Implementing a wealth tax

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Topic Author
BigoteGato
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Implementing a wealth tax

Post by BigoteGato » Fri Jan 25, 2019 1:49 am

Regardless of its merit I was wondering how a wealth tax is implemented. I believe several countries have some form of wealth tax (e.g., Spain). But I don’t understand how valuation works. If I have a valuable painting, who knows I have it or what it’s worth? Certainly the value is debatable. Or if I have options in startup, how do you value them fairly until the IPO? And I’m not sure how one plans tax issues in such circumstances.
(Please no political comments; I’m just wondering how it’s carried out in practice if anyone has experience with such taxes. Some of the countries with wealth taxes are enticing as retirement locations.)
BG

WannabeAgAlum
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Re: Implementing a wealth tax

Post by WannabeAgAlum » Fri Jan 25, 2019 1:50 am

Appraisers.

Afty
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Re: Implementing a wealth tax

Post by Afty » Fri Jan 25, 2019 2:03 am


furwut
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Re: Implementing a wealth tax

Post by furwut » Fri Jan 25, 2019 7:21 am

Property taxes here in the U.S. are an example of a wealth tax.

BanquetBeer
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Re: Implementing a wealth tax

Post by BanquetBeer » Fri Jan 25, 2019 7:35 am

furwut wrote:
Fri Jan 25, 2019 7:21 am
Property taxes here in the U.S. are an example of a wealth tax.
They don’t tax you on the % you owne and not many people owne their home.

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samsoes
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Re: Implementing a wealth tax

Post by samsoes » Fri Jan 25, 2019 7:40 am

BanquetBeer wrote:
Fri Jan 25, 2019 7:35 am
furwut wrote:
Fri Jan 25, 2019 7:21 am
Property taxes here in the U.S. are an example of a wealth tax.
They don’t tax you on the % you owne and not many people owne their home.
Please clarify "owne" - do you mean "owe" or "own?"
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The Wizard
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Re: Implementing a wealth tax

Post by The Wizard » Fri Jan 25, 2019 7:44 am

BanquetBeer wrote:
Fri Jan 25, 2019 7:35 am
furwut wrote:
Fri Jan 25, 2019 7:21 am
Property taxes here in the U.S. are an example of a wealth tax.
They don’t tax you on the % you owne and not many people owne their home.
It's still an example of an (imperfect) wealth tax.
But yes, you still pay the full property tax even if you just bought the property last year with a mortgage and only have 25% equity...
Attempted new signature...

furwut
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Re: Implementing a wealth tax

Post by furwut » Fri Jan 25, 2019 7:52 am

BanquetBeer wrote:
Fri Jan 25, 2019 7:35 am
furwut wrote:
Fri Jan 25, 2019 7:21 am
Property taxes here in the U.S. are an example of a wealth tax.
They don’t tax you on the % you owne and not many people owne their home.
No, when you buy a property with a mortgage you 100% own it. Of course, one could look at the mortgage interest deduction as offsetting some of those ownership costs.

HoosierJim
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Re: Implementing a wealth tax

Post by HoosierJim » Fri Jan 25, 2019 8:00 am

Why would anybody save money? Just got a bonus ? - buy some gold/jewelry/antique. Better risk depreciation over confiscation. A wealth tax almost implies a complete social welfare system so let other take care of you. Sounds like the "I don't live paycheck to paycheck" tax.

For people like Mark Zuckerberg or other tech billionaires - who may not have the cash to pay a tax - does the government confiscate stocks each year or do they move the IP/wealth to another country like they do now? Lenin/Stalin tried this - doesn't work too good - government assets were divided up among Putin's buddies.

Hallman
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Re: Implementing a wealth tax

Post by Hallman » Fri Jan 25, 2019 9:06 am

BigoteGato wrote:
Fri Jan 25, 2019 1:49 am
Regardless of its merit I was wondering how a wealth tax is implemented. I believe several countries have some form of wealth tax (e.g., Spain). But I don’t understand how valuation works. If I have a valuable painting, who knows I have it or what it’s worth? Certainly the value is debatable. Or if I have options in startup, how do you value them fairly until the IPO? And I’m not sure how one plans tax issues in such circumstances.
(Please no political comments; I’m just wondering how it’s carried out in practice if anyone has experience with such taxes. Some of the countries with wealth taxes are enticing as retirement locations.)
BG
We have wealth taxes in Norway, 0.85% of (assessed value minus ~$350,000). There are a number of rules for different assets. It gets complex.

A painting, and other single pieces of personal property, would not be taxed unless its value exceeded ~$120.000. If it did exceed this amount, then the basis for the wealth tax would be 40% of the insured value. For options, it depends.. If I received them as a part of my work compensation, they would not be considered for wealth tax, but options purchased on a market place, would be considered. Equities are valued at 80% of market value, primary residence 25%, retirement accounts 0%, bonds 100%.

When looking at a foreign tax, many people have a tendency to just add that tax to their own tax system, and gasp at how horrible that would be. It doesn't work that way.. the whole tax systems are different. Without a wealth tax, our tax system would result in many rich people paying nothing at all. They set up corporations, which aren't taxed on either dividends nor capital gains (i.e. they can invest tax free as long as they don't withdraw), and are able to withdraw an amount equal to their cost basis multiplied with the risk free interest rate each year without paying taxes. If you're rich, you'd be amazingly golden here if there wasn't a wealth tax.

I'm not rich, but I definitely consider myself well off. I have roughly the following assets:

$1 million primary residence
$1.5 million non-retirement investment account
$1 million pension value

The wealth tax basis is $250.000 for my primary residence + $1.2 million for non retirement accounts + $0 for pension - $350.000 deduction = $1.1 million. I pay 0,85% tax on this = $9350.

And again, can't just upload that to a different tax system. I pay about $450 in property taxes per year, and can reinvest dividends in my non-retirement account tax free. I don't consider $9350 to be that unreasonable in my circumstance.

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Rob54keep
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Re: Implementing a wealth tax

Post by Rob54keep » Fri Jan 25, 2019 9:14 am

The problem is often on how one defines "wealth" for tax purposes.

student
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Re: Implementing a wealth tax

Post by student » Fri Jan 25, 2019 9:18 am

Hallman wrote:
Fri Jan 25, 2019 9:06 am
BigoteGato wrote:
Fri Jan 25, 2019 1:49 am
Regardless of its merit I was wondering how a wealth tax is implemented. I believe several countries have some form of wealth tax (e.g., Spain). But I don’t understand how valuation works. If I have a valuable painting, who knows I have it or what it’s worth? Certainly the value is debatable. Or if I have options in startup, how do you value them fairly until the IPO? And I’m not sure how one plans tax issues in such circumstances.
(Please no political comments; I’m just wondering how it’s carried out in practice if anyone has experience with such taxes. Some of the countries with wealth taxes are enticing as retirement locations.)
BG
We have wealth taxes in Norway, 0.85% of (assessed value minus ~$350,000). There are a number of rules for different assets. It gets complex.

A painting, and other single pieces of personal property, would not be taxed unless its value exceeded ~$120.000. If it did exceed this amount, then the basis for the wealth tax would be 40% of the insured value. For options, it depends.. If I received them as a part of my work compensation, they would not be considered for wealth tax, but options purchased on a market place, would be considered. Equities are valued at 80% of market value, primary residence 25%, retirement accounts 0%, bonds 100%.

When looking at a foreign tax, many people have a tendency to just add that tax to their own tax system, and gasp at how horrible that would be. It doesn't work that way.. the whole tax systems are different. Without a wealth tax, our tax system would result in many rich people paying nothing at all. They set up corporations, which aren't taxed on either dividends nor capital gains (i.e. they can invest tax free as long as they don't withdraw), and are able to withdraw an amount equal to their cost basis multiplied with the risk free interest rate each year without paying taxes. If you're rich, you'd be amazingly golden here if there wasn't a wealth tax.

I'm not rich, but I definitely consider myself well off. I have roughly the following assets:

$1 million primary residence
$1.5 million non-retirement investment account
$1 million pension value

The wealth tax basis is $250.000 for my primary residence + $1.2 million for non retirement accounts + $0 for pension - $350.000 deduction = $1.1 million. I pay 0,85% tax on this = $9350.

And again, can't just upload that to a different tax system. I pay about $450 in property taxes per year, and can reinvest dividends in my non-retirement account tax free. I don't consider $9350 to be that unreasonable in my circumstance.
Very informative.

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munemaker
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Re: Implementing a wealth tax

Post by munemaker » Fri Jan 25, 2019 9:22 am

The US constitution would seem to prohibit a federal wealth tax in the US.

Article I of the U.S. Constitution says that no direct tax can be levied unless in proportion to the “Census or Enumeration.” The 16th Amendment expanded Congress’ power to collect taxes on “incomes, from whatever source derived” without regard to the census.

jdilla1107
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Re: Implementing a wealth tax

Post by jdilla1107 » Fri Jan 25, 2019 9:28 am

Rob54keep wrote:
Fri Jan 25, 2019 9:14 am
The problem is often on how one defines "wealth" for tax purposes.
However, it's not like defining income is any easier. Business taxes are insane at figuring out what taxable income means.

elderwise
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Re: Implementing a wealth tax

Post by elderwise » Fri Jan 25, 2019 9:32 am

Hallman wrote:
Fri Jan 25, 2019 9:06 am
BigoteGato wrote:
Fri Jan 25, 2019 1:49 am
Regardless of its merit I was wondering how a wealth tax is implemented. I believe several countries have some form of wealth tax (e.g., Spain). But I don’t understand how valuation works. If I have a valuable painting, who knows I have it or what it’s worth? Certainly the value is debatable. Or if I have options in startup, how do you value them fairly until the IPO? And I’m not sure how one plans tax issues in such circumstances.
(Please no political comments; I’m just wondering how it’s carried out in practice if anyone has experience with such taxes. Some of the countries with wealth taxes are enticing as retirement locations.)
BG
We have wealth taxes in Norway, 0.85% of (assessed value minus ~$350,000). There are a number of rules for different assets. It gets complex.

A painting, and other single pieces of personal property, would not be taxed unless its value exceeded ~$120.000. If it did exceed this amount, then the basis for the wealth tax would be 40% of the insured value. For options, it depends.. If I received them as a part of my work compensation, they would not be considered for wealth tax, but options purchased on a market place, would be considered. Equities are valued at 80% of market value, primary residence 25%, retirement accounts 0%, bonds 100%.

When looking at a foreign tax, many people have a tendency to just add that tax to their own tax system, and gasp at how horrible that would be. It doesn't work that way.. the whole tax systems are different. Without a wealth tax, our tax system would result in many rich people paying nothing at all. They set up corporations, which aren't taxed on either dividends nor capital gains (i.e. they can invest tax free as long as they don't withdraw), and are able to withdraw an amount equal to their cost basis multiplied with the risk free interest rate each year without paying taxes. If you're rich, you'd be amazingly golden here if there wasn't a wealth tax.

I'm not rich, but I definitely consider myself well off. I have roughly the following assets:

$1 million primary residence
$1.5 million non-retirement investment account
$1 million pension value

The wealth tax basis is $250.000 for my primary residence + $1.2 million for non retirement accounts + $0 for pension - $350.000 deduction = $1.1 million. I pay 0,85% tax on this = $9350.

And again, can't just upload that to a different tax system. I pay about $450 in property taxes per year, and can reinvest dividends in my non-retirement account tax free. I don't consider $9350 to be that unreasonable in my circumstance.
Thank you for posting, its very interesting / informative to hear from the other side.Here in States, we have no such tax (wealth tax per se).

If you don't mind me asking, how does on accumulate wealth then? Because from what I have heard, EU / Norway / Netherlands etc have high taxes on salaries (compared to the USA) , i understand its a social system.

If you are an EU citizen say with property in Asia, etc how will they know? I am sure they do not have the stronghold as the IRS / and the FATCA ruling etc USA is a unique case of being so restrictive with PFIC.

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GoldStar
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Re: Implementing a wealth tax

Post by GoldStar » Fri Jan 25, 2019 9:36 am

I don't understand where you are going here (without getting into politics).
If its Spain you are thinking about moving to and concerned about their taxation - simply google "Spain Tax system" or "Spain Wealth Tax" and then ask questions related to what you don't understand. There is plenty of info on how Spain taxation works out there.
Asking how a country would theoretically implement a wealth tax is not actionable in this forum and will simply get derailed by political discussion (which has already started with folks quoting constitution, etc.).

To make this actionable - I would suggest asking a more personal question on your current or future situation. Otherwise - this thread will be locked pretty quickly.

Glockenspiel
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Re: Implementing a wealth tax

Post by Glockenspiel » Fri Jan 25, 2019 9:39 am

HoosierJim wrote:
Fri Jan 25, 2019 8:00 am
Why would anybody save money? Just got a bonus ? - buy some gold/jewelry/antique. Better risk depreciation over confiscation. A wealth tax almost implies a complete social welfare system so let other take care of you. Sounds like the "I don't live paycheck to paycheck" tax.

For people like Mark Zuckerberg or other tech billionaires - who may not have the cash to pay a tax - does the government confiscate stocks each year or do they move the IP/wealth to another country like they do now? Lenin/Stalin tried this - doesn't work too good - government assets were divided up among Putin's buddies.
So a 2% tax on wealth over $50 million and a 3% tax on wealth over $1 billion is an "I don't live paycheck to paycheck" tax? I'm sorry, but there's a huge difference between "not living paycheck to paycheck" and having more money than humanly possible to spend in a lifetime. I do think a tax like this would be incredibly difficult to incorporate, because very rich people are insanely good at hiding their assets. How can the economy be the best it's been in at least 2 decades, with unemployment at nearly the lowest rates in history, yet the US is INCREASING it's annual deficit? Rhetorical question, I know...

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Tycoon
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Re: Implementing a wealth tax

Post by Tycoon » Fri Jan 25, 2019 9:53 am

Glockenspiel wrote:
Fri Jan 25, 2019 9:39 am
HoosierJim wrote:
Fri Jan 25, 2019 8:00 am
How can the economy be the best it's been in at least 2 decades, with unemployment at nearly the lowest rates in history, yet the US is INCREASING it's annual deficit? Rhetorical question, I know...
Spending. Stop spending more than is taken in and deficits will decrease. Not the answer you were looking for, eh?
Emotionless, prognostication free investing. Ignoring the noise and economists since 1979. How consistantly wrong do predictions have to be before the faithful learn?

Glockenspiel
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Re: Implementing a wealth tax

Post by Glockenspiel » Fri Jan 25, 2019 10:04 am

Tycoon wrote:
Fri Jan 25, 2019 9:53 am
HoosierJim wrote:
Fri Jan 25, 2019 8:00 am
How can the economy be the best it's been in at least 2 decades, with unemployment at nearly the lowest rates in history, yet the US is INCREASING it's annual deficit? Rhetorical question, I know...
Spending. Stop spending more than is taken in and deficits will decrease. Not the answer you were looking for, eh?
Spending has essentially remained flat (as percent of GDP), since 1985, at 36-38% of GDP. There was a slight spike during and shortly after the 2008 recession, but since then has gone back down to 1985-2007 levels. So, again, we're not spending more than we did when deficits were low. Revenue is just awfully low, and when the next recession begins, we're going to be in a world of hurt.

WhyNotUs
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Re: Implementing a wealth tax

Post by WhyNotUs » Fri Jan 25, 2019 10:09 am

The idea currently proposed would start with those with a worth over $50M and become more aggressive for those over a $1B.
Relax :happy :wink:

The ongoing concentration of wealth seems like a greater for concern for those seeking to build wealth to last their lifetime.
I own the next hot stock- VTSAX

Olemiss540
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Re: Implementing a wealth tax

Post by Olemiss540 » Fri Jan 25, 2019 10:10 am

Glockenspiel wrote:
Fri Jan 25, 2019 9:39 am
HoosierJim wrote:
Fri Jan 25, 2019 8:00 am
Why would anybody save money? Just got a bonus ? - buy some gold/jewelry/antique. Better risk depreciation over confiscation. A wealth tax almost implies a complete social welfare system so let other take care of you. Sounds like the "I don't live paycheck to paycheck" tax.

For people like Mark Zuckerberg or other tech billionaires - who may not have the cash to pay a tax - does the government confiscate stocks each year or do they move the IP/wealth to another country like they do now? Lenin/Stalin tried this - doesn't work too good - government assets were divided up among Putin's buddies.
So a 2% tax on wealth over $50 million and a 3% tax on wealth over $1 billion is an "I don't live paycheck to paycheck" tax? I'm sorry, but there's a huge difference between "not living paycheck to paycheck" and having more money than humanly possible to spend in a lifetime. I do think a tax like this would be incredibly difficult to incorporate, because very rich people are insanely good at hiding their assets. How can the economy be the best it's been in at least 2 decades, with unemployment at nearly the lowest rates in history, yet the US is INCREASING it's annual deficit? Rhetorical question, I know...
Same reason I can make more money than ever and be in deeper credit card debt than when I was taking minimum wage.

How has tax revenue been compared to the last 2 decades?
I hold index funds because I do not overestimate my ability to pick stocks OR stock pickers.

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Tycoon
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Re: Implementing a wealth tax

Post by Tycoon » Fri Jan 25, 2019 10:11 am

Glockenspiel wrote:
Fri Jan 25, 2019 10:04 am
Tycoon wrote:
Fri Jan 25, 2019 9:53 am
HoosierJim wrote:
Fri Jan 25, 2019 8:00 am
How can the economy be the best it's been in at least 2 decades, with unemployment at nearly the lowest rates in history, yet the US is INCREASING it's annual deficit? Rhetorical question, I know...
Spending. Stop spending more than is taken in and deficits will decrease. Not the answer you were looking for, eh?
Spending has essentially remained flat (as percent of GDP), since 1985, at 36-38% of GDP. There was a slight spike during and shortly after the 2008 recession, but since then has gone back down to 1985-2007 levels. So, again, we're not spending more than we did when deficits were low. Revenue is just awfully low, and when the next recession begins, we're going to be in a world of hurt.
Might I suggest that you research US revenue intake for the last 20 years?
Last edited by Tycoon on Fri Jan 25, 2019 10:11 am, edited 1 time in total.
Emotionless, prognostication free investing. Ignoring the noise and economists since 1979. How consistantly wrong do predictions have to be before the faithful learn?

Valuethinker
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Re: Implementing a wealth tax

Post by Valuethinker » Fri Jan 25, 2019 10:11 am

HoosierJim wrote:
Fri Jan 25, 2019 8:00 am
? Lenin/Stalin tried this - doesn't work too good - government assets were divided up among Putin's buddies.
That is not a reasonable reading of history - elides 2 sets of events over 70 years apart.

Lenin & the Bolsheviks nationalized the entire wealth of the country - the aristocrats and property owners who were not liquidated fled the country*** That system of state Marxist-Leninism lasted for 73 years (1917-1990).

With a lot of assistance from various US persons and official encouragement from the US government, in the early 1990s the government of Boris Yeltsin, which was post the era of One Party rule and communism, privatized a huge fraction of state assets - through various routes they found their way into the hands of the oligarchs and by various ways then back into the hands of the Russian state (think Yukos Oil).

It was, in fact, the US-inspired privatization period that led to the oligarchs stealing the country's assets *not* the period under communism. Other post communist nations have proceeded to social democracy more smoothly.

[I've deleted the rest of the post - this thread is for the lock, anyways]
Last edited by Valuethinker on Fri Jan 25, 2019 10:16 am, edited 1 time in total.

KlangFool
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Re: Implementing a wealth tax

Post by KlangFool » Fri Jan 25, 2019 10:15 am

HoosierJim wrote:
Fri Jan 25, 2019 8:00 am
Why would anybody save money? Just got a bonus ? - buy some gold/jewelry/antique. Better risk depreciation over confiscation. A wealth tax almost implies a complete social welfare system so let other take care of you. Sounds like the "I don't live paycheck to paycheck" tax.
HoosierJim,

Japan.

The common saying in Japan is that after 3 generations, the government owned everything. The inheritance tax range from 10% to 55%.

https://transferwise.com/au/blog/japan-inheritance-tax

KlangFool

CoAndy
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Re: Implementing a wealth tax

Post by CoAndy » Fri Jan 25, 2019 10:17 am

Glockenspiel wrote:
Fri Jan 25, 2019 10:04 am
Tycoon wrote:
Fri Jan 25, 2019 9:53 am
HoosierJim wrote:
Fri Jan 25, 2019 8:00 am
How can the economy be the best it's been in at least 2 decades, with unemployment at nearly the lowest rates in history, yet the US is INCREASING it's annual deficit? Rhetorical question, I know...
Spending. Stop spending more than is taken in and deficits will decrease. Not the answer you were looking for, eh?
Spending has essentially remained flat (as percent of GDP), since 1985, at 36-38% of GDP. There was a slight spike during and shortly after the 2008 recession, but since then has gone back down to 1985-2007 levels. So, again, we're not spending more than we did when deficits were low. Revenue is just awfully low, and when the next recession begins, we're going to be in a world of hurt.
That's incorrect. Revenue just this past year hit record highs. It hit record highs a couple times over the last 5 years. Spending NEVER goes down.

This past year, revenue was up 3% but spending was up 18%. Hence, the large deficit.

Topic Author
BigoteGato
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Re: Implementing a wealth tax

Post by BigoteGato » Fri Jan 25, 2019 10:22 am

HoosierJim wrote:
Fri Jan 25, 2019 8:00 am
Why would anybody save money? Just got a bonus ? - buy some gold/jewelry/antique. Better risk depreciation over confiscation. A wealth tax almost implies a complete social welfare system so let other take care of you. Sounds like the "I don't live paycheck to paycheck" tax.

For people like Mark Zuckerberg or other tech billionaires - who may not have the cash to pay a tax - does the government confiscate stocks each year or do they move the IP/wealth to another country like they do now? Lenin/Stalin tried this - doesn't work too good - government assets were divided up among Putin's buddies.
That was one of my questions. I had options in a startup and if you valued them and taxed them before they see liquid I certainly didn’t have enough money to pay a stiff tax. Would I take a loan then?
BG

visualguy
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Re: Implementing a wealth tax

Post by visualguy » Fri Jan 25, 2019 10:23 am

It can be implemented as has been done in some other countries - pretty easy to look up. The US is actually even more capable of implementing it because of its control of the world financial system, and the strong power it has with world banks, making it harder for people to hide from such taxation.

The main problem with such taxation in my view is not the implementation. The problem is that it opens the floodgates, and the temptation is too strong to apply it ultimately beyond just the ultra-wealthy (who tend to have the political influence to shift the burden).

SQRT
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Re: Implementing a wealth tax

Post by SQRT » Fri Jan 25, 2019 10:24 am

Isn’t inheritance tax a form of “wealth tax”.

Topic Author
BigoteGato
Posts: 46
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Re: Implementing a wealth tax

Post by BigoteGato » Fri Jan 25, 2019 10:25 am

Hallman wrote:
Fri Jan 25, 2019 9:06 am
BigoteGato wrote:
Fri Jan 25, 2019 1:49 am
Regardless of its merit I was wondering how a wealth tax is implemented. I believe several countries have some form of wealth tax (e.g., Spain). But I don’t understand how valuation works. If I have a valuable painting, who knows I have it or what it’s worth? Certainly the value is debatable. Or if I have options in startup, how do you value them fairly until the IPO? And I’m not sure how one plans tax issues in such circumstances.
(Please no political comments; I’m just wondering how it’s carried out in practice if anyone has experience with such taxes. Some of the countries with wealth taxes are enticing as retirement locations.)
BG
We have wealth taxes in Norway, 0.85% of (assessed value minus ~$350,000). There are a number of rules for different assets. It gets complex.

A painting, and other single pieces of personal property, would not be taxed unless its value exceeded ~$120.000. If it did exceed this amount, then the basis for the wealth tax would be 40% of the insured value. For options, it depends.. If I received them as a part of my work compensation, they would not be considered for wealth tax, but options purchased on a market place, would be considered. Equities are valued at 80% of market value, primary residence 25%, retirement accounts 0%, bonds 100%.

When looking at a foreign tax, many people have a tendency to just add that tax to their own tax system, and gasp at how horrible that would be. It doesn't work that way.. the whole tax systems are different. Without a wealth tax, our tax system would result in many rich people paying nothing at all. They set up corporations, which aren't taxed on either dividends nor capital gains (i.e. they can invest tax free as long as they don't withdraw), and are able to withdraw an amount equal to their cost basis multiplied with the risk free interest rate each year without paying taxes. If you're rich, you'd be amazingly golden here if there wasn't a wealth tax.

I'm not rich, but I definitely consider myself well off. I have roughly the following assets:

$1 million primary residence
$1.5 million non-retirement investment account
$1 million pension value

The wealth tax basis is $250.000 for my primary residence + $1.2 million for non retirement accounts + $0 for pension - $350.000 deduction = $1.1 million. I pay 0,85% tax on this = $9350.

And again, can't just upload that to a different tax system. I pay about $450 in property taxes per year, and can reinvest dividends in my non-retirement account tax free. I don't consider $9350 to be that unreasonable in my circumstance.
Hallman - this is very enlightening. And useful to me. Do you think if I moved to an EU country with wealth tax my IRA/401K funds would be subject to a wealth tax? Before I took the $ out I mean.
BG

Glockenspiel
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Re: Implementing a wealth tax

Post by Glockenspiel » Fri Jan 25, 2019 10:26 am

Tycoon wrote:
Fri Jan 25, 2019 10:11 am
Glockenspiel wrote:
Fri Jan 25, 2019 10:04 am
Tycoon wrote:
Fri Jan 25, 2019 9:53 am
HoosierJim wrote:
Fri Jan 25, 2019 8:00 am
How can the economy be the best it's been in at least 2 decades, with unemployment at nearly the lowest rates in history, yet the US is INCREASING it's annual deficit? Rhetorical question, I know...
Spending. Stop spending more than is taken in and deficits will decrease. Not the answer you were looking for, eh?
Spending has essentially remained flat (as percent of GDP), since 1985, at 36-38% of GDP. There was a slight spike during and shortly after the 2008 recession, but since then has gone back down to 1985-2007 levels. So, again, we're not spending more than we did when deficits were low. Revenue is just awfully low, and when the next recession begins, we're going to be in a world of hurt.
Might I suggest that you research US revenue intake for the last 20 years?
From 2017 to 2018 (the first year of the TCJA (tax cuts and jobs act)), federal tax revenue increased 0.4%. Very weak considering the economy grew much faster than that. In 2015, tax revenue grew 7.5% from the previous year, when the economy was growing at a similar pace. But if you include inflation, federal tax revenue actually decreased, so no, the TCJA is not paying for itself.

Glockenspiel
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Re: Implementing a wealth tax

Post by Glockenspiel » Fri Jan 25, 2019 10:28 am

CoAndy wrote:
Fri Jan 25, 2019 10:17 am
Glockenspiel wrote:
Fri Jan 25, 2019 10:04 am
Tycoon wrote:
Fri Jan 25, 2019 9:53 am
HoosierJim wrote:
Fri Jan 25, 2019 8:00 am
How can the economy be the best it's been in at least 2 decades, with unemployment at nearly the lowest rates in history, yet the US is INCREASING it's annual deficit? Rhetorical question, I know...
Spending. Stop spending more than is taken in and deficits will decrease. Not the answer you were looking for, eh?
Spending has essentially remained flat (as percent of GDP), since 1985, at 36-38% of GDP. There was a slight spike during and shortly after the 2008 recession, but since then has gone back down to 1985-2007 levels. So, again, we're not spending more than we did when deficits were low. Revenue is just awfully low, and when the next recession begins, we're going to be in a world of hurt.
That's incorrect. Revenue just this past year hit record highs. It hit record highs a couple times over the last 5 years. Spending NEVER goes down.

This past year, revenue was up 3% but spending was up 18%. Hence, the large deficit.
It only hit record highs because the value of a dollar is the lowest its ever been. Look at revenue and spending vs. GDP, not just the dollar value. Dollar value of revenue and spending is not comparing apples to apples.

German Expat
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Re: Implementing a wealth tax

Post by German Expat » Fri Jan 25, 2019 10:28 am

We moved to Switzerland and there is a wealth tax here. The total tax burden is still lower then the US (ok depends a bit which city you live in and how much you make). There are plenty of billionaires in Switzerland and none of them moved out yet (more the opposite, plenty of really rich people moved to Switzerland). The top rate is 0.3%. There are clear rules how things are calculated (e.g. valuation of your business, jewelry, cars etc.).

You have to see this as a total tax package and for anybody below a relative large wealth the total taxes are still lower compared to the US.

bgf
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Re: Implementing a wealth tax

Post by bgf » Fri Jan 25, 2019 10:29 am

I appreciate Hallman's post as it was informative and refreshing, in stark contrast to many of the kinds of posts you would see on this topic. The immediate ire a wealth tax draws is not deserved, imo.

anyway, in piketty's capital in the 21st century, iirc, he goes into detail about the mechanisms and problems of enforcement of a wealth tax, but it is much more complicated from a global perspective, as there would need to be great cooperation among many countries.

the wealth tax wouldn't affect your average joe, or even your relatively wealthy average joe like you find on this forum. it would primarily affect those of extreme wealth, who have the ways and means of easily hiding their wealth. hence, the need for cooperation between governments.

anyway, if you are interested, check out that section of the book. there's also a lot of good stuff in there about wealth inequality, which is really what a wealth tax is about.
“TE OCCIDERE POSSUNT SED TE EDERE NON POSSUNT NEFAS EST"

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BigoteGato
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Re: Implementing a wealth tax

Post by BigoteGato » Fri Jan 25, 2019 10:31 am

GoldStar wrote:
Fri Jan 25, 2019 9:36 am
I don't understand where you are going here (without getting into politics).
If its Spain you are thinking about moving to and concerned about their taxation - simply google "Spain Tax system" or "Spain Wealth Tax" and then ask questions related to what you don't understand. There is plenty of info on how Spain taxation works out there.
Asking how a country would theoretically implement a wealth tax is not actionable in this forum and will simply get derailed by political discussion (which has already started with folks quoting constitution, etc.).

To make this actionable - I would suggest asking a more personal question on your current or future situation. Otherwise - this thread will be locked pretty quickly.
I don’t yet have a specific country in mind. And if you read my post you noticed that I wondered about tax planning in such a situation. I specifically asked for no political comments in my post.
BG

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BigoteGato
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Re: Implementing a wealth tax

Post by BigoteGato » Fri Jan 25, 2019 10:34 am

WhyNotUs wrote:
Fri Jan 25, 2019 10:09 am
The idea currently proposed would start with those with a worth over $50M and become more aggressive for those over a $1B.
Relax :happy :wink:

The ongoing concentration of wealth seems like a greater for concern for those seeking to build wealth to last their lifetime.
I don’t yet have $50M. Please keep away from politics or we’ll get locked. If I had that much I would worry less about a wealth tax. I’m asking about the case of a moderately well-off person.
BG

HoosierJim
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Re: Implementing a wealth tax

Post by HoosierJim » Fri Jan 25, 2019 10:35 am

Hallman wrote:
Fri Jan 25, 2019 9:06 am
$0 for pension .
So if I am not covered by a pension and have to save money, I am taxed on my savings?

Atgard
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Re: Implementing a wealth tax

Post by Atgard » Fri Jan 25, 2019 10:39 am

Hallman wrote:
Fri Jan 25, 2019 9:06 am
BigoteGato wrote:
Fri Jan 25, 2019 1:49 am
Regardless of its merit I was wondering how a wealth tax is implemented. I believe several countries have some form of wealth tax (e.g., Spain). But I don’t understand how valuation works. If I have a valuable painting, who knows I have it or what it’s worth? Certainly the value is debatable. Or if I have options in startup, how do you value them fairly until the IPO? And I’m not sure how one plans tax issues in such circumstances.
(Please no political comments; I’m just wondering how it’s carried out in practice if anyone has experience with such taxes. Some of the countries with wealth taxes are enticing as retirement locations.)
BG
We have wealth taxes in Norway, 0.85% of (assessed value minus ~$350,000). There are a number of rules for different assets. It gets complex.

A painting, and other single pieces of personal property, would not be taxed unless its value exceeded ~$120.000. If it did exceed this amount, then the basis for the wealth tax would be 40% of the insured value. For options, it depends.. If I received them as a part of my work compensation, they would not be considered for wealth tax, but options purchased on a market place, would be considered. Equities are valued at 80% of market value, primary residence 25%, retirement accounts 0%, bonds 100%.

When looking at a foreign tax, many people have a tendency to just add that tax to their own tax system, and gasp at how horrible that would be. It doesn't work that way.. the whole tax systems are different. Without a wealth tax, our tax system would result in many rich people paying nothing at all. They set up corporations, which aren't taxed on either dividends nor capital gains (i.e. they can invest tax free as long as they don't withdraw), and are able to withdraw an amount equal to their cost basis multiplied with the risk free interest rate each year without paying taxes. If you're rich, you'd be amazingly golden here if there wasn't a wealth tax.

I'm not rich, but I definitely consider myself well off. I have roughly the following assets:

$1 million primary residence
$1.5 million non-retirement investment account
$1 million pension value

The wealth tax basis is $250.000 for my primary residence + $1.2 million for non retirement accounts + $0 for pension - $350.000 deduction = $1.1 million. I pay 0,85% tax on this = $9350.

And again, can't just upload that to a different tax system. I pay about $450 in property taxes per year, and can reinvest dividends in my non-retirement account tax free. I don't consider $9350 to be that unreasonable in my circumstance.
Very informative post, and a good reminder to look at the total picture. While savers like us may cringe at a "wealth tax," we should also cringe at the idea of a permanent aristocracy, generation after generation of people who never worked a day in their lives but who have immense wealth & political power, a milieu that even the most prodigious savers here will never reach. So we have to look at where the money is, and how much very wealthy people & corporations are really paying (talk of marginal tax rates is useless for someone with offshore shell companies, huge un-realized capital gains, etc.). Maybe, for example, this replaces/augments things like property taxes and estate taxes, or there are deductions for those? So it can't be looked at in isolation.

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BigoteGato
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Re: Implementing a wealth tax

Post by BigoteGato » Fri Jan 25, 2019 10:45 am

bgf wrote:
Fri Jan 25, 2019 10:29 am
I appreciate Hallman's post as it was informative and refreshing, in stark contrast to many of the kinds of posts you would see on this topic. The immediate ire a wealth tax draws is not deserved, imo.

anyway, in piketty's capital in the 21st century, iirc, he goes into detail about the mechanisms and problems of enforcement of a wealth tax, but it is much more complicated from a global perspective, as there would need to be great cooperation among many countries.

the wealth tax wouldn't affect your average joe, or even your relatively wealthy average joe like you find on this forum. it would primarily affect those of extreme wealth, who have the ways and means of easily hiding their wealth. hence, the need for cooperation between governments.

anyway, if you are interested, check out that section of the book. there's also a lot of good stuff in there about wealth inequality, which is really what a wealth tax is about.
BGF - I listened to Piketty’s talk but did not read book. But I’m not sure I follow your comment that a wealth tax wouldn’t affect me (average Joe). I’m not focusing on US politics but EU. I thought in EU countries that have this tax, while there is a threshold so that less well off people are not affected, that threshold is low enough to catch many typical Bogleheads. I’ll go back and take a look but that was my initial sense.
BG

bryanm
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Re: Implementing a wealth tax

Post by bryanm » Fri Jan 25, 2019 10:46 am

Glockenspiel wrote:
Fri Jan 25, 2019 10:26 am

From 2017 to 2018 (the first year of the TCJA (tax cuts and jobs act)), federal tax revenue increased 0.4%. Very weak considering the economy grew much faster than that. In 2015, tax revenue grew 7.5% from the previous year, when the economy was growing at a similar pace. But if you include inflation, federal tax revenue actually decreased, so no, the TCJA is not paying for itself.
I know this is off topic, but it seems super interesting. Why don't we compare spending/revenue to GDP, which should give common reference and avoid issues of inflation, etc. Here's a neat graph (blue is spending, red is revenue):
Image

All in all, it looks like spending tracks revenue fairly well, except in recessions. Of course, the fact that revenue almost always lag spending is concerning. The assertion that spending (as a % of GDP) has been fairly flat seems to hold up, as our level now is below the apex of 1982 ("apex" excepting the great recession spending). Our 2017 revenue is also similar to that year.

Interactive chart.

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Fat-Tailed Contagion
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Re: Implementing a wealth tax

Post by Fat-Tailed Contagion » Fri Jan 25, 2019 10:51 am

Good point. And with a 5-4 (6-3) SCOTUS skeptical of Federal Govt power overreach it would make this "wealth tax" even less likely to stand up.

Prior to 1913, with the creation of IRS and Fed Reserve, taxation was considered theft.
munemaker wrote:
Fri Jan 25, 2019 9:22 am
The US constitution would seem to prohibit a federal wealth tax in the US.

Article I of the U.S. Constitution says that no direct tax can be levied unless in proportion to the “Census or Enumeration.” The 16th Amendment expanded Congress’ power to collect taxes on “incomes, from whatever source derived” without regard to the census.
“The intelligent investor is a realist who sells to optimists and buys from pessimists.” | ― Benjamin Graham, The Intelligent Investor

LawyersGunsAndMoney
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Re: Implementing a wealth tax

Post by LawyersGunsAndMoney » Fri Jan 25, 2019 11:00 am

The biggest implementation barrier would be systems and resources to account for financial assets currently held in off-shore shell companies and other tax avoidance schemes.

Easy enough to tax real estate and property - much harder to identify and tax off-shore assets which the tax base in question owns in spades.

I believe the Warren plan tries to get around this with a bunch of new anti-avoidance measures and mandatory IRS audits for ppl in this income range.

visualguy
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Re: Implementing a wealth tax

Post by visualguy » Fri Jan 25, 2019 11:02 am

BigoteGato wrote:
Fri Jan 25, 2019 10:45 am
bgf wrote:
Fri Jan 25, 2019 10:29 am
I appreciate Hallman's post as it was informative and refreshing, in stark contrast to many of the kinds of posts you would see on this topic. The immediate ire a wealth tax draws is not deserved, imo.

anyway, in piketty's capital in the 21st century, iirc, he goes into detail about the mechanisms and problems of enforcement of a wealth tax, but it is much more complicated from a global perspective, as there would need to be great cooperation among many countries.

the wealth tax wouldn't affect your average joe, or even your relatively wealthy average joe like you find on this forum. it would primarily affect those of extreme wealth, who have the ways and means of easily hiding their wealth. hence, the need for cooperation between governments.

anyway, if you are interested, check out that section of the book. there's also a lot of good stuff in there about wealth inequality, which is really what a wealth tax is about.
BGF - I listened to Piketty’s talk but did not read book. But I’m not sure I follow your comment that a wealth tax wouldn’t affect me (average Joe). I’m not focusing on US politics but EU. I thought in EU countries that have this tax, while there is a threshold so that less well off people are not affected, that threshold is low enough to catch many typical Bogleheads. I’ll go back and take a look but that was my initial sense.
BG
You are correct, and this is what ends up happening with these things, unfortunately. For example, in France you were subject to the wealth tax if you had over 1.3M Euro in assets. I believe they replaced it with some real estate tax recently.

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Re: Implementing a wealth tax

Post by Spirit Rider » Fri Jan 25, 2019 11:03 am

The U.S. has a long history with wealth taxes, but the trend since WW2 has been away from such taxes.

Estate and inheritance taxes used to hit a very large number of people. However, the federal exclusion of > $10M has reduced that significantly. States have similarly raised their exclusions or eliminated their estate taxes. Only a handful of states still have have inheritance taxes.

Real and tangible personal property taxes are used for revenue in many state, county and local jurisdictions.

Intangible personal property taxes very similar to the described Norway wealth tax were common in the 19th and early 20th centuries in the majority of states. They taxed the value of stocks, bonds, collectibles, etc... They are virtually gone at this point. The last large state to do away with there intangibles tax was FL more than a decade ago.

It would be a large change in direction to start doing so again. Also, as has been mentioned it would require a constitutional amendment to do so at the federal level. Also, many of the states stopped doing so because of court rulings a lawsuits they knew they would lose. So you would also need constitutional amendments in many states.

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Re: Implementing a wealth tax

Post by bryanm » Fri Jan 25, 2019 11:09 am

Fat-Tailed Contagion wrote:
Fri Jan 25, 2019 10:51 am
Prior to 1913, with the creation of IRS and Fed Reserve, taxation was considered theft.
I question the veracity of this statement, though I've oft heard it claimed. The first federal income tax appears to have occurred in 1861. Wikipedia has a nice breakdown of taxation prior to 1916, referencing Springer v. United States (102 U.S. 586 (1881)) in which "the United States Supreme Court upheld the Federal income tax imposed under the Revenue Act of 1864."

The "direct tax" prohibition in the constitution refers to taxation by virtue of ownership, not taxation by virtue of transaction. A wealth tax may therefore very well have issues. Income taxes for wages do not.

(Footnote: Springer was later overruled in part by Pollock v. Farmers' Loan & Trust Company (157 U.S. 429 (1895)). However, the ruling that an income tax was not prohibited under the constitution was not overruled. The major change of the 16th amendment was the ability of congress to lay excise taxes on corporations, and to tax non-wage income.)

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bligh
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Re: Implementing a wealth tax

Post by bligh » Fri Jan 25, 2019 11:16 am

SQRT wrote:
Fri Jan 25, 2019 10:24 am
Isn’t inheritance tax a form of “wealth tax”.
I used to think that way too but if you can also see it as a "Windfall" tax. The thinking goes something like this:

1) Bob worked hard all his life and amassed $20 million. But now, after living a long fruitful life, Bob is dead, may he rest in peace. However he has left behind a $20 million pot of money! What do we do with it?
2) Bob's son, Jack, has done well for himself too. However he has done nothing to "Earn" this inheritance. We should give it to him. Lucky Jack! That is such a great windfall that has fallen into his lap through sheer luck. (ie. being Bob's son)
3) We should tax Jack on his windfall.

Not making a statement one way or the other on if the inheritance tax is a "good" tax or not, I'm just pointing out that it can be viewed as a windfall tax, instead of a wealth or "death" tax.

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bligh
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Re: Implementing a wealth tax

Post by bligh » Fri Jan 25, 2019 11:19 am

Hallman wrote:
Fri Jan 25, 2019 9:06 am
BigoteGato wrote:
Fri Jan 25, 2019 1:49 am
Regardless of its merit I was wondering how a wealth tax is implemented. I believe several countries have some form of wealth tax (e.g., Spain). But I don’t understand how valuation works. If I have a valuable painting, who knows I have it or what it’s worth? Certainly the value is debatable. Or if I have options in startup, how do you value them fairly until the IPO? And I’m not sure how one plans tax issues in such circumstances.
(Please no political comments; I’m just wondering how it’s carried out in practice if anyone has experience with such taxes. Some of the countries with wealth taxes are enticing as retirement locations.)
BG
We have wealth taxes in Norway, 0.85% of (assessed value minus ~$350,000). There are a number of rules for different assets. It gets complex.

A painting, and other single pieces of personal property, would not be taxed unless its value exceeded ~$120.000. If it did exceed this amount, then the basis for the wealth tax would be 40% of the insured value. For options, it depends.. If I received them as a part of my work compensation, they would not be considered for wealth tax, but options purchased on a market place, would be considered. Equities are valued at 80% of market value, primary residence 25%, retirement accounts 0%, bonds 100%.

When looking at a foreign tax, many people have a tendency to just add that tax to their own tax system, and gasp at how horrible that would be. It doesn't work that way.. the whole tax systems are different. Without a wealth tax, our tax system would result in many rich people paying nothing at all. They set up corporations, which aren't taxed on either dividends nor capital gains (i.e. they can invest tax free as long as they don't withdraw), and are able to withdraw an amount equal to their cost basis multiplied with the risk free interest rate each year without paying taxes. If you're rich, you'd be amazingly golden here if there wasn't a wealth tax.

I'm not rich, but I definitely consider myself well off. I have roughly the following assets:

$1 million primary residence
$1.5 million non-retirement investment account
$1 million pension value

The wealth tax basis is $250.000 for my primary residence + $1.2 million for non retirement accounts + $0 for pension - $350.000 deduction = $1.1 million. I pay 0,85% tax on this = $9350.

And again, can't just upload that to a different tax system. I pay about $450 in property taxes per year, and can reinvest dividends in my non-retirement account tax free. I don't consider $9350 to be that unreasonable in my circumstance.
That is an awesome post. Thank you for taking the time to explain how the system works in your country. I agree, tax systems have to be considered as a whole. It seems that Norways approach is simply to make it harder for the super rich to complete avoid taxation by taking their wealth into account. It is a very interesting approach.

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bligh
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Re: Implementing a wealth tax

Post by bligh » Fri Jan 25, 2019 11:24 am

visualguy wrote:
Fri Jan 25, 2019 11:02 am
BigoteGato wrote:
Fri Jan 25, 2019 10:45 am
bgf wrote:
Fri Jan 25, 2019 10:29 am
I appreciate Hallman's post as it was informative and refreshing, in stark contrast to many of the kinds of posts you would see on this topic. The immediate ire a wealth tax draws is not deserved, imo.

anyway, in piketty's capital in the 21st century, iirc, he goes into detail about the mechanisms and problems of enforcement of a wealth tax, but it is much more complicated from a global perspective, as there would need to be great cooperation among many countries.

the wealth tax wouldn't affect your average joe, or even your relatively wealthy average joe like you find on this forum. it would primarily affect those of extreme wealth, who have the ways and means of easily hiding their wealth. hence, the need for cooperation between governments.

anyway, if you are interested, check out that section of the book. there's also a lot of good stuff in there about wealth inequality, which is really what a wealth tax is about.
BGF - I listened to Piketty’s talk but did not read book. But I’m not sure I follow your comment that a wealth tax wouldn’t affect me (average Joe). I’m not focusing on US politics but EU. I thought in EU countries that have this tax, while there is a threshold so that less well off people are not affected, that threshold is low enough to catch many typical Bogleheads. I’ll go back and take a look but that was my initial sense.
BG
You are correct, and this is what ends up happening with these things, unfortunately. For example, in France you were subject to the wealth tax if you had over 1.3M Euro in assets. I believe they replaced it with some real estate tax recently.
It's like boiling the frog. You start at $50 million, and then update the legislation during the next recession to $10 million
and then lower still again, and over time, inflation will also help increase the pool of people that fall into the bracket.

Theseus
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Re: Implementing a wealth tax

Post by Theseus » Fri Jan 25, 2019 11:28 am

munemaker wrote:
Fri Jan 25, 2019 9:22 am
The US constitution would seem to prohibit a federal wealth tax in the US.

Article I of the U.S. Constitution says that no direct tax can be levied unless in proportion to the “Census or Enumeration.” The 16th Amendment expanded Congress’ power to collect taxes on “incomes, from whatever source derived” without regard to the census.
This is interesting. What does it mean by "Census or Enumeration"? I have always thought if the wealth gets too polarized there can be a populist revolt to institute a wealth tax. I didn't realize that constitution prevented that from happening.

MarkRoulo
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Re: Implementing a wealth tax

Post by MarkRoulo » Fri Jan 25, 2019 11:29 am

BigoteGato wrote:
Fri Jan 25, 2019 1:49 am
Regardless of its merit I was wondering how a wealth tax is implemented. I believe several countries have some form of wealth tax (e.g., Spain). But I don’t understand how valuation works. If I have a valuable painting, who knows I have it or what it’s worth? Certainly the value is debatable. Or if I have options in startup, how do you value them fairly until the IPO? And I’m not sure how one plans tax issues in such circumstances.
Florida used to have a wealth tax.

You can read about it here https://www.cga.ct.gov/2007/rpt/2007-r-0197.htm

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Fat-Tailed Contagion
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Re: Implementing a wealth tax

Post by Fat-Tailed Contagion » Fri Jan 25, 2019 11:34 am

Following this logic, it assumes that a Federal Govt Bureaucracy "earned" these assets more than Bob's son "earned" these assets. :confused
bligh wrote:
Fri Jan 25, 2019 11:16 am
SQRT wrote:
Fri Jan 25, 2019 10:24 am
Isn’t inheritance tax a form of “wealth tax”.
I used to think that way too but if you can also see it as a "Windfall" tax. The thinking goes something like this:

1) Bob worked hard all his life and amassed $20 million. But now, after living a long fruitful life, Bob is dead, may he rest in peace. However he has left behind a $20 million pot of money! What do we do with it?
2) Bob's son, Jack, has done well for himself too. However he has done nothing to "Earn" this inheritance. We should give it to him. Lucky Jack! That is such a great windfall that has fallen into his lap through sheer luck. (ie. being Bob's son)
3) We should tax Jack on his windfall.

Not making a statement one way or the other on if the inheritance tax is a "good" tax or not, I'm just pointing out that it can be viewed as a windfall tax, instead of a wealth or "death" tax.
“The intelligent investor is a realist who sells to optimists and buys from pessimists.” | ― Benjamin Graham, The Intelligent Investor

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