ucim wrote:So I have $1000 and three firkins which I got for a dime apiece. A 10% wealth tax takes $100 from me.
Now I have $900 and three firkins, which became hugely sought after. People have offered me $3000 each for them, but I don't sell. The 10% wealth tax costs me $990. I have to borrow $90 to pay my taxes.
Now I have three firkins and owe $90. Nobody wants firkins this year. The 10% wealth tax (cleverly designed to go both ways) gives me $9, for which I am eternally grateful. But I can't pay the $81 I owe, and go to debtor's prison.
Why should firkins that I did nothing with be my ruin?
You valued holding onto them more than you did your cash.
And the market gave a strong signal that those firkins could have high use to someone; if you are doing nothing useful with them, you are costing the economy the use of a high-value asset (even if it is only a reward).
Why should firkins be different than dollar bills wealth-wise?
Second, note that a 10% wealth tax is a high wealth tax. High rates distort the situation.
Third, bankruptcy usually exists.
Forth, you can create capital gains taxes that don't generate insane differred tax benefits.
Suppose a 5% but only taxed on realization, but *compounded*.
You have 1000$ and 3 firkins, which you got for free. Your tax is 50$.
Next year you earn 50$, and you have 1000$ and 3 firkins. Your tax is 50$. The price of firkins doesn't matter.
This continues for 20 years. At which point you sell your firkins for 3000$ each.
Your tax rate is (100% - (.95)^20) , or 64%. You have 10000$ and owe 5810$ in taxes.
This, if I did the math right, should be equivalent to having paid the 150$/firkin per year, reducing your wealth and thus your wealth taxes, for the last 20 years.
Note that the *change* in value of the asset doesn't matter. When you put money into the asset, the money was sheltered from wealth taxation; you are paying all of the wealth taxes owed retroactively.
I would consider this a poor system, because the tax income to the government is too irregular.