by Martin Harris
If you’re pleasantly surprised at the numbers for Net Household Wealth in recent decades – the total was less than $1 trillion in 1900, and it’s closing on $70 trillion today– the numbers for Net Enterprise Wealth are even more striking: more than $200 trillion, per Federal Reserve Bank data for 2008-9. Such potential tax targets have drawn new attention in recent years, and the once-unheard-of notion of wealth-taxation has begun to surface in all the usual political places. The Occupy-Wall-Street movement, for example, included a transaction tax (impoverished college students exempt, of course) in its list of demands. Now there’s an Enterprise Value Tax in legislation like the new American Jobs Act proposal. A recent Wall Street Journal op-ed by Wall Streeters Clifford Asness and Aaron Brown explained how the mounting outcry against “low” taxes on “carried interest” is, in reality but not label, a new demand for a new wealth tax on intangible business property, similar in concept (Humble Scribe opinion) to the only other major wealth tax in the US economy: the tax on real property value. It’s not much of a risk (HS assessment) to predict that wealth-taxation is going to be the new frontier in goose-plucking (a little 17th century French monarchy-finance lingo there) as traditional sources like income, consumption, and licensure are found to be Progressively inadequate. That little shadow across the financial sun may be a recently-hatched and now-gliding wealth-tax circling for a place to land. That’s because it’s driven by governmental revenue need, for debt-service (not even -payment) purposes, and the historical fact that Federal debt service now consumes near the 70% of tax revenues that French debt consumed in the 1790’s, just before guillotine-based regime change there, according to historian-economist William Quirk writing in Chronicles Magazine.
It would be a safe guess that States with substantial populations in the upper-wealth-quintiles are looking harder at just that target, whether they’re the many traditional retiree-haven States like Florida, which already has a (modest, for now) intangible assets tax, or the few new upper-income and -wealth quintile destinations like Vermont and (surprisingly) California, which don’t have one, yet, but do have a non-upper-income- and -wealth voting majority which would welcome one (for the sake of fairness, of course) as soon as possible. It used to be that wealth could be concealed behind modest life-style: think the Depression-era NYC penthouse-apartment refugees Scott and Helen Nearing, arriving in Vermont to pretend at “living off the land” while, as a post-mortem biography revealed, actually paying their bills from major but unpublicized trust fund revenues. Now, with electronic data-mining, net wealth for households and individuals is almost as much public-domain information as it has long been for commerce and manufacturing. Recently the Census Bureau published a national map of “rural gentrification” at the county level.
The Enterprise Value Tax proposal isn’t a “wealth tax” in the sense of an annual take from asset value (like the one in FL) but rather, as the Asness-Brown essay describes, a “transaction tax” based on asset value at time of sale, irrespective of sale profit or loss; in that respect, it’s more like the proposed “transaction tax” for such wealth-movement as bank deposits and withdrawals, equity purchases or sales, and investment-moves into or out of commodities or currencies. And, it would seem to apply only to certain categories of financial businesses. Nevertheless, they describe it as “ a step toward selective punitive wealth taxes” even while they concede that it’s basically a tax on profit from sales but at income-tax rates, rather than a tax on earnings from capital gains, at investment-tax rates. A real wealth tax (think the Vermont property tax, for example) isn’t a per-transaction tax but an annual ownership tax, payable whether you’ve bought the property last year or last century. Its defenders argue that it isn’t a wealth tax at all, but simply a tax on imputed income: the money not spent to rent a comparable structure. A similar tax (and it has been proposed, in years past) on home-grown not-sold food would require you to declare its imputed value as taxable income.
The real property tax has been less of a “wealth” tax and more of an “income” tax when applied to non-residential structures, as in cases where corporate abandonment or failure rendered the purpose-built construction of zero or negative value to a new purchaser, and a revised assessment reflected only land value –think the Youngstown steel mills or the Detroit auto factories—but it’s been more of a “wealth” tax for residential, and notoriously quicker to go up as inflation-driven values rise than to go down as buyer demand falls –think Vermont in the early 90’s– because “the schools can’t afford to take the loss”. Ironically, it’s been more clearly a “wealth” tax in California than anywhere else, an unanticipated outcome of the Jarvis tax rebellion of 1978, whereby the assessment at purchase remained until re-sold, irrespective of inflationary gains or deflationary losses in fair market value. Under Prop..13, the 1% tax could be raised only by 2% annually for inflation (and supposedly reduced for deflation) so that, in year two of ownership, it would be capped at a total 1.02%.
That sort of pro-wealth-tax argument hasn’t yet been raised, to legitimize a still pretty-much-rejected concept, but it will be. For two reasons: one is the rising level of resistance to existing taxes on income, consumption, and licensing, even though governments at all level plead the we-need-more-revenue pressure; and the other is that, like Everest waiting to be climbed, because “it’s there” –a whole new target for revenue extraction, if the basic concept can be legitimized. It will be done for “fairness”; it’s just not fair, as voters of re-distributionist mind-set see it, when those who have more wealth are somehow to be exempt from a tax on it, just as it’s already been decided that it’s just not fair for those who earn more, not to pay a higher rate against their top earnings. At or above a voting majority already, the re-distributionists ( or voters-for-“stuff”) fully realize that a tax on wealth, a super-tax, would generate new services and payments from those who should pay, because “they have more than they need”, to those who, unfairly, don’t. All that’s in the way is the historic antipathy to a “wealth tax”, and that can be reversed with Progressive re-education. Elsewhere in the world, there are camps for that sort of thing.