Exactly. And people with wealth typically do not stop after their initial fortune they are continue increasing it. Problems are hundred years old family fortunes which are currently not successfully managed.
That’s on average, yes. But for those owners of business where equity value is either flat, or moderately decreases, a wealth tax is essentially a forced divestiture scheme.
PG is talking about investing in companies, not general funds.
For a founder to invest (eg., $1m) in starting a company, there is of them losing their total investment. The expected ROI needs to be fairly high to offset that.
The only people who /could/ make money under such a scenario are super-rich investors making many bets that average out risk. And they wouldnt, given -- as you say -- general equity would perform better.
Any policy implemented in this way, over trivial amounts (eg., over 0.5%), would destroy investment & the business opportunities of a generation.
Perhaps there's a different policy behind "wealth tax".
> For a founder to invest (eg., $1m) in starting a company
Do you mean founder, or investor? I don't know any founders who invest that much into their startup.
Startups are high-risk, high-return investments. If a wealth tax was introduced, wealthy people would need higher returns (as others have pointed out) to cover their tax obligations and so would invest in riskier investments. Like startups. So startup investment would increase.
> to cover their tax obligations and so would invest in riskier investments.
Just because the investment is riskier, doesn't mean the returns are automatically better. It only goes one way - higher returns are automatically more risky.
If wealth tax is implemented, then an investment automatically becomes lower return (since the wealth generated is also going to be taxed indefinitely). So an equivalent startup that would've returned 10x with no wealth tax will _need_ to return 11x (or something higher) to make the investment worth the same risk as before the wealth tax. i.e., there will be fewer investment opportunities that are suitable, given the higher bar it must reach under a wealth tax.
It's been shown time and time again, that a tax on something will discourage it (in the aggregate). I don't think a wealth tax is any different - it will discourage wealth creation.
Those figures include reinvested dividend income with respect to equity and reinvested rental income with respect to housing. In fact the return attributable to capital gains is only about 40% of of your 7% (page 25). Income is already taxed, at a significantly higher rate than any of the propsed wealth taxes.
You are right of course, but since we are talking in the context of successful founders, I figured the relatively small exemption wasn't that important.
What percentage of founders experience a liquidity event netting them enough to be impacted by a wealth tax (90% of startups fail [1])? This is arguing against taxing a lottery ticket, while not addressing the issue of existing wealth inequality.
“Socialism never took root in America because the poor see themselves not as an exploited proletariat but as temporarily embarrassed millionaires.” ― Ronald Wright
EDIT: @Applejinx: Wealth exponentially is exactly what I refer to by wealth inequality. Excellent points.
> Or, rather, how the lack of reward fails to motivate.
One example that comes to mind is the entire open source community, the provides enormous amounts of productivity with little to no compensation, would rebut this argument. Another example would be Watsi, a YC startup, with enormous impact but no profit motive (there are many top notch YC non profits, I pick this one because it is my favorite).
Taxes are higher in most of the developed world. People still start businesses, people still go to work. We don't have to shy away from policies that make the wealthy nervous. I do not buy the argument that innovation will die because of higher taxes.
>Taxes are higher in most of the developed world. People still start businesses, people still go to work.
They still start businesses, but they start far fewer per capita: compare for instance the number of new Fortune 500 entrants over the past couple decades from the US vs from Europe.
I think the point is that if you think you have a chance of accumulating wealth (either through founding a start up, or from stock grants from an established tech company), and you have an option of living in a place with a wealth tax or one without a wealth tax, you will very likely choose to live in a place without a wealth tax. Your right, it is a lottery ticket, but if you are going to buy a really expensive lottery ticket, most people won't want to give up a large chunk of the value of that lottery ticket, so they'll start businesses elsewhere.
Whereas some people think the government should tax wealth, this shows that governments are likely to have less tax revenue as people move out of that state/country. Given the recent shift to more remote working, this means that people are less tied to living in a particular place in order to have a certain job.
I suggest tariffs and other cross border financial capture mechanisms to counteract people vacating the jurisdiction while still attempting to capture value from an economy they choose to not pay taxes in. Speaking as a citizen, I don't want my nation to participate to a race to a bottom or not capture the taxes they should because of a vocal minority (startup ecosystem participants). I think this is reasonable, and more important than startup dynamism considering the societal damage excessive wealth inequality causes (which eventually resets with violence or revolution, historically speaking).
Also, wealth inequality isn't really the issue: few people are going for literal equality here, and it's misleading and disconcerting to people.
The problem is wealth EXPONENTIALITY. Pretty much any billionaire or trillionaire, as a person, produced more effectively when they were a millionaire, or even less wealthy than that. There is NO benefit to having individuals directly control wealth on the scale of small (or large) countries, and very little benefit to having collective entities like corporations controlling wealth which is that out of scale with other entities in their environment.
Wealth exponentiality is the problem. Equality isn't at all necessary.
This ignores the fact that everywhere (including countries where wealth taxes are implemented today), there is a floor below which the tax does not kick in.
This. What all of these taxes accomplish is preventing people from becoming wealthy. In this way it benefits the people that are already wealthy by making it that much harder to climb the wealth ladder. Many of the tax increases on the "rich" really just tax the upper middle class and do nothing to tax people that are actually wealthy.
If you want to tax the wealthy, then simplify the tax code and remove loopholes and deductions. Leave rates alone.
No, but they also wouldn't be that effective at taxing wealthy people that would structure their wealth to avoid the tax. That's the issue. You either lower the limit to the point where you capture the upper middle class, or you don't get any revenue because wealthy people can avoid the tax entirely.
Yeah, exactly: The floor is not going to be "100 million" for very long before they have to drop it to "100 thousand" because the people with "100 million" can change the way they structure their wealth faster than the regulators, because of regulatory capture and they'll need that money from somewhere. The upper-middle class carries almost the entire tax burden of the U.S. It's hard to boo-hoo about when you've got 2 cars, a single family home, etc. but it has an enormous negative impact on the economy to punish one tier of the economic ladder so hard.
All breakpoints in tax systems contribute to market inefficiency, because they incentivize manipulating your finances to stay below breakpoints instead of maximizing efficiency. It would be better to apply a flat wealth tax and correct for the regressive effect of decreasing marginal utility of money with UBI.
That doesn't make sense. Once you hit a threshold, usually the amount of money below the threshold is taxed at 0% or a lower percentage, then anything earned on top is taxed at a higher rate. You still earn more money by earning above the threshold.
That's still a discontinuity in the marginal value of income. You don't need the slope of the post-tax income:pre-tax income graph to go negative for there to be inefficiency. Any sharp change in the curve is enough.
Where's the incentive to fiddle your taxes? Yes you can donate your money to bring yourself into a lower tax band but you will still never have more in your bank account by doing so. e.g if there is a system where tax is 10% then it goes up to 20% at a $100 income. If I earn 99 then my take home is 89.1 (99 * 0.9) if I earn 101 then my take home is 90.8 (100 * 0.9 + 1 * 0.8). Yes, the effective tax rate is higher but I can never take home more by deliberately earning less money.
Note: I am note defending any previous arguments, just trying to make a fact clearer.
Your calculations was right in that idealistic tax system, but the real world is really messy with lots of exceptions, Tax credits, Benefits, and such.
Building on your example, I will add a little Child Benefit to make a slightly less ideal idealistic-scenario.
I chose this example because I remember vividly a story about a family in the UK that avoided getting promoted because their take-home would decrease. Of course it have to be a very small promotion in order to not be worth it. I don't know if cases like this is rare in the US, but it is generally a thing.
You're forgetting benefit cliffs which are a large chunk of the discontinuity problems. Any benefit that does not have a gradual phase-out (like subsidized health care plans) will lead to these discontinuity problems.
if you make $100,000,001 under a 100 million wealth tax at 1%, you pay $.01, not $1,000,000.01 so there is no point trying to stay under 100 million.
Further, a flat wealth tax has immense inefficiency in that it forces people with $100s or $1000s of dollars to their name to calculate their wealth for a $1-$100 payout to the government rather than do something productive with their time.
Very much. The numbers politicians have thrown around have had floors from 100 million to a billion. If Graham is speaking to the interests of future 100 millionaires I think most of them should be far more concerned about the country they live in when they almost assuredly never get anywhere close to that ceiling. For the few who do, who can shed tears when someone with 100s of millions is thwarted by government policy from reaching levels already so far beyond that which would compromise the happiness of an extremely privileged person. Nobody realistically suggesting something that is going to blunt startup Johnny's adventure to make enough money to buy a huge condo in SF, a Rolls Royce, a yaht, and a private waitstaff, if that is what Graham is raising alarms over. Johnny can keep dreaming.
The Constitution is irrelevant as long as you can get five justices on your side. Most gun laws, the expansive interpretation of the commerce clause, etc., are blatantly unConstitutional, but you can't get five for overturning, so they stand.
Rich man wants even more as poor suffer. News at 10.
Really we should tax land as there is no deadweight loss. I don't agree with taxing wealth creation. He should have articulated an alternative, as the current situation is not sustainable.
Someone forgot to model growth in the value of the asset, and/or putting the wealth to use. A wealth tax is, to an approximation, the equivalent of the "management fee" that an ETF charges, but with the revenues going to the government.
If you have a bucket of money that isn't doing anything, then what value does it actually bring to the economy? Penalizing static value seems almost reasonable.
>If you have a bucket of money that isn't doing anything, then what value does it actually bring to the economy
Wealthy people don't just leave their money under a mattress, they invest it in something. Even if they just left it in a bank, the bank is still going to lend that money out and invest it. Taxing wealth just encourages riskier investments, as higher risk is needed to achieve comparable post-tax return.
“Riskier”, but how much riskier? Having to beat inflation by 1% is not that much riskier compared to the gained equality in taxation. Bad argument. You can’t leave off the amount and implicitly use the worst case scenario to argue against all cases.
Considering the risk-free interest rate in the US is currently around 0.7%, finding a low-risk extra percentage point return is non-trivial. Most of these people have wealth managers or invest in funds; you think if they could earn an extra percentage point return without much risk, they wouldn't already be doing that?
That effect would make startups more attractive. But it would be completely cancelled by a countervailing effect: the wealth tax strongly incentives liquid investments. Which of course heavily penalizes investing in startups as they're small, speculative privately-held, hard-to-value companies.
Currently investment is only taxed on a "realized basis". No tax bill is due until the investor realizes a cash profit, either by receiving a dividend or harvesting capital gains on sale of the asset. In contrast a wealth tax is assessed every year, regardless of whether the investor has actually earned any actual income.
Under current tax law, an investor is not penalized for continuing to hold a high-value asset. In contrast under a wealth tax regime, an investor would be forced to sell some portion of his portfolio every year just to pay his tax bill. That heavily favors large, liquid, public companies over startups. Selling a million dollars of Amazon shares is as easy as pressing a button. Selling a million dollars of a Series-A startup, especially at a fair price, is really hard.
This would especially impact early-stage employees, who usually hold a very high fraction of their net worth in their stock options. At least VC investors usually have other holdings that they could liquidate to pay their annual wealth tax.
Imagine you own 20% of a company with a $50 million valuation. On paper, you're a deca-millionaire. But in reality you could easily have an overdrawn checking account. How do you get your hands on $100k in cash to pay your tax bill? There's no real market to sell your shares, and very likely you can't even do so without board approval. You could borrow the money, but if the company fails, you're now left with huge debt and worthless equity.
In all likelihood a wealth tax would pretty much destroy the Silicon Valley startup ecosystem. Or at least remake it into something totally unrecognizable.
Evidence points to the contrary: Taxes reduce profitability and therefore limit risk taking behaviour by companies. Same is most likely true for individuals because it reduces their income.
> Taxes reduce profitability and therefore limit risk taking behaviour by companies.
But taxes provide services that give people a greater safety net. Healthcare is the canonical example but there are many other ways that taxes can help ensure that one mistake does not ruin the rest of your life.
Personally, I would love to live in a country where businesses took fewer risks and individuals could take more.
Exactly. Capital gains tax is equivalent to a wealth tax on appreciating assets only, which is the only kind of assets you should be targeting with a wealth tax. So just implement a sensible capital gains tax, and you're done.
Considering it's the ones who hold the largest pools of assets affected who can buy the changes to the tax code to build loopholes to get themselves exempted, that seems about impossible.
Assuming your thesis that taxing wealth encourages riskier investments for a minute. Why is that a problem? Isn't putting money into riskier assets a good thing for long term advancements in asset classes with high potential reward?
It doesn't seem like low risk investments like sticking money in the bank to be lent as mortgages or investing in government bonds are as good for humanity over the long term.
But a wealth tax also targets owners of assets that don’t appreciate. It taxes both the winners and the losers, and for the latter it’s nothing but a forced divestiture of their ownership stake.
A capital gains tax, on the other hand, strictly targets those whose assets have appreciated in value.
Wealth is always eventually taxed when it’s liquidated. And if it is never liquidated, then it arguably doesn’t really matter.
Wealth hoarding matters immensely for things like land, which is why the most common wealth tax is a tax on real estate holdings.
It can also matter for other resources which are finite, but land is one of the most crucial one in our current times, and why we are seeing such ridiculously large gains in housing costs in the past few decades after a century of housing costs remaining fairly constant.
I'm also fully in favor of wealth taxes, especially since the US has weakened estate taxes and other checks that would help mitigate increasing inequality.
I started mentioning land, as it's the most clear problem of idle wealth. But hugely unequal distribution of wealth also results in slower economic growth and overall less economic activity than if there is more equal access to capital and resources. Capital strikes can be just as effective as labor strikes, and though they don't get much attention they can cause great harm.
> But hugely unequal distribution of wealth also results in slower economic growth and overall less economic activity than if there is more equal access to capital and resources
But wealth != capital. Wealth only becomes capital when it is realized/liquidated, at which point it is taxed. Before that happens, one person's wealth doesn't preclude someone else from investing or being productive because unlike land, wealth is not zero-sum.
Sure, wealth isn't zero-sum, but when it's built on top of people making $7.25 an hour with no benefits (or less than that as a contractor), it may as well be.
And yes, there are other options for solving problems like that beyond just a wealth tax, but maybe a wealth tax is part of the solution.
> but when it's built on top of people making $7.25 an hour with no benefits, it may as well be.
But...it's not? The only person who has concentrated an unimaginable amount of wealth for which this might be true is Jeff Bezos's Amazon, except Amazon workers all earn a $15 minimum wage, 401k matching, and are part of the same group health insurance plan as the engineers and product managers. They happen to enjoy some of the best health insurance available to an entry level job that requires no college education.
Outside of Bezos, the vast majority of the wealthy pay their workers handsomely (Bloomberg, Bill Gates, Tim Cook, Page/Brin/Pichai).
And even if this was somehow a pervasive truth, the solution to that is a basic income, not a wealth tax. A wealth tax wouldn't even come remotely close to funding a basic income. If you were to seize 100% of all wealth of the top Forbes 500, you would get enough money to run the current Federal government for 8 months. Not 8 months per year, 8 months ONE TIME.
Jobs don't just grow out of thin air. That $7.25 job is self-evidently better for the worker than whatever other opportunities they had available, otherwise they wouldn't be doing it. Taking away that opportunity won't make their life any better, just means they end up on a worse job.
Well when we have lots of labor, and seemingly not enough jobs for people, even when they could be doing productive things that build their own wealth and others' wealth (like building homes), then that $7.25 wage being the "best" option is a failure of the system, because too few people I society have been empowered with the option of starting their own businesses, or having the access to the tools that would let them create wealth. Too much inequality, not enough people with money to spend, and not enough capital movement to allow people to create new jobs.
Capitalism is a fantastic means for directing economic forces as long as everybody has enough capital to do the voting, as it were. If only a few people hold all the capital, then only a few people make decisions and will often engage in capital strikes rather than risk the chance that their position may be threatened.
I agree that people lack opportunities and that's a failure of the system, but I think the problem isn't limited capital. I think the problem is the monopoly on land ownership. If there was land freely available, people would happily use it to generate wages, wealth, etc. Obviously land is a limited resource and we can't always just have more "freely available", but a land value tax could remove the monopoly and create new opportunity for development that's otherwise hindered.
I just read Progress and Poverty by Henry George and he makes this point very clearly. I highly recommend giving this book a read if you haven't yet.
It is a fallacy and ignores the benefit to the economy that having a living wage level of pay for all citizenry vs the artificial corporate welfare support of having government entitlements (food stamps, medicaid, etc) making up the difference so that corporations can pay less. Lassez faire capitalism seems to be a common fallacy promulgated on HN a lot.
Correct, they grow out of having a middle class with purchasing power, who can buy products and services, thus creating jobs for those who provide those things. But the middle class's effective purchasing has been going down for decades, while the wealth at the top has been increasing. So something needs to be done to balance these flows of capital - the current situation is not sustainable.
I agree that a UBI will probably be needed in the future, and that a wealth tax alone won't fund it - but it could be part of it. The way I see it a wealth tax is more like a 'catch all' tax - it's a fallback in case the other taxes and regulations that should be in place to counter-act income inequality fail. Those rules are much more important, but we might as well have the wealth tax too.
And because that liquidation or transformation is a taxable event, and holding the wealth is not, people are far more likely to hold onto wealth rather than try to transform it.
Totally agreed that wealth is not zero-sum, and I thank you for bringing it up, because zero-sum-thinking is all too common, and the reason for so much misery when it comes to thinking about these things. (But even as a non-zero-sum, availability of capital is highly influenced by the degree of idleness of wealth hoards.)
> And because that liquidation or transformation is a taxable event, and holding the wealth is not, people are far more likely to hold onto wealth rather than try to transform it.
But if wealth is never liquidated, then how is it anything more than just a life high score? It's inconsequential to the outside world.
If it were completely inconsequential to the outside world, then others would not value it, and it wouldn't be considered wealth.
But I do agree that since wealth is not zero sum, it is completely consequential. Where it really matters is when the wealth distribution becomes more unequal, resulting in less ability to initiate new economic ventures. Extreme wealth inequality results in only a very few people controlling the economy, and in those cases wealth hoarding becomes an end in itself to concentrate economic powers away from others, and an end in itself.
> If it were completely inconsequential to the outside world, then others would not value it, and it wouldn't be considered wealth.
That makes no sense. Just because the fair market value of Elon Musk's holdings in SpaceX and Tesla is some collectively decided amount, doesn't mean that Elon Musk actually possesses that money and can do anything meaningful with it.
If he wants to do anything meaningful at all with that theoretical value,
he will have to liquidate some of it and turn it into non-theoretical money, and that is taxed already. If he just lets it wither away, then it's of no use to anyone else.
> Where it really matters is when the wealth distribution becomes more unequal, resulting in less ability to initiate new economic ventures
But this just hasn't been true at all. Just because Bezos is a 100 billionaire on paper, doesn't mean that I will have a harder time raising venture capital for my startup. Wealth isn't zero-sum. And the paper value of one's wealth isn't backed by liquid money, I.e. Bezos's 100+ billion in wealth doesn't actually lock 100 billion dollars in cash from other investments.
If you're making the argument that it's difficult to initiate a new economic venture in the same space as Amazon, that's just because Amazon is a strong company — there is nothing wrong with that.
There's a huge difference between wealth and money; having massive wealth and valuing it in dollars may seem nonsensical, and at some level it is, yet it is the way that everybody operates. The "Fair market value" is not inconsequential even if wealth is not liquid.
Regarding going to a VC to get capital: think about how this process works in one very tiny slice of the economy. You build trust with a small set of people that are the arbiters of capital and who gets the resources to start a new venture. If there was only one VC firm in the valley, it would be disastrous because they would hold all the power. It is only through the agglomeration of many potential sources of capital that really makes the system run well.
In the rest of the economy, there are few VCs, and for a lot of profitable, but smaller businesses, capital is super hard to come by. A person who sees a future in, for example, electrification retrofits of homes and has several good ideas about how to make it cheaper and more economically efficient, is going to have a really hard tome getting going. However, if their own community knew about this person's ability to scale a small business, and knew of the intelligence and grit of a person through their own personal relationship, and if that community had small amounts of capital to throw in to get the newcomer off the ground, overall wealth is increased as the new venture starts serving the needs of people.
But this requires more equal distribution of capital, and to change the arbiters of capital from a few hundred people to everybody.
I don't really hear many people talking about friends, family, and fools rounds these days because the game has changed. However if we had more people that could use their knowledge of the local lay of the land to invest more wisely, we'd have far greater wealth generation.
IMHO, the problem with inequality isn't the person with $100B, the problem is all the talented and skilled people whose ideas go to waste because they can't get the attention of the very few people that have been entrusted with the ability to allocate capital.
The more inequality there is, the closer we get to central planning, and erasure of the talents of so many people.
> having massive wealth and valuing it in dollars may seem nonsensical, and at some level it is, yet it is the way that everybody operates.
If this was true, then why is nobody talking about imposing a tax on the market capitalization of corporations? Think about how much revenue you can raise by levying a 1% tax on Microsoft's market cap. But this is absurd, because the market cap doesn't represent actual money, it represents the theoretical value on all shares outstanding.
> In the rest of the economy, there are few VCs, and for a lot of profitable, but smaller businesses, capital is super hard to come by.
This is manifestly untrue. In the last 10 years of near-negative interest rates and quantitative easing, capital has been almost too easy to come by. Everyone and their mother is lending money.
> A person who sees a future in, for example, electrification retrofits of homes and has several good ideas about how to make it cheaper and more economically efficient, is going to have a really hard tome getting going.
Not true at all. Most banks and credit unions would extend dirt cheap loans. We are arguably over-leveraged on these kinds of loans.
> I don't really hear many people talking about friends, family, and fools rounds these days because the game has changed. However if we had more people that could use their knowledge of the local lay of the land to invest more wisely, we'd have far greater wealth generation.
The reason for this has everything to do with globalization and 21st century communications technology. It is no longer sufficient to be the best electrician in your neighborhood, you now need to be the best electrician in the country or perhaps even the world, given how easy it is to reach consumers today.
To give you a sense for how the scale of globalization has made it difficult to compete locally, consider how easy it is for a new business to reach every American today. There are 330 million people in America. You just need to provide $3 of value ONE TIME to every American, and you become a billionaire. Likewise, on a global scale, there are 7.8 billion people in the world. If you can get 1% of them to pay you a penny once a year, you're making $780k/year.
"Inequality" is inevitable in this world, but again the wealth isn't zero-sum. We're not remotely close to "central planning", because the wealthiest person on the planet (on paper) only represents ~0.5% of the annual GDP of the US alone. And that's not even an apples-to-apples comparison because the paper wealth is accumulated over years, whereas the GDP occurs every year. The accumulation of Bezos' wealth over the last 20 years is about 0.05% of the accumulated gross-product of the US, alone.
Yes. The point is exactly that globalization has made competing locally hard. That's the accepted fact. Globalization has increased, not decreased (as was the original hypothesis) the distance between the top and the average wealth holders in society.
The coalescing and hoarding of wealth results in the deterioration of the average value of a human life. This is bad for a western liberal society because it demonstrates that the values upon which the society operates do not yield positive outcomes for enough people to be satisfied and hopeful. If capitalism is to remain the dominant economic system, it either has to enslave the masses and oppress them into submission (which they are currently resisting), or it has to work to continually operate in a way such that the perception of wealth is maximally shared.
I agree inequality is inevitable. Everyone has different priorities, abilities, etc. But human rights must be preserved (globally) and access to opportunity and capital, hope, must be universally available. This is the only way to justify the inequality of outcomes.
To tax wealth is really to say that socially we don't want institutions to remain in comfortable positions of perceived power without continually demonstrating utility. You build up a large estate? Great. But you must continually demonstrate its utility by actively working to distribute the wealth, not just generate goods and services. Or, have it done for you.
It doesn't seem to me that it's a problem, per say, that wealth is not tangible. Money isn't really either. Cash is simply a tool that a capitalist society uses to encourage the exchange of goods and across markets where it wouldn't otherwise be obvious how to make an exchange. Having a lot of cash does not make one wealthy, and having wealth does not imply liquidity. At any moment one can become the other or simply evaporate altogether.
It seems that the point is really about how to mitigate the tendency for institutions that have extracted much wealth from society to deploy it in efforts of self preservation. In the current state, you need a revolution to tear down entrenched institutions. In this forum and generally in the valley where we have essentially arbitrary access to capital, we prefer (or have been trained) to be a little bit disruptive all the time rather than massively disruptive a little bit of the time. We've demonstrated that this model works. And fundamental to the model is essentially arbitrary access to capital.
So I guess my question is if as you suggest access to capital is more available than it's ever been, why isn't it being deployed? Perhaps globalization has driven the bastions of wealth to build such high walls that they find themselves among the clouds?
> The coalescing and hoarding of wealth results in the deterioration of the average value of a human life.
This is not true at all. If Bill Gates walks into a bar, the wealth distribution changes dramatically, but the absolute standard of living of the existing people doesn't change at all. In fact, you could even argue that the absolute standard of living increases, since almost nobody is super-wealthy in a vacuum; they enjoy their wealth because they provide value to others via goods & services. That's the whole point behind the argument that "wealth is not zero-sum".
> access to opportunity and capital, hope, must be universally available
Again, it's not clear at all how one's theoretical net worth negatively impacts someone else's access to opportunity / capital. When my rent goes up, it's not because I'm in a bidding war with Jeff Bezos. An MRI doesn't become unaffordable because Jeff Bezos exists.
> Money isn't really either. Cash is simply a tool that a capitalist society uses to encourage the exchange of goods and across markets where it wouldn't otherwise be obvious how to make an exchange.
Money is arguably zero-sum, because there's a finite amount of it. When someone else hoards billions in cash, it means that there is a significant portion of the total money supply that is out of circulation. That's what's bad for society. When wealth turns into money, we already tax it..
> It seems that the point is really about how to mitigate the tendency for institutions that have extracted much wealth from society
Wealth isn't "extracted from society", because it isn't zero-sum. It's not like there's some finite amount of wealth, and the super-rich have taken it from everyone else.
> So I guess my question is if as you suggest access to capital is more available than it's ever been, why isn't it being deployed?
I'm not sure the premise is correct. There is more capital deployed today, per capita, than at any time in human history, even after adjusting for inflation.
Haven’te we heard less of friends and family rounds because there has been an exponential increase in seed funds?
People got wealthy invested into funds or started funds and are now committing capital back.
Having a hard time raising money is an issue but that’s because 90% of companies fail. As such that is too risky for a bank to lend into so you need to go to other segments.
In fact, the vast majority of US wealth is tied up in private companies (and, of those, in a few extremely large companies). A wealth tax would not be ruinous for the entities paying it.
> It can also matter for other resources which are finite, but land is one of the most crucial one in our current times, and why we are seeing such ridiculously large gains in housing costs in the past few decades after a century of housing costs remaining fairly constant.
If we were being restricted by land availability, we could fix that easily by putting more housing on the same amount of land. That problem was solved long ago.
> we could fix that easily by putting more housing on the same amount of land
As somebody who has been watching the process for this for years, let me tell you that it is the exact opposite of easy, and nearly impossible.
And it's nearly impossible because current wealth holders are able to stop it from being built. And in most areas where there are housing shortages, locals and local governments consider the current land "built out" meaning that the zoning does not permit more housing or more height than is already built, an the notion of changing these arbitrary restrictions is so inconceivable that it almost never happens.
This is what has really changed over the past yes decades to make housing prices soar: refusal to allow more housing to be built on existing land.
It's not a different analysis, it's my core point. Land is valued very differently depending on what it can be used for, and what it is close to, and is completely non-fungible.
Zoning restrictions have been used as a means to massively inflate home values in the US in high demand areas, and that program really came to fruition in the 80s and 90s as areas became "built out" according to allowed zoning. Which then fueled the massive inflation in housing costs.
This restriction on allowed uses has differing effects depending on whether it's applies in small areas or large areas: downzone a single lot or single neighborhood in a city and it may prevent those parcels from becoming too valuable because they have limited use. Downzone an entire city and it causes housing values to soar because it has created a housing shortage.
In the Bay Area we have a massive shortage of land that allows more housing to be built on it, and even land for which we can build offices.
This here is the argument that will make a wealth tax face severe opposition. Most wealth is held not by the 1%, but by the next 19%, living in their nice low-density suburban areas. Today there are proposals for taxing wealth over $50 million, but it’s just a matter of time before someone comes after their homes.
While I don't doubt that this rhetoric may be raised, the 19% are already exposed to much more wealth tax than the 1% because of property tax. However emotions and rhetoric about tax make people easily fooled in the political sphere.
You just suggested that the only way to solve housing shortages is to attack the broader upper middle classes with a wealth tax that will push many more of them out of their homes than are currently pushed out by property tax defaults. Funny for you to word it so passively as “this rhetoric will be raised”.
I don't know how I could have implied anything about pushing people out of their houses with taxes. Could you be more explicit about what I said that led you to this?
Building more housing on sites when they change hands, though normal, unforced moves, when a person retires and moves to a new location, or when a person gets a new job and moves for it will provide ample land to build more housing. As long as people are allowed to.
Property taxes forcing people out of homes is a common scare tactic, but it's simple to provide homestead protections that would prevent any forced moves, and also allow the homeowner to capture the fantastic gains in wealth that accompany any land market where there is a shortage of housing. Property taxes only shift the non-resident real estate investor to make sure that they are providing what people need, rather than using idle wealth to keep people out of an area where lots of people want to live.
The vast majority of low-density housing in the US is owner occupied, and the majority of investor owned properties are already multi-unit dwellings. There is already plenty of incentive for self-interested investors to increase housing supply, the it seems implied that you’re in favour of a policy that changes the tax situation for owner-occupied homes.
Wealth tax doesn’t push people out of assets, it makes assets less valuable because of higher discount rate. Making housing cheaper sounds like a good thing.
Currently, capital gains is on taxed on sale. Even on sale there are ways to reduce or defer it (opportunity zone investments for example). Some also donate appreciated shares to charities that are suspect (Trump comes to mind).
Most billionaires don’t sell most of their stock during their entire lifetime.
> if it is never liquidated, then it arguably doesn’t really matter.
This is also not true. It does matter. It is not difficult to take extremely large "loans" (loans are not taxed) against assets that you own, in order to avoid actually selling the asset. This is a not-rocket-science way to reap the benefits of an absolutely massive fortune without any of it ever being "liquidated".
> You might argue that this is realm of the "Estate Tax", but that is a different topic.
What? Why? This is pretty squarely in the realm of how to taxa transfer of wealth. The wealth tax is a really ham-fisted way to solve this problem.
> It is not difficult to take extremely large "loans" (loans are not taxed) against assets that you own, in order to avoid actually selling the asset.
Even if one were to take a collateralized loan, it would need to eventually be repaid, and for this to happen, some gain would have to be realized somewhere. That money isn't free. No matter what, that wealth is eventually taxed.
"relinquish ownership of your own company". Only down to the very generous floor of the wealth tax, and only in the very worst case where you have no other way to access liquidity based on the value of the company, which seems unlikely unless that value is extremely inflated. I see you make your case in a bunch of comments in this thread, and it seems to me applicable to a very narrow case, and even in that case doesn't have drastic consequences.
> and it seems to me applicable to a very narrow case
The floor of the wealth tax doesn't really refute the central argument, because it just means that it impacts anyone who owns a business worth over $50 million. This is a LOT of businesses in the US!
> and even in that case doesn't have drastic consequences.
That level of liquidation and lost ownership will have potentially disastrous ripple effects on the economy, because for a lot of companies, the theoretical market value — upon which one's theoretical net worth ("wealth") is calculated — is based in large part on that individual maintaining ownership and control of the company. Once a founder starts liquidating large portions of their wealth and divesting their ownership, it's difficult to predict what that could do to the value of the company, and consequently the value of pension funds and portfolios that rely on the stability of the corporate value, and ultimately impacts the employees of those very corporations.
The Cartesian product of all ownership * value that work out to > $50M is substantial enough that it's 1) probably not fair to individual business owners to force them to divest to raise a minuscule percentage of the Federal budget, and 2) probably not worth the potentially disastrous 2nd-order effects on pension funds and investment funds that are largely predicated on stable/competent corporate ownership.
In any case, it sounds like you've conceded that there is a forced divestiture, and now the argument boils down to: "is that justified?"
Just want to say I appreciate how civil you've been and thorough in replying to the comments. You've added so much knowledge and wisdom to this whole discussion I wish I could save all your comments.
> The floor of the wealth tax doesn't really refute the central argument, because it just means that it impacts anyone who owns a business worth over $50 million. This is a LOT of businesses in the US!
We can actually look at the Fed's Survey of Consumer Finances and get a reasonable number here. Household's with >$50m are top 0.07% percentile and there are approximately 84k of them out of around 130 million households....
1) I agree with you, taxing asset holdings is strange logistically.
I think it be best to tax income. The only change I'd make is currently, income is taxed at a percentage based on your total income in the year. What could change is to tax income at a percentage that is a function of the current estimated value of your wealth instead. So if you cashed out 1 million and that's all you have, you'd pay less tax on it than if someone cashed out 1 million but still had another 10 million worth.
2) Maybe it's a bad idea to allow anyone to own too much of anything of great value to society.
In that regard, it could make sense to force wealthy people to sell some of it, to whatever treshold we believe is too much for one person to own.
That's where I think a wealth tax could come in as a vehicle to force people who own too much to sell some of it. So that we have a more evenly distributed wealth ownership accross the board.
The only thing here is I'm not sure if a wealth tax is the best scheme for this. I think the income tax that I described in #1 would be good when it comes to taxes (money that goes to the government). For wealth, I'd be more inclined with something like where people have to sell a percentage, but taxes don't necessarily need to be involved (beyond the income tax as described from the sell). The idea here is just that no one should own too much, so at some point, you need to sell so that ownership is better distributed. Not necessarily that this should go towards taxes.
Wealth tax proposals target only very high nw people. There is no inherent right to be very high net worth, if you are not productive with your wealth then it is more efficient for the society if that wealth is reallocated. This is what wealth tax does.
> there is no inherent right to be very high net worth
But there is an inherent right to the ownership of property (enshrined in the US Constitution).
A Federal wealth tax is currently unconstitutional for the same reason that you don’t have Federal property taxes: the Constitution explicitly prohibits the Federal government from levying direct taxes except for income (via the 16th Amendment). Wealth is not income.
We should incentivize productivity (thus low income/gains taxes) but pay for goods and services (thus wealth and inheritance taxes). There is nothing beneficial for society if there are people with large amounts of poorly allocated wealth (ie not productive enough to grow faster than tax rate).
I don’t think Paul forgot, it’s why he phrased it in terms of stock not dollars. If you start a company and hold on to ownership for 60+ years, you could be forced to sell X% to cover the wealth tax over the years
Yes, but at the end you'll still have more real value in that stock then you had at the start, assuming your stock at least performs equal with the market.
The board is unlikely to agree to give a CEO or board member enough stock to maintain control of the company. I don't even think this is an unintentional goal - most wealth tax proponents I've seen are explicitly trying to prevent situations like with Cargill or Walmart, where the founder and his descendants can control the company forever.
Government Spending is included in GDP and government services have value to a society.
It is not simple just a management fee because instead of being used to purchase a luxury goods it may be used to improve healthcare, infrastructure or regulating industry.
If it wasn’t for government investing into DARPA none of these startups would even exist.
> If you have a bucket of money that isn't doing anything, then what value does it actually bring to the economy? Penalizing static value seems almost reasonable.
We already do that via inflation. Leave your money uninvested and we tax it 2% or more per year, every year.
One big difference here is that inflation affects everyone equally (not exactly right, but let's ignore that for now). A wealth tax would act as an extra tax on ultra wealthy individuals.
Modeling the growth does not change the results in any way that makes the tax seem more favorable.
Taxing away 1% of an asset that grows 0% every year leaves 45% of the assets that would be present without the tax after 60 years.
Taxing away 1% of an asset that grows 7% every year leaves 45% of the assets that would be present without the tax after 60 years.
However, to be more realistic, modeling growth makes the taxation even worse, because at times when your equity is at a high valuation, you need to sell some equity and then some extra on top of that in case your equity value crashes before the end of the year/ end of the tax period. You are forced to act defensively.
> Someone forgot to model growth in the value of the asset, and/or putting the wealth to use.
It's surprisingly not different.
If you have an asset that is dormant, is $100, and you tax it with 1% for 20 years, you get to $81.79 by calculating 1000.99^20.
Now suppose instead, your asset grows by 10% a year, and you have no tax. That asset grows to 1001.10^20 = $672
Now suppose that prior to the investment each year you tax it with 1% and invest the rest, for 20 years, again at 10%. So you get 1000.99^201.10^20 = $550
That $550 of $672 is exactly the same portion as $81.79 is of $100. In other words, growth or no growth, it has exactly the same effect, either way a 1% tax over 20 years takes 18.2%.
> Penalizing static value seems almost reasonable.
In the philosophy of taxation there's a different approach. Money you own is money you earned. Typically earnings are taxed. You produce X value, and a small portion of X is allocated to a general pot of money to fund general things in society, e.g. infrastructure, rule of law etc. But after that, it's your money. If you then invest it and earn more, again, a portion of those earnings are taxed. But if you don't do anything with the money, for the government to take it, is seen as a form of theft.
The principle why the one form of appropriation is okay and the other isn't, is because when you earn, you benefit. And the government benefits, too. When you just store, you don't benefit, and taking it is a purely negative experience. Many people are willing to share part of their new earnings. Few are willing to give up something that has always belonged to them.
Inflation is a natural penalty on static value anyway. So are opportunity costs. Plus, actually static value is quite rare, money in a savings account is being put to work by the bank. The amount of really static money (like money under your mattress, or a permanently vacant home) is quite a small portion of the financial system and again being penalised by inflation and opportunity costs already.
You're gussying up a "silicon valley" libertarian viewpoint in "philosophy of taxation."
> When you just store, you don't benefit, and taking it is a purely negative experience. Many people are willing to share part of their new earnings. Few are willing to give up something that has always belonged to them.
That's a real stretch when just a sentence earlier you talked about earned benefits and taxation of those benefits. Storage is just the accumulation of earned benefits beyond your spending habits. Value isn't created in a vacuum nor is it used in one. And current taxation doesn't preclude future taxation, it's why us common folk are told to do any of our retirement funding that we can as pre-tax, since who's to say something that is taxed today (and is expressly stated as not being taxable in the future) won't be taxed again later on appreciated or total value. So, by this alone, the government saying taxes now, and deferred taxes later if that valuation meets certain thresholds isn't something that the government can't or even shouldn't do.
And, in many cases, the tax wouldn't apply to startups or their founders unless they're already sitting on multiple tens of millions of static personal valuation; which is where this whole argument really breaks down, and shows its disingenuous colors. When someone like PG talks about these wealth tax valuations in general terms of percentages, many of us are still thinking on OUR terms, which means we're thinking on "normie" scales of 10s or 100s of thousands, or maybe a couple million, where a 1% drop in valuation YoY would make a significant dent in what we can and can't do; when a wealth tax is floated (at least in the US) it's looking at $10M+ in static assets at the individual level, and applies to a wealth class that only a small percentage of people can actually comprehend. And, when a wealth tax is floated in the US, it also has discussions around non-realized asset valuation (such as small businesses, start-ups, etc) and what classes of assets contribute to the total value of an individual wealth tax.
Applying a wealth tax in a general way like how PG has done it is a bit disingenuous, not wrong; but is prone to personal wealth view biases. It becomes even more obvious when we take your example and put it towards something that would actually be taxed... $100M; which you end up with $81M for static assets or $550M instead of $672M in PERSONAL assets. Most only think of numbers in these terms if the "win the lottery" so who in the general public thinks the difference of $122M over a lifetime of nearly 3/4 of a billion dollars in wealth (not earnings, but accumulated valuation) isn't a bit of a "whatever," they'll pay more in taxes on that Mega Millions winner and won't bat an eye. (this also works for the usual lower bound as well, $10M, but $100M is guaranteed to be included in any of the recently floated wealth taxes).
It doesn't matter how much your shares appreciate. You can't retain control of your company if you have to give up a significant fraction of your votes every year.
But the wealth tax is on top of property tax. You would most likely have to sell it off in lots (if you could) to pay the wealth taxes on it if you aren't say farming or renting it and "making money" on it rather than it just sitting there storing value.
> If you have a bucket of money that isn't doing anything, then what value does it actually bring to the economy? Penalizing static value seems almost reasonable.
So now we should be penalizing unproductive assets? When did we all decide that was ok?
Based on that logic, wouldn't I be justified in draining someone's savings account in order to invest it more productively in stocks? Maybe it's ok to steal land from people if I will grow more crops on it than they will?
You can justify taking pretty much anything if you say you will use it for something more productive. What about property rights? Why should people who have played by the rules and built wealth in our society, which they were encouraged to do, then have to live in fear that their wealth might be taken from them?
> So now we should be penalizing unproductive assets? When did we all decide that was ok?
We already do that---it's called inflation. And the justification used by economists is that the economy will collapse without inflation to incentivize spending money.
Inflation was not intentionally invented as a tax. It is a characteristic of a monetary economy. Economists prefer it to deflation because it deflation is worse, but that doesn't mean that we invented inflation on purpose as some kind of social engineering tool.
> that doesn't mean that we invented inflation on purpose as some kind of social engineering tool.
We didn't invent inflation, but we absolutely do set a target inflation rate as a social engineering tool. And the reason that deflation is considered "worse" is because it lets people keep equity in unproductive assets instead of liquidating it and moving the money into more productive assets.
> And the reason that deflation is considered "worse" is because it lets people keep equity in unproductive assets instead of liquidating it and moving the money into more productive assets.
No, the reason deflation is considered worse is the possibility of a deflationary spiral.
The Fed is primarily interested in preventing a collapse of the banking system. They don't really care if people are spending their money on productive investments or hoarding it -- in fact, if everyone was spending their money on productive investments there wouldn't be any bank reserves, and the Fed would be very unhappy about that.
Ah yes, the economic argument of "punish savers and people refraining from consumption will lead us to our Centrally Planned Utopia"
>If you have a bucket of money that isn't doing anything, then what value does it actually bring to the economy?
Do you and I live in the same reality? When a global pandemic has shown almost every single person on earth that cash balances should have been higher -- enough to sustain unexpected periods of inactivity -- it seems a little tone deaf to say saving money is unproductive. There's already a tax on holding central-bank money -- it's called engineer inflation and it's what's exacerbated the economic repercussions. Your Central ~~Bankers~~ Planners convince you taxing fiat money holdings (price inflation) and artificially reducing the cost of bringing future production to the present (downward interest-rate manipulation) will lead us to utopia when it's actually cause over consumption, over production, and a planned economy on the precipice of collapse.
> You're sitting on greater than 50 million dollars?
Outside of Disney comic books, money doesn't sit around.
The money "in" my savings account is just bits in a database. The value it represents has been loaned by the bank to someone who is doing something with it.
When I sell stock to pay a tax, the money to pay that tax has to come from someone who bought it. That value represented by that money is value that won't be used for other things.
Are you certain that what govt will do with that value is better than what those someones are doing with it? That's the question because taxing me means that they won't have that money and govt will. (Taxation doesn't create value - it moves it.)
All of the talk about roads and stuff is somewhat dishonest. Transfer payments dominate govt spending, not production of goods and services.
> That what a wealth tax would most likely target
Ah yes, the "the tax will only affect bad things" rule. Is there any good reason to believe that the folks who are pretty much responsible for the current tax system will somehow figure out how to do this correctly?
Your belief about "money just sitting around" is not encouraging.
When things go south, we'll hear about the value of breaking eggs, but for some reason the omelets don't show up.
Except any reasonable proposal for a wealth tax typically leaves the first 5-10 million untouched and marginally taxes amounts larger than that. If you have $10 million in the bank, you're not just a "saver" or "refraining from consumption".
>If you have $10 million in the bank, you're not just a "saver" or "refraining from consumption".
If an economic agent holds a money, they are -- by definition -- saving their money. If they instead decide to speculate with the money "Hmm I think gluten-free bread will be in higher demand next year, better buy ovens today, to sell to the baker then" they consume scarce resources (labor and materials to make the oven). If they invest the money in a business endeavor "Hmm I need to allocate capital from money to wheat, ovens, to turn a profit as a baker to produce bread" they consume scarce resources. These capital allocations change the exchange rates of these goods.
Try as you might to avoid it, all forms of punishing cash holding induces undue consumption.
>No-one is saying that regular Joe's with $800 in their savings account should be penalized for just letting them sit.
Does no one in this thread understand that there already exists wealth taxes in countries without explicit wealth taxes?
While many countries have explicit wealth taxes (Government agency that will demand you pay x on y), many (almost all) countries have wealth taxes that tax "regular Joe's with $800 in their savings account". The central bank in the USA literally has a charter to print enough money so that asset prices rise at a nominal 2%PA. If a central planner confiscates $16 in purchasing power from regular Joe does it matter if its done through direct taxation (taking the $16 dollars) or indirectly (printing enough money so that his future value of $800 will be only $784)?
You're falsely equating inflation with actual wealth tax when they work differently (wealth tax does not apply to every saver, or to every saver equally), and then just blame wealth tax for the faults of inflation that it does not share. Really.
Since you need it spelled out again: unlike inflation, actual wealth tax will not take $16 from your Joe because in case of actual wealth tax, $800 is three or four orders of magnitude below minimum taxable amount of savings.
Wow, this ignores both the "floor" below which you would not be subject to the wealth tax (in the US, most recently by Elizabeth Warren, this has been discussed as $50M+), and ALSO fails to take into account that you would be growing your principal at ~3-8% a year through investment, etc.
Sure, I guess with no floor on the tax and with your money just literally sitting in a pile, the government would eventually take a lot of it.
If we accept that price inflation is driven by inflation of the money supply, and that Cantillon effects send most of this new money to the financial markets, then we may conclude that this process drives asset inflation in the financial markets in which the wealthy participate.
That is to say that inflation doesn't harm the wealthy. They benefit from it. Inflation will cause the floor to creep up to everyone else.
The problem is that as you get older you need to reduce risk in your investments in order to rely on them more. As you de-risk your rate of return goes down. The lowest risk accounts are fdic insured, and at that point you’re losing money every year. Sure if there’s a floor on it I’d support it. But with no floor I’d be watching my savings dwindle year over year.
Wealth should be taken into account when income tax is calculated.
It's not fair that someone who earns 100k with no assets pays as much tax as someone who earns 100k but also inherited a 1mn house and has a whole load of cash reserves from not paying rent/mortgages for years. It's doubly not fair when the wealthier individual can divert most of their salary into a pension and not pay tax on it, because they can afford to do it now.
Someone's wealth should not be eroded by tax, but their earning power should be adjusted based on marginal dollar value.
This has been downvoted, can someone add a counter-argument for this? I.e. why should someone with higher wealth be able to pay less tax (in absolute and relative figures) than someone with lower wealth?
No you misunderstand- they only pay tax on income, but the % is based on their total wealth.
Eg if I have a total net worth of 2mn, my income tax might be 50%, and if I have a total net worth of 0, my income tax could be just 10%.
This would encourage people to earn more who have little now, and encourage people who have a lot to spend/scale back their earnings. Ideally it would lower the gap between lower and middle class people.
Why not? They are paying for something. Should someone's wealth not be eroded by rent? The cost of food?
Absolutely someone's wealth should be eroded by tax. If they're so damn clever they'll make more. If they're not, the erosion will quickly diminish along with the wealth, making their future efforts much more significant.
Lazy shiftless wealth absolutely should be eroded. Erosion is the nice way: you can also try for the nasty way if you like.
I think it’s hard to get people to vote for a tax that will take money they have already acquired away from them. Reducing their potential for future earnings seems a lot more realistic to me.
A problem that is usually not noticed with a wealth tax is that you have to pay the wealth tax from money which already has been taxed with some sort of income tax.
Means a 2% wealth tax combined with a 50% income tax, dividend tax, capital gains tax or whatever ends up being a 4% wealth tax effectively.
Example: You own stock worth $1,000,000 and the government wants 2% wealth tax from you which means $20,000. But to get that $20,000 you have to sell $40,000 worth of stock and pay 50% income tax for that sale and the government ends up taking 40,000$ effectively.
Properly managed capital gains are taxed at ~15% or less. One should hope that by the time you accrue $50 million your capital gains are properly managed.
That was just an example to make the point clear which varies from jurisdiction to jurisdiction. But even in your 15% example the long term effects are very significant.
Your point has been noticed time and time again. It's called "a nice problem to have." A man who is living paycheck to paycheck would love to be able to just dip into his investments and toss away $20K without at all affecting his lifestyle.
Money is power. I can't request a sit-down meeting with my own senator or local representative and expect my request fulfilled. Paul Graham can, and so can everyone in his wealth class. This is a problem, because Graham is not a constituent of either of them.
How do you get to your 15%? Long term capital gains in the US are taxed at 20% + 3.8% net income tax + state tax. In a city like New York, you're talking close to 40% depending on your tax bracket.
(If you're planning to wink at the bank, pay nothing, and let them keep the stock, that's the kind of thing that won't work if it becomes common. At that point, people will point out that you sold stock to the bank and didn't pay the income tax.)
Interest rates are so low that your income from your job at the startup is probably enough, right? Granted it won't work if rates go back up, and the current environment is a bit special.
Plus you might have some dividends on the whole amount.
You're paying interest on top of the loan amount, which you still also have to pay. You may not get the income to pay the loan by selling stock, but you have to get it somehow, and you'll pay income taxes on it.
The point is by borrowing the money you avoid paying the same amount of tax, because the income tax on whatever you're servicing the loan with is not the same amount as what you'd pay if you sold the shares?
In a general debt-vs-immediate-payment question that could work, I guess, because you can e.g. pay the debt off over such a long period that the total income you need divided by the number of years you take falls into a lower tax bracket than otherwise.
I have trouble seeing how it would work in the example under discussion, where we know that the person is extremely wealthy -- and thus should hit the maximum income tax bracket no matter what -- and that capital gains taxes are likely to be the least heavily taxed income source available, so that it would be difficult to beat selling stock.
Depends a lot on what country we mean. Also, the debt never had to be repaid. You can keep rolling it as an interest-only loan, so long as the collateral is enough to satisfy the lender.
What we need is inheritance tax. If you've made money, you can keep it. But you can't live for free just because some guy 100 years ago made money and you won the genetic lottery.
As I see it, those just penalize people with moderate amounts of money (ie: trying to build generational wealth) while the truly rich simply find loopholes.
Create a non-profit foundation that pays them, store assets outside the country/state, legally reside 51% of the time in a different state/country at their 5th house, etc. That's just random thoughts, I'm sure the truly rich have dozens more that their high priced accountants and lawyers dreamed up.
It's the same way Warren Buffett pays less taxes, percentage wise, than his secretary. When you've got millions to spend on lawyers and tactics amazing things are possible.
edit: Also trust funds and setting up a family corporation to manage assets.
Then they'll find other loopholes as they have for centuries is my point. And the government has a vested interest in keeping those loopholes open for the truly wealthy since they're all friends and political donation buddies.
Isnt there a loophole that you transfer all the money to a foundation and then your children control the foundation effectively getting the money but on the books they did not inherit the money.
interesting idea, but I think I would decline. I don't plan on having children, but I would like the primary beneficiaries of my excess productivity to be my friends and family. plus, I think it sets up a weird incentive to spend as much of your money as possible before you die, which causes a big problem if you live longer than you planned.
I actually think the current US estate tax rules (minus the loopholes) are pretty reasonable. you get to pass on $10mm or so to your beneficiaries untaxed, but any wealth past that is subject to a steep tax. if you remove the basis step-up for assets and somehow prevent super-wealthy people from avoiding the tax altogether, I think it would be a pretty good system. enormous estates would decay quickly through the generations, but ordinary to upper-middle class folks could still leave their life's excess productivity to people they care about.
If you're working for a firm that isn't actively tanking, then the primary beneficiaries of your excess productivity are always your employers. As many other people here have said the floor of any wealth tax is far higher than anything you could ever accumulate on a salary income.
note that I am replying to a comment asking whether I would accept an unconditional 100% inheritance tax in exchange for paying no other taxes while I'm alive.
regarding the wealth tax in general, I see no reason to prefer it over a capital gains tax. if it's not possible to eliminate the loopholes that allow very rich people to avoid paying capital gains, I don't see why the same wouldn't be true for a wealth tax. with the possible exception of LVT, I would greatly prefer to see the existing tax structures get fixed than to add an entirely new tax into the mix.
Fair point, I misread that. But even so, the inheritance tax is still a delayed wealth tax and a 100% tax would generally be easily avoided with gifts -- still taxable, but presumably not at 100%.
(Edit: if we had a combination of capital gains + personal income tax that effectively achieved the same goal as a wealth tax, wouldn't that be basically a maximum wage? Seems even harder to sell. It seems to me the main difference would be that a capital gains tax still encourages holding on to assets and a wealth tax encourages spending.)
That's rarely the case as it is. The majority of wealthy families lose their money in just a few generations if they aren't actively working to maintain it.
Right now, they piss that money away on fast cars and lose <insert partner preference>. So we could divert that money to pay for infrastructure or cut income taxes or whatever, and aside from fast car dealerships, everyone should be happier.
I'm highly skeptical of the claim that such tax would discourage startup founders.
Wealth tax proposals I've seen don't kick in until $50 million or $100 million. This means that there is a floor on how "poor" the government can make you via a wealth tax.
This has two implications:
1. Most "successful" startup founders don't break that threshold of personal wealth.
2. For most startup founders, the startup is the only way to get to $50 million. The practical lifestyle difference between $50 million and $1 million is a lot larger than the difference between $50 million and the unicorn-founder $ billion.
Furthermore, as noted by glutamate: money earns money. A conservative drawdown of 3% pay the most commonly proposed wealth tax while still leaving you wealthier at the end of the year.
> I'm highly skeptical of the claim that such tax would discourage startup founders.
Discourage starting a company at all? Probably not, but the article does not suggest that. Do you think it might influence where they start it? Looks reasonable to me, at least qualitatively.
Yes, but other factors likely influence it more. Are you going to start it in Barcelona or SF, just because of the tax rate? Surely there is something to be said for startup experience, investor networks, founder communities, etc...
>Do you think it might influence where they start it?
This has always been the argument, and I've never bought it.
Now, more than ever, is the time to start a company remotely, thanks to Mr./Mrs. Covid. Have we seen a massive move away from SV and other tech centers? Have we seen a massive wave of startups in 'flyover' country?
Exactly — I've always thought that what drives multi-millionaires and billionaires isn't really the monetary value of the extra money that they make. To the extent they care about money at all anymore, surely it's only as a relative measure of success?
I can't see many people that have already accrued personal wealth of $50M but choose to keep working suddenly being turned off because of a wealth tax.
> I can't see many people that have already accrued personal wealth of $50M but choose to keep working suddenly being turned off because of a wealth tax.
That's not the argument. If you accrue a wealth of $50M because you own half of your $100M company (or 100% of your $50M company), then a wealth tax will — over time — force you to give up ownership in your own company.
An income tax or a capital gains tax on the other hand, has the effect that you describe: if you already have $50M, then any tax on more money than could possibly have close to 0 negative impact on productivity.
no, that's an intentional misdirection by pg, that you'd lose control of your company over time because you'd have to sell shares to pay the tax. what would more likely happen is that loan products and other financial instruments and techniques would pop up so you could pay the taxes in a whole host of ways without actually losing the underlying shares that are used as collateral. it already happens in a more limited, and sometimes private, context today.
That's not an "intentional misdirection", it's undeniably true.
> what would more likely happen is that loan products and other financial instruments and techniques would pop up so you could pay the taxes in a whole host of ways without actually losing the underlying shares that are used as collateral.
In order to pay back a loan, you have to realize some gain somewhere. That money isn't free. Even to simply pay back the interest, you would have to liquidate some of your own stock (which is taxed). Eventually when the principal needs to be paid back, the only way to do it is to liquidate the equivalent value in your own company.
your response seems to lack the creativity and imagination of a financial industry that brought us cdo's, cds's, mbs's, and a global financial crisis or three. greed and money will find a way.
edit: it seems folks don't like being reminded that the point of capitalism is to redirect greed toward productive use.
Your company can pay dividends and you can use that to pay the tax. It essentially becomes an operating tax on the company based not on its profit, but its value. What's interesting about that is it would work for companies like Amazon that intentionally engineer zero profits so as to avoid taxes.
> What's interesting about that is it would work for companies like Amazon that intentionally engineer zero profits so as to avoid taxes.
They "engineer" zero profits by re-investing their surplus back into R&D — a behavior explicitly encouraged by the government and the tax code. In 2010, Amazon had about 100,000 employees. Today they have almost 1 MILLION. That's what "reinvesting profits into R&D" looks like, in practice.
> Your company can pay dividends and you can use that to pay the tax.
You're essentially talking about adding a countering incentive away from investing in R&D, and toward paying shareholder dividends, which...why? There are way more intelligent and non-distortionary ways to raise funds for a government (eg increasing the capital gains tax).
I'm not sold on the idea, merely answering the parent comment that paying the tax would require selling shares. That's not necessarily true.
There's a lot to be said for property taxes. Taxes on income and wealth are disincentives for things you wnt more of. Property tax is one of the least destructive of taxes.
I'm also of a mind that carbon and pollution taxes would be good as well, since the disincentive would be a plus in that case.
> There's a lot to be said for property taxes. Taxes on income and wealth are disincentives for things you wnt more of. Property tax is one of the least destructive of taxes.
Yeah but a wealth tax is not the same as a property tax, because unlike land, wealth is not zero-sum, it's created. In fact, the most economically efficient property tax is the Georgist Land Value Tax which typically deducts the appraised value of improvements before applying the tax, because we don't want to tax productive improvement of land.
Taxing wealth OTOH has the effect of taxing the productive creation of wealth. It's like an inverse Land Value Tax, where you allow one to deduct the value of the underlying land, but simply levy a tax on the appraised value of improvements, just because one might be improving the land "too much".
Also, property taxes are unconstitutional at the Federal level. This is why there is no such thing as a Federal property tax, today. If we wanted a Federal wealth tax, we would have to amend the Constitution.
There's nothing wrong with shareholder dividends, but to add an extra incentive to pay dividends is distortionary and doesn't make much economic sense. On the contrary, society appears to want to minimize shareholder dividends because that's money that's not going to worker salaries and R&D.
It also ignores the fact that if Amazon had been forced to pay dividends 10 years ago, the stock would be worth significantly less today on account of their inability to re-invest into R&D and enter new business lines and grow from 100,000 -> 1 million employees. Even if we aim to strictly maximize shareholder-value (to the extent that's even desirable), it's penny wise but pound foolish.
A profitable company can pay dividends which would easily cover a wealth tax. Owning 50M worth of stock in an unprofitable company with zero other income sources or investments is a significant sign you should diversify anyway.
I wonder if that is a more natural (and long-term) structure though.
The current tech formula seems to be "build the biggest moat possible - worry about profitability later"
While that is driving some of the fastest growth in history, one has to wonder what the landscape will look like once these moats are built. Will these companies have full power to price however they please?
If a company is incentivized to be profitable as they grow, would it lead to a more stable future where we have multiple competitors in each industry?
It's probably personally advantageous to diversify in that situation. But if you get recruited by a $100m startup that's not yet profitable, and you hear that the founder sold half her stock last year, is there any chance you're working there?
Tax avoidance has become an art form. Companies have minimized dividends so wealth can compound without being taxed, but that has negative economic effects as they accumulate effectively pointless cash hordes. Further, several things like inheritance let you change the tax basis. Selling stock and donating the proceeds is worse for you than donating the stock directly etc.
In other words tax income and the game is to hide income, tax wealth and you increase economic efficiency. Wealth taxes only erode wealth if you fail to make positive returns.
A startup founder can end up owning 50M worth of stock in an unprofitable company. What happens then if the company is worth 1M by the time it's time to pay the tax?
In my country, there are people who's had to declare personal bankruptcy from this situation.
That’s always going to be country specific. Generally, anyone that’s failed to diversify their investment so a 98% drop in some asset doesn’t result in them losing 90+% of their fortune has already failed.
Also, be cautious about how early investments may artificially inflate the value of the company. Convertible debt is one way around that issue.
> If you accrue a wealth of $50M because you own half of your $100M company (or 100% of your $50M company), then a wealth tax will — over time — force you to give up ownership in your own company over time.
Why? There's a floor that below $50M you don't need to pay a wealth tax. In a worst case scenario where your entire wealth is tied up in stocks of a single company you own and you have 0 cash to pay your wealth tax, your ownership gradually approaches $50M.
They're are very few people who end up controlling 50+% of a $50M+ company at 20 and keep their 50+% stake for the 60 years pg references. Anyone who did that didn't take VC money.
Even when they do still control the company over the long run, assuming it becomes a public company, they will be selling stock on a regular basis to cover regular expenses.
IIRC Bezos sells over $1B in Amazon stock per year to fund other things, but there is no outcry about how un-american it is that he has to "sell off his stake in his own company" to pay for his hobbies/lifestyle.
> IIRC Bezos sells over $1B in Amazon stock per year to fund other things, but there is no outcry about how un-american it is that he has to "sell off his stake in his own company" to pay for his hobbies/lifestyle.
Sure, but that's voluntary. It's fine for me to sell my house if I have other plans. It's less fine for me to be forced to sell my own house even if I want to continue to own it / live in it.
The scale of property value and wealth value isn't remotely comparable. For the most part, property values are pretty low, and hence the tax that you might pay on property is also fairly low. The US State with the highest property tax is New Jersey (2.47%), and the median home value is about $330,000. The annual tax on the median home there is around $8,100 — definitely steep, but still well within reach for most families, especially those that are fortunate enough to own homes.
In contrast, if you were to take an individual worth $10 billion, whose entire net worth is derived from the ownership of their stock, and were to tax them 2% of their wealth annually, they would have to somehow come up with $200 million every year to pay the tax. This is a different proposition altogether, since none of these billionaires have that much money sitting around in cash (or any other asset for that matter). They're just wealthy on paper. The only way to pay that tax would be to either liquidate their holdings, or for their corporations to pay enough in dividends to cover the tax, which is an odd (IMO bad) incentive to create for corporations in general. Even the owner of a $300 million business who owns (say) 30% of their company at a $100 million net worth would have to come up with $2 million in cash every year. Very few CEOs have that kind of cash coming in on a yearly basis, and you're essentially just creating an incentive for corporations to inflate the compensation to their founder CEOs just so that they can maintain ownership in their own company.
A big reason for this disparity between the top 1% value of corporation vs the top 1% value of property is that, unlike land (which is fixed), corporate wealth is NOT zero-sum, it's created. This is a very important distinction, because a lot of the rhetoric around wealth is sometimes based around the idea that there's some fixed amount of wealth in the world, and the rich have just been stealing all of it — no the aggregate wealth has been created at historic levels.
Also Federal property taxes are unconstitutional, which is why it's applied entirely at the state / local level.
>In contrast, if you were to take an individual worth $10 billion, whose entire net worth is derived from the ownership of their stock, and were to tax them 2% of their wealth annually, they would have to somehow come up with $200 million every year to pay the tax
If your $10 billion dollar asset isn't returning you much more than 2% per year, it has a terrible ROI, and you need to divest.
>corporate wealth is NOT zero-sum, it's created.
Not absolutely, but the power represented by the percentage of the world's wealth one controls is finite. At the limit if I own 99% of a countries current wealth, I think it's perfectly reasonable for the rest of the citizens of that country to decide that I have amassed too much power and to rectify that by taxation and redistribution.
For most people they start a company to make money, so ultimately it's about the ROI. They think they'll make more by controlling the company than the alternative
When we are talking mutli billionaires like Bezos who may be driven by more grandiose incentives like amassing power, I think it's perfectly reasonable for the rest of us to effectively remove some of their control.
Even the most aggressive wealth tax that is proposed is for a tax on wealth of over $50 million. So the founder of businesses valued up to around $100 million dollars would reasonably be able to maintain control without paying any wealth tax.
So I'm perfectly OK saying you can't single-handedly control a business larger than $100 million without paying the rest of society extra compensation for maintaining that kind of power.
Seems perfectly fair to me. Power is finite in the same way land is. If controlling a company is valuable to you in some other way other than just amassing power, say you are really behind the mission of going to space, you can reorganize into a non profit.
Property tax is really funny in the context of this conversation. You are paying a percentage of the _value of the house_, which you (have most likely) taken a loan to pay for.
A given average person in the US (excluding high earners) will likely be paying a property tax rate based on a value that is _actually higher than their net worth_, which makes property-tax-as-a-wealth-tax for average American homeowners actually greater than the 1.69% average property tax rate.
Imagine if this was applied as a "wealth tax" on a brokerage account, but considered that you could borrow 5x your balance on margin, and then were taxed on your margin holdings.
People with $50M won't be selling their primary houses to cover a wealth tax. If they're selling their vacant 3rd vacation homes, then that's all part of the idea to gradually reduce the amount of assets that the extremely wealthy are able to hold. The idea is that wealth concentration actually reduces competition.
Of course it's a slippery slope, but most things in life could be categorized that way.
I think there's a fundamental misunderstanding of where this wealth is sitting. For most of the super-rich, the wealth isn't sitting in diverse assets that can simply be liquidated (Elon Musk doesn't have a 3rd home).
If you were to impose a wealth tax on Elon Musk, he would have to gradually give up his ownership in SpaceX and Tesla.
> The idea is that wealth concentration actually reduces competition.
But that's just not been the case. Wealth is not zero-sum. Just because Bezos is a 100 billionaire on paper, doesn't mean that I can't go and raise venture capital for my startup and succeed.
> he would have to gradually give up his ownership in SpaceX and Tesla.
That's sort of the point. Unless he's creating additional value as a CEO such that the board keeps awarding him stock or money so he can maintain his holdings, he's going to lose his ownership stake. Sounds like a tax like this would motivate him to work more not less.
> Sounds like a tax like this would motivate him to work more not less.
You frame this as though this is somehow beneficial to shareholders, but if that's the case, they can work out this arrangement themselves.
Also the idea that SpaceX or Tesla would continue to be valued as highly as they are if he continuously relinquishes his ownership stake is also dubious.
> You frame this as though this is somehow beneficial to shareholders, but if that's the case, they can work out this arrangement themselves.
I was showing how a wealth tax need not necessarily discourage endeavor and industry, as is commonly alleged.
> Also the idea that SpaceX or Tesla would continue to be valued as highly as they are if he continuously relinquishes his ownership stake is also dubious.
Why? I thought they were valued highly because of Musk's leadership, not ownership. Is that not the case? Even without his ownership stake, he can continue to be the CEO as long as the companies do well.
> I thought they were valued highly because of Musk's leadership, not ownership. Is that not the case? Even without his ownership stake, he can continue to be the CEO as long as the companies do well.
That's not how publicly traded companies work. If a sufficiently motivated activist investor accumulates a large enough ownership, they can decide to fire Elon Musk — and there are enough people that would like to see this happen on account of his crazy tweets.
That's the crux of the argument, that no matter how badly activists may want to remove Elon Musk as CEO, he's safe as long as he maintains his stake. A forced divestiture of that threatens his ability to maintain his leadership in those companies, and that's arguably not in the best interests of many existing shareholders today.
Again, at the risk of explaining the basics of how publicly traded companies work...activist investors may disagree with other shareholders as to whether “Musk is a value add”. It’s not some objective truth, it entirely depends on what the majority shareholder thinks. Today, that happens to be Musk himself. Under a wealth tax, that’s no longer true.
I'm aware of how publicly traded companies work. Activist investors don't take a majority stake, just one large enough to get a board seat or two (5% is considered the minimum in the US) and make some noise. Shareholders vote on whether to add newly-nominated board members, so if they think an activist investor intending to fire the CEO is not acting in their interest, they can vote against adding said investor to the board.
If an "activist" investor actually bought 51% of the company (aka an "acquisition" or "takeover"), they would also own 51% of the downside of any CEO changes. At that point they have every right to decide what's in the company's interest. The company's shareholders can also vote on whether to accept the acquisition offer, which means dissenters who lose the vote can sell and get out if they disagree with the new owner's direction.
For that matter, Elon Musk only owns 21% of Tesla right now[1], so if 51% of the board think he's a net-negative, he could go immediately. They clearly do not.
> Activist investors don't take a majority stake, just one large enough to get a board seat or two (5% is considered the minimum in the US) and make some noise.
Per-investor, yes — but multiple institutional investors can get involved with little intervention unless the founder holds at least a plurality. This is exactly why we're starting to see companies like Facebook and Uber issue class A shares. Travis Kalanick was, in theory, untouchable — he just didn't have the energy in him to fight the board after a personal tragedy.
> For that matter, Elon Musk only owns 21% of Tesla right now[1], so if 51% of the board think he's a net-negative, he could go immediately. They clearly do not.
Yes, and if he is forced to liquidate any more of his holding, he ceases to be a plurality. That's the point.
And my point is his "plurality" means fuck-all if a majority of shareholders or board members want a different CEO. Musk may have gotten the job originally because of his status as founder. He keeps his job because in the view of the shareholders and board he's doing a good job. And they could even choose to award him additional stock so he maintains his %.
Now yes, because he owns 21%, there are fewer other shareholder votes to oust him than there would be if he owned 10% (still a plurality). But they could do so in theory.
Also, I'll be upfront. I don't think a wealth tax is a good idea because it'll inevitably lead to people dodging taxes by putting the money into stuff like artwork or IP. And to counter that, the government will need to know every single item of value every person owns and have to create a large, intrusive bureaucracy to track all that. It sounds horrific.
But I don't think a wealth tax discourages entrepreneurship or working hard, and PG's blog post is disingenuous in saying so.
But there is external effects. Wealth translates into political power, how about people ending up disenfranchised by the excessive wealth of a small part of the people? They did not voluntarily give up their right to political participation.
Consider that the representative from Bezos' own district in Washington is a socialist.
At the end of the day, the greatest check on wealth's effect on political power is the fact that legislators can only win office if they can win a democratic election.
At the end of the day, the greatest check on wealth's effect on political power is the fact that legislators can only win office if they can win a democratic election.
It doesn't work like that. You donate to both sides of the aisle so you always have someone in your pockets. The famous cartoon from John Herzfeld about the "Millions behind Hitler" (this one: https://en.wikipedia.org/wiki/John_Heartfield#/media/File:He...) is bullshit. German industrialists did give substantial support to Hitler, but not for ideological reason, they'd have given to anyone in power. The cash did amplify Hitler's ability to implement his ideology, though, and the non-donors didn't choose that.
I know a lot of HNWI and they all complain about tax burden regularly and never mention anything even resembling 'relative position'. IMO the relative status thing is a myth perpetuated by people with a political axe to grind. Most people who keep working past a high level of net worth just like working... don't forget there's a lot of moral value and personal inspiration in building a second or third company that 'changes the world'.
> Wealth tax proposals I've seen don't kick in until $50 million or $100 million. This means that there is a floor on how "poor" the government can make you via a wealth tax.
That’s just the starting point. Once people begin to figure out how to avoid it or have been tapped then the qualifier will be lowered to 40m. And then eventually 30m and do on until anyone above average is paying it. And then anyone above median.
The state will, as always, become reliant on it and find ways to expand it to wield more power and pay debts that were taken on to “collect/spend in advance” as they’ve done countless times.
This is why people that will likely never meet today’s threshold are against these schemes. These things always get a wider, and wider net until anyone just starting to get ahead is caught in it.
This is exactly what happened with the US federal income tax. It was originally only a small amount, and only on the wealthy. Now it's gradually been expanded to everyone.
> It was originally only a small amount, and only on the wealthy.
This is a bit misleading. The first income tax of 1861 was on incomes over $800, which inflation-adjusted is about $23000. The next year the threshold was lowered to $600 or about $17,000 in today's dollars. Currently the standard deduction is $12,200. Certainly some creep, but it doesn't quite fit the described jump from only the wealthy to everyone, except perhaps to the degree that nearly everyone in the US today is wealthy compared to the average citizen in the 1860s.
Rates have certainly gone up since then (originally a 3% rate), but top rates today are quite low by modern standards - they were higher than today from the 1930s through the late 80s. Typical average rates have been on a slow downward trend since WWII.
I think you are also being a bit misleading, you do mention how much richer people are today but this really can't be overstated. In 1861, only 3% of the population earned more than $800 per year. So the original income tax only applied to the very rich.
>The state will, as always, become reliant on it and find ways to expand it to wield more power and pay debts that were taken on to “collect/spend in advance” as they’ve done countless times.
This hasn't been true for the income tax [0], nor the capital gains tax [1], nor (at least in Silicon Valley) for real estate taxes[2], which are closest to a wealth tax. It's a reasonable thing to consider, but given the evidence we have, should not be a driving consideration.
Others have already pointed this out, but you're ignoring Social Security and Medicare which are both income taxes, just pre-allocated to specific government spending programs. 100% of tax payers pay these income taxes, including the self-employed.
Every tax payer pays at a minimum their time and stress to file the paperwork, many don't realize that best effort is probably good enough for them, those who are fortunate can spend $150 to a leech of a lying, scheming company to reduce that burden.
The notion that the time and stress involved with the paperwork is onerous enough to merit being considered payment seems tenuous to me. The gov't has been pushing (as hard as it can) free file services for all of the years that I've been doing taxes. Using those free file options, I--a standard W-2 worker who doesn't make much--complete my taxes in about 15 minutes these days. The companies that convince people to pay them to do that tiny amount for paperwork are also working to hide how ridiculously quick and stress-free it is for one of those 44% to do their taxes.
That's a bit of an over generalization. It gets more tedious for people with multiple jobs, investments, a business, etc. Not to mention, many places also require state and local tax paperwork. The companies that charge money, including TurboTax, lobby to keep the tax codes complex so they can keep charging people money.
I don't stress out over my taxes anymore, but just about everyone else I know does. Of say the 100 closes people you know, how many of them file on the last day, how many people ask for extensions, how many people give up and hire someone to do it for them? That alone should speak volumes.
Google "free tax file". It's the top hit. I think it's also on your W2's your employer gives you. I'm not sure if it could be made easier, but open to suggestions.
Used to be hidden and had disclaimers that it couldn't be used if income was over 50k or something ridiculous, making it unusable in CA.
It's still about 1000x more complicated than filing in New Zealand, which is comparable to filing on the California site. Basically a 15 minute wizard on a web page.
That's because of corrupt American politicians and lobbying by Intuit, not something inherent to an income tax. Many countries have a simpler income tax process.
Hourly employees pay it too and because it is a withholding tax, you pay for it even if you are below the standard deduction and don't file a tax return because it is automatically taken out of your paycheck by your employer when you get paid. Self employed people also have to pay both sides of it and they have to file if their income is above $400 a year so the only way your really getting out of it is if your employer is paying you under the table or you are self employed and made less than $400.
It still shows the point clearly enough, as 56% isn't the ultra rich. People who fear a wealth tax doing the same already have precedent.
Now, maybe if the wealth tax was combined with a significant reduction in income tax, say 0 tax for the first $100,000 a year people make, then people might be a bit more willing to support the notion. But just a new tax, with the promise it won't impact you? Can't blame people for lacking any trust.
I suppose everyone's definition of ultra-rich is different. There are many people who feel that earning $60k/year is unattainable in their lifetime. For them, the income tax rates (and proposed wealth tax rates) probably seem too low.
I agree that it's easy to tax people wealthier than you. When it might affect you, there's less support.
It's ironic how now everyone is bringing out the slippery slope arguments, after years and years of tax cuts for the rich reduced social services and increasing wealth inequality, all based on the promise that cutting taxes for the rich would benefit the average person. Well that was a lie, after several decades of increasing efficiency and economic growth the middle class can look back at essentially at no increase in wealth and the only reason that household disposible income has somwhat increased is because now both adults in the family are working (+plus often high school and college kids are working large proportions as well).
If there was ever a slippery slope it was the slippery slope of cutting more and more taxes for the rich.
Well given those taxes are passed on to the middle class, and the fear is that a new tax will also be passed on to a middle class, I don't see any irony.
I even suggested that lowering taxes on the middle class and below while introducing a new tax on the rich would be the a method to prevent people from being concerned with the tax eventually impacting them. With all the 'tax the rich' rhetoric, why not include a 'and not the poor' as well?
In the 50s through 70s, there was a much higher income tax on the upper income brackets: the tax was much more progressive. Ronald Reagan dramatically lowered the income taxes on the high income people and kicked off the dramatic increase in economic inequality that we've seen over the past 50 years. The GOP destroyed much of the promise of the American Dream in this case. Is this what you mean?
I don't know what was promised, or by who, but the first federal income tax after passage of the 16th amendment applied to only the richest 3% of the population.
Only 3% of the nation had any income above $3K, and they only paid a 1% (!) tax on the income above that threshold. That's how it was sold to the public.
Compare that to the general income tax today, and who it applies to: the floor now includes ~60% of people with any income at all, and the lowest possible income tax rate is 10%, e.g. 10x higher.
And literally everyone pays income tax in the form of Social Security and Medicare. (For whatever reason, if an income tax is pre-allocated to particular government spending, it's no longer an "income tax" in some people's eyes. The tax effect is identical and you need the 16th Amendment to allow it, so IMO it should be lumped in with the other income taxes we pay.)
It was supposed to be a temporary tax to fund the Civil War, but like most/all taxes, the "temporary" became permanent. (1)
From Wikipedia - In 1913, the top tax rate was 7% on incomes above $500,000 (equivalent to $12.9 million in 2019 dollars) and a total of $28.3 million was collected.
Your graphic only goes to 2009. Note that long-term capital gains moved up from ~15% to ~24% under Obama, and Biden has another plan to increase it[0].
I wish you had made this as a top level comment. This should be at the top, not the pro wealth tax comment. Like you said, the net always gets wider and wider.
What does "ended at 6%" mean here? As far as I can tell, all income earners in the US pay at least 15.3% income tax in the form of Social Security and Medicare taxes.
These are all just assumption "how bad" the government will be in the future and casting fear and lies of the American dream, You too will be rich tomorrow and you don't want the government to take your money do you?
You can't do that on HN, regardless of how wrong someone else is or you feel they are. Perhaps you don't owe "dude" better, but you owe this community better if you're posting here.
I'm dismayed to see that you've been making a habit of posting like this, as well as unsubstantive comments generally. If you keep doing that we're going to have to ban you, so would you please review https://news.ycombinator.com/newsguidelines.html and take the spirit of this site more to heart?
I don't understand why you think the slippery slope argument works for the rate and threshold, but not for the existence.
The problem with wealth taxes is not slippery slope, but rather that wealth can be obfuscated and moved around much more easily. Transactions are easy to tax; wealth worth taxing is about what you control, rather than stuff you have.
There's good reasons the most successful wealth taxes are land taxes. You can't easily move land.
Slippery slope is a logical fallacy [0], which you likely already knew. Of course, that doesn't make your argument wrong, just fallible.
I think it's arguable that taxes only ever go up. Income taxes on the rich used to be near 90% in the top bracket, so it's not a one way ratchet. That said, I agree government tends to expand and needs to fund that growth somehow. But I think it's much more likely that need manifests as an increase in the wealth tax rate rather than a lowering of the wealth threshold. The billionaires have so much more money than everyone else (and so much more than they need) that it will be much more politically popular to raise the wealth tax on them than it would to expand the pool. Not to mention, there are more of us.
I'm not advocating a wealth tax, and I think it's problematic for other reasons, but I don't think the slippery slope argument is much more than fearmongering in this case.
Sure, nearly every opinion or argument is fallible. I'm not explicitly trying to create a slippery slope or fear monger. A slippery slope tends to lead to unintended consequences. I don't think expanding the net is unintended - I believe it's the deliberate goal. Our history suggests this w/r/t income taxes, etc.
I don't think the net will be widened, I think when more tax funds are needed, the gauge of the net will be adjusted to catch more fish from the same people. i.e. They'll increase the rate from 3% to 5%, not expose lower wealth individuals to the new tax.
Ahh the classic HN logician that spots someone mentioning slippery slopes and reflexively calls it a logical fallacy.
The history of taxes in the US (and especially California--remember the "temporary" 13.3% highest marginal rate?) has more slippery slopes than 6 flags fiesta Texas. It's not fear mongering, its a very solid argument against new taxes.
I have seen many instances of "slippery slope" fallacies actually happening. While I don't want to name specific examples, due to it getting into unnecessary politics, I am able to recall at least 3 BIG instances of it happening.
A logical fallacy doesn't mean the claim is wrong, just that it doesn't logically follow. I think it's still worth pointing out when the claim is presented as fact.
It was not reflexive. Perhaps you misread my post.
My reading of the way the slope slips is that rates go up, not that the minimum threshold is lowered. This reflects historical tax law changes, political sensibilities, and basic economic theory. This was all in my original post as well, so I'm not sure it'll land this time, but I'm a bit offended that you have mischaracterized my post as reflexive, implying thoughtlessness, when I believe it was anything but.
My opinion restated, billionaires have more to fear from this than any of the rest of us do.
> Slippery slope is a logical fallacy [0], which you likely already knew.
Falsely asserting a slippery slope—that A must lead to B which must lead to C when none of these things are inevitable—is a logical fallacy. It is not a fallacy to point out that the grass is wet and the hill is steep and suggest that perhaps we should put up a sign advising people to stay away from the edge. The argument is simply that this is a dangerous situation which we would do best to avoid, not that anyone who goes near the edge will inevitably lose their footing.
> The billionaires have so much more money than everyone else …
Do they really? It seems to me that what they mainly have is not money but rather illiquid assets, i.e. capital. That includes stocks, which can be sold—at the expense of giving up control of the company—but also stock options which can't be exercised immediately and tons of actual capital equipment, inventory, buildings, and so forth which can't readily be put to other use.
> Income taxes on the rich used to be near 90% in the top bracket, so it's not a one way ratchet.
Keep in mind that they never actually collected anywhere near that much. Those 90% brackets were purely theoretical.
I've responded to the logical nature of the fallacy in other comments, so won't rehash. I thought I was clear in the original post, but apparently not.
There are many millionaires for whom what you describe is a problem. I assure you that billionaires do not have a problem with liquidity unless they want to.
States like the US can just spend in advance without taxing, there’s no necessary relation. We’re not on the gold standard anymore. The point of a tax isn’t to pay for things, it’s to attempt to control inflation and the money supply, and to combat inequality. The idea that a state (read nation, for US states things are different) would become reliant on such a tax to pay for things doesn’t hold water. It may become ‘reliant’ on it as a means to reduce inequality but that’s another matter.
The avoidance issue is a big one and the mechanism of making sure people pay is at least as important as where one sets the floor. Cross border capital flows can be pernicious.
Piketty gets into how different rates of capital accumulation create huge rifts between people who own appreciating assets like land and equities and people who don’t who primarily earn wages. The idea behind the wealth tax is to try and narrow the rift.
>The point of a tax isn’t to pay for things, it’s to attempt to control inflation and the money supply, and to combat inequality.
A significant proportion of Americans would disagree with you that it's the government's business to "combat inequality". Most people agree with taxes to help the needy and fund infrastructure, but it's a harder sell that the government should punish people just for being too successful.
>Piketty gets into how different rates of capital accumulation create huge rifts between people who own appreciating assets like land and equities and people who don’t who primarily earn wages. The idea behind the wealth tax is to try and narrow the rift.
"One strand of critique faults Piketty for placing inequality at the center of analysis without any reflection on why it matters.
According to Financial Times columnist Martin Wolf, he merely assumes that inequality matters, but never explains why. He only demonstrates that it exists and how it worsens.[36] Or as his colleague Clive Crook put it: "Aside from its other flaws, Capital in the 21st Century invites readers to believe not just that inequality is important, but that nothing else matters. This book wants you to worry about low growth in the coming decades not because that would mean a slower rise in living standards, but because it might ... worsen inequality."[35] "
Inequality by itself is not bad, in fact if you have an extreme society with no inequality you've essentially produced perfect socialism and a society where everyone is equally poor and there is no innovation, no difference in outcomes.
Extreme inequality tends to destabilize society. At some point all the multitude of have nots get sick of their lot and rise up and take from the haves by force.
So I would say inequality is good, in manageable doses. The question is are we headed to a managable place?
Not that you're necessarily wrong, but I find it fascinating that the state of social trust is so low in the united states that the most powerful and resonant arguments against potential laws are even if the law is good, a future law in the same vein might go too far and thus even the good law should be shot down.
You can see this on a variety of topics. Gun control legislation, immigration reform, healthcare reform, etc. Reasonable laws are perpetually overshadowed by the boogeyman on the horizon.
> Reasonable laws are perpetually overshadowed by the boogeyman on the horizon.
Because that’s exactly what’s happened in the past. We don’t just get ONE piece of gun legislation and that’s the end of it, every so many years we keep on getting pushes for more. For immigration reform, we didn’t just get ONE amnesty of illegal immigrants and then strict immigration control which was promised back during the Reagan administration, we got complete acceptance of continued illegal immigration and renewed calls for amnesty.
The smart money is always on not trusting the government.
It's like when we deign policy we never have KPI's, OKR's, or any other metrics associated with it to define what we agree what success is. Everything is an ideological battle to claim a new trench and push the opposition back a trench.
I think we'd get along better if we first proposed and found agreement upon which metrics we want to achieve (gun deaths at x%, or a decline of x% by such and such date, etc) and then implement policy that get there. And then correct as needed.
There was a time when universities had a very disproportionate amount of males VS females. So we passed policy that was designed to make a university degree more achievable for females. And it has worked, which is great! However, we never really implemented an end condition to this policy. And the entrenched apparatus that makes it's living or achieves ideological goals continue the policy, as-is, in a never ending battle.
If we would have said "we want 50% of college students to be female by x-date" (or better, we want to maintain a balance of 50/50) then we could have either stopped the policies that were used to correct the initial condition or modify them to hold it steady at 50%. But we haven't and now 56% are females and it's growing and any suggestion that we either need to hold off on these policies now that we achieved the goal or even correct it to get more males into universities is immediately labeled sexist, etc.
I think it's easier to get a diverse group of people to work towards a common goal when you define the end condition (put a man on the moon) rather than using vague descriptions of what would be a better world. At the very least it stops skeptics from just flat out saying "no, as it will never end".
It depends on what one sees as reasonable (also see the difference between reasonable and rational). Take the gun control that you referenced as an example. It's likely that there is a vast difference in knowledge of the technical as well as legal aspects of firearms between gun owners and non-gun owners. So the law could be rational, but the two groups could differ on the reasonablenes. I see the slippery slope argument less today than I did in years past.
In my opinion, most proposals by either side on a variety of topics are not good options. They have become hard-line battle cries for their respective party in order to motivate hardcore supporters to come out to vote, particularly in the primaries in which the radicals comprise a larger share than in general elections.
What you find "fascinating" is a culture that is over 200yr old. What you are complaining about has been a constant part of our culture since the 1770s and ingrained in Federal law in 1789.
This is not what actually happened in several European countries that had wealth taxes. In fact, they found the taxes ineffective at collecting revenue, and abandoned them. This isn't exactly a recommendation of wealth taxes (which I'm skeptical of), however it is evidence that your assumptions about what would happen are not inevitable.
But that doesn't answer the complaint. The original idea of income tax was also that only the wealthy would pay, not the middle class. Yet here we are.
Tax rates for the wealthy were cut? That's great, for them. Were tax rates cut for the middle class? Did any of the lower class no longer have to pay income tax? That's what would be a response to nemo44x. (What would be a response to me would be for there to be no income tax for anyone in the lower 90% of income. That would be back to the original intent, and would reverse all the years of scope creep.)
Yes, here were are because it turns out that modern societies with their amenities depend on taxation. What's the problem with that? If it were such a humongous deal you'd have more people voting for tax cuts.
OK, but it may well turn out that future versions of "modern society" depend on the revenue from wealth taxation, not just for those with wealth above $50 million, but with wealth above, say, $50 thousand.
Remember what the argument in the local thread is. nemo44x stated that "these things" (things like the wealth tax) always expand to cover more people than they did at the beginning. rurp said that the income tax cuts a couple of years ago disproved that. I said that the expanding scope of income tax over the last 107 years supported nemo44x, not rurp.
Your arguing that that's OK, because we want the society that results. That may be. But that's a different claim than "this won't expand to hit everybody".
The only promise the government will keep is what's in the Constitution. I find it unreasonable that a government should keep promises from times when I wasn't even alive.
> I'm highly skeptical of the claim that such tax would discourage startup founders.
It'd discourage the people who pay the bills (VCs, wealthy, etc.) from living in those states. Founders would simply follow the money to other states as they have done in the past.
> money earns money. A conservative drawdown of 3% pay the most commonly proposed wealth tax while still leaving you wealthier at the end of the year.
That is only true if your wealth is in diversified ETFs or funds. That is not where most of the wealth of super-rich founders is. If 90+% of your wealth is in a single company (I.e. the one you founded), then there's no guarantee that this wealth will necessarily appreciate on its own (esp relative to inflation).
no, in a similar vein to my other comment, any founder who's reached millions in personal gain from their single, undiversified startup, will begin to employ financial strategies to diversify some of that gain into other instruments to reduce risk. there's a whole industry eager to help the rich and the getting rich do so.
> any founder who's reached millions in personal gain from their single, undiversified startup, will begin to employ financial strategies to diversify some of that gain into other instruments to reduce risk
This is literally not true for the wealthiest founders. The vast majority of billionaires (and even high $100M) only enjoy that net worth because the vast majority of their wealth is in a single stock: their own company. Even if 10% of their wealth is in diversified portfolios, that isn't nearly enough to offset the tax required to pay off the remaining 90% of their wealth.
Second of all, even for those that have decided that they no longer care about maintaining a majority of their net worth in their own company, they have to liquidate their existing holdings in order to buy into diversified portfolios, at which point the wealth is taxed. And then any appreciation within their new portfolio is ultimately taxed when any capital gains are realized.
In the US, we do not tax wealth, we tax income, dividends, and capital gains, because wealth is not money.
> no, only the most obstinate would not diversify their holdings once they reach tens of millions, let alone billions.
Just do the math, you need to divest a significant percentage of your own holdings in order to re-invest it into diversified portfolios sufficient to pay a wealth tax. The vast majority of founder paper-billionaires haven't come remotely close to doing this.
Owning shares isn't only about wealth, it's also about control. The kinds of people that create successful startups aren't likely, as a rule, to give them up without a fight. By the time you've divested 50% of your shares in the company you founded it's no longer your company, and yet with 50% in one company you're still nowhere near sufficiently diversified to be able to count on those average market returns.
no, you don't divest and lose control, because you can pay taxes and diversify without selling shares (incidentally, this is similar in shape to a credit default swap). even so, you don't need 50% of the shares to control a company. in both of these instances, there are many more ways than one to skin a cat.
The combined long-term capital gains rate in places like California is >37%. The 20% is just the base federal rate, it can almost double when other investment taxes are accounted for.
You missed a major reason long-term capital gains rates are lower than income tax rates: they are not indexed for inflation in the US and inflation on income is negligible. As a matter of tax policy, it is much simpler to reduce the rate than to compute a very large inflation deduction, but you can find countries that go both ways.
> You missed a major reason long-term capital gains rates are lower than income tax rates: they are not indexed for inflation in the US and inflation on income is negligible. As a matter of tax policy, it is much simpler to reduce the rate than to compute a very large inflation deduction, but you can find countries that go both ways.
I will give you the point about a lack of inflation indexing.
I stuck entirely with federal numbers when comparing capital-gains to income taxes to make it a more apples-to-apples comparison. It looks like you took that in order to compare california-specific state+federal capital gains tax, and compared it to federal-only income tax?
The other issue of high-cost states being more often included in high-rate brackets (due to federal tax brackets not being adjusted for cost-of-living) is a different, and also complex, issue.
And yet these founders with paper wealth regularly find money for the things they want or need. Because wealth can be easily turned into money. The idea that billionaires can find money for multiple million dollar homes, but it's impossible for them to pay taxes is ridiculous.
Yes, and when they do turn their wealth into money for whatever needs arise, they pay taxes on it. The tax rate they pay on it (20% federally, up to 37% depending on the state) is roughly equivalent to paying a compounding wealth tax after N number of years.
> The idea that billionaires can find money for multiple million dollar homes, but it's impossible for them to pay taxes is ridiculous.
It's not ridiculous at all, it's literally in the math. It's one thing to occasionally voluntarily liquidate tiny fractions of your holdings for one-off purchases (like a home or a yacht or to make an annual living), and another thing entirely to impose a yearly "cost to maintain ownership of your company" resulting in involuntary liquidation.
The money ears money thing is key. A wealth tax that equals the money you can earn from having money would prevent runaway inequality due to the "rich getting richer" effect.
S&P 500 has a long term annualized return of 10%. If you have a 5% wealth tax on stock you have in S&P 500 then you are still earning 5% returns (well above long term average inflation) without actually lifting a finger.
But none of the people you are trying to target with the wealth tax have their holdings in the S&P500. Instead they have close to 100% of their holdings in a single asset represented by the more diversified S&P500.
There is no guarantee that the single individual super-wealthy founder whose wealth derives from the ownership of their own company will appreciate at an annualized rate of 10%.
The two most pervasive myths about wealth among the super-rich appear to be:
1. They are sitting entirely on liquid cash
2. They are sitting entirely on highly diversified funds that enjoy 5+% annualized appreciation.
That's an arbitrary incentive that's not particularly useful. And in any case, it forces one to relinquish a significant partial ownership in their own company just to be able to afford to continue owning the rest...all so that we get them to diversify their portfolio?
This comment was flagged for some reason, but it's entirely valid.
If Elon Musk's goal was ROI maximization, he has no business maintaining ownership in SpaceX and Tesla — he ought to just dump his billions in high yield ETFs.
Fortunately, that is not his primary goal, and (at least in the US), he is able to continue to pursue success by maintaining ownership in his companies.
Sure, if you get recruited by a $100m startup, and you hear that the founder sold half of their stock "to diversify", there's almost not chance you're working there.
Diversification is a solid strategy for most people, but founders that own highly valuable companies are not "most people"..
I guess I interpreted your statement as: "That single asset they own is more diversified than the S&P500", which I don't think is what you meant right?
I meant the opposite of that. The single asset that they own is less diversified and riskier than the S&P500, and therefore you can't take the annualized return of the S&P500 and then conclude that "money makes money" on a founder paper-billionaire's wealth.
The S&P500 is a portfolio that puts together all of these companies and diversifies them. In other words, Bezos is one part of the S&P500.
No, it means that if you fall behind the broader economy, you lose control of your own company. It deprives the business owner of the ability to turn their own company around. All to raise a minuscule percentage of the Federal budget. That's a terrible system.
Yeah but borrowed money needs to be eventually paid back, so you're (at best) just deferring the problem.
Even if a wealthy founder took out a collateralized loan, in order to pay back the loan, they have to realize some gain somewhere (which is already taxed). That money isn't free. Even to simply pay back the interest, they would have to liquidate some of their stock (which is already taxed). Eventually when the principal needs to be paid back, the only way to do it is to liquidate (and divest) the equivalent value in their company (which is already taxed).
No, your argument would be like saying "if you can borrow against shares to buy a big house, mega-yacht every single year, you can do so to pay your taxes".
PG's essay shows that the wealth tax compounds every year. That just doesn't happen with consumption. Bezos doesn't have 20 homes and 20 yachts.
Honestly, a better system (but still bad, and with lots of issues) would be to just give the US government a percentage of your ownership as your receive it. Ex: Elon Musk would have to give the US government 1% of the shares he receives ownership of. The government would then be the recipient of any dividends earned or liquidity event from these shares.
That might be your preferred ideology. There is, however, no evidence that democratic goverments that control more of a societies spending do worse for their countries.
On the contrary there are plenty of areas where we know governments are vastly more efficient than markets.
The S&P has a long-term annualized return of only 7.41% since the end of the Bretton Woods system (beginning of the modern financial system). And that ignores investment costs such as trading and mutual fund fees; actual annualized returns will be lower for real investors.
> Wealth tax proposals I've seen don't kick in until $50 million or $100 million.
The very first U.S. income tax, imposed during the Civil War (the nation's bloodiest conflict), was 3% on income over $12,720, rising all the way to 5% on income over $159,000 (in 2020 dollars). This was unconstitutional at the time, and was eventually repealed.
The first income tax imposed after the ratification of the 16th Amendment was 1% on income over $78,510, with an additional 6% on income over $26,170,000 (2020 dollars).
The current U.S. income tax ranges from 10% to 37%, with a standard deduction of at least $12,200. There are also payroll taxes under FICA, which are even more.
I recount all this riveting history as evidence for my contention that there is absolutely no way that a wealth tax would remain at 1% for anything above $50 million. I guarantee that within a few years to decades most citizens would be required to pay wealth taxes, and that they would amount to a considerable amount even before taking into account their compounding nature.
> This means that there is a floor on how "poor" the government can make you via a wealth tax.
The only floor is zero: a government can, if it chooses, take everything from its subjects — or just from some of them.
If it taxes the income of normal people at a higher rate than they deserve, why do you think it would refrain from taxing the wealth of normal people higher than they deserve?
I guess I was assuming that if they were to put in a wealth tax, the point would be to tax the very rich more (and thus everyone else less / provide healthcare / some sort of ubi). It could certainly be done in a regressive way, but I don't see that as innevitable or any worse than the status quo, since income taxes can be raised just as easily.
Either way - I think we fundamtally agree that there needs to be more tax on the rich, be it investments, wealth tax, inheritance, or that sort of thing.
> It could certainly be done in a regressive way, but I don't see that as innevitable or any worse than the status quo, since income taxes can be raised just as easily.
I am not (here) worried about it being regressive: I am worried about it being yet another mechanism for the state to take a larger fraction of GDP (about 2½% in 1900; almost 20% at the height of the Second World War; about 17% now, according to Wikipedia).
> Either way - I think we fundamtally agree that there needs to be more tax on the rich, be it investments, wealth tax, inheritance, or that sort of thing.
I certainly don't! I agree that we need a government; I agree that we need taxes to fund the government (I disagree with those who think that we can fund the government on a voluntary basis); I agree that taxes need to be fair in some sense.
I suspect that fairer taxes would be higher for the middle classes, to be honest. Certainly the countries with effective welfare states seem to have more taxes on the middle than the U.S. does.
A) history shows these things eventually apply to everyone. E.g. FATCA was originally relevant to a few hundred people, no it applies to almost all Americans living outside the US (hundreds of thousands). It’s just a reporting requirement, but one that can potentially cost you 3%-50% of your net worth per year if not filed or improperly filed.
B) I know people who were bankrupted by existing tax laws - had shares in internet companies during the dot com boom; company IPOd making them paper millionaires, thus owing millions in taxes, but had 6 months lockup. By the time the lockup expired, company went bust, nothing to sell to cover the tax bill. Any law that takes valuations into account (as a wealth tax law is bound to) is likely to wrong some people in a similar way, especially entrepreneurs and early employees.
I'm shocked people think a wealth tax on startup founders is OK. Let's think of a scenario for instance:
ACME startup raises Series C @500M. Founder equity is worth 100M on paper. Founder needs to borrow money every year to pay 'wealth' tax. After 10 years of struggles, company sells for $100M, VCs get money back, founder makes no money. But now founder is millions in debt for past 'wealth' tax payments. Founders will be declaring bankruptcy in those cases. And interest rates for wealth tax loans will skyrocket as a result, making effective wealth tax rate much higher.
Problem is startup founder 'millionaires' and 'billionaires' are only that on paper. Any asset that is volatile (like startups) will become impossible to own long term even with a small wealth tax.
This is a problem for startup employees, too, and should be solved in both cases by allowing you to defer the taxes on your paper gains until you can actually realize them (yeah, there would be issues here, but the issues are solvable).
Won't startups just go public sooner? Or maybe private company valuations will become less ridiculous since the value of your shares would actually matter for something besides ego now? I do think that taxing paper wealth is a problem, but if you are creating billions of dollars in economic value, there is usually a solution (e.g. as part of raising that $500M, a portion of that goes towards paying wealth taxes). Anything that incentivizes people to do away with this trend of a decade plus before exiting sounds fine to me.
People want to exit but in most cases can't because the company is not doing well. Everyone who has tried fundraising with bad results knows it's super hard. Despite popular stories in the press, that's the fate of most startups.
Having a struggling company is super stressful, adding the government asking you to come up with money to pay personally, because you are 'wealthy' on a paper would take it to a different level.
This is ignoring the fact that wealth taxes don't effect you until you are extremely rich - even the most aggressive proposals don't start until you are at $32M-$50M in net worth - there are definitely some startups that are struggling while the founders have this much in equity, but the vast majority of struggling startups never hit the $100M+ valuation that would be required.
Not to be a dick, but I don't see why anyone thinks this is valid justification to block a wealth tax - maybe you could argue that the cap should be higher. Income inequality has gotten ridiculous and is only going to get worse as AI technologies mature. There needs to be a way to reallocate wealth from the super-rich to the 40% of Americans who would be unable to pay for a $400 emergency and I haven't heard a better proposal.
The point is that it creates direct and indirect obstacles to starting/investing/running/owning a company. Which is one of the big job/wealth creators of our society.
IMO you should do the opposite - remove all obstacles to start/invest/run a company and tax the outcome - or, even better, consumption. If you feel those taxes are too low, then raise them.
That is exactly what a wealth tax proposes to do since there is no other realistic way to impose a tax on a successful companies. Corporate taxes haven't worked very effectively. When someone sits on $1B+ in stock, there is no way other than a wealth tax to redistribute that wealth.
First of all, this has literally zero impact on the vast majority of entrepreneurs and small business owners who will most likely never hit $30M+ in net worth. And those are the real job and wealth creators.
Secondly, global corporations have the effect of taking wealth from the many and centralizing it into the hands of the few. And this will continue to get worse as AI advances. These corporations are not good for the long-term health of America and I don't think many Americans will care if it becomes a little bit hard to make $100M.
I would think it's valid to make that assumption given taxes must currently be paid in dollars and I don't know of any places that allow it to be paid in equity. I would also think out debt obligations to the world bank must be paid in currency.
It's like this in some European countries and the situation you describe with founders having to declare bankruptcy has happened some times. It doesn't make it impossible to own volatile assets, but it increases the risk.
Some places the rules have changed a bit to avoid some of these cases where people owe more tax that they can pay, but it can still happen.
I am a multimillionaire on paper due to restricted founder stock from a previous startup. I have left that job and don’t expect to ever see that money as the guys in charge now are unlikely to ever realize an exit. I’m now back to earning just a regular software dev salary at a big corporation. I never got to see a return on any of my founder shares and not wealthy by any means.
Nevertheless, I’m now at risk of having a six figure tax bill every year for paper wealth that is 100% illiquid.
If this passes I would be leaving the state and guarantee you I would NEVER found a startup in California again.
Agreed, I've always thought these sorts of "Atlas Shrugged" arguments were ironic coming from free-market thinkers. In a free market, if one person refuses to work for less than $100 million, there's always someone right behind them willing to work for $99M. It would take a pretty extraordinary tax to have any effect on motivation in the economy at large.
It's not quite so black-and-white; wealth taxes change the incentive structure, so that the returns to creating increasingly valuable companies is non-linear. Wealth taxes (especially those with 'floors') discourage risky, high potential ventures, thereby skewing entrepreneurship towards smaller, less risky projects.
I personally think there are too few of the big, risky ventures these days, and too many low value-at-risk software-only startups (aiming to be bought up by a FAANG), but that is just an opinion.
> discourage risky, high potential ventures, thereby skewing entrepreneurship towards smaller, less risky projects.
That's a good thing, and I disagree completely with your assertion that "there are too few of the big, risky ventures". My impression is just the opposite: there are too many stable companies with modest success that are being killed by VCs who insist they have to adopt go chasing mega-growth that has no chance of actually materializing. Dropbox, Kickstarter, and Patreon are a few prominent examples of this trend: they achieved success in the marketplace and could've been happy with that, but their backers would rather take a 1% shot at meteoric mega-growth, and so now the products increasingly suck while the companies hopelessly go after initiatives way outside their core competency until their loyal customers get sick of it and leave, the company crashes and burns, and the VCs write it off as just another failure.
Startup founder wealth comes from VCs. The reason people found startups in California is because that's where the VCs are. If you drive away the VCs, you will drive away the founders as well.
I’m still not sure why the debate has converged around a wealth tax rather than just making the income tax rate on every dollar above $1 billion 100% (or close to 100%).
That way, on the day that the super rich decide to liquidate their assets, they only get taxed on the capital gain, and for billionaires that means they only keep some small portion of it in liquid cash. You also wouldn’t have to amend the Constitution to do this.
But even if they take out a collateralized loan, they need to be realize some gain somewhere to pay back that loan. Wherever that happens, it is taxed either as income or capital gain.
Nobody is going to loan Bezos billions and expect not to be eventually paid back, and that repayment can only happen if the wealth is realized as income, and then taxed.
> using relatively small asset sales
Those "small asset sales" are ultimately taxed. We can even talk about increasing this tax.
Someone like Bezos could probably take out a 100 million dollar loan at 2% interest and just pay $2 million/year in interest in perpetuity, right (via realized capital gains)? Then they'd be well under any plausible 100% tax window.
Depending on the proposal, a 1% annual wealth tax on Bezos would amount to $2 billion per year. If he borrowed that at 2% interest, that's $40 million/year in interest in perpetuity.
Even at a more modest 0.1%, Bezos does not have $2 million / year in cash, his book income is $82,000/year, and Amazon doesn't pay dividends.
Also, this is just for Bezos — depending on how volatile the paper-wealthy founder's company is, the interest would be higher, and the long run ability to pay off just the interest would be lower.
Any practical system would probably be progressive. This would give a "soft" ceiling to wealth, and maybe actually favor small startups versus large well-established companies.
For a guy who's always railing about the value of honest, rational discourse, he's unbelievably misleading and political in this post. He ignores asset growth and the fact that all the wealth tax proposals have a very high floor for the tax.
Saying the government will take 45% of your wealth above $100M is very different than saying the government will take 45% of your wealth.
Why does asset growth matter if you're taking n% no matter what?
Edit: After reading the responses, I think people are confusing themselves with dollar amounts. If I have 100 units of X. The government takes 1 unit in the first year, 0.99 units the next, and so on. Over time my total number of units decreases. The notional value of those units can fluctuate but the absolute number of units owed to the government remains the same.
My original question, which I suppose has been answered, centered on this concept that the notional value claimed by the government is the only thing of value being lost. A unit of wealth is lost and wealth compounds over time.
Disclaimer, I'm not advocating for or against a wealth tax. Just trying to understand an argument and now apparently teaching it.
But asset isn't guaranteed to grow at 5%, it only grows that much on average.
What you say makes sense if the wealth tax is applied on ETF/index fund holdings, but for most founders, the wealth is concentrated in holdings in their own company. On average, across all founders, the asset growth might be 5%, but for each individual there is significant variance. For nearly half of founders, wealth tax would take 1% on either a flat or a depreciating asset..
I agree there will be huge variance. I'm only suggesting that if you model growth of assets as well as a wealth tax then your numbers will look different.
If your company, or your ownership value in said company, is valued at over the wealth tax floor ($50M?), and is "flat or depreciating" every year over the (according to PG) 60 years you control the asset, then you have much bigger worries than a 0.5% wealth tax.
Yes, you do. So why add yet another worry (a 0.5% wealth tax).
Keep in mind that "flat or depreciating" companies are way more common than you think. Not every company enjoys the annualized returns of the S&P500. Almost any non-tech or non-tech-adjacent company has remained either flat or depreciated, in the last 10 years.
That's the entire reason why lay people invest in the index, because it's relatively safe from depreciation. Most of the super-wealthy don't achieve that wealth on the back of the S&P500, they achieve that on the back of owning a single zero-to-one stock. It's one thing for the company to grow from 0 to {insert equilibrium valuation}, and another thing entirely for the company to continue to grow at a rate that outpaces inflation.
The argument you'll get back though is that that 0.5% wealth tax will no longer impact you _at all_ if your asset value drops below $50M.
A 0.5% wealth tax is not going to make you poor. It could, _at absolute worst_, make you worth "only $50M". If you still manage to go from $50M -> $20M, a wealth tax had absolutely nothing to do with that.
As well, although it's not explicitly mentioned, I would expect any floor-value (such as $50M) to be set to keep pace with inflation.
Okay, $50M was just the number for the sake of the argument, but the core argument still applies for those individuals worth $100M in the same circumstance, or $500M, etc etc etc.
Your argument doesn't refute my central argument, it refutes an unimportant implementation detail.
> Most of the super-wealthy don't achieve that wealth on the back of the S&P500
Are you saying that most of the super-wealthy do not (at least to a certain point) diversify their investements? Or is your point that most super-wealthy individuals acquired their wealth themselves by investing (or founding) a single corporation themselves?
Most of the super-wealthy derive their wealth from owning significant ownership in extremely valuable corporations. Outside of hedge fund managers and Warren Buffett, most of the super-wealthy do not have sufficiently diverse investments whose annualized returns may cover the annual wealth tax bill.
Most assets do not 'grow in value'. Take a building any building. Sell it today. Sit on the cash for 50 years. How much building can you buy in 50 years? Not nearly as much.
The only reason we are even talking about wealth tax is because of the crazy unable to be funded programs some people are proposing. These programs sound nice on paper until you do the math on them. Then they realize they can not pay for it at all.
Cash, specifically, doesn’t grow in value — but most ultra-millionaires aren’t sitting on tens or hundreds of millions of dollars in cash. If you’d held onto the building for 50 years, it’d probably be a very different story.
My parents have owned their home for about 50 years now. If they sold it today and turned around and bought another house they pretty much could get about the same sized house. The about 20k they paid for it 50 years ago in some places would not even get you a down payment.
Wealth is not the same as cash value. It is easy to miss the distinction. We may be agreeing? We also already have a 'wealth tax' on many items already. We call it property tax.
> The Congress shall have Power To lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defence and general Welfare of the United States
No, the federal government does not have that power; Art. I, Sec. 2, Cl. 3: “Representatives and direct taxes shall be apportioned among the several states which may be included within this union, according to their respective numbers”. A wealth tax (or other real or personal property tax) is a direct taxes not apportioned as Constitutionally required.
State governments may or may not have that power, according to their own Constitutions (most, I would imagine, do.)
I would posit that most assets are in relation to other real assets worth about the same. If I sell that building and buy the one that is say about the same right next to it am I going to 'pay more'? Cash wise most certainly. Utility wise not so much. Do not confuse cash with value. It is easy to get them mixed up.
Without asset growth, after 1 year you have $990.
If you include let's say 5% asset growth, after 1 year you have $1,000 * 1.05 * 0.99 = $1,039.
Then after another year, without growth you have $980.1
With %5 growth you have $1,040 * 1.05 * 0.99 = $1,080.
So the article claims that with 1% wealth tax you'll lose 45% of your assets over time. With any growth above 1% every year, you will actually at least break even.
except the wealth tax is not at anything other that the most ridiculously wealthy people in society. the wealth tax is proposed for precisely the reason that it slows down the growth of the ultra elite ruling class type society in favor of a more equitable one that is, you know, a society. bezoar shouldn’t have billions of dollars and influence society like he does... it’s obscene.
>bezoar shouldn’t have billions of dollars and influence society like he does... it’s obscene.
Why not? People voluntarily gave him and his company this money, voluntarily invested in Amazon. What gives you the right to try and take it from him? "Envy makes right" is not the basis for a very good moral system.
A). The parent doesn't claim morality as the foundation.
B). Thriving in a capitalist system is also not a foundation for morality.
C). There are no underlying structures that dictate/require the sum total of individual actions have to correspond to societal good (not that i'm aware of). This would be akin to claiming that drug dealers have moral superiority.
What we have here is a version of the tragedy of the commons (https://en.wikipedia.org/wiki/Tragedy_of_the_commons#:~:text...). Something that benefits the individual on the short term while negatively impacting large swaths of connected infrastructure. In a society where money == votes I can't seen how that's a valid and functioning path forward.
The word "obscene" used that comment literally means "offensive to the prevailing standards of morality", so I think you'll find it does claim morality as its basis.
What gives society the right to have a progressive tax system that expects those with more to contribute more to the common good? Because there is a general belief that everyone is dependent on the community in which they live and should contribute to it.
Currently, extremely wealthy people get tax breaks for contributing to "charity". The majority do so by creating a Foundation of their own to invest in the charitable causes that they prefer.
However, taxation goes to where the community has decided is needed, hopefully through a form of representative government.
We should not have to rely on Bill Gates deciding to invest in vaccine research to ensure that it occurs. Some of his wealth, now accumulated, should be returning to the common-wealth via taxation.
This ensures that wealth does not accumulate within very small groups of people to the extent that the rest of society does not also share that wealth.
You don't think billionaires have political power? What about the tax breaks states use to entice Amazon to build a new HQ? What about Elon Musk trying to shape public opinion against rail transit?
The US literally just elected a billionaire with no prior political experience to the Presidency four years ago!
That's one way to look at it. Another way is to say that if wealth tax offsets growth exactly, then the government has taken the difference of what your wealth would have been after 60 years. For example,
1 - 1000*(1-.01+.01)^60 / [1000*(1+.01)^60] ~= 45% taken from the government
Which is the same as the author of the article found.
Except the article implies that you might be nearly destitute. The article seems to imply that you'd have very little wealth left, even though that's not the case.
I just read the article again, and I don't see any language in it to support the idea that it's implying you'd have any less wealth than it calculates that you would.
I'm not saying his math is not correct, I'm saying it is misleading that he does not even mention growth at all. He presents carefully selected numbers, ignores tons of stuff around (growth, but also the fact that wealth would be marginal tax) and then makes a bold claim that people will believe in.
Only if your wealth is so far above say $50m that a few tens of millions is completely inconsequential. If it's closer to $50m, then it will be a whole lot less than 45% and possibly nothing.
Yeah but if your wealth has compounded 400% over 40 years, and they took 40% compounded, then that paints a different picture. He’s playing games around the idea that 100% is the cap because that’s how most people would think about money.
My guess is that you're the one misunderstanding the math here.
At a 1% wealth tax, you will end up being 45% less wealthy in 40 years than you would be without the wealth tax.
There is a 100% cap on what the government can take from you. And, with a 1% wealth tax, they are taking 45% of it (spread over 40 years).
Put another way, the 1% wealth tax is similar to a 45% capital gains tax (where the cap is also 100%). Capital gains is just more front-loaded (paid upon liquidation) whereas wealth tax is paid over time.
And every dollar that I pay in income taxes makes me less wealthy in 40 years since I am at the point that every marginal dollar I make is invested. We all need to pay taxes and need to do so in proportion with our ability to do so, whether that is income, sales, property, excise, import, impact, sin, payroll, wealth, estate, or otherwise. We are running $1,000,000,000,000+ deficits every year in this country because people think they are taxed too much despite having the lowest tax rates in modern history, what utter hogwash.
I’m not misunderstanding anything, but that’s a cool way to blaze into a convo lol. Most/borderline all of these plans kick in above income thresholds, ie you dip down below 50M and you’re not paying the tax. So that’s one way you’re not getting 45%. The other way is that asset growth will play a huge role in how this tax effects you. The only way to get the 45% number is to say your assets didnt grow in 60 years, which is not realistic. In fact if your assets are growing even around average rates over 60 years you could pay in huge excess of the original principal, while also making a killing.
> The only way to get the 45% number is to say your assets didnt grow in 60 years, which is not realistic.
This is the misunderstanding I'm pointing out. You will end up being 45% less wealthy regardless of whether your assets grow or not. If your assets grow YoY, you will still end up being 45% less wealthy bc your YoY gains are also taxed by the 1% wealth tax.
I get it (and don’t know why i went down this road on a whim). My (original) point was that at something like 8% avg return you’re up 5900% over 60 years instead of being 10900% up.
45% of wealth OVER 50 million. How do you not see the difference? The idea is that you wont discourage anyone from doing anything because they're already a multi millionaire. Who is going to be bitter about being a multi millionaire?
The time-value of money is basic. 1% wealth tax, 3% inflation and 5% annual growth leads to more money in the future, not less. (Those percents are conservative.) Is it possible that PG doesn't understand this? Or is it shallow politics; lying and using his platform spread FUD. For shame.
So 1% wealth tax is equivalent to 50% tax on the return of the asset, every year.
Say what you want, but this makes holding the asset or investing a lot less attractive. It will affect people's decisions and willingness to invest. Maybe we're OK with less investment but we shouldn't assume there is no impact.
In addition what if this is a volatile asset (read: startup) whose value goes up and down? Will the gov't give you a refund if it loses 20% of its value 10 years in?
What if the asset is illiquid (again:startup)? Who will lend to an otherwise not-wealthy startup founder 1% of their company's paper value every year to pay the tax? Because if the startup fails most founders will have to declare bankruptcy (having paid years of paper wealth taxes with no positive outcome in the end).
> Say what you want, but this makes holding the asset or investing a lot less attractive.
Not really. Where else is that money going to go? It's not enough to just say there is a disincentive, you have to show that the disincentive is so great that it makes other opportunities more attractive. But those other opportunities don't exist, because it is a wealth tax, it doesn't matter what instrument you use, the tax will still hit you.
Also, those numbers are pretty much non-sense in today's economy, with inflation consistently below 2% and nominal capital asset growth being closer to 10%, a 1% wealth tax represents a tax rate of ~12.5%.
I'm not losing sleep over a startup founder who owns so much of a company to be worth over $100MM on paper or otherwise. Startup founders have the ability to sell a part of their shares in liquidity events. If they choose to hold onto their shares above all else, it's on them to figure out how to pay the tax. It might even create a whole new financial instrument or class of investments.
> It might even create a whole new financial instrument or class of investments.
Absolutely. There will be a layer of, essentially, financial parasites taking value away from value creators to make this 'work'. Not sure what's great about that.
Capital can move globally, but if you remain a citizen, you still owe on the wealth tax, because again, no instrument is restricted. If you want to renounce your citizenship to the US and pay the exit tax instead, be my guest, I'm sure we could tighten up any loopholes and remove access to American capital markets for those that want to flee.
I also love how creating liquidity is now considered being a financial parasite. The US is nothing without the financial innovations that we have developed and embraced over the last 150 years.
Think about it, it will be cheaper/better for $1M of US capital to be invested in UK vs the US.
In the US both you and the founder/management team/other investors all pay tax if company is successful; in UK, only you (as US citizen) pay tax. You and the founders/management can split the difference and will be better off.
These things may sound small but play out significantly at scale (like interest rates etc)
> Think about it, it will be cheaper/better for $1M of US capital to be invested in UK vs the US.
That is a vast oversimplification of the problem that ignores all of the reasons to start and do business and business operations in the US, because there are already tons of places that you could start your company at that would result in lower taxes, yet very few if any choose to do so. You are making a huge logical leap that businesses will be as successful running out of the UK with its laws, regulations, and taxes as the US.
The world is not as simple and clean as whatever economic model you can cook up in your head. If it was, companies wouldn't pay developers in the US $300k/yr.
I agree, but you can make the same argument about people borrowing less if the fed increases interest rates by 0.1%. There are a ton of factors that go into someone getting financing and moving interest rate by 0.1% should be a non-issue. But on average these things do change people's behavior.
My principle is we should remove all obstacles for starting/running/investing in companies, which are the engine of the economy and create both wealth and jobs, and we should tax outcomes and consumption. Also, we should keep things simple to avoid both overhead and tax avoidance that comes with complexity.
Eh? Pg’s twitter account is one of the most interesting. I follow over a thousand, and pg is hardly a blip when it comes to pontification. (That word is surprisingly hard to spell out.)
He also seems to be assuming that business owners earn 100% of their wealth at the beginning of their careers and that the government will be chiseling away at their lump sum earnings for their entire working life...
Yeah, if you don't work or even invest and do nothing for your whole entire life, while sitting on a pile of cash larger than you could ever use (and note: we specify you are NOT USING IT) you could end up dying (in a presumably stable society that hasn't itself killed you) sitting on a pile of cash only half larger than you could ever use (and we specify that you are NOT USING IT).
So persuasive. Gee, I'm really convinced. Certainly worth destroying societies over and risking violent revolution and the destruction of all those assets.
This only models a very foolish version of a wealth tax (i.e. with no lower bound) on very foolish wealthy people (i.e. who don't invest.) Really disappointed by the quality there. It's a straw man of what anyone's suggesting and what anyone's doing.
this assumes the weakest possible form of a wealth tax.
a progressive wealth tax would tax the increase of wealth on the margin rather than just "wealth". experience equity gains of $1M? you owe an extra $10k in liquid cash at the end of the year. if your equity doesn't grow, you don't get taxed.
in any event, the floor for these kinds of laws would likely be above the ceiling of most people's lifetime wealth accumulation.
"[T]he government will over the course of your life take 45% of your stock" seems a bit misleading? You can either retain ownership and increase your compensation (which is more expensive) or sell your shares to someone else and pay the government with the proceeds. Makes it sound less like the government wants to take over private companies and instead incentivize dilution of stock ownership.
Thomas Piketty's Capital in the Twenty-First Century advocates for a wealth tax of up to 2%. This is the only remedy to combat the structural rising inequality in capitalism.
He also admits the tax would be difficult to implement. He should know. France wealth tax has existed for more than 30 years. It was not a success, in part because the wealthy found ways to avoid it. It was as simple as moving residence to Belgium. The tax has now been turned into a property tax.
Did piketty explore unifying capital gains with a progressive income tax? Inflation is already a tax on wealth, but the wealthy beat it by the large return on investment. If you reduce the return on investments to below the rise of wages, then doesn't that solve the problem he describes in his book?
His newest book goes much further, if you read Capital in the XXI Century you should give it a try.
My takeaway from this blog post and his book is that:
1. we should have way more transparency on who owns what: currently information about who owns what stock is in the hands of private companies and it's not disclosed to the public. One of the effects of having an income tax is that we have very detailed information about income. I would argue that measuring inequality is a good thing for a society.
2. we really really need to stop fiscal dumping and fiscal competition among countries. There are a number of ways to do that: stronger transnational organizations, more transparency and collaboration among countries (like what the US imposed to Switzerland), exit taxes (proposed by the US)
Overall pg's post ignores the fact that 1950-1980 saw the largest growth and the highest income and succession taxes in the US (also in Western Europe, but one might argue that reconstruction might have played a role in this)
Are there any forums like HN that aren't backed/funded by a VC firm/incubator/whatever? I forget why everyone migrated from /., as a lot of memes and dumbspeak from there appeared on here over the years.
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[ 3.1 ms ] story [ 548 ms ] threadEDIT: Source: https://www.frbsf.org/economic-research/files/wp2017-25.pdf. The precise number is real returns of 6.89% on equity, 7.05% on housing
And if you think that's a bad idea, why should individuals do it in order to stay above the wealth tax?
For a founder to invest (eg., $1m) in starting a company, there is of them losing their total investment. The expected ROI needs to be fairly high to offset that.
The only people who /could/ make money under such a scenario are super-rich investors making many bets that average out risk. And they wouldnt, given -- as you say -- general equity would perform better.
Any policy implemented in this way, over trivial amounts (eg., over 0.5%), would destroy investment & the business opportunities of a generation.
Perhaps there's a different policy behind "wealth tax".
Do you mean founder, or investor? I don't know any founders who invest that much into their startup.
Startups are high-risk, high-return investments. If a wealth tax was introduced, wealthy people would need higher returns (as others have pointed out) to cover their tax obligations and so would invest in riskier investments. Like startups. So startup investment would increase.
Just because the investment is riskier, doesn't mean the returns are automatically better. It only goes one way - higher returns are automatically more risky.
If wealth tax is implemented, then an investment automatically becomes lower return (since the wealth generated is also going to be taxed indefinitely). So an equivalent startup that would've returned 10x with no wealth tax will _need_ to return 11x (or something higher) to make the investment worth the same risk as before the wealth tax. i.e., there will be fewer investment opportunities that are suitable, given the higher bar it must reach under a wealth tax.
It's been shown time and time again, that a tax on something will discourage it (in the aggregate). I don't think a wealth tax is any different - it will discourage wealth creation.
The startup ecosystem is pretty good I'd say.
https://www.belastingdienst.nl/wps/wcm/connect/bldcontentnl/...
and 17k tax from 1.25M equity.
“Socialism never took root in America because the poor see themselves not as an exploited proletariat but as temporarily embarrassed millionaires.” ― Ronald Wright
EDIT: @Applejinx: Wealth exponentially is exactly what I refer to by wealth inequality. Excellent points.
[1] https://www.failory.com/blog/startup-failure-rate
Or, rather, how the lack of reward fails to motivate.
One example that comes to mind is the entire open source community, the provides enormous amounts of productivity with little to no compensation, would rebut this argument. Another example would be Watsi, a YC startup, with enormous impact but no profit motive (there are many top notch YC non profits, I pick this one because it is my favorite).
Taxes are higher in most of the developed world. People still start businesses, people still go to work. We don't have to shy away from policies that make the wealthy nervous. I do not buy the argument that innovation will die because of higher taxes.
They still start businesses, but they start far fewer per capita: compare for instance the number of new Fortune 500 entrants over the past couple decades from the US vs from Europe.
Whereas some people think the government should tax wealth, this shows that governments are likely to have less tax revenue as people move out of that state/country. Given the recent shift to more remote working, this means that people are less tied to living in a particular place in order to have a certain job.
The problem is wealth EXPONENTIALITY. Pretty much any billionaire or trillionaire, as a person, produced more effectively when they were a millionaire, or even less wealthy than that. There is NO benefit to having individuals directly control wealth on the scale of small (or large) countries, and very little benefit to having collective entities like corporations controlling wealth which is that out of scale with other entities in their environment.
Wealth exponentiality is the problem. Equality isn't at all necessary.
If you want to tax the wealthy, then simplify the tax code and remove loopholes and deductions. Leave rates alone.
Your calculations was right in that idealistic tax system, but the real world is really messy with lots of exceptions, Tax credits, Benefits, and such.
Building on your example, I will add a little Child Benefit to make a slightly less ideal idealistic-scenario.
Assume If earning < 100: child_credit = 3
Assume 1 Child
If earning 99: take_home = (99 * 0.9) + 3 = 92.1
If earning 100: take_home = (100 * 0.9 + 1 * 0.8) = 90.8
-----
I chose this example because I remember vividly a story about a family in the UK that avoided getting promoted because their take-home would decrease. Of course it have to be a very small promotion in order to not be worth it. I don't know if cases like this is rare in the US, but it is generally a thing.
https://www.zerohedge.com/news/2012-11-27/when-work-punished...
Further, a flat wealth tax has immense inefficiency in that it forces people with $100s or $1000s of dollars to their name to calculate their wealth for a $1-$100 payout to the government rather than do something productive with their time.
What is more likely, as it’s actually constitutionally legal, is forced realizations of gains to allow for regular income taxation.
Really we should tax land as there is no deadweight loss. I don't agree with taxing wealth creation. He should have articulated an alternative, as the current situation is not sustainable.
If you have a bucket of money that isn't doing anything, then what value does it actually bring to the economy? Penalizing static value seems almost reasonable.
Wealthy people don't just leave their money under a mattress, they invest it in something. Even if they just left it in a bank, the bank is still going to lend that money out and invest it. Taxing wealth just encourages riskier investments, as higher risk is needed to achieve comparable post-tax return.
Currently investment is only taxed on a "realized basis". No tax bill is due until the investor realizes a cash profit, either by receiving a dividend or harvesting capital gains on sale of the asset. In contrast a wealth tax is assessed every year, regardless of whether the investor has actually earned any actual income.
Under current tax law, an investor is not penalized for continuing to hold a high-value asset. In contrast under a wealth tax regime, an investor would be forced to sell some portion of his portfolio every year just to pay his tax bill. That heavily favors large, liquid, public companies over startups. Selling a million dollars of Amazon shares is as easy as pressing a button. Selling a million dollars of a Series-A startup, especially at a fair price, is really hard.
This would especially impact early-stage employees, who usually hold a very high fraction of their net worth in their stock options. At least VC investors usually have other holdings that they could liquidate to pay their annual wealth tax.
Imagine you own 20% of a company with a $50 million valuation. On paper, you're a deca-millionaire. But in reality you could easily have an overdrawn checking account. How do you get your hands on $100k in cash to pay your tax bill? There's no real market to sell your shares, and very likely you can't even do so without board approval. You could borrow the money, but if the company fails, you're now left with huge debt and worthless equity.
In all likelihood a wealth tax would pretty much destroy the Silicon Valley startup ecosystem. Or at least remake it into something totally unrecognizable.
A wealth tax does not reduce income, it reduces wealth! Income taxes and capital gains taxes reduce income.
But taxes provide services that give people a greater safety net. Healthcare is the canonical example but there are many other ways that taxes can help ensure that one mistake does not ruin the rest of your life.
Personally, I would love to live in a country where businesses took fewer risks and individuals could take more.
Maybe we don't need a wealth tax, but a way of unlocking capital from banks to excellent resource allocators (to be defined).
It doesn't seem like low risk investments like sticking money in the bank to be lent as mortgages or investing in government bonds are as good for humanity over the long term.
77% of Google is owned by mutual funds & other institutional investors.
62% of Apple is owned my mutual funds & other institutional investors.
79% of Facebook is owned by mutual funds & other institutional investors.
A capital gains tax, on the other hand, strictly targets those whose assets have appreciated in value.
Wealth is always eventually taxed when it’s liquidated. And if it is never liquidated, then it arguably doesn’t really matter.
It can also matter for other resources which are finite, but land is one of the most crucial one in our current times, and why we are seeing such ridiculously large gains in housing costs in the past few decades after a century of housing costs remaining fairly constant.
I started mentioning land, as it's the most clear problem of idle wealth. But hugely unequal distribution of wealth also results in slower economic growth and overall less economic activity than if there is more equal access to capital and resources. Capital strikes can be just as effective as labor strikes, and though they don't get much attention they can cause great harm.
But wealth != capital. Wealth only becomes capital when it is realized/liquidated, at which point it is taxed. Before that happens, one person's wealth doesn't preclude someone else from investing or being productive because unlike land, wealth is not zero-sum.
And yes, there are other options for solving problems like that beyond just a wealth tax, but maybe a wealth tax is part of the solution.
But...it's not? The only person who has concentrated an unimaginable amount of wealth for which this might be true is Jeff Bezos's Amazon, except Amazon workers all earn a $15 minimum wage, 401k matching, and are part of the same group health insurance plan as the engineers and product managers. They happen to enjoy some of the best health insurance available to an entry level job that requires no college education.
Outside of Bezos, the vast majority of the wealthy pay their workers handsomely (Bloomberg, Bill Gates, Tim Cook, Page/Brin/Pichai).
And even if this was somehow a pervasive truth, the solution to that is a basic income, not a wealth tax. A wealth tax wouldn't even come remotely close to funding a basic income. If you were to seize 100% of all wealth of the top Forbes 500, you would get enough money to run the current Federal government for 8 months. Not 8 months per year, 8 months ONE TIME.
Capitalism is a fantastic means for directing economic forces as long as everybody has enough capital to do the voting, as it were. If only a few people hold all the capital, then only a few people make decisions and will often engage in capital strikes rather than risk the chance that their position may be threatened.
I just read Progress and Poverty by Henry George and he makes this point very clearly. I highly recommend giving this book a read if you haven't yet.
This feels like a fallacy
Correct, they grow out of having a middle class with purchasing power, who can buy products and services, thus creating jobs for those who provide those things. But the middle class's effective purchasing has been going down for decades, while the wealth at the top has been increasing. So something needs to be done to balance these flows of capital - the current situation is not sustainable.
If the problem is middle class purchasing power, then the solution should be to directly improve middle class purchasing power (via a UBI).
And no, a wealth tax will not come remotely close to funding a UBI.
Totally agreed that wealth is not zero-sum, and I thank you for bringing it up, because zero-sum-thinking is all too common, and the reason for so much misery when it comes to thinking about these things. (But even as a non-zero-sum, availability of capital is highly influenced by the degree of idleness of wealth hoards.)
But if wealth is never liquidated, then how is it anything more than just a life high score? It's inconsequential to the outside world.
But I do agree that since wealth is not zero sum, it is completely consequential. Where it really matters is when the wealth distribution becomes more unequal, resulting in less ability to initiate new economic ventures. Extreme wealth inequality results in only a very few people controlling the economy, and in those cases wealth hoarding becomes an end in itself to concentrate economic powers away from others, and an end in itself.
That makes no sense. Just because the fair market value of Elon Musk's holdings in SpaceX and Tesla is some collectively decided amount, doesn't mean that Elon Musk actually possesses that money and can do anything meaningful with it.
If he wants to do anything meaningful at all with that theoretical value, he will have to liquidate some of it and turn it into non-theoretical money, and that is taxed already. If he just lets it wither away, then it's of no use to anyone else.
> Where it really matters is when the wealth distribution becomes more unequal, resulting in less ability to initiate new economic ventures
But this just hasn't been true at all. Just because Bezos is a 100 billionaire on paper, doesn't mean that I will have a harder time raising venture capital for my startup. Wealth isn't zero-sum. And the paper value of one's wealth isn't backed by liquid money, I.e. Bezos's 100+ billion in wealth doesn't actually lock 100 billion dollars in cash from other investments.
If you're making the argument that it's difficult to initiate a new economic venture in the same space as Amazon, that's just because Amazon is a strong company — there is nothing wrong with that.
Regarding going to a VC to get capital: think about how this process works in one very tiny slice of the economy. You build trust with a small set of people that are the arbiters of capital and who gets the resources to start a new venture. If there was only one VC firm in the valley, it would be disastrous because they would hold all the power. It is only through the agglomeration of many potential sources of capital that really makes the system run well.
In the rest of the economy, there are few VCs, and for a lot of profitable, but smaller businesses, capital is super hard to come by. A person who sees a future in, for example, electrification retrofits of homes and has several good ideas about how to make it cheaper and more economically efficient, is going to have a really hard tome getting going. However, if their own community knew about this person's ability to scale a small business, and knew of the intelligence and grit of a person through their own personal relationship, and if that community had small amounts of capital to throw in to get the newcomer off the ground, overall wealth is increased as the new venture starts serving the needs of people.
But this requires more equal distribution of capital, and to change the arbiters of capital from a few hundred people to everybody.
I don't really hear many people talking about friends, family, and fools rounds these days because the game has changed. However if we had more people that could use their knowledge of the local lay of the land to invest more wisely, we'd have far greater wealth generation.
IMHO, the problem with inequality isn't the person with $100B, the problem is all the talented and skilled people whose ideas go to waste because they can't get the attention of the very few people that have been entrusted with the ability to allocate capital.
The more inequality there is, the closer we get to central planning, and erasure of the talents of so many people.
If this was true, then why is nobody talking about imposing a tax on the market capitalization of corporations? Think about how much revenue you can raise by levying a 1% tax on Microsoft's market cap. But this is absurd, because the market cap doesn't represent actual money, it represents the theoretical value on all shares outstanding.
> In the rest of the economy, there are few VCs, and for a lot of profitable, but smaller businesses, capital is super hard to come by.
This is manifestly untrue. In the last 10 years of near-negative interest rates and quantitative easing, capital has been almost too easy to come by. Everyone and their mother is lending money.
> A person who sees a future in, for example, electrification retrofits of homes and has several good ideas about how to make it cheaper and more economically efficient, is going to have a really hard tome getting going.
Not true at all. Most banks and credit unions would extend dirt cheap loans. We are arguably over-leveraged on these kinds of loans.
> I don't really hear many people talking about friends, family, and fools rounds these days because the game has changed. However if we had more people that could use their knowledge of the local lay of the land to invest more wisely, we'd have far greater wealth generation.
The reason for this has everything to do with globalization and 21st century communications technology. It is no longer sufficient to be the best electrician in your neighborhood, you now need to be the best electrician in the country or perhaps even the world, given how easy it is to reach consumers today.
To give you a sense for how the scale of globalization has made it difficult to compete locally, consider how easy it is for a new business to reach every American today. There are 330 million people in America. You just need to provide $3 of value ONE TIME to every American, and you become a billionaire. Likewise, on a global scale, there are 7.8 billion people in the world. If you can get 1% of them to pay you a penny once a year, you're making $780k/year.
"Inequality" is inevitable in this world, but again the wealth isn't zero-sum. We're not remotely close to "central planning", because the wealthiest person on the planet (on paper) only represents ~0.5% of the annual GDP of the US alone. And that's not even an apples-to-apples comparison because the paper wealth is accumulated over years, whereas the GDP occurs every year. The accumulation of Bezos' wealth over the last 20 years is about 0.05% of the accumulated gross-product of the US, alone.
The coalescing and hoarding of wealth results in the deterioration of the average value of a human life. This is bad for a western liberal society because it demonstrates that the values upon which the society operates do not yield positive outcomes for enough people to be satisfied and hopeful. If capitalism is to remain the dominant economic system, it either has to enslave the masses and oppress them into submission (which they are currently resisting), or it has to work to continually operate in a way such that the perception of wealth is maximally shared.
I agree inequality is inevitable. Everyone has different priorities, abilities, etc. But human rights must be preserved (globally) and access to opportunity and capital, hope, must be universally available. This is the only way to justify the inequality of outcomes.
To tax wealth is really to say that socially we don't want institutions to remain in comfortable positions of perceived power without continually demonstrating utility. You build up a large estate? Great. But you must continually demonstrate its utility by actively working to distribute the wealth, not just generate goods and services. Or, have it done for you.
It doesn't seem to me that it's a problem, per say, that wealth is not tangible. Money isn't really either. Cash is simply a tool that a capitalist society uses to encourage the exchange of goods and across markets where it wouldn't otherwise be obvious how to make an exchange. Having a lot of cash does not make one wealthy, and having wealth does not imply liquidity. At any moment one can become the other or simply evaporate altogether.
It seems that the point is really about how to mitigate the tendency for institutions that have extracted much wealth from society to deploy it in efforts of self preservation. In the current state, you need a revolution to tear down entrenched institutions. In this forum and generally in the valley where we have essentially arbitrary access to capital, we prefer (or have been trained) to be a little bit disruptive all the time rather than massively disruptive a little bit of the time. We've demonstrated that this model works. And fundamental to the model is essentially arbitrary access to capital.
So I guess my question is if as you suggest access to capital is more available than it's ever been, why isn't it being deployed? Perhaps globalization has driven the bastions of wealth to build such high walls that they find themselves among the clouds?
This is not true at all. If Bill Gates walks into a bar, the wealth distribution changes dramatically, but the absolute standard of living of the existing people doesn't change at all. In fact, you could even argue that the absolute standard of living increases, since almost nobody is super-wealthy in a vacuum; they enjoy their wealth because they provide value to others via goods & services. That's the whole point behind the argument that "wealth is not zero-sum".
> access to opportunity and capital, hope, must be universally available
Again, it's not clear at all how one's theoretical net worth negatively impacts someone else's access to opportunity / capital. When my rent goes up, it's not because I'm in a bidding war with Jeff Bezos. An MRI doesn't become unaffordable because Jeff Bezos exists.
> Money isn't really either. Cash is simply a tool that a capitalist society uses to encourage the exchange of goods and across markets where it wouldn't otherwise be obvious how to make an exchange.
Money is arguably zero-sum, because there's a finite amount of it. When someone else hoards billions in cash, it means that there is a significant portion of the total money supply that is out of circulation. That's what's bad for society. When wealth turns into money, we already tax it..
> It seems that the point is really about how to mitigate the tendency for institutions that have extracted much wealth from society
Wealth isn't "extracted from society", because it isn't zero-sum. It's not like there's some finite amount of wealth, and the super-rich have taken it from everyone else.
> So I guess my question is if as you suggest access to capital is more available than it's ever been, why isn't it being deployed?
I'm not sure the premise is correct. There is more capital deployed today, per capita, than at any time in human history, even after adjusting for inflation.
I'd be interested to read more about this. Any names I can research?
PPP Converted GDP Per Capita, derived from growth rates of Consumption, Government Consumption, Investment -> https://fred.stlouisfed.org/series/RGDPLPUSA625NUPN
Inflation Adjusted Gross Private Domestic Investment -> https://fred.stlouisfed.org/series/GPDIC1
Inflation Adjusted Government Investment -> https://fred.stlouisfed.org/series/GCEC1
Inflation Adjusted Federal Government Revenue -> https://www.taxpolicycenter.org/statistics/federal-receipt-a...
Our World In Data
Global trade -> https://ourworldindata.org/trade-and-globalization
Total world GDP -> https://ourworldindata.org/grapher/world-gdp-over-the-last-t...
Global economic growth -> https://ourworldindata.org/economic-growth
Other Misc statistics
Inflation adjusted per pupil education investment -> https://nces.ed.gov/programs/digest/d19/tables/dt19_236.55.a...
People got wealthy invested into funds or started funds and are now committing capital back.
Having a hard time raising money is an issue but that’s because 90% of companies fail. As such that is too risky for a bank to lend into so you need to go to other segments.
If we were being restricted by land availability, we could fix that easily by putting more housing on the same amount of land. That problem was solved long ago.
As somebody who has been watching the process for this for years, let me tell you that it is the exact opposite of easy, and nearly impossible.
And it's nearly impossible because current wealth holders are able to stop it from being built. And in most areas where there are housing shortages, locals and local governments consider the current land "built out" meaning that the zoning does not permit more housing or more height than is already built, an the notion of changing these arbitrary restrictions is so inconceivable that it almost never happens.
This is what has really changed over the past yes decades to make housing prices soar: refusal to allow more housing to be built on existing land.
Zoning restrictions have been used as a means to massively inflate home values in the US in high demand areas, and that program really came to fruition in the 80s and 90s as areas became "built out" according to allowed zoning. Which then fueled the massive inflation in housing costs.
This restriction on allowed uses has differing effects depending on whether it's applies in small areas or large areas: downzone a single lot or single neighborhood in a city and it may prevent those parcels from becoming too valuable because they have limited use. Downzone an entire city and it causes housing values to soar because it has created a housing shortage.
In the Bay Area we have a massive shortage of land that allows more housing to be built on it, and even land for which we can build offices.
Building more housing on sites when they change hands, though normal, unforced moves, when a person retires and moves to a new location, or when a person gets a new job and moves for it will provide ample land to build more housing. As long as people are allowed to.
Property taxes forcing people out of homes is a common scare tactic, but it's simple to provide homestead protections that would prevent any forced moves, and also allow the homeowner to capture the fantastic gains in wealth that accompany any land market where there is a shortage of housing. Property taxes only shift the non-resident real estate investor to make sure that they are providing what people need, rather than using idle wealth to keep people out of an area where lots of people want to live.
Source: https://www.federalreserve.gov/releases/z1/dataviz/dfa/distr...
For large segments of wealth (real estate) this is untrue.
Inherited property receives a step-up in cost basis to the current "fair market value", such that the capital gains liability is removed.
You might argue that this is realm of the "Estate Tax", but that is a different topic.
https://www.investopedia.com/terms/s/stepupinbasis.asp
> if it is never liquidated, then it arguably doesn’t really matter.
This is also not true. It does matter. It is not difficult to take extremely large "loans" (loans are not taxed) against assets that you own, in order to avoid actually selling the asset. This is a not-rocket-science way to reap the benefits of an absolutely massive fortune without any of it ever being "liquidated".
What? Why? This is pretty squarely in the realm of how to taxa transfer of wealth. The wealth tax is a really ham-fisted way to solve this problem.
> It is not difficult to take extremely large "loans" (loans are not taxed) against assets that you own, in order to avoid actually selling the asset.
Even if one were to take a collateralized loan, it would need to eventually be repaid, and for this to happen, some gain would have to be realized somewhere. That money isn't free. No matter what, that wealth is eventually taxed.
Nobody who's sitting on $50M of assets is a loser.
First of all, we're not talking about "$50M of assets", we're talking about $50M ownership in your company. That is un-diversified.
Second of all, a wealth tax necessarily means that you will have to relinquish ownership of your own company unless you're "a winner".
> and it seems to me applicable to a very narrow case
The floor of the wealth tax doesn't really refute the central argument, because it just means that it impacts anyone who owns a business worth over $50 million. This is a LOT of businesses in the US!
> and even in that case doesn't have drastic consequences.
That level of liquidation and lost ownership will have potentially disastrous ripple effects on the economy, because for a lot of companies, the theoretical market value — upon which one's theoretical net worth ("wealth") is calculated — is based in large part on that individual maintaining ownership and control of the company. Once a founder starts liquidating large portions of their wealth and divesting their ownership, it's difficult to predict what that could do to the value of the company, and consequently the value of pension funds and portfolios that rely on the stability of the corporate value, and ultimately impacts the employees of those very corporations.
- ownership percentage (0-100%)
- company value (50M - $2T)
The Cartesian product of all ownership * value that work out to > $50M is substantial enough that it's 1) probably not fair to individual business owners to force them to divest to raise a minuscule percentage of the Federal budget, and 2) probably not worth the potentially disastrous 2nd-order effects on pension funds and investment funds that are largely predicated on stable/competent corporate ownership.
In any case, it sounds like you've conceded that there is a forced divestiture, and now the argument boils down to: "is that justified?"
We can actually look at the Fed's Survey of Consumer Finances and get a reasonable number here. Household's with >$50m are top 0.07% percentile and there are approximately 84k of them out of around 130 million households....
[1] https://cdn.dqydj.com/wp-content/uploads/2017/09/millionaire...
1) I agree with you, taxing asset holdings is strange logistically.
I think it be best to tax income. The only change I'd make is currently, income is taxed at a percentage based on your total income in the year. What could change is to tax income at a percentage that is a function of the current estimated value of your wealth instead. So if you cashed out 1 million and that's all you have, you'd pay less tax on it than if someone cashed out 1 million but still had another 10 million worth.
2) Maybe it's a bad idea to allow anyone to own too much of anything of great value to society.
In that regard, it could make sense to force wealthy people to sell some of it, to whatever treshold we believe is too much for one person to own.
That's where I think a wealth tax could come in as a vehicle to force people who own too much to sell some of it. So that we have a more evenly distributed wealth ownership accross the board.
The only thing here is I'm not sure if a wealth tax is the best scheme for this. I think the income tax that I described in #1 would be good when it comes to taxes (money that goes to the government). For wealth, I'd be more inclined with something like where people have to sell a percentage, but taxes don't necessarily need to be involved (beyond the income tax as described from the sell). The idea here is just that no one should own too much, so at some point, you need to sell so that ownership is better distributed. Not necessarily that this should go towards taxes.
But there is an inherent right to the ownership of property (enshrined in the US Constitution).
A Federal wealth tax is currently unconstitutional for the same reason that you don’t have Federal property taxes: the Constitution explicitly prohibits the Federal government from levying direct taxes except for income (via the 16th Amendment). Wealth is not income.
What about dividends? Starting another company? Working as a CEO or board member?
The article has a terrible foundation because he's intentionally misleading the reader.
If I have a 100 shares they'll take 1 share year one, slightly less year 2, etc regardless of the price of a share.
It is not simple just a management fee because instead of being used to purchase a luxury goods it may be used to improve healthcare, infrastructure or regulating industry.
If it wasn’t for government investing into DARPA none of these startups would even exist.
We already do that via inflation. Leave your money uninvested and we tax it 2% or more per year, every year.
That is its purpose. I'm not sure why people think otherwise.
Whether you think that purpose is a good reason to have a wealth tax is a separate argument.
Taxing away 1% of an asset that grows 0% every year leaves 45% of the assets that would be present without the tax after 60 years.
Taxing away 1% of an asset that grows 7% every year leaves 45% of the assets that would be present without the tax after 60 years.
However, to be more realistic, modeling growth makes the taxation even worse, because at times when your equity is at a high valuation, you need to sell some equity and then some extra on top of that in case your equity value crashes before the end of the year/ end of the tax period. You are forced to act defensively.
It's surprisingly not different.
If you have an asset that is dormant, is $100, and you tax it with 1% for 20 years, you get to $81.79 by calculating 1000.99^20.
Now suppose instead, your asset grows by 10% a year, and you have no tax. That asset grows to 1001.10^20 = $672
Now suppose that prior to the investment each year you tax it with 1% and invest the rest, for 20 years, again at 10%. So you get 1000.99^201.10^20 = $550
That $550 of $672 is exactly the same portion as $81.79 is of $100. In other words, growth or no growth, it has exactly the same effect, either way a 1% tax over 20 years takes 18.2%.
> Penalizing static value seems almost reasonable.
In the philosophy of taxation there's a different approach. Money you own is money you earned. Typically earnings are taxed. You produce X value, and a small portion of X is allocated to a general pot of money to fund general things in society, e.g. infrastructure, rule of law etc. But after that, it's your money. If you then invest it and earn more, again, a portion of those earnings are taxed. But if you don't do anything with the money, for the government to take it, is seen as a form of theft.
The principle why the one form of appropriation is okay and the other isn't, is because when you earn, you benefit. And the government benefits, too. When you just store, you don't benefit, and taking it is a purely negative experience. Many people are willing to share part of their new earnings. Few are willing to give up something that has always belonged to them.
Inflation is a natural penalty on static value anyway. So are opportunity costs. Plus, actually static value is quite rare, money in a savings account is being put to work by the bank. The amount of really static money (like money under your mattress, or a permanently vacant home) is quite a small portion of the financial system and again being penalised by inflation and opportunity costs already.
THE philosophy of taxation? There is no central deciding authority here on a singular philosophy.
> When you just store, you don't benefit, and taking it is a purely negative experience. Many people are willing to share part of their new earnings. Few are willing to give up something that has always belonged to them.
That's a real stretch when just a sentence earlier you talked about earned benefits and taxation of those benefits. Storage is just the accumulation of earned benefits beyond your spending habits. Value isn't created in a vacuum nor is it used in one. And current taxation doesn't preclude future taxation, it's why us common folk are told to do any of our retirement funding that we can as pre-tax, since who's to say something that is taxed today (and is expressly stated as not being taxable in the future) won't be taxed again later on appreciated or total value. So, by this alone, the government saying taxes now, and deferred taxes later if that valuation meets certain thresholds isn't something that the government can't or even shouldn't do.
And, in many cases, the tax wouldn't apply to startups or their founders unless they're already sitting on multiple tens of millions of static personal valuation; which is where this whole argument really breaks down, and shows its disingenuous colors. When someone like PG talks about these wealth tax valuations in general terms of percentages, many of us are still thinking on OUR terms, which means we're thinking on "normie" scales of 10s or 100s of thousands, or maybe a couple million, where a 1% drop in valuation YoY would make a significant dent in what we can and can't do; when a wealth tax is floated (at least in the US) it's looking at $10M+ in static assets at the individual level, and applies to a wealth class that only a small percentage of people can actually comprehend. And, when a wealth tax is floated in the US, it also has discussions around non-realized asset valuation (such as small businesses, start-ups, etc) and what classes of assets contribute to the total value of an individual wealth tax.
Applying a wealth tax in a general way like how PG has done it is a bit disingenuous, not wrong; but is prone to personal wealth view biases. It becomes even more obvious when we take your example and put it towards something that would actually be taxed... $100M; which you end up with $81M for static assets or $550M instead of $672M in PERSONAL assets. Most only think of numbers in these terms if the "win the lottery" so who in the general public thinks the difference of $122M over a lifetime of nearly 3/4 of a billion dollars in wealth (not earnings, but accumulated valuation) isn't a bit of a "whatever," they'll pay more in taxes on that Mega Millions winner and won't bat an eye. (this also works for the usual lower bound as well, $10M, but $100M is guaranteed to be included in any of the recently floated wealth taxes).
So now we should be penalizing unproductive assets? When did we all decide that was ok?
Based on that logic, wouldn't I be justified in draining someone's savings account in order to invest it more productively in stocks? Maybe it's ok to steal land from people if I will grow more crops on it than they will?
You can justify taking pretty much anything if you say you will use it for something more productive. What about property rights? Why should people who have played by the rules and built wealth in our society, which they were encouraged to do, then have to live in fear that their wealth might be taken from them?
We already do that---it's called inflation. And the justification used by economists is that the economy will collapse without inflation to incentivize spending money.
We didn't invent inflation, but we absolutely do set a target inflation rate as a social engineering tool. And the reason that deflation is considered "worse" is because it lets people keep equity in unproductive assets instead of liquidating it and moving the money into more productive assets.
No, the reason deflation is considered worse is the possibility of a deflationary spiral.
The Fed is primarily interested in preventing a collapse of the banking system. They don't really care if people are spending their money on productive investments or hoarding it -- in fact, if everyone was spending their money on productive investments there wouldn't be any bank reserves, and the Fed would be very unhappy about that.
When we went off the gold standard?
Ah yes, the economic argument of "punish savers and people refraining from consumption will lead us to our Centrally Planned Utopia"
>If you have a bucket of money that isn't doing anything, then what value does it actually bring to the economy?
Do you and I live in the same reality? When a global pandemic has shown almost every single person on earth that cash balances should have been higher -- enough to sustain unexpected periods of inactivity -- it seems a little tone deaf to say saving money is unproductive. There's already a tax on holding central-bank money -- it's called engineer inflation and it's what's exacerbated the economic repercussions. Your Central ~~Bankers~~ Planners convince you taxing fiat money holdings (price inflation) and artificially reducing the cost of bringing future production to the present (downward interest-rate manipulation) will lead us to utopia when it's actually cause over consumption, over production, and a planned economy on the precipice of collapse.
I'll keep the "unproductive" savings, thanks.
You're sitting on greater than 50 million dollars? That what a wealth tax would most likely target
Outside of Disney comic books, money doesn't sit around.
The money "in" my savings account is just bits in a database. The value it represents has been loaned by the bank to someone who is doing something with it.
When I sell stock to pay a tax, the money to pay that tax has to come from someone who bought it. That value represented by that money is value that won't be used for other things.
Are you certain that what govt will do with that value is better than what those someones are doing with it? That's the question because taxing me means that they won't have that money and govt will. (Taxation doesn't create value - it moves it.)
All of the talk about roads and stuff is somewhat dishonest. Transfer payments dominate govt spending, not production of goods and services.
> That what a wealth tax would most likely target
Ah yes, the "the tax will only affect bad things" rule. Is there any good reason to believe that the folks who are pretty much responsible for the current tax system will somehow figure out how to do this correctly?
Your belief about "money just sitting around" is not encouraging.
When things go south, we'll hear about the value of breaking eggs, but for some reason the omelets don't show up.
If an economic agent holds a money, they are -- by definition -- saving their money. If they instead decide to speculate with the money "Hmm I think gluten-free bread will be in higher demand next year, better buy ovens today, to sell to the baker then" they consume scarce resources (labor and materials to make the oven). If they invest the money in a business endeavor "Hmm I need to allocate capital from money to wheat, ovens, to turn a profit as a baker to produce bread" they consume scarce resources. These capital allocations change the exchange rates of these goods.
Try as you might to avoid it, all forms of punishing cash holding induces undue consumption.
We're talking about multi-millionaires, often in the tens of millions, and more.
No-one is saying that regular Joe's with $800 in their savings account should be penalized for just letting them sit.
Does no one in this thread understand that there already exists wealth taxes in countries without explicit wealth taxes?
While many countries have explicit wealth taxes (Government agency that will demand you pay x on y), many (almost all) countries have wealth taxes that tax "regular Joe's with $800 in their savings account". The central bank in the USA literally has a charter to print enough money so that asset prices rise at a nominal 2%PA. If a central planner confiscates $16 in purchasing power from regular Joe does it matter if its done through direct taxation (taking the $16 dollars) or indirectly (printing enough money so that his future value of $800 will be only $784)?
Since you need it spelled out again: unlike inflation, actual wealth tax will not take $16 from your Joe because in case of actual wealth tax, $800 is three or four orders of magnitude below minimum taxable amount of savings.
Currently many countries have, or are proposing additional wealth taxes that are graduated in amount (What the original article is discussing).
>blame wealth tax for the faults of inflation
Who made this argument? Not me. You've misrepresented me pointing out that engineering inflation is a tax on all wealth (including average Joe's $800)
Best of luck to you in thinking that people writing words in a book in marble buildings can magic more food into existence.
Wealth tax would only apply to the very reach. i.e. the “job creators” whose wealth is supposedly “trickling down” the economic ladder.
Sure, I guess with no floor on the tax and with your money just literally sitting in a pile, the government would eventually take a lot of it.
That is to say that inflation doesn't harm the wealthy. They benefit from it. Inflation will cause the floor to creep up to everyone else.
It's not fair that someone who earns 100k with no assets pays as much tax as someone who earns 100k but also inherited a 1mn house and has a whole load of cash reserves from not paying rent/mortgages for years. It's doubly not fair when the wealthier individual can divert most of their salary into a pension and not pay tax on it, because they can afford to do it now.
Someone's wealth should not be eroded by tax, but their earning power should be adjusted based on marginal dollar value.
Eg if I have a total net worth of 2mn, my income tax might be 50%, and if I have a total net worth of 0, my income tax could be just 10%.
This would encourage people to earn more who have little now, and encourage people who have a lot to spend/scale back their earnings. Ideally it would lower the gap between lower and middle class people.
And this would apply to people earning 10k as much as people earning 100k
"Greater love hath no man than this, that a man really help the economy"
Why not? They are paying for something. Should someone's wealth not be eroded by rent? The cost of food?
Absolutely someone's wealth should be eroded by tax. If they're so damn clever they'll make more. If they're not, the erosion will quickly diminish along with the wealth, making their future efforts much more significant.
Lazy shiftless wealth absolutely should be eroded. Erosion is the nice way: you can also try for the nasty way if you like.
That's an identical amount to a 1.2% tax on 100K, but phrased in a way that I think meets your objections.
Means a 2% wealth tax combined with a 50% income tax, dividend tax, capital gains tax or whatever ends up being a 4% wealth tax effectively.
Example: You own stock worth $1,000,000 and the government wants 2% wealth tax from you which means $20,000. But to get that $20,000 you have to sell $40,000 worth of stock and pay 50% income tax for that sale and the government ends up taking 40,000$ effectively.
Properly managed capital gains are taxed at ~15% or less. One should hope that by the time you accrue $50 million your capital gains are properly managed.
Money is power. I can't request a sit-down meeting with my own senator or local representative and expect my request fulfilled. Paul Graham can, and so can everyone in his wealth class. This is a problem, because Graham is not a constituent of either of them.
(If you're planning to wink at the bank, pay nothing, and let them keep the stock, that's the kind of thing that won't work if it becomes common. At that point, people will point out that you sold stock to the bank and didn't pay the income tax.)
Plus you might have some dividends on the whole amount.
Depends on the numbers of course.
I have trouble seeing how it would work in the example under discussion, where we know that the person is extremely wealthy -- and thus should hit the maximum income tax bracket no matter what -- and that capital gains taxes are likely to be the least heavily taxed income source available, so that it would be difficult to beat selling stock.
A more fundamental problem w/ wealth tax is administration. How do you tax unrealized capital gains?
You'll have to walk through how exactly, otherwise this is just a hand-wavy and unfalsifiable assertion.
It's the same way Warren Buffett pays less taxes, percentage wise, than his secretary. When you've got millions to spend on lawyers and tactics amazing things are possible.
edit: Also trust funds and setting up a family corporation to manage assets.
It's circular and un-falsifiable.
Would anyone else go for a deal like that?
The amount I will get in inheritance is more than the tax I will pay in my life.
I actually think the current US estate tax rules (minus the loopholes) are pretty reasonable. you get to pass on $10mm or so to your beneficiaries untaxed, but any wealth past that is subject to a steep tax. if you remove the basis step-up for assets and somehow prevent super-wealthy people from avoiding the tax altogether, I think it would be a pretty good system. enormous estates would decay quickly through the generations, but ordinary to upper-middle class folks could still leave their life's excess productivity to people they care about.
regarding the wealth tax in general, I see no reason to prefer it over a capital gains tax. if it's not possible to eliminate the loopholes that allow very rich people to avoid paying capital gains, I don't see why the same wouldn't be true for a wealth tax. with the possible exception of LVT, I would greatly prefer to see the existing tax structures get fixed than to add an entirely new tax into the mix.
(Edit: if we had a combination of capital gains + personal income tax that effectively achieved the same goal as a wealth tax, wouldn't that be basically a maximum wage? Seems even harder to sell. It seems to me the main difference would be that a capital gains tax still encourages holding on to assets and a wealth tax encourages spending.)
https://money.com/rich-families-lose-wealth/
With a land tax many wouldn't get rich in the first place, let's address the root cause.
Wealth tax proposals I've seen don't kick in until $50 million or $100 million. This means that there is a floor on how "poor" the government can make you via a wealth tax.
This has two implications:
1. Most "successful" startup founders don't break that threshold of personal wealth.
2. For most startup founders, the startup is the only way to get to $50 million. The practical lifestyle difference between $50 million and $1 million is a lot larger than the difference between $50 million and the unicorn-founder $ billion.
Furthermore, as noted by glutamate: money earns money. A conservative drawdown of 3% pay the most commonly proposed wealth tax while still leaving you wealthier at the end of the year.
Discourage starting a company at all? Probably not, but the article does not suggest that. Do you think it might influence where they start it? Looks reasonable to me, at least qualitatively.
This has always been the argument, and I've never bought it.
Now, more than ever, is the time to start a company remotely, thanks to Mr./Mrs. Covid. Have we seen a massive move away from SV and other tech centers? Have we seen a massive wave of startups in 'flyover' country?
I can't see many people that have already accrued personal wealth of $50M but choose to keep working suddenly being turned off because of a wealth tax.
That's not the argument. If you accrue a wealth of $50M because you own half of your $100M company (or 100% of your $50M company), then a wealth tax will — over time — force you to give up ownership in your own company.
An income tax or a capital gains tax on the other hand, has the effect that you describe: if you already have $50M, then any tax on more money than could possibly have close to 0 negative impact on productivity.
> what would more likely happen is that loan products and other financial instruments and techniques would pop up so you could pay the taxes in a whole host of ways without actually losing the underlying shares that are used as collateral.
In order to pay back a loan, you have to realize some gain somewhere. That money isn't free. Even to simply pay back the interest, you would have to liquidate some of your own stock (which is taxed). Eventually when the principal needs to be paid back, the only way to do it is to liquidate the equivalent value in your own company.
edit: it seems folks don't like being reminded that the point of capitalism is to redirect greed toward productive use.
They "engineer" zero profits by re-investing their surplus back into R&D — a behavior explicitly encouraged by the government and the tax code. In 2010, Amazon had about 100,000 employees. Today they have almost 1 MILLION. That's what "reinvesting profits into R&D" looks like, in practice.
> Your company can pay dividends and you can use that to pay the tax.
You're essentially talking about adding a countering incentive away from investing in R&D, and toward paying shareholder dividends, which...why? There are way more intelligent and non-distortionary ways to raise funds for a government (eg increasing the capital gains tax).
There's a lot to be said for property taxes. Taxes on income and wealth are disincentives for things you wnt more of. Property tax is one of the least destructive of taxes.
I'm also of a mind that carbon and pollution taxes would be good as well, since the disincentive would be a plus in that case.
Yeah but a wealth tax is not the same as a property tax, because unlike land, wealth is not zero-sum, it's created. In fact, the most economically efficient property tax is the Georgist Land Value Tax which typically deducts the appraised value of improvements before applying the tax, because we don't want to tax productive improvement of land.
Taxing wealth OTOH has the effect of taxing the productive creation of wealth. It's like an inverse Land Value Tax, where you allow one to deduct the value of the underlying land, but simply levy a tax on the appraised value of improvements, just because one might be improving the land "too much".
Also, property taxes are unconstitutional at the Federal level. This is why there is no such thing as a Federal property tax, today. If we wanted a Federal wealth tax, we would have to amend the Constitution.
So shareholders can choose where to allocate those dollars? What's bad about that?
It also ignores the fact that if Amazon had been forced to pay dividends 10 years ago, the stock would be worth significantly less today on account of their inability to re-invest into R&D and enter new business lines and grow from 100,000 -> 1 million employees. Even if we aim to strictly maximize shareholder-value (to the extent that's even desirable), it's penny wise but pound foolish.
However, Amazon (as an example) does not pay dividends.
And also, this creates an incentive to pay dividends to shareholders, as opposed to re-investing profits in R&D, which is an odd (IMO bad) incentive.
The current tech formula seems to be "build the biggest moat possible - worry about profitability later"
While that is driving some of the fastest growth in history, one has to wonder what the landscape will look like once these moats are built. Will these companies have full power to price however they please?
If a company is incentivized to be profitable as they grow, would it lead to a more stable future where we have multiple competitors in each industry?
You see this now with the cloud vendor lock-in bullshit. Too much productivity wasted through too much unnecessary friction.
In other words tax income and the game is to hide income, tax wealth and you increase economic efficiency. Wealth taxes only erode wealth if you fail to make positive returns.
In my country, there are people who's had to declare personal bankruptcy from this situation.
Also, be cautious about how early investments may artificially inflate the value of the company. Convertible debt is one way around that issue.
Why? There's a floor that below $50M you don't need to pay a wealth tax. In a worst case scenario where your entire wealth is tied up in stocks of a single company you own and you have 0 cash to pay your wealth tax, your ownership gradually approaches $50M.
They're are very few people who end up controlling 50+% of a $50M+ company at 20 and keep their 50+% stake for the 60 years pg references. Anyone who did that didn't take VC money.
IIRC Bezos sells over $1B in Amazon stock per year to fund other things, but there is no outcry about how un-american it is that he has to "sell off his stake in his own company" to pay for his hobbies/lifestyle.
Sure, but that's voluntary. It's fine for me to sell my house if I have other plans. It's less fine for me to be forced to sell my own house even if I want to continue to own it / live in it.
In contrast, if you were to take an individual worth $10 billion, whose entire net worth is derived from the ownership of their stock, and were to tax them 2% of their wealth annually, they would have to somehow come up with $200 million every year to pay the tax. This is a different proposition altogether, since none of these billionaires have that much money sitting around in cash (or any other asset for that matter). They're just wealthy on paper. The only way to pay that tax would be to either liquidate their holdings, or for their corporations to pay enough in dividends to cover the tax, which is an odd (IMO bad) incentive to create for corporations in general. Even the owner of a $300 million business who owns (say) 30% of their company at a $100 million net worth would have to come up with $2 million in cash every year. Very few CEOs have that kind of cash coming in on a yearly basis, and you're essentially just creating an incentive for corporations to inflate the compensation to their founder CEOs just so that they can maintain ownership in their own company.
A big reason for this disparity between the top 1% value of corporation vs the top 1% value of property is that, unlike land (which is fixed), corporate wealth is NOT zero-sum, it's created. This is a very important distinction, because a lot of the rhetoric around wealth is sometimes based around the idea that there's some fixed amount of wealth in the world, and the rich have just been stealing all of it — no the aggregate wealth has been created at historic levels.
Also Federal property taxes are unconstitutional, which is why it's applied entirely at the state / local level.
>In contrast, if you were to take an individual worth $10 billion, whose entire net worth is derived from the ownership of their stock, and were to tax them 2% of their wealth annually, they would have to somehow come up with $200 million every year to pay the tax
If your $10 billion dollar asset isn't returning you much more than 2% per year, it has a terrible ROI, and you need to divest.
>corporate wealth is NOT zero-sum, it's created.
Not absolutely, but the power represented by the percentage of the world's wealth one controls is finite. At the limit if I own 99% of a countries current wealth, I think it's perfectly reasonable for the rest of the citizens of that country to decide that I have amassed too much power and to rectify that by taxation and redistribution.
That's not how corporate ownership works. It's not about the ROI, it's about ownership in the company you founded / are running.
If your goal is just ROI, then you will willingly divest from your own company, at which point your wealth is taxed as a capital gain.
When we are talking mutli billionaires like Bezos who may be driven by more grandiose incentives like amassing power, I think it's perfectly reasonable for the rest of us to effectively remove some of their control.
In reality, there are loads of people in between: founders of medium size businesses.
The wealth tax is imposed on everyone in this spectrum. The capital gains tax is only imposed on those that amass the most amount of power.
So I'm perfectly OK saying you can't single-handedly control a business larger than $100 million without paying the rest of society extra compensation for maintaining that kind of power.
Seems perfectly fair to me. Power is finite in the same way land is. If controlling a company is valuable to you in some other way other than just amassing power, say you are really behind the mission of going to space, you can reorganize into a non profit.
A given average person in the US (excluding high earners) will likely be paying a property tax rate based on a value that is _actually higher than their net worth_, which makes property-tax-as-a-wealth-tax for average American homeowners actually greater than the 1.69% average property tax rate.
Imagine if this was applied as a "wealth tax" on a brokerage account, but considered that you could borrow 5x your balance on margin, and then were taxed on your margin holdings.
Of course it's a slippery slope, but most things in life could be categorized that way.
If you were to impose a wealth tax on Elon Musk, he would have to gradually give up his ownership in SpaceX and Tesla.
> The idea is that wealth concentration actually reduces competition.
But that's just not been the case. Wealth is not zero-sum. Just because Bezos is a 100 billionaire on paper, doesn't mean that I can't go and raise venture capital for my startup and succeed.
That's sort of the point. Unless he's creating additional value as a CEO such that the board keeps awarding him stock or money so he can maintain his holdings, he's going to lose his ownership stake. Sounds like a tax like this would motivate him to work more not less.
You frame this as though this is somehow beneficial to shareholders, but if that's the case, they can work out this arrangement themselves.
Also the idea that SpaceX or Tesla would continue to be valued as highly as they are if he continuously relinquishes his ownership stake is also dubious.
I was showing how a wealth tax need not necessarily discourage endeavor and industry, as is commonly alleged.
> Also the idea that SpaceX or Tesla would continue to be valued as highly as they are if he continuously relinquishes his ownership stake is also dubious.
Why? I thought they were valued highly because of Musk's leadership, not ownership. Is that not the case? Even without his ownership stake, he can continue to be the CEO as long as the companies do well.
That's not how publicly traded companies work. If a sufficiently motivated activist investor accumulates a large enough ownership, they can decide to fire Elon Musk — and there are enough people that would like to see this happen on account of his crazy tweets.
That's the crux of the argument, that no matter how badly activists may want to remove Elon Musk as CEO, he's safe as long as he maintains his stake. A forced divestiture of that threatens his ability to maintain his leadership in those companies, and that's arguably not in the best interests of many existing shareholders today.
If Musk is a value-add, they'd be tanking the value of their own holdings. If he's not, then why should he keep his job?
If an "activist" investor actually bought 51% of the company (aka an "acquisition" or "takeover"), they would also own 51% of the downside of any CEO changes. At that point they have every right to decide what's in the company's interest. The company's shareholders can also vote on whether to accept the acquisition offer, which means dissenters who lose the vote can sell and get out if they disagree with the new owner's direction.
For that matter, Elon Musk only owns 21% of Tesla right now[1], so if 51% of the board think he's a net-negative, he could go immediately. They clearly do not.
1. https://www.investopedia.com/articles/insights/052616/top-4-...
Per-investor, yes — but multiple institutional investors can get involved with little intervention unless the founder holds at least a plurality. This is exactly why we're starting to see companies like Facebook and Uber issue class A shares. Travis Kalanick was, in theory, untouchable — he just didn't have the energy in him to fight the board after a personal tragedy.
> For that matter, Elon Musk only owns 21% of Tesla right now[1], so if 51% of the board think he's a net-negative, he could go immediately. They clearly do not.
Yes, and if he is forced to liquidate any more of his holding, he ceases to be a plurality. That's the point.
Now yes, because he owns 21%, there are fewer other shareholder votes to oust him than there would be if he owned 10% (still a plurality). But they could do so in theory.
Also, I'll be upfront. I don't think a wealth tax is a good idea because it'll inevitably lead to people dodging taxes by putting the money into stuff like artwork or IP. And to counter that, the government will need to know every single item of value every person owns and have to create a large, intrusive bureaucracy to track all that. It sounds horrific.
But I don't think a wealth tax discourages entrepreneurship or working hard, and PG's blog post is disingenuous in saying so.
This is debatable: https://fivethirtyeight.com/features/money-and-elections-a-c...
Consider that the representative from Bezos' own district in Washington is a socialist.
At the end of the day, the greatest check on wealth's effect on political power is the fact that legislators can only win office if they can win a democratic election.
At the end of the day, the greatest check on wealth's effect on political power is the fact that legislators can only win office if they can win a democratic election.
It doesn't work like that. You donate to both sides of the aisle so you always have someone in your pockets. The famous cartoon from John Herzfeld about the "Millions behind Hitler" (this one: https://en.wikipedia.org/wiki/John_Heartfield#/media/File:He...) is bullshit. German industrialists did give substantial support to Hitler, but not for ideological reason, they'd have given to anyone in power. The cash did amplify Hitler's ability to implement his ideology, though, and the non-donors didn't choose that.
That’s just the starting point. Once people begin to figure out how to avoid it or have been tapped then the qualifier will be lowered to 40m. And then eventually 30m and do on until anyone above average is paying it. And then anyone above median.
The state will, as always, become reliant on it and find ways to expand it to wield more power and pay debts that were taken on to “collect/spend in advance” as they’ve done countless times.
This is why people that will likely never meet today’s threshold are against these schemes. These things always get a wider, and wider net until anyone just starting to get ahead is caught in it.
https://en.wikipedia.org/wiki/History_of_taxation_in_the_Uni...
This is a bit misleading. The first income tax of 1861 was on incomes over $800, which inflation-adjusted is about $23000. The next year the threshold was lowered to $600 or about $17,000 in today's dollars. Currently the standard deduction is $12,200. Certainly some creep, but it doesn't quite fit the described jump from only the wealthy to everyone, except perhaps to the degree that nearly everyone in the US today is wealthy compared to the average citizen in the 1860s.
Rates have certainly gone up since then (originally a 3% rate), but top rates today are quite low by modern standards - they were higher than today from the 1930s through the late 80s. Typical average rates have been on a slow downward trend since WWII.
This hasn't been true for the income tax [0], nor the capital gains tax [1], nor (at least in Silicon Valley) for real estate taxes[2], which are closest to a wealth tax. It's a reasonable thing to consider, but given the evidence we have, should not be a driving consideration.
[0] https://bradfordtaxinstitute.com/Free_Resources/Federal-Inco...
[1] https://en.wikipedia.org/wiki/File:Federal_Capital_Gains_Tax...
[2] https://www.boe.ca.gov/proptaxes/decline-in-value/
edit: I was misinformed re: income tax, tracking only the top rate.
Well that's false, the income tax in the United States originally was promised only to ever apply to the ultra-rich. Now every tax payer pays it.
Well that's false. In 2018 44% paid no federal income tax.
https://www.marketwatch.com/story/81-million-americans-wont-...
Sure, it's not fun, but it's not an overwhelming burden for those with a simple 1040.
It's still about 1000x more complicated than filing in New Zealand, which is comparable to filing on the California site. Basically a 15 minute wizard on a web page.
Now, maybe if the wealth tax was combined with a significant reduction in income tax, say 0 tax for the first $100,000 a year people make, then people might be a bit more willing to support the notion. But just a new tax, with the promise it won't impact you? Can't blame people for lacking any trust.
I agree that it's easy to tax people wealthier than you. When it might affect you, there's less support.
If there was ever a slippery slope it was the slippery slope of cutting more and more taxes for the rich.
I even suggested that lowering taxes on the middle class and below while introducing a new tax on the rich would be the a method to prevent people from being concerned with the tax eventually impacting them. With all the 'tax the rich' rhetoric, why not include a 'and not the poor' as well?
Source kinda sucks bec its looking at all americans not income earners which is what we're talking about.
But even so as others have said the point stands, originally income tax was only for the uber rich and now a large majority of workers pay it.
Also every single worker pays payroll tax regardless of income level, that's something the article doesn't address.
In the 50s through 70s, there was a much higher income tax on the upper income brackets: the tax was much more progressive. Ronald Reagan dramatically lowered the income taxes on the high income people and kicked off the dramatic increase in economic inequality that we've seen over the past 50 years. The GOP destroyed much of the promise of the American Dream in this case. Is this what you mean?
https://en.wikipedia.org/wiki/Revenue_Act_of_1913
Compare that to the general income tax today, and who it applies to: the floor now includes ~60% of people with any income at all, and the lowest possible income tax rate is 10%, e.g. 10x higher.
And literally everyone pays income tax in the form of Social Security and Medicare. (For whatever reason, if an income tax is pre-allocated to particular government spending, it's no longer an "income tax" in some people's eyes. The tax effect is identical and you need the 16th Amendment to allow it, so IMO it should be lumped in with the other income taxes we pay.)
From Wikipedia - In 1913, the top tax rate was 7% on incomes above $500,000 (equivalent to $12.9 million in 2019 dollars) and a total of $28.3 million was collected.
1 - https://www.mwattorneys.com/blog/first-income-tax-was-suppos...
[0]https://taxfoundation.org/joe-biden-tax-plan-2020/
Fuck off dude.
You can't do that on HN, regardless of how wrong someone else is or you feel they are. Perhaps you don't owe "dude" better, but you owe this community better if you're posting here.
I'm dismayed to see that you've been making a habit of posting like this, as well as unsubstantive comments generally. If you keep doing that we're going to have to ban you, so would you please review https://news.ycombinator.com/newsguidelines.html and take the spirit of this site more to heart?
The problem with wealth taxes is not slippery slope, but rather that wealth can be obfuscated and moved around much more easily. Transactions are easy to tax; wealth worth taxing is about what you control, rather than stuff you have.
There's good reasons the most successful wealth taxes are land taxes. You can't easily move land.
I think it's arguable that taxes only ever go up. Income taxes on the rich used to be near 90% in the top bracket, so it's not a one way ratchet. That said, I agree government tends to expand and needs to fund that growth somehow. But I think it's much more likely that need manifests as an increase in the wealth tax rate rather than a lowering of the wealth threshold. The billionaires have so much more money than everyone else (and so much more than they need) that it will be much more politically popular to raise the wealth tax on them than it would to expand the pool. Not to mention, there are more of us.
I'm not advocating a wealth tax, and I think it's problematic for other reasons, but I don't think the slippery slope argument is much more than fearmongering in this case.
[0] https://en.m.wikipedia.org/wiki/Slippery_slope
The history of taxes in the US (and especially California--remember the "temporary" 13.3% highest marginal rate?) has more slippery slopes than 6 flags fiesta Texas. It's not fear mongering, its a very solid argument against new taxes.
Sadly it is legitimate to some extent IMO.
My reading of the way the slope slips is that rates go up, not that the minimum threshold is lowered. This reflects historical tax law changes, political sensibilities, and basic economic theory. This was all in my original post as well, so I'm not sure it'll land this time, but I'm a bit offended that you have mischaracterized my post as reflexive, implying thoughtlessness, when I believe it was anything but.
My opinion restated, billionaires have more to fear from this than any of the rest of us do.
Falsely asserting a slippery slope—that A must lead to B which must lead to C when none of these things are inevitable—is a logical fallacy. It is not a fallacy to point out that the grass is wet and the hill is steep and suggest that perhaps we should put up a sign advising people to stay away from the edge. The argument is simply that this is a dangerous situation which we would do best to avoid, not that anyone who goes near the edge will inevitably lose their footing.
> The billionaires have so much more money than everyone else …
Do they really? It seems to me that what they mainly have is not money but rather illiquid assets, i.e. capital. That includes stocks, which can be sold—at the expense of giving up control of the company—but also stock options which can't be exercised immediately and tons of actual capital equipment, inventory, buildings, and so forth which can't readily be put to other use.
> Income taxes on the rich used to be near 90% in the top bracket, so it's not a one way ratchet.
Keep in mind that they never actually collected anywhere near that much. Those 90% brackets were purely theoretical.
There are many millionaires for whom what you describe is a problem. I assure you that billionaires do not have a problem with liquidity unless they want to.
The avoidance issue is a big one and the mechanism of making sure people pay is at least as important as where one sets the floor. Cross border capital flows can be pernicious.
Piketty gets into how different rates of capital accumulation create huge rifts between people who own appreciating assets like land and equities and people who don’t who primarily earn wages. The idea behind the wealth tax is to try and narrow the rift.
A significant proportion of Americans would disagree with you that it's the government's business to "combat inequality". Most people agree with taxes to help the needy and fund infrastructure, but it's a harder sell that the government should punish people just for being too successful.
>Piketty gets into how different rates of capital accumulation create huge rifts between people who own appreciating assets like land and equities and people who don’t who primarily earn wages. The idea behind the wealth tax is to try and narrow the rift.
But he doesn't outline clearly what the problem with this rift is. To quote the criticisms section of the Wiki page on his book (https://en.wikipedia.org/wiki/Capital_in_the_Twenty-First_Ce...):
"One strand of critique faults Piketty for placing inequality at the center of analysis without any reflection on why it matters.
According to Financial Times columnist Martin Wolf, he merely assumes that inequality matters, but never explains why. He only demonstrates that it exists and how it worsens.[36] Or as his colleague Clive Crook put it: "Aside from its other flaws, Capital in the 21st Century invites readers to believe not just that inequality is important, but that nothing else matters. This book wants you to worry about low growth in the coming decades not because that would mean a slower rise in living standards, but because it might ... worsen inequality."[35] "
A perfectly equal society can also exhibit a great deal of unfairness, and a perfectly fair society would most likely be unequal.
"Fairness" should be the metric under discussion, not inequality.
Extreme inequality tends to destabilize society. At some point all the multitude of have nots get sick of their lot and rise up and take from the haves by force.
So I would say inequality is good, in manageable doses. The question is are we headed to a managable place?
You can see this on a variety of topics. Gun control legislation, immigration reform, healthcare reform, etc. Reasonable laws are perpetually overshadowed by the boogeyman on the horizon.
Because that’s exactly what’s happened in the past. We don’t just get ONE piece of gun legislation and that’s the end of it, every so many years we keep on getting pushes for more. For immigration reform, we didn’t just get ONE amnesty of illegal immigrants and then strict immigration control which was promised back during the Reagan administration, we got complete acceptance of continued illegal immigration and renewed calls for amnesty.
The smart money is always on not trusting the government.
I think we'd get along better if we first proposed and found agreement upon which metrics we want to achieve (gun deaths at x%, or a decline of x% by such and such date, etc) and then implement policy that get there. And then correct as needed.
There was a time when universities had a very disproportionate amount of males VS females. So we passed policy that was designed to make a university degree more achievable for females. And it has worked, which is great! However, we never really implemented an end condition to this policy. And the entrenched apparatus that makes it's living or achieves ideological goals continue the policy, as-is, in a never ending battle.
If we would have said "we want 50% of college students to be female by x-date" (or better, we want to maintain a balance of 50/50) then we could have either stopped the policies that were used to correct the initial condition or modify them to hold it steady at 50%. But we haven't and now 56% are females and it's growing and any suggestion that we either need to hold off on these policies now that we achieved the goal or even correct it to get more males into universities is immediately labeled sexist, etc.
I think it's easier to get a diverse group of people to work towards a common goal when you define the end condition (put a man on the moon) rather than using vague descriptions of what would be a better world. At the very least it stops skeptics from just flat out saying "no, as it will never end".
In my opinion, most proposals by either side on a variety of topics are not good options. They have become hard-line battle cries for their respective party in order to motivate hardcore supporters to come out to vote, particularly in the primaries in which the radicals comprise a larger share than in general elections.
Personally, this and income tax increases make me seriously consider moving out of CA (where I’ve been a resident for a very long time)
No, they don't. You only have to go back a couple years in the US for an example where tax rates for the wealthy were massively cut.
Tax rates for the wealthy were cut? That's great, for them. Were tax rates cut for the middle class? Did any of the lower class no longer have to pay income tax? That's what would be a response to nemo44x. (What would be a response to me would be for there to be no income tax for anyone in the lower 90% of income. That would be back to the original intent, and would reverse all the years of scope creep.)
Remember what the argument in the local thread is. nemo44x stated that "these things" (things like the wealth tax) always expand to cover more people than they did at the beginning. rurp said that the income tax cuts a couple of years ago disproved that. I said that the expanding scope of income tax over the last 107 years supported nemo44x, not rurp.
Your arguing that that's OK, because we want the society that results. That may be. But that's a different claim than "this won't expand to hit everybody".
It'd discourage the people who pay the bills (VCs, wealthy, etc.) from living in those states. Founders would simply follow the money to other states as they have done in the past.
That is only true if your wealth is in diversified ETFs or funds. That is not where most of the wealth of super-rich founders is. If 90+% of your wealth is in a single company (I.e. the one you founded), then there's no guarantee that this wealth will necessarily appreciate on its own (esp relative to inflation).
This is literally not true for the wealthiest founders. The vast majority of billionaires (and even high $100M) only enjoy that net worth because the vast majority of their wealth is in a single stock: their own company. Even if 10% of their wealth is in diversified portfolios, that isn't nearly enough to offset the tax required to pay off the remaining 90% of their wealth.
Second of all, even for those that have decided that they no longer care about maintaining a majority of their net worth in their own company, they have to liquidate their existing holdings in order to buy into diversified portfolios, at which point the wealth is taxed. And then any appreciation within their new portfolio is ultimately taxed when any capital gains are realized.
In the US, we do not tax wealth, we tax income, dividends, and capital gains, because wealth is not money.
Just do the math, you need to divest a significant percentage of your own holdings in order to re-invest it into diversified portfolios sufficient to pay a wealth tax. The vast majority of founder paper-billionaires haven't come remotely close to doing this.
There is also the reason that income is easier to manipulate, and the rich-of-the-rich do not, for the most part, have "income".
The top marginal income tax rate is 37%. The top capital gains (income for wealthy people) tax rate is 20%.
Why does someone actively working for an income pay a higher tax rate than that paid on someone's passive income?
That, or adding a top marginal capital gains bracket for any gain above (say) $100 million.
This also has the built-in advantage of not requiring a Constitutional amendment.
You missed a major reason long-term capital gains rates are lower than income tax rates: they are not indexed for inflation in the US and inflation on income is negligible. As a matter of tax policy, it is much simpler to reduce the rate than to compute a very large inflation deduction, but you can find countries that go both ways.
Very interesting point.
I stuck entirely with federal numbers when comparing capital-gains to income taxes to make it a more apples-to-apples comparison. It looks like you took that in order to compare california-specific state+federal capital gains tax, and compared it to federal-only income tax?
The other issue of high-cost states being more often included in high-rate brackets (due to federal tax brackets not being adjusted for cost-of-living) is a different, and also complex, issue.
> The idea that billionaires can find money for multiple million dollar homes, but it's impossible for them to pay taxes is ridiculous.
It's not ridiculous at all, it's literally in the math. It's one thing to occasionally voluntarily liquidate tiny fractions of your holdings for one-off purchases (like a home or a yacht or to make an annual living), and another thing entirely to impose a yearly "cost to maintain ownership of your company" resulting in involuntary liquidation.
That's how the income tax started in the US.
S&P 500 has a long term annualized return of 10%. If you have a 5% wealth tax on stock you have in S&P 500 then you are still earning 5% returns (well above long term average inflation) without actually lifting a finger.
There is no guarantee that the single individual super-wealthy founder whose wealth derives from the ownership of their own company will appreciate at an annualized rate of 10%.
The two most pervasive myths about wealth among the super-rich appear to be:
1. They are sitting entirely on liquid cash
2. They are sitting entirely on highly diversified funds that enjoy 5+% annualized appreciation.
If Elon Musk's goal was ROI maximization, he has no business maintaining ownership in SpaceX and Tesla — he ought to just dump his billions in high yield ETFs.
Fortunately, that is not his primary goal, and (at least in the US), he is able to continue to pursue success by maintaining ownership in his companies.
Diversification is a solid strategy for most people, but founders that own highly valuable companies are not "most people"..
What do you mean by that? Can you give examples of that single asset?
The S&P500 is a portfolio that puts together all of these companies and diversifies them. In other words, Bezos is one part of the S&P500.
Even if a wealthy founder took out a collateralized loan, in order to pay back the loan, they have to realize some gain somewhere (which is already taxed). That money isn't free. Even to simply pay back the interest, they would have to liquidate some of their stock (which is already taxed). Eventually when the principal needs to be paid back, the only way to do it is to liquidate (and divest) the equivalent value in their company (which is already taxed).
PG's essay shows that the wealth tax compounds every year. That just doesn't happen with consumption. Bezos doesn't have 20 homes and 20 yachts.
On the contrary there are plenty of areas where we know governments are vastly more efficient than markets.
The very first U.S. income tax, imposed during the Civil War (the nation's bloodiest conflict), was 3% on income over $12,720, rising all the way to 5% on income over $159,000 (in 2020 dollars). This was unconstitutional at the time, and was eventually repealed.
The first income tax imposed after the ratification of the 16th Amendment was 1% on income over $78,510, with an additional 6% on income over $26,170,000 (2020 dollars).
The current U.S. income tax ranges from 10% to 37%, with a standard deduction of at least $12,200. There are also payroll taxes under FICA, which are even more.
I recount all this riveting history as evidence for my contention that there is absolutely no way that a wealth tax would remain at 1% for anything above $50 million. I guarantee that within a few years to decades most citizens would be required to pay wealth taxes, and that they would amount to a considerable amount even before taking into account their compounding nature.
> This means that there is a floor on how "poor" the government can make you via a wealth tax.
The only floor is zero: a government can, if it chooses, take everything from its subjects — or just from some of them.
Either way - I think we fundamtally agree that there needs to be more tax on the rich, be it investments, wealth tax, inheritance, or that sort of thing.
I am not (here) worried about it being regressive: I am worried about it being yet another mechanism for the state to take a larger fraction of GDP (about 2½% in 1900; almost 20% at the height of the Second World War; about 17% now, according to Wikipedia).
> Either way - I think we fundamtally agree that there needs to be more tax on the rich, be it investments, wealth tax, inheritance, or that sort of thing.
I certainly don't! I agree that we need a government; I agree that we need taxes to fund the government (I disagree with those who think that we can fund the government on a voluntary basis); I agree that taxes need to be fair in some sense.
I suspect that fairer taxes would be higher for the middle classes, to be honest. Certainly the countries with effective welfare states seem to have more taxes on the middle than the U.S. does.
B) I know people who were bankrupted by existing tax laws - had shares in internet companies during the dot com boom; company IPOd making them paper millionaires, thus owing millions in taxes, but had 6 months lockup. By the time the lockup expired, company went bust, nothing to sell to cover the tax bill. Any law that takes valuations into account (as a wealth tax law is bound to) is likely to wrong some people in a similar way, especially entrepreneurs and early employees.
ACME startup raises Series C @500M. Founder equity is worth 100M on paper. Founder needs to borrow money every year to pay 'wealth' tax. After 10 years of struggles, company sells for $100M, VCs get money back, founder makes no money. But now founder is millions in debt for past 'wealth' tax payments. Founders will be declaring bankruptcy in those cases. And interest rates for wealth tax loans will skyrocket as a result, making effective wealth tax rate much higher.
Problem is startup founder 'millionaires' and 'billionaires' are only that on paper. Any asset that is volatile (like startups) will become impossible to own long term even with a small wealth tax.
Having a struggling company is super stressful, adding the government asking you to come up with money to pay personally, because you are 'wealthy' on a paper would take it to a different level.
Not to be a dick, but I don't see why anyone thinks this is valid justification to block a wealth tax - maybe you could argue that the cap should be higher. Income inequality has gotten ridiculous and is only going to get worse as AI technologies mature. There needs to be a way to reallocate wealth from the super-rich to the 40% of Americans who would be unable to pay for a $400 emergency and I haven't heard a better proposal.
IMO you should do the opposite - remove all obstacles to start/invest/run a company and tax the outcome - or, even better, consumption. If you feel those taxes are too low, then raise them.
That is exactly what a wealth tax proposes to do since there is no other realistic way to impose a tax on a successful companies. Corporate taxes haven't worked very effectively. When someone sits on $1B+ in stock, there is no way other than a wealth tax to redistribute that wealth.
First of all, this has literally zero impact on the vast majority of entrepreneurs and small business owners who will most likely never hit $30M+ in net worth. And those are the real job and wealth creators.
Secondly, global corporations have the effect of taking wealth from the many and centralizing it into the hands of the few. And this will continue to get worse as AI advances. These corporations are not good for the long-term health of America and I don't think many Americans will care if it becomes a little bit hard to make $100M.
Maybe you could pay it in shares, so no borrowing required.
Or maybe for illiquid assets including non-public stock it could be warrants that you only have to settle at a liquidity event.
It's a strawman to assume a wealth tax will be set up in a broken way when non-broken ways are possible.
There are a lot of rights and some obligations that come with equity ownership in a company beyond financial return.
There's lots of examples of financial ownership without the holder of the return running the business. Whether it's a state or an ex-spouse.
Some places the rules have changed a bit to avoid some of these cases where people owe more tax that they can pay, but it can still happen.
Nevertheless, I’m now at risk of having a six figure tax bill every year for paper wealth that is 100% illiquid.
If this passes I would be leaving the state and guarantee you I would NEVER found a startup in California again.
I personally think there are too few of the big, risky ventures these days, and too many low value-at-risk software-only startups (aiming to be bought up by a FAANG), but that is just an opinion.
That's a good thing, and I disagree completely with your assertion that "there are too few of the big, risky ventures". My impression is just the opposite: there are too many stable companies with modest success that are being killed by VCs who insist they have to adopt go chasing mega-growth that has no chance of actually materializing. Dropbox, Kickstarter, and Patreon are a few prominent examples of this trend: they achieved success in the marketplace and could've been happy with that, but their backers would rather take a 1% shot at meteoric mega-growth, and so now the products increasingly suck while the companies hopelessly go after initiatives way outside their core competency until their loyal customers get sick of it and leave, the company crashes and burns, and the VCs write it off as just another failure.
That way, on the day that the super rich decide to liquidate their assets, they only get taxed on the capital gain, and for billionaires that means they only keep some small portion of it in liquid cash. You also wouldn’t have to amend the Constitution to do this.
Nobody is going to loan Bezos billions and expect not to be eventually paid back, and that repayment can only happen if the wealth is realized as income, and then taxed.
> using relatively small asset sales
Those "small asset sales" are ultimately taxed. We can even talk about increasing this tax.
Even at a more modest 0.1%, Bezos does not have $2 million / year in cash, his book income is $82,000/year, and Amazon doesn't pay dividends.
Also, this is just for Bezos — depending on how volatile the paper-wealthy founder's company is, the interest would be higher, and the long run ability to pay off just the interest would be lower.
Yes, your stock will on average be worth more over time but that is not what he is calculating.
Saying the government will take 45% of your wealth above $100M is very different than saying the government will take 45% of your wealth.
>"Even a .5% wealth tax would start to keep founders away from a state or country that imposed it. That's more than a quarter of your stock."
That 26% is over 60 years, ignores the fact that the stock will appreciate over time, ignores the fact that all wealth taxes have high floors, etc.
Not ever founder thinks it’s either unicorn or broke . Most normal founders want build something good and make a good amount of money.
And where else I am going to go? There are few places where it is possible to make 100M from scratch and without being corrupt .
Edit: After reading the responses, I think people are confusing themselves with dollar amounts. If I have 100 units of X. The government takes 1 unit in the first year, 0.99 units the next, and so on. Over time my total number of units decreases. The notional value of those units can fluctuate but the absolute number of units owed to the government remains the same.
My original question, which I suppose has been answered, centered on this concept that the notional value claimed by the government is the only thing of value being lost. A unit of wealth is lost and wealth compounds over time.
Disclaimer, I'm not advocating for or against a wealth tax. Just trying to understand an argument and now apparently teaching it.
What you say makes sense if the wealth tax is applied on ETF/index fund holdings, but for most founders, the wealth is concentrated in holdings in their own company. On average, across all founders, the asset growth might be 5%, but for each individual there is significant variance. For nearly half of founders, wealth tax would take 1% on either a flat or a depreciating asset..
Keep in mind that "flat or depreciating" companies are way more common than you think. Not every company enjoys the annualized returns of the S&P500. Almost any non-tech or non-tech-adjacent company has remained either flat or depreciated, in the last 10 years.
That's the entire reason why lay people invest in the index, because it's relatively safe from depreciation. Most of the super-wealthy don't achieve that wealth on the back of the S&P500, they achieve that on the back of owning a single zero-to-one stock. It's one thing for the company to grow from 0 to {insert equilibrium valuation}, and another thing entirely for the company to continue to grow at a rate that outpaces inflation.
A 0.5% wealth tax is not going to make you poor. It could, _at absolute worst_, make you worth "only $50M". If you still manage to go from $50M -> $20M, a wealth tax had absolutely nothing to do with that.
As well, although it's not explicitly mentioned, I would expect any floor-value (such as $50M) to be set to keep pace with inflation.
Your argument doesn't refute my central argument, it refutes an unimportant implementation detail.
Are you saying that most of the super-wealthy do not (at least to a certain point) diversify their investements? Or is your point that most super-wealthy individuals acquired their wealth themselves by investing (or founding) a single corporation themselves?
The only reason we are even talking about wealth tax is because of the crazy unable to be funded programs some people are proposing. These programs sound nice on paper until you do the math on them. Then they realize they can not pay for it at all.
Remember wealth != cash value.
Wealth is not the same as cash value. It is easy to miss the distinction. We may be agreeing? We also already have a 'wealth tax' on many items already. We call it property tax.
"Being concerned with inequality" doesn't give people the right to go and arbitrarily expropriate other people's assets.
We absolutely do have that right in the US.
State governments may or may not have that power, according to their own Constitutions (most, I would imagine, do.)
Take a building, any building. Sit on the building for 50 years. How much is building worth? Probably way more.
The article does not model asset growth in any way, and if you do model asset growth you would get significantly different numbers.
Without asset growth, after 1 year you have $990. If you include let's say 5% asset growth, after 1 year you have $1,000 * 1.05 * 0.99 = $1,039.
Then after another year, without growth you have $980.1 With %5 growth you have $1,040 * 1.05 * 0.99 = $1,080.
So the article claims that with 1% wealth tax you'll lose 45% of your assets over time. With any growth above 1% every year, you will actually at least break even.
Why not? People voluntarily gave him and his company this money, voluntarily invested in Amazon. What gives you the right to try and take it from him? "Envy makes right" is not the basis for a very good moral system.
A). The parent doesn't claim morality as the foundation. B). Thriving in a capitalist system is also not a foundation for morality. C). There are no underlying structures that dictate/require the sum total of individual actions have to correspond to societal good (not that i'm aware of). This would be akin to claiming that drug dealers have moral superiority.
What we have here is a version of the tragedy of the commons (https://en.wikipedia.org/wiki/Tragedy_of_the_commons#:~:text...). Something that benefits the individual on the short term while negatively impacting large swaths of connected infrastructure. In a society where money == votes I can't seen how that's a valid and functioning path forward.
Currently, extremely wealthy people get tax breaks for contributing to "charity". The majority do so by creating a Foundation of their own to invest in the charitable causes that they prefer.
However, taxation goes to where the community has decided is needed, hopefully through a form of representative government.
We should not have to rely on Bill Gates deciding to invest in vaccine research to ensure that it occurs. Some of his wealth, now accumulated, should be returning to the common-wealth via taxation.
This ensures that wealth does not accumulate within very small groups of people to the extent that the rest of society does not also share that wealth.
In short, Ayn Rand was wrong.
To me, the ruling class is the Ivy League graduate class. They run and rule this country to their benefit.
The Billionaires have fabulous lives, sure, but I don't think they have much political power at all.
If anything, I see them as one of the few counterweights to the real political power.
The US literally just elected a billionaire with no prior political experience to the Presidency four years ago!
Of course they have some political power.
At a 1% wealth tax, you will end up being 45% less wealthy in 40 years than you would be without the wealth tax.
There is a 100% cap on what the government can take from you. And, with a 1% wealth tax, they are taking 45% of it (spread over 40 years).
Put another way, the 1% wealth tax is similar to a 45% capital gains tax (where the cap is also 100%). Capital gains is just more front-loaded (paid upon liquidation) whereas wealth tax is paid over time.
This is the misunderstanding I'm pointing out. You will end up being 45% less wealthy regardless of whether your assets grow or not. If your assets grow YoY, you will still end up being 45% less wealthy bc your YoY gains are also taxed by the 1% wealth tax.
Not sure why people are discussing this as if it's not exactly that. PG is right in what he's saying, but wrong on the impact.
Assuming his figures are correct, then I would expect to own 45% of something much bigger than what I owned 100% of 60 years before.
https://en.wikipedia.org/wiki/Time_value_of_money
So 1% wealth tax is equivalent to 50% tax on the return of the asset, every year.
Say what you want, but this makes holding the asset or investing a lot less attractive. It will affect people's decisions and willingness to invest. Maybe we're OK with less investment but we shouldn't assume there is no impact.
In addition what if this is a volatile asset (read: startup) whose value goes up and down? Will the gov't give you a refund if it loses 20% of its value 10 years in?
What if the asset is illiquid (again:startup)? Who will lend to an otherwise not-wealthy startup founder 1% of their company's paper value every year to pay the tax? Because if the startup fails most founders will have to declare bankruptcy (having paid years of paper wealth taxes with no positive outcome in the end).
Not really. Where else is that money going to go? It's not enough to just say there is a disincentive, you have to show that the disincentive is so great that it makes other opportunities more attractive. But those other opportunities don't exist, because it is a wealth tax, it doesn't matter what instrument you use, the tax will still hit you.
Also, those numbers are pretty much non-sense in today's economy, with inflation consistently below 2% and nominal capital asset growth being closer to 10%, a 1% wealth tax represents a tax rate of ~12.5%.
I'm not losing sleep over a startup founder who owns so much of a company to be worth over $100MM on paper or otherwise. Startup founders have the ability to sell a part of their shares in liquidity events. If they choose to hold onto their shares above all else, it's on them to figure out how to pay the tax. It might even create a whole new financial instrument or class of investments.
Other countries, for one. Capital is global.
> It might even create a whole new financial instrument or class of investments.
Absolutely. There will be a layer of, essentially, financial parasites taking value away from value creators to make this 'work'. Not sure what's great about that.
I also love how creating liquidity is now considered being a financial parasite. The US is nothing without the financial innovations that we have developed and embraced over the last 150 years.
In the US both you and the founder/management team/other investors all pay tax if company is successful; in UK, only you (as US citizen) pay tax. You and the founders/management can split the difference and will be better off.
These things may sound small but play out significantly at scale (like interest rates etc)
That is a vast oversimplification of the problem that ignores all of the reasons to start and do business and business operations in the US, because there are already tons of places that you could start your company at that would result in lower taxes, yet very few if any choose to do so. You are making a huge logical leap that businesses will be as successful running out of the UK with its laws, regulations, and taxes as the US.
The world is not as simple and clean as whatever economic model you can cook up in your head. If it was, companies wouldn't pay developers in the US $300k/yr.
My principle is we should remove all obstacles for starting/running/investing in companies, which are the engine of the economy and create both wealth and jobs, and we should tax outcomes and consumption. Also, we should keep things simple to avoid both overhead and tax avoidance that comes with complexity.
Where does pg rail about honest rational discourse? If you follow him on twitter for the last couple of years it's been nothing but pontification.
I think it's safe to call this propaganda.
So persuasive. Gee, I'm really convinced. Certainly worth destroying societies over and risking violent revolution and the destruction of all those assets.
You might be suggesting a tax on liquid cash, which would target way fewer people.
a progressive wealth tax would tax the increase of wealth on the margin rather than just "wealth". experience equity gains of $1M? you owe an extra $10k in liquid cash at the end of the year. if your equity doesn't grow, you don't get taxed.
in any event, the floor for these kinds of laws would likely be above the ceiling of most people's lifetime wealth accumulation.
There is already a capital gains tax.
He also admits the tax would be difficult to implement. He should know. France wealth tax has existed for more than 30 years. It was not a success, in part because the wealthy found ways to avoid it. It was as simple as moving residence to Belgium. The tax has now been turned into a property tax.
My takeaway from this blog post and his book is that:
1. we should have way more transparency on who owns what: currently information about who owns what stock is in the hands of private companies and it's not disclosed to the public. One of the effects of having an income tax is that we have very detailed information about income. I would argue that measuring inequality is a good thing for a society.
2. we really really need to stop fiscal dumping and fiscal competition among countries. There are a number of ways to do that: stronger transnational organizations, more transparency and collaboration among countries (like what the US imposed to Switzerland), exit taxes (proposed by the US)
Overall pg's post ignores the fact that 1950-1980 saw the largest growth and the highest income and succession taxes in the US (also in Western Europe, but one might argue that reconstruction might have played a role in this)
Are there any forums like HN that aren't backed/funded by a VC firm/incubator/whatever? I forget why everyone migrated from /., as a lot of memes and dumbspeak from there appeared on here over the years.
It's one of the reasons HN stays relevant & influential (the other 95% is @dang).