U.S. Government shuts down.

[Jester]

Inflation, yes. Demographics, not much. Most of the fed should be scalable.

So, your idea is that as population goes up by 1%, the federal government has to increase its labour force by ... 0%? One can dare to dream, I guess.

For example, EPA, or National Parks... The environment needing protection is a constant, and we're not adding hectares of national park land.

Except that the majority of work on park land (and in environmental protection) is dealing with humans and their behaviour, not dealing with the land itself.

Scale to GDP? Whatever for? It's more likely contrary to GDP.

In almost every country in the world, throughout history, gov't share of GDP has gone up faster than GDP itself. You can argue until you're blue in the face about why this is the case, or whether this is somehow ideal, but it is an empirical fact.

To really do this, we'd need to change the status quo whereby taxes were assessed against the wealthy (high net worth, not just high wage earners), and lowered for those with below average net worth.

Wealth taxes? Bold. But very hard to do, and in the end, not very good at raising revenues. There just isn't that much wealth, compared with income, and once you've taxed it once, that part is not coming back.

-Jester

[kandrathe]

Wealth taxes? Bold. But very hard to do, and in the end, not very good at raising revenues. There just isn't that much wealth, compared with income, and once you've taxed it once, that part is not coming back.

Assuming the wealthy are investing their wealth, you need to tax at a sustainable flat rate. If one persons net worth is low, say due to starting a small business, then their effective tax rate is small. This strategy supports entrepreneurship. Once their risk has paid off and the value of the asset grows, the tax grows. People living on limited funds, like tax free retirement accounts, would little to no taxes.

[Jester]

If one persons net worth is low, say due to starting a small business, then their effective tax rate is small. This strategy supports entrepreneurship. Once their risk has paid off and the value of the asset grows, the tax grows.

I don't understand this. If you have money in your bank account, that's wealth. If you have money in a small business, that's also wealth. Spending your bank account on a business is not changing your net wealth.

If you tax wealth at a flat rate, you have no particular incentive to save or to invest - you have an incentive to consume. Which is why most economists think wealth taxes are a terrible idea, although for some, the distributional questions are beginning to outweigh the investment consequences.

-Jester

[DeeBye]

If one persons net worth is low, say due to starting a small business, then their effective tax rate is small. This strategy supports entrepreneurship.

One part of this needs to be addressed. The overwhelming majority of new business ventures fail within a year, and the new business owners become bankrupt. Creditors have to eat those losses, and those losses get passed to others down the chain.

Once their risk has paid off and the value of the asset grows, the tax grows.

And what happens when their risk doesn't pay off?

[kandrathe]

If you have money in your bank account, that's wealth. If you have money in a small business, that's also wealth. Spending your bank account on a business is not changing your net wealth.

It would need to also factor in your liabilities. If I borrow a million, and invest it in a new venture, then effectively I'm zero. If my new venture becomes worth 5 million, then I'm 4 million in the positive, and that wealth should be taxed at a very low rate.

If one persons net worth is low, say due to starting a small business, then their effective tax rate is small. This strategy supports entrepreneurship.

One part of this needs to be addressed. The overwhelming majority of new business ventures fail within a year, and the new business owners become bankrupt. Creditors have to eat those losses, and those losses get passed to others down the chain.

Being a Creditor is a risk. If you can't afford to lose your money don't take risks with it, like borrowing it to someone who won't pay you back. This is no different.

Once their risk has paid off and the value of the asset grows, the tax grows.

And what happens when their risk doesn't pay off?

Then everyone remains poorer, and it was a bad investment. No profits, no income, no taxes.

[Jester]

It would need to also factor in your liabilities. If I borrow a million, and invest it in a new venture, then effectively I'm zero. If my new venture becomes worth 5 million, then I'm 4 million in the positive, and that wealth should be taxed at a very low rate.

If you have nothing, you have no wealth. If you borrow a million, you still have no wealth. Nothing changes.

If four million in the positive is going to be taxed at a very low rate, you're not going to capture that much tax, unless you're planning on some truly punishing tax rates on the extremely wealthy.

-Jester

[kandrathe]

If four million in the positive is going to be taxed at a very low rate, you're not going to capture that much tax, unless you're planning on some truly punishing tax rates on the extremely wealthy.

The tricky part would be in calculating the wealth of assets (within the US), since value is usually only determined when a thing is sold. But, as with land, or homes, or business, we have some experience in valuing assets. If I have my wealth(e.g. 4 million) tied up in a business, maybe I also own stocks, and I choose to pay myself a salary. Under the current tax regime the government would gain tax revenue on any business profits (crudely, gross income less gross expenses), net capital gains on stock transactions, and on payroll to employees.

If instead, we just looked at the value of stuff owned (wealth), and assessed a relatively small, flat tax on that, I think it would get closer to fair. The estimated net worth of all US stuff is about $245 trillion. A %1.6 flat tax on wealth would result in the tax revenue we have now. The median net worth of households in 2010 was 80,000, resulting in an average tax of $1300 per household.

For example, GE is worth about $265 billion, and would pay about $4.3 billion in taxes, rather than the zero they paid in 2010 (having 14.2 billion in profits). Their 10 year effective rate has been 1.8% on $81 billion in profits since 2002.

Even if we decided to give corporations a break, and have them pay much less than the other wealthy, they'd pay more than they do now. The well off small business person ($4 million), from our first example would pay $65,200 regardless of how that owner used their assets. If you assumed they just invested in large cap stocks, and a modest return of 5%, they'd still be able to pay themselves a decent income of over $100K without losing wealth.

[Jester]

If instead, we just looked at the value of stuff owned (wealth), and assessed a relatively small, flat tax on that, I think it would get closer to fair. The estimated net worth of all US stuff is about $245 trillion. A %1.6 flat tax on wealth would result in the tax revenue we have now. The median net worth of households in 2010 was 80,000, resulting in an average tax of $1300 per household.

The estimated net wealth of the US is about $57 trillion. To generate that kind of revenue, you'd need a 4.3% tax on wealth. The distortionary effects of that kind of tax would be quite extreme.

For example, GE is worth about $265 billion, and would pay about $4.3 billion in taxes, rather than the zero they paid in 2010 (having 14.2 billion in profits). Their 10 year effective rate has been 1.8% on $81 billion in profits since 2002.

So, you're taxing GE for its total worth, and its stockholders and bondholders again for their ownership of that same worth? Or what?

-Jester

[kandrathe]

The estimated net wealth of the US is about $57 trillion.

That seems to be households. Let's try it another way...

http://www.federalreserve.gov/releases/z...ent/z1.pdf

For 2012 chart Z.1 (billions), Households = 59305, Non-financial business = 19314, skip governments, Domestic NFS and FS = 82775 + 73952, Held outside the US = 20490 for a total of about $173 trillion.

Compared to 2012 (F.7) National Income, where about $8,611 billion was paid as wages, with 514 billion taken off the top for SSI. Corporate taxes, after loopholes and special interest tax dodges amounted to $435 billion. Total estimated national income was about $14 trillion. The federal spending is about 4 trillion, and we borrow the bulk of that (2012 revenue was 2.3 trillion CBO $1132 (billion) ind. income taxes, $845 ssi, $150 other taxes, $324 corporate tax & other revenue).

The question here is; who should pay taxes? Employee wages (paying 56% of tax revenue), or corporations (paying 13% of tax revenue)? Or, should we balance it more with consumption (now only 6% of tax revenue)? Effectively the Federal government took 13% of employee wages, plus 9.8% for SSI (corporations pay half the SSI). We are probably in agreement that under the current system, even based upon income, corporations and investors pay less than their fair share. Capital gains is 15%, and the effective corporate rate is less than 13%. Whereas, the (average) middle quintile of tax payers pay more than 12%, scaled to the highest 1% of income earners where the total payroll tax rate is 22.3%.

So, you're taxing GE for its total worth, and its stockholders and bondholders again for their ownership of that same worth? Or what?

Stock/Bond asset holdings for investors, and then also (stock or non-stock) corporate assets for the corporation itself.

[Occhidiangela]

20490 for a total of about $173 trillion.

So now you're talking real money.

Nobody has that kind of change lying around.

I'll offer that this value/worth has to be tested against what someone will pay for it.
I can say my used car is worth 7,000 dollars.
I may only be able to sell it for 5,000 dollars.

What was it worth?

A simplistic example, but one worth recalling as the estimations of cost, value, and worth are tossed about in such discussions.

[Jester]

A simplistic example, but one worth recalling as the estimations of cost, value, and worth are tossed about in such discussions.

I'm with you that market value is true value, and that it's no use screaming that your used car "is" worth 7k when you can only get 5k.

However, a wealth tax is just going to be a bill applied to the nominal amount of one's wealth. While that has all sorts of tricky accounting snags, and of course the basic problems of fraud and offshoring, no actual assets need be sold.

I am reminded of a paper I saw recently, describing how the King of France got his venal officeholders to value their (purchased) offices for tax purposes. He told them to come up with their own values. If they claimed a number too high, they'd pay extra taxes, and if they claimed a number that was too low, the king would exercise his option to buy it back from them and re-sell it.

Surely this is not a solution for today, but maybe there's something in that direction that could be done to force accurate reporting.

-Jester