As a practical matter, it is very difficult to tax wealth (and even harder to do it fairly.) I don't think the issue is lack of will but lack of plan that actually works in the face of assets with unclear value and/or difficult to liquidate.
And this doesn't just affect the ultra rich but people like SWE too. How much is the stock you have in the non-public company you work at really worth? SWE are probably one of the groups most likely to be "paper millionaires" and hence screwed by such a system.
It’s hard problem that can only be solved through attempts and iteration. The fact that a wealth tax is difficult is not a good enough reason to not try, because the problem of wealth inequality is so severe now.
The problem with this hollowing out of the regulations government used to have, is that people react by jumping for extreme, impractical things like "wealth tax". Nobody is going to go for the idea that the government comes around and explicitly collects a significant percentage of everything you own every year. (And they already do much of what they can get away with through inflation and real estate taxes).
Rather, to continue the spirit of the top level comment, what is also now missing is the estate tax, which is/was around 40% (it's graduated too, but it tops out quickly). IIUC, the federal threshold used to be around $1M a few decades ago, and is now $10M - this was the anti "death tax" political issue you might vaguely recall. Furthermore, due to wider use of trusts, it's been basically eliminated unless your family is extremely unlucky.
Fundamentally, I'd rather just tamp down the amount of money given away to the rich - stop the government giving trillions of dollars to the financial industry to prop up the fictitious asset bubble pyramid scheme, and either let natural technological deflation happen or at least spend the money deliberately ala MMT.
But either way, something is required - the system we have right now has the government continually giving away gobs of money to asset holders, while doing very little to collect it back. This is exactly why these personal wealth bubbles continue to grow.
> Nobody is going to go for the idea that the government comes around and explicitly collects a significant percentage of everything you own every year.
I think you'd be surprised. When the majority of people own nothing, it won't take much for the ruling class to convince them that taking everybody else's wealth for the greater good is the right and moral thing to do.
The rich buy stuff, do they not? Tax those things to force realization and thus tax of unrealized wealth. Buying a second, third, fourth home? Here's your increasingly high tax and interest rate penalty. Instead of throwing up our hands with "they don't have cash", force them to realize investments into cash and deincentivize being able to keep everything hidden being investments and purchasing things with unrealized wealth.
The rich don't buy much stuff relatively to their wealth.
When you're a billionaire all of life's basics are effectively free. And there are only so many houses, private jets, and super yachts you can buy.
In any case your first, second, third, and fourth home will be owned by a corporation based in the Cayman Islands and buried under an opaque list of shell companies, all of which you also own via cut-outs, one or two of which may be actual registered and regulated banks, which mortgage the properties back to you so you can play games with interest rate arbitrage.
And all of this will be handled by a small personal mini-corporation employing tens of tax experts, lawyers, creative accountants, and investment managers, so you probably aren't even interested in the details.
It's too easy for the ultra-rich to find loopholes in any rules. If there is a tax on homeownership, they will simply not own any home but will own some corporate entity that own the asset. See ? No secondary residence. Just an investment in a corporation that happens to home a bunch of houses.
I have a friend who buys apartment complexes and houses on the company for his employees to live in; that seems not to be reasonable. In fact, it became more reasonable with wfh; now his colleagues living farther away, who he wants in the office 3 months a year, can live for cheap for both sides and without any long term contracts. Definitely cheaper and more convenient than hotels in his area.
>I have a friend who buys apartment complexes and houses on the company for his employees to live in
When railroad and heavy industry did this exact thing in the 19th century we called them robber barons and broke up their obscenely powerful and corrupt monopolies via antitrust legislation.
Anything can be abused, but I don't know the history; I have heard of robber barons, but not in the context of housing and Google doesn't seem to give me more than just their own enormous mansions. It would depend on if it's abused or not, wouldn't it?
The TL;DR of why this is bad is that when employees are paying, or are indebted to, their employers, even in a roundabout way, it's really easy for that relationship to become very abusive.
The company towns also often payed in scrip, which was basically credit at the company store, and, gee, wouldn't you know it, the company owns all the land to the horizon, so there are no other stores in reasonable travel distance! And if you need a little credit because your pay's terrible after your rent (to the company) comes out, and the prices at the store are marked way up, why, they'll be happy to extend some....
That's the extreme version, but it's bad enough that even inching that direction is something worthy of concern. One ought be wary any time money's flowing from an employee to an employer.
The robber-baron version is basically the thing you see in capitalist-dystopia sci fi like The Outer Worlds, but it actually happened.
>The robber-baron version is basically the thing you see in capitalist-dystopia sci fi like The Outer Worlds, but it actually happened.
Also a significant portion of the country seems to be actively attempting to let it happen again. High school made them read The Great Gatsby and they all imagine themselves as Gatsby and the other obscenely wealthy people instead of the 99% of awful and perpetually dying lives most people experienced.
I am trying to imagine how such a proscription would work. Would there be a list of things corporations are disallowed ownership? Who would the seller be required to determine if the entity is appropriate? Or would the local property tax clerk just not allow registration by a non-human entity?
I am wondering about the details. Would you prohibit anything that could be used as a residence? Office buildings would be permitted? I live in an apartment unit in a 24 story tower. It is owned by a corporation and I lease it. Would only condos owned by humans be permitted?
Do you suppose laws and the legal system provide the social infrastructure to support the corporate ownership of housing as property? If so, that - outside of political will - can be modified, deleted even. Without legal support, it will collapse.
I currently lease my apartment unit in a 24 story tower from a corporation. My friend leases a single family home in a suburb from a corporation. Should both of these use cases be eliminated?
Does it matter that you lease it specifically from a corporation? I'm just going to guess that you are more interested in where any how you live than what the ownership model is of the place your living. For example given two properties in all ways equal except ownership models, you would take the corporate-owned one? I find that a bit far fetched.
Even then, because we typically lack experience with a variety of ownership models, it will be difficult to dis-entangle the familiarity bias from our conceptualizations.
No, I don’t want a corporation. I am trying to imagine how renting would work in dense cities with restrictions on ownership. It seems it would be a less liquid market.
Most of those are bad; at least if a landlord is only interested in money they’ll take your money. In the “decommodified” forms, you can’t live there unless the manager personally likes you.
With government public housing you can lose it if you break the law (hope you never smoke weed) or if the populace elects a racist government and you’re a minority.
Commodifying housing helped black people in the South because they could actually buy prefab houses from Sears.
The cost of hiring people to get around regulations so you don't have to waste your own time doing it is trivial to someone extremely wealthy. Those things really are not deterrents at all. They'd only work on the upper middle class, meaning we'd end up in the exact same situation we're in right now. If you can pay someone to make a problem go away then the very rich are going to do that almost 100% of the time.
> Just an investment in a corporation that happens to home a bunch of houses.
But what's the point? If they can't get money out then it doesn't matter. The only reason houses are worth holding as an asset is public bodies stopping the creation of more housing, driving the price up. You fix that with less state interference, not more.
That's the exact opposite of what happens in the real world.
In the world the state builds and owns a lot public housing and this depresses rents and property values.
Countries stop doing this when policy is captured by neoliberal dogma. The UK is a perfect example. Housing was relatively affordable before a disastrous "right to buy" policy in the 70s, with extra enforced restrictions on state house building, destroyed the national housing market.
Now most housing is unfeasibly expensive. And hundreds of thousands of properties stand empty because they're owned solely as investments.
This is excellent for private landlords, property speculators, and older home-owners. It's an utter disaster for everyone under the age of forty because rents are unaffordable and ownerships is unimaginable.
Right to Buy didn't destroy the housing market. The same people who lived in council housing bought it under Right to Buy.
The problem was not building more housing to cope with increased demand. That would've happened regardless of whether the Right to Buyers were renting off the council or had bought their property.
> In the world the state builds and owns a lot public housing and this depresses rents and property values.
Public housing, but not housing. The state controls what can be built where, which can drive up demand enough that property becomes a valuable enough asset to let it stand empty. Giving the state more power on top of that to correct that incompetent use of power seems worth questioning.
Would it not be possible to then tax them on their ownership on that corporate entity, which gets assessed based on its holdings (including, yes, property)?
Or prevent companies from holding real estate as an investment vehicle?
I'm not naive enough to argue that this is a definitively easy thing, but especially when it comes to housing, the poor and middle class are getting completely fucked right now; it's gotten to the point in the crisis where we absolutely need to do something urgently.
There's always the next trick. What if that corporation is also saddled with a bunch of debt, such that its net holdings is roughly zero? What if it bought those houses for very little money (from some other friendly corporation) so that, on paper, their value is very low? etc.
Taxing businesses which own residential property at the same rate as second homes stops that particular wheeze entirely. If you wish to exempt certain types of business you believe have valid reasons to own residential property at low/no property tax rates then that becomes an exemption they have to demonstrate eligibility for, not the default.
Second homes being misclassified as non-residential property might be trickier to deal with, but a lot of jurisdictions already have laws around what is and isn't residential...
The rich buy stuff, yes, but they spend a much lower percentage of their wealth (or income) on "buying stuff" than the middle-class or merely-well-off do.
I think we should add very steep taxes on second+ homes and "investment properties", but that's to address the housing problem, not to address the massive wealth disparity.
The real problem is their ability to buy things like "lawyers" and "newspaper coverage" and "senators", and it's much harder to effectively tax that sort of thing.
The tax/bankruptcy laws for homes, for example, are absolutely crazy. 2nd+ homes in the US can be written off but the first one cannot. Absolutely bizarre world policy that only makes sense if it were written by/for the wealthy.
Also corporate ownership of single-family residential property in the US should be forbidden.
I agree. Taxing unrealized capital gains is just not a good idea at all. What's more problematic than people having huge sums of unrealized book value, is that in the current system they're allowed to live a lavish lifestyle by taking out loans against those assets (which effectively is an income for them) without paying any taxes at all. That is what should be taxed in some form.
We tax property without realizing a gain. We even tax bonds on deferred interest (eg zero coupon bonds). We can and should do this for stocks. The ultra-rich already borrow money to avoid realizing gains (and thus paying taxes). If they want to keep their stocks let them borrow to pay their tax bills.
Not only do we do that which dis-proportionally hurts the less wealthy more, but property taxes are assessed upon assessed valuations of which the homeowner who does not sell or gets loans upon that valuation obtains zero benefit from. So the insurance company (which also uses the valuation) and the property tax jurisdiction(s) obtain yield from the valuations that year, and do not endure a clawback when the valuations ever decline.
Property taxes are pretty bad! Everyone hates paying them, retirees can’t afford them, and they tax building improvement which motivates owners to tear down their buildings.
LVT is a much better related tax.
Anyway, wealth taxes are probably bad because taxes are supposed to be deflationary, but wealth taxes are inflationary if you collect them in USD, since taxpayers have to sell assets first. Unless the IRS is willing to take a % interest in a collectible painting as the tax.
I guess LVT is better, though I find it almost a pendantic thing at this point given that in so many places where property is expensive the property tax is effectively a land value tax already as the land dominates the assessed value so strongly.
That means rich people can accumulate generational wealth without ever even paying capital gains taxes. And during one's lifetime, one can get liquidity out of assets by borrowing against them without selling them.
The rule also seems strange from an outside perspective. Either the book value of assets should be kept the same when inheriting (I believe Germany does this), or the book value should be changed to current market value but the difference be taxed as gains (I believe Canada does this).
Step 1. The country creates a law forbidding any financial interactions with "offshore" countries (list is populated manually by lawmakers) and also with companies working with such offshore companies (shell intermediaries) in "good" countries.
Step 2. Country forbids its citizens from owning any assets or be incorporated in the same "offshore" countries.
Step 3. Blanket ban of cryptotokens.
Step 4. Huge inheritance taxes.
Step 5. Incremental tax hikes for second and more houses/apartments owned. Restrictions for corporations owning a lot of residential properties and huge taxation.
Step 6. Ban or restrictions of airbnb-like activities to discourage parking money in the housing market.
Basically look where rich hide money go for that. When they switch tactics you follow.
Step 0. Big independent financial auditor structure, independent from law and judicial branched both (or almost independent). From experience - you can dismantle a lot billionaires even with existing laws, if only someone looked close enough and punished them. This is a huge problem in eastern europe for example.
You lost me at step 1. Punishing people because their families live in what some people deem "offshore" is heartless. Also, forget modern technology like smartphones if you only can do trade with "good" countries.
I should have clarified - I don't propose to "ban" half the planet because they the not optimal with their laws or prosecution. Offshore usually means tax heavens, usually the tiny island countries with small native population and incredibly lax financial regulation or none at all. Those are the primary targets.
Well that's a different argument than saying it's heartless. The point I'm making is that it being heartless is not an argument against an evidence-based policy that would help more people.
Step 4 does little but hurt upper middle families. They effectively lose the ability to pass on anything of value to their children while the truly rich we’ll still be able to pass on something of value to their children. And the cycle continues, and inequality increases.
what's to prevent a wealthy parent from gifting wealth to their children while alive? This seems like the easiest thing of all for someone with a competent accountant to circumvent.
Bad for families building generational wealth who don't have it yet though, and boy do I hate the idea as a result.
Some people have legitiment business interests in tax-haven type countries that are not about avoiding taxes. No country is just purely a tax haven with no other ecconomic activity after all.
In theory a blanket ban on crypto could harm innovation. This was much easier to believe at the beggining of the hype cycle when it seemed like someone might actually do something useful with blockchain tech. Kind of hard to believe at this stage.
I feel like inheritence tax is kind of pointless by itself. Most people dont just suddenly die and have time to distribute their assets pre-death.
Limiting housing investment might make cost of living go up. Its not like houses just appear out of nowhere. lots of people cant afford to just buy/build a house. Rich people buying houses and renting them out helps fill that gap. It doesn't always work out as ideally at that, but the other extreme of severely restricting real estate ownership would probably screw over poor people too who do not have sufficient resources to get a mortgage. They still need somewhere to live.
I dont really know what independent auditors means precisely. IRS/CRA/etc are already pretty independent. They could be better funded though.
If any single country will try this alone - devastating. For the country :) . If USA alone will try it - maybe it will work, idk. If USA plus EU plus major Asian economies will do it collectively - it will work.
For independent financial auditor - none that I can think of.
For offshore restrictions - you as a country lose all existing assets already there. A lot of people will move their business to a better countries, providing less restrictions and eventually taxes for them. Probably election loss and further dismantling of all these laws by disgrunted businessmen using their pocket political forces. If will hugely depend on the collective size of economies doing the ban.
For housing - its tourists plus rent seekers vs. regular citizens. You hurt one group and you benefit another and vice versa. There is no win win scenario here, balance must be found. I personally vote for regular citizens, even if tourism industry will be hurt a little bit.
I think inheritance tax has huge downsides. Past a certain age, if you've done reasonably well, and are thus most likely to make a huge impact for the better in your latter working years, why do that most useful useful work if you can't pass it on?
We can do it incrementally, so that majority op population is not affected much. And if a billionaire is discouraged from earning additional billions and retire - well, that was the point? He stops working (hypothetically) but his place will be immediately replaced by less wealthy successor (or by more wealthy opponent, but that problem need be analyzed separately). His kids won't become billionaires, but will be a mere millionaires, requiring them to contribute if they want to keep up expenses. All in all I think it is possible to set up such inheritance taxes so that majority will have positive result.
If you're thinking about billionaires, I think you're doing it wrong. Billionaires don't have billions in the bank. They generally have shares in companies which need to be sold to get money out. And the price changes the more you sell. Billionaire "net worth"s are almost useless because they assume each share they sell is worth the same as the last share traded, which would not be the case if they were all dumped on the market, and even less so if the government made a habit of seizing your shares when you die.
Perhaps - I would think in many cases, an equilibrium would be reached. Comparatively few people in any industry are wholly irreplaceable. Still, should something like this just pop into law tomorrow, one could expect a large group of experienced specialists at the top of a wide array of fields to decide to retire, to disasterous effect. Given time to settle in though, I'd wager it likely that talent would filter up to replace any losses at an equivalent rate.
Ultimately, people as a whole like to work. They dislike working under poor conditions or doing jobs that don't feel rewarding. A law like this would generate a lot of change, but I just don't see that change being disasterous given sufficient adjustment time.
Talent won't filter up. You can't replace doctors with 40 years' experience with doctors with 30 years' experience (and keep going - who do you replace them with?) without losing a huge amount of value.
We have that today. For some people it's not worth working, and they might as well retire and stop contributing. As we raise the inheritance tax rate, that number will drastically increase, and we get to raid some one-off money in exchange for much less productive work.
Offshore is common term. Its collectively all those small countries which have minuscule corporate tax, zero financial rules and refusal to cooperate with big countries about financial tax evasion. Basically everyone from Ireland, Switzerland (sorry guys, just business) to Bahamas and Panama (and ban flags of convenience while we are at it). Definitely all countries refusing to disclose financial records for international law enforcement.
If I were planning such effort, I would propose do bans in waves, with multiyear intervals. E.g. ban of top10 worst offender countries - Cayman islands, British Virgin islands, Seychelles, etc. Then make a list of 10 next and warn them that they have 2-3 years to adjust or be banned too. Rinse and repeat.
I'm aware that there are a lot of legal frameworks about this issue. So what? In the end they are either impotent or not sufficient. The problem is global and doesn't show any signs of abating.
This is in Dickens - Bleak House, I think, when he refers to all the under-taxed industrialists promising to 'pitch' their acumen into the Atlantic (i.e., move to the United States) if any government dares to restrict their income through increased taxation.
> Of making all your modestly rich people close shop and leave
Switzerland has a wealth tax, yet it also has some very rich residents (wealth tax is applied to your worldwide assets/cash, and it includes companies you own, so you have no way to avoid it.)
What if, while grappling with these complex issues, we institute a land tax as the obvious easy part? That is easy, hard to dodge and all but breaks inter-generational wealth transfers as a matter of practice. It is hard to get wealth from grandparent to grandchild in anything other than land; everything decays and you just need one idiot in the chain to lose everything with no chance to recover. The way the market intended.
You pay a (progressive) % of your wealth in tax every year, based on your declaration.
Financial institutions report your wealth (to some extent), and the development of wealth is checked against your income, making tax evasion non-trivial. You could hide the money in a shoebox but you'll lose more in opportunity cost (missed investment gains) than you'll save on tax.
The other side of the coin though is that capital gains generally aren't taxed.
Mainly, I don't agree that "it is very difficult to tax wealth". It's basically a box "your wealth: <enter number here>" on the tax declaration, with an extra spreadsheet/list to fill out showing what the wealth consists of, plus proof (e.g. bank/stock account statements).
You declare all the assets you own* in your tax declaration (bank accounts, properties, art, cars, equity, ...), even if abroad. You also declare your debts.
I don't know how they enforce/check that, especially for foreign-based assets though.
* except for household and personal common usage goods
OK, cool, but you didn't explain how does that fix wealth inequality in Switzerland or make wealth taxation fair? You just described a tax declaration system, not a taxation system.
Anyone can declare assets anywhere but if they're not taxed, or taxed very little, then inequality grows. So does Switzerland do this better or fairer than other countries?
Because you pay a percentage of your total wealth in annual taxes every year (in addition to your usual income taxes).
It differs between cantons (states, kinda) and has progressive banding. Someone with 100k in wealth will pay maybe 100-200 or so. If you have 100 million CHF, in Geneva you would pay around 1 million per year in taxes on that wealth.
As the OP stated, it is global assets and wealth, so foreign/offshored investments still attract the tax. Plenty of people choose to be resident in Switzerland even with these taxes.
Well, you asked how it worked, not whether it was effective at fighting inequality.
My understanding is that it's not very effective, because any foreign-held asset is pretty much hidden from Switzerland, unless there's an agreement with the country for this kind of information.
I mean... you could start by taxing realized capital gains at >20%
It's hard for me to give an argument like "this is difficult" credence when we already have a capital gains tax that's lower than most income taxes. I will buy this is difficult when you raise that number to 50% and we still have the same issues.
I don't think it's very difficult at all. We already have an elaborate system to measure and tax wealth with our system of property taxes on real estate. That's already in place.
It would be trivially easy as well to track and tax the wealth of people hold public equities.
Those two things there are an enormous bulk (majority?) of wealth.
It only gets a bit more complicated with privately held equities this I will grant.
If you start to get into the nitty gritty of assessing assets like ming vases and such it gets complex as well and likely diminishing returns, but at this point, with this stuff, you might as well not even bother because few are going to hold their wealth in ming vases.
What about a tax such that you can only use assets as collateral for a loan if you've paid any outstanding capital gains on them? Would affect normal people through HELOCs but otherwise would mostly affect the very wealthy.
But as far as I understand, the stocks, and other difficult to liquidate assets, as log as you hold them in that form, are worth "nothing". You can't go buy bread with that, not even a house.
At some point, you need to sell and get your local currency in exchange. That can be considered income, and taxed at that value. It doesn't matter whether you had 1M which melted to 1000 or if you bought it for peanuts and got lucky.
> you need to sell and get your local currency in exchange.
This isn't exactly true. For things like bread, yes it _is_ true, nobody will let you take out an asset backed loan. For someone with significant assets, large purchases can be funded by asset backed loan. These are available from high street banks, e.g. [0].
> That can be considered income
No, here's where you're wrong. It's considered capital gains and you're taxed on the difference between what you liquated the asset for, and the value of the asset when you were given it. Here in the UK, capital gains rates are tied to your income level, so if you make under £50,000/year you will pay 10% capital gains, or 20% if you make more. In the US the bands are similar (0, 15, 20%), but I'm not sure how they're calculated sorry.
If we ignore the lowest band of income tax for comparison purposes, someone who makes 1 million in salary here in the UK will pay 45% roughly of that in tax. Someone who makes it all in capital gains will pay 10%
That's how it works in France, too. But my point is that maybe this could be changed to be more in tune with income taxes. In France, however, they have instituted a "flat tax" at 30% on capital gains. Before, it was taxed as income after an abatement.
So changes can be made, they just did it the wrong way.
So we get to pay 40%+ tax on our income on a yearly basis while they get to pay a mystery amount that may or may not be factored into debt costs that can also be deferred for a while? Yeah that sounds fair.
> debt costs will adjust accordingly and pass on to wealthy still
Let’s think about some the factors that may influence this imaginary debt cost:
- whether asset is an appreciating asset
- risk management strategy of the bank
- whether account manager wants to have competitive terms so that the wealthy customer won’t find a better deal
And so on.
How is this not a mystery cost? Sure the bank in some distant future might some tax when it decides to liquidate it. But by that time, the assets would have been in pools for such a long time that we’d never know exactly how much “tax” was paid.
I’m not going to say I know the solution to this problem because I honestly don’t think there is a way to fix this. Tax avoidance will always be there.
They do not have to be. For instance, it is common to never completely pay off the mortgage in Switzerland to avoid one-off taxation. Instead, the eventual taxes are included in the cost of the debt.
An interest only loan doesn't suddenly mean there's no repayments. The hint is in the name, you still have to repeat the interest on the loan. Payment terms may vary but if you think that banks across the US are sitting on interest only, asset backed mortgages for the ultra wealthy's most expensive purchases, and taking no payment from them then I don't think we're going to be able to come to an agreement on this topic.
Why is it hard? Tax capital gains, tax inheritance, tax corporate super profits, tax consumption (vat), tax FX / currency / speculative securities trading (Tobin tax), etc. It’s not hard, our politicians just lack the will and would rather drive a race to the bottom (“tax reforms”).
I see you have a bottomless appetite for taxing more and lots of imagination on how to do so. Do you have any answers on how that taxed money will be spent? How we can ensure that it's not just lining the pockets of the politicians and bureaucrats in charge of disbursing the money? How we measure the successes and failures of any taxpayer-funded program, so that we can be reasonably confident that the money is being put to good use? How all of this would play out over generations, knowing that the less money (and therefore power) the people have and the more money (and therefore power) the politicians have, the more likely it is that we will slip into authoritarianism?
There is a fairly simple way to tax wealth: inflation.
There are downsides to inflation of course, lower economic growth is a big one. But we are entering a higher inflation, higher interest rate environment whether we like it or not, and that will result in lower wealth inequality. Money will have less direct purchasing power, and assets like housing or company equity will decline in value due to higher borrowing costs.
There are many people who will retort that 'inflation hurts the poor'. Yes, it hurts everyone, but it disproportionately hurts the rich. It is no coincidence that wealth inequality increased dramatically during the low inflation, low interest rate period we have experienced over the last two decades.
Is this really... true? I get that there's this idea in people's heads that you couldn't tax for example some incredible rare art collection, because who is to say it's true value and you damage the owner by applying such a tax burden they actually have to sell the art. But let's take a step back. Where is the real money? Bezos, Gates, Buffett, Page, Brin, Ellison, Ballmer, Bloomberg, Zuckerberg. Further down the list the same thing is true - the people with wealth actually have the vast majority of their wealths in companies. It's not difficul to liquidate, it's not difficult to value them, it's actually quite comically easy. Even the guys who actually do have enormous art collections are almost all art dealers, they can and do liquidate their investments all the time.
On to the core question: how much is the stock in the non-public company you work at really worth? I don't know, sell it and we'll find out. A SWE with illiquid stock probably actually has a much shorter timeframe of when they want a liquidity event than the US government has.
The truth is that the reason it's difficult to tax rich people is because the first thing anyone does in this conversation is talk about how hard it would be, without thinking for a second if it actually would be hard. Let's lay aside any talk of real wealth taxes, and just stick to our current tax system, Elon Musk borrowing against his Tesla stock is not a taxable event. Let's change that today. It's specific, easy, would immediately drive revenue, and doesn't require any innovation around true wealth taxes. But... we won't, because it's not difficult, the government just doesn't want to do it. What does that mean? The burden of tax is primarily put on income not wealth, meaning your SWE with non-public stock is already getting absolutely pounded with taxes on their income instead.
No, but it is an avoidance mechanism specifically designed to avoid tax on income.
If an independent third party has deemed your stock sufficiently valuable (and stable) to lend money against, then you should be taxed on that loan. You can get a credit when you repay the loan (to offset tax on the income you used to repay).
Not familiar with the US tax code, but if Musk borrows $1b with a portion of his Tesla stocks as collateral, will he be charged capital gains tax by assuming that these stocks are now worth $1b?
When you die, the value of the stock at time of death gets whacked by inheritance tax, which is 40% at the federal level and 20% at the state (in Washington) level.
> I don't think the issue is lack of will but lack of plan that actually works in the face of assets with unclear value and/or difficult to liquidate.
At least in the world of stocks, dark pools help solve exactly this sort of problem.
Once you have enough assets there are many tricks available that are simply inaccessible and unusable by regular salaried employees.
Many of the tricks employed by the wealthiest forcefully remove transparency by a combination of legal and practical methods (e.g., Canada and Delaware share a lot in common).
Disallow opaqueness first, then the solutions will emerge.
Apparently Islamic principles have found a balance for this, so why can't we apply it directly?
Short term stock holdings - pay on the net gain of the sale.
Long term stock holdings - pay on the net value at that point in time. Non public companies are charged based on the last valuation round. Companies without funding aren't charged because the intrinsic value is zero.
And I forgot: outlaw BEPS (base erosion profit shifting), so all corporations pay tax where they originate revenue. There’s way too much tax leakage via double Dutch sandwiches.
It's only very difficult within the constraints of western capitalist democracies.
China has seen how Capitalists have overrun government and have moved to quickly re-educate anyone that steps out of line.
I'm not advocating this, I'm just saying...
Corporations and the wealthy play games and have more resources than our tax departments, and so have found strategies to win that are not available to people who earn an income and work for a living.
And this doesn't just affect the ultra rich but people like SWE too. How much is the stock you have in the non-public company you work at really worth? SWE are probably one of the groups most likely to be "paper millionaires" and hence screwed by such a system.