Q: Won’t the rich prey on the poor?
A: The tax rate is set so that everyone will set values above their willingness-to-accept, so any such “predatory behavior” would be welcomed by any honest citizen as a boon, just like an offer to buy your house now is. Only those who are hiding things and trying to undervalue them can be preyed on, just as those cheating on their taxes right now leave themselves open to blackmail.
Q: Doesn’t this make life unstable?
A: At present, wealth buys stability (own your house outright, in an area safe from crime and natural disasters). The poor are underwater (literally or financially), and thus vulnerable to foreclosure, or renters and have very unstable lives. In our system, stability is something you can pay for, and so the rich can pay for more of it, as under our current system, but under our proposal they are taxed, creating a fairer outcome and less inequality in the wealth used to buy stability.
Q: Is holdout and misallocation really a big deal? Isn’t this a crazy solution in search of a problem?
A: The Citybldr app (https://www.citybldr.com/) lets you select collections of properties and determine how much more they would be worth together than apart; typical values for land are 3x even holding zoning fixed. Most companies are worth hugely more than the sum of assets, and often entrepreneurship is held up by patent trolls. Similar on spectrum. All this suggests there is a large holdout problem.
Q: Why not just tax wealth in traditional ways?
A: This slows rather than grows the economy, and is very hard to enforce given that, e.g., much wealth is in private companies that cannot be taxed without something like self-assessment.
Q: Why not just implement the COST in a distributively neutral way (give money back to rich or subsidize investment)?
A: Most people think inequality is undesirable in and of itself, but some justify it as a social expedient; thus there is no reason to unequally distribute COST revenue if it serves no social purpose. Furthermore, if you believe, like us, that abilities are much more evenly distributed than wealth, this will also be pro-growth as it will allow broader investments/entrepreneurship. We use half the revenue to eliminate other capital taxes which is mostly distributively neutral. Also, to have any chance of making this politically viable, it must address the big issues of inequality of concern to a great many people.
Q: If I think holdout is not important and investment is very important, I should oppose a COST, right?
A: No, you should just want it at a lower rate and mostly to replace other capital taxes. But for assets like that, this is what we advocate. If we start with a low cost we will quickly be able to judge allocative and investment effects and figure this out, so there is really not much to dispute here.
Q: What are the boundaries of what a COST would be applied to?
A: We are not seeking to expand the bounds of markets to thing that are currently non-marketed (like kidneys) and it should not apply to anything that is like data and labor in which you have an interest in how it is used not just that it is taken from you. Take intellectual property for example. While a COST would be useful for patents and some copyrights, we wouldn’t want to abolish features of copyright and trademark that protect an author from defamation or misrepresentation. While a copyright would be subjected to a COST, taking the copyright would not allow taking of these inalienable interests.
Q: Won’t people buy up tons of stuff and bundle it all together?
A: If they do they will pay a huge tax and leak money every year; this won’t pay unless they are able to monopolize the production of some good or service, which antitrust will need to address.
Q: Isn’t private property the foundation of capitalism?
A: Yes, but public property is also a foundation of capitalism as it exists in the real world, as well as under Radical Markets. The COST makes the “private” or “public” in property a continuous variable that is a function of the tax rate, which is determined by a balance reflecting the relative importance of investment and allocative effects. It doesn’t abolish private property.
Q: If this is such a good idea, why has no one ever tried it?
A: Actually, there are several examples. Years ago, a Hungarian economist tried it at summer camps for a decade, apparently with great success, but failed to persuade authorities to give up the power necessary to make it work. You can learn more about this experiment here.
Q: Wouldn’t this require a huge, awful enforcement apparatus?
A: The tax is largely self-enforcing and asset transfers are no different than with any enforcement against theft, just changes definition of what theft is. There could be issues arising surrounding privacy, which may require new forms of legal enforcement, but we think those forms would differ more in degree than in kind to what prevails today.
Q: How would you roll this out?
A: We would roll out the COST in a careful, empirically sensitive way. We would start with administrative property like spectrum and grazing rights. Then if that worked well, we would move on to (big) business-owned assets like commercial real estate, in certain locations. As we eventually moved on to personal property of various types, we would start with the least intimate forms, and with a low tax rate, and then take it from there.
Q: Why not just have an inheritance tax?
A: The inheritance tax is a highly imperfect way of taxing capital because it occurs only at the moment of death, which is arbitrary, and gives rise to all kinds of strategic tax-sheltering behavior (like owning a business and employing one’s children at inflated salaries).
Q: Shouldn’t we have different tax on land, maybe only tax on land à la George?
A: We should have different taxes on different assets, and land would be taxed higher. But there is nothing unique about physical land. Think of a Van Gogh left in a dumpster, found by someone and then held out against the MOMA for a high sum of money. Basically the same issues as land.