Where is Bill Gates when you need him ?

[jabowery]

I am not completely certain I understand what you mean about taxing property as opposed to economic activity.

It's really pretty simple: In a state of nature, people acquire animal territory -- enough for replacement rate fecundity. That's virtually a tautology given a fixed carrying capacity. To acquire more elaborate properties, people enter into social contracts called governments. One of the key features of such a social contract is that the government provides a service of enforcing these more elaborate property rights. Think of it as a kind of mutual property insurance company specializing in theft and fraud insurance, with a strategy of creating a human ecology in which property rights are respected. The "insurance premiums" for this service -- the use fee for those property rights beyond animal subsistence (homestead) -- are the proper source of government revenue.

Now, the question remains: Are there any stockholders who may wish to receive a payout of dividends from the insurance company they "own" as a result of founding the insurance company? The answer is "Yes, of course there are precisely because of phenomena like the network effect that made Gates the world's richest man through no merit of his own."

The best way to estimate that founder's dividend is to take the in-place liquidation value of assets minus liabilities, assessed at their liquidation value as financial instruments held by creditors, and extract an economic rent dividend at the risk free interest rate used by modern portfolio theory (time averaged short term treasury rates). The only question then becomes "Who holds the founders shares in the insurance company which operates the land trust called the Nation State?" The preamble of the US Constitution designates the beneficiaries as "our posterity" so however that is interpreted, it is reasonable to treat it as an untaxed, multigeneration inheritance.

To apply this to Gate's fortune:

Imagine what the "in-place liquidation value" of his copyright on MS-DOS would have been worth shortly after IBM began distributing it for their first 4.77MHz 8088 IBM PC.

[MSimon]

I like taxing profits rather than property. Because you can't really tell what the value of a property is unless there are profits. Profits are somewhat less subjective.

[KitemanSA]

I like taxing profits rather than property.

Taxation is theft (ok, extortion).

[MSimon]

I like taxing profits rather than property.

Taxation is theft (ok, extortion).

I don't disagree. A certain amount (not very much we hope) is necessary for civilization. The question then is on what basis should the stealing be done?

[jabowery]

I like taxing profits... Profits are somewhat less subjective.

The problem there, is how much of those profits can be attributed to the essentially risk free "economic rent" collected by the owner? The "subjectivity" of that is where pathologies like Bill Gates arise.

You have to do the same net present value calculation that a banker does when assessing the in-place liquidation value: Look at the profit stream that is virtually certain to be collected by a naive owner discounted at the rate typical of short term treasuries. If nothing else the government can make the assessment be based on someone bidding for the asset by placing the full amount of the bid into escrow as short term treasuries -- a bid that the owner can accept at any time.

[MSimon]

I like taxing profits... Profits are somewhat less subjective.

The problem there, is how much of those profits can be attributed to the essentially risk free "economic rent" collected by the owner? The "subjectivity" of that is where pathologies like Bill Gates arise.

You have to do the same net present value calculation that a banker does when assessing the in-place liquidation value: Look at the profit stream that is virtually certain to be collected by a naive owner discounted at the rate typical of short term treasuries. If nothing else the government can make the assessment be based on someone bidding for the asset by placing the full amount of the bid into escrow as short term treasuries -- a bid that the owner can accept at any time.

Then you tie up capital in government bonds instead of deploying it productively. Which seems like more of the same disease

I'd like to see this tried in a state or two before Federal adoption. Would the capital flee to other states? What would real people do in response? They never seem to behave properly.

And then there is the problem of the government forcing people to sell their assets to untried management. I see no point in wrecking the general economy due to hatred of Bill Gates. As much as he may deserve it. Why cut off your face to spite your nose?

[jabowery]

If nothing else the government can make the assessment be based on someone bidding for the asset by placing the full amount of the bid into escrow as short term treasuries -- a bid that the owner can accept at any time.

Then you tie up capital in government bonds instead of deploying it productively. Which seems like more of the same disease

No, because virtually all the dollars now going into treasuries would be rerouted to productive investment, while the dollars then going into treasuries would be from small savers who had not yet reached ownership of a homestead asset base. Its basically just the same as replacing FDIC with the homestead exemption to protect small savers. The difference is that FDIC savers enjoy the security directly rather than indirectly and the folks who are forced out of the treasuries market are more qualified as investors of their own money.

I'd like to see this tried in a state or two before Federal adoption.

You said a mouthful there. The basic problem with government is that people cannot assortatively migrate to territories trying out experiments (the social contracts) in which they believe and, instead, must -- at best -- tolerate a tyranny of the majority restrained only by a vague laundry list of selectively enforced "rights".

Would the capital flee to other states?

The guys who like to own monopoly rent streams would flee for sure.

What would real people do in response?

Move capital into more productive investments.

They never seem to behave properly.

I really resent having to spend my life living in the same society with people who disagree on such fundamentals.

And then there is the problem of the government forcing people to sell their assets to untried management.

The bid for the property is accepted at the owner's discretion. If the bidder is bidding so high that the owner wants to take the money, where is the force?

I see no point in wrecking the general economy due to hatred of Bill Gates. As much as he may deserve it. Why cut off your face to spite your nose?

You just haven't done the arithmetic. Remember all taxes on economic activities vanish.

[alexjrgreen]

I like taxing profits rather than property. Because you can't really tell what the value of a property is unless there are profits. Profits are somewhat less subjective.

How about taxing sales?

Assume, for the sake of argument, an average operating profit margin of 10% and a tax rate on profits of 35%.

A 3.5% tax on sales would raise a roughly similar amount of revenue.

[MSimon]

I like taxing profits rather than property. Because you can't really tell what the value of a property is unless there are profits. Profits are somewhat less subjective.

How about taxing sales?

Assume, for the sake of argument, an average operating profit margin of 10% and a tax rate on profits of 35%.

A 3.5% tax on sales would raise a roughly similar amount of revenue.

That does have the value of being the easiest to measure i.e. being the least subjective.

[Aero]

Sales tax is paid by the retail customer. How about a Value Added tax which is supposed to be paid by the producer and the middle men.

[jabowery]

In what way is the government's basic service of upholding property rights more directly related to income, sales and/or value added than it is to the liquidation value of an owner's estate sans his homestead (which he has a right and responsibility to armed self-defense with or without government)?

In what way is it "theft" to charge a fee for providing the service of upholding those property rights?

In what way is it "theft" for the shareholders of the service-provider to enjoy a dividend set at a rational rate?

I've made my case reasonably well. There is nothing left but to let people who believe in differing systems test them out by migrating to separate territories.

And _that_ is THE meta-problem. If medical science were as abysmally unethical and unenlightened about testing its treatments as the social sciences, including economics, are about testing their treatments, we'd be treating AIDS patients with leeches.

[KitemanSA]

The laptop idea has a lot of merit in some ways. India has come a long way in development based solely on some forward-thinking implementation of computer technology in that country.

India has come a long way mainly because their official language is English, which they grow up knowing. So Indians study computing in English while other third-world contries study English (or Chinese or Russian) in order to then study computing. That puts them a step ahead.

[blaisepascal]

Sales tax is paid by the retail customer. How about a Value Added tax which is supposed to be paid by the producer and the middle men.

Anything paid by the producer and middle men will be passed on to the customer, so there isn't much of a practical difference.

[Aero]

I understand. The practical difference is political.

There is the consideration that some very expensive products (Windows Vista) cost very little, and sell for high price. I'd laugh at a 95% VAT on that product. I'd bet competition would become much more intense and that lower priced product with current development cost content would become more competitive. In this instance, when the tax cost was added to the product price, the market would look hard at lower cost alternatives.

[hanelyp]

Sales tax is paid by the retail customer. How about a Value Added tax which is supposed to be paid by the producer and the middle men.

A VAT tends to be complex and opaque, taking a little out at each of numerous stages. All else being equal, I prefer a tax code to be simple and transparent, so the consumer/voter knows how much of the money they're dealing with is diverted to government.

But as long as tax rates are kept low, meaning government spending kept to the essentials, how taxes are structured doesn't really make that much difference. So much of what government spends our money on today is unrelated to basic enforcement of stability and out rights to life, liberty, and our property.

As far as people getting rich by abusive means, go after them for the abusive means, not for being wealthy.