Capital in the 21st Century: A Global Tax on Capital (Chapter 15)

Well, this is the meat and bones of the book. This is the chapter everyone is talking about, a tax on wealth. By this point it is not really surprising. Plus, the numbers he suggests are quite small. His numbers can be summed on up page 517, a tax of 0.1% on net wealth up to 200,000 euros, 0.5% between 200,000 and 1 million, 1% on wealth between 1 million and 5 million euros, 2% tax on wealth over 5 million euros, and finally a tax of maybe 5% or 10% on wealth over a billion. These are just numbers, but the idea is that for people who own very large sums, they would pay a larger percentage in tax.

Taxes like this have been implemented over time. In fact, the property tax is a form of wealth tax. Although it is a flat tax and only applies to land, which 200 years ago made up a far greater portion of wealth than exists in the world today. Countries have often tried taxes like this but provide copious exemptions or depend on self reporting of wealth. Cheating on taxes throughout much of Europe is far more common than in the United States. The key to a progressive tax on capital is not allowing exemptions, of any sort. If you have X amount of wealth, it gets taxed. If you are really poor, well you would have no wealth and not pay the tax. To put this in perspective, given the numbers above, I pay more every year in tax on gasoline alone commuting to work than I would pay in a wealth tax. Alternatively, I spend more in one trip to a restaurant than I would in a year of wealth tax. Hopefully that would change as I grow older, but the point is, for the vast majority of people it would be an almost insignificant tax.

A bigger idea than the wealth tax, an idea which I view as even more utopian than a wealth tax, is transparency in banking. Early in the book Piketty mentions that roughly 8% of the world’s wealth is owned by unknown sources, that is to say it exists in tax havens. I’m rewording his words by saying that, but the point is, a lot of money is hidden from various tax authorities. Piketty pleads for global transparency in the flow of money. Given how money is transferred through the Internet and banks are online, this is a trivial issue to implement, but it would result in hundreds of billions of dollars of wealth having to be revealed. At the least this could result in additional income taxes. As an example of how easy this is to implement, I use Mint.com, which tracks all of my transactions through my accounts. It does not track my cash spending, but it does track ATM withdraws, so in short it tracks the vast majority of where my money goes each month. To use some sort of service like this and make the data available to governments would allow a global tax on capital to be possible.

Going back to taxing wealth. We already have a tax on wealth called the estate tax, which I believe taxes wealth over $5.34 million passed on when a person dies and another person inherits it. If this affects any of you, feel free to take me out to dinner and complain about the high taxes you had to pay on that money over $5 million. The issue with a tax like this is trusts and corporations are set up by the wealthy so their money can be passed on in other legal ways to avoid tax. Frankly, I don’t understand the details of trusts. That’s the benefit of a annual progressive tax on wealth, it would ideally affect everyone with a positive wealth, affecting people who have more with a higher bill, and apply across the board whether a person owns 10,000 acres of farmland, 2% of Apple Computer, or a 1991 Toyota Previa van and a Feathered Friends down suit (yeah I can pay $1.35 a year to hold on to that thing). The point of the wealth tax is not to end the progressive income tax, but provide for services, or redistribution of services, that we feel are important in the 21st century, like universal healthcare, low cost university education, or an infrastructure that is not falling apart, like the highway 20 bridge between Dubuque and East Dubuque.

Part of the chapter is devoted to how this might be applied in Europe, how China already has capital movement controls, while Russian oligarchs roam the world, and discussing the business of oil, a trillion dollar industry.

This is probably the chapter that most people are giving press. It's a big deal. Every time there is a new tax, people go crazy. Then we get used to it. Then we grow to like the services the tax provides. I like paved roads. I went to public school. I live clean water out of every faucet. This radical idea now, may in the future become the norm. Probably unlikely, but there is hope.

As I reach the end of this book my outlook grows more negative. Transparency in international banking will not happen because people with lots of money and political influence do not want it to happen. A progressive tax on wealth will not happen, first of all because if 200 countries could even agree to do it, 10 would disagree and suddenly find money flowing in to their secure and discreet banks. Secondly, the people with the largest percentage of their wealth to lose are the ones with the most money, and it is worth their money to lobby against such a tax. In other words, say there exists a bill proposing 5% tax on wealth over $1 billion. For a person like Bill Gates with $50 billion that is nearly a $2.5 billion tax bill just on his wealth, not even his income. It is well worth him giving $1 million to the 535 US representatives and senators (or their super-pacs) and saving nearly $2 billion, every year, to lobby for no such tax. Add in a few hundred other billionaires who don’t want to pay hundreds of millions in taxes, and there is no way that a progressive wealth tax could pass in the current political climate in the USA. Plus, you don't have to donate to every representative and senator, you only have to donate to about 300.

No one ever told me the more educated and well read I became the more jaded I would become, but that seems to be happening. Maybe a more complete view of the world, can also instill in me more hope in things that are truly good and right. I do think that appreciation and search for the good is happening too, it's just much harding to find than learning about injustices and inequalities which abound.

Please just let me run.

I am a professional sitter. Many people drive a desk just like I do, and sitting is a struggle for me. Friday I sat all day at work, then I sat for five hours to drive to my grandparents. I did not run Friday. I was in the mood to take a day off, and I really should take one to three days off per month, but I need to get out and run sometimes. It's a challenge. My family after years of me wanting to get out and run understand and are quite accommodating. Yet it's still a tension within me. Last Saturday I did no run because I spent the first 14 hours driving north and then when I had a chance to run I wanted to spend time with my family instead of going for a run. After a day like that I then feel guilty that I didn't do much of anything physical. Okay, I did dance for a half hour at the reception, and this past Friday I took a 90 minute walking tour at work.

I was not meant to sit. I was not meant to be sedentary. It is nothing personal against you. In fact, I want to run, walk, hike, climb, and bicycle with you. I want to spend an hour or two talking with you as our hearts pump and our muscles burn and our skin sweats. I am not trying to get away from socializing. I just need to move. I do not mean to cut this sedentary conversation short, but please just let me run.

Capital in the 21st Century: Rethinking the Progressive Income Tax (Chapter 14)

The progressive income tax, or any progressive tax is a relatively new phenomena, beginning in only the last 100 years roughly. Before the early 1900s, and specifically WW1, taxes, of any sort really, never crossed the 10% of income threshold. However, pinging off of the last chapter, admitting we live in a social state, going back to 10% top tax rates on anything really would mean a near impossible ability to fund the things like education, Social Security, healthcare (Medicare) and infrastructure that we like. So let’s just say that eliminating or drastically reducing the progressive income tax is off the table. Although due to international competition (which doesn’t entirely exist because 8% of the world’s wealth is hidden in tax havens anyway) a possible dystopian future scenario exists where nations would revert to very low income taxes to “save jobs”, meaning try hard to keep the billionaires and multimillionaires happy and in their home country.

However, the USA is a remarkable country in the history of the world. In the 1930s through the 1980s we averaged an 81% top marginal income tax rate. That’s astronomical! Yet that was also a time of enormous growth and innovation. The two, in history at least are correlated. Now correlation does not prove causation, but perhaps it is worthy of further inspection as a battle rages for the difference between a top marginal income tax rate of 35% and 39.6%. On the whole, it’s insignificant, because nothing above 50% will likely deter highly paid employees from selling their employers on paying more and more. In other words, at 80% tax, there is no point in arguing for another million dollars, because you can only keep $200,000, but when that tax rate is only 35%, you could keep $650,000 of that million dollar raise. Piketty argues for a return to 80% top marginal tax rates, with a rate below that of 50-60% for incomes in the top 5% of people, that is incomes above above $200,000.

Nothing in this chapter really struck me as crazy. He advocates only for tax rates that have been tried in the last 100 years. The challenge is those with the most to gain from lower top marginal tax rates argue the hardest for low top marginal tax rates. In short, when it comes to the progressive income tax, it's a great invention, but there are too many exemptions (like the long term capital gains tax) and the trend seems to be reducing tax rates instead of increasing tax rates.

I Live in Iowa: Week 162

Another long week. Sunday started in the Wisconsin Dells the day after my cousin was married. (She's married!! I have a male cousin-in-law!!) A drive back to Dubuque, then a run and to bed at 7 PM.

I woke up 11 hours later and started the work week. It was a factory shut down week (although a fair amount of production seemed to be running…) so overall it was somewhat quiet around the office. The geometric dimension and tolerance class was the majority of my week. It brought up a number of questions as I started to review my own previous work, and doubt myself. I will tell you what, quality =  function of (engineering time); or q = f(t). The more time we have to work on projects, and the more people look at them, the more errors we will find. I respect car companies so much more being in the size of group that I am. It must take hundreds of engineers per vehicle. Maybe five engineers just for the doors, maybe ten.

We had a quick grill at a coworker's house Thursday and that was really nice to socialize outside of the office. It was a nice set up, some food, wine, shorts and t-shirts, a few laughs and a nice view. Life is good.

Friday I drove up to the land of 10,000 lakes to see my grandparents. Saturday I ran a local five mile race, and I won it by about 90 seconds with a 28:45 or so. It's always nice to win a race despite not being in shape yet. Then I spent more time with my family up there and a couple friends. It is so nice to spend time in a familiar place with familiar people. Hopefully I can make it back up there again in 2014 to see everyone again. That being said, now that I just drove back to Dubuque. I'm tired. Traveling is exhausting. I'm going to stay in town for a few weeks.

Kansas, Massachusetts, Colorado, Lousiana, Wisconsin, not to mention Nepal, and that's just since May. Maybe I should say, I live in Iowa, but not on the weekends. You know what friends and family, if you want to see me in the near future, you will have to come here. I've traveled to see you, and relationships are a two way street.

Volunteer, Fail, Volunteer Again

This week I spent half of my week in a geometric dimension and tolerance class. It was based on ASTM Y14.5, a 250 page standard. In short, it's not easy to understand GD&T yet it's important that things always fit together the way we intend when they are coming from six different countries and first see each other on the assembly line.

So we were doing a number of examples on the board, and I made the decision a long time ago that I will volunteer, in general for anything. Volunteering gets you farther and into more interesting situations than not volunteering. In the class of about 20 of us, only about three were regularly volunteering. You see, engineers have spent plenty of time in hard classes and we know that it usually takes lots of practice to get things right, and volunteering to demonstrate on the board basically means you are taking a huge chance at getting it wrong in front of everyone. It's embarrasing. I did, at least three times publicly have the wrong answer either on the board or when verbally offering an answer. Near the end of the week the teacher was asking for volunteers and everyone was putting their heads down avoiding eye contact because we didn't want to go up and have the wrong answer in front of everyone. It's painful to sit there in silence. More painful for me than getting it wrong in front of the class. It is ridiculous to be afraid of having the wrong answer because no one cares if I am wrong, each person only cares if he or she can figure it out eventually. Finally I volunteered, again, but the teacher passed me over trying to get another student involved, who did eventually offer an answer, and the correct answer might I add.

This brought to ming a blog post by Seth Godin a few weeks ago titled, "Don't blow it (the secret of b2b)". I work for a very large company. Companies exist so that risks can be taken and the liability taken by the company and not the individuals. I saw in this class of interns and first and second year employees the fear of getting it wrong and blowing it. That, actually worried me. If we aren't brave enough to stand in front of our inexperienced peers in a class, where we are all the student, and take a risk answering a problem, how will we stand in front of our managers, customers, investors, and the world and take a risk presenting an true innovation? 

It's a Wonderful Life

It really is. The weather here in Iowa is pretty amazing, we are having a cool summer with morning temperatures in the 50s and 60s, which is great for running. I am healthy and alive, without ever being under an avalanche. We have finished so much at work that finally the pressure is not directly on our group like it was in the past.

I am very fortunate, very blessed. Sometimes it can be hard to appreciate the big picture for all of the little inconveniences that keep popping up. The last couple days I mentally stepped back for whatever reason and it's really worth saying, it's a wonderful life.

No Materialism in the Mountains

Its true. Stuff gets broken but I can never remember longing for anything, except a water filter, and that's more a story of inexperience that worked out okay anyway. I realized a few days ago that one of the things I like about going into the mountains is that we take everything with us we will need and then shut the door on wanting more. There is no advertising. There are no stores. We only have each other and what we brought at the beginning.

I feel all too often that I am too materialistic and selfish. Yet almost every day I go out on a run and for a brief time enjoy the simplicity of not wanting any given thing. It is interesting how I have been doing these things for years but only realized a few days ago that the material coveting that makes us unhappy in our life situation dissappears when I go into the mountains or go for a run. I am continuously learning.