Worries of Wealth Tax


The problem with a wealth tax is that is ignores a factor of haman nature. 

The factor human nature is motivation described in the fable of the “Little Red Hen”.

chickens

Many Amerian presidential contenders promise they’ll create a wealth tax to reduce income and wealth inequality.  Reducing the inequality is a good idea but a wealth tax won’t do it.  At worst it will reduce everyone’s wealth.

The idea of a wealth tax has become popular because of growing wealth inequality.

This is not new ground.  The rise of many poor against a few rich, who have taken advantage of a system  is a well worn story.  The rise has rarely worked well because it defies the factors in human nature that create motivation.

These factors of motivation are described in the story of the “Little Red Hen”.

This story tells how a little red hen, living on a farm, found a grain of wheat in the farmyard.

She asked the other birds, “Who wants to plant this wheat?”

The ducks and geese did not want to do any work.

So, the hen planted the grain.  When the wheat was ripe, she asked the other birds, “Who will take the wheat to the mill?” The other birds preferred to lay.  The hen had to take it.   Then the hen had to make the bread.  No one would help bake.  Yet when it was time to eat the bread all the other birds wanted a share.

There are more motivations to consume and enjoy than there are to work, sacrifice and produce.   This goes beyond human nature. It is the nature of nature to follow the easy route.

Human society is the only one to have created a system where denying easy is rewarded.

There are always some humans who will take advantage of the system by working harder, by sacrificing, by saving.  They’ll give up the now for the future.

These harder workers will become richer than those who do not work so hard.  The richer these rich get, the more they can take advantage of the system.  Eventually they’ll be able to control the system and they’ll change it so they get richer even if they don’t work harder.

Eventually the rich get so much richer that the rest of society revolt.

The idea of a wealth tax is part of this revolution and its a bad idea.

There is income and wealth inequality… yes.  The system is unfair in many ways… yes.  A change is needed… yes.  Yet a wealth tax won’t work.

However the idea may get traction in the upcoming American revolution.

wsj.com

From Wall Street Journal article “Democrats’ Emerging Tax Idea: Look Beyond Income, Target Wealth” (1).

The article says: Income tax is the Swiss Army Knife of the U.S. tax system, an all-purpose policy tool for raising revenue, rewarding and punishing activities and redistributing money between rich and poor.

The system could change fundamentally if Democrats win the White House and Congress. The party’s presidential candidates, legislators and advisers share a conviction that today’s income tax is inadequate for an economy where a growing share of rewards flows to a sliver of households.

For the richest Americans, Democrats want to shift toward taxing their wealth, instead of just their salaries and the income their assets generate. The personal income tax indirectly touches wealth, but only when assets are sold and become income.

At the end of 2017, U.S. households had $3.8 trillion in unrealized gains in stocks and investment funds, plus more in real estate, private businesses and artwork, according to the Economic Innovation Group, a nonprofit focused on bringing investment to low-income areas. Most of the value of estates over $100 million consists of unrealized gains, said a 2013 Federal Reserve study. Much has never been touched by individual income taxes and may never be.

A wealth tax is a horrible idea, first because it is impossible value unrealized gains.  Such a tax will create a tax reporting nightmare for everyone!

Narrowing the gap between the rich and middle class isn’t the key.  Instead the system needs to focus on providing fulfilling ways to raise the incomes of the middle class.

Investment and educational opportunity are what matter, not a befuddled increased tax.  Taxes targeted at the rich interfere with the economy and reduce everyone’s wealth as they drag down the creation of wealth.

The article says: New taxes on wealth would complicate tax administration and bring unknown economic consequences. “It would be incredibly disruptive to markets,” said Sen. John Thune (R., S.D.). “People would start looking for how to game it and ways to shield and shelter.”

Plus tax laws always seem to help the rich more than the poor.

A recent New York Times  article (2) tells how tax breaks on building in opportunity zones created to attract investors to distressed areas are instead benefiting investments that create luxury projects.

These opportunity zones we described as “the hottest thing going”.   The provide multibillion-dollar tax breaks designed to channel investments into poor neighborhoods, leading to new housing, businesses and jobs.

The article says: The tax benefit allows people to delay paying taxes on profits from stocks or other investments for years. To qualify, they have to direct their untaxed gains into federally certified regions known as opportunity zones. Profits on those investments are then tax-free.

While some money is flowing to poor communities, the most visible impact so far has been to set off a feeding frenzy among the wealthiest Americans. They are poised to reap billions in untaxed profits on high-end apartment buildings and hotels in trendy neighborhoods, storage facilities that employ only a handful of workers or student housing in bustling college towns.

Once again, we the tax payer are creating profits for the rich with tax breaks aimed at helping the poor.

Governments and tax do not create wealth.  Motivation and human endeavor do.  The IRS are not our saviors and history suggests that if the political system were to get more of the wealth from the rich, it would not be spent wisely to help create more wealth for all to share.

History suggests that the beginnings of revolutions include a lot of plundering.  A wealth tax is simply hiring a middle man someone to pillage.  Rarely will such booty be shared.

There are plenty of reasons to be unhappy about the current system in the Western world.  there is plenty of income and wealth inequality. There is plenty of reason for change.  Yet we should not support a wealth tax.  Taking away hard earn savings is not the way to motivate work and sacrifice.

Look for ideas that support innovation that motivates larger shares of the population to work productively in fulfilling ways.

Gary

Live Anywhere – Earn Everywhere

How to Gain Extra Freedom – While Almost Everyone Loses Theirs.  Profit from post COVID-19 trends.

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ecuador-banks

Dining room tables we worked from (and we also sold the tables for a profit).

You’ll even learn how to turn dining room tables into income and tax deductions as we have with these dining room tables we build out of local wood.

Let me be clear.  I expect that the world will get better, at least for the few who adapt and avoid the dangers that the changes from the COVID pandemic will bring. 

The wealth of the world, albeit with inequality, will continue to grow.  This collapse of the global economy will bring an incredible new opportunity for those who know what to do.  Thes profit making avenues offer enormous income potential and even work well in disaster scenarios.

Let me provide one simple, concrete example.  Ginseng.

This is a great health root.  The demand is growing especially in China.  At times good dried Ginseng sells for $1,000 a pound!  This is an incredible and easy crop to grow.   The less care you give it, the more valuable it can become.  Yet if everything goes south, the health qualities will be good to have and make it an excellent barter item.  Once you know what to do with ginseng, it’s easy to grow in your back yard.

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goldenseal ginseng

Ginseng we grew in our back yard.  I know about growing ginseng through experience and explain why and how in the report “Live Anywhere – Earn Everywhere”.

Loquats are another example of an easy to grow crop that help promote natural health.

loquats

Here I am by one of the many loquat trees at our Florida farm.

Loquats are a great fruit for making jam and such, but the loquat leaf has amazing medicinal qualities.  Its is a registered medicine in China and due to its anti viral and respiratory system enhancing qualities has an especially  growing demand right now.   The images below from Amazon.com show that the leaves sell for about a dollar per leaf!

I have many trees on the farm but started growing loquat seedlings last year.

loquat

Loquat leaf tea has become really important during the pandemic due to its respiratory strengthening qualities.

I have been drinking a lot of home made loquat leaf tea during the pandemic.

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Fwd: gary-scott-tipis

  • See ways that small businesses like Tipi rentals can be enhanced by the pandemic but also create BIG tax savings as well as extra income.  For more than 30 years Merri and I have enjoyed a strong six figure income, some years more, in the millions.  Yet there have been very few years when we had to pay federal income tax.  The report lays out a three structure program and how it is used when you are in school (up to age 30), then from 25 to 50, 50 to 70  and beyond 70.   Learn why Chapter C corporations and pensions can be better than the normally recommended Chapter S.  See how new mileage log rules gives you a possible opportunity to increase your tax deductions using IRS Form 4562.  Using a two-vehicle strategy you can gain $12,976 in new deductions even if you do not have to drive one mile further or spend one additional penny on your car.
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gary-scott-farming

Our North Carolina greenhouse.

gary scott greenhouse

Our Florida greenhouse.

  • There are similar benefits from having a second home office defined in IRS publication 463 and IRS publication 587, even if your desk is a dining room table.  The report also shows how your dining room table can become an actual income producer as its creates a huge tax deduction at the same time, not to mention a great place to eat, work and lay out plans for a brighter, safer more lucrative and enjoyable future.
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merrily farms

This pond we created at our farm brought us pleasure but also helped create a safe, healthy food supply, extra income and a tax deduction as well.

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(1) www.wsj.com: Emerging tax ideas look beyond income

(2) www.nytimes.com: Wealthy benefiting from a tax break for poor communities