Taxing Your Assets Off

George Rebane

[This is the transcript of my regular KVMR commentary broadcast on 13 January 2012.]

Most people know that governments fund themselves by taxing income, profits, consumption, and assets.  The first three we have become used to at least to a degree where we now debate how much higher or lower such taxes should be.  It’s the tax on assets that causes pupils to dilate and blood pressures to rise – well, at least on those who have assets.  All countries have a natural division between their makers and takers, the latter being reliable backers of any and all taxes on the makers, because that’s where the money is.

But asset taxes are somehow different.  Maybe one reason is that many takers also own assets.  Almost everyone instinctively knows that an assets tax (aka ‘wealth tax’) allows the state to take what you have already worked for, have already paid taxes on, and put aside to support your way of life.  Your assets - like your house, land, car, collectibles, business, and bank account – are part of the extended you, part of the established perpetuity that you want your kids to have.  It is for that reason that you belong to a culture, a society, and a sovereign nation-state, because they claim to provide an environment for guaranteeing your security, property, and liberty.  And it is for that reason that you will man the ramparts, and put your life on the line when your country is in danger.

With the discussion of a new assets tax, all things become possible.  In a recent issue of the Wall Street Journal, Stanford economics professor Ronald McKinnon argues for an add-on assets tax for the purpose of – seatbelts fastened? – for the purpose of mollifying the street occupiers.  He even sprinkles sugar on his proposal by claiming to make “the conservative case” for such a tax.  The example he presents is that the government would annually confiscate 3% of your accumulated wealth in excess of $3M.  And that means everything you own, including the “imputed rental value of owner-occupied homes”.

The impact of asset taxes is already well known to those who own their homes and other real property.  In California, people, especially the poor and retired, were beginning to lose their homes to ever rising property taxes, a recognized and feared assets tax.  Their answer to that was Prop 13 which dramatically limited government’s ability to violate what many hold to be the ‘takings clause’ in the 5th amendment of our Constitution.  This clause enters the argument because asset taxes frequently require the disposal of the asset (a home, farm, or business), often at a loss, to raise money to pay the tax.

With the initiation of an assets tax, the government now comes back for a double dip.  And that’s not even true, the government actually comes back for a double, triple, and keeps coming back for a never ending series of dips until it whittles down what’s yours to some arbitrarily small level for you to have left that it considers is socially just.  But there’s more.  Once assets begin to be taxed, there is NOTHING to prevent our rapacious rulers from upping the tax rate on assets, lowering the deductible threshold, and increasing the asset classes that can be taxed.  Why?  Because this has happened to every other type of tax the government has levied on us.  And we have to remember the cry of the takers and their elites that today echoes across the land, ‘We don’t have a spending problem, we have a revenue problem.’

When a government starts taxing assets which have already been taxed, it taxes them in a manner that requires either their disposal or taking on more risk in the attempt keep them.  Doing so starts a nation on the path to destroy the very economy that generates a society’s ability to produce wealth, fund its government, and secure its people’s future.  It does that because asset taxes put up a barrier to every measured means for creating wealth.

The socialist never sees any of this, because his usual stasist analysis is based on the assumption that the newly taxed and/or regulated will never respond to preserve themselves.  In the socialists’ eyes, those taxed and regulated will simply remain compliant, and continue their previous labors no matter the new burdens that government has in store for them.  And for some reason those same social engineers are forever surprised when things don’t work as planned.  The expected revenues never materialize, and the call goes out for more of the same as the takers continue to cheer from the bleachers.

My name is Rebane, and I also expand on these and other themes in my Union columns, and on georgerebane.com where this transcript appears.  These opinions are not necessarily shared by KVMR.  Thank you for listening.

Comments

[billy T]

And that means everything you own, including the “imputed rental value of owner-occupied homes”. Well, probably most of the 47% who pay zero federal income tax would have no problem with the idea. Reminiscent of John Edwards Two Americas. I suppose this would be like CA's inventory/eqipment tax on businesses. So, you paid off your mortgage finally, bought a little tractor for the back 40, have 3-4 classic cars that you collected thru the years and intend to restore, have some money in CDs, a now valuable stamp collection Grandpa left you in his will years ago, an Apple laptop that you bought on payments, Momma's antique furniture she passed down, some stock in an IRA, a 401k, some "collector" guns in a safe, new doubled paned windows, and lets not forget that deck you built nor the remolded kitchen and little granny unit you paid thru the nose for permits and the cost of having it built. Now, suddenly after years of hard work somebody says you got to pay a yearly tax on it all, including that antique dresser you spilled Indian ink on as a toddler and Grandpa's stamp collection? Sounds like the one making the money would be the estate appraiser that you now need to call every year.

[Dave Cranfield]

And don't get me started on the recapture of depreciated assets.

[Russ Steele]

In addition to asset taxes we have the hidden taxes of government regulation, which we all end up paying, in addition to our asset taxes. According to the Heartland Institute, the most expensive and burdensome regulations in 2011 include:
• CAFE (Corporate Average Fuel Economy) standards for light-duty vehicles: $141.4 billion.
• Utility MACT (Maximum Achievable Control Technology) rule requiring power plants to reduce emissions of mercury and certain other pollutants: $10.9 billion.
• Greenhouse gas standards for long-haul and heavy duty trucks: $8.1 billion.
• Conservation standards for lamp ballasts. Cost: $6.9 billion.
• Federal school lunch standards: $6.8 billion.”
As a consumer and taxpayer, we pay for these regulations every day. Our food and other products go up by 8-10% in a year, just due to these regulations.  Why is the United States now a debtor nation (we owe more than our GNP)?  because government created the policies to make this a Third World nation.

[Brad Croul]

Sounds like the tax attorneys are safe for the foreseeable future. I predict a lot of assets being transferred to corporations, LLCs, foundations, etc. to get them out of the "personal" asset class.
It would be a mistake to eliminate charitable or philanthropic contribution deductions as those gifts "can" go directly to helping those most in need.
Perhaps a distinction needs to be made for those non-profits that work to provide for the health, welfare, and safety of the less fortunate. "McKinnon's 3% solution" would kick in if the wealthy did not already donate at least 3% of their net worth to organizations trying to save lives and protect the less fortunate from sickness and starvation (sorry, Greenpeace, the Heritage Foundation, etc. would not qualify ). Foundations are already required to distribute 5% of their assets annually. This would, at least, keep the 3% out of the hands of the government.