After a lot of back and forth on Twitter we thought it’d make sense to come up with some real solutions to real world problems. A lot of them are not “perfect” as no solution to large scale problems ever is. That said, we think there are some clear ways to improve the USA without causing significant negative impacts. In simple terms, we think it’s better to “raise prices” in many areas to cause real change vs. hoping that people will change their behaviors with no economic impact.
Luxury Tax: This one seems like a no brainer. Singapore is the richest country in the world by Capita. They have many US dollar millionaires making it an unimpressive feat. This is due to a tax structure that makes a lot more logical sense. No. We’re not even close to socialists (hard core capitalists). The difference is that you have to incentivize the capitalists to act more rationally.
If you go out to a restaurant with your friends/family it should not have a similar tax rate to the purchase of a Ferrari or a Rolex/Richard Millie watch. This seems like common sense but it isn’t in the United States. To be clear, we have *nothing* against people “flexing” or “flossing”. In fact, a luxury tax would make the items even rarer and you’d know that the person is really rich! This is the whole point of luxury items in the first place. Please do not attempt to tell us that someone is buying a $100,000 watch “just because”. He knows it brings positive attention and is a status symbol which is completely fine.
So how would this work? Pretty simple really. You earmark certain dollar levels (say over $3,000 for a watch) and anything above this number results in escalating taxes. If you buy a $100,000 watch the tax could be 25% or something even higher/lower (we don’t know all the statistics). This would apply across the board for various items: 1) ultra-high end shoes, 2) ultra-high-end cars and 3) ultra-high-end jewelry.
The best part about this tax is that the ultra-wealthy wouldn’t even care. In fact, we’d prefer this system and we’re not “ultra-wealthy” which we would deem as $50M+ net worth. If this system was in place we’d still buy a nice Rolex and nice shoes anyway and it would be great to know that other people with the same items were not “$30,000/year millionaires” like you see in Miami. Instead of being forced to develop a strong sense for who is actually rich it would be a bit easier this way (helps more than you’d think).
Variable Housing Tax: This is similar to the luxury tax. We don’t think it makes sense to have your home taxed based on book value (when you bought it) and it also doesn’t make sense that the annual tax rate on a basic home for a normal family is equal to one for a Mansion. Again, if you’re ultra-rich, a tax rate on your property going from 1% to 3% is not going to matter at all. This would give some leeway to lower the tax rate on a standard apartment or home for the middle class.
While it may make sense to have various tax rates based on the country, we think the price of the properties would already adjust for this in the first place. For example, a home in downtown Manhattan is already going to be more expensive on a per footage basis than a home in Buffalo, New York. Since this would be the case regardless of square footage you could probably tie the change in tax rate to the overall property value assessed on a 3-year or 5-year basis. Instead of being forced to argue about the tax rate every year, you simply adjust every 3-5 years.
Similar to the prior comment on Luxury goods. No one “needs” a 10-room mansion with five swimming pools and a theatre. Now if you’re rich enough to afford it, by all means buy it and live the dream! You’re definitely not buying that mansion because a theatre is a necessary item to get by in life.
Lower the Income Tax: If we move to a luxury item tax, this gives wiggle room to lower the tax rate on items that are actually essential for living. We could reduce the tax rate on homes/apartments that are smaller. We could reduce the income tax rate on people across the board. We could reduce the percentage of your salary/income that goes to housing in general.
All of this would also allow you to save and invest more which also boosts the economy. Allows individuals to try that project they never had the money for. Allows individuals to actually purchase a basic home to gain equity over time. Forces individuals to really think about their purchases and their long-term investments.
Tipping at Restaurants: While the bar scene is set up in an ideal fashion (our opinion). The restaurant structure doesn’t make a lot of sense. In a bar scene, paying cash and making friends with the servers is an easy way to build rapport. You know they are forced to pay a lot more in taxes if you pay with a credit card and you get to skip the “lines” when it is crowded. The situation in a high quality bar/club is actually fine. Our issue is focused primarily on restaurants where the performance/incentives don’t make logical sense to us.
In a restaurant, why does the customer need to add 20% for tip when he doesn’t know if that is actually the best server at the restaurant? Also. Why wouldn’t the establishment just raise prices to reflect the “real price”? Instead we have a pretty simple solution.
When you pay your bill you should be given a basic slip. 1-5 rating. You give it a 5 if the service was great and a 1 if it was terrible. This should be automated and anonymous (use an iPad for example). At the end of the month the manager then divides the percentage split based on who is providing the best service.
Currently, if you leave a tip on a credit card, it gets split up (and taxed) amongst everyone in a lot of cases. So, if you change to this set up, the restaurant manager can also identify the best workers. Those workers are then quickly promoted to being managers… so on and so forth. This improves the service of the establishment, reduces turnover (top people get paid more) and everyone wins. To cap it off, if you do become friends with the good servers nothing prevents you from leaving cash as well.
The last reason why we prefer this idea is that a lot of cheap people don’t even tip. Most servers quite literally survive off of the tips. Without tips, they can’t pay their bills. This is not good and causes a lot of stress for the workers as well.
“Passive Income Tax”: We are 100% against a wealth tax as it doesn’t make sense from a logical perspective. Most ultra-wealthy are business owners and forcing them to sell their shares creates a terrible incentive structure. Would you want a CEO running a Company with a grand total of 0.001% ownership? Everyone knows that when a CEO sells his entire stake that there is something wrong 99% of the time.
So how do you fix this? Well you can simply increase the tax rate on passive income above a certain level. If you own $500M in Coca-Cola stock, the dividends paid out should be taxed a bit higher. Similarly, if you sell $500M you could change the capital gains tax to say 20% instead of 15%.
To be clear here, we’re talking about extreme levels of wealth. Doing this at low levels (someone is only worth a few million) makes little to no sense. In fact, it really only makes sense at the extreme levels (say $500M+ net worth as mentioned above).
While this one needs more flushing out, it doesn’t prevent someone from becoming a billionaire, they are still incentivized to work long hours and grow their Company. The idea of simply forcing someone to sell their assets is beyond ridiculous, kills incentives and prevents the talented person from innovating. Increasing the capital gains tax on say $100M+ of sales, would certainly make the person think about selling (forcing them to make the Company more successful to hit his higher net worth targets).
Healthcare Costs: This one is too complicated to answer in a single post. That said one extremely obvious example is variable health care costs based on how fit someone is. We’re getting to a point where we can easily track if someone is healthy based on body mass, blood work and general lifestyle habits. With detailed fitness trackers, you could simply have a once a year “test” where a person needs to complete certain exercises to reduce their health care costs (both individual and employer). Having someone who is incredibly fit at age 30 paying the same as an obese person with a drinking habit, makes no sense to us.
This would also make the United States a healthier place. No one in their right mind could possibly say that is a bad thing. The 1% of the population with a strange health ailment will be exempt from this and the remaining 99% of the population would be part of this set up. Also, by doing this we could also have better information on health metrics to improve. This would increase life expectancy and force us to learn more about the greatest disease on earth: aging.
Global Warming, Food etc.: Yes we are grouping food and global warming into one category. Why? Well we can help solve both of them by introducing basic externalities. We don’t know anything about global warming or the fast food industry. We do know fast food is terrible for your health and we do know that fossil fuels are potentially causing harm to the environment. To keep it simple we can assume that fossil fuels are a major issue.
Instead of ridiculous solutions such as “don’t use plastic straws” there should be a factual cost to both using fossil fuels and buying unhealthy fast food. By introducing real costs (a tax) you could convert this money directly into a “stipend” that is only useful for purchasing healthy food.
The key here is the direct conversion. Instead of giving someone money, it is better to incentivize good choices. If you buy a candy bar, the price is higher than it should be and that spread goes into a fund that lowers the cost of healthy food directly. This would cause people to eat better food. Similarly, a tax on fossil fuel created items (like plastics), could be used to reduce the cost of electric vehicles.
One of the big items here is that it makes a lot more sense to create a “direct conversion” of the external cost. We’re not fans of the “give everyone $1,000/month” strategy, as the likely result is increased purchases of drugs, alcohol and fast food. Instead, we should work toward a society that has a basic standard of living where food (healthy food) is as cheap as possible and a basic place to live is cheap as well.
College: This is a complete mess. While we think a smart 18-year old is not going to do something foolish (major in Ethnic Studies), the colleges should be forced to line up their cost with the results. For example, if your first position out of college pays $50,000/year this would be the amount of money you owe the University. Or some fraction say $35,000 in total. Similarly, if you end up being unemployed, you don’t owe the University anything until you get your first job.
Now we are sure there are ways to game the system we laid out (someone gets minimum wage to start and signs an offer letter to start a year later), you could easily adjust this by saying the average of 3-years of income post-University. There are many solutions. The fact of the matter is… Right now the college is not responsible at all for your success. This makes little sense as you’re paying for the opportunity to earn more in the future. If they didn’t provide those tools, you shouldn’t be paying them.
Conclusion: Generally, the ideas printed above are designed to “align incentives” and force people to make decisions that are better for them and society as a whole. We’re not against flashy items (far from it) but we’re against people buying them when they aren’t even rich (doesn’t make sense).By making these adjustments, people are pushed into smart long-term decisions and we don’t have to do foolish things such as issue a wealth tax or hand people money that will immediately be spent on hard drugs.
Our Next Q&A will be held on January 18. We will focus the majority of it on the book launch, January 31 but you’re free to ask other questions as well