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The Republican party is generally claimed to be the party of fiscal responsibility. Note the term "claimed" here; I do not think the record of Republican governance proves this claim at all well, but nonetheless the default expectation seems persistent. When I was younger, this was certainly a selling-point of the party to me, and I voted for Bush II in the hope that he'd get government spending under control. Then 9/11 happened, and he wasted trillions wandering our military through the middle east.
Now the debt is very bad, and people are once more raising the banner of Fiscal Responsibility. Is it in Republicans' interest to enforce "fiscal responsibility", and if so, how? If we were to seriously cut spending and raise taxes, as people claim the fiscal situation demands, this would almost certainly cost us the next election. In the best possible case that I can see, we would be expending our political power to create stable economic conditions for our opponents to then rule. The more likely case would be us expending our political power to ameliorate spending that our opponents increase to gain power for themselves, resulting in a much shakier economy and our complete political irrelevance.
Why not offer the Fiscal Responsibility mantel to the Democrats? The economy is very complicated after all, and they are at this point clearly the party of Expert Opinion: who better to determine and implement the hard-nosed measures necessary to right our economic vessel? When I was younger, the obvious rejoinder would have been that they would do a bad job of it and disaster would result, but it seems to me that we have not done all that much better, and disaster seems likely in any case. If disaster cannot be meaningfully avoided, then why expend limited resources demanded by a serious political conflict on an unfixable resource-sink of a problem? What's the actual plan, here?
The US unironically needs to raise taxes on the rich (I mean actual rich, not those earning large salaries). (Non-land) Wealth taxes are usually bad, but with the global reach of the IRS and their policy to tax worldwide income, there's no reason the US can't easily adopt a policy of taxing worldwide assets without too many bad side effects. This would raise significant money, imagine even a 1% worldwide non-US housing asset yearly tax on all US permanent residents and citizens (temporary residents get a pass because you don't want to discourage smart wealthy people from the rest of the world coming to the US), it would easily fill the black hole.
Why then would the wealthy hold such taxable property in their own name? It will be in a trust or foundation or in the name of their foreign cousin.
Second order effects dominate here.
One could tax every property by default. A mailbox company in the Bahamas hold that tenement? Either they cough up the taxes, or they lose their property. A publicly traded company increased its market cap by 20% in a year? Great, just print shares for Uncle Sam worth 0.2% or the market cap.
This might deter foreign investment, but especially in housing, foreign investment is just driving up prices, which is a boon only to a minority.
In the entire world?
Nah, collect the taxes in countries where the assets are. If people want to invest in China or India or Somalia instead, let these countries decide if they want to tax them and how much.
Unless those assets ultimately are controlled by Americans?
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So what happens once nobody that owns anything of substance is a US Person? Are you going to start seizing American companies from their shareholders or something?
More importantly, does anybody even read Hayek anymore?
My proposal did not hinge on the nationality of the owner, or them being a natural person or identifiable. As long as the asset is physically within the US, the US can tax it just fine.
I also think it fairer to tax investors in the country of their assets than in their country of residence, which is the opposite of what the US is doing. If a US citizen builds a thriving business in Somalia, I simply do not see how this is Uncle Sam's business (apart from the wealth transferred in or out of the US, perhaps). She is certainly not depending on the US to secure her property rights or provide legal security. By contrast, if a rich Swiss person is buying a mall in the US, he is asking the US for a lot more: that the US shall uphold the doctrine that individuals can own unlimited amounts of land, that the police please prevent robbers and looters from ruining his investment, that the court system be fair and not rule against him just because his name sounds too French. Let him simply pay the same capital gains tax a US citizen who owned the same property would pay, and if he does not like it, he can always invest in China or India instead.
This would have an additional practical advantage. For the billionaire class, becoming a citizen of a tax haven is not a big problem, while investing their wealth in a tax haven will likely be difficult. Sure, your social media company will not pay taxes, just restrict profiles to residents of the Cayman Islands. You want to pay taxes in Ireland? No problemo, just design, produce and sell your smartphones there.
In so far as taxation is theft, yes.
I just looked up the guy on WP and did a ctrl+F tax:
Hm, it seems some vandal replaced his ideas with neoliberal strawmen.
I disagree with him about inheritance tax. Say we have a progressive inheritance tax which caps the amount parents can pass to their children at 10M$. A billionaire with a single child might spend 990M$ to on "placing them in prestigious and high-paying positions", instead of only the customary few millions for Harvard, private tutors and so on. But he will find that spending money on education and prestige has diminishing returns. The last million he spends on his kid will not be increase their lifetime earning potential by 1M$. Turning your child into a movie or sport star, or sponsoring them to run for public office is all nice and well, but even if it works, most stars are not billionaires and most public officials do not manage to grift billions either.
Progressive taxation can very easily be justified through utilitarianism. There are diminishing returns to wealth and income. The difference between driving a 500$ car and driving a 10.5k$ car is a lot bigger than the difference between driving a 100k$ car and driving a 110k$ car.
I think it is generally more enlightening to look at wealth inequality than income inequality, because what counts as income will be subject to zillions of complex regulations of tax law, while wealth is much more easy to quantify. Just assume that everyone gets born in some natural state without a penny to their name, and if they end up being a billionaire, they must at some point have increased their net worth in a way which would in principle be taxable (unless the gains were made in Somalia).
The wealth Gini for the US is 0.85. Students of mathematics will notice that this is a lot closer to one (one person owns everything) than zero (everyone has equal wealth). If we use wealth as a proxy for "taxation potential", we can see that Hayek when he asserts that raising the taxes on the 0.1% would amount to insignificantly small amount of total tax revenue.
In the US, the marginal federal income tax goes from 10% (for the first 11k$/year) to 37% (for dollars made above 578k$). Looking at WP, it looks like the highest income quintile pays more than twice as much taxes as all the other quintiles combined. This means that if you do not want to change the budget, a flat tax rate would have to be roughly the same as the 24% effective tax rate charged to the fifth quintile, say 22%. (In reality, it would likely be a bit closer to the 29% the top 1% are paying.)
If you tax the poor quintile (currently taxed at 1.5%) that amount, the effect will be that they will unable to make ends meet, so one way (social security) or another (prisons), the state will have to pay for their cost of living.
When he whines about the rich people being suppressed by the poor minority, my response is that there is no human right to unlimited wealth. Capitalism is neither just nor god-given, but it is a system which works much better than all the other systems which have been tried, so societies are willing to accept high income inequalities to reap its benefits. The present deal seems very favorable to the 1%, and asking them to pay a lot to keep the status quo does not seem inherently unfair.
Assuming that the WP excerpt was a fair summary of Hayek's ideas about taxes, I can understand why he is not widely read today.
Your policy specifically encourages people not to have wealth in the US.
It's not like nobody tried this. François Miterrand famously did in 1981 and pretty much destroyed French industry. With disastrous enough consequences he had to reverse course.
People will move investment away from the US if you do this. All that nice Silicon Valley startup nursery environment will not remain. They will go elsewhere. And if you successfully suffocate your ability to innovate, you'll slowly bleed out like Europe is bleeding out right now.
Fairness doesn't enter into it. It just doesn't actually work unless you're willing to back your words with arbitrary arrests like the Chinese do. And it's unsustainable in the long term because it destroys your mechanism for innovation. Which is where the neoliberal is of any relevance.
I don't really care that there is or isn't high inequality, I care that my society survives and thrives. Eating the rich doesn't actually do any of that.
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Trusts and foundations can also be taxed like the UK does today (6% of their assets every 10 years, but equivalent to a 1% yearly tax is more like 10.5% every 10 years). The foreign cousin problem is harder to fix, but then again, if you're in the top 1% do you really trust your foreign cousin enough to not run away with your $40 million you've just put in his name legally? Very likely you'd want to insure against this risk and I think the yearly rate for such insurance would be above 1%. At that point it's just cheaper to pay the tax...
Trusts and foundations can be taxed by the country in which they are incorporated. Poland can't just randomly start taxing Italian foundations.
They can if the trust holds Polish assets or the ultimate beneficial owners of the trust are Polish (they shouldn't though because they don't have world hegemony or something equivalent to the IRS, they actually need to remain attractive to capital to succeed). All you do is require US citizens and permanent residents to declare details of any trusts they benefit from, subject to the usual penalties the IRS have if they fail to do so and then tax the value of them. Plus you put in FATCA sanctions for any place which doesn't willingly share this info. Already most places in the world don't let US citizens open bank accounts easily because of all the extra regulatory burden the US currently imposes on third countries for US persons, there's no reason they can't extend that to trusts and foundations.
This is something that only the US can do btw due to its exorbitant privilege, a very bad idea for basically any other country.
Discerning the true beneficial owners through multiple layers of indirection is highly non-trivial. Threatening sanctions over it isn't addressing the core issue: the majority of countries (mostly) readily turn over specific details pursuant to a particular investigation.
They can extend to US trusts and foundation, but when a Qatari firm shows up, that's not gonna apply.
[ It's also quite clear that the wholesale financial surveillance required here would make the debanking phenomenon seem quaint by comparison. A superweapon kind of thing.
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Please, do the math. Get some data on how many wealthy people are there, how much you expect to get from each, multiply one figure by the other, and get surprised about how paltry it is.
As it happens, US already has the most progressive tax system of all developed countries. In US, it is disproportionately the wealthy how pay the bulk of the taxes. In contrast to that, in Europe, the bulk of the taxes is paid by the middle class. For example: in US, you only enter the 32% tax bracket once you’re above $192k/year. In France, and I shit you not, you start paying 30% tax starting from 27.5k EUR. On top of that, when you actually try to spend whatever you’re left with, you pay 20% VAT, whereas in US, the highest sales tax rarely exceeded 10-11%.
The result is that people making 60k EUR/year are the backbone of French budget, whereas in US, if you make $60k, you barely pay any tax at all, considering deductions, EITC, etc.
Seriously, just do the math.
I believe what's missing from this analysis is the employer-side taxes in France are an additional 40-45% of employee compensation, whereas in the US the rule of thumb is more like 10%
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It's ironic that the Buffet quote about how he personally pays less tax than his secretary stimulates outrage about capital vs labor, but if this outrages you then you should be especially outraged by how much of the tax burden is being carried by the middle class in more socialist nations.
Buffett made that statement in support of tax increases that would have made his secretary pay even more.
Buffett ALWAYS talks his book, he wants to sell annuities to people making 200k to 1m a year and knows they could set his tax rate at 200% and he still wouldn't pay taxes (because he almost never does anything that is taxable).
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If you consider health insurance companies to be outsourced tax collectors and insurance premiums to be a payroll tax in all but name that's mostly imposed on the middle and upper-middle class, I wonder how different the tax burdens really are.
Unclear. Employers in the US vary on how comprehensive a health plan they will buy for their employees. Additionally, some households will have one spouse enroll in their employer's family plan while the other opts out entirely (and maybe even gets a monetary rebate for declining it).
Another complication is even with 65%+ total employee cost going to taxes, professionals in France opt for additional supplemental insurance so they don't have to share services with the poors.
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Top 1% wealth for a household requires a minimum of something like $15 million these days. So basically for the top 2% (who all have wealth above around $5 million) the median wealth is around $15 million and the mean will be significantly higher than this. A 1% yearly tax on wealth for those in the top 2% will thus raise at least $150k per person (in reality a lot more because of the skew). The US has about 130 million households. So even if we assume we don't hit anybody below the top 2% at all we'll raise at least 1.5*10^5*0.02*130*10^6 = $390 billion.
Note that this is a gross underestimate because it fails to account for the skew. The US budget deficit is around $1.6 trillion (and this is with the super expensive Trump tax cuts, naturally if they expire things will look much better) so this is *only* 25% of the full deficit, but like I said, it fails to account for the skew. Gemini 2.5 Pro thinks the mean wealth in the top 1% is $37.7 million (so ~40 million) while for those in the 2%-1% bracket is probably around 10 million. Using these numbers the 1% yearly tax on the top 1% will generate $520 billion and on the 2%-1% will generate another $130 billion and so together we get $650 billion, that's 40% of the deficit gone like that...
It's precisely the obscene levels of wealth in the US that allow this sort of tax to be viable. A similar wealth tax in Europe would fail for precisely the reason you are talking about: In Europe they really don't have enough wealthy to make taxing them raise significant money (besides not taxing their citizens world wide); in the US they do and the IRS is perfectly set up already to make this a much easier task than say for the Germans.
A 1% yearly wealth tax is pretty high though - you have to compare that to interest rates and inflation. Ten year treasuries are 4.5% right now, so this is like another 20% capital gains tax, and thats low due to the circumstances in the US - relative to Euribor its 50%.
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The FairTax would make it so the truly rich couldn’t spend money without the government getting a quarter of it. Anything else either has loopholes or drives them out of the country.
The FairTax proposal does not tax anything rich people spend a lot of money on.
The section of Wikipedia page on FairTax titled "Taxable items and exemptions" says:
It also says that rent would be taxed. It's not specified there, but reading into the sources, I see buying a house would not be except for new construction (unclear exactly what that means if most of the price of the house is the land it is on? Is that amount re-taxed every time a new building is built on it?).
Sure, rich people spend more on food and other everyday expenses than poor people, but not a lot more. Many more expensive purchases (housing, education, companies) are exempt from the tax or could easily just be made in a different country (yachts, private planes) and carefully never "imported". Those purchases are currently made with money that's at least theoretically taxed as income.
Investments aren't spending, they are a form of savings.
Sure, that's the way they act for the middle class when who are just buying enough stock to fill out a retirement account. But for the wealthy making investments large enough, they are buying power.
TANSTAAFL, no matter how rich.
If they’re financing businesses through loans, the businesses will be buying services and goods on the open market using the loan money, and those will be FairTaxed. The goods or services those businesses sell will be FairTaxed. That’s less money returning to the investor.
If someone rich buys a used mansion, either they’ll refurbish/remodel it to their own standards using FairTaxed services and goods, or the seller will refurbish/remodel it before putting it on the market and raise the purchase price from “fixer-upper” to “like new”. And if they try to work around the FairTax to refurb it, the contractors will get caught and charged with tax evasion, so the contractors will be sure to include FairTax in their receipts. Trickle-up taxation.
According to Google search summary by AI, “New home sales and improvements, which would include land, would be subject to the tax. Sales of existing homes and, presumably, existing land, would not be taxed. This is consistent with the FairTax's exemption of ‘used items’ to prevent double taxation.”
If the rich are buying used stocks (not IPO), why should they pay FairTax? If they’re buying new IPO stock, they’re transferring ownership of a used company from the private proprietors, who built it by buying and selling FairTaxed goods or services. If they’re buying and merging companies, same deal. The difference is they can’t just sell it at a loss to cut their tax liability. (I’m looking at you, Hollywood Accounting!)
If the rich buy a big, big boat worth a bunch of bucks in Bahrain and keep it in the Bahamas, why should the federal government of the USA get a single dime of that purchase?
As to the fairness of power, prestige, reputation, value speculation, and all the other ancillary benefits of capitalism, the existing income and investment tax system has no ability to curb them, so the FairTax doesn’t even try. The tax system should be focused primarily on efficiently collecting necessary revenue for the government, not solving all the social ills caused by the 1% of the 1%. That’s what antitrust is for.
Thank you for engaging with me on this, there’s little I love as much as talking FairTax.
I think this is a really cool idea, and I appreciate being introduced to it. Thank you.
How on earth does it work with buying a house vs renting?
If I buy a house for $100,000 and then sell it for $150,000, is the new buyer taxed on the incremental $50,000? How does that change if that $50k comes from land appreciation vs renovation? What about if you sell a house at a loss?
Does this play as an absurd penalty to rent vs buy? Does renting get 30% more expensive while purchasing used housing stock stays the same price?
Second buyer doesn't get taxed on the appreciation; the developer pays FairTax out of the first “retail” sale if the first sale occurs after the FairTax is legislated into existence, otherwise the govt. already got embedded taxes a myriad of ways. Sell at a loss, the govt. doesn’t pay anything.
As a renter, you’re already paying the income taxes of your landlord and property mgmt company’s hirelings, embedded in the price of your rent, similar to “utilities included”. This is a market distortion which is expected to be compensated for by rentals dropping 23% and then having the 23% added back in (30% exclusive) on the receipt as FairTax.
Used homes not being FairTaxed (except renovation/remodel costs) is a philosophical reward similar to owning DVDs costing less than renting them a dozen times or paying streaming and rarely watching. Besides, the homeowner will be paying FairTax on everything they’ll use for upkeep in the future.
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The US already taxes Americans living overseas.
Yes, and that is exactly why it, unlike say the UK, is perfectly set up to start taxing American wealth overseas too!
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I think that’s actually a terrible idea. While wealth is global and markets are global, citizenship is bound to a government and land, while the humans that create it are not. What I fear would happen is that not only would wealthy and smart people abroad not want to come here, but that a good number of people would renounce citizenship and simply go to a place with good infrastructure and low taxes. A smart country like Ireland or Russia or Korea could reap the benefits of our stupidity simply by not taxing the geese laying the golden eggs. All they have to do is resist the temptation to tax the free money coming in and reap the benefits of jobs created, inventions patented, wealth spent in their country by billionaires fleeing high taxes in America.
Wealth of any sort has pretty free exit, as do rich people.
That's trivially (although I admit not easily) fixable. Just make it a US government policy to seize noncitizen wealth in or outside its borders. Make lettes of marque great again!
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There is no place on God's green earth free from the clutches of the IRS; well, at least no place that a normal American would want to live in. The US already taxes Americas overseas on their worldwide income and the IRS has enough fangs that the victims have to pay up or face real consequences. Doesn't make too many Americans renounce their citizenship each year. I am also proposing to extend the long arm of the IRS to American assets abroad too at the same time you start taxing wealth, that way there's no point for the Americans to move their money overseas as it's gonna get taxed anyways...
Of course, as you say, there will need to be an exemption for temporary residents in the USA otherwise people aren't gonna want to come here, but those people are on average much poorer than US citizens and so the loss of income from not taxing their wealth would be minimal.
I think I remember some IRS rule going into effect a decade ago that said that if you renounced US citizenship you get taxed on all your assets as if they were income for that year.
I only knew about this because I studiously have followed libertarian arguments for a long time, including "if you don't like it you should leave" and the rejoinder now being obvious "ya and have a third of all my wealth stolen for the privilege of leaving, thanks assholes".
I think there was a lot of people leaving right before this rule went into effect.
It looks like you only get taxed on the gains on your assets when you expatriate; you don't get re-taxed on anything that's already part of their cost basis.
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I mean it depends on how much you raise the taxes. You might get away with a modest 5% increase in taxes, maybe even 10%. But if you go too high, the victim of those tax increases is going to be much more interested in being not American because nobody sane is going to agree to give a country he doesn’t even live in 60% or more of their earnings. Why do that when you can become Romanian or something and only pay a third or less in tax? What would these overseas Americans gain from remaining American when the things they have in other countries can be just as good?
Empirically, there are some rich people living in Sweden, where the total income tax can be 55.6%.
If you go to a poor person and tell them they will have to pay another 20% of their income as taxes, it might well be that they will face the choice between emigrating and raising their kids under a bridge.
By contrast, if you tell someone making 1M$ a year (after taxes) that they will have to pay another 200k$ of taxes, they will have to adjust their life-style a bit or accept that their net worth will grow slower than it would otherwise.
By revealed preference, the US seems to be a pretty great place to be rich. Rich people could already move to poorer countries where they could afford to be attended by dozens of servants, and yet they mostly don't. I do not think that having to cut the private helicopter and riding limo like the plebs would change that.
If you are rich, you can afford to worry about tail risks. Despite all the CW, the US still has some of the best institutions in the world. If you are accused for some political crime, would you rather deal with the US justice system or the Romanian one? Do you want your kids to go to Ivy League or get the best Romanian education? Or consider political stability: the US voted for Trump, while Romania voted for some pro-Russian populist. While their courts invalidated the latter election, I have much more trust in US institutions to limit the damage a populist can do. Romania has been in the NATO since 2004, which limits the risk of invasion, at least as long as NATO continues to be a thing. Mainland US has not faced a credible threat of invasion by foreign powers since at least 1900. Likewise, the US has a great track record of not having mobs or governments expropriate rich persons or guillotine them. If Romania experiences a severe financial crisis in 2045, "expropriate rich ex-Americans" might be a platform which would be popular with the plebs and tolerable to the native elites.
Then there are practical costs to emigrating. You might want to learn the language, lest you stay part of a small expat community. You will need to spend a lot of time to get the design of your villa just right, again.
Then there are power costs. Your bank account can be converted to the local currency just fine, but if you care about having political power where you live, you will have to build this up from the scratch. You know the proper etiquette for bribing a US senator, but likely you will not know much about how the local politics work, who will stay bought and who won't. Likely, your opponents will be local oligarchs who have been playing this game for generations. The elites will not see you as one of them, but as a resource to be exploited.
Wealth and income have nothing to do with each other in Sweden. You become wealthy by either starting wealthy, starting a company, or in extremely rare cases invest your way there (or win the literal lottery). Capital gains are practically not taxed in Sweden so being wealthy here is great! Having a high income what's taxed and that doesn't lead to wealth.
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