Compare/contrast with National Sales Tax.
Florida enacted an Intangible Property statute in 1931. It withstood legal challenge and could be enacted more efficiently on a national level:
- Set appropriate non-punitive revenue yields with a progressive structure. Start at Net Worth $10,000,000 (1/10th of 1%) and set a maximum rate for NW over $100,000,000 (at 1% per annum.)
- Differentiate rates and exemption terms by asset category. E.g., primary residences left clear for municipalities (exempt to $5,000,000.)
Language is straightforward:
Amendment XXVIII
The Congress shall have power to lay and collect taxes on wealth, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration.
Along with deficit reduction, Wealth Tax mitigates against Big Bubble irrationality. It is a progressive alternative to either VAT or a sales tax. MBTF :::
Alan "Bubbles" Greenspan pumped cheap money into the accounts of America's wealthy. These folks then bid stock prices up to 200+% of GDP in 2000 and then to 180+% of GDP in 2008. The both of these Big Bubbles operated to the detriment of investments for industrial base and infrastructure.
If anything -- as you will see in the charts -- Greenspan's follies reduced American savings.
The traditional ratio for valuation of total-shares-to-Gross Domestic Product from 1931 to 1990 was 55%.
Today, for 2009 end-of-year, GDP stands at $14.27-trillion.
- Apply the standard 55% ratio and shares would total $7.85-trillion.
- Instead, the Greenspan Bubble # 2's holdover has total shares running right at $20-trillion
.
That is 140% of GDP.
Crazy stuff.
Maintaining the stock market at this level -- a Dow average above 10,000 -- implies that we are living in a perpetual Bubble.
The historical 55% ratio for shares-to-GDP predicts a Dow at around 4,000. This reflects an era where 6% ROI was commonplace.
Expectations for returns on investment have declined. You can't just go out, buy land at any suburban crossroads in America, then wait ten years to see your money double. Treasury bonds are paying next to nothing.
Still, with total Net Worth for Americans running at $55-trillion in 2009, this is a significant change.
Allow for a decline in general ROI, pegged down to 4%. This still predicts a new shares-to-GDP ratio no higher than 80%.
This low-ROI model predicts a Dow average in the neighborhood of 6,000.
Why are we seeing a Dow at 10,000 ?
Political manipulation, in part, to assure that bankster prop-ups continue. NYSE trading is dominated by the computer trades, so this is easier to arrange than you might think. There is also a measure of irrational expectation -- shareholders believe that the share inflation brought in by Greenspan's Bubble #1 and #2 are permanent.
America's wealthy hold the most of these assets. Considering the deficit problem, there is every reason to tax these assets while they are at high market values.
Americans have bought shares more widely than ever before. Retirement and educational funding are dependent on these assets. Air or no, that is where we are. Few investors realize that the current market valuations are far above the technical level that we should see from the ratio to GDP or to calculations based on corporate profits.
Ignore evidence that the valuations of these assets are filled with air. Get while the getting is good.
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Wall Street Journal offers these reasons to expect a second crash.
- The market is already expensive. Stocks are about 20 times cyclically-adjusted earnings, according to data compiled by Yale University economics professor Robert Shiller. That's well above average, which, historically, has been about 16. (Dow_10,000 goes to Dow_8,000 right off.)
- The Fed is getting nervous.
- Too many people are too bullish.
- Deflation is already here. Consumer prices have fallen for three months in a row.
- People still owe way too much money. (And the Federal Government -- $35-trillion, up from $18-trillion.)
- The jobs picture is much worse than they're telling you. Forget the "official" unemployment rate of 9.5%. Alternative measures? Try this: Just 61% of the adult population, age 20 or over, has any kind of job right now.
- Housing remains a disaster.
- Labor Day is approaching.
- We're looking at gridlock in Washington.
- All sorts of other indicators are flashing amber.
Brent Arends crying in our beer.
Getting money spread back into the general fund of Federal income is far preferable to leaving it on the table in this casino.
The money side calculates from our national accounts data.
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The Top One Percent of wealthy Americans own 43% of Total Financial Assets. The next 19% own 50% of TFA. A tax levied on Intangible Property with a floor at the $10,000,000 level will only affect the Top One Percent.
Apply to shares alone:
$8.6-trillion TIMES 1% =YIELDS= $86-billion a year.
Apply to all IP assets, calculated on Net Worth:
$23.7-trillion TIMES 1% =YIELDS= $237-billion a year.
Hardly chump change.
Over a decade the second form of this Wealth Tax recoups the $2-trillion given away by the Bush tax cuts. The pump-priming deficits of 2009 and 2010 are covered over, eventually.
The key is getting a Constitutional Amendment -- XXVIII -- and following up with appropriate tax code and regulations.
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The Federal government already tracks wealth that is held in Intangible Property. IRS does it. The costs for doing the underlying database creation and basic reporting calculations are being expended every year.
Tangible Property is also tracked. Here the states are mainly competent. Definitions for the categories are built around items for which there are open fluid markets. The numbers may surprise you:
TO original 1036x733 chart HERE.
Having states do IP taxes -- not having IRS resources -- is another matter altogether. Florida or California simply do not have the technical abilities or access to underlying Federal reporting data to do accurate tax bills.
Competition among the states leads to lower and lower Intangible Property tax rates, so the yields are driven to zero. By 1971 in Florida the yield was $50 on $100,000 in stocks or bonds with a floor at $250,000 in holdings. Very few people paid the tax. The IP billing process was not worth the state's effort.
At a national level you get a different ball game.