also note: since small estates don't have to file, the median and average of all farms would be way, way, way lower.) Even the average farm fell almost entirely under the cap.

There were exceptions, of course (that rather proved the rule), and those were trotted out by anti-tax proponents at every opportunity.

The estate values would be notably higher now due to inflation (+40 to 50% wouldn't be a bad guess).

2. There are already deductions for family-owned businesses (QFOBI, which I think covers up to $2 500k now).

There are already methods specifically for helping family farms lower the calculated estate value (you're allowed to use the "special value" instead of the fair market value).

3. Tax Policy Center's 2018 report, using the new 2017 rates, estimated that all of about 80 small farms and closely-held businesses would pay any estate tax. The exemption basically doubled in 2018 due to the Tax Cuts and Jobs Act, so today's number would be much smaller.

So: one might argue a number of good points: perhaps things that the old estate tax system should've been better indexed to inflation, like it is now. Etc. But it's a real hard argument to show that small or family farmers as a whole were being much hurt by the old estate tax. It's trivial to argue that the current caps and rates only benefit extremely, extremely wealthy farms.
posted by introp at 8:07 AM on February 11 [8 favorites]


The Swiss town that taxes its wealthy without scaring them away - "Zug takes only a small portion from its richest residents but the revenue is significant."
It is admittedly a very small portion that is confiscated: with a top marginal rate of 0.3 per cent, each additional SFr1m ($997,000) the richest Zug residents put in the bank incurs an annual tax bill of SFr3,000. But the tax starts at a low threshold and it has to be paid year in, year out. The revenue is significant. Heinz Tännler, Zug’s business-embracing finance minister, told me the wealth tax accounted for about one-fifth of Zug’s tax revenue from personal taxation. And it is higher in other cantons; in Geneva, a 1 per cent top marginal rate means every additional million owned will set its wealthiest residents back SFr10,000 per year.

Switzerland is such a useful case study of the wealth tax because it achieves in practice something that in the abstract would seem impossible. Simple theoretical arguments about taxation and incentives suggest that a tax on net wealth should have at least four negative effects. The first is that it discourages the accumulation of wealth. The second is that it scares away the wealthy. The third is that, as a result, it encourages tax jurisdictions to undercut one another to attract wealthy taxpayers, which results in a race to the bottom. Try to have a wealth tax, in other words, and you will soon be forced to bring it down to almost zero. And the fourth is that a net wealth tax puts obstacles in the way of entrepreneurs and other taxpayers who may have high net worth but little income or cash flow — and who may find themselves forced to liquidate assets to pay the tax.

The fact that Switzerland, which on the face of it suffers from none of these problems, can sustain a net wealth tax suggests all four worries are exaggerated.
posted by kliuless at 6:36 AM on February 12


Swiss solutions to wealth tax conundrums - "Why the levy on fortunes is as enduring as the ultra-democratic nation itself."
Why do Swiss cantons not engage in a race to the bottom on wealth taxes to attract wealthy people? This was one of the big questions on my mind when I went there last week to explore...

One reason why these differences can be maintained is that while it is easy to move within Switzerland, the cantons are not always substitutable. Culture, other policies and family roots all influence where people choose to live. Just think of the difference between living in a French-speaking or German-speaking place...

That leads to another reason: the cantons need the money. That creates an effective floor to tax competition.

A third reason, several people told me, is that the wealth taxes are in fact popular. They have existed for so long that they are accepted as a normal part of how things work. According to one tax expert, wealth taxes have been around longer than income tax, and a referendum in their favour would certainly be triggered if anyone tried to remove them. There has been no political debate in Zug on the place of wealth taxes in the tax system, according to Tännler...

Switzerland provides guidance on one further challenge. A serious objection to the wealth tax is that some wealth is illiquid, so cash-poor taxpayers may face tax bills they do not have the income to pay. A particular worry is entrepreneurs, who may not even be taking out salaries but find their start-up company valued at a large amount based on the venture-capital funding they receive.

Swiss tax authorities bend their system to address such issues. Zug, for example, uses tax rulings to protect owners of start-ups from wealth taxation until the companies are listed on public stock markets. The use of tax rulings, however, is a slippery strategy, which can clearly allow for more unhealthy tax competition than first meets the eye by letting the very rich agree lower valuations with tax authorities. A transparent set of rules is always preferable.

Robert Waldburger, a professor in tax law at the University of St Gallen, told me some cantons use a clever solution for agricultural land converted into more lucrative uses. Farming is a relatively unprofitable form of land use, so owners of agricultural property are assessed for wealth tax purposes on the income they derive from it rather than the full market value if sold. But if the property use changes — if a field is developed into, say, a golf course — it will be assessed at market value. Cantons may then choose to levy a corresponding wealth tax retrospectively up to 20 years back from the point of sale. Prof Waldburger has proposed that a similar rule could be applied to start-ups (for a shorter retrospective period).

Gabriel Zucman has proposed a different scheme for a US wealth tax as it would apply to unlisted companies: payment in kind. Instead of paying 2 per cent of the value of an unlisted company in cash, owners could give the government a 2 per cent equity stake. This could be used to create a public market in private company shares (or form the core of a sovereign wealth fund). One could also consider a hybrid solution: rather than an outright ownership share of an illiquid asset, the government could accept “virtual” claims on the asset that would build up until the time the asset is sold, at which point the taxman cashes in past wealth taxes due.
posted by kliuless at 10:21 PM on February 13


How much could a net wealth tax bring in? - "It is an untapped source of government funding that could also improve productivity."
How much could a net wealth tax raise? To fix ideas, suppose a tax applied only above the amount of net wealth that puts a taxpayer in the richest 10 per cent of the population — in other words, 90 per cent of taxpayers would not face it at all. In large western economies, the top 10 per cent hold a bit more than half of all private wealth, while in the US the share is 77 per cent, according to the World Inequality Report. The wealth threshold to be in the top tenth, meanwhile, is strikingly similar across countries: about twice the average wealth level in the US, the UK, France and Spain. That implies the taxable wealth above the threshold is about one-third of total private wealth in most rich countries, and slightly more than half of total private wealth in the US.

As the chart above illustrates, total private wealth amounts to about six times’ annual national income in rich countries. In the US and Germany it is a bit less, but there it is more unequally distributed, so more of the total wealth would be taxed under this hypothetical system. It means 200 to 250 per cent of annual national income is a fair estimate of the total wealth that would be subject to the tax in most western countries. So a 2 per cent annual levy should raise 4 to 5 per cent of gross domestic product.

That is a large sum — between one-tenth and one-fifth of most governments’ tax revenues. It would create enormous room for manoeuvre, which could be used to dramatically reduce other taxes on capital, or reduce taxes on labour and consumption, or remove the prohibitive effective marginal tax rates on low incomes caused by means-tested welfare systems, or finance productivity-boosting public goods. Add a smart tax reform of any of these four types to the fact that the wealth tax itself should increase productivity, and the wealth tax begins to look as close to a free lunch as economic policy ever gets.
posted by kliuless at 6:48 AM on February 16 [1 favorite]


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