I'm just a run of the mill average joe, who has a rock that has been in my family for generations. Turns out some weird little cult likes my rock and wants to buy it for $1B.
Should I be forced to sell my rock, because I'm getting a $500M tax bill from the government because some weird little cult said they would pay $1B for it - regardless of whether I want to sell my rock?
There's a great thought proposal on how to tax assets fairly. In this system, you are taxed at the self-assessed worth of an asset. However, if somebody bids over that price, you are obliged either to sell it to them, or raise your self-assessment.
It's somewhat of a game (joke perhaps), usually used in the context of ways to fairly assess land value.
Why is the rock yours? How did your family attain ownership of it? If the rock means little to you, why should you have it rather than the cult that actually values it? What if the cult wants to preserve the rock but you want to destroy it even though that will cause great pain to those who care about it? Why should you have permanent ownership of a rock just because your parents had it?
> Why is the rock yours? How did your family attain ownership of it?
The rock is mine because my family bought land a few hundred years ago, and the previous owner thought the rock was ugly and let it for us.
> If the rock means little to you, why should you have it rather than the cult that actually values it?
The rock means a lot to me, because it reminds me of my ancestors. I value it, but I just don't have a billion dollars to attach to it as its value.
> What if the cult wants to preserve the rock but you want to destroy it even though that will cause great pain to those who care about it?
I dunno. I think it is my rock and I can do with it what I want. But I don't want to destroy it, I just want to keep it where it has been for the past 200 years, near my family home's fireplace.
> Why should you have permanent ownership of a rock just because your parents had it?
Because that's how ownership works. If anyone can come take anything from you at any point, then I don't think you can ever be considered to own something.
You set the table to abolish the notion of property. It's hard to extrapolate what effects that would have on modern societies... it hasn't really been tried. I'm not saying it's an inherently bad idea, but the proponents of that kind of idea always seem to paint rosy visions based on extrapolations from inappropriate samples.
Maybe you can say you don't have to fully abolish property. But it remains especially hard to predict what second order behaviors any particular implementation would bring about, and what steady state would result from them.
Per your example, if the expected ruling of society would be that gp doesn't get to keep the rock because they don't "care" about it... well, maybe people in their position would suddenly find themselves caring about the rock very greatly. Not even cynically -- if the choice presented to you is "value or no value", the limbic system suddenly becomes very persuasive.
Should I be forced to sell my rock, because I'm getting a $500M tax bill from the government because some weird little cult said they would pay $1B for it - regardless of whether I want to sell my rock?
If you don't want to sell your rock, then set up a family trust to hold the rock with the provision that it can never be sold, then the rock will have effectively zero taxable value and you can keep it in the family forever.
If you don't want to do that because you might want to sell it some day, then it's not really a family heirloom, it's an investment.
Or, put the rock in a trust, tell the cult that they can take ownership in 100 years and have access to it once a year for ceremonies if they'll pay you $100M today.
So here is the thing. Your rock, your wish. It is wierd when you get to take interest free lines of credit on the 1B valuation on the rock and never pay the 500m in taxes :)
Either the rock gets sold and the income is realized and the taxes are paid then, or the rock ends up being worthless and the loan margin called for possession of the rock and the remaining value is taxed as income. Either way the taxes get paid in the end.
I have the rock, it is now worth 1 billion dollars. I take out a 50 million dollar loan from the rock and put it into the stock market, which lets say has 2% average real returns over interest (probably low if i have 1 billion in collateral).
I pass the rock on to my children and die 20 years later. The 50 million is now worth 74 million.
Both the rock and 74 million are stepped up to their current value when I pass it on to my children. The children repay the loan with their 50 million and now have 24 million and the 1 billion dollar rock still, tax free.
The tax code, today, in practice, already frowns very much on tax deference, and tries to inhibit it when possible. The AMT-schedule is purposely designed to pull tax forward, and precisely discourage strategies for tax deference e.g. to counter the abuses that would arise by using stock-based (or cult rocks) compensation to avoid income tax.
Property tax (which is a wealth tax) is another way to siphon off tax on unrealized wealth.
I'm not disagreeing with you. I only added that, from a tax collector perspective, tax deference and tax avoidance are on the same spectrum, and they will seek out mechanisms to make deference impossible. I gave an example of one of these mechanisms at the federal level (AMT) and one at the municipal level (property tax). But yes, doesn't mean there are other strategies to defer ("avoid") taxes still left.
So taking the avoidance vs deference analogy. If I borrow money for car, house, boat, plane tickets, but never have to pay it back where does that leave my obligations?
Can you explain how it is a strawman? I've never seen any kind of wealth tax proposed that takes into account how the wealth was acquired, or what form the wealth was in.
A wealth tax scenario, like all taxes in real life, will have its share of exceptions, carve-outs, and loopholes. Meaning the wealth assessment process will inevitably be far more involved than "a weird little cult offered a billion dollars for it."
Now, from a parable perspective, does the post mirror the principle of how wealth taxes work? Maybe, if you're willing to equate the entire market (or whatever communal entity we're using for the basis of assessment) to a weird little cult.
Ok, it is not a weird little cult, but literally everyone in the world who wants my rock because it is so beautiful. I don't see how that tangibly affects any part of the parable - which is forcing me to sell something I own because someone else with more money than I have wants it.
Presumably physical collectible assets (maybe also virtual ones too for the NFT crowd) will be assessed differently from more liquid assets for the basis of evaluating a wealth tax, especially in the event of surging valuations from the collectibles market. If real life taxes, like say property tax in California, can be reined in by measures like Proposition 13, then there's no reason why a real-life wealth tax won't be subject to all sorts of internal controls and effects from lobbying. Thus protecting the "run of the mill average Joe" from having to suddenly sell his mythical rock.
What about surging valuations in the equities market? If I'm worth $1B for a few moments because of a surging valuation, and then the government takes $900M of that, and then the stock crashes back to 1/100th of its peak, do I get my shares back?
Just as current income taxes have a hard deadline in which financial assets are assessed, your extreme edge case is only applicable one day a year, rendering it ever the more trivial.
Not to mention, the calculation for wealth would probably be based on something less temporary than a fleeting moment in the markets.
Finally, the government would not directly take shares, so they would always be owned by you. Presumably with the stock price so much reduced you can simply purchase more at a pittance.
I'm not sure if I would particularly care that it was just an edge case that caused me to miss out on $99M.
They wouldn't take shares, but I would be forced to sell shares in order to pay the tax bill, because I don't actually have that money just laying around. So I had 10M shares @ $1/share, share prices go up to $100/share. I get hit with a $900M tax bill and sell 9M shares in order to pay it. Price goes back down to $1/share, leaving me with 1M shares. How exactly should I purchase more at a pittance? I spent all the money I didn't even have paying the tax bill, there's nothing left in my bank account to buy any shares.
So it is no longer "Billionaires shouldn't exist", but "Billionaires who build a successful business shouldn't exist, but if you uncover a hidden treasure trove you can be a billionaire"
If you find a treasure trove worth billions of dollars, it is probably also of such archeological, historical, and cultural significance you are doing an immense service to humanity that you deserve it
Maybe it is just someone's old pile of gold. Like the San José galleon. Sure, it will be cool when it is raised, but I'm not exactly sure that it is going to change the world by bringing it up rather than just leaving it there.
By this same standard, maybe Amazon is doing an immense service to humanity, and that is why so many people use the site daily, and actually enjoy doing so. So maybe Bezos should get to keep his billions as well.
Maybe I never weighed in on the question of whether there should be billionaires or not, but you have simply projected a strawman upon me, which is fitting because this whole thread was started because I said the aforementioned parable was a strawman.
Currently, gold retails at $1808 an ounce. So it would take over 15.6 metric tons of gold to be even worth a billion dollars. That is substantially more than an "old pile", and probably of historical worth, like contained in a ruined temple or wartime vault or something
Sorry, it's hard to keep track of who believes what when I get multiple replies to my response to a single person, where there is no continuity of viewpoint between the responders. I don't think one can really have any kind of cohesive conversation that way because literally everyone is arguing something completely different. I just assumed you agreed with OP.
The San Jose galleon as I mentioned is estimated to have about $17B of gold on it. I don't think very much is going to change about the world when it is raised.
Niels Bohr said, “There are trivial truths and there are great truths. The opposite of a trivial truth is plainly false. The opposite of a great truth is also true.” And indeed, every conversation is a web of many truths, all worth examining. Ponder upon it, and one day it shall set you free.
Whether you're receiving the value of the asset or not, you're locking up the value of the asset and preventing a larger group of people from benefiting from the value of the asset, which is sort of the point of a wealth tax.
The actual value being locked up is surely held by the cult, not the owner of the rock? They're the ones who claim to have a bn to spend on a rock after all, the other guy just has a rock. Why can't the cult spend their money on something better than the rock in the first place?
In actuality it's not a rock of course. For a founder of a company the situation is more like you've spent most of your life building something you believe in and suddenly you have to sell it because a group of strangers believe that your thing is worth more money than you've ever seen in your life, and the government wants taxes based on that belief. That seems fundamentally unfair and wrong at least to me.
What is the locked up value of the rock? I like it because it reminds me of my grandfather, and the cult that will buy it will lock it in their storage room.
My point is: With a wealth tax, anyone with money can take anything they want from anyone without money, even if the person without money doesn't value something in the same way that the person with money does.
This is a contrived example that you've twisted yourself in knots to try and justify. There isn't a person on this planet that wouldn't sell an heirloom for $1 Billion unless the heirloom was actually worth ballpark $1 Billion.
The people that wouldn't sell it for a $1 Billion are the people that would give it a way for free, ie: those that have little value for money.
No it's really not. It's an illustrative example of how a wealth tax would (fail to) work. The issue at the core is that items only have value while they are exchanged. Fiat is the only thing with the characteristic of persistent value. So trying to tax standing wealth is fraught because wealth doesn't actually exist in that form.
Then simply don't tax fixed assets. Sure, sure, then people will simply avoid taxes by converting cash and other assets into properties that are not directly taxable, but that's just how these cat-and-mouse games go.
That's what you should be doing because the government should be extracting taxes on the exchange of fiat for for assets and then back to fiat. That's how things already work in fact. People are just angry that other people find value in e.g. Elon Musk and Jeff Bezos when they otherwise don't and want to tax away their entire existence because justice. The alleged problem is those people still have billions even after paying taxes on the acquisition of assets. I'm all for fixing tax loopholes so people can't hide money and avoid existing taxes. How about starting there and actually taxing the tangible before trying to tax the intangible? Companies can and in fact are supposed to grow in value. If the company you own becomes super valuable, you win. If we are unhappy how valuable some companies can become, then you need to cap that and actually break the companies up or progressively more heavily tax profits (which are tangible) such that the company can only become so valuable to investors/owners after which it ceases to provide any additional value because it makes too much money. But since everyone hates Bezos while happily paying for their yearly prime membership, that won't happen. And indeed, Amazon doesn't make incredible amounts of money, it's just ubiquitous and provides a lot of utility which is what makes it valuable. Bezos fought investors for years and years pushing his narrative and strategy of minimizing short term profits to build a company that people literally can't live without and it worked. Crazy. Maybe the government should just buy Amazon...
Can you explain how it is a strawman? Someone else accused it of being a strawman, but then could only claim that it is "contrived", which is not the same as a strawman.
So where's the strawman? Would the person in this scenario not be affected by a proposed wealth tax?
Also, I don't really get how it is "simping for billionaires" in the slightest. If I said that billionaires shouldn't be pulled from their mansions and lynched, am I simping for them too?
It's not a straw man, I believe a better idiom would be 'the tail wagging the dog', i.e. you're using an extreme edge case to argue against the big picture proposal. A real tax would include the small picture details: payment plans, equity swaps, valuation tribunals, etc to cover the oddball cases. But none of that would matter, you would sell it and net the $500M.
Even with payment plants ,equity swaps, valuation tribunals, it would still be the case that someone with more money than me can force me to sell anything I own to them, by placing a value higher than I can pay on it?
I find it odd that you think that amidst this world of legal tomfoolery and loopholes - a wealth tax could not be conceived that doesn’t force artificial valuations and liquidations.
No. The rock is worth vastly more to the owner than the cult which is why they won't sell it. However, the value is intrinsic... it's priceless. It's worth infinitely much to the owner regardless of how much anybody else thinks it should be worth. Therefore, it's impossibly to tax the owner infinitely for their intrinsically valuable rock...
Should I be forced to sell my rock, because I'm getting a $500M tax bill from the government because some weird little cult said they would pay $1B for it - regardless of whether I want to sell my rock?