Tax avoidance by the obscenely wealthy

[Malthus]

I haven't seen a breakdown of wealth held by individuals versus institutions. Aren't institutions generally owned by individuals, through shares?

A technicality. The institutions control all that wealth. It is not so easy to just unload all your shares.

And what? The government is now going to control every corporation once all those shares get taxed away?

No? If I owe the taxman $1000, and I own $1000 in shares of (say) Microsoft, I don't usually just hand my shares over to the government to clear my tax bill. If I must, I sell those shares to someone else (thus handing control over to that lucky new owner) then use the money to pay my tax bill - the government does not, in thus way, gradually gain control over Microsoft.

[Berkut]

What if we had a much more agressive estate tax, but it was easily avoided by simply donating, tax free, large portions of your wealth to defined and vetted charities (like the Gates Foundation)?

Basically, if you don't want the government getting your shit, give it away to some humanist charity. If you don't....then Uncle Sam gets to decide what to do with it all.

Charities aren't well defined and aren't well vetted (consider the Trump Foundation).

And those charities can remain under a family's control for generations.  Those family members can be employees of the charity or foundation.  They can write off a bunch of different expenses (you know, your annual trip to Davos or whatever).

...hence the point about having them be well defined and vetted?

[Malthus]

I don't see a problem that an aggressive estate tax solves, and I see problems that it would create.

The issue is what kind of tax you want. Income, sales, tariffs on trade, or wealth?

All have problems.

Sure. But we are talking about a 100% tax here. I am not against estate taxes at all, but just taking everything for some ideological sense of fairness strikes me as a disastrous idea.

That depends. It may not be feasible (I'm no expert) to rely on only one type of taxation, but certain types are clearly better or worse than others.

For example - consumption taxes on consumables tend to be horribly regressive (meaning, they proportionality affect poor people more than wealthy people). Poor and rich alike buy roughly the same amount of toilet paper. A tax on toilet paper thus hits the poor more, in proportion to their means, than the wealthy.

A progressive income tax is better, but has problems dealing with the actual wealthy. It too is regressive, because it assumes that one's money comes from what could be defined as "income". The really wealthy don't get that way from a salary!

Tariffs are bad, they create a direct disincentive on efficient trade.

Wealth taxes appear to have the *least* drawbacks. So, since you must obtain money for the public good, it would make sense to rely largely on wealth taxes, rather than on these other kinds, because they are 'least bad'.

[DGuller]

If an estate tax is a form of wealth tax - and cleary it is - then it's not obvious to me why the most rational way of imposing taxation on wealth is on the basis of the occurrence of an unpredictable event.  What not impose a wealth tax regularly every 10 years or every 5?  or why not every year? If the concept is sound, why not do it in a rational and systematic way.

A lot, if not most, of the super wealthy are going to have their wealth in the form of concentrated equity in specific companies. Jeff Bezos may be able to sell a few percentages of his Amazon stock every year, but for people that own privately held companies that isn't so easy. In those cases you may end up convincing people to sell out to larger companies in order to pay their tax bills...which is problematic from an economic perspective.

Can't you solve that problem by just making the government a stakeholder in your illiquid assets (or even liquid assets that you don't want to liquidate)?  Let's say you have $10,000,000 in cash, 1,000,000 Amazon shares, and one Picasso painting.  When the end of the year comes around, your 2% wealth tax is paid by giving the government $200,000 in a brown bag, by earmarking 2% of your Amazon shares as belonging to the government but held by you, and 2% of the Picasso painting as belonging to the government by held by you along with the rest of the painting.  The payment in cash is delayed until the assets are liquidated, at which point the government is paid its compounded share.  In the meantime, all the liquid income that's generated from the government's stake is passed straight to the government.

[The Brain]

FWIW I don't think that "fairness" is a very good reason to make policy. The word doesn't mean anything (or it means precisely anything). Reasons for policy should be discussed in way more specific terms to result in good policy.

[alfred russel]

If an estate tax is a form of wealth tax - and cleary it is - then it's not obvious to me why the most rational way of imposing taxation on wealth is on the basis of the occurrence of an unpredictable event.  What not impose a wealth tax regularly every 10 years or every 5?  or why not every year? If the concept is sound, why not do it in a rational and systematic way.

A lot, if not most, of the super wealthy are going to have their wealth in the form of concentrated equity in specific companies. Jeff Bezos may be able to sell a few percentages of his Amazon stock every year, but for people that own privately held companies that isn't so easy. In those cases you may end up convincing people to sell out to larger companies in order to pay their tax bills...which is problematic from an economic perspective.

Can't you solve that problem by just making the government a stakeholder in your illiquid assets (or even liquid assets that you don't want to liquidate)?  Let's say you have $10,000,000 in cash, 1,000,000 Amazon shares, and one Picasso painting.  When the end of the year comes around, your 2% wealth tax is paid by giving the government $200,000 in a brown bag, by earmarking 2% of your Amazon shares as belonging to the government but held by you, and 2% of the Picasso painting as belonging to the government by held by you along with the rest of the painting.  The payment in cash is delayed until the assets are liquidated, at which point the government is paid its compounded share.  In the meantime, all the liquid income that's generated from the government's stake is passed straight to the government.

That seems reasonable but taxes have always been paid in tax (to the extent that in earlier times it has been attributed to nuking subsistence agriculture because they force people into the cash economy). It could also cause an issue in times when the government needs immediate cash - though being able to print money mitigates that it could be an issue if inflation was problematic.

[DGuller]

  Now that I think of it, after 10 years, I can just sell my Picasso painting to my friend for $1, and give the government its share of 18.3 cents.  Then I can buy it back for a $1 again.     Maybe scissors is the only sensible way to go about it.

[DGuller]

I guess the government can get a right of first refusal on all sales of encumbered property, so it can step in and purchase the Picasso painting itself for $1, and give you back your 81.7 cents. 

[grumbler]

But there are so many ways around it.  Even with comparatively low estate taxes right now my understanding is if you have to pay them you have an idiot for an estate planner.

You tax gifts over a certain amount - so instead of a gift it's a sale at below-market rates.  You guarantee a loan which is used to make investments.  You hire someone to a position with lots of compensation but little work.  You do the same with spouses or children.

Or you set up a trust or foundation.  Having control over a multi-billion dollar charitable foundation is almost as good as being worth multi-billion dollars to begin with.

And that's without me being an expert in any of this.

The argument that we cannot collect taxes because there are tax avoidance strategies just gets us back to where we started.

Sales at below-market rates are explicitly gifts under tax law.  If the gift forms are not filed (depending on the size of the gift), you go to jail.

Guaranteeing a loan is a gift.   If the gift forms are not filed (depending on the size of the gift), you go to jail.

Hiring someone?  Wages are taxed, so that's not tax avoidance.

Foundations can only spend money to advance the purposes of the foundation, which must be charitable.    You can't create a foundation to buy your son a yacht.

And that's without me being an expert in any of this.

[grumbler]

Charities aren't well defined and aren't well vetted (consider the Trump Foundation).

The Trump Foundation that was vetted and closed?  Not a good example.

[Monoriu]

Estate tax is double taxation. 

[DGuller]

Estate tax is double taxation.

So is sales tax, so what?

[Monoriu]

Estate tax is double taxation.

So is sales tax, so what?

So it is less than ethical and you should not do it

[celedhring]

How is the estate tax even double taxation, anyway? The parent paid a tax when acquiring those assets, the inheritors pay another tax when acquiring those assets. It's different people.

Again, as DGuller says, not that we aren't already double-taxing a bunch of things.

[The Minsky Moment]

A lot, if not most, of the super wealthy are going to have their wealth in the form of concentrated equity in specific companies. Jeff Bezos may be able to sell a few percentages of his Amazon stock every year, but for people that own privately held companies that isn't so easy. In those cases you may end up convincing people to sell out to larger companies in order to pay their tax bills...which is problematic from an economic perspective.

One of the notable characteristics of the last 20 years has been the increasing depth and liquidity of the markets for private securities. The buyers are not big companies but funds and investors that focus on such investments. Owners and founders already are heavy users of this market now to generate needed income and diversify.