STUMP » Articles » Taxing Tuesday: Bad Visualizations and Bad Taxes » 17 December 2019, 07:27

Where Stu & MP spout off about everything.

Taxing Tuesday: Bad Visualizations and Bad Taxes  

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17 December 2019, 07:27

You may not realize, but I’m really into data visualization.

And, in particular, critiquing data visualizations. Though I would prefer to support good visualizations:

Here’s one that intersects with Taxing Tuesday:

Ranked: The Best and Worst States for Taxes in America

It’s a collection of spider graphs, which I hate. They are difficult to interpret, and… well, let’s look at the key to the graphic:

Here are their top tax-friendly states:

And the bottom:

I think key highlights list, like this, works best:

Wyoming is the most tax-friendly state in the country. It has zero state income tax and on average charges only $635 per $100,000 of property value.

Illinois is the most tax unfriendly state with a flat income tax of 4.95% with on average $2,408 in property taxes owed for every $100,000 of property value.

6 out of the top 10 most tax-friendly states have zero income tax.

Tax levels vary substantially at the state level, with relatively heavy burdens in the Northeast and light tax levels across rural states like Alaska, Montana and North Dakota.

Now, while the results are not surprising at all, you need to understand how radar charts/spider graphs “work” in an approach like this.

You graph the points, as seen, along each “radius” from the center of the polygon to each vertex.. You connect the dots, and have a new polygon. You score each entity by the area of that polygon.

But, and here’s the key bit, you have different scales along each axis

You’d have to — they’re not even the same units! Some are dollars [a unit], some are percentages [unitless]….and the tobacco/alcohol thing… what the hell is that?

If looks like they have the scale go from the minimum to maximum for each data set, but that choice of scale is equivalent to weighting these different factors differently… and why should tobacco/alcohol taxes be weighed the same as income tax or property tax? I guarantee, you generally are paying a lot more in income & property tax… or even just plain sales tax… than any tobacco/alcohol tax, no matter how steeped in vice you are.

So, yes, we get the results we expect, so perhaps we don’t question it, but I don’t think ranking is appropriate for these type of things — indeed, I might weight CT worse since it has a worse unfunded pension problem. Perhaps one should include the likelihood of much higher future taxes.

YUM YUM COME COME

Hey, isn’t this appealing?

Won’t you grab me some plastic bag taxes from over there? How about some tolls for I-84 in CT?

WEALTH TAX LAWS BEING PROPOSED BY PEOPLE WHO DON’T UNDERSTAND WEALTH

Or, rather, they only understand wealth built on common stocks and other liquid assets. They do not understand more old-fashioned building of wealth through real, illiquid assets (like property) or via a share in a privately-owned business.

These politicians have never built a business, and even with their inside knowledge, they are only moderately wealthy. All this crap reads to me like some fairly rich people who got their riches via connections/pull, and are envious of super-rich people who got their riches via equity in privately-built businesses. How dare these … NOBODIES …. have so much money!!!!

How to Pay the Wealth Tax: Sell Everything

Elizabeth Warren’s proposed wealth tax — an annual levy on the total value of one’s assets, not income — has drawn a lot of attention. The senator’s claim that her proposal would cost “ultramillionaires” only an annual 2% and billionaires an annual 6% wildly understates the truth. Wealthy people don’t maintain bank accounts with millions or billions of dollars of liquid cash; they invest their assets. Those hit with the wealth tax would have to sell assets each year to pay it, subjecting them to income tax as well. The actual cost would often be several times greater than 2% or 6%.

Ms. Warren has proposed a dramatic increase in the federal capital-gains tax rate, along with taxing current appreciation of asset values for wealthy taxpayers. She has proposed raising the current top long-term capital-gains rate from 20% to 39.6%, leaving in place the current additional investment tax of 3.8%, and assessing an additional 14.8% tax for taxpayers with net investment income over $400,000. That adds up to a total federal tax rate of 58.2%, more than double the current maximum 23.8% on long-term capital gains. For a California taxpayer who would also be required to pay the state’s 13.3% income tax, the total state and federal income taxes to raise the funds to pay Ms. Warren’s 6% federal wealth tax would be 71.5%.

There’s another complication: Investors and business owners often take on third-party debt to pursue their objectives, using their assets as collateral to secure the debt. When owners sell these encumbered assets, they have a primary obligation to pay back the debt secured by the assets sold. Only after this important first step would taxpayers turn to paying taxes — first, federal and state income taxes, then the wealth tax. Note that in many cases a sale of encumbered assets would not yield sufficient proceeds to pay the third-party debt, state and federal income taxes and the wealth tax.

For a wealth tax to even make sense, it would have to be on net wealth.

And, as mentioned above, a lot of the wealth intended to drive business involves leverage, aka debt.

I wouldn’t be surprised if the balance sheets, on paper, could be negative for some of these fairly rich people.

Further, the combination of taxes would hit people with identical wealth very differently. Ms. Warren determines wealth by subtracting third-party debt from the fair market value of assets…

Okay, so it is on net wealth, but hold up!

…but ignores the income taxes on the asset sales.

Yeah, that’s a problem.

In our example, the founder with a tax basis of zero in his company (not unusual for a founder) would be liable for $753 million of income taxes to raise the funds necessary to pay a $300 million wealth tax. If the founder had recently inherited the $6 billion business, his tax basis would be equal to the estate-tax value ($6 billion) and he would pay no income taxes on sale of shares. The wealth tax would treat these two wealthy people differently. Taking into account the wealth tax on the first billion dollars, the founder would end up with $4.88 billion while the heir would have finished the day with $5.68 billion. How does that make sense?

Yes, it would be best if Congress didn’t write any laws on that which they didn’t understand, but of course, under that principle, they would barely be able to pass anything.

Hmmm, I like my idea.

TAX STORIES

From that last one, a story from the late 90s:

Twenty years before a wealth tax became a serious consideration in national politics, two legal scholars battled over whether the policy would be constitutional.

Erik Jensen, now an emeritus professor at Case Western Reserve School of Law, says he got interested in the policy back in 1999. That’s when “a guy named Donald Trump,” who was then running to get the presidential nomination of the Reform Party, proposed a one-time wealth tax of 14.25% on people with a net worth over $10 million. “And well, he obviously was not a national enough figure, at least in the political sphere, for anybody to really care what he was proposing.” Jensen, nonetheless, came to the conclusion that such a wealth tax would be unconstitutional.

Well, I guess we may get to test it out eventually.

TAX TWEETS

Learn more about the SNAP cuts to non-working non-parents. And how people get annoyed when you point out what has changed.

Uh huh.

I could say I love it — it will really boost the financial services industry (and especially insurance) to help with legal tax avoidance products. I look forward to it!

I’m pretty sure that they paid:

- Federal unemployment taxes
- FICA

Even if they didn’t pay federal corporate income taxes. (And think why they may not have…. cutting the tax rate doesn’t lead to 0 taxes. Other things do.)

This bullshit all over the place. I get tired of it.

Let us take a look:

This guy is supposedly an expert, but evidently not an expert in taxes.

Oh, right, worked in the Department of Labor. Maybe he knows about employment-related taxes. Maybe he should think about the taxes paid on the incomes of people who worked at those corporations. You think that should count?

Taxes is taxes, my dear.

Keep an eye on this space this week… I’ll be doing a French pension protests post.


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