Musings Report 2017-39 9-30-17 Wealth Taxes and Other Curiosities
You are receiving this email because you are one of the 500+ subscribers/major contributors to www.oftwominds.com.
For those who are new to the Musings reports: they are basically a glimpse into my notebook, the unfiltered swamp where I organize future themes, sort through the dozens of stories and links submitted by readers, refine my own research and start connecting dots which appear later in the blog or in my books. As always, I hope the Musings spark new appraisals and insights. Thank you for supporting the site and for inviting me into your circle of correspondents.
Welcome to September's MUS (Margins of the Unfiltered Swamp)
The last Musings of the month is a free-form exploration of the reaches of the fecund swamp that is the source of the blog, Musings and my books.
Wealth Taxes and Other Curiosities
When federal income taxes were first imposed in 1913, they fell solely on the very wealthy. We're told that having to pay income taxes was considered a status symbol of sorts, as the vast majority of people didn't earn enough to qualify to pay income taxes.
We know the progression of income taxes. Though roughly 40% of all workers pay little or no federal income taxes (though they do pay payroll taxes--Social Security and Medicare), some 60% of everyone with income now pays some federal income tax.
So a tax starts out for the super-wealthy only, and then it is slowly broadens out so it eventually applies to the top 60%.
Somewhat surprisingly, the upper middle class and the wealthy pay most of the federal income tax, which remains very progressive. Only those with access to global gaming of tax codes escape high taxes; people earning $300,000 and up (for example) pay a large chunk of their income in federal income taxes.
I've often discussed rising wealth and income inequality in the blog and my books, and I see this divide as having multiple causes--but the primary one is the way we create and distribute money/credit: to the very apex of the wealth-power pyramid.
As the costs of social programs such as Medicare and Medicaid continue spiraling higher, eventually the pressure to raise more tax revenues will arise, too. The first target will once again be the super-wealthy, who are politically vulnerable/ easy targets.
The problem is that the truly super-wealthy--the top 1/10th of 1%--have the means to buy specialized tax breaks via political contributions and lobbying. So in effect, our pay-to-play system of governance enables these few to set their own tax rate: above a certain level, they can muster the resources needed to lower their tax burdens via Congressional action or complex tax strategies.
The cost of political contributions and/or global tax strategies is high: let's say an investment of $500,000 is required to move the tax reduction needle. So this only makes financial sense for those whose tax burden is in the millions.
Which leaves the merely well-off/ professional class as the actual target for the next round of tax increases.
I suspect a wealth tax is a likely iteration, as this is already being discussed in the think-tank world, and various taxes on wealth are already becoming increasingly popular.
For example, the number of empty investment-only flats in global capitals such as London and Paris is sparking taxes on owners of 2nd homes, i.e. owners of empty flats in cities where the locals have been priced out of home ownership.
It's a small step from this sort of tax on the super-wealthy to a tax on everyone with a 2nd home, since anyone with more than one home is by definition rich.
I can also imagine a wealth tax on gold, as (once again), by the definition of those imposing the tax, only the wealthy own gold.
One could argue that a wealth tax is fairer than an income tax, or is justified by the very concentration of wealth in the hands of the few.
But the dynamic discussed here--that the truly super-wealthy have the political and legal means to evade or reduce any tax--is rarely acknowledged. The pundits and policy wonks always discuss taxes in the abstract, avoiding the messy realities of politics, global tax arbitrage, the vast industry of quasi-legal tax avoidance, etc.
So why do we care if the upper middle class ends up paying most of whatever wealth tax is imposed? Can't they afford it?
There are two issues that rarely if ever come up in abstract discussions of taxation:
1. People who are paying more than their fair share become resentful of the inequity
2. The upper-middle class of professionals, small business owners and technocrats generally have the option to downsize/ quit/ sell out.
In other words, if the tax donkeys conclude it's no longer worth it to work so hard, they may just lay down and refuse to carry their burden any longer.
Then who will be left to pay the exorbitant taxes? Those paying little in the way of income/wealth taxes are exempt, while the New Aristocracy, like the Roman patricians of the decaying Empire, have the political means to limit their tax burdens.
This dynamic can be as socially divisive and destabilizing as the wealth-income divide itself.
Nobody can force people to continue living in places they no longer value nor continue working if they choose to downsize / retire / quit.
Few pundits and politicos consider the mass abandonment of the American Dream by the professional-technocrat class even remotely possible.
In my view, it's not just possible, it's increasingly likely.
From Left Field
SOLO NYC (via GFB) -- 7 minute video on self-employed free-lancers in NYC...
The New Reality of Old Age in America (via John F.)
The CIA: 70 Years of Organized Crime (via LaserLefty)
Virtual Reality--Techs White Elephant: Why Virtual Reality isn’t Taking Over the World -- finally, somebody is saying the Emperor has no clothes...
Gerrymandering Wasn't Meant to Protect Incumbents: Swing seats were the norm in the 19th century, not the exception. So what changed? (via Joel M.)
Greater Boston Housing: One bedroom. No parking. One million dollars. -- The housing bubble expands...
The Dutch Have Solutions to Rising Seas. The World Is Watching. (via Joel M.)
Most ICOs Fail: Tale of Two Worlds -- ICO= initial coin offering...
The Best Health Care System in the World: Which One Would You Pick? -- not sure this is the right question to ask, but it's a step in the right direction...
A new kind of map: it’s about time (via Maoxian)
Does Work Make You Happy? Evidence from the World Happiness Report
Education Can't Solve Poverty—So Why Do We Keep Insisting That It Can?
“Very little is needed to make a happy life; it is all within yourself, in your way of thinking.” Marcus Aurelius
Thanks for reading--
charles
