A Wealth Tax Doesn’t Make Sense

On this episode of Common Sense Soapbox, Sarah and Bob discuss investing in fine art. Seamus (and Florida Man) deliver an economics lecture about wealth taxes with gator examples and all. Sarah decides that wealth taxes are a massive invasion of privacy.

CREDITS:
Written by Seamus Coughlin
Animated by LtAmazil, Adamdonk, and Emily Slatt
Voiced by Seamus Coughlin and nosoup4knowles
Layout by Jaime Velasquez, Trevor Smith
Produced & Edited by Sean W. Malone

[arcdecibel]

Anybody who has a property tax knows this. Your property isn't actually worth what people will pay for it. It's only worth the hugely-inflated estimates of government officials when taxes are due. This in turn incentivizes the abandonment of private property, and refusal to improve it in any way. Effectively, it contributes to the creation ghettoes, trailer parks, or crappy rentals. Why care for your property when you're just going to have to pay for the privilege of working harder? There are certainly reasons, like maintaining good conservative values to pass on, but they aren't financially incentivized.

[ryanhodge]

It's so funny that they never consider the fact that rich people get rich and stay rich by being really good at protecting their wealth.

[stephenfulford]

It makes even less sense for private businesses. Let's say your business is given a valuation of $10mil, but it's a capital intensive business with most of its wealth tied up in productive assets. It generates profits that are generally reinvested and you pay yourself a modest salary that is taxed. The business pays corporate taxes. You are the sole shareholder, so credited the wealth, even its valuation is 7x ebitda. Are you supposed to liquidate some assets to pay tax and effectively destroy the ability to create wealth year after year? Perhaps they expect the private owner to sell off shares to raise funds to pay the tax? The options are ridiculous.

[justicedunham]

All it takes is the government “valuing” one of your assets much higher than you could ever hope to receive from selling the asset to completely upend your life.

[joshuareed]

Lets say I buy a piece of art from an upcoming artist for ten dollars. Five years later its valued at over five million and I have to pay taxes on it, and then have to pay taxes on it for every year that I own it. What happens if after some time, said artist does some horrible act and the value of the art piece plummets back to ten dollars? Will the hovernment reimburse me for the taxes I paid? Or will they tell me to eat dirt?

[LizRealGirlBeauty]

It never ceases to amaze me that so many people don't understand that net worth isn't cash being stuffed greedily into a mattress.
Or that politicians use this ignorance for their own personal gain.

[SyntheToonz]

When the wealth tax arrives "rich" should be defined as $1 less than what Bernie Sanders has -- just for the entertainment value of hearing how he would weasel his way out of his obligation to the state.

[WiGgYof]

Taxing unrealized gain and property that was already purchased with taxed income is insane.

[madtabby]

My father in law is a prime example. He bought an acre of land & house for $27, 000 back in the 70s in a small farming community. Split title on the land, sold off half of it & used that money to pay off his mortgage. Smart right?

Well King Blackface has declared that he wants to tax anyone with over $400, 000 in equity in their property. Since the 70s the city they live in has become a huge rich person retirement hot spot & tourist trap. So the value of his property is estimated at around a million.

The guys a retired mechanic. He bought the house to raise a family, he paid off his debts so that he wouldn’t have debts, now they want to tax him on the $600, 000 and it sounds like an annual tax.

We’re looking at it & it looks like a reverse mortgage could get him out of the tax, but if he ends up being put in a home due to health, they demand full payment immediately. If the house doesn’t sell, they seize it.

But yeah let’s punish an 80 year old man for being smart with his money.

[KiraSlith]

I inherited a pair of Japanese vases my great-great-grandmother bought on a trip to Japan in the 18th century, last estimated value was $15k each. They have so many layers of personal and familial importance, I can't imagine being told to sell one off just to cover the wealth tax to keep the other.

[gummywurms]

I'm going start a new drinking game! Every time Turkey-dog makes an appearance in a Seamus video take a shot.

[CoolProveIt]

"But how will the government know the value of the things I have?"
What a good question! If a wealth tax is implemented, it should not be annual, but periodically. For example, if you have a commodity for sale, like a stock or other item, realizing its value through a sale incurs sales tax. But the way the wealthy leverage their assets isn't through sales, it's through borrowing against their commodities, using it as collateral! By realizing its value as collateral (not a sales good), there's no sales tax but the commodity will transfer ownership once the loan's terms allow for it.

TL;DR if a wealth tax is implemented, it should occur only once a commodity's value has been realized. Market mechanisms to this effect are currently limited to direct sales, but the 'wealth tax' would be best implemented as a one-time transaction *only* when the value of the item is realized, whether through collateralization or another process :)

[LDSkinny]

The other thing wealth tax advocates never seem to fathom is that the value fluctuates. They think that if your stock was worth $100 and now it's worth $300 this year, you need to pay taxes on that gain, but if that same stock goes back down to $100 next year, they don't think you should get a refund on the loss. Under their plans, you can realistically see a situation where a person holds a stock for ten years, where it starts at $100 year one and ends at $150 year ten, but because it was worth $300 at one point you need to pay taxes worth more than what you gained. Taxing unrealized income is just asinine. The immediate effect will be to discourage long term investments, and it will immediately prompt a massive sell-off of assets from people like Bezos and Musk.

What do they think is going to happen when all of the biggest stock holders are forced to liquidate a substantial portion of their holdings while financial advisors across the country are telling their clients that long term investments are a liability?

[Helmut-pdh]

We should also talk about why painting are bought for billions of Dollars: tax evasion, that’s why!

Here is a step by step guide, on how to cheap out the IRS using „fine art“:
You buy a hundred paintings from an artist unofficially (for a few thousand dollars) and then one of your rich friends or even you yourself buy one painting of this artist for a billion dollars, which makes your whole collection worth trillions of dollars (all just imaginary) but then you as a very altruistic person donate all your extremely valuable paintings to a museum. You are such a great person, and that’s why the IRS lets you deduct your generous donation from your tax bill. That’s how you save trillions in taxes by buying ugly paintings for billions.

[Sethg]

The wealth tax makes sense if you’re bad at math, have no understanding of economics, and feel that it’s wrong for people to have more than you and not share that wealth with you.

I had a conversation with a liberal coworker once who was lamenting the evil 10% of wealthiest individuals. I explained that being an American he is in the 10% worldwide and asked if he was ok with $4K of his annual income being taken away to feed starving Somalian children. Surprisingly, he thought that would be very unfair to him.

[segevstormlord]

Consider that property tax and inheritance tax both can require that the person paying it sell off the very things they're being taxed on.

The only purpose behind a wealth tax would be to stir up class warfare and possibly to use as a weapon against political opponents. That need to "investigate" what people are "hiding?" That will require, say, 87, 000 new IRS agents who have the power and authority to bust down doors. "I suspect my political opponent is hiding 10x the wealth he claims! Raid all his holdings and appraise his stuff. If you have to, appraise it extra high, and then tax him on it even if he can't sell it for that price."

[reubenoakley]

"How"
"Good one, Sarah!"
I'm dead 😂☠️

[PoisonedSinner]

The Turkey Dog is here, Best episode of the soap box ever.

[RayPoreon]

Another thing to factor in would be how much it would cost to even try to impliment. You'd need to pay for/hire people that could appraise non-monetary possessions, stock market experts, people to watch the watchers to prevent system abuse, a team of crack lawyers for when the system inevitably gets abused, warehouses to store confiscated objects, legal proceedings for people that have suddenly become tax evaders by accident overnight, couriers and hvgs to transport goods including live animals.

By the time that they'd gotten any money out of people they'd have spent billions if not trillions of dollars on setting up the means to enforce wealth tax, all the while forcing millions of the middle class into lower qualities of living, demolishing investment economy and 'strongly encouraged' those 'millionares and billionares' to shuffle everything they own off shore.

[marcusmoonstein]

Here's an interesting thought experiment:
Imagine I'm a multi-billionaire who has an incurable heart condition that will kill me in six months. I'm desperate for a new heart, but I also have a rare genetic makeup which makes it highly unlikely a compatible donor will ever be found.

So I go through my family tree and I find that YOU are the sole potential heart donor who will be compatible. The only problem is that you're still alive and are hence still using your heart.

Rather than doing something unethical like having you murdered, I decide to offer you a billion dollars for your heart and leave the choice up to you. If you sell me your heart then you will die, but your family will be set for generations to come. If you refuse to sell me your heart then I will die and you'll get nothing from me. What do you do?

The interesting point is this: if you refuse to sell me your heart, then you now own an asset worth a billion dollars. This is because the value of a thing is ultimately determined by how much a willing buyer will pay for it. Whether the seller agrees to sell at that price only determines whether or not a trade will take place, but it's the buyer who sets the price.

So should you have to pay a wealth tax on your billion dollar heart? Or that painting that turned out to be an undiscovered old master? Or that house that shot up in value because the neighborhood suddenly became trendy?