Any stream of financial payments can be turned into an asset, by selling a transferable right to receive that stream of payments. For example, from the stream of tax payments that each individual citizen pays to the government each year, we could create “personal tax assets” (PTAs). These are rights to have part of this stream of money diverted to you. (We need not bundle such assets with any control rights over the target taxpayer, how much they owe, or how their taxes are collected.)
This incentivizes parents to prevent their children from moving abroad, avoiding taxes (at least for non-US citizens). Not that this is per se bad, some prevention of emigration mechanisms might actually be necessary for proper stimulation of investment in human capital. In football there is some rule that every time a player transfers, some % goes to the academy that he got trained at, which is actually a cash cow for smaller clubs from Croatia, Portugal, Netherlands, etc.
However, I do think you underestimate, in your calculation of unfunded liabilities, the ability of wealthy, Western countries to attract foreign workers, to (partially) cover these liabilities. Of current US debt + other unfunded liabilities, a significant share will be paid by people who at this moment live abroad.
Your point about the amounts of existing debt and unfunded liabilities are imo simultaneously both less and more important than you suggest.
The recent Biden and COVID explosion of deficits and debt aside, if we have a growing population (by whether combination of births and/or skilled or hard-working immigrants) and economy and the debt merely stops growing as a percentage of GDP, then arguably the amounts don’t matter at all. At least for the U.S., the world’s premier economy.
Conversely, absent an ever growing economy and productive workers to pay for current retiree benefits, the situation is even worse than those numbers you cite imply.
This might sound crazy authoritarian but why don’t we just pay poor women in poor countries money to breed the babies of the smartest and best individuals we can find. Best = most desirable traits, raise them in government child care and have super adults who are really productive later on. Kind of more efficient if you ask me
Other than “raise them in government child care”, your idea is not awful.
That bit would make it terrible on every level. But fortunately for you there is little reason to believe it would be. necessary. Finding adoptive parents for such babies would not seem to be so difficult.
You know that retirement is is often government operated everywhere around the world and that probably the worst government orphanage is still better then what ever was operated by the church
a) I know no such thing, and b) I’m saying that an orphanage would likely be unnecessary as finding adoptive parents likely would not be that difficult.
This could incentivize parents to raise children to be very career-focused at the expense of having grandkids. Might be advisable to give parents an X% PTA for their kid and an X/4% PTA for each future grandkid when the kid is born.
Selling PTAs won't work unless future tax rates are fixed; at least, the government must pledge not to *reduce* rates. The present instantiation of the government would not want thus to bind future instantiations: political circumstances might change in a way that made lower/higher tax rates seems desirable, and the government wants continually to tweak the tax code to deal with novel methods of legal tax avoidance. Also, I am not sure, not being a lawyer, that the present government has the legal authority thus to bind future ones.
The more PTAs the government sells, the greater its incentive to reduce tax rates (especially targeted reductions for the sort of people whose PTAs have already been sold). There is no comparable perverse government incentive regarding inflation.
OK, you're right. Bond-buyers estimate future inflation, but the govt. can always surprise them. PTA-buyers similarly estimate future tax rates, with no assurance what the actual rates will be. The govt. is in the driver's seat.
Do you have a writeup of the basic/fundamental PTA proposal? Specifically, how are PTA prices determined, and how is adverse selection avoided? The claim "PTAs are worth more when held by their target taxpayer than when held by others" seems to be based on the idea that someone could underpay for their PTA in order to free themselves up to be more productive. This would SEEM to just be equivalent to lowering income tax rates in the first place. Revenue is lower, productivity is higher.
I mean, reducing income tax impact is a good thing, but this seems a complicated way to achieve it.
The description of an asset doesn't include how it is traded, that is a separate choice. For cutting tax rates, it would work to have an auction to sell a large chunk of PTAs all to a single buyer. The most that someone else is willing to pay will be less than what the target taxpayer would be wiling to pay.
The description of an asset must be specific enough to reason about how it'd be traded under changing conditions. The ability to alter rates and exemptions on future earnings is a LARGE part of why tax revenue is materially different from other future cash flows, not just the uncertainty and payer-influence of annual taxable earnings. My mental model is that only the constant and predictable part can be sold, but that eliminates most of the advantage of asset-ization in the first place.
The key difference, which is the primary thing which confuses me about this proposal, is that those risks are not under the control of the securitizing/selling agent. Tax policy is under the control (loosely speaking) of the agency which is selling the product of future tax collections.
Seems like the key difference is that today governments borrow against all citizens by printing money and buying those bonds while PTAs would be borrowing against specific citizens. This seems like great optionality for the citizen, but it's unclear why gov would want to be on the hook for recruiting individual investors instead of just borrowing against the whole.
Two asides:
1. It may end up looking like a "vote" where citizens can choose to invest in a current government when they feel strongly about the current party's platform.
2. They'd make us be accredited investors to reap any of these benefits, likely making this another way for the richest to avoid taxes!
- Third party pays $900 today to earn the next 10 years of Tom taxes
- Gov benefits by receiving $900 today
- Third party can interfere to increase Tom’s annual taxes to >$100, increasing 10 year investment value beyond the starting rate of return.
I don’t see why an individual couldn’t also be the third party. You still deal with the gov<>agent problem of gov thinking it’s better to pawn off it’s future finances at set terms with each individual investor who fronts the upfront payment.
If this is reading comprehension problems on my side then i) apologies and ii) maybe you could add a more explicit example to your article to make it easier (for dummies like me) to understand.
Govt bonds are sold at auction, and so can PTAs. No need to be "accredited"; you just have to have the money to pay for your auction bid. Bond investors have always reacted to the existing govt regime and PTA investors probably would as well. Not clear why that is a problem.
This incentivizes parents to prevent their children from moving abroad, avoiding taxes (at least for non-US citizens). Not that this is per se bad, some prevention of emigration mechanisms might actually be necessary for proper stimulation of investment in human capital. In football there is some rule that every time a player transfers, some % goes to the academy that he got trained at, which is actually a cash cow for smaller clubs from Croatia, Portugal, Netherlands, etc.
However, I do think you underestimate, in your calculation of unfunded liabilities, the ability of wealthy, Western countries to attract foreign workers, to (partially) cover these liabilities. Of current US debt + other unfunded liabilities, a significant share will be paid by people who at this moment live abroad.
How do you handle emigration? It's an especially big worry for career agents.
Your point about the amounts of existing debt and unfunded liabilities are imo simultaneously both less and more important than you suggest.
The recent Biden and COVID explosion of deficits and debt aside, if we have a growing population (by whether combination of births and/or skilled or hard-working immigrants) and economy and the debt merely stops growing as a percentage of GDP, then arguably the amounts don’t matter at all. At least for the U.S., the world’s premier economy.
Conversely, absent an ever growing economy and productive workers to pay for current retiree benefits, the situation is even worse than those numbers you cite imply.
Is there a way to design PTA kind of thing but private?
Like DAO that would allow investors to buy some percent of future childs earnings?
This might sound crazy authoritarian but why don’t we just pay poor women in poor countries money to breed the babies of the smartest and best individuals we can find. Best = most desirable traits, raise them in government child care and have super adults who are really productive later on. Kind of more efficient if you ask me
Other than “raise them in government child care”, your idea is not awful.
That bit would make it terrible on every level. But fortunately for you there is little reason to believe it would be. necessary. Finding adoptive parents for such babies would not seem to be so difficult.
You know that retirement is is often government operated everywhere around the world and that probably the worst government orphanage is still better then what ever was operated by the church
a) I know no such thing, and b) I’m saying that an orphanage would likely be unnecessary as finding adoptive parents likely would not be that difficult.
Depends on scale I think
I like my idea I might write my own article on substack to get credit for it 😂😂😂
This could incentivize parents to raise children to be very career-focused at the expense of having grandkids. Might be advisable to give parents an X% PTA for their kid and an X/4% PTA for each future grandkid when the kid is born.
Selling PTAs won't work unless future tax rates are fixed; at least, the government must pledge not to *reduce* rates. The present instantiation of the government would not want thus to bind future instantiations: political circumstances might change in a way that made lower/higher tax rates seems desirable, and the government wants continually to tweak the tax code to deal with novel methods of legal tax avoidance. Also, I am not sure, not being a lawyer, that the present government has the legal authority thus to bind future ones.
If future tax rates are not fixed, then investors have to estimate and then accept such risks. But they already do that re govt bonds and inflation.
The more PTAs the government sells, the greater its incentive to reduce tax rates (especially targeted reductions for the sort of people whose PTAs have already been sold). There is no comparable perverse government incentive regarding inflation.
Not true. The more bonds the govt sells, the more it is tempted to inflate to cut that debt.
OK, you're right. Bond-buyers estimate future inflation, but the govt. can always surprise them. PTA-buyers similarly estimate future tax rates, with no assurance what the actual rates will be. The govt. is in the driver's seat.
Nonexistent people cannot sign contracts or enter into any obligation.
Did someone say they could?
Do you have a writeup of the basic/fundamental PTA proposal? Specifically, how are PTA prices determined, and how is adverse selection avoided? The claim "PTAs are worth more when held by their target taxpayer than when held by others" seems to be based on the idea that someone could underpay for their PTA in order to free themselves up to be more productive. This would SEEM to just be equivalent to lowering income tax rates in the first place. Revenue is lower, productivity is higher.
I mean, reducing income tax impact is a good thing, but this seems a complicated way to achieve it.
The description of an asset doesn't include how it is traded, that is a separate choice. For cutting tax rates, it would work to have an auction to sell a large chunk of PTAs all to a single buyer. The most that someone else is willing to pay will be less than what the target taxpayer would be wiling to pay.
The description of an asset must be specific enough to reason about how it'd be traded under changing conditions. The ability to alter rates and exemptions on future earnings is a LARGE part of why tax revenue is materially different from other future cash flows, not just the uncertainty and payer-influence of annual taxable earnings. My mental model is that only the constant and predictable part can be sold, but that eliminates most of the advantage of asset-ization in the first place.
A great many assets are traded now with hard to estimate and control risks. These include real estate and firm stock.
The key difference, which is the primary thing which confuses me about this proposal, is that those risks are not under the control of the securitizing/selling agent. Tax policy is under the control (loosely speaking) of the agency which is selling the product of future tax collections.
The value of a firm stock is very much influenced by risks that no one associated with the firm controls.
Can PTAs be applied to corporations?
Initial thoughts:
-trickier to track through time as assets trade
-obviously PTA value is correlated with stock value so it loses benefit of balancing risk
-crafty state governments might want to buy as stationary bandit
-harder to estimate beforehand, but that’s why there’s secondary markets
Sure, that could work.
Seems like the key difference is that today governments borrow against all citizens by printing money and buying those bonds while PTAs would be borrowing against specific citizens. This seems like great optionality for the citizen, but it's unclear why gov would want to be on the hook for recruiting individual investors instead of just borrowing against the whole.
Two asides:
1. It may end up looking like a "vote" where citizens can choose to invest in a current government when they feel strongly about the current party's platform.
2. They'd make us be accredited investors to reap any of these benefits, likely making this another way for the richest to avoid taxes!
I'm not sure you understand the proposal.
I understand you are proposing:
- Tom is expected to pay $100 per year in taxes
- Third party pays $900 today to earn the next 10 years of Tom taxes
- Gov benefits by receiving $900 today
- Third party can interfere to increase Tom’s annual taxes to >$100, increasing 10 year investment value beyond the starting rate of return.
I don’t see why an individual couldn’t also be the third party. You still deal with the gov<>agent problem of gov thinking it’s better to pawn off it’s future finances at set terms with each individual investor who fronts the upfront payment.
If this is reading comprehension problems on my side then i) apologies and ii) maybe you could add a more explicit example to your article to make it easier (for dummies like me) to understand.
Govt bonds are sold at auction, and so can PTAs. No need to be "accredited"; you just have to have the money to pay for your auction bid. Bond investors have always reacted to the existing govt regime and PTA investors probably would as well. Not clear why that is a problem.
Should the gov offer same terms to each individual?
Not sure which terms you have in mind here.
The financial terms.
how I understand your prop:
- a pta is for the taxes of a specific person
- if there are ptas sold for ME I expect them to reflect a POV on my future earnings
- this could mean I want different terms on returns from my pta than Joe down the street
- individuals could also outbid an initial bid on my PTA based on their ability to influence my future taxes
Then, does my boss promote me simply to arbitrage the current returns on my taxes vs future?