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Inequality

by Jerome a Paris Fri Jan 20th, 2012 at 05:50:48 AM EST

Someone sent me this web page about the French 1% and this generated the following comment:

If you work for 40 years with an income putting you in the top 1% of earners, and save half of it, you still won't be in the top 1% by wealth at the end. But if you are in the top 1% by wealth and earn 5% on that wealth, you are in the top 1% of income without any work.
The conclusion is that wealth taxes, and inheritance taxes in particular, are especially important. High marginal income taxes are necessary to avoid having people betting (someone else's) house to make it big quickly, but wealth taxes are actually more relevant to fight inequality.


Display:
Krugman recently wrote about this:

The Great Gatsby Curve - NYTimes.com

Below is what he dubs the Great Gatsby Curve. On the horizontal axis is the Gini coefficient, a measure of inequality. On the vertical axis is the intergenerational elasticity of income -- how much a 1 percent rise in your father's income affects your expected income; the higher this number, the lower is social mobility.



Sweden's finest (and perhaps only) collaborative, leftist e-newspaper Synapze.se
by A swedish kind of death on Fri Jan 20th, 2012 at 06:19:41 AM EST
There is a recent back-and-forth discussion on the Great Gatsy curve, traceable from here.
by das monde on Sun Jan 22nd, 2012 at 03:36:57 AM EST
[ Parent ]
interesting math but I always have problems with wealth being taxed because it is expropriation. I perfer a tax on income, regardless of the source of that income (e.g. salary, dividends, rents...).

The only thing I might be able to support is an inheritance tax if it devised properly and doesn't cause family enterprises to break down once the next generation inherits it. As a an ex banker advising the German Mittelstand I can say that that can be an issue. But it can be solved in a number of ways...

by crankykarsten (cranky (where?) gmx dot organisation) on Fri Jan 20th, 2012 at 09:17:41 AM EST
Why is taxation of income not expropriation?
If taxes act as disincentives, what incentives are implied by taxing income and not taxing holding wealth?

John Stuart Mill argued that unearned income should be taxed. As a result, he advocated taxes on gifts and inheritance (let's remember that the inheritance tax is on the receiver of the property, not on the giver - who is free to dispose of it without paying taxes). He also advocated taxes on residential values on the argument that ability to pay relates to disposable income of which the size of one's dwelling is a good proxy.

We would be rather better off policy-wise if we followed the ideas of late 19th century English liberal patricians, which means politically we're somewhere before 1850...

tens of millions of people stand to see their lives ruined because the bureaucrats at the ECB don't understand introductory economics -- Dean Baker

by Migeru (migeru at eurotrib dot com) on Fri Jan 20th, 2012 at 09:23:35 AM EST
[ Parent ]
well, in that case any tax is expropriation.

But wealth should theoretically come from past taxed income so it shoudn't be taxed again as that is your hard earned property (not in the real estate sense but in the I own it property sense)

I don't thing taxes are there to incentivize anyone in any direction, I think they are just a way to fund government. They sould be as neutral as possible which is why I think all kinds of income which generates should be taxed.

by crankykarsten (cranky (where?) gmx dot organisation) on Fri Jan 20th, 2012 at 09:30:51 AM EST
[ Parent ]
Taxes are not there to provide incentives, but public policy does act as an incentive or disincentive for people's actions, especially at a monetary level.

When you say wealth should theoretically come from past taxed income, you open yourself to the retort that wealth does not, in practice, come from there. We're not designing some sort of utopia here, but talking about pubic policy for the here and now. And, in fact, John Stuart Mill (again) argued

The principle of private property has never yet had a fair trial in any country; and less so, perhaps, in this country than in some others. The social arrangements of modern Europe commenced from a distribution of property which was the result, not of just partition, or acquisition by industry, but of conquest and violence: and notwithstanding what industry has been doing for many centuries to modify the work of force, the system still retains many and large traces of its origin. The laws of property have never yet conformed to the principles on which the justification of private property rests. They have made property of things which never ought to be property, and absolute property where only a qualified property ought to exist. They have not held the balance fairly between human beings, but have heaped impediments upon some, to give advantage to others; they have purposely fostered inequalities, and prevented all from starting fair in the race. That all should indeed start on perfectly equal terms, is inconsistent with any law of private property: but if as much pains as has been taken to aggravate the inequality of chances arising from the natural working of the principle, had been taken to temper that inequality be every means not subversive to the principle itself; if the tendency of legislation had been to favour the diffusion, instead of the concentration, of wealth--to encourage the subdivision of the large masses, instead of striving to keep them together; the principle of individual property would have been found to have no necessary connexion with the physical and social evils almost all Socialist writers assume to be inseparable from it.
None of what JS Mill said in this paragraph is significantly less true today than it was 150 years ago. And, in fact, looking at statistics of wealth and income inequality things have not been getting any better for the past 30+ years.

As to "any tax is expropriation"

the Distribution of Wealth [is a] matter of human institution solely. The things once there, mankind, individually or collectively, can do with them as they like. They can place them at the disposal of whomsoever they please, and on whatever terms. Further, in the social state, in every state except total solitude, any disposal whatever of them can only take place by the consent of society, or rather of those who dispose of its active force. Even what a person has produced by his individual toil unaided by any one, he cannot keep, unless by the permission of society. Not only can society take it from him, but individuals could and would take it from him, if society only remained passive; if it did not either interfere en masse, or employ and pay people for the purpose of preventing him from being disturbed in the possession. The distribution of wealth, therefore, depends on the laws and customs of society. The rules by which it is determined, are what the opinions and feelings of the ruling portion of the community make them, and are very different in different ages and countries, and might be still more different, if mankind so chose.
The very concept of expropriation is a human convention, as is property itself, and Western™ ideas about property can be traced back to Roman Law and the idea of absolute right to dispose of one's property.

tens of millions of people stand to see their lives ruined because the bureaucrats at the ECB don't understand introductory economics -- Dean Baker
by Migeru (migeru at eurotrib dot com) on Fri Jan 20th, 2012 at 09:38:55 AM EST
[ Parent ]
pubic policy

Uh, public.

tens of millions of people stand to see their lives ruined because the bureaucrats at the ECB don't understand introductory economics -- Dean Baker

by Migeru (migeru at eurotrib dot com) on Fri Jan 20th, 2012 at 10:42:26 AM EST
[ Parent ]
I think that taxation of earned income should be relatively low, but taxation on unearned income should make up for it.

It is not the owner of a productive asset who earns money, but rather the asset, and there is no reason whatever why privileged property rights - such as exclusive rights over the commons of land or knowledge; or 'free' limited liability on investment through joint stock limited liability corporations - should not be taxed.

It is a misleading canard to say that people are taxed twice: they are taxed once (too highly IMHO) on earned income and then the income from the asset is taxed.

There is a bonus here in that taxation of such property rights is much less avoidable, and much easier to collect. Friedman himself considered Land Value tax to be the 'least worst' and most economically efficient tax.

So I would (if I did not regard taxation as pretty Last Century)  advocate drastic cuts in taxation of earned income and commensurate increase of taxes on unearned income from privileged property rights.

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Fri Jan 20th, 2012 at 11:17:54 AM EST
[ Parent ]
Depending on the taxes, people certainly are taxed twice in certain situations - the most obvious being VAT, which is certainly an example of double taxation when considered with income tax.

There should be limited taxation on useful investment and massive taxation on hoarded resources (including land, gold, artworks, antiques, etc) and casino speculation.

Enhanced taxation on luxury spending wouldn't be a bad thing either.

But while we're in fantasy land, it would also be a good idea to disbar anyone with a net worth of more than £x million from political office, and to make it an offence for any corporation with a net worth of more than £y billion to spend money on lobbying.

These things will not happen, but most of our current problems are caused by corrupt money swilling around politics, and they'll only be solved once money and politics become separated.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Fri Jan 20th, 2012 at 11:46:56 AM EST
[ Parent ]
Money just circulates. Any dollar/euro/yuan or whatever has probably been taxed countless times. "It's already been taxed" is just an appeal to emotive reactinons. Yes it has, and it is completely irrelevant.

Earth provides enough to satisfy every man's need, but not every man's greed. Gandhi
by Cyrille (cyrillev domain yahoo.fr) on Fri Jan 20th, 2012 at 12:19:54 PM EST
[ Parent ]
It doesn't work like that.

Taxation is about power redistribution, not about money as a conserved object.

When the Inland Revenue in the UK let Goldman Sachs off a sizeable tax bill while bankrupting small business owners for relatively tiny amounts due, that's very much a live political issue.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Fri Jan 20th, 2012 at 12:28:53 PM EST
[ Parent ]
I never disputed that. Just pointing out that the "money should not be taxed twice" argument is merely a self-serving fallacy.

Earth provides enough to satisfy every man's need, but not every man's greed. Gandhi
by Cyrille (cyrillev domain yahoo.fr) on Fri Jan 20th, 2012 at 01:32:52 PM EST
[ Parent ]
well, that is very philosophical, like many comments above. But seriously, I earn money, pay tax, save that money and then buy a home. Why should the value of that home be taxed again?
by crankykarsten (cranky (where?) gmx dot organisation) on Fri Jan 20th, 2012 at 01:09:54 PM EST
[ Parent ]
And why shouldn't it be?
We can ask the "why should A be taxed?" question on anything we don't want to see taxed. It doesn't make it decisive.

There must be taxation (or rental of the commons) as long as we want to have a government (and the alternative is Somalia, not Ayn Rand fantasy). There is no a priori reason to tax A rather than B. Ideally, we'd like to tax negative things more than positive things -and so wealth more than income since it has more negative consequences. But, of course, externalities even more so.

Besides, any tax on the value of houses would be priced in so only a sudden major hike after buying would have a significant negative effect.

Also besides, there is nothing inherently virtuous in saving

Also also besides, refusing taxes on wealth is the ultimate fait accompli policy. All you need is a few years of conservative governments, those in position of power make out like bandits (think Russian oligarchs) and thereafter maintain a huge position while the plebs who need to work for a living suffer through years, nay decades of adjustment. Rinse, wash, repeat.

Earth provides enough to satisfy every man's need, but not every man's greed. Gandhi

by Cyrille (cyrillev domain yahoo.fr) on Fri Jan 20th, 2012 at 01:43:50 PM EST
[ Parent ]
We can always tax your wealth away through inflation.

tens of millions of people stand to see their lives ruined because the bureaucrats at the ECB don't understand introductory economics -- Dean Baker
by Migeru (migeru at eurotrib dot com) on Fri Jan 20th, 2012 at 05:03:18 PM EST
[ Parent ]
Well, we've been avoiding that for the last thirty years by running a low-employment economy.
by afew (afew(a in a circle)eurotrib_dot_com) on Fri Jan 20th, 2012 at 05:16:23 PM EST
[ Parent ]
And that's why stealth tax by inflation won't be enough. Too late for that. We need to do more against really obscene wealth in order to eliminate extreme inequality.
by Katrin on Fri Jan 20th, 2012 at 05:20:08 PM EST
[ Parent ]
Maybe a job guarantee programme run by the public authorities would work.

Instead, we're hearing noises about Merkozy wanting to shift gear to "growth and jobs" at the January 30 summit, but the proposals will be along the lines of "active employment policies" which is EUspeak for blaming the unemployed for the lack of job offers.

tens of millions of people stand to see their lives ruined because the bureaucrats at the ECB don't understand introductory economics -- Dean Baker

by Migeru (migeru at eurotrib dot com) on Fri Jan 20th, 2012 at 05:27:36 PM EST
[ Parent ]
Yes, a job guarantee is what I am dreaming of. There is enough work that ought to be done, but we are told there is no money for that. Well connected people advocated tax cuts expropriating the rest of us 30 years ago. There is the money. We must get the billions back. And then we need a minimum wage that is a living wage and the state can guarantee a job for everyone.
by Katrin on Fri Jan 20th, 2012 at 05:48:00 PM EST
[ Parent ]
Job guarantee and guaranteed living income. If only!

tens of millions of people stand to see their lives ruined because the bureaucrats at the ECB don't understand introductory economics -- Dean Baker
by Migeru (migeru at eurotrib dot com) on Fri Jan 20th, 2012 at 07:01:59 PM EST
[ Parent ]
So you can't fire anyone? Or can only just shift them around?

Old Soviet Union joke:

They pretend to pay us, and we pretend to work.

I think the concept needs work.

Align culture with our nature. Ot else!

by ormondotvos (ormond.otvosnospamgmialcon) on Sat Jan 21st, 2012 at 12:09:59 AM EST
[ Parent ]
Job guarantee means that if you want to work X hours a week at the minimum wage, the employment office guarantees you a placement. Which isn't the case today.

Guaranteed living income means that everyone receives Y% of median income.

tens of millions of people stand to see their lives ruined because the bureaucrats at the ECB don't understand introductory economics -- Dean Baker

by Migeru (migeru at eurotrib dot com) on Sat Jan 21st, 2012 at 04:59:16 AM EST
[ Parent ]
Yes. And that would enable us to get work done that is not profitable in monetary terms, but that makes our lives better. The things that are too expensive in the care for the old, and the like.
by Katrin on Sat Jan 21st, 2012 at 08:25:56 AM EST
[ Parent ]
Only if your wealth is in things like non inflation protected bonds. Won't do much to those whose fortune is in land, or company ownership.

Earth provides enough to satisfy every man's need, but not every man's greed. Gandhi
by Cyrille (cyrillev domain yahoo.fr) on Sat Jan 21st, 2012 at 02:31:54 AM EST
[ Parent ]
Inflation-indexed bonds count as bonds in foreign currency and there's no reason for the government to issue them or the central bank to discount them. Do the math.

tens of millions of people stand to see their lives ruined because the bureaucrats at the ECB don't understand introductory economics -- Dean Baker
by Migeru (migeru at eurotrib dot com) on Sat Jan 21st, 2012 at 05:00:43 AM EST
[ Parent ]
Errr, so?
Whether or not there is a reason to issue them, they do exist.
Even if they suddenly disappeared, my point remains -inflation would only eat away wealth that is in bank acocunts or non-inflation protected bonds (all bonds in that hypothesis). Direct ownership of productive assets, land, claims over future production would not be affected.

Earth provides enough to satisfy every man's need, but not every man's greed. Gandhi
by Cyrille (cyrillev domain yahoo.fr) on Sat Jan 21st, 2012 at 06:23:36 AM EST
[ Parent ]
If there is no state guarantee of inflation indexed bonds, issuers of such bonds can be driven bankrupt by inflation, and people who put their wealth in them would lose out.

The problem currently is not that they do exist, but that governments (such as the French) do issue them.

tens of millions of people stand to see their lives ruined because the bureaucrats at the ECB don't understand introductory economics -- Dean Baker

by Migeru (migeru at eurotrib dot com) on Sat Jan 21st, 2012 at 11:08:19 AM EST
[ Parent ]
Nobody ever got wealthy by declaring their income, not dodging any tax, and declaring all their wealth. Well, maybe Warren Buffett...

Now seriously, why is this funny?

tens of millions of people stand to see their lives ruined because the bureaucrats at the ECB don't understand introductory economics -- Dean Baker

by Migeru (migeru at eurotrib dot com) on Fri Jan 20th, 2012 at 05:08:20 PM EST
[ Parent ]
Why should the value of that home be taxed again?

It should be taxed because ownership of that home is supported and protected by most of the expensive services provided by government from fire and police to the title registration in the county registrar of taxes. Sure, it is the representation of accumulated wealth, but it is the holder of that wealth who benefits disproportionately from the services of the society that protect that wealth. "The law, in its majestic equality, forbids the rich and the poor alike to sleep under bridges,...". It lowers property values.  

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Fri Jan 20th, 2012 at 10:58:52 PM EST
[ Parent ]
define privileged property rights. Then please propose legislation to put that into force.

related topic: I sometimes think there should be a way to flag one's comment as "my fantasy wish / utopia" and "realistically doable now or in the futurs". No offence to anyone, just sayin'...

by crankykarsten (cranky (where?) gmx dot organisation) on Fri Jan 20th, 2012 at 01:16:03 PM EST
[ Parent ]
Taxation of unearned income or wealth is not expropriation, is the point.

tens of millions of people stand to see their lives ruined because the bureaucrats at the ECB don't understand introductory economics -- Dean Baker
by Migeru (migeru at eurotrib dot com) on Fri Jan 20th, 2012 at 05:02:02 PM EST
[ Parent ]
It's justified expropriation, and it's coming to a state near you (we can hope).

paul spencer
by paul spencer (spencerinthegorge AT yahoo DOT com) on Fri Jan 20th, 2012 at 09:36:38 PM EST
[ Parent ]
If you don't recognize the property rights over something, it is expropriation when you take it away?

tens of millions of people stand to see their lives ruined because the bureaucrats at the ECB don't understand introductory economics -- Dean Baker
by Migeru (migeru at eurotrib dot com) on Sat Jan 21st, 2012 at 05:03:05 AM EST
[ Parent ]
People tend to forget that the right to property is not a human right. It is a legislative invention and we can invent something else. And if we don't do that quickly, rioters like the ones in London last year will do it.
by Katrin on Sat Jan 21st, 2012 at 08:37:27 AM EST
[ Parent ]
I put up a diary, where I suggest to think about taxation of surplus capture (or appropriation) rather than earned versus unearned income.
by das monde on Sat Jan 21st, 2012 at 05:46:06 AM EST
[ Parent ]
There is a particular problem with taxing the value of residential properties based on value. As long as the population is mobile and moves often it probably works.

If you stay in the same place for 60 years discrepancies can crop up. Poor neighborhoods can become wealthy neighborhoods. (Cabbage town in Toronto for example). In effect this type of policy hits the poor and elderly quite hard.

Of course you could do worse and follow California's proposition 13.

aspiring to genteel poverty

by edwin (eeeeeeee222222rrrrreeeeeaaaaadddddd@@@@yyyyaaaaaaa) on Fri Jan 20th, 2012 at 09:34:12 AM EST
[ Parent ]
Aren't the poor more likely to be renting? Are you advocating rent control as well?
by gk (gk (gk quattro due due sette @gmail.com)) on Fri Jan 20th, 2012 at 09:40:48 AM EST
[ Parent ]
The poor can occasionally buy - provided you aren't too poor. In Canada we have recently gone through a time where home ownership has become quite possible for a large number of people who had been priced out of the market for a very long time. Some of these people will potentially be in the problem of unfordable property taxes because of change of neighborhood status when they retire.

Are you advocating rent control as well?

I'm not sure where this comes from, but the answer is - As a retired landlord specializing in lower working class tenants - hell yes. There are again particular problems - including the possibility of pricing rents so low that repairs to buildings become impossible but that must be weighed against throwing people out into the streets, and the importance of avoiding the boom bust building cycle that leads to gluts of rental accommodation and landlords being unable to make repairs as they go bankrupt. A regulated rental market is necessary to provide the highest quality housing to those who are unable to afford to buy and don't have the clout or money to challenge their landlords.

aspiring to genteel poverty

by edwin (eeeeeeee222222rrrrreeeeeaaaaadddddd@@@@yyyyaaaaaaa) on Fri Jan 20th, 2012 at 10:06:39 AM EST
[ Parent ]
It comes from having lived in the US, where the arguments about the poor are usually excuses for helping the rich. The comment I made usually led to a change of subject (most U.S. libertartians being hopeless when faced with a comment that doesn't fit in their talking points).

SInce you are obviously not one of these, I basically agree with you, except that you would be exempting the poor person from tax increases (which are partly needed to pay increased salaries to city workers etc.) so that  their heirs can cash in. One solution might be to allow people below a certain income level to postpone tax increases until selling, and then pay back taxes at that point.

Incidentally, I know people in NY (with strong rent control on older buildings) who have invested quite a bit in improving their own apartments. But this may be due to the combination of rent control with lack of rent control on newer apartments, so that they know they'll probably live in the apartment for the rest of their lives.

by gk (gk (gk quattro due due sette @gmail.com)) on Fri Jan 20th, 2012 at 02:05:55 PM EST
[ Parent ]
I'm confused about the bit on tax increases. Do tenants in NY directly pay property taxes?

I paid the property taxes on my building, not the tenants. Rent control did not limit property tax increases in Ontario. I believe that if you lease a property you typically pay property taxes, but not for renting.

aspiring to genteel poverty

by edwin (eeeeeeee222222rrrrreeeeeaaaaadddddd@@@@yyyyaaaaaaa) on Sat Jan 21st, 2012 at 09:24:02 AM EST
[ Parent ]
Good question. I think owners pay property taxes in most places (the only exception I can think of is Israel), and they certainly do in NY. But I would imagine that in the annual ritual of deciding what the allowed rent increases are, property tax increases would be taken into account.

Maybe property taxes on rent-controlled buildings simply doesn't go up much? After all, the "value" (in the normal, vague sense, not the fashion of using it as a synonym for price) of a rent-controlled building, in the sense of the income stream it provides, doesn't go up much, whatever happens to its price. So maybe the law has two ways of determining value, either based on purchase price, or based on rental value.

There was (is?) something similar with faculty housing. NYU attracts potential faculty with inexpensive housing. Back in the 80s, tax reform meant that the difference between the rent and market value (a lot...) would become taxable income. But their lobbyists managed to insert into the law an alternative way of calculating the size of the subsidy, namely the difference between the university price and similar, non-subsidied apartments in the same building. They just happened to have a few rent-controlled tenants from before they bought the building that they hadn't managed to evict.....

by gk (gk (gk quattro due due sette @gmail.com)) on Sun Jan 22nd, 2012 at 11:39:44 AM EST
[ Parent ]
Holding wealth on the order of 20 times GPD per capita allows one to live comfortably without working. Why should there be an inalienable right to hold such wealth?

Similarly, holding wealth on the order of 100 times GDP per capita allows one to comfortably support an entire family unit without working.

I don't think a relatively high rate of property tax for property amounts above 100 times GDP per capita can be considered expropriatory unless one is interested in protecting dynasties.

tens of millions of people stand to see their lives ruined because the bureaucrats at the ECB don't understand introductory economics -- Dean Baker

by Migeru (migeru at eurotrib dot com) on Fri Jan 20th, 2012 at 09:27:04 AM EST
[ Parent ]
I guess it's a thing of principle (sort of like the Bundesbank :-)))

Anyway, through the inheritance tax you could take care of your fear of protecting dynasties.

by crankykarsten (cranky (where?) gmx dot organisation) on Fri Jan 20th, 2012 at 09:39:59 AM EST
[ Parent ]
Usually wealth taxes don't appropriate the wealth (apart from transfers to other people such as in the case of inheritance), they are levied over the increase in wealth that is over the increase in wealth for which the owner did no work.

The family enterprise inheritance issue is often overstated but certainly an issue. There are really two issues. On the one had is the child contining the buisiness or just cashing out? After all, inheriting and then selling it off is no different from directly inheriting a large sum of money and should be taxed accordingly. On the other hand there is the size. The child of a farmer or baker should be able to take over their parents business without going into large debt, but why should for example the Waltons have  control over a gigantic corporation with all the political power that entails purely by virtue of their parent/grandparent?  

by Anspen on Fri Jan 20th, 2012 at 09:31:40 AM EST
[ Parent ]
sorry, under wealth tax I understand taxing wealth, not the increase in wealth. Taxing an increase in wealth is OK because when wealth increased this is usually an income although it sometimes a bit tricky to do. Appreciation of real estate is, of course, a bit tricky to tax until it is sold (at which point I would tax it) or until the rent is increased (which is already taxed).

Re the business issue, as I said, there are many easy solutions to that, but they just have to makes sure it doesn't kill the small compnies. If they are big and especially if they are listed on an exchange it's relatively easy...

by crankykarsten (cranky (where?) gmx dot organisation) on Fri Jan 20th, 2012 at 09:44:40 AM EST
[ Parent ]
Taxing real estate when sold, as Prop. 11 in California has demonstrated, is a way to transfer the tax burden from corporations (who transfer without selling) to individuals. Is this really what you have in mind?
by gk (gk (gk quattro due due sette @gmail.com)) on Fri Jan 20th, 2012 at 09:51:03 AM EST
[ Parent ]
I have not clue whatsoever about a weird law in a crazy state in a faraway country :-))

Very generally, it should not matter if an individual or a company sells something, it should be taxed regardless.

Out of curiosity, if a company in California sells a real estate to another company it is called transfer and not taxed??? That is so nuts I don't know where to begin with, my brain hurst to much trying to understand the reason for that law...

by crankykarsten (cranky (where?) gmx dot organisation) on Fri Jan 20th, 2012 at 09:57:28 AM EST
[ Parent ]
my brain hurst to much trying to understand the reason for that law

To allow corporations to not pay taxes, thereby allowing owners of corporations to accrue wealth without paying taxes?

tens of millions of people stand to see their lives ruined because the bureaucrats at the ECB don't understand introductory economics -- Dean Baker

by Migeru (migeru at eurotrib dot com) on Fri Jan 20th, 2012 at 10:38:50 AM EST
[ Parent ]
Oh yeah, it's weird and crazy out here, but that's because of immigrants from the upper 48. We don't have any border controls east and north.

The way it works is, that corporations are persons, but very special kinds of persons, persons who can split themselves up into parts and sell the parts off, so while the corporation never sells the property to cause a taxable event, the corporation itself is constantly being bought and sold.

This simple fact was not made clear to the voters who gave us Prop 13.  Maybe smoke and mirrors got in their eyes. They of course replied, something deep inside, cannot be denied.

by greatferm (greatferm-at-email.com) on Fri Jan 20th, 2012 at 01:29:08 PM EST
[ Parent ]
The French wealth tax excludes the company you own and work in from the taxable base, which avoids that problem.

Wind power
by Jerome a Paris (etg@eurotrib.com) on Fri Jan 20th, 2012 at 11:09:17 AM EST
[ Parent ]
crankykarsten
I always have problems with wealth being taxed because it is expropriation. I prefer a tax on income, regardless of the source of that income (e.g. salary, dividends, rents...).

This might be fine had we not already allowed income distribution to become so skewed towards the top. Since we have, especially in the USA, refusing to tax wealth simply enshrines the existing, destructive pattern.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Fri Jan 20th, 2012 at 10:50:15 AM EST
[ Parent ]
to solve that problem I would propose an inheritance tax.

But you are right, maybe we need a transition period where wealth is taxed. But IMHO that will be politiclly impossible to do unless we have a big revolution...

So I would concentrate on a no-loopholes tax on all income. Just look at the current debate in the US Presidential race and Mitt Romneys low tax and wealth which has resulated to a big part because of that low tax...

by crankykarsten (cranky (where?) gmx dot organisation) on Fri Jan 20th, 2012 at 10:59:17 AM EST
[ Parent ]
We could enact an 'alternative minimum tax', but this time with the minimum being about 30% and the threshold being, say, $500,000/yr. and a lower level of 20% with a threshold of, say, $200,000/yr. Both of those levels are well into 1% territory. But I dream, even if they are relatively modest dreams. The story of my life.  :-)

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Fri Jan 20th, 2012 at 10:44:39 PM EST
[ Parent ]
What's wrong with expropriation?
by Katrin on Fri Jan 20th, 2012 at 02:46:43 PM EST
[ Parent ]
... was that a gift tax, taxing the recipient rather than the estate, would be able to prevent the perpetuation of the present aristocracy of wealth (in my terms, not the authors) ... at the time (the late 1980's, their analysis was that progressive cumulative lifetime gift income of 0% on the first $1m, 25% on the second $1m, 50% on the third $1m, 75% on the fourth $1m and 100% over that point would prevent financial fortunes from being self-perpetuating.

Given inflation since then, the amounts would be higher, but the same principle would apply.

If a multi-billionaire elects to will their estate a very large number of $1m chunks, they could, indeed, entirely avoid having inheritance tax paid on the amount.

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Sun Jan 22nd, 2012 at 01:16:02 PM EST


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