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Theory — the new unrealized capital gain tax is designed (or will have the effect of) forcing people like Elon Musk to surrender control of corporations resulting in PMC control instead of founder control.
As some detail, there is a proposed 25% tax on unrealized gains for the super wealthy coupled with a 44% tax on realized gains. So let’s say you own 10b of a 100b company. If you do nothing you will owe 2.5b of tax. But if you sell 2.5b, you’d actually owe more! So you end up having to sell a pretty big chunk of your stake. This means that before companies get really large founders have to sell a big chunk of their equity preventing super wealth. It also changes incentive structures for founders making them more likely to cash out.
Once they cash out, PMC will take control. PMC coexists with modern democratic policy. Therefore, the democrat tax proposals help ensure corporations are run by allies.
I don’t see a tax on unrealized gains passing. The entire lobby of every super rich person in the US would have to fail, and that would surely represent an extraordinary failure.
The better approach would be to tighten up estate taxes so that the wealthiest families have a ‘minimum required tax burden’ to pay when a patriarch dies, regardless of what measures they’ve taken to transfer wealth in life. So if Bob dies having unquestionably accumulated $500m in his life,
In any case, this wouldn’t require anyone to relinquish control, because you could borrow against your equity to pay the tax bill.
I have wondered if replacing income tax with a tax on expenditures would fix some of these questions. Sure, the rich might accrue huge bank accounts, but money isn't actually useful until it's spent. Something like a flat percentage (or maybe progressive) on anything over the computed cost of living for your family. Sure, this has its own questions: does buying investment assets count? Does it have a negative version of the EITC? Can you pro-rate multi-year expenses? I think you might be able to balance timing expenses pretty reasonably with cumulative lifetime values (math: a conservative vector field, although we could do this with income tax already). How do you deal with cash tips?
Maybe it's more bookkeeping to track expenses, but those are starting to be almost entirely automated systems that could make this feasible. But I'm also not really sure it's a better system, just a different answer to a problem with no ideal solutions.
The typical proposal for something like this is call a "consumption tax", using the economics definition of "consumption". Though, my understanding is that most proposals either just put it all into a form of sales tax or have something of an "implied consumption", where the calculation is just income minus investment/savings, where it's implied that you've used the rest on some sort of consumption. This is a simplification that has some edge cases, but it makes the calculation problem a lot simpler. It's still slightly more complicated than an income tax, because you have to include information from your various financial institutions about how much net new investment/savings you had in that year. You're probably getting a tax document from all these people, anyway, since they're taxing interest/cap gains, but they'd basically have to include this number, too.
The justification for such a tax regime is pretty much exactly what you've hit on. First, if what people actually care about for inequality is that some people can consume obscene amounts of things, then it makes sense to just tax that directly; we mostly don't care if some money sits in an investment account in perpetuity. Even if it is inherited, why would you care, except to the extent that those heirs are using it for consumption? Secondly, economists believe pretty strongly that investment/savings in capital is an important component of increasing GDP (super simple example here), and so people should be perfectly happy to incentivize investment/savings. Every dollar that you save, even in your bank account, makes the cost of capital 'cheaper' for a potential new product to be developed, improving the lives of everyone. So, if we want a rich society with cool stuff that people can consume, it's good to incentivize investment and not care if some baron has a billion dollars invested in an account somewhere, providing this capital. And if we want to make sure that people maybe moderate their consumption at least a little bit rather than going all out with opulent displays of consumption, it seems more palatable to just directly tax consumption, perhaps quite progressively.
I worry that a consumption tax would work too well and suppress overall demand for goods and services which might lead to government subsidy of "core" goods and services but would be difficult to fund because people stop spending on consumption and tax revenues go down.
There's some behavior assumptions built in there, so I admit that.
Consumption and consumer behavior is how prices are discovered and demand signals are captured. I don't know how you'd do it otherwise. Investment is good, but you have to eventually invest in a company that makes sales.
Possibly so, similar to how income taxes suppress overall income. I guess whether this is a good thing might depend on how one feels about vague things like "consumer culture".
I don't see why this would be the case. What would be the set of "core" goods and services in question?
Sure. I can't imagine consumption would go to zero, just like how income doesn't go to zero just because we tax it. People still want to earn income and consume stuff. Both income and consumption taxes have some distortionary effects and suppress some amount of things that we like... but a consumption tax just does it all slightly better. I think a shift from income to consumption tax would have, as they say, marginal effects for most people. On the low income end of the spectrum, the rate is likely to be quite low, but it may provide a small nudge for such people to think about saving a bit more (which is often good for them, individually). This should be a positive for anyone who is worried about poor people not having a lot in savings to get through the occasional tough time.
Most importantly, for people who are concerned specifically about the opulent consumption of the super wealthy, this should be incredibly appealing. If anything, it's great for figuring out which people actually care about extreme consumption inequality (who should be totally fine with investment that helps everyone)... and which mostly just hate rich people generally and want to stick it to them.
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