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Thread: Why not set tax brackets based on assets?

  1. #1

    Why not set tax brackets based on assets?

    Why base the brackets on income?

    I understand why taxation of income makes sense, but if the point of a progressive tax system is to shift the burden onto those best able to bear it, isn't an asset test, rather than an income test, the best mechanism to do that?

    More, an asset test would spur the economy, since it would reward spending (the lower your assets, the lower your tax rate).

    You'd have to net for certain liabilities, and ignore certain baseline assets (up to XYZ amount for a car or house, for example) . . . I'm literally typing this as I think it up, so perhaps I'm completely off the wall right now. What am I missing?

  2. #2
    Sounds like a great way to stifle investment, have the State take property away from individuals as penalty, and to generally legalize the penalizing of success, savings and investments, over, and over, and over again.

    You may be interested to know that most assets, not exactly liquid. Tax based on your non-liquid assets (for example, your home, car and retirement accounts) is a great way to have a tax bill you can't afford, forcing you to sell those assets to pay for the tax on them. Brilliant, instant conomic activity!

    We won't get into the evil that is the idea of being taxed again and again for the same assets/money you've already been taxed on.

    Here's an idea, why not start from a position where "spreading the wealth around, i.e. economic communism" is NOT the starting point for policy. Is it so hard to understand that what I earned is mine, what you earn is yours, and I (or you) do not ow you (or me) anything?

  3. #3
    Quote Originally Posted by Warfish View Post
    Sounds like a great way to stifle investment, have the State take property away from individuals as penalty, and to generally legalize the penalizing of success, savings and investments, over, and over, and over again.

    You may be interested to know that most assets, not exactly liquid. Tax based on your non-liquid assets (for example, your home, car and retirement accounts) is a great way to have a tax bill you can't afford, forcing you to sell those assets to pay for the tax on them. Brilliant, instant conomic activity!

    We won't get into the evil that is the idea of being taxed again and again for the same assets/money you've already been taxed on.
    Fish, I think you're misunderstanding me. Not "taxing again and again based on assets", but identifying the percentage of yearly income you are taxed, based on [assets minus certain illiquid assets - i.e. home, car, and retirement accounts - a framework for valuing investment assets at their tax basis until paper profits/losses are realized, etc.]

    So, for (an extremely simplistic) example, the guy who earns 50K this year and has 10K in cash sitting in his bank account gets taxed on that 50k (less deductions etc.) at a different rate than the guy who earns 50K this year and has 200K in the bank.

    I'm not suggesting changing the fact that it is annual income and only annual income that gets taxed, or that deductions will be allowed from annual income to account for money needed for basic necessities, or anything at all about the current tax system except how the tax bracket assigned to taxable income is determined.

    (Not that I think other things about the current tax system are perfect and this is the only change necessary or useful - just that it's the one that occurred to me and I thought was worth discussing)


    Here's an idea, why not start from a position where "spreading the wealth around, i.e. economic communism" is NOT the starting point for policy. Is it so hard to understand that what I earned is mine, what you earn is yours, and I (or you) do not ow you (or me) anything?
    Great sound byte, but it isn't even something you believe in, since that is essentially an argument for no taxes. We have a common government that provides what we both agree are necessary services (defense, foreign policy, etc.) and those services must be paid for. That means that there has to be some system of taxation and some level of money flowing from you, and me, to the government. Regardless of what amount of money the government actually needs for what it ought to be doing (which is a whole separate discussion), the question is how such a tax system ought to be organized. And really, my question is focused on the consistency of the current system (i.e. given its foundational principles as it currently exists - progressivity, etc. - would it make more sense to approach rate setting as we currently do or based on assets)

    So, assuming we need to have a tax system, and assuming that said tax system is intended to be progressive (and we can leave arguments for a flat tax aside for right now, since, rightly or wrongly, the current system is designed to be progressive), does it make sense to set tax rates based on annual income? Or on assets?

    FWIW, I think there are some obvious policy issues to setting things based on assets. You'd want to calibrate it to avoid penalizing savings necessary to allow people to survive economic shocks while encouraging investment of savings significantly greater than that amount. You'd also want to be sure that nobody would be required to sell assets to pay taxes (one of the big problems with the inheritance taxes).

    This is, quite literally, a quarter-formed, likely hair-brained idea I'm hashing out as I go.

    And no, I have no good reason to be up right now
    Last edited by doggin94it; 08-15-2012 at 05:06 AM.

  4. #4
    We have a recession because of leveraged debt and you want to encourage people to take on debt rather than save money. It's a good short term stimulative move one that both parties and the fed support but I'm afraid creating more leveraged debt as a continuing policy isn't a great idea.

    There are plenty of people who haven't earned big salaries who are very rich through savings and there are plenty of people who earned a ton of money who are broke and in debt. I'm not sure we should be encouraging more of the 2nd type through tax policy.
    Last edited by Winstonbiggs; 08-15-2012 at 05:48 AM.

  5. #5
    Quote Originally Posted by doggin94it View Post
    Why base the brackets on income?

    I understand why taxation of income makes sense, but if the point of a progressive tax system is to shift the burden onto those best able to bear it, isn't an asset test, rather than an income test, the best mechanism to do that?

    More, an asset test would spur the economy, since it would reward spending (the lower your assets, the lower your tax rate).

    You'd have to net for certain liabilities, and ignore certain baseline assets (up to XYZ amount for a car or house, for example) . . . I'm literally typing this as I think it up, so perhaps I'm completely off the wall right now. What am I missing?
    Hey doggin, did you work too late? This is total redistribution. I worked and SAVED for years to then get screwed? Should I have lived for today and spent like a drunken sailor having nothing as a result (like too many Americans).
    You're way too smart to think like this.
    Or perhaps, being a lawyer, you have all your assets in a trust so that the gov CAN'T have access. The assets are no longer YOURS. Smart but you're too young for that.

  6. #6
    Quote Originally Posted by doggin94it View Post
    This is, quite literally, a quarter-formed, likely hair-brained idea I'm hashing out as I go.

    And no, I have no good reason to be up right now
    Ha ha, I get you bro. I've been known to late night/early morning post myself from time to time.

    I maintain any tax system based on assets is a bad idea, and cannot be fixed without massive complex regulation (i.e. ways to cheat and abuse and bias the system).

    There is only one legitimate way to tax a citizenry IMO. Universal (all pay) flat (one rate) tax on either all income above the poverty line (a poverty line set by an agency other than the Govt./Politicians themselves), or on all non-food/shelter consumption.

    Anything other than this is inherantly unequal, unfair and ripe for political abuse, lobbying, cheating, massive costs to administer and worse.

    As such, I cannot simply leave Flat Tax aside, as it's the only legitimate form of taxation I would or do support. Equallity > Progressive Redistribution at the Whims of Politicians.

  7. #7
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    Quote Originally Posted by palmetto defender View Post
    Hey doggin, did you work too late? This is total redistribution. I worked and SAVED for years to then get screwed? Should I have lived for today and spent like a drunken sailor having nothing as a result (like too many Americans).
    You're way too smart to think like this.
    Or perhaps, being a lawyer, you have all your assets in a trust so that the gov CAN'T have access. The assets are no longer YOURS. Smart but you're too young for that.
    I am in this camp too. I have saved a LOT. I have NO PENSION and pay my own medical and I am considered wealthy when compared to a retired civil servant with a pension of 60K and health insurance but less savings? I have 7 figures saved for retirement but would trade it for a 60K pension and health insurance for life.

    Also...you think cheating is rampant now? hidden assets, fake appraisals etc...

  8. #8
    Quote Originally Posted by southparkcpa View Post
    I am in this camp too. I have saved a LOT. I have NO PENSION and pay my own medical and I am considered wealthy when compared to a retired civil servant with a pension of 60K and health insurance but less savings? I have 7 figures saved for retirement but would trade it for a 60K pension and health insurance for life.

    Also...you think cheating is rampant now? hidden assets, fake appraisals etc...

    I can tell you're a pretty good accountant, BUT assume based on your kid's ages you're not much over 50, if that. You're in superb shape.
    If you have 7 figures booked, it's way better than a 60K pension. You invest, you know the numbers. Earn 8-10% mimimum on principal, some tax free. You're good right now for 60+ AND you keep the principal.
    And you actually WORK for it unlike a civil servant. Self respect counts too, we both know.

  9. #9
    Quote Originally Posted by palmetto defender View Post
    And you actually WORK for it unlike a civil servant. Self respect counts too, we both know.
    I hate to interupt the circle-jerk of self-congratulations here, but...

    ...you DO realize that civil servants do work and often work VERY hard, right?

    And that their pension is no different than any other benefit of employement to the employee. The civil servant is not to blame for bad civil service policy, nor is he or she an inherantly or by default a bad or poor or unproductive worker simply because they enjoy the fruits of a bad system. To the employee, if they were hired to make/recieve X, did the work and got X, that is not unearned.

    As they say these days, don't hate the player, hate the game.

    Our civil servants, in many cases, are good, solid, hard working people engaged in some of the worst daily grinds imaginable serving the Nation in their small ways.

    There are certainly excpetions (just like some CPA accountants are corrupt, fraudlent, ignorant sharlatans), but in general, our civil servants are not bad or bad people.

    They simply work (on the Federal level) within a bad inefficient system, but like most working people, they make the most of what they have. The endless lambasting of them for their pension is misguided, and misses the real mark IMO.

  10. #10
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    Quote Originally Posted by Warfish View Post
    I hate to interupt the circle-jerk of self-congratulations here, but...

    ...you DO realize that civil servants do work and often work VERY hard, right?

    And that their pension is no different than any other benefit of employement to the employee. The civil servant is not to blame for bad civil service policy, nor is he or she an inherantly or by default a bad or poor or unproductive worker simply because they enjoy the fruits of a bad system. To the employee, if they were hired to make/recieve X, did the work and got X, that is not unearned.

    As they say these days, don't hate the player, hate the game.

    Our civil servants, in many cases, are good, solid, hard working people engaged in some of the worst daily grinds imaginable serving the Nation in their small ways.

    There are certainly excpetions (just like some CPA accountants are corrupt, fraudlent, ignorant sharlatans), but in general, our civil servants are not bad or bad people.

    They simply work (on the Federal level) within a bad inefficient system, but like most working people, they make the most of what they have. The endless lambasting of them for their pension is misguided, and misses the real mark IMO.
    Nice post, Fish

  11. #11
    Good points. Remind me never to post my own ideas again

  12. #12
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    Quote Originally Posted by palmetto defender View Post
    I can tell you're a pretty good accountant, BUT assume based on your kid's ages you're not much over 50, if that. You're in superb shape.
    If you have 7 figures booked, it's way better than a 60K pension. You invest, you know the numbers. Earn 8-10% mimimum on principal, some tax free. You're good right now for 60+ AND you keep the principal.
    And you actually WORK for it unlike a civil servant. Self respect counts too, we both know.
    I am a CFP and do retirement planning for a living. I can tell you, with no doubt, an 8 percent rate of return is not realistic in this environment. But I get what you are saying.... you have my age pretty darn accurate BTW.

    Are you in Charleston?
    Last edited by southparkcpa; 08-15-2012 at 05:49 PM.

  13. #13
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    Quote Originally Posted by Warfish View Post
    I hate to interupt the circle-jerk of self-congratulations here, but...

    ...you DO realize that civil servants do work and often work VERY hard, right?

    And that their pension is no different than any other benefit of employement to the employee. The civil servant is not to blame for bad civil service policy, nor is he or she an inherantly or by default a bad or poor or unproductive worker simply because they enjoy the fruits of a bad system. To the employee, if they were hired to make/recieve X, did the work and got X, that is not unearned.

    As they say these days, don't hate the player, hate the game.

    Our civil servants, in many cases, are good, solid, hard working people engaged in some of the worst daily grinds imaginable serving the Nation in their small ways.

    There are certainly excpetions (just like some CPA accountants are corrupt, fraudlent, ignorant sharlatans), but in general, our civil servants are not bad or bad people.

    They simply work (on the Federal level) within a bad inefficient system, but like most working people, they make the most of what they have. The endless lambasting of them for their pension is misguided, and misses the real mark IMO.
    I agree with the people part no question but I am in the camp that these benefits are bankrupting our cities, towns counties. Take a 35K secretary at the state level. Wife of a client.

    She worked 15 years and retired at 62. She gets 27K in retirement and full health for life.

    If you look at NYC as an example...these "good people" seem to work a TON of overtime the 2 years before their retirement. Cuomo study. There is no fiduciary capacity at any level and the politicians cow tow to the public unions.

    There is NO company that can provide this and the system produces an environment that creates a onerous burden on those not working for government.

    Why would anyone become a butcher, baker or candlestick maker when in 30 years they will still be working and the file clerk for the county is retired on full benefits being paid for by their neighbors.

  14. #14
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    Quote Originally Posted by doggin94it View Post
    Fish, I think you're misunderstanding me. Not "taxing again and again based on assets", but identifying the percentage of yearly income you are taxed, based on [assets minus certain illiquid assets - i.e. home, car, and retirement accounts - a framework for valuing investment assets at their tax basis until paper profits/losses are realized, etc.]

    So, for (an extremely simplistic) example, the guy who earns 50K this year and has 10K in cash sitting in his bank account gets taxed on that 50k (less deductions etc.) at a different rate than the guy who earns 50K this year and has 200K in the bank.

    I'm not suggesting changing the fact that it is annual income and only annual income that gets taxed, or that deductions will be allowed from annual income to account for money needed for basic necessities, or anything at all about the current tax system except how the tax bracket assigned to taxable income is determined.

    (Not that I think other things about the current tax system are perfect and this is the only change necessary or useful - just that it's the one that occurred to me and I thought was worth discussing)


    Great sound byte, but it isn't even something you believe in, since that is essentially an argument for no taxes. We have a common government that provides what we both agree are necessary services (defense, foreign policy, etc.) and those services must be paid for. That means that there has to be some system of taxation and some level of money flowing from you, and me, to the government. Regardless of what amount of money the government actually needs for what it ought to be doing (which is a whole separate discussion), the question is how such a tax system ought to be organized. And really, my question is focused on the consistency of the current system (i.e. given its foundational principles as it currently exists - progressivity, etc. - would it make more sense to approach rate setting as we currently do or based on assets)

    So, assuming we need to have a tax system, and assuming that said tax system is intended to be progressive (and we can leave arguments for a flat tax aside for right now, since, rightly or wrongly, the current system is designed to be progressive), does it make sense to set tax rates based on annual income? Or on assets?

    FWIW, I think there are some obvious policy issues to setting things based on assets. You'd want to calibrate it to avoid penalizing savings necessary to allow people to survive economic shocks while encouraging investment of savings significantly greater than that amount. You'd also want to be sure that nobody would be required to sell assets to pay taxes (one of the big problems with the inheritance taxes).

    This is, quite literally, a quarter-formed, likely hair-brained idea I'm hashing out as I go.

    And no, I have no good reason to be up right now
    So......

    If I make 50 K a year, and live within my means, and save money, I should pay more taxes than my brother, who also makes 50 K a year, lives beyond his means, and has no assets. That makes sense. Penalize the guy who plans for the future, and reward the guy who blows all of his cash.

  15. #15
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    Quote Originally Posted by chirorob View Post
    So......

    If I make 50 K a year, and live within my means, and save money, I should pay more taxes than my brother, who also makes 50 K a year, lives beyond his means, and has no assets. That makes sense. Penalize the guy who plans for the future, and reward the guy who blows all of his cash.
    You are late to the game... Doggin has seen the light.

  16. #16
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    The people responsible for the tax code today are the same people who are pretending to want to have it changed.

    The rich benefit GREATLY from the status quo and only use public sentiment against the current code as a way to cement what they have now.

  17. #17
    Quote Originally Posted by PlumberKhan View Post
    The people responsible for the tax code today are the same people who are pretending to want to have it changed.

    The rich benefit GREATLY from the status quo and only use public sentiment against the current code as a way to cement what they have now.
    The fantasy of getting rid of deductions for a fairer code will never happen. Every deduction has a special interest with access. The 86 tax code is about as close as we are going to get and we had much better leadership on both sides of the Hill at that time.
    Last edited by Winstonbiggs; 08-16-2012 at 09:11 AM.

  18. #18
    Quote Originally Posted by Warfish View Post
    I hate to interupt the circle-jerk of self-congratulations here, but...

    ...you DO realize that civil servants do work and often work VERY hard, right?

    And that their pension is no different than any other benefit of employement to the employee. The civil servant is not to blame for bad civil service policy, nor is he or she an inherantly or by default a bad or poor or unproductive worker simply because they enjoy the fruits of a bad system. To the employee, if they were hired to make/recieve X, did the work and got X, that is not unearned.

    As they say these days, don't hate the player, hate the game.

    Our civil servants, in many cases, are good, solid, hard working people engaged in some of the worst daily grinds imaginable serving the Nation in their small ways.

    There are certainly excpetions (just like some CPA accountants are corrupt, fraudlent, ignorant sharlatans), but in general, our civil servants are not bad or bad people.

    They simply work (on the Federal level) within a bad inefficient system, but like most working people, they make the most of what they have. The endless lambasting of them for their pension is misguided, and misses the real mark IMO.
    First, I like CPA,(no homo). He's a LI boy who made it the hard way.
    I have observed civil servants for almost 50 years. Had them in my extended family. To use an Army expression -"They are on a permanent glide". Or quoting the Dire Straits - "Money for Nothing".
    No accountability. No generation of positive performance. Shall we look at the GSA. How about the Post Office. DMV. SS office. The list is rather lengthy and depressing.
    Go to work, water cooler it, coffee break, hit the bathroom. Ah, lunchtime.
    Perhaps not all civil servants but the image is there for a reason. It's true.
    Go CPA. LOL.

  19. #19
    Quote Originally Posted by southparkcpa View Post
    I am a CFP and do retirement planning for a living. I can tell you, with no doubt, an 8 percent rate of return is not realistic in this environment. But I get what you are saying.... you have my age pretty darn accurate BTW.

    Are you in Charleston?

    In Charleston.
    I do get 8% TOTAL return (toss out 2008).
    I run some of the accounts and my broker runs some.
    Combo of dividend equities, high yield corporates and tax free bonds. I count the TF yield at what the taxable return would be.
    Despite WF being antagonistic, you're getting it done. Look at a $4mill goal.

  20. #20
    Quote Originally Posted by palmetto defender View Post
    First, I like CPA,(no homo). He's a LI boy who made it the hard way.
    I have observed civil servants for almost 50 years. Had them in my extended family. To use an Army expression -"They are on a permanent glide". Or quoting the Dire Straits - "Money for Nothing".
    No accountability. No generation of positive performance. Shall we look at the GSA. How about the Post Office. DMV. SS office. The list is rather lengthy and depressing.
    Go to work, water cooler it, coffee break, hit the bathroom. Ah, lunchtime.
    Perhaps not all civil servants but the image is there for a reason. It's true.
    Go CPA. LOL.
    There are 10 parking enforcement employees for the 1.3-square-mile beach city southwest of downtown Los Angeles, and they pull down some disproportionate compensation, considering their job functions. In fact, the two highest-earning employees for fiscal year 2011-12 are estimated to have made more than $92,000 and $93,000, respectively, according to city documents provided by Patrick “Kit” Bobko, one of five council members…

    There are four qualifications for being a city “community service officer,” Bobko told me: “You have to be able to drive a standard transmission; you have to able to handle large animals; you have to read and interpret statutes and regulations; and you have a high school diploma or equivalent.”

    .
    According to the city’s job description, these community service officers are supposed “to enforce meter and other regulations governing the parking of vehicles on streets and municipal parking lots; to enforce animal regulations; may drive city buses; collect meters and perform minor meter repairs; perform related work as required.”

    While there is arguably a need for such a job, is it really worth the outrageous cost to California taxpayers? Calle continues:

    Bobko also wrote in a memo that the retirement costs for these 10 employees “from [fiscal year 2011-12] through their retirement age at 62 was nearly $1.6 million, and the medical costs for these employees from this fiscal year to their retirement at age 62 would be $1,353,827.” Excluding salaries, the [retirement] contributions and medical costs for the 10 employees performing parking enforcement will cost, on average, nearly $300,000 apiece.” [All emphasis added]

    http://www.theblaze.com/stories/some...y-100k-a-year/

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