Everything written on this blog is a speculation, a thought experiment about the means by which a net wealth tax might actually be implemented and administered. When a good or interesting idea comes along, consideration of it will be integrated into the discussion.
In response to my last post on valuation methods, the commenter Frank O. asked about the valuation of a timeshare interest that has become worthless. The short answer would be that the timeshare would be accounted for at its historical value. How in fact could the timeshare be demonstrated to be worthless? If it is still carried on the books of the seller and the tax rolls at its original value? To permit a taxpayer to substitute his own estimate or to obtain and use a privately obtained assessment will not do. It leads to obvious potential to game the system.
But then I recalled that there is actually a thriving secondary market for timeshares, in which units of all kind are routinely bought and sold. If the decline in value of a particular unit is demonstrable in that market, perhaps the taxpayer could be allowed (or required) to use that number.
This leads to consideration of the possibility of a larger, generic valuation rule. Items of property - real or not - that can be sold or hypothecated in an on-going, established day-to-day market perhaps should be marked to that market value on valuation date. I don't know whether the market for timeshares is so active and liquid that a marked-to-market value is possible for all timeshares is practical. But maybe so.
Perhaps the same rule holds true for other non-monetary intangibles. If collectibles (coins, stamps, works of art, etc.) are bought and sold all the time on established markets on the Internet, perhaps those market values should be used for Net Wealth Tax purposes. On the other hand, these assets are not terribly material in the larger sense, and the political cost might be too high.
Assets for which no established market exists, which comprise most real property assets, are valued on the basis of historical cost or local assessment value. (In passing, I expect the enactment of a Net Wealth Tax would cause assessment method of local tax agencies to be conformed around the country.)
It's an interesting speculation.
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