Warrens wealth tax, among other things, would increase the IRS budget ten fold and seize 40% of your assets if you tried to leave the US tax jurisdiction if you didn’t like losing 2-3% of your assets every year for being part of the Evil Rich.
Sounds about right. They are currently stripped down and have no manpower whatsoever to combat fraud.
Wealth tax for the super wealthy sounds great on paper (taxes only the super wealthy, sounds easy enough) but is self-defeating practically. I don’t buy the arguments about the self-reporting burden though. How many people with a net worth greater than $50M do their own taxes currently? I’m not sure about the argument about scaring the rich away. If they benefit from living in the US, they should pay for the privilege. But it’s true that evaluating networths would be a huge hassle.
The issue stems from all the ways to structure their assets to pay ridiculously small effective rates. Regardless of the method for wealth accumulation, you should not be able to accumulate wealth at high rate without paying a commensurate amount of tax that mirrors the progressive nature of the personal income tax structure that the country agreed is fair.
But for that, instead of wealth tax policy pandering to Dem voters but actually being counter-productive, I feel that they’d be better off closing the loopholes/discrepancies in sources of income, adopting a form of consumption tax to effectively tax wealthy people based on their lifestyle spending, and/or adopting tiers for investment income (say 5% on capital gains below $10k/yr, 15% from $10-50k, 25% from $50-200k, up to identical to marginal rate for regular income if you make like over $500k/yr in capital gains).
I’m not sure which ways you’re referring to (and might be happy to hear about some of them), but the capital gains tax rate you reference later I understand quite well. Yes, stocks and property appreciation receive a somewhat more favorable long term capital gain tax rate when sold after holding it for a year. However, there is no inflation adjustment and often the cases of very large appreciation are for assets that were held for many years if not decades. It is clearly unfair to tax the inflationary gains during this period (since you might even have a net loss of purchasing power for your “investment” and yet have to pay the Feds for the privilege), and instead of fixing this with a CPI adjusted basis or something like some other countries do, we just slap a lower tax rate on it for a combination of encouraging investment and compensating for this overtaxing of non-economic gains.
I don’t view this as a “problem”, anymore than I view qualified dividends, which receive a similar benefit, since again in that situation there was already corporate tax applied prior to paying the investor and so this is a partial double taxing at a lower rate than full double taxing. I get that the government taxes have little to do with fairness or reason, but I still think targeting these particular areas for revenue generation is likely counterproductive economically.
I think there are many ways to skin this one to restore more even effective tax rates. When you get an annual salary raise as an employee, does your tax burden only increase by the amount above the CPI? No, the whole raise gets taxed at your marginal rate. And you don’t get any deferral on paying that tax either. So why should capital gains? I mean the majority of my retirement income is gonna be capital gains, why should income from that get taxed at a lower rate than if I invested in CDs or saving accounts? Due to higher risk? That’s already factored in by the higher returns I’m getting.
Ultimately for me the sniff test, is still effective tax rate. It should be blind to the source of your income, and currently it’s totally not, allowing guys like Buffet to be taxed at a lower effective rate than their salaried employees. Or allowing Trump to pay nothing in taxes for years while living an extremely wealthy lifestyle. Whatever the taxation scheme, in the end I don’t see the moral justification for supporting a system that allows such non-progressive taxation situations.
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Well we’ll have to wait for a source more reliable the NYT to prove what’s going on with Trump’s taxes, but if I had to hazard a guess, he negotiated a business bankruptcy deal back in 1990s which he essentially ended up with capital losses of the creditors and was able to carry these losses forward for a while to offset his other capital gains. The transferability of business NOLs was a lot more friendly 30-40 years ago than it has been in recent decades, so that’s not exactly a relevant prospectively.
While I agree with going on solid data only, we do not have it yet and the fact that he refused to provide evidence disproving the belief that he paid very little taxes for years looks to me like it validates the claim at least in broad lines.
And as far as relevance, I think it is totally relevant in the sense of showing what abuse of the current system are currently possible. At least it should inform tax reform design. In this particular case for implementing tighter limits on carry forward of business operating losses and transfers of such. Currently they are still transferable indefinitely and only restriction is cap at 80% of taxable income. That still sounds pretty friendly to me. Maybe a limitation in terms of years (say 10 years carry forward) or a lower cap (50-60% maybe) could be a viable improvement.
Anyway, I’m not singling this one out as a major loophole to plug necessarily since I don’t know how much this costs the US in tax revenues compared to other tax avoidance schemes like equity swaps, shell trust funds, shell companies, borrowing against assets (real estate, life insurance, capital-gain generating shares), incorporating, etc… but I still think it’s worth looking at current unreasonable tax situations to make sure that any tax reform would prevent or at least limit them.
And as far as relevance, I think it is totally relevant in the sense of showing what abuse of the current system are currently possible. At least it should inform tax reform design. In this particular case for implementing tighter limits on carry forward of business operating losses and transfers of such. Currently they are still transferable indefinitely and only restriction is cap at 80% of taxable income. That still sounds pretty friendly to me.
Sec 382 was passed in 1986 and cut down on a lot of this.
I thought his bankruptcies were in the 90s, not prior to 1986.
They were, but it seems a bunch of the rules were clarified in the early 90s, but in an inconsistent unclear way that wasn’t finalized til the late 90s.
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Thanks for looking that up. That makes more sense even in a dysfunctional kinda way.
It’s stunning looking back realizing it took a decade for the IRS to clarify some of their rules. Talk about inefficiency thinking about how many work hours will have been dedicated to it even after the rules were issued. But that sounds about right for the usual use of our tax dollars unfortunately. 
Summary of Biden tax proposals.
Most of this does not apply to me since I unfortunately do not make more than $400k/yr. It sounds fair enough for the most part if they want to raise taxes. However, the estate tax would be of concern to me, especially if it does not get indexed on CPI. $7M estate is not all that much in 40 years if not indexed on inflation. Removal of step-up basis also sounds very costly potentially on top of 5% higher estate tax rate.
Not gonna pass as is anyway but good to know what they’re shooting for even if some of it sounds unpleasant.
Another proposal about taxing all your stocks, etc, as if they are sold at death (no doubt in addition to the estate tax if you managed to collect Too Many of them). There would be a proposed $1M exemption for the first that many in assets (or possibly that much in appreciation).
That is a very small number. Also, it’s a terrible idea that will not generate much actual revenue. Because everyone knows they are going to die and knows when their investments have reached that number, it all it will do is make estate planning attorneys/accountants wealthy and/or encourage frivolous spending by older couples on otherwise unwise things - i.e. a very poorly targeted carry forward of spending (because it would be spent by the heirs if untaxed over a longer period of time on more long lasting items at a rate that would make sense, not right away to avoid taxes on short term pleasures).
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They should also tax gains when asset ownership is transferred through marriage. (Or use the lifetime exemption amount)
Be fair about it. Why all these carveouts?
Throw them out, make taxes simpler and fairer.
Sounds like the makings of an economic boom, if those assets are now injected into the economy rather than hoarded. They’ll have to revise up gdp estimates. The wealthy elderly hoarding balances is literally the main economic problem in many countries. It makes the government have to keep giving money away to try to stimulate the economy and keep people employed and housed (since the housing market is also driven up by the elderly rich and real estate gets the infinite deferral and free step up in basis even through sales/ exchanges).
Younger people spend more, so it’s still a benefit if they just transfer assets to their heirs earlier in time (so there’s less taxable gains to pay) . We could get economic stimulus without crushing government debt dragging on future generations.
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A very short term inefficient one, followed by the corresponding bust (or lack of boom).
It’s a carryforward, and since it is forced, it would be less efficient than otherwise. If left alone, the money would be spent prudently over a period time by their heirs on things they would get more value out of.
Think of it like this. Someone has a thousand dollars and I walk up to them with a gun and say, I’m going to shoot you and uncle sam is going to take $300 bucks, the remaining $700 can go to your family. But i’ll give you 20 minutes if you want to spend that $300 on yourself before I shoot you. Most folks won’t give over the $300, but to a certain extent, they look at it as not really theirs, so they don’t necessarily spend it exactly like they would their own money. Plus, they are running out of time. their family has some time to think how they’ll spend the $700 and some time to use whatever they spend it on. How likely is it that someone with 20 minutes left would get the full value out of that $300?
Alternatively, without the death tax, the family gets the the full $1,000. Think that $300 might be spent a little more efficiently and they might get more value out of it in their much greater time left on earth than the person dying in 20 minutes had? Obviously the answer is yes.
That’s nonsense. Most inheritances evaporate. They’re almost always squandered, and don’t make it several generations.
OTOH the parents could actually teach them to manage wealth if their heirs had some earlier.
Free step up in basis is not a deferral or carry- forward. It simply wipes out taxes that should be due and they’re never collected. I think you may be confusing this with gifting appreciated assets – which do retain their original cost basis.
It’s a tax carveout for the very rich that encourages hoarding rather than putting money to work in the economy (buying goods and services, or re-allocating to more efficient businesses). As such, it runs counter to other government policy and taxpayers are paying to encourage two opposing behaviors. Seems very inefficient.
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