Taxing Wealth 101

Students: All those wanting to impose a tax on the wealthy, so as to rightly collect revenues to redistribute to those most in need or, wrongly, to redistribute among those they favor as being those who can favor them the most, this is the set of questions that shall not be heard much less answered:

What asset (1) and to whom, buyer (1) shall the wealthy sell in order to raise the money to pay the wealth tax?

What asset (2) and to whom, buyer (2), shall buyer (1) sell in order to buy asset (1)?

What asset (3) and to whom, buyer (3), shall buyer (2) sell in order to buy asset (2)?

What asset (4) and to whom, buyer (4), shall buyer (3) sell in order to buy asset (3)?

What asset (5) and to whom, buyer (5), shall buyer (4) sell in order to buy asset (4)?

What asset (6) and to whom, buyer (6), shall buyer (5) sell in order to buy asset (5)?

What asset (7) and to whom, buyer (7), shall buyer (6) sell in order to buy asset (6)?

What asset (8) and to whom, buyer (8), shall buyer (7) sell in order to buy asset (7)?

What asset (9) and to whom, buyer (9), shall buyer (8) sell in order to buy asset (8)?

.... and so on in the never-ending circle of economic life.

Homework: Should we exclude the possibility that a “fair”-tax on the wealthy ends up being an un-fair tax on the poor?

See you tomorrow!

PS. Explanation: When, as a redistribution professor :-), I had in the past heard those questions and tried to answer these, I was confronted with:

Professor: Having so many having to sell assets, could this not depress asset values, and thereby the economy, and therefore actually in the long-run perhaps even disfavor those who could be temporary favored with a share of the wealth tax, net after our redistribution “costs”?

Professor, does it not seem like that the intermediaries in all the buying/selling of assets, will benefit even more than us redistributors and the redistribution receivers? 

Professor: Should we not prioritize asset (wealth) creation over wealth (asset) redistribution? Would that not generate even more tax revenues for us to redistribute? I remember having heard legend holds that when 1974’s Carnation Revolution’s chief strategist, Otelo Saraiva de Carvalho, told Sweden’s Social-Democrat Olof Palme: “In Portugal we want to get rid of the rich”, Palme replied, “how curious, in Sweden we only aspire to get rid of the poor”.

This also works for Inheritance Tax 101

Students: All those wanting to impose an inheritance tax, so as to rightly collect revenues to be redistributed among those they favor as being those who can favor them the most, this is the set of questions that shall not be heard much less answered:

What asset (1) and to whom, buyer (1) shall those inheriting assets sell in order to raise the money to pay the inheritance tax?

What asset (2) and to whom, buyer (2), shall buyer (1) sell in order to buy asset (1)?

And so on…

PS. The origin of this post can be traced to:

Legend holds that when Otelo Saravia de Carvalho, of the Carnation Revolution, told Olof Palme, “In Portugal we want to get rid of the rich.”, Palme replied, “How curious, we in Sweden only aspire to end the poor.”

https://perkurowski.blogspot.com/2018/10/redistributing-wealth-is-not-as.html

https://perkurowski.blogspot.com/2019/10/wouldnt-you-agree-daddy.html

https://perkurowski.blogspot.com/2022/03/forcing-oligarchs-to-keep-their-yachts.html

Before the debt ceiling is lifted, which it must be, Congress must dare to at least pose a question.

Note 1988: "Assets for which bank capital requirements were nonexistent, were what had the most political support; sovereign credits. A ‘leverage ratio’ discouraged holdings of low-return government securities” Paul Volcker

A letter in the Washington Post

Before the debt ceiling is lifted, which it must be, Congress must dare to at least pose a question.

In much of Peter Orszag’s Nov. 22 op-ed, “GOP threats to weaponize the debt limit are dangerous,” one can agree with his conclusion, but when he mentioned, “The evolution of debt is also influenced by the economy, market interest rates and other factors, but those are mostly outside the control of policymakers,” he omitted vital aspects. Let me explain it with a question:

What would the United States’ public debt be in the absence of regulatory subsidies, such as bank capital requirements with decreed risk weights of zero percent against federal government debts and 100 percent against citizens’ debts; copious amounts of Treasury purchases by the Fed with quantitative easing programs; and the preaching by modern monetary theory fans that has definitely promoted a dangerous lackadaisical attitude when discussing the limits of public debt?

Yes, Congress must approve increasing the debt level. It’s too late to do otherwise, but to do so without even trying to answer that question would be to irresponsibly kick the debt can forward and upward with disastrous consequences.

And, by the way, the Supreme Court should look at what the Founding Fathers might have thought about the aforementioned risk weights.

PS. The links displayed above are the ones placed on the web by the Washington Post

http://unsustainabledebtsustainability.blogspot.com/2022/11/before-debt-ceiling-is-lifted-which-it.html

In USA purple and violet are expelled. It is either red or blue.

Amanda Ripley in “America must step out of this self-destructive zombie dance” Washington Post November 1, references an ad by two candidates running for governor of Utah, in which they committed to respect and uphold democratic norms and a peaceful transition of power.

In a world where we hear polarization artists singing “Anyone you hate I can hate better; I can hate anyone better than you.” “No, you can’t “Yes, I can… Yes, I can”, that sounds like a great initiative. 

I would though like to see included a direct reference to the need of respecting the middle ground, the undecided, those swimming in the middle of the river being thrown stones at from both shores.

I speak from personal experience. Decades ago, in my homeland Venezuela, in an Op-Ed I wrote: “I write in green but my readers send me loads of hate mail, based on that they can only read me in yellow or blue.”

In America right now, purple and violet seem prohibited. It is either blue or red, and both blue and red polarization profiteers seem to love it that way.

PS. https://perkurowski.blogspot.com/2010/05/speakers-corner-speakers-have-moved-to.html

An example of how the not so lean but still mean Bureaucracy Autocracy machine works.

First expert technocrats concoct and impose bank capital requirements implying their bureaucrat colleagues, those with no skin in the game, know better what to do with credit than e.g., small businesses.

“Assets for which bank capital requirements were nonexistent; sovereign credits. A ‘leverage ratio’ discouraged holdings of low-return government securities” Paul Volcker

Then politicians "complain" banks are not lending sufficient to small businesses.

And so, bureaucrats with access to lots of credit, further subsidized by central banks QEs and the preaching of MMT, design their own lending programs to small businesses, implying they know much better how to lend to small businesses than bank loan officers. This generates new jobs for loads of new bureaucracy associates, while adding loads of costs to be paid by tax payers or inflation.

Just an example of how Bureaucracy Autocracies empower themselves to grow and grow and grow

Of course, no matter those preaching MMT promise easy money ever after, that is unsustainable. The members of the fallen Bureaucracy Autocracies will also suffer. 

Citizens in countries suffering the curse of centralized oil revenues, they don’t live in a nation but only in somebody else’s business. Opposition politicians in such nations, more than changing that, usually only aspire to be the new owners of the business.

The same can be said of all countries suffering the easy public credit curse. Citizens there live in the business of their respective Bureaucracy Autocracy. Most of their respective opposition politicians, sometimes all, also aspire to be the new owners of that business.

Bureaucracy Autocracies were empowered by stealth.

A Bureaucracy Autocracy has been constructed with stealth

Sir, below I quote from Didi Kuo’s review of Moisés Naím’s “The Revenge of Power”, “How the world has been ‘made safe for autocracy’” Washington Post, April 24.

“Today’s autocrats are savvy, with new stratagems fit for a world upended by technological change. They exploit, and sow, distrust in experts, authorities, the media. They manufacture truth, invent enemies and use legal pretexts to consolidate power.”

The regulators in the Basel Committee for Banking Supervision, launched Basel I in 1988. In order to “save” our banks from that “enemy” of excessive risk-taking, these “savvy” experts concocted risk weighted bank capital/equity requirements; and for which they decreed weights of 0% the government and 100% citizens.

That translated effectively into banks being able to leverage much more their capital/equity with  e.g., Treasuries, than with loans to citizens. That has made it much easier for banks to obtain desired risk-adjusted returns on equity with Treasuries, than with any private sector assets. That de facto implies that bureaucrats know better what to do with credit for which repayment they’re not personally responsible for, than e.g., small businesses and entrepreneurs

You don’t need to take my word on it. Paul A. Volcker, in his 2018 autobiography “Keeping at it” which he penned together with Christine Harper, valiantly confessed: “Assets for which bank capital requirements were nonexistent, were what had most political support: sovereign credits. A simple ‘leverage ratio’ discouraged holdings of low-return government securities”

Add to that central banks’ QEs, which primarily includes the purchase of government debt, and the empowernment of a non-transparent Bureaucracy Autocracy becomes evident. 

If that is not a prime example of “what Naím terms stealthocracy: a way of maintaining the architecture of liberal democracy while gutting accountability” what is?

Sir, as a Venezuelan just like Naím I too heard Hugo Chavez with concern and dislike. But, just like Venezuela’s centralized oil revenue curse has allowed truly bad autocrats to remain entrenched even when the walls are tumbling down, what I now most fear, is that world wide easy-government-money curse. 

Let me also remind you Washington Post, that none of the excessive bank exposures that resulted in major crises, or bubbles that have burst, have ever been built up with assets perceived as risky, always with what was perceived as safe.

I could go on and on, but let me end with two questions:

The Founding Fathers of the Land of the Free and the Home of the Brave, what would they have opined about the Federal Reserve decreeing risk weights of 0% the Federal Government and 100% We the People?

Where would America be today, if its immigrants centuries ago, had been met by this type of risk averse regulations?

PS. My first ever Op-Ed, in the Daily Journal of Caracas, was on the theme of bank regulations. 

PS. An example of how the Bureaucracy Autocracies work.

PS. I have recently enlisted #AI ChatGPT - OpenAI to help me fight the Bureaucracy Autocracy. "What would you opine of risk weighted bank capital requirements with risk weights assigned for political reasons?"

Here's a letter the Washington Post published August 2023. It refers to Paul Volcker’s valiant courageous and honorable confession on what happened 1988. Thanks @PostOpinions for not ignoring it.

Forcing oligarchs to keep their yachts, would be a much more severe sanction.

In those very rare moments the desire to own a yacht sets in, I remember the saying that the second happiest day for a millionaire is when he buys himself a super-duper yacht but, the happiest one, is that day he sells it.

With this in mind why should we advance the oligarchs such happiness? It could be much more effective to have a judge order him to keep the yacht and its crew in tip-top conditions for the next twenty years, and, if failing to do so, have to spend five years doing community service.

Warning! Let's not wake up to taxpayers having to pay unemployment benefits to many fired yacht-crews and pick up huge yacht-maintenance costs.

I warn so because though there must be tremendous buyer market in Russian oligarch yachts, few buyers, or none, will dare to show up. What's the future for this yachts: luxurious restaurants or tourist attractions like fancy Russian Faberge eggs floating museums?

Please, the more you feel enemies to your grandchildren’s way of life could be accumulating too much resources, would you not love for as much of these as possible to be frozen in unproductive assets, like fancy super-yachts?

So, is confiscating yachts a really potent way to fight a war and bring peace?

As also applies when taxing wealth it is important to consider if assets, like yachts, are to be sold, who are the buyers and what would they otherwise have done with that money. Would you, e.g., like an able entrepreneur to freeze his money/purchase-power in a luxurious yacht? And are we really sure those who will receive that money, e.g., the bureaucracy of turn, will give it a better use?

Warning! Just let not confiscations become somebody’s profitable business. 

I say this because, when selling a confiscated asset, e.g., a Russian oligarch’s super-yacht, what’s really obtained, effectively confiscated, is the money somebody else has willingly put into that useless asset.

Collecting tax from the wealthy is not as straightforward as it sounds.

 I refer to Debra Satz’s review of Peter S. Goodman’s “Davos Man” “Democracy is under threat. Are billionaires to blame?” Outlook, Washington Post, March 6. 

It states: “Economists Emmanuel Saez and Gabriel Zucman estimate that at marginal tax rate of 10 percent for wealth over $1 billion would have raised $250 billion from the richest Americans in 2018”.

That could help feed a false illusion about how to resolve problems which of course should bother all of us, such as excessive inequalities.

BUT, all the wealth of the wealthy is stored in assets that have either been valued higher by other people’s money or, for which the wealthy when buying these, returned to the economy their money. So, this tax would require to collect $250 billion from the not-so wealthy, by having them buy the wealthy’s assets. 

What the implications of that would be is hard for me to estimate, but they should neither be ignored or underestimated. 

For a starter, what would the buyers otherwise had done with their money? 

Are we sure bureaucrats know better how to use it? 

What will become of yacht builders and yacht crews, if the yachts are the high-profile assets all wealthy decide to sell?

Don’t divide America’s children into those with poor or better off parents.

Sir, I refer to your editorial “A disaster for poor people” WP, January 30, 2022.

I’m from an oil-cursed nation, Venezuela, and I’m convinced that if all its net oil revenues, had been shared out equally to all its citizens, instead of empowering redistribution profiteering, my homeland would not be in the so sad shape it is today.

Therefore, when I read about child-tax credit being “strictly mean-tested to reduce the program’s high costs” my immediate reaction is to propose paying out those child benefits to all children, whether rich or poor, and if you need to help cover the fiscal costs, make those benefits taxable.

More important, those benefits would then be considered belonging to American children, and not just to the children of the poor Americans.

PS. http://theoilcurse.blogspot.com/2008/09/my-minimum-minimorum-on-exiting-iraq.html

@PerKurowski

World Bank, don't silence your Doing Business report

Long time ago, briefly, two years, I was an Executive Director at the World Bank.

Nowadays, I do not speak for anyone except, hopefully my grandchildren.

That said and though I hold a serious reservation about something that the Ease of Doing Business ignores, this is what I now would opine about the report "Investigation of Data Irregularities in Doing Business 2018, 2020"

It’s very hard to have the cake and eat it too.

The amount of successful and unsuccessful pressure exercised for tampering the data in the World Bank’s Doing Business Review, clearly evidences its great importance. Between perfection and relevance what's more important?

In other words:  World Bank, if even China exerts so much pressure to improve its ratings, you must know that with the Doing Business report you have something extremely valuable in your hands. World Bank, just because someone mishandled it, and it's not picture perfect, please don't throw the baby out with the bathwater

If the World Bank is not the most appropriate entity to carry out world wide ease of doing business research, who is? Or is such research not needed?  I assure you that, even with all its possible mistakes, we  citizens in all countries striving to objectively improve our rankings in Doing Business, we sure need it.

PS. We read in the report: "If incorporating Hong Kong SAR's data into China's data, China's ranking in Doing Business 2018, would rise to 70, eight spots higher than the previous year... (fifteen places higher than the originally calculated ranking of 85)". If that's not an extremely important contribution for the understanding of the Ease of Doing Business worldwide, what is?

PS. And why not launch a Doing Bureaucracy Efficiently Review? Billions of citizens around the world would appreciate it

Adjusting to rough-times in the city

There once was a city so nice that even if they only visited it a month a year many owned apartments there. And since those wealthy owners spent lavishly during their short stay, and accepted to pay any normal property taxes, the city and its long-term residents, all benefited greatly.

But then the city fell on hard times and some not too bright city authorities, decided they should impose a special tax on these 2nd home owners.

And as a result, many short-termers, given the city was for the time being just not as attractive as before, decided they were not willing to pay this extra tax, and put many of these properties up for sale… and so the prices on both 1st and 2ndhome apartments fell drastically; and with-it the assessment values; and with-it the city’s property tax income… and, of course, many of the usual visiting big spenders kept away. The city had been placed on a slippery downward slope.

What could otherwise be done? 

What about an offer of, “anyone spending at least two months in their 2nd home in the city, will get a special rebate on their normal property tax”?

What about a reduction in the tax rate applicable to the rental income of all 2nd homes in the city?

@PerKurowski

No remittances without representation!

The June 8 news article "In Guatemala, Harris offers stern words on corruption" reported extensively on Vice President Harris's travel to Guatemala, where the United States, by offering financial cooperation, hopes to reduce the flow of illegal migration from Central America and stimulate better behaviors, e.g., less corruption.

Though those financial contributions are indeed important, they are peanuts when compared with the remittances sent home by the migrant workers. The reality is that what the migrant workers from many Central American nations earn abroad is often much more than the gross domestic product of their home countries. The sad reality is that their remittances help to keep in power those ineffective governments that made them immigrate and that keeps them from going home.

If the United States really wants to help, then look to politically empower as much as possible those migrants in their homelands. For instance, should they not have an important direct representation in their respective congresses? No remittances without representation!

http://theamericanunion.blogspot.com/

A letter published in the Washington Post 

No remittances without representation!

 The June 8 news article "In Guatemala, Harris offers stern words on corruption" reported extensively on Vice President Harris's travel to Guatemala, where the United States, by offering financial cooperation, hopes to reduce the flow of illegal migration from Central America and stimulate better behaviors, e.g., less corruption.

Though those financial contributions are indeed important, they are peanuts when compared with the remittances sent home by the migrant workers. The reality is that what the migrant workers from many Central American nations earn abroad is often much more than the gross domestic product of their home countries. The sad reality is that their remittances help to keep in power those ineffective governments that made them immigrate and that keeps them from going home.

If the United States really wants to help, then look to politically empower as much as possible those migrants in their homelands. For instance, should they not have an important direct representation in their respective congresses? No remittances without representation!

http://theamericanunion.blogspot.com/2021/06/no-remittances-without-representation.html

If someone sells a tractor to pay a wealth tax, who buys it?

Sir, Diego Laje and Anthony Faiola report that Gabriel de Raedemaeker, a land-rich farmer in Argentina, says he doesn’t have the cash flow to absorb an increased tax burden, and might need to sell a tractor to cover the cost. “Argentina sends its bill for pandemic to the rich” Washington Post, February 23, 2021.

A follow up to that could lead to a long never-ending sequel of articles. Who will de Raedemaeker sell the tractor to? What will the buyer do with it? Produce more or less than de Raedemaeker? And if the buyer had not bought the tractor, what else could he have done with his money? And so, on and on and on!

I’ve always thought that it would be great to read a book that followed the money trail left by Louis XX commissioning in 1500 Leonardo da Vinci to paint Salvator Mundi; and how it flowed through the years, perhaps to a Bill Gates, and in the process generating so much wealth that someone in 2017 decided to freeze $450.3 millions of purchase power on a wall with that painting.

But even if Raedemaeker had the cash, unless it was stashed away under his mattress, that does not either mean it was doing nothing. It might be deposited in a bank that used it to finance the purchase another tractor, that could be extracting even more wealth from the so fertile western Pampas of Argentina.

@PerKurowski

Big Tech/Social Media & The Political Correctness autocracy, against Trump and the "immature" American citizens

Twitter’s explanation:

“After close review of recent Tweets from @realDonaldTrump … specifically how they are being received and interpreted on and off Twitter” 

So, Twitter is specifically declaring that Americans are not mature enough to read Trump tweets. I guess we Venezuelans are more mature @maduro_en

Are they still mature enough to vote? Is this a Neo-Inquisition agreement between Big-Tech-Social-Media and the Big-Brother-Political-Correctness autocracy?

“So, we must beware of a tyranny of opinion which tries to make only one side of a question the one which may be heard. Everyone is in favour of free speech. Hardly a day passes without its being extolled, but some people’s idea of it is that they are free to say what they like, but if anyone says anything back, that is an outrage” Winston Churchill

PS. How do you communicate when only either red or blue can be seen? In response to social media’s massive influence, humanity is mutating to suffer specific colors blindness. How far away are Americans from never be able to hear/read/see violet again?

PS. It's now 6:30 pm Saturday night, less than 39 hours away from when Wall Street opens. I just told my wife that Twitter shares will fall 20% at least... and that Jack Dorsey might not survive as its CEO... but, of course, I could be wrong... not the first time... not the last time

PS. If you advertise on Twitter, would you be somewhat concerned?

PS. I just saw Arnold Schwarzenegger comparing some utterly surprised selfie-taking clowns unbelievably being able to enter the Capitol building, with the Kristallnacht Pogrom against the Jews, that which would end with the gassing of millions of them. Mind-boggling!

PS. Instead of allowing Trump to tweet his heart out, they silenced him. Unifying or polarizing? What if Trump’s followers now start taking notice of who advertises on Twitter and Facebook? 

PS. Ron Paul: What if Twitter/Facebook is an old mans only communication with the world, and being able to use these is the only thing that gets him out of bed, is not then sending him to isolate incommunicado down in the basement, an act of sheer cruelty?

PS. Can it be that the Senior Advisory Committee of the Institute of Politics at Harvard does not include even one of those 74 million Americans who voted for Trump? Please tell me I’m wrong.

PS. If the Senior Advisory Committee of the Board of the Institute of Politics at Harvard ignores that Trump got 12 million more votes than when he won in 2016, and except for Biden more votes than any candidate in US history, then perhaps students of politics should ignore Harvard.

PS. Not the first time I have written about the threat of Big-Tech and Big Brother entering into a joint venture.

A different take?

The storming of the D.C. Capitol by some selfie-taking clowns utterly surprised by being able to enter it… is the mother of all tempest in a teapot.