Hacker News Reader

Comment by cm2187 | Hacker News Reader

The experience of the wealth tax in france is that it costs almost as much to collect than what it collects, plus creating unintended effects.

Turns out it is not straightforward to estimate what every asset in a country is worth.

View on HN

That's why I think more appropriate way to think about wealth tax is not actual practical implementation, but more like a goal.

So no adding together all wealth, but tax the value of real estate instead of the rental income. Tax market cap of public corporations instead of their profit. Tax cars, boats and business jets. Tax bonds and other securities on their value instead of revenue. Etc. All these ibdividual taxes are going to have issues to be sorted out before implementing, bit I argue that as individual taxes, the issues are way easier to solve than for one generic wealth tax.

That does sound reasonable. People game the current system to the maximum. How would you expect people to game a system of taxing the obvious assets, and what could be done about it?

The way they would game it would be by building unpermitted structures. Read Hernando de Soto’s mystery of capital - he talks how this happens all over the world as a way to store wealth. The problem is it can’t be financed so the capital is stranded and it’s unsafe - many years ago there was a small earthquake (maybe a 6) in turkey and it leveled the region despite earthquake building codes that had been in place for decades. If you had an old structure it survived, the new ones were decimated. Why? The unpermitted buildings avoided the building code regulations. Anyone remember the last time LA had a six earthquake... that’s right you don’t because no one in LA cares about a six because we haven’t yet destroyed our economy through perverse taxing and over regulation.

Wouldn’t taxing wealth reduce the real value of properties?

Say you have a 100 acre farm[1] valued at $100 and produces $10 of goods annually. If you start taxing on the $100, no one is going to pay $100 for the farm once a wealth tax is implemented as now they are taking on tax liability that previously didn’t exist.

[1]for the sake of argument and illustration, were ignoring property taxes which are like wealth taxes.

Is that a problem (within reason)?

Depends entirely on what the tax rates are and what other conditions apply. Pay 1% tax of a dollar, collect $10 in agricultural subsidies?

Besides, for residential property, stemming the unsustainable increase in value is also a desireable goal to make it more affordable.

Alternatively, it could create incentives to develop and use existing property for higher productivity applications.

I see it being regressive and encouraging small farmers to sell out to large operators who can more economically scale production.

They already compete under the same parameters before, so this should be unchanged.

Not if the pressures pushes industry toward “higher productivity applications” as outlined by patent commenter.

Small farmers don't want higher productivity already?

How? They can’t leverage the same markets they can’t leverage economies of scale, etc. A conglomerate can find new markets when another one dries up. A grocery store closes, it’s not easy for s local farmer suddenly find a new buyer, for example.

I understand that. What I'm pointing out is that the small farmer already needs to cover all expenses through their sales price, which already is competing with conglomerates capable of much higher economies of scale. An expense increase for both parties won't affect the dynamic already in place.

You'd be surprised. They certainly want higher yields and returns, but many people can be resistant to making the kinds of changes or long term investments to actually realize those goals.

Corporate/bureaucratic governance is arguably more prone to doing the sorts of bloodless cost/benefit analysis that can push productivity, while smaller family farms might be more focused on just getting through the day-to-day work.

That plus a lot of productivity gains come from returns to scale and logistical capacity that you need to be at a certain size to realize. It's just out of reach for smaller entities.

None of these facts differ between a before/after of the discussed scenario.

The ship sailed on this decades ago. "Small farms" at this point are just sticking it out as a hobby instead of being able to make a livelihood out of it. They're mostly contracted out to BigAg now except in places where there is a strong farmer's union/Co-Op scene.

> Wouldn’t taxing wealth reduce the real value of properties?

Implementation dependent.

You may use "net worth": so if you have a $1,000,000 property but a $600,000 mortgage, your net worth $400K. Many of the proposals for the US start "higher" ($32M for Sanders, $50M for Warren) which probably would not hit a good portion of the population.

> Wouldn’t taxing wealth reduce the real value of properties?

Yes. That's almost like magic. You get cheaper properties, the property tax revenue is used to reduce your other taxes so your net income does not decrease (on average, of course). So you actually get more money to spend otherwise than into your mortgage. Almost like alchemy. Turning taxes to wealth...

You don't get reduced taxes though, so your net income does decrease. The wealth tax isn't going to take the place of any other tax, it is in addition to the taxes already in place. Whether you believe in the legitimacy of the wealth tax or not the people paying it won't be better off, nor will most of the people not paying it (disregarding benefits of the programs funded by the tax).

If the other taxes do not decrease, then that means you get some other benefit where the money is democratically being allocated. Tax money generally does not just disappear in a modern relatively free society.

(Of course you can argue that western democracies are kleptocracies by default and all taxes just disappear to the pockets of the thieves and you get no benefit from them, but I personally do not consider that as a feasible starting point for a reasonable discussion)

That's why I put a disclaimer in parentheses. I was responding to the claim that a wealth tax would result in unchanged or higher income, which is patently false. My answer to getting some sort of "benefit" is programs like corn subsidies, which are not democratic, and are one cause of the obesity epidemic in the US, because corn syrup is shoved into anything and everything, fed to animals, etc. Again, not arguing against the wealth tax, just the assumptions behind taxation that are being made.

Is that inherit in wealth taxes, or simply how France chose to implement it? Thomas Piketty is from France after all, and he is advocating a wealth tax.

Another French economist is 'consulting' for / advising Elizabeth Warren:

* https://www.newyorker.com/news/the-political-scene/the-frenc...

A review of the economics literature:

* https://eml.berkeley.edu/~saez/saez-zucman-wealthtaxobjectio...

Land value taxes, estate taxes, and capital gains all sort of approximate the effect while being easier to administer.

They don’t soak the rich in quite as targeted a fashion though (aside from the estate taxes).

It is important to note that business-related property (i.e. your firm, if you also work in it) was not taxed; primary residence value was 70% of the market value; art was not taxed; many investments in small companies or other investments that the Government encouraged were less taxed as well.

In the end, this loopholes and others lead to a very complex tax (thus high administrative costs) as well as a much lower tax base.

Reply on news.ycombinator.com