Simple solutions or Simplistic Solutions: A one time only "wealth tax" and STET to reboot economy

[Political Heretic]

What's a Wealth Tax?

Quick Wiki Definition of Wealth Tax:

A wealth tax is generally conceived as a direct tax on all household wealth holdings, including owner-occupied housing; cash, bank deposits, money funds, and savings in insurance and pension plans; investment in real estate and unincorporated businesses; and corporate stock, financial securities, and personal trusts.

http://en.wikipedia.org/wiki/Wealth_tax

I stumbled across this while I was looking for something else, and I found this little factoid that I had forgotten about:

"In 1999, Donald Trump proposed a once off 14.25% wealth tax on the net worth of individuals and trusts worth $10 million or more. Trump claimed that this would generate $5.7 trillion in new taxes, which could be used to eliminate the national debt."

Now, I certainly am not a cheerleader for Donald Trump by any stretch of imagination. But I found this idea interesting, and I had completely forgotten that it had ever been suggested. So I decided to look up the old 1999 article about Trump's idea. Here is some of what I found:

Donald Trump’s Wealth Tax Proposal
This column, in slightly different format, originally appeared in The San Francisco Examiner Newspaper, November 28, 1999
Copyright © 1999 Robert L. Sommers, all rights reserved.

Trump has called for a one-time 14.25 percent tax on the net worth of individuals and trusts worth $10 million or more. Trump says this would generate $5.7 trillion in new taxes which would then be used to eliminate the National Debt. The savings in annual interest payments, which Trump estimates at $200 billion, would be used to ensure the solvency of the Social Security system.

(snip)

There are two major problems with Trump’s plan. First, it is doubtful that the super-wealthy control $40 trillion of assets ($40 trillion x 14.25% tax = $5.7 trillion). The latest Forbes report on the richest 400 Americans places their entire wealth at approximately $1 trillion. A rough guess as to the combined wealth of those affected by the tax might approach $6 trillion, so Trump’s tax, at best, would generate about $1 trillion in taxes, hardly enough to wipe out the National Debt.

More importantly, assuming Trump’s numbers are correct, those affected would have to unload $5.7 trillion of assets and that could roil the stock and real estate markets. Many super-wealthy taxpayers hold assets in their own company and unloading large blocks of stock could cause the price to plummet.

For example, according to Forbes Magazine, Bill Gates, Paul Allen and Steve Ballmar, all heavily invested in MicroSoft, have a combined net worth of $148 billion. Assuming all their holdings were in MicroSoft, they would be forced to unload stock worth $21 billion under Trump’s plan. If MicroSoft stock plummeted, more stock would have to be sold to pay the tax, and so on. In short, it is doubtful our economy could handle such a sudden and massive sell-off of assets without serious repercussions.

(more)
http://www.taxprophet.com/faq/991128.htm

The Proposal

Things are a little different in our economy right now than they were in 1999. We are obviously in the middle of one of the worst financial crisis in a generation or longer. And much of the blame for this economic disaster rests with the super-rich wall street robber barons and their paid servants on Capital Hill. One of the things that has so angered many ordinary Americans is the fact that they are being asked to give trillions of dollars in taxpayer money to the very people willfully responsible for the entire disastrous mess, and in doing so are only further adding to a massive deficit and national debt.

It is appropriate that Wall Street take financial responsibility for at least part of cleaning up its own mess and its own behavior. Therefore I propose a two-step revenue generating plan to help offset the cost of repairing our economy.

First: a one-time only wealth tax very similar to what Trump suggested, of a specified percent (Trump suggested 14.25%) on the net worth of individuals and trusts worth 10 million or more. While some question Trumps estimation of 40 trillion dollars in wealth among Americans with 10 million dollar net worth, in 2009 even conservative estimates are likely to be closer to that actual number. Once the CBO (Congressional Budget Office) crunches the numbers they could figure out exactly how much revenue such a one-time tax would generate. It would definitely be over 2 trillion dollars, likely more than that.

This money would be used to pay down the national debt, bringing it back into a more manageable range that would begin to address without the need for an ongoing wealth tax. This would be in the best interests of even the wealthiest Americans, because decreasing the level of our national debt makes for a much stronger economy less dependent on foreign investors for the future. This also offsets the debt incurred by federal bailout programs and the financial damaged caused by the reckless and irresponsible behavior of Wall Street.

In the 1999 Trump article, Sommers argued that such a one-time wealth tax would potentially weaken the economy as major companies and individuals cashed out stocks to pay 14.25% wealth taxes, taking large amounts of volume out of the stock market. However, in 2009, the economy is essentially bottomed out already, money from individuals or trusts with net worth of 10 million or more would likely not be coming entirely of out the market, and the fleeting hit that might be felt in stock volume would be likely be completely offset by the major boost in confidence that would come from cutting our national debt by a dramatic amount (possibly half or more).

Second: Implement a Securities Turnover Excise Tax(STET) of 0.25% Thom Hartmann wrote and outstanding article back when Paulson was still attempting to sell the TARP bailout to Congress. Representative Pete DeFozio attempted to introduce the same plan as an alternative to TARP but was ignored. Nevertheless, the plan makes a great deal of sense and, historically it is something that the United States (as well as other countries) has done before.

A STET is an incredibly small tax on stock transactions. How would this help? Hartmann explains:

But there’s another way: Create an agency to fund the bailout, loan that agency the money from the treasury, and then have that agency tax Wall Street to pay us (the treasury) back.

It’s been done before, and has several benefits.

In the United Kingdom, for example, whenever you buy or sell a share of stock(or a credit swap or a derivative, or any other activity of that sort) you pay a small tax on the transaction. We did the same thing here in the US from 1914 to 1966 (and, before that, we did it to finance the Spanish American War and the Civil War).

For us, this Securities Turnover Excise Tax (STET) was a revenue source. For example, if we were to instate a .25 percent STET (tax) on every stock, swap, derivative, or other trade today, it would produce – in its first year – around $150 billion in revenue. Wall Street would be generating the money to fund its own bailout. (For comparison, as best I can determine, the UK’s STET is .25 percent, and Taiwan just dropped theirs from.60 to .30 percent.)

But there are other benefits.

As John Maynard Keynes pointed out in his seminal economics tome, The General Theory of Employment, Interest,and Money in 1936, such a securities transaction tax would have the effect of “mitigating the predominance of speculation over enterprise.”

In other words, it would tamp down toxic speculation, while encouraging healthy investment.

(more)
http://rightdemocrat.blogspot.com/2008/09/thom-hartmann-how-wall-street-can-bail.html

The last paragraph is particularly important. Not only would this tax generate revenue for Wall Street to support its own bailout, it would also help discourage reckless speculation and promote healthy market investment. Once the immediate financial crisis is over, the revenue from the tax could go to continuing effort to pay down the debt, or - more interestingly to progressives - to supporting annual costs of more universal health care.

The combination of these two steps would result in a financial rescue that leaves us with less national debt than we have today and annual revenue (via the STET tax) to continue to manage our debt responsibly or support important new entitlements such as health care. We would not need to be handing our children and grand children backbreaking debt; we would not need to be putting ourselves at the mercy of China as our debtor. We would be setting our economy up for a strong recovery and positioning the dollar to be extremely tough to beat.

And on top of all that, we would be requiring the financial tycoons who share responsibility for getting us into this mess to do some of the work and make some of the sacrifices to get us out of this mess. This seems to be an important element that is currently missing from existing plans.

I welcome your thoughts.

[Oregone]

1. Heh. Good luck selling that one

:)

Eh, that mean they gonna tax my guns?!?

[Political Heretic]

2. Okay, but first steps before second steps - let's just look at the merit of the idea in theory

I'm not even sure that its as good as it sounds, and that would be the first step before worrying about selling it.

Besides, sometimes I think its still important to think about ideas of how things should be or "could" work just so we don't get so sucked into this narrow spectrum of American political consensus that we forget there even are other possibilities. :)

[Oregone]

3. My first questions is: why one time?

If you own property, you have to, depending on the state, pay "wealth" tax on it perpetually.

[Political Heretic]

4. Wealth includes a lot more than property

And because a permanent wealth tax would truly never sell, lol :D

[Hannah Bell]

5. I think it's a very good idea. Just repealing Bush's tax cuts generates over 2 trillion

within 10 years.

It's pretty obvious that the concentration of wealth over the last 30-odd years is the source for most of our present difficulties.

The only problem is the perps don't want to pay.

[Egnever]

6. I like it!

From the Donald no less :rofl:

[Political Heretic]

7. I know isn't that hilarious?

:D

[Political Heretic]

8. morning kick