8. Taxing the gadzilionaires

8.  According to an analyst at Goldman Sachs, Elon Musk is going to be the first person to reach the wealth of $1 trillion (i.e. $ 1 000 000 000 000). The analyst based it on the projections of the value of the other company Mr. Musk set up: Space X.

For now (as of yesterday) he is worth a mere $ 275 000 000 000 - see Real Time Billionaires (forbes.com). Still far from the nominal value of the Zimbabwean note I showed you, but getting there.

There are 11 people/families in the world worth over $100 billion.

Right now the way to avoid paying taxes by rich people in the US goes as follows:

1. Do not sell shares

2. Borrow money against the shares to finance your expenses

3. Give the shares to your offspring in your will

4. When you die, they do not pay any tax on the capital gains.

So if Mr. Musk passed away today, and if he had left all his shares to X Æ A-12, the capital gains of $279 billion would not have been taxed.

In the US, they are trying to extract some of this wealth by introducing a billionaire tax. If you have at least $ 1 billion, or had an income of at least $100 million in each of the last three years, you will have to pay a tax on unrealized capital gains.

Why are they doing it? Not because they think it is a good idea. This is the best Democrats have left as earlier proposals for a tax increase would not be passed by Congress.

7. Expiration of Covid benefits; and Canadian banks commit to environmental causes

1. Canada Covid-induced benefits (a wage subsidy and a rent subsidy (for firms and non-profits, not for individuals) are set to expire on Saturday.

If you follow the discussion whether to extends benefits, you can learn why governments find it easier to give money than to take them away. Most of the discussion is about hospitality industry, which still faces some restrictions. But the subsidies apply to all businesses that had a revenue decline of at least 10% since the pre-pandemic times. 

Of course if you ask people who receive money (or their representatives, for example business associations) they will tell you extending the benefits is absolutely necessary. This is an example of skewed incentives: they get the full benefit, but pay only a fraction of the cost, with the rest of the bill picked up by taxpayers.

You can read more about it here:

Canada’s COVID-19 benefits are set to expire on Oct. 23. Here’s what you need to know - The Globe and Mail

2. And on a positive note, the big Canadian banks signed up to the United Nations Net-Zero Banking Alliance, formally committing to shifting their lending away from projects and activities that generate greenhouse gas emissions “to align with pathways to net zero by mid-century, or sooner.” 

Opinion: Canada’s banks join Mark Carney, signaling a shift from the West’s fossil fuel dependency and delighting OPEC - The Globe and Mail

6. Debt limit again, and international trade is expected to grow

 

The Council of Economic Advisers is an office that advises the US President President. Here is what they have just written:

A default would send shock waves through global financial markets and would likely cause credit markets worldwide to freeze up and stock markets to plunge,” officials at the White House Council of Economic Advisers warned. “Employers around the world would likely have to begin laying off workers.”

The potential for an ensuing global recession, they wrote, could be worse than the 2008 financial crisis, because it would come as countries continue to struggle to escape the coronavirus pandemic. Adding to the burden, Congress and President Biden would be unable to spend money to prop up the economy until the debt limit, which caps the amount that America can borrow, is raised.

“The federal government could only stand back,” they wrote, “helpless to address the economic maelstrom.”

In other news

According to the World Trade Organization, world trade will continue to increase, especially exports from Asia. They expect the problem with freight across the Pacific to become less pronounced. But Africa will be left behind because of limited access to vaccines.

Global Trade Boom to Continue After Covid-19 Reopening Bounce - WSJ

5. What can be more valuable than bitcoin?

Answer: a little piece of platinum.

Huh?

Ok, so the US is approaching the debt limit. As we discussed before, this is political craziness. The US congress approved  commitments to spend money in the future (for example to pay for medical care for old people (Medicare) and poor people (Medicaid) or new tanks and planes, military salaries, or electricity for the US embassy in Ottawa. To pay for this spending the government needs to borrow money. But the congress that approved spending now does not want to approve borrowing to pay for it. That is the debt limit that will be reached in the middle of October.

What to do? More and more commentators argue that crazy requires a crazy solution. Legally, the US Mint (the institution that mints US coins) can mint a platinum coin of any denomination. Coins minted from any other metal are restricted to a face value of no more than $50. 

So the crazy idea is for the Mint to take a piece of platinum and stamp $1 trillion on it. That creates seigniorage:  the difference between the face value of the coin and the cost of making it. I do not know how much platinum would have to be used, but not much. 

Seigniorage belongs to the US Treasury department. And so, with this maneuver, the US government bypasses the debt limit and can pay obligations already approved by the congress.

Note: this all deals with spending that has been approved by the congress. Any new spending would have to be approved separately.

BTW, the market cap of bitcoin is $0.91 trillion.