Taxing Wealth in an Uncertain World · $102.91 x 1.05 ≈ $108.06 . Wealth Taxation....
Transcript of Taxing Wealth in an Uncertain World · $102.91 x 1.05 ≈ $108.06 . Wealth Taxation....
![Page 1: Taxing Wealth in an Uncertain World · $102.91 x 1.05 ≈ $108.06 . Wealth Taxation. Near-Equivalent Alternatives. 2. Mark-to-market income tax Levy tax of 21% on ∆net worth. Wealth](https://reader035.fdocuments.us/reader035/viewer/2022071000/5fbce132b2da97523329ff85/html5/thumbnails/1.jpg)
Taxing Wealth in an Uncertain World
Daniel HemelUniversity of Chicago Law School
National Tax Association49th Annual Spring Symposium
May 17, 2019
![Page 2: Taxing Wealth in an Uncertain World · $102.91 x 1.05 ≈ $108.06 . Wealth Taxation. Near-Equivalent Alternatives. 2. Mark-to-market income tax Levy tax of 21% on ∆net worth. Wealth](https://reader035.fdocuments.us/reader035/viewer/2022071000/5fbce132b2da97523329ff85/html5/thumbnails/2.jpg)
Wealth TaxationObjectives1. Reduce high-end wealth inequality
narrow/eliminate r – g gap
2. Raise revenue for provision of public goods/social insurance
![Page 3: Taxing Wealth in an Uncertain World · $102.91 x 1.05 ≈ $108.06 . Wealth Taxation. Near-Equivalent Alternatives. 2. Mark-to-market income tax Levy tax of 21% on ∆net worth. Wealth](https://reader035.fdocuments.us/reader035/viewer/2022071000/5fbce132b2da97523329ff85/html5/thumbnails/3.jpg)
Wealth TaxationNear-Equivalent Alternatives1. Annual wealth tax
2. Mark-to-market income tax
3. Retrospective capital gains tax
![Page 4: Taxing Wealth in an Uncertain World · $102.91 x 1.05 ≈ $108.06 . Wealth Taxation. Near-Equivalent Alternatives. 2. Mark-to-market income tax Levy tax of 21% on ∆net worth. Wealth](https://reader035.fdocuments.us/reader035/viewer/2022071000/5fbce132b2da97523329ff85/html5/thumbnails/4.jpg)
Wealth TaxationNear-Equivalent Alternatives1. Annual wealth tax
![Page 5: Taxing Wealth in an Uncertain World · $102.91 x 1.05 ≈ $108.06 . Wealth Taxation. Near-Equivalent Alternatives. 2. Mark-to-market income tax Levy tax of 21% on ∆net worth. Wealth](https://reader035.fdocuments.us/reader035/viewer/2022071000/5fbce132b2da97523329ff85/html5/thumbnails/5.jpg)
Wealth TaxationNear-Equivalent Alternatives1. Annual wealth tax
Assume r = 5%
![Page 6: Taxing Wealth in an Uncertain World · $102.91 x 1.05 ≈ $108.06 . Wealth Taxation. Near-Equivalent Alternatives. 2. Mark-to-market income tax Levy tax of 21% on ∆net worth. Wealth](https://reader035.fdocuments.us/reader035/viewer/2022071000/5fbce132b2da97523329ff85/html5/thumbnails/6.jpg)
Wealth TaxationNear-Equivalent Alternatives1. Annual wealth tax
Assume r = 5% Levy tax of 1% of net worth on Jan. 1, 2019
![Page 7: Taxing Wealth in an Uncertain World · $102.91 x 1.05 ≈ $108.06 . Wealth Taxation. Near-Equivalent Alternatives. 2. Mark-to-market income tax Levy tax of 21% on ∆net worth. Wealth](https://reader035.fdocuments.us/reader035/viewer/2022071000/5fbce132b2da97523329ff85/html5/thumbnails/7.jpg)
Wealth TaxationNear-Equivalent Alternatives1. Annual wealth tax
Assume r = 5% Levy tax of 1% of net worth on Jan. 1, 2019 Starting wealth: $100Wealth on Jan. 1, 2019: $99Wealth on Dec. 31, 2019: $99 x 1.05 = $103.95Wealth on Jan. 1, 2020: $103.95 x 0.99 ≈ $102.91Wealth on Dec. 31, 2020: $102.91 x 1.05 ≈ $108.06
![Page 8: Taxing Wealth in an Uncertain World · $102.91 x 1.05 ≈ $108.06 . Wealth Taxation. Near-Equivalent Alternatives. 2. Mark-to-market income tax Levy tax of 21% on ∆net worth. Wealth](https://reader035.fdocuments.us/reader035/viewer/2022071000/5fbce132b2da97523329ff85/html5/thumbnails/8.jpg)
Wealth TaxationNear-Equivalent Alternatives2. Mark-to-market income tax
Levy tax of 21% on ∆net worth
![Page 9: Taxing Wealth in an Uncertain World · $102.91 x 1.05 ≈ $108.06 . Wealth Taxation. Near-Equivalent Alternatives. 2. Mark-to-market income tax Levy tax of 21% on ∆net worth. Wealth](https://reader035.fdocuments.us/reader035/viewer/2022071000/5fbce132b2da97523329ff85/html5/thumbnails/9.jpg)
Wealth TaxationNear-Equivalent Alternatives2. Mark-to-market income tax
Levy tax of 21% on ∆net worth Starting wealth: $100Wealth on Dec. 31, 2019: $100 x 1.05 x (1 – 0.21) =
$103.95Wealth on Dec. 31, 2020: $103.95 x 1.05 x (1 –
0.21) ≈ $108.06
![Page 10: Taxing Wealth in an Uncertain World · $102.91 x 1.05 ≈ $108.06 . Wealth Taxation. Near-Equivalent Alternatives. 2. Mark-to-market income tax Levy tax of 21% on ∆net worth. Wealth](https://reader035.fdocuments.us/reader035/viewer/2022071000/5fbce132b2da97523329ff85/html5/thumbnails/10.jpg)
Wealth TaxationNear-Equivalent Alternatives3. Retrospective capital gains tax
![Page 11: Taxing Wealth in an Uncertain World · $102.91 x 1.05 ≈ $108.06 . Wealth Taxation. Near-Equivalent Alternatives. 2. Mark-to-market income tax Levy tax of 21% on ∆net worth. Wealth](https://reader035.fdocuments.us/reader035/viewer/2022071000/5fbce132b2da97523329ff85/html5/thumbnails/11.jpg)
Wealth TaxationNear-Equivalent Alternatives3. Retrospective capital gains tax
Step 1: Determine amount realized at time of sale (As) and holding period (s)
Step 2: Assume growth at rate of r over holding period
Step 3: Levy tax such that individual is as well off as she would have been if she had started with wealth of As/(1 + r)s and paid mark-to-market tax of t each year
![Page 12: Taxing Wealth in an Uncertain World · $102.91 x 1.05 ≈ $108.06 . Wealth Taxation. Near-Equivalent Alternatives. 2. Mark-to-market income tax Levy tax of 21% on ∆net worth. Wealth](https://reader035.fdocuments.us/reader035/viewer/2022071000/5fbce132b2da97523329ff85/html5/thumbnails/12.jpg)
Wealth TaxationNear-Equivalent Alternatives3. Retrospective capital gains tax Formula: Ts = (1-((1+r(1-t))/(1+r))s)As
![Page 13: Taxing Wealth in an Uncertain World · $102.91 x 1.05 ≈ $108.06 . Wealth Taxation. Near-Equivalent Alternatives. 2. Mark-to-market income tax Levy tax of 21% on ∆net worth. Wealth](https://reader035.fdocuments.us/reader035/viewer/2022071000/5fbce132b2da97523329ff85/html5/thumbnails/13.jpg)
Wealth TaxationNear-Equivalent Alternatives3. Retrospective capital gains tax Formula: Ts = (1-((1+r(1-t))/(1+r))s)As
What happens to a taxpayer who purchases $100 asset on Jan. 1, 2019 and winds up with asset worth $100 x 1.052 = $110.25 on Dec. 31, 2020?
![Page 14: Taxing Wealth in an Uncertain World · $102.91 x 1.05 ≈ $108.06 . Wealth Taxation. Near-Equivalent Alternatives. 2. Mark-to-market income tax Levy tax of 21% on ∆net worth. Wealth](https://reader035.fdocuments.us/reader035/viewer/2022071000/5fbce132b2da97523329ff85/html5/thumbnails/14.jpg)
Wealth TaxationNear-Equivalent Alternatives3. Retrospective capital gains tax Formula: Ts = (1-((1+.05(1-.21))/(1+.05))2)110.25
What happens to a taxpayer who purchases $100 asset on Jan. 1, 2019 and winds up with asset worth $100 x 1.052 = $110.25 on Dec. 31, 2020?
![Page 15: Taxing Wealth in an Uncertain World · $102.91 x 1.05 ≈ $108.06 . Wealth Taxation. Near-Equivalent Alternatives. 2. Mark-to-market income tax Levy tax of 21% on ∆net worth. Wealth](https://reader035.fdocuments.us/reader035/viewer/2022071000/5fbce132b2da97523329ff85/html5/thumbnails/15.jpg)
Wealth TaxationNear-Equivalent Alternatives3. Retrospective capital gains tax Formula: Ts = (1-((1+.05(1-.21))/(1+.05))2)110.25
What happens to a taxpayer who purchases $100 asset on Jan. 1, 2019 and winds up with asset worth $100 x 1.052 = $110.25 on Dec. 31, 2020?
Ts ≈ $2.19
Wealth on Dec. 31, 2020 = $110.25 – $2.19 = $108.06
![Page 16: Taxing Wealth in an Uncertain World · $102.91 x 1.05 ≈ $108.06 . Wealth Taxation. Near-Equivalent Alternatives. 2. Mark-to-market income tax Levy tax of 21% on ∆net worth. Wealth](https://reader035.fdocuments.us/reader035/viewer/2022071000/5fbce132b2da97523329ff85/html5/thumbnails/16.jpg)
Wealth TaxationNonequivalences
![Page 17: Taxing Wealth in an Uncertain World · $102.91 x 1.05 ≈ $108.06 . Wealth Taxation. Near-Equivalent Alternatives. 2. Mark-to-market income tax Levy tax of 21% on ∆net worth. Wealth](https://reader035.fdocuments.us/reader035/viewer/2022071000/5fbce132b2da97523329ff85/html5/thumbnails/17.jpg)
Wealth TaxationNonequivalences1. Abnormal returns (e.g., entrepreneurial labor)
Taxed more heavily under a mark-to-market income tax than under an annual wealth tax or a retrospective capital gains tax
![Page 18: Taxing Wealth in an Uncertain World · $102.91 x 1.05 ≈ $108.06 . Wealth Taxation. Near-Equivalent Alternatives. 2. Mark-to-market income tax Levy tax of 21% on ∆net worth. Wealth](https://reader035.fdocuments.us/reader035/viewer/2022071000/5fbce132b2da97523329ff85/html5/thumbnails/18.jpg)
Wealth TaxationNonequivalences1. Abnormal returns (e.g., entrepreneurial labor)
Taxed more heavily under a mark-to-market income tax than under an annual wealth tax or a retrospective capital gains taxNormative implications?
![Page 19: Taxing Wealth in an Uncertain World · $102.91 x 1.05 ≈ $108.06 . Wealth Taxation. Near-Equivalent Alternatives. 2. Mark-to-market income tax Levy tax of 21% on ∆net worth. Wealth](https://reader035.fdocuments.us/reader035/viewer/2022071000/5fbce132b2da97523329ff85/html5/thumbnails/19.jpg)
Wealth TaxationNonequivalences1. Abnormal returns (e.g., entrepreneurial labor)
Normative implications?View 1: Argument in favor of a mark-to-market
income tax because:a) high-end labor inequality is significant
contributor to overall inequalityb) undertaxation of entrepreneurial labor leads
to allocative inefficiencies
![Page 20: Taxing Wealth in an Uncertain World · $102.91 x 1.05 ≈ $108.06 . Wealth Taxation. Near-Equivalent Alternatives. 2. Mark-to-market income tax Levy tax of 21% on ∆net worth. Wealth](https://reader035.fdocuments.us/reader035/viewer/2022071000/5fbce132b2da97523329ff85/html5/thumbnails/20.jpg)
![Page 21: Taxing Wealth in an Uncertain World · $102.91 x 1.05 ≈ $108.06 . Wealth Taxation. Near-Equivalent Alternatives. 2. Mark-to-market income tax Levy tax of 21% on ∆net worth. Wealth](https://reader035.fdocuments.us/reader035/viewer/2022071000/5fbce132b2da97523329ff85/html5/thumbnails/21.jpg)
Wealth TaxationNonequivalences1. Abnormal returns (e.g., entrepreneurial labor)
Normative implications?View 2: Argument in favor of annual wealth tax
or retrospective capital gains tax because:a) high-end labor inequality is less
objectionable than wealth inequalities that accumulate over generations
b) undertaxation of abnormal returns rewards positive externalities from entrepreneurial labor (Jones, 2019)
![Page 22: Taxing Wealth in an Uncertain World · $102.91 x 1.05 ≈ $108.06 . Wealth Taxation. Near-Equivalent Alternatives. 2. Mark-to-market income tax Levy tax of 21% on ∆net worth. Wealth](https://reader035.fdocuments.us/reader035/viewer/2022071000/5fbce132b2da97523329ff85/html5/thumbnails/22.jpg)
Wealth TaxationNonequivalences1. Abnormal returns (e.g., entrepreneurial labor)
Normative implications?View 3: Neither an argument in favor of mark-
to-market income tax nor an argument in favor of annual wealth tax or retrospective capital gains tax because we have lots of other tools to tax abnormal returns (e.g., consumption tax)
![Page 23: Taxing Wealth in an Uncertain World · $102.91 x 1.05 ≈ $108.06 . Wealth Taxation. Near-Equivalent Alternatives. 2. Mark-to-market income tax Levy tax of 21% on ∆net worth. Wealth](https://reader035.fdocuments.us/reader035/viewer/2022071000/5fbce132b2da97523329ff85/html5/thumbnails/23.jpg)
Wealth TaxationNonequivalences1. Abnormal returns (e.g., entrepreneurial labor)
Normative implications?View 3: Neither an argument in favor of mark-
to-market income tax nor an argument in favor of annual wealth tax or retrospective capital gains tax because we have lots of other tools to tax abnormal returns (e.g., consumption tax)Note: Also possible to integrate tax on
abnormal returns into retrospective capital gains tax (Auerbach & Bradford, 2004)
![Page 24: Taxing Wealth in an Uncertain World · $102.91 x 1.05 ≈ $108.06 . Wealth Taxation. Near-Equivalent Alternatives. 2. Mark-to-market income tax Levy tax of 21% on ∆net worth. Wealth](https://reader035.fdocuments.us/reader035/viewer/2022071000/5fbce132b2da97523329ff85/html5/thumbnails/24.jpg)
Wealth TaxationNonequivalences1. Abnormal returns (e.g., entrepreneurial labor)
2. Allocation of risk
![Page 25: Taxing Wealth in an Uncertain World · $102.91 x 1.05 ≈ $108.06 . Wealth Taxation. Near-Equivalent Alternatives. 2. Mark-to-market income tax Levy tax of 21% on ∆net worth. Wealth](https://reader035.fdocuments.us/reader035/viewer/2022071000/5fbce132b2da97523329ff85/html5/thumbnails/25.jpg)
Wealth TaxationNonequivalences1. Abnormal returns (e.g., entrepreneurial labor)
2. Allocation of riskDomar and Musgrave (1944): Income tax with full
loss offsets imposes no burden on private risk-taking if taxpayers can borrow at risk-free rate and risky assets are unlimited in supply
![Page 26: Taxing Wealth in an Uncertain World · $102.91 x 1.05 ≈ $108.06 . Wealth Taxation. Near-Equivalent Alternatives. 2. Mark-to-market income tax Levy tax of 21% on ∆net worth. Wealth](https://reader035.fdocuments.us/reader035/viewer/2022071000/5fbce132b2da97523329ff85/html5/thumbnails/26.jpg)
Wealth TaxationNonequivalences1. Abnormal returns (e.g., entrepreneurial labor)
2. Allocation of risk Kaplow (1994): Absent adjustments, wealth and
income taxes will differ in their implications for the government’s investment portfolio
![Page 27: Taxing Wealth in an Uncertain World · $102.91 x 1.05 ≈ $108.06 . Wealth Taxation. Near-Equivalent Alternatives. 2. Mark-to-market income tax Levy tax of 21% on ∆net worth. Wealth](https://reader035.fdocuments.us/reader035/viewer/2022071000/5fbce132b2da97523329ff85/html5/thumbnails/27.jpg)
Wealth TaxationNonequivalences1. Abnormal returns (e.g., entrepreneurial labor)
2. Allocation of riskNormative implications?
![Page 28: Taxing Wealth in an Uncertain World · $102.91 x 1.05 ≈ $108.06 . Wealth Taxation. Near-Equivalent Alternatives. 2. Mark-to-market income tax Levy tax of 21% on ∆net worth. Wealth](https://reader035.fdocuments.us/reader035/viewer/2022071000/5fbce132b2da97523329ff85/html5/thumbnails/28.jpg)
Wealth TaxationNonequivalences1. Abnormal returns (e.g., entrepreneurial labor)
2. Allocation of riskNormative implications?View 1: Risk shift from private to public sectors is
desirable for microeconomic (insurance) and macroeconomic (countercyclical) reasons
![Page 29: Taxing Wealth in an Uncertain World · $102.91 x 1.05 ≈ $108.06 . Wealth Taxation. Near-Equivalent Alternatives. 2. Mark-to-market income tax Levy tax of 21% on ∆net worth. Wealth](https://reader035.fdocuments.us/reader035/viewer/2022071000/5fbce132b2da97523329ff85/html5/thumbnails/29.jpg)
Wealth TaxationNonequivalences1. Abnormal returns (e.g., entrepreneurial labor)
2. Allocation of riskNormative implications?
View 2: Government can reproduce same risk allocation under an annual wealth tax or a mark-to-market income tax through:a) explicit insuranceb) asset purchases/financial derivatives
![Page 30: Taxing Wealth in an Uncertain World · $102.91 x 1.05 ≈ $108.06 . Wealth Taxation. Near-Equivalent Alternatives. 2. Mark-to-market income tax Levy tax of 21% on ∆net worth. Wealth](https://reader035.fdocuments.us/reader035/viewer/2022071000/5fbce132b2da97523329ff85/html5/thumbnails/30.jpg)
Wealth TaxationNonequivalences1. Abnormal returns (e.g., entrepreneurial labor)
2. Allocation of risk
3. Maximum rate
![Page 31: Taxing Wealth in an Uncertain World · $102.91 x 1.05 ≈ $108.06 . Wealth Taxation. Near-Equivalent Alternatives. 2. Mark-to-market income tax Levy tax of 21% on ∆net worth. Wealth](https://reader035.fdocuments.us/reader035/viewer/2022071000/5fbce132b2da97523329ff85/html5/thumbnails/31.jpg)
Wealth TaxationNonequivalences1. Abnormal returns (e.g., entrepreneurial labor)
2. Allocation of risk
3. Maximum rate Equivalence holds only if twealth < r
![Page 32: Taxing Wealth in an Uncertain World · $102.91 x 1.05 ≈ $108.06 . Wealth Taxation. Near-Equivalent Alternatives. 2. Mark-to-market income tax Levy tax of 21% on ∆net worth. Wealth](https://reader035.fdocuments.us/reader035/viewer/2022071000/5fbce132b2da97523329ff85/html5/thumbnails/32.jpg)
30-Year Treasury Yield (Nominal)
![Page 33: Taxing Wealth in an Uncertain World · $102.91 x 1.05 ≈ $108.06 . Wealth Taxation. Near-Equivalent Alternatives. 2. Mark-to-market income tax Levy tax of 21% on ∆net worth. Wealth](https://reader035.fdocuments.us/reader035/viewer/2022071000/5fbce132b2da97523329ff85/html5/thumbnails/33.jpg)
Wealth TaxationNonequivalences1. Abnormal returns (e.g., entrepreneurial labor)
2. Allocation of risk
3. Maximum rateNormative implications?
![Page 34: Taxing Wealth in an Uncertain World · $102.91 x 1.05 ≈ $108.06 . Wealth Taxation. Near-Equivalent Alternatives. 2. Mark-to-market income tax Levy tax of 21% on ∆net worth. Wealth](https://reader035.fdocuments.us/reader035/viewer/2022071000/5fbce132b2da97523329ff85/html5/thumbnails/34.jpg)
Wealth TaxationNonequivalences1. Abnormal returns (e.g., entrepreneurial labor)
2. Allocation of risk
3. Maximum rateNormative implications?Annual wealth tax >>> 2% cannot be replicated
via mark-to-market income tax or retrospective capital gains tax (without help from the Fed)
![Page 35: Taxing Wealth in an Uncertain World · $102.91 x 1.05 ≈ $108.06 . Wealth Taxation. Near-Equivalent Alternatives. 2. Mark-to-market income tax Levy tax of 21% on ∆net worth. Wealth](https://reader035.fdocuments.us/reader035/viewer/2022071000/5fbce132b2da97523329ff85/html5/thumbnails/35.jpg)
Three Types of Uncertainty
![Page 36: Taxing Wealth in an Uncertain World · $102.91 x 1.05 ≈ $108.06 . Wealth Taxation. Near-Equivalent Alternatives. 2. Mark-to-market income tax Levy tax of 21% on ∆net worth. Wealth](https://reader035.fdocuments.us/reader035/viewer/2022071000/5fbce132b2da97523329ff85/html5/thumbnails/36.jpg)
Three Types of Uncertainty1. Valuation uncertainty
2. Political uncertainty
3. Constitutional uncertainty
![Page 37: Taxing Wealth in an Uncertain World · $102.91 x 1.05 ≈ $108.06 . Wealth Taxation. Near-Equivalent Alternatives. 2. Mark-to-market income tax Levy tax of 21% on ∆net worth. Wealth](https://reader035.fdocuments.us/reader035/viewer/2022071000/5fbce132b2da97523329ff85/html5/thumbnails/37.jpg)
Three Types of Uncertainty1. Valuation uncertainty: Tax authority uncertain as to
“true” value of asset symmetric or asymmetric
![Page 38: Taxing Wealth in an Uncertain World · $102.91 x 1.05 ≈ $108.06 . Wealth Taxation. Near-Equivalent Alternatives. 2. Mark-to-market income tax Levy tax of 21% on ∆net worth. Wealth](https://reader035.fdocuments.us/reader035/viewer/2022071000/5fbce132b2da97523329ff85/html5/thumbnails/38.jpg)
Three Types of Uncertainty1. Valuation uncertainty: Tax authority uncertain as to
“true” value of assetAnnual wealth tax: High exposure
![Page 39: Taxing Wealth in an Uncertain World · $102.91 x 1.05 ≈ $108.06 . Wealth Taxation. Near-Equivalent Alternatives. 2. Mark-to-market income tax Levy tax of 21% on ∆net worth. Wealth](https://reader035.fdocuments.us/reader035/viewer/2022071000/5fbce132b2da97523329ff85/html5/thumbnails/39.jpg)
Three Types of Uncertainty1. Valuation uncertainty: Tax authority uncertain as to
“true” value of assetAnnual wealth tax: High exposureMark-to-market income tax: High exposure when:
![Page 40: Taxing Wealth in an Uncertain World · $102.91 x 1.05 ≈ $108.06 . Wealth Taxation. Near-Equivalent Alternatives. 2. Mark-to-market income tax Levy tax of 21% on ∆net worth. Wealth](https://reader035.fdocuments.us/reader035/viewer/2022071000/5fbce132b2da97523329ff85/html5/thumbnails/40.jpg)
Three Types of Uncertainty1. Valuation uncertainty: Tax authority uncertain as to
“true” value of assetAnnual wealth tax: High exposureMark-to-market income tax: High exposure when:Durability of regime is in doubt; or
![Page 41: Taxing Wealth in an Uncertain World · $102.91 x 1.05 ≈ $108.06 . Wealth Taxation. Near-Equivalent Alternatives. 2. Mark-to-market income tax Levy tax of 21% on ∆net worth. Wealth](https://reader035.fdocuments.us/reader035/viewer/2022071000/5fbce132b2da97523329ff85/html5/thumbnails/41.jpg)
Three Types of Uncertainty1. Valuation uncertainty: Tax authority uncertain as to
“true” value of assetAnnual wealth tax: High exposureMark-to-market income tax: High exposure when:Durability of regime is in doubt; or Interest rates are high
![Page 42: Taxing Wealth in an Uncertain World · $102.91 x 1.05 ≈ $108.06 . Wealth Taxation. Near-Equivalent Alternatives. 2. Mark-to-market income tax Levy tax of 21% on ∆net worth. Wealth](https://reader035.fdocuments.us/reader035/viewer/2022071000/5fbce132b2da97523329ff85/html5/thumbnails/42.jpg)
Three Types of Uncertainty1. Valuation uncertainty: Tax authority uncertain as to
“true” value of assetAnnual wealth tax: High exposureMark-to-market income tax: High* exposure Retrospective capital gains tax: Low exposure
![Page 43: Taxing Wealth in an Uncertain World · $102.91 x 1.05 ≈ $108.06 . Wealth Taxation. Near-Equivalent Alternatives. 2. Mark-to-market income tax Levy tax of 21% on ∆net worth. Wealth](https://reader035.fdocuments.us/reader035/viewer/2022071000/5fbce132b2da97523329ff85/html5/thumbnails/43.jpg)
Three Types of Uncertainty2. Political uncertainty: Uncertainty as to whether
regime will be repealed
![Page 44: Taxing Wealth in an Uncertain World · $102.91 x 1.05 ≈ $108.06 . Wealth Taxation. Near-Equivalent Alternatives. 2. Mark-to-market income tax Levy tax of 21% on ∆net worth. Wealth](https://reader035.fdocuments.us/reader035/viewer/2022071000/5fbce132b2da97523329ff85/html5/thumbnails/44.jpg)
Three Types of Uncertainty2. Political uncertainty: Uncertainty as to whether
regime will be repealedAnnual wealth tax: Low exposure
![Page 45: Taxing Wealth in an Uncertain World · $102.91 x 1.05 ≈ $108.06 . Wealth Taxation. Near-Equivalent Alternatives. 2. Mark-to-market income tax Levy tax of 21% on ∆net worth. Wealth](https://reader035.fdocuments.us/reader035/viewer/2022071000/5fbce132b2da97523329ff85/html5/thumbnails/45.jpg)
Three Types of Uncertainty2. Political uncertainty: Uncertainty as to whether
regime will be repealedAnnual wealth tax: Low exposureMark-to-market income tax: Political uncertainty
increases exposure to valuation uncertainty
![Page 46: Taxing Wealth in an Uncertain World · $102.91 x 1.05 ≈ $108.06 . Wealth Taxation. Near-Equivalent Alternatives. 2. Mark-to-market income tax Levy tax of 21% on ∆net worth. Wealth](https://reader035.fdocuments.us/reader035/viewer/2022071000/5fbce132b2da97523329ff85/html5/thumbnails/46.jpg)
Three Types of Uncertainty2. Political uncertainty: Uncertainty as to whether
regime will be repealedAnnual wealth tax: Low exposureMark-to-market income tax: Political uncertainty
increases exposure to valuation uncertainty Retrospective capital gains tax: High exposure
![Page 47: Taxing Wealth in an Uncertain World · $102.91 x 1.05 ≈ $108.06 . Wealth Taxation. Near-Equivalent Alternatives. 2. Mark-to-market income tax Levy tax of 21% on ∆net worth. Wealth](https://reader035.fdocuments.us/reader035/viewer/2022071000/5fbce132b2da97523329ff85/html5/thumbnails/47.jpg)
Three Types of Uncertainty3. Constitutional uncertainty: Uncertainty as to whether
regime will be held to violate Constitution
![Page 48: Taxing Wealth in an Uncertain World · $102.91 x 1.05 ≈ $108.06 . Wealth Taxation. Near-Equivalent Alternatives. 2. Mark-to-market income tax Levy tax of 21% on ∆net worth. Wealth](https://reader035.fdocuments.us/reader035/viewer/2022071000/5fbce132b2da97523329ff85/html5/thumbnails/48.jpg)
Three Types of Uncertainty3. Constitutional uncertainty: Uncertainty as to whether
regime will be held to violate ConstitutionAnnual wealth tax: High exposure
![Page 49: Taxing Wealth in an Uncertain World · $102.91 x 1.05 ≈ $108.06 . Wealth Taxation. Near-Equivalent Alternatives. 2. Mark-to-market income tax Levy tax of 21% on ∆net worth. Wealth](https://reader035.fdocuments.us/reader035/viewer/2022071000/5fbce132b2da97523329ff85/html5/thumbnails/49.jpg)
Tax and the ConstitutionArt. I, § 2, cl. 3: “[D]irect Taxes shall be apportioned
among the several States . . . according to their respective Numbers . . . .”
Amend. XVI: “Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment . . . .”
![Page 50: Taxing Wealth in an Uncertain World · $102.91 x 1.05 ≈ $108.06 . Wealth Taxation. Near-Equivalent Alternatives. 2. Mark-to-market income tax Levy tax of 21% on ∆net worth. Wealth](https://reader035.fdocuments.us/reader035/viewer/2022071000/5fbce132b2da97523329ff85/html5/thumbnails/50.jpg)
Tax and the ConstitutionArt. I, § 2, cl. 3: “[D]irect Taxes shall be apportioned
among the several States . . . according to their respective Numbers . . . .”
Amend. XVI: “Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment . . . .”
![Page 51: Taxing Wealth in an Uncertain World · $102.91 x 1.05 ≈ $108.06 . Wealth Taxation. Near-Equivalent Alternatives. 2. Mark-to-market income tax Levy tax of 21% on ∆net worth. Wealth](https://reader035.fdocuments.us/reader035/viewer/2022071000/5fbce132b2da97523329ff85/html5/thumbnails/51.jpg)
What Is a “Direct” Tax?Tax on
Land/Real Property
Tax on All PersonalProperty
Hylton v. US (1795) (Chase)Veazie Bank v. Fenno (1869)Scholey v. Rew (1874)Springer v. US (1880)Pollock v. Farmer’s Loan (1895)Fernandez v. Wiener (1945)NFIB v. Sebelius (2012) (Roberts)
![Page 52: Taxing Wealth in an Uncertain World · $102.91 x 1.05 ≈ $108.06 . Wealth Taxation. Near-Equivalent Alternatives. 2. Mark-to-market income tax Levy tax of 21% on ∆net worth. Wealth](https://reader035.fdocuments.us/reader035/viewer/2022071000/5fbce132b2da97523329ff85/html5/thumbnails/52.jpg)
What Is a “Direct” Tax?Tax on
Land/Real Property
Tax on All PersonalProperty
Hylton v. US (1795) (Chase) ✔ ✖
Veazie Bank v. Fenno (1869) ✔ ✖
Scholey v. Rew (1874) ✔ ✖
Springer v. US (1880) ✔ ✖
Pollock v. Farmer’s Loan (1895)Fernandez v. Wiener (1945)NFIB v. Sebelius (2012) (Roberts)
![Page 53: Taxing Wealth in an Uncertain World · $102.91 x 1.05 ≈ $108.06 . Wealth Taxation. Near-Equivalent Alternatives. 2. Mark-to-market income tax Levy tax of 21% on ∆net worth. Wealth](https://reader035.fdocuments.us/reader035/viewer/2022071000/5fbce132b2da97523329ff85/html5/thumbnails/53.jpg)
What Is a “Direct” Tax?Tax on
Land/Real Property
Tax on All PersonalProperty
Hylton v. US (1795) (Chase) ✔ ✖
Veazie Bank v. Fenno (1869) ✔ ✖
Scholey v. Rew (1874) ✔ ✖
Springer v. US (1880) ✔ ✖
Pollock v. Farmer’s Loan (1895) ✔ ✔
Fernandez v. Wiener (1945)NFIB v. Sebelius (2012) (Roberts)
![Page 54: Taxing Wealth in an Uncertain World · $102.91 x 1.05 ≈ $108.06 . Wealth Taxation. Near-Equivalent Alternatives. 2. Mark-to-market income tax Levy tax of 21% on ∆net worth. Wealth](https://reader035.fdocuments.us/reader035/viewer/2022071000/5fbce132b2da97523329ff85/html5/thumbnails/54.jpg)
What Is a “Direct” Tax?Tax on
Land/Real Property
Tax on All PersonalProperty
Hylton v. US (1795) (Chase) ✔ ✖
Veazie Bank v. Fenno (1869) ✔ ✖
Scholey v. Rew (1874) ✔ ✖
Springer v. US (1880) ✔ ✖
Pollock v. Farmer’s Loan (1895) ✔ ✔
Fernandez v. Wiener (1945) ✔ ✔
NFIB v. Sebelius (2012) (Roberts) ✔ ✔
![Page 55: Taxing Wealth in an Uncertain World · $102.91 x 1.05 ≈ $108.06 . Wealth Taxation. Near-Equivalent Alternatives. 2. Mark-to-market income tax Levy tax of 21% on ∆net worth. Wealth](https://reader035.fdocuments.us/reader035/viewer/2022071000/5fbce132b2da97523329ff85/html5/thumbnails/55.jpg)
Three Types of Uncertainty “That Congress has power to tax shareholders upon
their property interests in the stock of corporations is beyond question; and that such interests might be valued in view of the condition of the company, including its accumulated and undivided profits, is equally clear. But that this would be taxation of property because of ownership, and hence would require apportionment under the provisions of the Constitution, is settled beyond peradventure by previous decisions of this court.”
— Eisner v. Macomber (1920)
![Page 56: Taxing Wealth in an Uncertain World · $102.91 x 1.05 ≈ $108.06 . Wealth Taxation. Near-Equivalent Alternatives. 2. Mark-to-market income tax Levy tax of 21% on ∆net worth. Wealth](https://reader035.fdocuments.us/reader035/viewer/2022071000/5fbce132b2da97523329ff85/html5/thumbnails/56.jpg)
Three Types of Uncertainty3. Constitutional uncertainty: Uncertainty as to whether
regime will be held to violate ConstitutionAnnual wealth tax: High exposureMark-to-market income tax: Low (>0) exposure
![Page 57: Taxing Wealth in an Uncertain World · $102.91 x 1.05 ≈ $108.06 . Wealth Taxation. Near-Equivalent Alternatives. 2. Mark-to-market income tax Levy tax of 21% on ∆net worth. Wealth](https://reader035.fdocuments.us/reader035/viewer/2022071000/5fbce132b2da97523329ff85/html5/thumbnails/57.jpg)
Three Types of Uncertainty3. Constitutional uncertainty: Uncertainty as to whether
regime will be held to violate ConstitutionAnnual wealth tax: High exposureMark-to-market income tax: Low (>0) exposure Retrospective capital gains tax: Low (~0) exposure
![Page 58: Taxing Wealth in an Uncertain World · $102.91 x 1.05 ≈ $108.06 . Wealth Taxation. Near-Equivalent Alternatives. 2. Mark-to-market income tax Levy tax of 21% on ∆net worth. Wealth](https://reader035.fdocuments.us/reader035/viewer/2022071000/5fbce132b2da97523329ff85/html5/thumbnails/58.jpg)
Tax and the ConstitutionArt. I, § 8, cl. 1: “Congress shall have Power To lay and
collect Taxes, Duties, Imposts and Excises”Amend. XVI: “Congress shall have power to lay and
collect taxes on incomes, from whatever source derived, without apportionment . . . .”
![Page 59: Taxing Wealth in an Uncertain World · $102.91 x 1.05 ≈ $108.06 . Wealth Taxation. Near-Equivalent Alternatives. 2. Mark-to-market income tax Levy tax of 21% on ∆net worth. Wealth](https://reader035.fdocuments.us/reader035/viewer/2022071000/5fbce132b2da97523329ff85/html5/thumbnails/59.jpg)
Wealth Taxation and the Three Uncertainties
Annualwealth
tax
Mark-to-market
income tax
Retrospective capital gains
taxValuationuncertainty
HIGHLINKED
LOW
Political uncertainty
LOW HIGH
Constitutionaluncertainty
HIGH LOW (>0) LOW (~0)
![Page 60: Taxing Wealth in an Uncertain World · $102.91 x 1.05 ≈ $108.06 . Wealth Taxation. Near-Equivalent Alternatives. 2. Mark-to-market income tax Levy tax of 21% on ∆net worth. Wealth](https://reader035.fdocuments.us/reader035/viewer/2022071000/5fbce132b2da97523329ff85/html5/thumbnails/60.jpg)
Takeaways
![Page 61: Taxing Wealth in an Uncertain World · $102.91 x 1.05 ≈ $108.06 . Wealth Taxation. Near-Equivalent Alternatives. 2. Mark-to-market income tax Levy tax of 21% on ∆net worth. Wealth](https://reader035.fdocuments.us/reader035/viewer/2022071000/5fbce132b2da97523329ff85/html5/thumbnails/61.jpg)
TakeawaysAnnual wealth tax is doubtful to
redistribute/raise revenue in current jurisprudential climate
![Page 62: Taxing Wealth in an Uncertain World · $102.91 x 1.05 ≈ $108.06 . Wealth Taxation. Near-Equivalent Alternatives. 2. Mark-to-market income tax Levy tax of 21% on ∆net worth. Wealth](https://reader035.fdocuments.us/reader035/viewer/2022071000/5fbce132b2da97523329ff85/html5/thumbnails/62.jpg)
TakeawaysMark-to-market income tax lacks a decisive
advantage vis-à-vis retrospective capital gains tax, except as applied to assets for which valuation uncertainty is low (e.g., publicly traded securities)Mark-to-market income tax >>> administrative
costsMark-to-market income tax (slightly) > exposure
to constitutional uncertainty and possibly higher/possibly lower exposure to political uncertainty
![Page 63: Taxing Wealth in an Uncertain World · $102.91 x 1.05 ≈ $108.06 . Wealth Taxation. Near-Equivalent Alternatives. 2. Mark-to-market income tax Levy tax of 21% on ∆net worth. Wealth](https://reader035.fdocuments.us/reader035/viewer/2022071000/5fbce132b2da97523329ff85/html5/thumbnails/63.jpg)
Takeaways Success of retrospective capital gains tax
depends in large part on whether taxpayers believe it is durable If so, it’s a constitutionally secure, easily
administrable, and broadly applicable alternative to an annual wealth tax