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While Elizabeth Warren has fomented a good deal of productive debate about the egregious concentration of wealth among the 0.1% with her wealth tax proposal, there’s a lot not to like about her scheme. We’ll focus on one glaring issue: that a substantial amount of wealth is held in the form of investments in private companies. What they are worth is legitimately subject to question and therefore open to gaming. This is such a significant issue that her estimates of what her tax would yield look considerably overstated.
Shorter: there are other ways to skin the fat cats that would work just about as well if not better and not have as many stumbling blocks, both legal and practical. So it is odd that someone vaunted as a technocrat chose a problematic path to achieve her aims.
We were working on this post, which is long overdue, just as some new stories on the Warren and Sanders wealth tax plans came out. Our timing had nothing to do with these articles.
For instance, a New York Times piece, Democrats’ Plans to Tax Wealth Would Reshape U.S. Economy, has a subhead that stresses the risks to growth:
Proposals from Elizabeth Warren and Bernie Sanders have raised concerns from economists and business leaders who fear the plans would sap economic growth.
We are not going to address these claims at length here. We’ve pointed out regularly, based on quite a few economists’ studies, that high income and wealth inequality are negatives for growth. Highly unequal societies are even detrimental to health, including that of the rich. Admittedly, there would be transition costs in moving to a wealth tax, but that does not appear to be the argument the critics are making.
Even though Sanders advocated a wealth tax before Warren did, in 2014, and his tax is also more sharply graduated than hers (a top rate of 8% versus 3% for hers), the program she announced earlier this year has gotten more media and economist attention, and so we will focus on it.
Overview of Warren’s Plan
The key elements of Warren’s “ultra millionaires” tax:
A 2% annual tax on wealth over $50 million, with any assets over $50,000 subject to reporting (more on that shortly)
A 1% surtax on wealth over $1 billion
Inclusion of world-wide assets
40% “exit tax” on the net worth over $50 million of citizens who renounces their citizenship
She claims her tax would produce $2.75 trillion over ten years, based on estimates by economists Gabriel Zucman and Thomas Piketty.
One argument in favor of her tax is based on an aside in an article by Lee Sheppard in Tax Notes. Warren’s 2% tax is what you’d expect to see in the way of returns on conservative investments. So despite setting up the tax as a tax on assets, conceptually, one could think of it as a way to cut into the investment returns of the top wealthy. Most should not have to sell holdings but turn over income.
The Confused Objectives of Warren’s Plan
Warren and Sanders have both made revenue raising one of the centerpieces of “why this tax” We see that as a mistake. It serves to take the focus off compelling reasons for redistribution: fairness, economic efficiency, and curtailing corruption. Polls find that roughly two-thirds of Americans support a wealth tax, consistent with the idea that they recognize that economic mobility has fallen because the well-off can entrench their advantaged position. But both seem to have underplayed the notion that concentrated wealth undermines growth, particularly in supporting an outsized, “talent”-misappropriating financial services sector.
Needless to say, Warren’s tax plan, like that of all of the Democratic contenders, has the unfortunate effect of reinforcing the notion that the Federal government needs to tax in order to spend. As a currency issuer, the Federal government can always create more dollars to fund any so-called “net” (meaning deficit) spending; it is constrained by the risk of generating too much inflation. Taxing and issuing bonds are political holdovers from the gold standard era. Notice how no one ever worried about where the next billion for a bombing run in Iraq was coming from. The recent discovery of $21 trillion of heretofore unaccounted for military spending over the decades is one proof that the US does not need to tax to spend.
In addition, there are other ways to get at wealth concentration that are less fraught but would be as effective over time….even assuming Warren’s assumptions about how wealth would effectively be subject to her tax are accurate.
The Practical Problems with Warren’s Plan
Warren presents the policy wonk’s version of the economist’s famed “Assume a can opener”. Her version is “Assume effective IRS enforcement on the super rich.” Good luck with that.
The rich and super rich hold the overwhelming majority of their assets in these forms: publicly traded securities, real estate, and private companies. The example from Warren’s website is shockingly inaccurate: “Consider two people: an heir with $500 million in yachts, jewelry, and fine art…”
The problem that Warren is hand-waving away is that private companies are hard to value and even real estate isn’t as easy as one might assume.
M&A professionals, the type who eat liability to issue fairness opinions, will tell you valuation of companies is an art, not a science. Even with public companies, they do not opine that the price paid to the selling shareholders in a merger is correct, merely that it is “fair”. Remember, in these cases, the company being bought has a trading history and the investment bankers can work up comparisons of merger premiums for similar deals.
Anyone who has valued private companies (which yours truly has done for decades, professionally, for US and Japanese companies, billionaires, and private equity firms) or even just a cash flow model for a large corporate project, will tell you that if you vary the key assumptions within a reasonable range, you will regularly get a difference in projected cash flows (which is the basis for valuing the company) of X to 5X.
Similarly, it is hardly uncommon in private equity to have several firms invested in the same deal. Limited partners who by happenstance are investors in the private equity firms that all invested in one company regularly find that the valuation of that company reported to them differs wildly. The concerned limited partners ask for explanations and the general partners have perfectly logical-sounding explanations for why their valuation looks high or low relative to the others.
Moreover, coming up with an independent valuation for a meaningfully-sized business is labor intensive, since you need to sanity-check the owner’s assumptions, particularly if you are assuming liability for your work. Attentive readers may recall that we’ve discussed how private equity is the only type of institutional asset management where the asset managers value the holdings themselves, and then only monthly. All other types require monthly valuation by a third party.
Why is private equity different? Because the cost of valuing a private company by a reputable firm like Houlihan Lokey would be on the order of $30,000 (and that may be low), and that’s deemed to be costly enough to impair returns.
But Warren seems to be relying on the IRS version of the UK’s technological solution to the Irish backstop:
For example, the IRS would be authorized to use cutting-edge retrospective and prospective formulaic valuation methods for certain harder-to-value assets like closely held business and non-owner-occupied real estate.
This is bafflegab. You can’t use “formulaic valuations” because the hard part is not crunching the numbers, it’s coming up with a solid forecast of revenues, costs, and required investments (such as in working capital) based on an understanding of the company’s competitive environment.
Similarly, even valuing real estate is not as simple as one might assume. Even for their personal holdings, the middling and super rich often hold unique or at least distinctive properties. Looking at comparables would give a wide range of values.
Even commercial properties are tricky. If you have a large office building, you need to look at lease escalations and rolloffs, as well as tenant quality (default is always a risk). An office building that has a lot of rolloffs in the next five years is going to be more of a finger-in-the-air exercise than one that has them mainly more than five years out and then well staggered.
So far, we’ve discussed mature, income-producing assets. What if you are dealing with a major developer who has projects underway, and say has also bought distressed properties as a turnaround play?
Warren’s description of her plan describes argues that it will be possible for a muscled-up IRS to be able to find and value assets of the super-rich all over the world. In fact, the valuation issues posed by her plan are similar to the ones the IRS faces with imposing estate taxes on large estates. Lee Sheppard pointed out in Tax Notes:
Warren’s answer to the obvious administrative questions would be an enlarged IRS budget and mandatory audits for rich households. Our readers know the IRS has never won a large estate valuation case (e.g., Estate of Newhouse v. Commissioner, 94 T.C. 193 (1990)).
As much as there is good reason to take what Larry Summers says with a fistful of salt, in the last four plus years, he’s staked out the position of selling left-leaning leading edge conventional wisdom, routinely taking more forward-thinking positions that Paul Krugman (admittedly, that’s way less hard to do than it once was). More relevant, Summers as former Treasury Secretary has the IRS reporting to him and so dealt with tax collection issues first hand. By contrast, as much as Warren’s advisers on her plan, Zucman and Piketty, are highly regarded for their work on wealth and income concentration, they are not experts in tax. And more generally, economists know bupkis about anything as nitty gritty as tax administration. For instance, Zucman and Piketty used the Forbes 400 list as one of their guides as to how many super rich there were and what they have. Even though I don’t get around much, I have personally had three clients who at the time I was working with them that were well over the level that should have gotten them on the US or international Forbes 400 list but weren’t. One stated that he was delighted not to have been found out.
Zucman and Piketty estimate that only 15% of wealth will escape from the tax man via avoidance and evasion. That number looks extremely light given that that is the estimated level of cheating for all Federal taxes, which consists mainly of income and payroll taxes, where where employers report W-2 and 1099 income.
In April in a Washington Post op ed, Summers and Natasha Sarin, who is an assistant professor of law at the University of Pennsylvania Law School and an assistant professor of finance at the Wharton School, took a sharp pencil to the Warren/Zucman/Piketty estimates of and found them wanting. Their estimate was that the IRS will be able to collect only 40% of Zucman’s and Piketty’s assumption. That was a generous estimate, giving some credit to Warren’s claim that she will tax wealth comprehensively, since making a generous extrapolation from estate tax results, the authors found that Warren would collect only 1/8 of what she’d expected.
Summers and Sarin cautioned that tax experts would considerably haircut their forecasts of what new taxes or tax changes would yield, since taxpayers are very skilled at changing behavior to mitigate the impact:
We suspect that to a great extent it reflects the myriad ways wealthy people avoid paying estate taxes that in some form will be applicable in any actually legislated wealth tax. These include questionable appraisals; valuation discounts for illiquidity and lack of control; establishment of trusts that enable division of assets among family members with substantial founder control; planning devices that give some income to charity while keeping the remainder for the donor and her beneficiaries; tax-advantaged lending schemes; and other complex devices known only to sophisticated investors. Except for reducing a naive calculation by 15 percent, Saez and Zucman do not seem to take account of these devices.
Warren further contends the IRS will be able to find and value foreign assets. Again, for private businesses and real estate, that’s a tall order. And going back to her outlier example of the rich heiress, pray tell, how would one find what jewelry someone owns? Jews of means fleeing persecution would often carry cut diamonds as a way to hide their fortunes.
On top of that, trends are against Warren. A dozen countries had wealth taxes in 1990. That’s now down to three. From the summary of a 2018 OECD report:
Decisions to repeal net wealth taxes have often been justified by efficiency and administrative concerns and by the observation that net wealth taxes have frequently failed to meet their redistributive goals. The revenues collected from net wealth taxes have also, with a few exceptions, been very low…
Overall, the report concludes that from both an efficiency and equity perspective, there are limited arguments for having a net wealth tax in addition to broad-based personal capital income taxes and well-designed inheritance and gift taxes. While there are important similarities between personal capital income taxes and net wealth taxes, the report shows that net wealth taxes tend to be more distortive and less equitable. This is largely because they are imposed irrespective of the actual returns that taxpayers earn on their assets.
The Warren and Sanders wealth tax ideas are also certain to be challenged as unconstitutional. Even though Warren got a roster of legal experts to support her plan, litigation is not a popularity contest. At a minimum, implementation would be delayed. And a win is not certain. From New York Magazine:
“I think a constitutional challenge to an actual tax on wealth is inevitable,” says Michael Graetz, a professor of tax law at Columbia University. “That it would fail does not seem to me to be obvious.”
Finally, we’ll only briefly address that there are other types of taxes that would be economically similar in their effects to a wealth tax and would be less hairy legally and practically. A paper by Daniel Jacob Hemel of the University of Chicago Law School describes a couple of alternatives. From the abstract:
An annual wealth tax, a mark-to-market income tax, and a retrospective capital gains tax are three approaches to capital taxation that yield roughly equivalent outcomes under certain conditions. The three approaches differ starkly, however, in their exposure to uncertainty of various types. This essay seeks to highlight the effect of uncertainty on the implementation and operation of alternative capital taxation regimes. An annual wealth tax is highly vulnerable to valuation uncertainty and constitutional uncertainty, but less so to political uncertainty. A retrospective capital gains tax, by contrast, minimizes valuation uncertainty and effectively eliminates constitutional uncertainty but remains highly exposed to political uncertainty. A mark-to-market regime falls somewhere between the two extremes on dimensions of political and constitutional uncertainty but shares in a wealth tax’s exposure to valuation uncertainty. Ultimately, the choice among alternative capital taxation regimes reflects a tradeoff among uncertainties of different varieties.
Despite these issues, it’s nevertheless good to see Warren and Sanders moving the Overton window to the left and challenging the idea that the rich deserve their lucre. It would be nice if they could find an approach here that would have popular appeal as well as delivering the goods.
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As pointed out by Yves Warren plan is poorly thought out. Most of her “plans” also assumes that legislation to backup her plans will be passed by Congress.
I should have said her private equity plan is very good but this one has gotten way more attention, in part by virtue of being central to her spending plans.
Also, in part, as I said at the Boston meetup, because a wealth tax is a good politics. I guess that’s that’s roughly what Hemel means by saying a wealth tax has less exposure “to political uncertainty”.
J. D. Alt has some comments on that http://neweconomicperspectives.org/2019/09/two-cent-message.html
Alt confuses the issue by citing Warren’s wealth tax as an income tax. This leads to much confusion in the comments that follow his post.
Why do we never see plans to simply stop taxing individuals, both income or wealth. It seems to me that philosophically people exist prior to government and thus should not be burdened by the annual routine of telling the government how much we’ve made and how much we owe. It is not the government’s business.
There are endless ways to collect tax revenue, almost all less intrusive and simpler than the current system. Unlike individuals, businesses only exist at the pleasure of government, so it seems much more natural to collect tax revenue from these regulated businesses and industries. In the end, the taxes will be passed down to the consumer in any event. Removing the individual income tax would also remove the massive political wedge that the one percent consistently use to divide individuals by wealth and income.
Can’t we come up with a better system of revenue collection? One that does not burden every American with income and expense reporting to the government and one that does not continue to divide us into tiny slivers of citizenry based on income and wealth?
I disagree. I think that taxes are the price one pays to live in a civilized society. In concept, it should also be a reminder that we all have a vested interest that it remain civilized. I think I should get more benefit from government and also pay more taxes. What’s more, unless you are truly at poverty level, I think you should pay more taxes as well.
The funny thing about it is, the Conservatives I know (actually most people I know) consider taxation itself to be uncivilized at best. The mind boggles at how do they expect society to do anything then? It usually devolves to society not doing anything, but rather the individual doing things. Problem is, individuals often can’t or won’t.
I’ve been saying that raising the capital gains rate to same rate as the highest marginal income tax rate would be significantly easier to administer than a capital tax. It still would have tax avoidance issues, but that would dis-incentivize an entire class of tax dodges.
The uber-rich rarely realize gains on assets (and thus the cap gains rate is irrelevant). You’d mostly be punishing the middle and upper-middle classes.
And what of those who take half of their multi-million dollar salaries in stock?
I will note that many Warren supporters have correctly noted that the US Supreme Court has never really ruled on the whole “indirect” vs “direct” tax distinction however, courts in other English speaking countries have and in way that is not particular helpful to the constitutionality of a wealth tax. For example in Canada provinces are “only” allowed to impose “direct” taxes thus an easier way to challenge a provincial tax measure is claim it to be an “indirect” tax thus prohibited. Canadian courts however have longstanding rulings that taxes on capital, estates, and real property are all “direct” whereas in the US supporters of wealth taxes are going to need a wealth tax to be judges as indirect something that Canadian jurisprudience seems to have long rejected at least.
There is a second issue which I didn’t address since the constitutionality issue is not central to the piece…that even if a direct tax is deemed legal, there’s an “apportionment” issue which would seem to apply to at least the portion that came from real estate. That would add a lot of administrative complexity on the spending side unless Warren or Sanders handed that part back to states by reviving that great American socialist Richard Nixon’s revenue sharing.
1) Startinig from formality – US federal government is limited in scope of taxes it can impose, so it cannot impose wealth taxes, just income taxes. Most types of taxes are reserved for states.
2) This would end up in the economy maximizing short-term gains. Eg. if you have a gas field, then with 2% wealth tax you’d literally loose it to the government in 50 years. If on the other hand you extract all the oil within 1 year, then you pay only 2% tax on the overall value, then you need to get out of the country.
If on the other hand you have a forest, then cutting the trees and leaving wortlhess dessert (wealth tax = 0) is a good financial solution.
3) Many large corporations have some cash cows, and some product lines that are little profitable, or even unprofitable (funded from money from cash cows), but the factories, buildings etc. for those businesses have measurable value. A tax on wealth means only the most profitable branches of a business are left in the contry that imposes such tax. This includes job losses.
4) Foreign governments won’t allow taxing assets located in their countries in the US.
>>Foreign governments won’t allow taxing assets located in their countries in the US
umm…for individuals, the US already taxes worldwide income over about $100k/year for all citizens, and requires all financial institutions worldwide to toady up and turn over their records on US taxpayers, which is why some banks won’t work with US citizens.
Why would a wealth tax be fundamentally different in this respect?
US citizens are supposed to report on holdings in foreign banks of over IIRC $10,000 per account. Most foreign banks now have know your customer rules that require you to present ID when setting up an account. That generally includes a passport or other proof of citizenship. In Australia, back in the 2000s, the banks would have reported my account to the IRS if I had put >$10,000 in it at opening, and I was super careful to keep my balances below that level to prevent reporting.
There’s no way for foreign governments to keep tabs, say, on the value of an American’s ownership of German factory. Nor can they be compelled to report on foreign real estate holdings.
Put it another way: tracking cash and securities is easy, other stuff is hard.
I understand it’s difficult to assign present or future valuation to companies. That’s what stocks are for.
But a tax would be calculated at the end of a fiscal period. Why is valuation so difficult to determine when it’s a past event?
It is the difficulty of valuing companies that AREN’T publicly traded that Yves is talking about. A going concern is usually worth more than the sum of its parts because of the anticipation of future profits. Without an “arms length” transaction, either of publicly traded stock, or the entire item it is difficult to estimate the value of anything that is unique, be it a company, or a house or Jewelry.
Here is an example of how private valuations are like Schrodinger’s cat: Whatsapp was “worth” $19 billion to Facebook, despite not having revenue, to prevent another company from acquiring it and using it to start a rival. It would not have been worth so much to anyone else. So how much was Whatsapp worth before FB showed interest?
See this section I added later on private equity:
Bear in mind: these PE guys are almost certainly started from the same financial forecasts from management, yet they STILL came up with very different valuations!
As a currency issuer, the Federal government can always create more dollars to fund any so-called “net” (meaning deficit) spending; it is constrained by the risk of generating too much inflation. Taxing and issuing bonds are political holdovers from the gold standard era. Yves [my emphasis]
Not sure about taxes but the current banking model is whereby only depository institutions may use fiat to any significant extent – not the non-bank private sector, including individual citizens.
Also, while MMT advocates would abolish positive yields and interest on the inherently risk-free debt of monetary sovereigns, they would retain taxation as an anti-inflation measure – presumably on the non-rich since the rich don’t consume enough to matter?
Some how MMT proponents need to train themselves to stop using this off-putting meme. It runs many people off to the rest of what you say, as soon as you say this. In a very constrained sense, this may be true, but people think you are crazy when you say it. They stop listening.
Much better would be to explain that taxes are needed to stop people from spending money on non-productive things like inflating the stock market and creating asset bubbles. If the government redirects the money to productive investments that return benefits to the economy, we will all be much better off. I don’t think that sounds half as crazy as saying we don’t need taxes to fund spending. That almost sounds like you are promoting the idea that the government stop taxing and just use money creation. That is tough to swallow, and would take a long treatise to justify. Why distract people with ideas that require a lot of getting used to even if they turn out to be correct.
That almost sounds like you are promoting the idea that the government stop taxing and just use money creation. Steven Greenberg
Actually, not so far fetched since:
1) The demand for fiat is unjustly suppressed in that only depository institutions in the private sector may use it in account form.
2) There must be a significant deflationary bias in the US economy, for example, for it to be able to waste so much on military spending without much price inflation.
Because spending 5 grand to develop a hammer isn’t price inflation ???? Or 10 grand on a toilet seat ????
If the government redirects the money to productive investments that return benefits to the economy, we will all be much better off. Steven Greenberg
Not if the productive investments are not ethically financed – which, to my knowledge, MMT proponents have not indicated even the slightest interest in beyond eliminating positive yields and interest on risk-free sovereign debt.
Instead, MMT proponents such as Warren Mosler would:
1) provide unlimited deposit guarantees to private depository institutions.
2) provide unlimited Central Banks loans at ZERO percent to private depository institutions.
Sorry, people once believed the world was flat too. They need to get over it.
When this notion was first presented to me, with rhetorical support, having previously assumed that taxes do fund federal spending, I must say I was very grateful for the insight.
We, the political consensus, could always just go straight to the well. The Code of Capital book review explained how valuations of capital are strictly political in the first place and guided by either common law which values private enterprise or civil law which values social law. So there’s a starting place. We no longer live in a time of the rugged individual. Long gone. We no longer live in a world of an abundance of resources and riches to exploit. We live in a world that must calibrate its ongoing existence. For one thing that means is that taxes are an after-the-fact creation for adjustment. We can do better by making it more expensive at the front end for people to exploit their opportunities. We know what it will cost society to absorb their failures. And we know how expensive it will already be to reclaim the environment. Taxing is a worn out idea. We need something more timely, more preventative. More paid in advance.
It’s all part of the same problem. As Schaeuble said in 2009, “We are overbanked.” We are also excessively motivated by financial profits. We are saturated with hidden expenses incurred by demanding all our modern “conveniences” which aren’t all that convenient these days. Too many hot-shot ideas got developed, brand new models for no reason; enough plastic garbage dumped into the ocean to create a continent – one fit for a global fun house ballpit . No national planning except for allowing a free market to create all sorts of idiotic ideas to compete at the expense of the planet and life on it. So here we are arguing about the wrong thing: we are arguing about growth to sustain our economy; and taxes to adjust any bad stuff. Both growth and taxing need to be looked at together. What kind of growth? What will the taxes be used for? To what effect? What, exactly are we doing? Taxes are a sovereign prerogative. What happens if we eliminate them altogether; do we eliminate the basis for national sovereignty? Consider this, there’s no way a state (as in United States) can survive without taxing. It’s dangerous territory. But taxing has been no more effective guiding the economy than “the market.” They both just drove us off a cliff.
Orthodox economists have not had to face the issue of “distribution” for decades. Surely they considered this to be a very happy state of affairs. However, as the preceding post on secular stagnation implied, this may no longer be the case for our genius-boy economists. If the pie is not getting bigger then the presumption is that people will surely get left behind. Therefore, they will have no recourse but to help with the task of determining and justifying how this stagnating pie should be split up. The menu of unending economic growth is no longer palatable for the rabble.
It has been a while since these fellows could wander into the Faculty Lounge without getting the fish-eye. I don’t know how they do it.
I have done a little work on my pet project of developing a state-wide “mansion-tax,” and I believe it is possible to do it fairly and equitably in a kind of happily confiscatory way.
For example:
Property tax evaluation is done on a county level. Each of the county tax collectors in the state produce a spreadsheet of the most valuable residential properties in their respective counties. I’m thinking that the evaluations should be on residential shelters and not adjoining properties. There are obvious differences in valuation between counties and county assessors, however I believe that my favorite whipping-boys – the economists at State U – can demonstrate their innate social responsibility by developing an algorithm to smooth these differences. Legislators can then determine whether or not they want to tax the top 10%, 5% or 1% of evaluated mansions. They could also put a graduated tax on these properties.
There are certain unstated benefits here. Many if not most of these properties harbor seasonal residents. The locals don’t get pounded. The absentee owners don’t even see the tax bill. It’s just another line for their accountant. Best of all we can sell the tax as public school revenue enhancement.
That’s the very definition of “happily confiscatory.”
Let the rich determine the value of their hard-to-value assets. Then the IRS can either decide to tax them based on the value they provide, or buy off an equivalent equity share for twice the price they quote. Win-win.
I think you’re on to something but the government should have the option to buy the entire asset at the quoted price and distribute the shares equally to all citizens.
Also, why twice the price rather than 1/2?
The markup is subject to determination, but it has to be positive. 1/2 (a negative 50% markup) would mean that the government can decide to rip you off, even if you declare value truthfully. “twice the price” (+100% markup) just puts the cap of the declared value to be twice the (actual) use-value. It’s proposed compensation for taking away your right to agree to a sale.
Equity share instead of the entire asset, because the idea is for this rule to function as deterrent against false valuations, not to confiscate businesses. So next year you can revise your valuation and prevent the IRS from taking another 2% ownership share from your holdings.
So if the wealth tax is, say, 2%, then the government should have the option of:
1) Accepting 2% of the declared value of a company in cash
or
2) buying 2% of the equity of that company at the declared value plus a mark-up?
Except I don’t agree with the mark-up since if the valuation is honest then 1) and 2) should be equivalent, shouldn’t they be?
Except 2) isn’t really a tax if the valuation is honest but an asset swap. Perhaps a one-time incentive to value the company honestly or even generously?
Anyway, I’m leaning to another idea: distribute the shares of large companies equally to all citizens since they were likely built with the public’s credit anyway.
The goal is not for them to be equivalent (because honest declaration is a huge and unwarranted assumption); the goal is for taxation to be fair. So IRS will get to choose the fairer option in its eyes.
But you’re right that i hadn’t thought this out well, because we’re talking taxation so the taxpayer shouldnt be compensated for losing the 2% ownership, only for losing the right to agree to the sale.
So i agree a more reasonable markup is a negative one, like 1/2, or even lower.
Then why not just avoid the problem of valuation in dollars and just tax wealth in real terms such as 2% equity per year? Or in the case of land, 2% of the acreage per year?
Of course there should be homestead and farmstead exemptions in the case of land.
Because you need to know the value before determining which tax bracket you fall into (Sanders) or whether to be taxed at all (Warren).
The above doesnt apply to real estate and land, because owning partial equity of a building or land doesn’t work. They would have to be valued differently.
Well, land is the most important thing since citizens should have some to live, work and grow their own food on.
sorry, correction: “…puts the floor* of the declared value to be half* the (actual) use-value.”