You’re the wealth tax guy?
I guess so. I’ve been writing about it.
All right. I have some questions for you.
Wow! First I have a question of my own. Most people’s eyes glaze over when I propose to talk about taxes. Unless they are billionaires interested in figuring out how to hide more of their billions from the IRS. What prompts you to want to talk about it?
I’m not one of those nuts who think all taxes are unconstitutional. But I do think we are oversupplied with taxes as it is. Why do we need another one? Our money is already taxed, usually before we get our hands on it. Isn’t once enough? Do we really need to get it taxed still another time?
We surely don’t. But the Wealth Tax would not be an added tax. It’s a single tax. to replace all the ones that presently exist. Henry George, the British writer (he would have hated the term “economist”) who advocated for it in the 1840s, called it just that. His disciples called themselves Single Taxers. His proposal was that the government would own all land, which then would be the sole basis for the tax rolls. A land tax would be the only tax anyone would pay. We would each pay just once on the land we used (or didn’t) instead of all the nibbling taxes we are now subject to — income tax, sales tax, value-added taxes, gasoline taxes, sin taxes, toll roads, or any other kind of taxes. Just the one land tax. One and done.
But a lot of us don’t use any land any more. Nowadays the profit isn’t in something made in a factory or on a farm; it’s jut as likely to be made from a service on the Internet. All you need is enough tabletop space for a laptop.
True. So I don’t call it a land tax; I call it a wealth tax. Our capital may no longer be exclusively in the form of land, but it is all still based on some form of ownership. You have to own something in order to collect rent on it — call it a farm or a copyright or a patent or an apartment building or a share of stock. How much you make is your business; how much capital you are allowed to own, since there is only so much available, is the community’s business. So we should all pay a tax on that portion of the community wealth we own.
So same rate for everyone, from Bill Gates all the way down to me?
Correct.
And with that one payment I’m free and clear? No snoopy employer deducting anything from my paycheck or sneaky IRS prying into my bank account? No need to save my lunch receipts and my chits for travel expenses or how much I got in tips?
Right.
But how would the government know what I own?
Because you would tell them. You would make a list of your property. As of every December 31st. You would file it and sign it, and send it in. A list of everything you owned as of that date. Here or overseas or on Mars or the moon or the Internet. No exceptions.
And the IRS would take my word for it? I wouldn’t bet on that!
They take your word now, don’t they?
Well, no. They don’t trust me. My employer sends them my records. My 1040 has to match my W-2. My bank files 1099s on my interest. “My” company publishes the size of my dividend. The IRS knows most of the numbers even before I do.
True : with a Wealth Tax the IRS would initially have to accept your word. You could lie, but the statute could make the consequences of cheating rather unpleasant.
Like for instance? How? What if I just chose to “forget” to list my second car?
Russian roulette. You might get away with it. The odds would be in your favor, at least at first. The government isn’t about to finance a new horde of salaried bureaucrats to check your garage. On the other hand, someone who didn’t like seeing that Lamborghini in your driveway next to his Honda when he knows you are a $60,000 a year municipal councilman might decide to be nosey. With a Wealth Tax in force your possessions, like his, would be on the public record. He might wonder how you managed to do it on a city councilmen’s salary. He could be tempted to become a whistleblower. Whistleblowers would still get 15% of whatever the IRS recovered from cheaters. Plus, if you “forgot” to put it on your list, the car would become “unclaimed” property, therefore no longer yours. It would belong to the government, subject to confiscation. A repo man would come and get it and a US marshal would put it up for auction.
That’s pretty strong. What if I truly just forgot to list it?
You would have the right to bid on it at the auction like anyone else, but you would also have the obligation as the former owner not only to match the winning bid but to pay an extra ten percent penalty. Might make you think twice. Especially if the “forgotten” item was a 41 million dollar yacht or a Swiss bank account with a half a zillion dollars in it.
It well might. So all right. On December 31 I would just send in my check along with my list?
No, because no one will know on December 31st what the year’s tax rate is going to be. Congress would have been busy all year estimating the cost of the upcoming year’s operations and passing their final budget, which then divided by the total of everyone’s wealth, would determine the flat national rate. Should be available as usual by March, payable in April 15th. All of us can do our own math.and then send our checks.
And what about the big corporations? The non-profits? The churches? The NGO’s? Would they also have to pay?
They wouldn’t pay anything. Only flesh and blood people would be subject to tax. People who bleed when cut, as Shylock defined it. Corporations don’t bleed, so they are not people, no matter what the Supreme Court says. You can’t put a corporation in jail for lying or thievery. So they are not people. But they are owned by their shareholders. The non-profits and the churches and the universities have endowments and bank accounts in which their contributors have put funds. The ownership of those funds can be determined . Everything is in the end owned by an identifiable individual, and everything — all personal wealth — is taxable. Philanthropy is a choice; it can be applauded but it cannot be used as a tax loophole.
But what about what the government itself owns? Things we all own together? Battleships? Monuments?Buildings?Highways? Missiles? That’s all part of our common wealth.
Exempt, except that portion of course that is financed by treasury paper, borrowed from flesh and blood people who then own the bonds. Why would there be a tax on our shared ownership of a railroad bridge when we all need it and all use it and all have paid for it long ago? Or the Washington Monument? It would be far too complicated to figure out who owns those things.
All right. But after the taxes are collected, who would allocate the money among all the cities and states and towns and villages that depend on taxes for their public services? Would everything become what they call block grants? So much to Texas, so much to Rhode Island, so much to Puerto Rico? Based on population, or acreage or need or what?
We would argue about that, just as we do now. And we would still elect local officials to fight for our own localities and special interests, just like always. But the details would be fought over lower down in the food chain instead of in the backrooms of Congress. The people inside the Beltway could spend their time more productively on the proportion of assets allocated to specific national expenses — what proportion to infrastructure, how much for military, what are we willing to spend on refugees, or foreign aid. It would free them up to do some serious work instead of spending their time trying to reward their private campaign donors.
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So far so good. I could go for all that on the grounds of fairness alone. Those who have cashed in most successfully on the national economy should rightly bear the greater burden for keeping everything going. But what about that national rate? What do you think it would likely be? Would I be likely to pay more or less than I pay now?
There is no way to answer that until we see the result of the first actual national asset tally. I have found on the Internet such wildly conflicting estimates of our national net worth — from both official and private sources — that I wonder if any of them are worth paying serious attention to. But using the ones I judged middle-of-the-road I came up with the following:
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Private net worth of all American families
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$85 trillion
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Assets of all non-profits
(churches, schools, charities etc.)
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$97 trillion
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Total assets retained overseas by
American companies to avoid taxes
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$119 trillion
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Total assets kept in overseas bank
accounts (tax havens) by individuals
for the same reason
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$21 trillion
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Total
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$322 trillion
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Since the national budget for 2018 is expected to be somewhere between 3.5 and 4 trillion, this would indicate that a flat tax rate of around 1.5% would be sufficient to cover the costs. Maybe as much as 2% if we elected to use some newfound revenue to fix up a few problems that are currently going unaddressed. Like teachers’ salaries, minimum wages, support money for caregivers, and universal tuition and health care, for example. But all this is just speculative. We wouldn’t know until the first year’s tallies came in how much we had to work with, so all we can do right now is guess.
So it’s a blind dive off the high board? You really think you could get American voters to go for that?
Well, we could start by discussing the mechanics of collecting the money. “Net worth of all American families” sounds like an easily determined figure. Take all the assets of each family — bank accounts, land, homes, cars, insurance policies, whatever’s in the safe deposit box or under the mattress — add it all up and subtract whatever people owe — mortgages, car loans, education loans, payday lender loans — and you have the national net worth.
Problem is, of course, who’s going to do the adding up. Each family will be primarily concerned with keeping its number lows; the IRS will be concerned with keeping them honest. Cheaters will be trying to find ways to keep it less than accurate.
For example, estimates by experts say that today’s black economy (second jobs, tips, gigs, barter, unrecorded purchases, sales among individuals, and plain outright cheating) amounts to approximately ten percent of our GDP, which would make it roughly $2 trillion. That tells you that average American families are already pretty good at hiding some of their assets from the IRS, even without the high-priced white-shoe accountants the wealthy employ to make sure their Picassos are “stored in transit” in offshore warehouses and the yacht docked in Florida is registered in Panama. Confronted with the new task of calculating their own net worth, their ingenuity can only be expected to increase. Americans love puzzles. Applying educated guesses to how all that would work out might serve to get people interested beyond just “Not taxes again! Boring subject.”
If you say so.
And it would have to be an honor system. Not only would a policing bureaucracy be prohibitively expensive, it would be an intolerable intrusion on our privacy. (We are already on the honor system, of course — you fill out your own 1040 — but as you point out your employer and your bank act as police backup.) But this one would be different. Today if you “forget” to list that second job, and the employer files a W2, you will get a corrected 1040 back from the IRS and you will be liable for the revised total and a small penalty. All courtesy of a couple of computer algorithms that purport to know what ratios to look for in your calculations.
So why wouldn’t we just continue that way?
Too complicated. If you were asked to calculate your net worth tomorrow, first of all you would bitch about the new requirement and the time it would take away from your football or sitcom watching, and secondly you would start making sure that your assets were valued as modestly as possible (the inverse of what you do now when you take out homeowners’ insurance on your valuables, and which might even move you to re-evaluate some of that insurance). If you included a Modigliani or two among your assets it might even move you to take a second look at that art appraiser’s letter you bought and stashed in the safe deposit box. There might be more art forgeries hanging on high-rise penthouse walls than we ever dreamed of. Better to admit that you got conned by the art dealer than to accept the obligation to pay a continuing 2% on that purchase price every year forever and ever. Or maybe not.
What if you just completely “forgot” to list something on the form you filed with your estimate? You could get away with that for so long as no whistleblower decided that his 15% bounty for reporting it would make up for his loss of your friendship. (Remember that the penalty for forgetting would be that since you didn’t declare your ownership, it was “abandoned” property and hence subject to confiscation and being auctioned off for the benefit of the treasury. Yes, you could enter your bid and top the winning bidder by ten percent and buy it back, but there would be the added penalty of “shame” as well as the cost of the item.)
The problem here is that to give the whistleblowers a fair shot everyone’s numbers would have to be open to inspection. While Americans don’t seem to mind giving up their privacy for the privilege of instant messaging and cell phone coverage and looking at pornography, they have always been secretive about their earnings. Some employers have even taken advantage of that reluctance to forbid their workers to share wage information with their co-workers, to make life harder for union organizers. Could this attitude be reversed in exchange for the benefits of a Wealth Tax? Could curiosity about one’s neighbors’ prosperity overcome reluctance to disclose one’s own numbers? The experience of Facebook would seem to say we seem to be quite comfortable giving up our privacy for the privilege of posting snapshots of our personal small domestic triumphs for the world to see, but omertà is deeply ingrained in all Americans, not just in the Family. A snitch is reviled. On the other hand, 15% of a million dollars is a powerful temptation. At the very least it would be a test of allegiances in which everyone would have to balance his ethics and desire for personal privacy against his greed, and his independence against his sense of civic virtue. It could be revealing to see how some of our loudmouth super patriots responded to that challenge.
Would this country become like Italy, where paying taxes is looked down upon with all the scorn of Leona Helmsley’s “only little people pay taxes”, and scamming the treasury is a national sport? No way to tell except to dive off that high board and see.
Maybe a more forgiving economy with improved health care and free education for your children and a more secure safety net would allow people to see honesty as more attractive than loopholes and graft. Who knows?
One thing I think you could count on, and I would consider it a welcome change. Some snarky professions might see their influence reduced. Professionals like my accountant who once advised me that if I chose the right pension plan for my small business he could set one up that would end up finally paying almost everything to me instead of to my employees. Or the lawyer who suggested that with the “right” corporate structure I could live comfortably on “business expenses” right up till the day I declared bankruptcy. (Check out Al Sharpton, who seems to have hired him after I declined.) We might also anticipate a diminution in the ranks of those “advisors” in the “wealth management” departments of our big banks. None of them would be much missed, at least by me.
You make it sound like a Progressive cure-all.
Not “all”, but there is more. The “commons” is economists’ name for public property available for anyone’s use. Think, for instance, what a wealth tax would do to land speculators, those who sit on thousands — even millions — of acres of undeveloped wilderness, waiting for the suburbs to arrive and turn their fallow acres into dollars. Even though their holdings might be drastically undervalued by bribable local assessors, they would still have to pay some tax on every acre every year — and if the market value of adjacent properties could be shown to be creeping upward, that could be grounds to increase their taxes in proportion. Henry George said, (correctly at the time — we were then mostly an agricultural society), that ownership of land ultimately was the source of all wealth. Adam Smith, David Ricardo, and John Stuart Mill had said pretty much the same thing earlier. (Not labor, as Marx claimed) but land. And land was originally a gift of God, not a human construct, and therefore anyone who chose to make use of it should pay God’s community for the privilege. He claimed a rather large following before the combined forces of capitalism and the industrial revolution undermined his analysis. Like Marx, who blamed all problems on the exploitation of labor by bourgeois capitalists, he was right for the time and place he lived in, but the times moved on. Nowadays the idea of the commons has a harder and harder struggle to remain relevant. Even the Internet version is being chipped away by monster global companies and their hired legislators. The need to raise cash for paying taxes on their vast idle acres and bank accounts just might induce their owners to forego some of that deferred bounty by selling some of their acres and putting their money into the general economy where it might do some good for people not in such protected positions.
Point. What else?
Well, take the business of everyone’s net worth being in the public domain. This would undoubtedly cause some anguish. Scammers who tried to convince people of the Ponzi possibilities of their schemes would be severely handicapped. Strivers who formerly had been able to brag about their phenomenal falsified successes in order to associate with the truly wealthy — yes, I am thinking of Mr. Trump — would have to find another ploy, since their bank accounts would be open to everyone’s inspection whether they decided to run for president or not. It has even been suggested that disclosures of the vast gap between the members of the top tenth of one percent and the working single mothers living from paycheck to paycheck (and having their meager earnings further diminished by the interest owed to payday lenders) might embarrass the high earners into accepting smaller salaries, to reduce the threat of having the tires slashed on their Mercedes Benzes in their luxury hotel parking lots, but I don’t have much faith in that. It has been my observation that the resentment of the poor is one of the great attractions to the rich of striving to become wealthy. After all, no matter how rich you are there is always someone else on a rung higher on the ladder than you except for the one top guy. Status is measured by comparison, since a rich man can still only eat three meals a day, and wealth in itself is useless — it has to be flaunted to bring any satisfaction. Public rankings might just make the competition more exciting.
Anything else?
We are pretty far along the road of pure speculation, but I would venture to add one more possible benefit. The necessity of allocating the tax take among all the worthy and unworthy seekers of government support just might subject former legislature-real-estate boondoggles to greater examination than they have been getting in the present system of earmarks and “member items”. Plain thievery in the guise of “non-profit charitable trusts” run by politicians’ and their family members is rampant today, and condoned by legislators who anticipate benefiting from their own similar arrangements. If a tax abatements in Arizona had to be defended beyond the boundaries of that state’s political establishment — say by comparison to a request for a grant to repair Puerto Rico’s electrical grid — the relative value of each to the general national welfare would have to be at least discussed publicly before the contracts were given out, and since the terms of the contracts would be public there would be a certain pressure to keep them within the bounds of reasonableness. That may sound like a utopian vision, but it would put some quid-pro-quo deals off the table unless crooks from Arizona and Puerto could be enlisted in the same kickback schemes. With our bitterly divided electorate, and our throw-more-fuel-on-the-fire Republican politicians at the ready with their gasoline cans, it seems just possible that they might wind up policing each other instead of allocating each other more elbow room at the trough.
I think you are pretty far out into never-never land now.
You’re right. Not everything can be fixed at once. But small advances are to be treasured.
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All right. Now what about the big question : what are the real chances that any of these visions could actually make it through the politics of corrupt statehouses and get enacted into law?
Pretty near zero, I would say. Henry George got nowhere. He is as totally forgotten today as Norman Thomas, for whom my father unwaveringly cast his futile presidential vote all through the Roosevelt era. But I have noted with interest something new on the political horizon in the past year, provoked by #MeToo and the reactions of women to the threat posed by Trumpism to the gains they had made over the past seven decades. Women don’t seem to be intimidated as easily as they used to be. When it comes to defending their rights to control their own bodies and keep them out of the clutches of the Harvey Weinsteins and Franklin Graham Juniors and the Pope’s minions, they are showing a new spark of determination and willingness to get out and do the groundwork of door-to-door electoral organization.
Women are fifty percent of our population. No other bloc comes even close to being as numerous or as solid. While the men have been studying the usual “political science” claptrap in Ivy League schools and private universities, the women have been reading up on sociology and spending time doing hands-on PTA and library work. Raising children who have to be coerced into doing what’s good for them without understanding what it’s all about is not that different from coercing voters to back programs they probably don’t understand. Mothers face this every day. They are perfectly willing to let their husbands talk balance of trade ratios and ten-year trends if it will make them feel smart, but they know that this makes not one whit of difference to Joe Voter. What he wants is security — some recognition that he is important — some admiration for his hard work. This is not easy to give him. What is needed is a common program for that women’s bloc, and the Trumpists seem to be determined today to hand it to them on a platter.
If every self-styled Progressive were to make a single resolution this November — “In any race where there is a woman entered I will vote for her instead of the guy” — we could up-end the Establishment, drain the swamp, whatever the metaphor is, and be on our way to a radical re-design of our country.
“I’m for Her”, although it lost, was a far-sighted battle cry. It failed in it’s first outing, but there are wars to come. I think it could be resurrected, and be successful. All we have to do is forget the details. Let the women sweat them after they have gotten the power. They cannot do worse than the men have done. Golda Meir and Hanan Ashrawi originally set the tone. Angela Merkel functions like a pro in the male world of diplomacy. Think what she could accomplish in a world of like-minded women!
Does any of this hold out hope for doing something about the growing economic inequality gap? How do we go about transferring money from the top to the bottom?
Whoa! One thing at a time. If there were a magic solution that would cure all the world’s problems with the same medicine I would be right there rooting, but that’s too much to ask. Bite off only what you can chew. Once you have swallowed and digested that bit there will be time enough to look for the next forkful.
I will suggest, though, that the problem is definable. It is simply to find a mechanism to effect a wealth transfer that creates its own feedback, so that modest success to start with is followed by increasing efficiency under its own steam. Step number one would have to be to reach consensus on what constitutes a “reasonable” amount of personal wealth, especially dynastic wealth passed along from one generation to the next regardless of merit or talent. “What the traffic will bear,” otherwise known as Adam Smith’s “Invisible Hand”, has proved cruel and indefensible. I suggest that a new definition could start with dividing the national wealth by the number of people in the country, and then finding the average. That’s how much the economy could provide each of us, if it were evenly divided. How much of a departure from that, in either direction is considered acceptable is a matter for a fruitful national debate. That new money added at the top must be counterbalanced by more money added at the bottom is obvious. How, and how much more, are the questions. The numbers revealed by the wealth tax might at least give us real big data to work with. The mechanism itself would not be hard to devise — every dollar added at the top would have to be matched by x dollars added at the bottom. The proper value of x would form the basis for an illuminating discussion.
It has been suggested that once we know what the economy will support, by discovering the average wealth of citizens, only those people richer than the average would pay all the taxes, while those whose wealth didn’t measure up to the average would get a subsidy — a so-called “negative” tax. Not enough to bring them fully to the average level, but pushing them gradually in that direction. In time (generations?) we might get there. The acceptability of this would depend on what the numbers, and the tax rates, would prove to be, and how strong the forces of morality and good sense could prevail against pure greed and selfishness.
Finding ways to defeat those who would (undoubtedly) strive to game the wealth tax system would also be entertaining to watch. Insurance scams to pass wealth from one generation to the next, efforts to provide increases in value from scarcity or artistic sequestering might be another. There is one thing sure. We could find all this a sustainable debate for years to come. Maybe it would give us something to talk about besides white supremacy, misogyny, and ethnic prejudice. I would welcome that.