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Wealth tax would force business liquidation to foreign money

15 points by danschumann ↗ HN
If you tax a % of someone's worth: let's say they own 100% of a $1b company, and they pay themselves $1m/year, but the tax is 2% of their worth, then they must start paying themselves $3m/year. If the business cannot afford that, then they must sell a piece of their business each year to pay the tax.

Business valuations would plummet nationally because everyone would be trying to liquidate, because other owners must also liquidate to pay the tax, so no one would have cash left over to buy up these pieces, except foreign investors coming in to gobble them up.

So, Americans would lose interest in their own businesses (heaven forbid the government accepting payment of the wealth tax in shares, ie TAKING OVER their businesses). It wouldn't be a wealth tax as much as an economic crash, giveaway and takeover.

If someone cannot pay and cannot liquidate, then the government might seize their businesses(government controlled means of production has often lead to fascistic massacre in the past).

Also, how would you calculate how much a business is worth EVERY YEAR? It's worth what people are willing to pay for it. That would be wildly dynamic especially in the feedback loop of the mass liquidation.

It's such a terrible^squared idea that sounds so benevolent.

23 comments

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Miner49er
> heaven forbid the government accepting payment of the wealth tax in shares, ie TAKING OVER their businesses

There's your solution, the government should offer a better deal if they pay in shares.

buboard
the European central bank is buying up shares of european companies for 10 years. It's not going well
sharkmerry
There are only 135 companies even valued over $1b in the US. I dont believe any are singularly owned either.

So the business is worth $1b on paper but isnt liquid enough to pay another $2m/year? is that that common? keep in mind the above about only 135 companies in the US. The odds that the scenario you lay out will be widespread or even exist is a long shot

verdverm
Reference for the 135 companies claim?
verdverm
I found two lists with over 100 companies each, top public and unicorns with a small amount of overlap.

Looks like the 135 is the first result when googling "how many companies are worth 1 billion?"

You might try evaluating multiple results. Many private companies are not included in these lists

danschumann
Wouldn't this be an example of the type of billionare you'd want? He owns the company but pays his employees most of the earnings?
NotSammyHagar
what billionaire does that? Maybe there is one or two, but the world is not supposed to be designed for the convenience of the ultra wealthy. Of course since they have so much purchased political influence they do get a lot of things going their way.
drewrv
There are some terrible^squared assumptions baked into this. The first bad assumption is that billionaires don't have any liquid assets. Nobody clever enough to earn that kind of money keeps 98% of it in an illiquid private investment.

Second bad assumption is that valuations would plummet because "everyone" would be trying to liquidate. The current proposals only apply to a small percentage of the population, and to a small percentage of their wealth, so obviously not "everyone" would be liquidating.

The third bad assumption is that this would lead to government takeover. By your own (contrived, alarmist) situation, the government would only be entitled to 2% of a persons holdings.

BTW, the IRS already does require private companies to perform regular valuations to track how much their shares are worth.

liamcardenas
> Nobody clever enough to earn that kind of money keeps 98% of it in an illiquid private investment.

It’s interesting how often people say stuff like this. I don’t mean to presume anything about your knowledge of the habits of the ultra-wealthy— but how do you know this?

Mark Cuban, for instance, claims he would need to liquidate assets, including potentially his basketball team [1]. I agree it might not cause a crash, but certain billionaire-dominated industries, such as sports teams, might become increasingly foreign-owned.

[1] https://youtu.be/rCd2vWsWWrI start watching at 4:50

rjkennedy98
Why on earth would you believe billionaires at their word on a wealth tax. Keep in mind a good number of these billionaires have publicly stated they are close to as prosecuted as the Jews in Germany. I wouldn’t trust them an inch.
drewrv
Cuban is straight up lying about how he might need to sell his basketball team. Or he's lying about how much stock he owns. Either way he lacks credibility.

https://www.cnbc.com/2019/09/30/mark-cuban-i-have-close-to-a...

liamcardenas
Fair. In my source, he seemed to imply he would have to sell it — but didn’t actually say so explicitly. He definitively stated he would have to liquidate assets, generally speaking, after a year.

He may have stated the need to sell his team elsewhere. I seem to remember reading that but it was possible I was jumping to conclusions.

That said, I think it’s entirely reasonable to believe him when he claims not to have enough cash to pay the tax.

Again, I find it weird how some people think about this subject. Everyone is so intent on accusing billionaires of being liars.

quickthrower2
Rich people can get a line of credit secured on their assets. He’s probably bullshitting.
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danschumann
first one: The amount of liquid assets they have is probably based on the amount of liquidity they currently require. They would suddenly require more liquidity, which very likely would mean they would need to liquidate, from any initial condition. And this repeats every year.

2: if only a few people need to liquidate, it will increase supply and lower the values

3: don't pay 2% and what do you think they'll take? your freedom? that is arguably worth more than your holdings.

your criticism of my criticism doesn't even scratch it, much less negate it like your bias confirms.

And you missed the main counter you could have made.. which would be that middle class people could buy funds of the newly liquidated assets. It doesn't counter the point that it would hurt these businesses, but it would at least counter the protectionist alarmism. Sheesh, I have to do everything myself

meretext
I would love to see a flat tax -- we all pay 20%, 30% or whatever is needed. Doesn't matter where or how the money was earned, we all pay the same %, but sure, below a poverty line, say the first $20k isn't taxed. This would resolve the sense that some get by without paying via loopholes and so on.
x2f10
Open question: How, if at all, would this affect charitable givings?
8bitsrule
If Amazon extracts any value out of public roads, perhaps it should pay taxes that support those roads. After all, socialized services can't afford to look the other way forever.
stephenr
Maybe just worry about getting amazon to pay taxes in general first.
danschumann
We can talk about a VAT tax... in which case Yang > Warren.
tatrajim
The “wealth tax” exists already at the local level as real estate taxes. The introduction of a federal wealth tax is tantamount to a future national real estate tax, surely inevitable as over the decades the limit on wealth taxed drifts ever lower.