Death Tax and Welfare

[stone]

Pointed Stick, your utopian system would initially be great. After a few years; effort, ingenuity and luck would enable some people to increase their holdings of land, money etc and so use that relative disparity in wealth to gather more wealth from the rest of the population. That would lead to a viscous spiral where you would have an over-lord and everyone else being debt peons. Basically you would have an economy like that of Haiti.

My reaction would be just the same as my reaction to Haiti, pity and sorrow and hope it all comes better some day.

I'm not sure how you see it becoming like Haiti, seeing as Haiti's history is entirely full of slavery, invasions, revolutions, dictators, and other various state-based actors, and in general fails to follow any perceptible libertarian patterns. Can you describe in a bit more detail how you believe this Haiti-like outcome would come about in my hypothetical island society?

In a system where wealth gets accumulated and ownership allows rent to be charged, anyone who gets ahead will be able to get ahead more through charging rent from the other people. It is an unstable system that leads to polarization. You say you have no state. To my mind if you have an oligarchy that charges rent from everyone else then you in effect have a state. Such an oligarchy is an inevitable result of being able to use wealth to extract rent from others. Have you ever played the game monopoly?

[Pointedstick]

Pointed Stick, your utopian system would initially be great. After a few years; effort, ingenuity and luck would enable some people to increase their holdings of land, money etc and so use that relative disparity in wealth to gather more wealth from the rest of the population. That would lead to a viscous spiral where you would have an over-lord and everyone else being debt peons. Basically you would have an economy like that of Haiti.

My reaction would be just the same as my reaction to Haiti, pity and sorrow and hope it all comes better some day.

I'm not sure how you see it becoming like Haiti, seeing as Haiti's history is entirely full of slavery, invasions, revolutions, dictators, and other various state-based actors, and in general fails to follow any perceptible libertarian patterns. Can you describe in a bit more detail how you believe this Haiti-like outcome would come about in my hypothetical island society?

In a system where wealth gets accumulated and ownership allows rent to be charged, anyone who gets ahead will be able to get ahead more through charging rent from the other people. It is an unstable system that leads to polarization. You say you have no state. To my mind if you have an oligarchy that charges rent from everyone else then you in effect have a state. Such an oligarchy is an inevitable result of being able to use wealth to extract rent from others. Have you ever played the game monopoly?

In what way is a simplistic children's board game anything like reality??? Why should rent be something that leads to oligarchy? In this island, even if we assume that every single existing property owner only ever wants to rent and never wants to sell, anyone who wants to own can build another platform and own it outright! It's difficult for me to wrap my mind around landlords being equal in spirit to a state.

[Bean]

Bean,

Did you read what I wrote? The government doesn't get any money. You are free to apportion it as you choose....including a giant kegger. The one stipulation is that it must be spent back into society from whence it came. Only a portion can go towards creating an aristrocratic blood legacy.

I did and saying that arbitrarily a portion has to go to "society" could conflict with what I wanted to do in the first place.  On top of this the death tax is double, if not triple, taxation under the current US tax code.  So how many times should the government be able to reach into my pocket?

Also, why does everyone assume legacy wealth corrupts?

Why should a gift or inheritance, another economic transaction, be exempt from the same tax my income is.  When I go buy a widget with money I paid taxes on, the widget maker pays taxes on his profits... no problems there, really... Why should the recipient of daddy's inheritance be exempt from a tax built into that transaction.

So every financial transaction should have a tax? That would slow down the velocity of money faster than anything outside of a complete deflationary collapse.  (may even cause a deflationary collapse  )

I would recommended reading about the Fair Tax.  (http://www.fairtax.org) If you truly want an across the board level playing field, this would do it.  If Johnny Rich wanted to blow away his inheritance he can or he could build a business with new jobs created.  Either way "society" wins.

On inheritance tax.  What if I had 10 million and a kid with a disability and I want my last act to be a trust for him.  But for what ever reason that is not on the list that is beneficial for society and my kid becomes a ward of the state.  Basically if the government gets to pick, someone will always lose.

[stone]

I'm not sure how you see it becoming like Haiti, seeing as Haiti's history is entirely full of slavery, invasions, revolutions, dictators, and other various state-based actors, and in general fails to follow any perceptible libertarian patterns. Can you describe in a bit more detail how you believe this Haiti-like outcome would come about in my hypothetical island society?

In a system where wealth gets accumulated and ownership allows rent to be charged, anyone who gets ahead will be able to get ahead more through charging rent from the other people. It is an unstable system that leads to polarization. You say you have no state. To my mind if you have an oligarchy that charges rent from everyone else then you in effect have a state. Such an oligarchy is an inevitable result of being able to use wealth to extract rent from others. Have you ever played the game monopoly?

In what way is a simplistic children's board game anything like reality??? Why should rent be something that leads to oligarchy? In this island, even if we assume that every single existing property owner only ever wants to rent and never wants to sell, anyone who wants to own can build another platform and own it outright! It's difficult for me to wrap my mind around landlords being equal in spirit to a state.

Pointed Stick, sorry for not picking up your point that in your model utopia, new platforms can be added at will rather than everyone being stuck on one island. I think it is very revealing though that you had that as part of your model rather than simply saying that everyone was on one finite land mass. I do think that the "platform-land" thought experiment is less realistic though even than the children's game monopoly. We on earth do not have an infinite frontier. We have essential finite resources that are owned and rent is charged by the owners on anyone needing to access them. When people go misty eyed about grand old days of freedom they seem to describe historical examples of small populations in the process of colonising a frontier. People then have financial freedom because a fixed stock of natural resources do not need to be shared between every one. Instead of needing to get a loan to buy or rent a tree or plot of land, someone starting off in life can simply go west and take one for nothing (probably from a native population though and lets forget about slaves for now).
If, instead, people had needed to get a loan to buy a tree or a plot of land; then there would be no freedom. If someone has the land, the tree and the banking privilage to make the loan, then why give the new kid a break? Why not have the new kid as your something for nothing debt peon? I don't see how you make the philosophical distinction between tax being coercion and yet rent charged for finite resources being "freedom".
You say there would be competing fiat currencies. I guess cowerie shells as once used as currency in Africa are an example of a purely convention driven currency BUT that was in a culture where almost the entire economy was non-commercial (people built their own houses, didn't pay for land, grew their own food, did a lot for neighbours for free). In every example of a commerical culture with fiat currency; tax has been the keystone that confers value to that fiat currency. People need to get hold of the fiat currency because there is a tax demand somewhere down the line. You could say that if things start off with a big debt in that fiat currency then that debt would also provide that necessary sink BUT then we are back to whether owing rent or debt repayments to an oligarch is anything more than a different name for owing tax to a state.

[Pointedstick]

I think it is very revealing though that you had that as part of your model rather than simply saying that everyone was on one finite land mass. I do think that the "platform-land" thought experiment is less realistic though even than the children's game monopoly. We on earth do not have an infinite frontier. We have essential finite resources that are owned and rent is charged by the owners on anyone needing to access them.

I'm actually not unsympathetic to the argument abut landlords dominating an area where there is a small and finite quantity of land available. I actually happen to live right now in an area under government control that actually reflects your worry: the available stock of land is geographically limited by mountains and oceans, and existing owners have an advantage over renters or prospective buyers because the demand far outstrips the supply. As a result, real estate prices are ridiculous and landlords can be extremely choosy about their tenants. It sucks, for a lot of the reasons you discuss.

three points:

1) This is ALREADY happening in a government-controlled territory. I'm witnessing it occurring all around me. This isn't limited to non-existent libertarian fantasy islands, it already happens in a world dominated by government. If a libertarian fantasy island also had this problem, then okay cool, in that way it's at least no worse than where I currently live! What's your solution for fixing this very real problem in the world we actually live in?

2) Government restrictions on development are a major hindrance to supply and demand reacing or approaching equilibrium. Land is of course fundamentally finite, but in a great many areas around here, developers are not permitted to erect medium- or high-density housing that would relieve some of the stress. As a result, current owners and landlords get to enjoy the luxury of low-density housing and continually rising prices due to the governmentally-enforced static supply. This part of the problem is preventable, if only government would stop worsening it!

3) The ultimate solution is to leave, as I am preparing to. No resource is truly infinite, but some in some places are for all intents and purposes infinite. For example, there are unimaginably vast swathes of unused land in the USA. There are places where I can buy 10 acres of good, usable land for under $10,000 -- a sum that's not too hard to accumulate with a little hard work. My wife has a friend who bought 1 acre for $800 and proceeded to build a house on it with her husband with their own bare hands. Let's not pretend that the landlords have bought up every square inch of the earth and raised the prices to levels so high that nobody could afford to purchase any of it from them. How would they benefit from that? It wouldn't make any sense! They wouldn't have any tenants to make money off of or buyers if they ever wanted to sell!

If, instead, people had needed to get a loan to buy a tree or a plot of land; then there would be no freedom. If someone has the land, the tree and the banking privilage to make the loan, then why give the new kid a break? Why not have the new kid as your something for nothing debt peon?

How is needing to get a loan to buy a plot of land equal to having no freedom? Couldn't you simply save the money and then not need the loan? Or once you had the loan, couldn't you work really hard to pay it off ASAP (As I have done, paying off $77,000 of debt in 3 years)? Indebtedness sucks, I agree, but equating it to the elimination of one's freedom is  something I have a hard time agreeing with. The lack of money to pay for for some desired end is a problem that can be approached in myriad ways, ranging from earning more, saving more, delaying the purchase, or delaying the payment. Choosing to delay the payment (becoming indebted) confers upon you the benefit of the desired end without the pain of needing to earn the money before enjoying it. It's hard for me to see where in this transaction you give up your freedom.

To use an example from my own life, I took out a crapload of student loans, and in so doing I got the pleasure of an education and at a time when I was young, inexperienced, and unemployed. I took a gamble that I would be able to pay off the debt later. Was I becoming a slave by entering into this voluntary deal whereby a bank loaned me tens of thousands of dollars in cash to buy an education I really wanted at the time when I wanted it?

People need to get hold of the fiat currency because there is a tax demand somewhere down the line. You could say that if things start off with a big debt in that fiat currency then that debt would also provide that necessary sink BUT then we are back to whether owing rent or debt repayments to an oligarch is anything more than a different name for owing tax to a state.

Bitcoin breaks this mold. People use it not because any government will hit them over the head unless they relinquish some percentage of it each year, but because it offers value to the user. Imagine that! A currency that behaves like all the other consumer products we purchase and because they offer us value.

[stone]

Pointed stick, some people today do seem to me to be genuine slaves to debt peonage. One example are Bangladeshi construction workers in Dubai. They have no work in Bangladesh and so as to avoid starvation for their families, they agree to be migrant workers in Dubai. When they get to Dubai, they are told they have debts to pay off to cover the cost of travel to Dubai. They also have to pay for accomodation and food in Dubai. They live in sewerage flooded warehouse style barracks in the Desert in 50oC heat. They work in 50oC heat with terrible safety building hotels etc. They never get to pay off their cost of travel debt. They never get to go back to Bangladesh. How are those people free?

You and me were able to pay off our debts and prosper BUT we have an effective government that to some extent tries to ensure that everyone is able to make a go of things. I also think it is extremely relevant that WWII rebooted the system by destroying so much wealth. IMO we have been living on the back of the benefits of having the system rebooted by WWII. There simply has not been enough time for oligarchic power to have become all encompassing. That is creeping up on us though.

We have yet to see whether bitcoins will work as a currency.

[stone]

Although monopoly control of land is the easiest to understand example of free markets leading ultimately to lack of freedom; I think monopoly control of money is actually the more significant issue. Having more financial wealth than others basically boils down to having the financial power to determine how they spend their time doing what you see fit or for that matter whether they stand idile waiting for you to come up with something for them to do. The latter situation is the worst consequence of wealth inequality. Financial wealth renders all the things it could be spent on into a homogeneous abstraction. It does not distinguish between $100 worth of irreplacable primary forest or $100 worth of willingly offered labour from someone who would otherwise be unemployed. When all of the financial power is in a few hands, willingly offered labour from someone who is otherwise unemployed gets "conserved" just as if it were irreplacable primary forest. If someone is kept unemployed that saves nothing real. Once unused man-hours have passed by they are lost forever. BUT our financial system fails to reflect that because financial capital does not decay with time and costs nothing to store. That's why I see an annual tax on asset values as being the only system that offers hope for sustainable prosperous capitalism.

Imagine you are in the position of having compounded your wealth to the point where every one else owes you money and no one but you is in a position to offer credit to anyone else. You are then faced with the impossible task of single handedly directing the entire economy in the way that soviet central planners tried and failed to do. The other option is to abdigate any responsibility and just leave everyone idle even if that means that you don't get as much return on capital. Afterall you and your decendents will never want for anything.

I don't see how bitcoins could help. Apparently they have a hard limit to the number in circulation. That allows anyone, with the means, to hoard them all to push up the value. I don't see that they offer anything that gold coins don't.

[MachineGhost]

I'm actually not unsympathetic to the argument abut landlords dominating an area where there is a small and finite quantity of land available. I actually happen to live right now in an area under government control that actually reflects your worry: the available stock of land is geographically limited by mountains and oceans, and existing owners have an advantage over renters or prospective buyers because the demand far outstrips the supply. As a result, real estate prices are ridiculous and landlords can be extremely choosy about their tenants. It sucks, for a lot of the reasons you discuss.

Aspen, CO?

[MachineGhost]

An intriguing explanation of how the US Government, politically hamstrung at home, could act with force and purpose abroad is contained in Inderjeet Parmar’s excellent Foundations of the American Century. Throughout the 20th century, Parmar argues, the weak state was supplemented by private foundations, which took on many of the functions of government. Unelected, unaccountable, and for the most part unchecked, these foundations channeled billions of dollars into positioning the United States as a world power. Immune to the vicissitudes of democratic politics, they functioned as a shadow government, implementing the goals of what C. Wright Mills called the “power elite,”? the men of affairs who moved easily from corporate boardrooms to high-ranking government office, often in or around the State Department.

http://tinyurl.com/9ttpfr3

[MachineGhost]

I don't think it was mentioned in this thread so far, but the lifetime gift and estate tax exclusion will drop from $5 million per person to $1 million at the end of this year as part of the "fiscal cliff".  That's a 400% "tax increase" in politicspeak.  The difference between earning 6% on $10 million (both spouses) and $1 million + 45% tax is $184 million vs $39 million.  That is no small change.

Smart millionaire+ investors are setting up family offices to maximize the time left available and to provide to their children and grandchildren what they see the government as no longer being able to in the decades ahead.

Bureaucrats and bureaucracies are empirically terrible capital conservators or alllocators.  However, if you're stupid, no amount of money in the world will prevent you from rendering unto Ceasar.  So, its sort of a moot point to debate about estate taxes being uniformly applied in the name of justice.  Trust Fund Kids, Limousine Liberals and Inheritance Widows are naive and stupid and pay a lot of taxes. Ayn Randians, John Galts and Sovereign Individuals are aware and smart and legally circumvent tax regulations.  Society would not work as well as it does without both of these "fat tails".

[Pointedstick]

stone, everything you've said points to an extreme distrust not only of wealth inequality, but of wealth itself. You seem to believe that the total supply of wealth is limited and that anyone who accumulates more of it than others is selfish and greedy in depriving someone else of the possibility of having that slice of the pie. You appear to harbor an extreme distaste for those who accumulate wealth passively rather than working to produce some tangible good or service.

However, here we are on a forum dedicated to the Permanent Portfolio, an investment strategy. Presumably you have one, and inside it lie a collection of assets that passively increase your money without you having to do anything, thereby funneling society's wealth toward yourself in the absence of any socially beneficial work on your part. Furthermore, if you've got anything like a standard PP, half of your portfolio consists of other peoples' debt, thereby permitting you to profit from their debt peonage!

As someone who is actively enslaving the american people through debt peonage and helping to transfer society's wealth into the hands of a nonworking parasitic few, can you tell me how you sleep at night? 

[MediumTex]

As someone who is actively enslaving the american people through debt peonage and helping to transfer society's wealth into the hands of a nonworking parasitic few, can you tell me how you sleep at night? 

That's a loaded question if I ever saw one. 

[WiseOne]

What a thread!  Going back a few pages, I just had to comment on this...

Government is capable of doing good things in society.  It's just the premises on which the government is based guarantee that many of the things that the government does will be far less efficient and democratic than similar efforts by the private sector.

In general this is probably true, but I think there are some things that are best handled on the national (i.e. government) level.  The things that spring to mind:

1. Military.  Can you imagine a completely privatized army?  That's not a military, that would be a mercenary force.
2. Health care.  I firmly believe that no end of grief arises from private management of (and profit from) many small risk pools that are "cherry picked" so that the government is left with nearly all of the truly sick people. One risk pool and a level playing field would save money in the end, and make the system a lot more fair.
3. The judicial system.  I would hate to have Rupert Murdoch in charge of a criminal justice court handling, let us say, a rape case, or perhaps a case of a violent attack on a gay man.
4. Environmental protection.  Private companies operate on too small a scale to make decisions in favor of global systems on which we depend for our continued financial viability.  Examples:  climate change, groundwater pollution and overuse, soil erosion, wetlands protection.

That said, what programs is government now handling that could be privatized?  I didn't used to think so, but Social Security is definitely on the list.  I can imagine the government running a more limited, optional program for those who prefer not to handle their own retirement savings, or farming it out to a company like TIAA-CREF.

[stone]

stone, everything you've said points to an extreme distrust not only of wealth inequality, but of wealth itself. You seem to believe that the total supply of wealth is limited and that anyone who accumulates more of it than others is selfish and greedy in depriving someone else of the possibility of having that slice of the pie. You appear to harbor an extreme distaste for those who accumulate wealth passively rather than working to produce some tangible good or service.

However, here we are on a forum dedicated to the Permanent Portfolio, an investment strategy. Presumably you have one, and inside it lie a collection of assets that passively increase your money without you having to do anything, thereby funneling society's wealth toward yourself in the absence of any socially beneficial work on your part. Furthermore, if you've got anything like a standard PP, half of your portfolio consists of other peoples' debt, thereby permitting you to profit from their debt peonage!

As someone who is actively enslaving the american people through debt peonage and helping to transfer society's wealth into the hands of a nonworking parasitic few, can you tell me how you sleep at night? 

Pointed Stick, I'm sorry if I came across as suggesting that wealthy people are especially selfish or greedy. I don't believe that. Like you say I have a PP and I'm up to my neck in this.  I think almost everyone, rich or poor, is astonishingly generous towards people they know personally or meet face to face but almost everyone has the potential to inadvertantly end up screwing other people over once they are acting remotely through finance. It is extremely hard to discern what the ultimate consequences are of what we do financially. I'm also an advocate of capitalism and that has at its heart each participant's striving to personally accumulate capital. This debate was about the framework of tax within which capitalism opperates. I think it is vital that that framework is set up such that everyone's actions striving to personally accumulate capital also coincide with providing what we all need in the real economy. If we set that tax framework up wrong, then capitalism acts against the real economy rather than for it. That brings on the death of capitalism or war or mass poverty or all three.

I also don't think that some level of wealth equality is inconsitant with protecting the prosperity of the currently very rich. You would be better off owning 1% of Singapore than 30% of Haiti after all.

I think it is very important to make the distinction between wealth building that consists of accumulating claims over pre-existing assets and wealth building that consists of creating new assets by training staff, inventing stuff, making machines etc. I totally agree that my PP does the former. Someone has to own everything. I'm not saying that it is wrong for things to be owned. I'm just saying that I believe that capitalism would serve the economy better if I was taxed on the basis of what I owned rather than on the basis of transactions. Note I'm not saying that overall taxes should be higher.

People on here have said that all taxation should be shifted onto being a sales tax. Do you think that that implies that they find it hard to sleep at night because they buy stuff and have some hatred of consumption?