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PaperclipPerfector  1yr ago (text post)   26365 thread views

Culture War Roundup for the week of December 4, 2023

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(Mods, let me know if I need to delete this and repost in Small Questions Sunday.)

The US Supreme Court (SCOTUS) hears Moore v United States today. According to SCOTUSBlog, at issue is "Whether the 16th Amendment authorizes Congress to tax unrealized sums without apportionment among the states". Since that's not very helpful, I'll quote The Atlantic's summary instead:

The story of Moore starts in 2017, when President Donald Trump signed the Tax Cuts and Jobs Act. The law aimed to minimize the incentive for U.S. corporations to hoard money overseas by reducing certain taxes on foreign earnings. But, in exchange, U.S. investors would have to pay a onetime tax on accumulated foreign profits going back several decades—the so-called transition tax. Charles and Kathleen Moore are among the Americans affected by the change. In 2006, they invested $40,000 in KisanKraft, an Indian company owned by a friend. They allege that they never received any payments from the company because all of its profits were reinvested. The transition tax nevertheless stuck the Moores with a $15,000 tax bill based on the company’s retained earnings. The Moores countered that the transition tax is unconstitutional because it exceeds Congress’s power under the Sixteenth Amendment. That amendment, ratified in 1913, explicitly empowers Congress to tax incomes. But the Moores argue that unrealized gains aren’t income at all.

Mother Jones, NPR, CBS, and Foreign Policy (of all the friggin' places) are running articles breathlessly proclaiming DOOM! for the US tax code, or at least the ability of Democrats to pass wealth tax laws. This Forbes article seems to be a pretty good explanation of what's at issue but I'll admit that I'm not well-versed enough in tax law to understand the full ramifications of what a Moore victory would mean for the ability of the federal government to raise revenue. On the other hand, I can't say I'm sad about the idea of a wealth taxes getting a bullet to the head. What am I missing or not considering as I read about this from the various outlets?

All else equal, all wealth should be taxed equally (say, flat 1%/y) , not income from wealth. Current tax laws encourage bubbles and poor investing. Just buy a garbage bond or shitcoin and uncle sam will barely touch it, but god helps you if you invest in a company actually making money. And don’t give me the hard-luck grandma story.

It’s like a poll tax on wealth, and like a poll tax, it’s very tax efficient. The problem with income tax is that it discourages economically beneficial behaviour, like working or good investing. Every time you engage in it, the state wants a piece, and possibly, an even bigger piece, the better you are at it. So the state, counter-productively, eggs you on to be a bum and to stack your wealth under the mattress (ignoring inflation). Your lazy bum money should be taxed at least as much as superstar cancer-curing money.

Taxes on wealth have to be one of the worst ideas wrt to efficiency and improving the economy. Wealth fluctuates wildly throughout a year, so calculation is very hard, and this rule would make investing in nonpublic and non liquid assets be double taxed, because you would be taxed on them, but would have to go through massive efforts to pay the taxes by executing instruments to liquidate some equity.

Who has 99% of their income generating power tied up in private equity? The illiquid unassessed capital is invisible to the rest of the economy and therefore wastes productive capacity. If you don’t believe in price signals, might as well have communism.

Double tax/it can be inconvenient: yes, but so are ordinary taxes. You’re comparing this replacement tax to a hypothetical tax with no downside. But the taxes it replaces are actually worse. They impair the wealth generation of everyone, not just a few special cases. Imo you’ve got status quo bias, and you’re all annoyed that this argument supports the democrat side.

You’re comparing this replacement tax to a hypothetical tax with no downside.

Well I don't see any upside to a wealth tax. There is the massive calculation problem. My dad used to have a small business who's purpose was selling other small businesses. And the calculation problem is enormous. One company can look almost exactly the same as another until you are at analysis part 3 or 4. And we are going to do that for all equity every year? John Smith over here running Smith's Recycling is going to figure out, on a yearly basis, what his (the only recycling business in town by the way, so no comps, this isn't real estate) how much its worth to have a recycling business? And, remember these valuations aren't simple or static. Recycler A who sells in 2009 might have gotten 1/5 what B does 2 towns over in 2010 (real example). And its another case where we are forced to trust tax agencies to be fair and unbiased in the application of the law. No, I don't think I have that trust.

Well I don't see any upside to a wealth tax.

As an investor who deals in highly productive capital (as opposed to less productive cash, houses or bonds), your father would be among the people who benefit the most from a wealth tax. It would be a laughable sum compared to the capital gains tax and corporate tax he pays. So imprecision barely matters. And that kind of business is the worst example possible when it comes to calculation problems. Besides, increased liquidity and transparency about how much those mom-and-pop businesses are actually worth would be economically very beneficial, though that is admittedly my personal instinct.

As an investor who deals in highly productive capital (as opposed to less productive cash, houses or bonds), your father would be among the people who benefit the most from a wealth tax.

Your example makes no sense. If you can buy an investment in capital it doesn't produce static returns like "$100k/year in profits." If it does, its purchase price will go up significantly and approach the cost of buying an equivalently risky bond. What a more realistic scenario of investing in a new company would look like:

Year 1: Invest $1 Million. Pay $10% taxes on that. Y/Y Profit: $-50k. Pay $100k in taxes. Now we have to sell 10% of the company (to who is an important question I might add). Year 2: Your stock still has paper worth 900k. Y/y profit: 0k Pat 90k in taxes. Sell equity again. Year 3: $Paper stock worth $810k. Y/Y Profit 100k. Your Share, 81k, Your taxes. 81K. Finally breaking even.

It's not difficult to find companies with a P/E of 10.

My wealth tax was 1%/y yours is 10%/y. A 10% wealth tax is obviously confiscatory and destroys the economy.

Who has 99% of their income generating power tied up in private equity?

Charles Koch?

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