Taxing Tuesday: Demonstration on Stupidity of Unrealized Gains Taxes, Illinois Property Taxes, and More
Thanks, stock market!
Oh hey, I heard something happened yesterday….
I know there are probably a lot of WELL ACKTWUALLY types who want to show up explaining:
Their totally cool, complicated system that makes it all work out
Property taxes do tax unrealized gains (yes, they do! Thanks for pointing that out!)
I don’t care, we really need the money
Fine, it might work only once, or work not at all, we don’t care, WE ARE ENVIOUS PEOPLE AND HOW DARE PEOPLE WE DON’T LIKE HAVE MORE MONEY THAN US
A few more:
This is the specific proposal from the nominally-Biden administration: Fiscal Year 2025 Budget, page 45, released in March 2024
Proposes a Minimum Tax on Billionaires.
The tax code currently offers special treatment for the types of income that wealthy people enjoy. While the wages and salaries that everyday Americans earn are taxed as ordinary income, billionaires make their money in ways that are taxed at lower rates, and sometimes not taxed at all. This special treatment, combined with sophisticated tax planning and giant loopholes, allows many of the wealthiest Americans to pay lower rates on their full income than many middle-class households pay. To finally address this glaring inequity, the Budget includes a 25 percent minimum tax on the wealthiest 0.01 percent, those with wealth of more than $100 million.
$100 million is a weird way to define $1 billion.
Also, I notice the second switcheroo of wealth versus income. These are very different things.
This “wealth tax”, intended to encompass the people with sophisticated tax planning, loads of lawyers, and yadda yadda…. my dudes, you were never going to win this one.
France was not able to impose a wealth tax. They had to scrap
The states have a hell of a time with billionaire/”millionaire” taxes, and that’s just on income.
But let’s look at an estimate of wealth… Henley & Partners has a nice table:
USA! USA!
So only 788 billionaires, and fewer than 10,000 centi-millionaires… the IRS should be able to handle that, right?
(Keep in mind that the billionaires and centi-millionaires do not hold their wealth primarily in publicly traded, liquid securities.)
But it’s more proof-of-concept, because the real money is in the 5.5 million millionaires. Because if one can show it’s not unconstitutional for the federal government to tax wealth (without a constitutional amendment… maybe the much bigger grab can be done. Because those millionaires are more likely to have their money in easily-valued and liquidated securities.
Illinois Property Taxes
1 August 2024, Illinois Policy Institute: Illinois property taxes at $5K are higher than 5 states combined
Illinoisans paid the second-highest property tax rate in the U.S. in 2022, with the median Illinois homeowner spending more than taxpayers in Alabama, West Virginia, Arkansas, Louisiana and South Carolina combined. See how your county compares.
Illinoisans paid a median $5,055 in property taxes in 2022, the second-highest rate in the U.S. and meaning homeowners shelled out nearly 2% of the value of their homes to support government.
That Illinois median of $5,055 was also more than double the national property tax bill of $2,457. Topping the tax bills at $8,609 was Lake County in the northeast corner of Illinois. The lowest at $694 was Pulaski County, at the far southern tip of the state.
Back to the piece:
A growing share of property taxes have gone to government pensions, which continue eating more school and local government resources. Illinois ended the 2023 fiscal year with an estimated $211 billion in unfunded state and local pension liabilities.
That is about half of what we need on-hand today, leaving Illinois with the nation’s worst funding ratio and biggest pension debt. It is at a level between what experts warn is “deeply troubled” and “past the point of no return.”
Illinois homeowners paid more in median property taxes in 2022 than the typical homeowner in Alabama, West Virginia, Arkansas, Louisiana and South Carolina combined.
….
Illinois has lost population for 10 years in a row – a total loss of 548,916 people and most because of moves to other states. Over 50% of Illinois voters polled cited high taxes as the main reasons why they would move out of state if given the chance. Lawmakers need to act now to curb these costs for the future and incentivize more Illinoisans to stay.
A “hold harmless” pension reform plan, such as one developed by the Illinois Policy Institute and based loosely on bipartisan 2013 reforms, could help eliminate the state’s unfunded pension liability and reduce homeowners’ property tax payments over time while providing retirement security for pensioners.
With nearly 3-in-5 Illinoisans believing the value of public services they receive are not worth the property taxes they pay, lawmakers should be pursuing structural reforms that will keep Illinoisans in Illinois.
Obviously, the Illinois Policy Institute has an interest in pushing their own pension reform plan.
Whatever sort of changes need to be made with Illinois pensions, one thing that is realistic with the IPI proposal is that they need to amend their state constitution to allow for reform in the first place.
May 2015: Illinois Pensions: How Did We Get Here? The 1970 Constitution
The ruling is based on a specific clause in the Illinois state constitution. The current constitution was put together and ratified in 1970.
Let’s take a look at the specific clause in question: Article XIII, section 5 of the Illinois state constitution.
I tried to find out what was written at the time. The following is an informational brochure on the constitution, I assume for those voting on it.
For convenience, this is what the text says:
SECTION 5. PENSION AND RETIREMENT RIGHTS
Membership in any pension or retirement system of the State, any unit of local government or school district, or any agency or instrumentality thereof, shall be an enforceable contractual relationship, the benefits of which shall not be diminished or impaired.
That language from 1970, from before even I was born, is what is preventing making any sort of changes on retirement benefits for current participants (such as adjustments to COLAs, employee contributions, future accruals, etc.)
Oh well.
Tax Grab-Bag
Let’s see what’s in the bag!
NPR: Meet the man with the plan to tax the world's wealthiest 3,000 people
The idea of a global wealth tax was put forward by Brazil earlier this year and discussed during a recent G20 meeting, ahead of the summit in November.
The person behind the plan is Gabriel Zucman — an economist at the Paris School of Economics and the University of California at Berkeley.
He told All Things Considered the starting point was the “overwhelming evidence” that the super rich have very low effective tax rates today and pay much less tax than middle class people in the U.S. and throughout the world.
….
But Zucman also believes there doesn't need to be a global consensus for it to work. Instead, there just needs to be a critical mass of countries that would do two things:
Agree to tax their own billionaires.
Then also tax the billionaires of other countries if they are undertaxed at home and also derive some of their wealth abroad.
Okay. So this guy is an academic economist, who doesn’t have to win elections. Mmm. Mmm.
Ask Connecticut how well it held onto its own billionaires. Ask New York what the ideal level of taxing extremely rich people is, because I tell you, NY gets it down to a science.
BBC: Reeves refuses to rule out capital gains tax rise
Chancellor Rachel Reeves has refused to rule out whether she will increase the rate of capital gains tax in her autumn Budget.
The levy is charged on profits made from the sale of an asset that has increased in value, such as second homes or shares not held in individual savings accounts (ISAs).
During a visit to the US, Ms Reeves said it was important to "strike the right balance" when deciding on tax policies.
The chancellor has previously warned the government "will have to increase taxes" to bolster the public finances, but has not specified which ones yet.
I wouldn’t be counting those unhatched chickens. Capital gains generally are offset by capital losses.
MassLive: Boston Mayor Wu holds out hope for her stranded tax plan
Boston Mayor Michelle Wu isn’t giving up on her plan to shift the city’s property tax burden toward commercial property owners, saying she hopes lawmakers on Beacon Hill will yet give it the green light.
Lawmakers in the state House and Senate wrapped formal sessions last week without sending a completed version of Wu’s home rule petition to Gov. Maura Healey’s desk.
“If this does not happen, every single resident in the city of Boston will know that their taxes are going up because the Senate did not vote through that last step,” Wu said during an appearance on WGBH-FM’s “Radio Boston” program on Tuesday.
The tax reclassification made it past the majority-Democrat House after last-minute negotiations earlier in the week, with Wu agreeing to lower the amount of the shift and shorten the time during which it would apply, MassLive previously reported.
But the bill didn’t clear the state Senate, also controlled by Democrats, by the time lawmakers gaveled out at mid-morning on Aug. 1.
….
In an email, a spokesperson for Senate President Karen E. Spilka, D-Middlesex/Norfolk, hit back at Wu, saying that while “blaming the Senate may be politically convenient for the mayor ... it does nothing to improve a policy proposal that has been widely questioned by fiscal watchdog agencies and could do serious damage to Boston’s economy.
….
The tax shift bill has been widely criticized by the business and real estate communities, who worry that it would put more of a burden on small businesses at a time when they are already struggling.
“Anyone who walks down the streets of Boston will immediately notice all the vacant commercial properties,” Paul Craney, a spokesperson for the conservative Massachusetts Fiscal Alliance, said. “If Mayor Wu had her way, she would have made Boston’s economic recovery more painful and much slower ... Boston politicians need to embrace the idea of making Boston more affordable by lowering taxes and eliminating regulations.”
I love these D-on-D tax battles, just as when various Dem politicians in New York had to tell the newbies that no, a millionaire tax is a really bad idea. They actually want revenue, not merely yapping.
Trying to shift all the property taxes onto commercial real estate may sound like a great idea to an idiotic politician playing to an equally idiotic voting base. Because, you see, businesses don’t have to exist. Specifically, not in Boston. People, on the other hand, generally need to live somewhere. They may find it more difficult to move than businesses.
A better question might be: why are taxes having to go up overall? Is it that there is less of a taxpayer base to provide revenue? Is it that costs are going up? Why might that be?