Gravy Owl Wrote:

OptimisticOwl Wrote:That is one of the reasons why I favor a national sales tax - a consumption tax. You spend a dollar, it doesn't matter how you earned it.
Do drug dealers file tax returns? No. Will they start filing tax returns if it is a flat tax? No. Will they pay sales tax when they buy something. Yes. It is a way to reach all incomes, all workers. A graduated or a flat income tax either one penalizes the honest worker while letting the crook off.

We have talked about sales tax before, and I am receptive to the idea with appropriate exemptions (unprepared food being the most obvious). But I'm not sure it solves this problem. Both sales tax and income tax are really transaction taxes. Either way, all honest transactions are either taxed or exempted; either way, black market transactions are not taxed. Your idea increases the direct tax load of drug dealers but decreases that of drug buyers.

It might solve the capital gains inflation issue. But then, I don't understand why we can't just adjust the cost basis for inflation and tax the difference as regular income.

In theory I would prefer to tax wealth rather than creation of wealth. I think that would increase the incentive to produce, which would benefit the economy. Property tax is an (the?) example of this. In practice it has its own complexities, but it seems like a good idea.

I would exempt groceries, gasoline, and medicine. Don't know about rent.

As for the CG, we could easily adjust for inflation, but that would require putting a table of values into the hands of every taxpayer. What politician wants the electorate to see how much the buying power of the dollar has eroded since, say, 1972? Other than that, I see no reason why it couldn't be done.

Taxing wealth means it gets taxed again and again and again, ad infinitum. Put $10K in a CD. Tax it 5%/yr until it is gone. If you meant taxing only real estate, who would want to buy any? I own property on which the tax valuation is going to go up to unmanageable levels. That means I can't hold it any longer, I must sell. If i can't find a buyer, I will lose it. Multiply this situation by 1,000 to cover the volume of tax money needed and make it nationwide, and that is what we will have if our government is supported by property taxes. Also, if you meant only real estate, why ignore the other ways of holding wealth? Also, we have again the problem of definition, just this time it is the problem of defing wealth instead of the problem of defining income. Is Exxon stock wealth? If you tax it 5%/yr, who will buy it? Is a mom-and-pop grocery wealth? How do you value it?

All the tax methods have flaws. I think the sales tax has the least flaws and the broadest reach. it has the added advantage that most (maybe all?) states already have a sales tax collection and audit procedure in place, so the Feds could piggyback on that system cheaply.

Gravy Owl Wrote:

OptimisticOwl Wrote:That is one of the reasons why I favor a national sales tax - a consumption tax. You spend a dollar, it doesn't matter how you earned it.
Do drug dealers file tax returns? No. Will they start filing tax returns if it is a flat tax? No. Will they pay sales tax when they buy something. Yes. It is a way to reach all incomes, all workers. A graduated or a flat income tax either one penalizes the honest worker while letting the crook off.

We have talked about sales tax before, and I am receptive to the idea with appropriate exemptions (unprepared food being the most obvious). But I'm not sure it solves this problem. Both sales tax and income tax are really transaction taxes. Either way, all honest transactions are either taxed or exempted; either way, black market transactions are not taxed. Your idea increases the direct tax load of drug dealers but decreases that of drug buyers.

It might solve the capital gains inflation issue. But then, I don't understand why we can't just adjust the cost basis for inflation and tax the difference as regular income.

In theory I would prefer to tax wealth rather than creation of wealth. I think that would increase the incentive to produce, which would benefit the economy. Property tax is an (the?) example of this. In practice it has its own complexities, but it seems like a good idea.

I would exempt groceries, gasoline, and medicine. Don't know about rent.

As for the CG, we could easily adjust for inflation, but that would require putting a table of values into the hands of every taxpayer. What politician wants the electorate to see how much the buying power of the dollar has eroded since, say, 1972? Other than that, I see no reason why it couldn't be done.

Taxing wealth means it gets taxed again and again and again, ad infinitum. Put $10K in a CD. Tax it 5%/yr until it is gone. If you meant taxing only real estate, who would want to buy any? I own property on which the tax valuation is going to go up to unmanageable levels. That means I can't hold it any longer, I must sell. If i can't find a buyer, I will lose it. Multiply this situation by 1,000 to cover the volume of tax money needed and make it nationwide, and that is what we will have if our government is supported by property taxes. Also, if you meant only real estate, why ignore the other ways of holding wealth? Also, we have again the problem of definition, just this time it is the problem of defing wealth instead of the problem of defining income. Is Exxon stock wealth? If you tax it 5%/yr, who will buy it? Is a mom-and-pop grocery wealth? How do you value it?

All the tax methods have flaws. I think the sales tax has the least flaws and the broadest reach. it has the added advantage that most (maybe all?) states already have a sales tax collection and audit procedure in place, so the Feds could piggyback on that system cheaply.

OptimisticOwl Wrote:As for the CG, we could easily adjust for inflation, but that would require putting a table of values into the hands of every taxpayer. What politician wants the electorate to see how much the buying power of the dollar has eroded since, say, 1972? Other than that, I see no reason why it couldn't be done.

Good point. Ugh. Plus this gives the politicians something to argue about.

Your main argument against a wealth tax ignores the extra money you'll have from not paying transaction taxes. Property tax in Texas hasn't stopped people from buying property. People will still buy CDs and stocks and real estate because those things make money. They would make more money than the current system since the income wouldn't be taxed. And you could buy more of them than if you had to pay sales tax -- and if you decide to sell them later, they'll be worth more since the buyer won't have to pay sales tax either. On average, this will all be a wash. The difference is that taxing wealth provides the maximum incentive for production.

Interesting point about sales tax collection, although I'm sure the feds would want everything done their way. But the states could indeed realize some savings by standardizing to the federal system.

Gravy Owl Wrote:

OptimisticOwl Wrote:As for the CG, we could easily adjust for inflation, but that would require putting a table of values into the hands of every taxpayer. What politician wants the electorate to see how much the buying power of the dollar has eroded since, say, 1972? Other than that, I see no reason why it couldn't be done.

Good point. Ugh. Plus this gives the politicians something to argue about.

Your main argument against a wealth tax ignores the extra money you'll have from not paying transaction taxes. Property tax in Texas hasn't stopped people from buying property. People will still buy CDs and stocks and real estate because those things make money. They would make more money than the current system since the income wouldn't be taxed. And you could buy more of them than if you had to pay sales tax -- and if you decide to sell them later, they'll be worth more since the buyer won't have to pay sales tax either. On average, this will all be a wash. The difference is that taxing wealth provides the maximum incentive for production.

Interesting point about sales tax collection, although I'm sure the feds would want everything done their way. But the states could indeed realize some savings by standardizing to the federal system.

To raise enough money to replace the sales tax and the income tax, I think the ad valorem tax you advocate would have to be quite big - much higher than the 5% a year I use as an example. Try this. Buy some raw land and hold it until an interested buyer offers you enough to sell. It can be done - for now. Now try buying that raw land and holding it while paying tens of thousands of dollars or more in taxes annualy with no coresponding income. Is that less attractive?

This is not theoretical. I have some land I have held over 30 years that is about to be taken into the city. My taxes are about to increase from $3k to about $80K per year because I will lose my agricultural valuation and it will be replaced with a commercial valuation. I must sell. I would rather hold, as this is where I live, my home, but I have no income from the property to support the taxes. If I don't sell, I will lose it. Now if every piece of land in the whole US had this kind of tax burden on it, who would want to buy? Yes, land in/near a city will always be worth more than rural land, but if we put the tax burden of supporting the ENTIRE US government on land, even the desert acreages in West Texas will become too expensive to own without income, and where is that supposed to come from? Land becomes a white elephant. All sellers, damn few buyers. I would rather keep our current tax system. A wealth tax would collapse our economy, IMO.

And how would you tax the other forms of wealth other than land? If land is the only form of wealth taxed, of course there will be a fire sale on land and a corresponding stampede into other forms of wealth. We could then term stocks, CDs, cash, etc as "loopholes" or "tax breaks for the rich".

To make owning a CD worthwhile, it would have to earn the wealth tax amount plus a certain percentage. This raises the cost of money for banks, raising the interest rate they must charge, putting a damping effect on the entire economy. Carter economy at best, another Great Depression more likely.

Stocks - they also must return enough to at least cover the wealth tax. Only blue chips with great and stable dividend records need apply. Speculative stocks need to have a really, really big upside to attract investors. IPOs dwindle to zero, and the stock market as vehicle for financing new businesses and business growth just dies.

That leaves cash. Do like Scrooge McDuck and put it all in a "money room". Every year take a percentage off the top and send it to the government. I don't see much future in this.

I just don't see any way this works.

My choices:
1. Sales tax
2. flat tax
3. current tax system

It depends on what the percentage is. There is much more wealth than there is sales/income in a year. A piece of land or a company or a CD is typically worth much more than the annual income it produces. Correspondingly, the revenue-neutral wealth tax rate would be much lower. The amount of a per-year wealth tax on a CD would be in the same ballpark as the tax on the income it produces in the current system. OTOH I think your sales tax would have to be relatively large since it would be all up front (unless you wanted to consider payment of interest to be a sale -- a tricky definition -- but I don't claim to be an expert on your proposal). A CD is a convenient example for me since valuation is straightforward. Analyzing other forms of wealth/income/sales would be more complex.

Of course both of our proposals are pretty much academic. The politicians aren't going to make a dramatic change anytime soon, and if they do it'll be to a flat (I'd call it linear) income tax.

Gravy Owl Wrote:It depends on what the percentage is. There is much more wealth than there is sales/income in a year. A piece of land or a company or a CD is typically worth much more than the annual income it produces. Correspondingly, the revenue-neutral wealth tax rate would be much lower. The amount of a per-year wealth tax on a CD would be in the same ballpark as the tax on the income it produces in the current system. OTOH I think your sales tax would have to be relatively large since it would be all up front (unless you wanted to consider payment of interest to be a sale -- a tricky definition -- but I don't claim to be an expert on your proposal). A CD is a convenient example for me since valuation is straightforward. Analyzing other forms of wealth/income/sales would be more complex.

Of course both of our proposals are pretty much academic. The politicians aren't going to make a dramatic change anytime soon, and if they do it'll be to a flat (I'd call it linear) income tax.

Re: the poiticians: You're right, and in about 10yrs the flat tax will be so full of special treatments that it will be be just as bad as now.

Re: wealth tax. Yes, there is a lot of wealth. But income is taxed only once (in most cases), while the wealth tax would tax the same wealth again and again, until the wealth itself is gone and all that is left is some of the earnings on the wealth. It is the reverse of compound interest. It is compound taxation.

second edit: (first was clarification): If I understand you correctly, we all would do a balance sheet at the end of the year and pay a percentage. But assets can, and are, subject to different valuations. Land is at market, right. Market is set by offers, but if there are no offers, then land valuations can vary immensely. There is a reason the IRS requires multiple appraisals on real estate for estate taxes. I have seen appraisals vary 400% from each other. So now every tax return in america that shows land has to be audited to see if the valuations were fair. Also ownership matters. Person A may own a piece of property worth $30K. He sells 1/3 to each of his brothers. Do they now each own $10K of property? Not according to current IRS guidelines - an undivided interest may be discounted since there is a loss of control. They now each own about 7-8K worth of property. Heck, i just found a loophole in an imaginary tax system.

Back to policians: If enough people (yes, we, the people) got behind a national sales tax instead of a flat tax, it would become politically viable. But I think people are more likely to support a flat tax, since it reassures them that others are not using loopholes and TBFTR to somehow pay less than they should. A flat tax, IMO, actualy favors wealthier taxpayers. I am sure the guys making millions/yr woudl welcome it, while the guys making minimum should hate it. But that is economics, not psychology. I think a lot of people would support your wealth tax because they would see it as tax on the wealthy bastards, not themselves.
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OptimisticOwl Wrote:This is not theoretical. I have some land I have held over 30 years that is about to be taken into the city. My taxes are about to increase from $3k to about $80K per year because I will lose my agricultural valuation and it will be replaced with a commercial valuation. I must sell. I would rather hold, as this is where I live, my home, but I have no income from the property to support the taxes. If I don't sell, I will lose it.

Just watched a bobcat wander through my back yard. Day before yesterday there was a fox. Wonder where they will go when the new road comes though? Damn, I'm gonna miss this place.

Sounds like a cool place, OO. You gonna move further out?

OptimisticOwl Wrote:As for the CG, we could easily adjust for inflation, but that would require putting a table of values into the hands of every taxpayer. What politician wants the electorate to see how much the buying power of the dollar has eroded since, say, 1972? Other than that, I see no reason why it couldn't be done.

Is that really true? I think the "good ol' days" concept surrounding inflation is bunk. In fact, it's dangerous b/c it skews people's thinking.

Look at some of the cost of many retail goods:
Cereal- Dropped in price by nearly 50% in the early/mid 1990s. It's climbing again, but still competitive in price.

Clothes- I was at Modell's sporting goods a few months back. Top of the line t-shirts: 5 bucks. You'd pay 6-7 bucks for a rag in the 1970s. Calvin Klein and Jordache jeans wer $40/pair in the early 1980s, Lee's were somethat cheaper but competitive. I'm sure designer jeans are still pricey, but you can get Lees for less than they cost then.

Cars- So a standard sedan is $23K now. Back in 1982 it was probably $9K. But, you now get air bags, power windows/doors, remote key access, ALB, CD-player...all standard! Put that in your 1982 car and you'd pay MORE than $23K. You also now get a 100K mi warranty, and chip-resistant, non-fading paint.

I'm sure this is off topic from what you guys were talking about, but the complaining attitude of the US is the underlying problem. It's why the irrational left can keep spouting off rhetoric and get elected, despite all contrary evidence.

Bourgeois_Rage Wrote:Sounds like a cool place, OO. You gonna move further out?

Don't know. I am 61. I have thought about moving to different places and types of places, from the Caribbean to Colorado to Houston to Fort Worth. I have thought about staying in the country, or the mountains, or trying urban living for a change. The new road will be built this year and will pass within 50 yards of my house, so the peaceful country living I have enjoyed since 1972 will be gone forever. (Fifty yards is damn close when your driveway is almost 1/2 mile long.) The taxes will go up in Jan '08 if I'm unlucky, jan '09 if i'm lucky, so I have a year to two years to decide.

I grew up on a 10 acre "ranch" on the other side of town, so except for the college years and the 4 years immediately after graduation, I have always been a country dweller. It has its plusses and minuses One of the biggest plusses has been the closeness to the wildlife. Deer and wild turkey (the gobbling kind, not the sipping kind) in my yard, the occasional wildcat or fox, these have all been among the plusses. One of the minuses, at times, has also been the closeness to wildlife. Three times I have had to deal with rattlesnakes in the house, not to mention the occasional liberal, uh, I mean skunk in the backyard. ;-) I will miss all the plusses and even some of the minuses, but in a way I am also looking forward to see where this next part of my life takes me. One thing that bothers me is that the I am not making the change voluntarily, it is being thrust upon me.

In a way I shouldn't complain, because one of the reasons i acquired this land was as an investment, in the hope and reasonable expectation that eventually the city would grow out to me and I could sell and use the money for my retirement. (I had/have little faith in the government's ability to take care of me in my old age, so i did it myself.) It worked almost perfectly. I wish the city had gotten here ten years ago or ten years from now, but it is what it is.

Anyhow, thanks for asking. I try to see the silver linings in everything, hence the name, but I am aware that you don't get silver linings without clouds. Wherever I end up I imagine I will still be posting here.

Yeah, land speculation can be risky, you never know when it'll pay off. I can understand the bittersweetness of it all. You'll make some decent money off the sale, but you lose what was your home for so may years.