The standard economics of taxation tells us that wealth taxes are a bad idea. The little get out available being that a one off wealth tax, unannounced and impossible to dodge, isn’t so bad. But that isn’t so bad bit rests, entirely and wholly, on the one off nature of it. Which is why those who would tax wealth are telling us it will be a one off, so that it can be introduced and then made more permanent.
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Samizdata quote of the dayJanuary 25th, 2021 |
 22 comments to Samizdata quote of the day |
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And proponents of a Land Value Tax always stress the small percentage. But once it’s there, that percentage can, and will, grow like Topsy.
Like income taxes which were introduced temporarily to fight Napoleon.
When income taxes were introduced in the US, voters were told there was nothing to worry about since it only applied to the top 5% of income earners.
Taxing other people to fund my services is always popular.
NYC already does it- 1% of the residents pay 42% of income taxes.
https://www.bloomberg.com/news/articles/2020-11-11/richest-1-in-new-york-earning-133-billion-will-devastate-city-if-they-leave?srnd=premium&sref=BLKWHazc
Which explains the mass exodus when DeBlasio let his inner dictator out to play.
I think though it is interesting to think about what taxes are for. I am not familiar with HM Inland Revenue any more, but have had the pleasure of dealing with them in the past, but I am familiar with the IRS and the US system of finance.
The theory is that taxes are revenues raised to pay for the government. But that seems less and less true. Government expenditures have exceeded tax revenues by a very substantial amount since Clinton. And the trajectory is exactly opposite. Last year Federal expenditures were $6.55 trillion, and tax revenues were $3.42 trillion. So the government spent twice as much as it raised in revenue, and that doesn’t even consider the state and local. And nobody who has observed government will think that spending will go anywhere but up. The federal debt will just continue to grow and grow. If you think, as some “modern monetary” theorists believe that that is not a problem my question would by why raise any taxes at all?
I think that to some people it is more like control of society by incentivizing what they want, and recently definitely a growth of the desire to punish the rich just out of an ideological hatred of the rich. So, or some, it isn’t really about raising revenue at all.
In 2018 President Trumps TCJA limited the property tax deduction to $10k. The new administration will quickly revoke this measure in an attempt to slow the exodus from NY etc.
De Blasio, never one to miss an opportunity, will probably use this as an excuse to increase NYC property tax rates for his diminishing number of 1%ers.
Land value tax: nooooooooo! 😬
The flaw in the “one off” theory is expectations.
Currently a wealth tax tax is expected with y% probability. Consequently we are already experiencing the economic disadvantages of a wealth tax at the level corresponding to a y% probability.
If a “one off” wealth tax is introduced, then inevitably the expectation of future wealth taxes will increase from y%, to some larger figure, say 3y%. On the basis that what is not unprecedented has a higher probability of happening in the future, than that which is unprecedented.
Thus even a “one off” wealth tax will have its own “immediate” effect, but it will also increase the economic cost beyond that, by ratchetting up the “expected value” of wealth tax hits to come.
In an “evergreen” quote from science fiction author Robert Heinlein:
“Throughout history, poverty is the normal condition of man. Advances which permit this norm to be exceeded — here and there, now and then — are the work of an extremely small minority, frequently despised, often condemned, and almost always opposed by all right-thinking people. Whenever this tiny minority is kept from creating, or (as sometimes happens) is driven out of a society, the people then slip back into abject poverty.
This is known as “bad luck.”
Monetary policy is in effect a wealth tax, on cash and other assets that are (relatively) devalued as the price system is distorted. We have had a wealth tax of sorts since the Bank of England was created in 1694, but only with the break from gold did it operate in earnest.
@Fraser Orr, the US has the distinctly interesting position of being in control of the world’s reserve currency. Since a lot of the world is holding dollars, inflating the currency can paradoxically be a net benefit to its citizens.
How long the rest of the world puts up with this is an important question. The answer is probably not too long. Attempts to move away from this exploitation so far have been met with neck lengthening and anal stabbing but sooner or later, somewhere with the ability to make things stick is going to have a go and then things in the US are going to get very bad as things often do when those spending beyond their means get cut off.
(I think you already know all this stuff so this is more for the benefit of newbs).
There’s a new gold out there.
A year ago, on a lark, my son and I went in on two barrels of .556NATO ammunition. 12,500 rounds per barrel. $6,500 for the two.
Today they’re worth about $23,000.00. And very liquid. Small potatoes in the grand scheme of things, but fun!
(And, they’re untraceable to the wealth taxers.)
A wealth tax only hurts if you show them your wealth.
With a growing economy and a fixed money supply you’ll normally get deflation, as the same number of your currency unit are applied to more goods and services. In theory, with a relatively small government you could forgo taxation entirely by printing enough to counterbalance deflation and using the money you printed for services.
I’m not sure it would actually work, since taxes are what create absolute demand for your currency and none other.
Of course, that’s politically untenable in the real world. The tendency seems to be to vote for the largest, most intrusive state you can get away with without a collapse.
Tell it by its name: What is the modern money theory about?
The theory just say “its okay what the gouverment already do. Don’t worry about the consequences”.
Speaking of Heinlein, the society in his book “For us, the living” had no taxation but government funded only by printing money. It also had a form of UBI (heritage payments). An interesting read nonetheless.
Wealth taxes, like minimum wages, sound good, and help politicians to be elected, so they will be with us as long as we have what I call Mandatocracy. A Mandatocracy is any democracy where power and laws expand because of a perceived mandate from the voters to their representatives. As long as we choose representatives based on their promises, powers and laws will expand by mandate of the voters.
My alternative is called Meridocracy, meaning ‘Share Power’. If you choose to be a citizen, for eleven months of the year, you would do some volunteer work (fire-fighter or road patrol or community service, etc.) and then have one month where you, and 1/12th of the citizens, would be the government of your local county, where you could review old laws and vote on new laws, and so on. We could all be part-time politicians.
@ bobby b. – it’s unfathomable to me that a 50-cal can of no-brand 9mm that I won as a door prize at a PPC match just a couple years ago is now worth $3000. Flats of small pistol primers that cost me less than $100 are now worth over $1000. Who knew I was such an investment genius?
llater,
llamas
Even in the 19th century the treatment of taxation and government spending by most British economists was actually very bad.
The French Liberal School economists such as J.B. Say (and his family) was much better at explaining the harm that taxation and GOVERNMENT SPENDING does.
As for Wealth Taxes – of course they are a bad idea, but we must not hide from the fact that much modern wealth is artificial.
The Western elite (the Davos crowd) are the creation of a vast Credit Bubble – the policies of governments and Credit Bubble banks that have nothing to do with Real Savings. Richard Cantillon explained, some three-hundred-years ago that such policies would tend to benefit a small elite – at the expense of everyone else.
So when the Davos Elite weep crocodile tears about “extreme inequality” and the need for John Rawls style “distribution” of income and wealth, the hypocrisy is sickening.
It is THEIR OWN wealth, the wealth, for example, of “The City” in Britain and “Wall Street” in the United States, that is artificial – not the wealth of honest manufacturers.
Vast cities such as Chicago, New York and London now have virtually no real industry at all – they are “pure” Credit Bubble, a “Cantillon Effect” on a scale that even Richard Cantillon himself could not have imagined in his worst nightmares.
It will end in tears – tears of blood.
I know, right? I was just humoring my son – “c’mon, dad, worse case we break even, best case we double!”
Nope. Quadruple. And it’s still going up.
(You got primers? Nobody has primers.)
Fraser:
You raise some interesting questions.
In the UK, the National Debt is now £2 trillion. It will never be repaid. We all know that.
The government raises “money” by issuing bonds. These are “bought” by the Bank of England. The interest on these bonds is remitted by the Bank of England to the Treasury.
In reality, the debt is monetized, but we pretend it is not so.
How long can this reality be denied? Since President Nixon closed the gold window 50 years ago, all currencies have been fiat. They are backed by nothing more than the word of the government that these pretty pieces of paper really are money.
The US Dollar should have ceased to be the world reserve currency the moment the gold window was closed, and the US defaulted on the debts it had promised o pay in gold, as opposed to pieces of paper. It did not, however. Saudi Arabia was prevailed upon to insist that oil exports had to be paid for in dollars, so global demand for dollars was guaranteed. The US government turned a blind eye to the rise of Wahabism, and the fact that 19 Saudi citizens flew planes into the World Trade Center and Pentagon.
The USA is no longer the world’s superpower, nor is it the world’s economic power. It does not even have the most gold any more. Quite why its unbacked currency, which it is creating out of thin air at a rate of knots, should be the world’s reserve currency any more is hard to justify. Paul Krugman suggests it is because the dollar is backed by the world’s largest military. He’s wrong about most things, so I hope he is wrong about that too.
At the moment governments are printing money faster than ever before. And they all pretend that everything is all right. But when a loaf of bread is $100 or $1000 or $1 million dollars, the illusion might be harder to maintain.
@ bobby b. – that’s because I have them all 😉
llater,
llamas