From: jim@netlink.cts.com (Jim Bowery)
Newsgroups: sci.econ,misc.taxes
Subject: Net Asset Tax White Paper (part 6 of 7)
Date: 16 Apr 92 15:23:45 GMT
Article-I.D.: netlink.ayXBJB4w164w
Organization: NetLink Online Communications, San Diego CA

Another example is the loss of what might be called, for lack of a
better word, our "royalty" or "nobility".   The exquisite traditions
and knowledge of old wealth do posses value which is protected from
generation to generation by capital welfare.  The loss of that
"nobility" is replaced by the nobility of the creator in the form of
the intellectual property exemption.  On balance, it is the unique
privilege and burden of America to be creative.  We should treat the
creator, not the acquisitor, as nobility in America.
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Q:
When they taxed bank deposits in Texas, the bank deposits used to be
pulled out of state before the tax date.  What is to keep similar
things from happening with the NAT?
 
A:
Assessment should be integrated over the course of the year.
 
Having an "assessment day" is ridiculous.  Any such date will lead to
all sorts of pathological business practices.  A NAT on a statewide
basis isn't so pathological but since the total tax burden at the
state level is small compared to the federal taxes (including FICA)
one wouldn't expect to see a huge impact on the economy of those
states.
 
It is easy to make a mess of anything if you want to.  Believe me,
powerful interests don't want this tax because it makes them get off
the usury dole and back to work with their capital.  They will want to
hang all kinds of destructive features on the NAT so they can portray
it as an economic disease instead of a cure.
 
When the NAT is being legislated, watch out for lobbyists advocating
an "assessment day" or the removal of language specifying that
assessment shall be integrated over the course of the year.  They
represent the enemy.
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Q:
Most taxes are based on "ability to pay."  With the NAT you tax
assets, but you PAY in cash.  How can you pay with some acres of land,
a share in a building, part ownership of a corporation? 
 
A:
The net present value calculation states that an asset's value is
proportional to its combined casflow and appreciation 
rates, discounted for risk and the Treasury rate.
 
All of the assets you mention produce either the cashflow or the
appreciation predicted by the net present value calculation.  The
taxpayer can pay directly or leverage against the appreciation.  The
taxpayer can even opt to defer payment and, in effect, borrow from the
government at the treasury rate with that counted as a liability.
 
Forced liquidation only takes place when the net assets of the
taxpayer, including tax liabilities, approach the level of bankruptcy
protection.
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Q:
If you want too really go into theory, why not tax personal abilities,
figuring that is an asset (divorce courts sometimes do)?  In fact this
is an old idea-the way it was originally done in the British colonies.
 
A:
This violates the principle of not treating people as property. 
People are not assets and have not been ever since we abandoned
slavery, feudalism and debtor's prisons.  Any investments made in
people, such as education, health improvement or skill acquisition,
would not be taxed under a NAT that is consistent with the founding
principles of this country.  The close association of bankruptcy
protection to these basic American values, and the ability to obtain a
statistical measure of its level, is why that is the definition of the
personal exemption.
 
The case of divorce is interesting because of the unique nature of the
institution of marriage.  It is not a normal legal contract -- but a
binding together of two lives.  When a wife becomes a mother and gives
up a career in support of her husband's family, it is quite clear she
has a claim on his person.  But this relationship is unique and
definitely not the relationship between the government and the
individual.
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Q:
Aren't property taxes regressive due to the fact that small properties
tend to be valued at closer to true value than properties of great
value?
 
A:
The current real estate property tax is regressive for much more
profound reasons than that:  
 
1) It is a tax on GROSS assets, i.e.: regardless of your equity.
2) It taxes property that would typically be protected under
   bankruptcy proceedings -- i.e.: assets which are essential
   to one's life and livelihood such as housing and small 
   business property.
 
Number 2 is actually a special case of 1, because the maintenance of
one's own person can be seen as a "liability" imposed by nature -- a
debt that one must service in order to remain alive and healthy.  This
is ultimately the cleanest theoretic justification for a large
personal exemption in a NET asset tax system and it eliminates
regressivity.  Income taxes, by taxing one's abilities, and sales, by
taxing one's needs, and value added, by taxing one's productivity in
the most direct sense, are far moreregressive than the proposed NAT
reform.
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Q:
Wouldn't this be a one time tax?
 
No.  The net present value calculation proves otherwise.  Assets don't
have a market value if they aren't capable of producing value over
time.
 
The NAT may be a "one time tax" for those who posses assets that are
highly valued by others, but the owners don't have any idea what to do
with them.  The NAT will simply cause them to do what they would
normally do in a "perfect" market -- sell.  Their cash, or other form
of payment, will then become subject to the NAT.
 
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Q:
Aren't "the rich" those who have high spending power, which comes both
from income and assets?  If so, why not tax income?
 
A:
Only if the income isn't committed in debt service and if the assets
aren't offset by liabilities.
 
But even so, the person who is currently serving the marketplace and
is therefore enjoying high income is proving that he is being
productive with his assets.  This is a desirable stateof affairs and
one which we should not tax. 
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Q:
This sounds like Henry George's "Single Tax" on unimproved land. 
Hasn't this already been tried in much of Australia, New Zealand and
western Canada?
 
A:
Henry George ignored all of the things, tangible and intangible,
provided by the existence of civilization.  He also ignored all of
nature's assets except unimproved land.  His was a reasonable attempt
at a morally defensible tax system during an era in which most new
wealth was being generated in the American West.  However, it is
entirely inadequate today.
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Q:
What about double taxation?
 
A:
Since the NAT is a NET asset tax, you subtract all your liabilities
from your gross assets.  Assessing one's liabilities is nothing more
nor less than going to the party to whom the liability is owed, and
finding what they assess that liability at.
 
In the case of corporations you do one of two things:
 
1) You simply don't treat corporations (or any businesses) as
   taxable people or households for tax purposes (although 
   ownership shares in them would still be assessed).
 
OR
 
2) You allow the outstanding shares, as well as debts, to be
   counted as liabilities.
 
The first option is superior to and simpler than the second.
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Q:
How will this affect our technology competitiveness?
 
A:
In effect, the NAT has an even greater impact than a universal
research and development tax credit system.
 
Commercial technologies will advance rapidly in entrepreneurial
businesses started up by inventors.
A variety of authorities from supercomputer entrepreneur Seymour Cray
to the National Science Foundation, have repeatedly found that small,
inventor-capitalized firms are the fountainhead of commercial
technology in our society.
The NAT elevates technological innovation to the status of a noble
pursuit, which is its Constitutional place.  As a result, we should
experience a tremendous explosion in the rate of technological
progress and therefore, our comptitiveness. 
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Q:
What about antitrust laws?
 
A:
Antitrust enforcement will become less necessary as the diseconomies
of scale inherent in large corporate bureaucracies are exposed by
their poor profit/net-asset ratios.
 
Where economies of scale are actually realized, the NAT will favor the
formation of joint ventures and mergers.
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Q:
Will there be an impact on unfair discrimination practices?
 
A:
There will be many forms of unfair discrimination, not now recognized
as such, which will be eliminated by the NAT.
 
Unfair discrimination in the economy will be reduced without specific
legislation or programs.  Corporations bureaucracies can afford to
discriminate against productive members of society only when they are
anticompetitive.  When mere size is no longer favored relative to unit
productivity, businesses choosing to select employees on criteria
other than their productivity will simply be put out of business by
competitors.
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Q:
How about competition with Japan?  Can a bunch of small creative
businesses really make it in the international market place where
Japanese corporations act more like feudal kingdoms?
 
A:
Our problem is that we attempt to preserve and extend various remnants
of feudalism which is to play the game on Japanese terms.  For
example, until recently, the "cradle to grave" employment practices of
U.S. corporations led to feudal practices such as corporate retirement
plans, corporate healthcare plans, etc.
 
We have recently moved away from these benefits of corporate feudalism
which would be a movement toward a freer societyexcept for the fact
that we had no other institutions set up to take the place of
feudalism.  
 
When the feudal lords are disloyal to their serfs, feudalism becomes
unbearable and the serfs begin "job hopping".  This is then taken as
further justification to avoid feudal responsibility by the lords.  A
vicious cycle of decay ensues.
 
In the U.S. this decay of loyalty between corporate lord and serf
began in the 1970's when inflation allowed unethical lords to lower
the real wages of loyal serfs without appearing to do so.  The smart
serfs recognized their loyalty was being abused and so chose to
abandon their lords for others who were more than willing to take on
smart serfs at a fair wage.  This was the genesis of the decay of
American corporate feudalism.
Newsgroups: sci.econ