It looks like Epic Games is a private company, so from what I understand in the proposal, this wouldn't affect him, since his shares are not publicly tradable. The proposal might affect him when/if he were to sell any shares, though, since it has a provision to accrue tax liability on illiquid assets like art/etc, to be owed at time of sale.
From what seems to be the intention of the tax plan it would be regardless of if the asset was available in a stock exchange so if the value of Tim's shares put him above the threshold he would still have to pay the tax. His wealth through epic would likely be less then if it were a publicly traded company though. The effect of paying tax on shares was always true as it becomes a realized capital gain and is already covered under the current tax system.
The stories I see, like https://www.cnbc.com/2021/10/25/senate-democrats-push-for-bi..., says the tax on unrealized gains only applies to "tradeable assets." It doesn't seem like that would cover private companies. From what that article says, it would invoke an increased tax due to the deferral of taxes though.
It still seems problematic. Even if my company goes public, if I haven't actually sold the shares and made any money, why should this be taxed? If there are loopholes that let the founder avoid those taxes at sale time, fix those, but otherwise why should we effectively take away ownership of a company just because someone has built it up successfully.
One loophole is the step-up basis that applies when the owner dies. Not sure why that wasn't targeted instead (maybe because the current plan produces revenue more quickly?).
I've long held that there should be public liquidity in all companies over a certain valuation and the company should not be allowed to bar you from selling the stock (though it could retain right to beat any pending offers)
It's asinine that companies are allowed to treat equity pay as pay, and IRS can tax it as realized (AMT), but the worker does not in fact have any instrument with which to pay the bill.
Edit: Also this is a really smart tweet IMO
Give yourself a salary that pays for your wealth tax obligations. You don't have to sell anything.
I think it is a smart way to handle it and it would work for some CEO/founders however, some founders operate as board members that still influence much of the direction and operation without the same possibilities for pay rate increases to cover the gains. I think this could work under specific ownership scenarios but, for high p/e ratio companies this will likely requires ownership sales.
Almost everything is possible you manage to get the other shareholders to agree. That might happen when some early investors sometimes want the founder to have more control especially before going public. The theory is that you'd rather have a founder you invested on in the first place steering the company than let your generic wallstreet shareholder without a vision(tm) take over a unicorn still full of promise.
Sometimes the bet pays off, very very well. Take for example Musk. You can say whatever about him, but it's extremely clear he has a vision, and does pretty much anything to get there. I'm not sure tesla or spacex would've survived 2018 with someone else at the helm or if a shareholder revolt happened. Just by that metric he is already worth dozens of billions to the rest of the shareholders.
Zuck is also a good example of investors trading off votes for a more wall st. independant, steadier long term eadership.
Now keep in mind those are exceptions. Having supervoting shares orbmultiple classes of shareholders is very often not a good thing and usually leads to less value being generated.
Accountability to shareholders is usually good and very important to ensure sane corporate governance. Which is why CEOs and founders absolutely love having ever less powerful shareholders and we end up in situations like now where even the crappiest IPO has absurdly overgeared supervoting classes. Who doesn't want to buy in a deeply in debt, cash burning ipo with very questionable growth who's founder has a perpetual 80% of the votes?
Companies don’t do this anymore because S&P and other index creators will refuse to add your company to their indexes if you have multiple share classes. It’s much better to be part of an index than to retain founder control, for shareholders.
Plenty of IPOs this year had dual class shares (~20% I believe). Founders are often billionaires; money is now measured in log terms, but control is a boolean.
If they already have control, they'll want to keep that control.
Investors (VC, etc) have made 20x or more on their investment already and no one is going to go on a fight with successful founders, for a variety of reasons but primarily, they don't care how a company performs in the long run because their fund has already sold their stake and closed already.
I'd be in favor of this I think. It might force Elon, Tesla, or the shareholders to address the elephant in the room: Teslas market cap vs their revenue.
Teslas market cap is 1030m on 31.5m of revenue. GM is 79m on revenue of 122.5m. That's 50x the market cap per revenue.
If a company is doing tons of R&D, and everything suggests that that R&D will give huge dividends in the future, then it seems perfectly normal for such a company to have a high market-cap/revenue ratio.
If having too big of a market cap relative to revenue is wrong, then you're basically saying that companies should not invest too much in their future, just use their money to sell as much as possible right now.
You know who else has extremely high ratios of mktcap/revenue? Pharmaceutical companies trying to cure diseases that have no available cure. Is it wrong to try to cure those diseases?
I think Tesla does a good job of making folks think they are doing a lot of R&D, but that's about it. Based on some quick internet research, Tesla is a quarter of the R&D of either Ford or GM...
Unless you think it's higher quality or in a different area... but the whole world is going toward electric cars and autonomous driving. Tesla AutoPilot comes in a distant second to GM according to Consumer Reports: https://www.cnbc.com/2020/10/28/gms-super-cruise-tops-teslas...
There's a reasonable chance of Tesla creating patents that generate a license fee from every car produced, basically in the globe.
It's kind of the reason Toyota has a monopoly on hybrids: they have a patent on the best kind of hybrid system. Ford held a similar enough patent that Toyota entered into a license agreement with them.
Getting a 20 year monopoly on key EV/battery tech will be worth an unimaginable sum.
I don't agree with Telsa's valuation, but I can appreciate why investors support them at their current price.
Revenue is an instantaneous metric of a company where as Market Value is a reflection of sentiment integrated over time and relatively compared to competing options for capital (such as other stocks, bonds, even present vs future purchases if inflation is material).
They will always be quite disjoint when viewed with an single/small number of revenue data points.
jesus christ, yes. Elon didn't become a billionaire including assets until 2012, well after nasa awarded them the cargo contract and two years after Falcon 9 started launching. Before that, he was barely a millionaire after PayPal and his investments in Tesla and SpaceX. This tax wouldn't have affected him at all until both SpaceX and Tesla were relatively healthy with both Falcon 9 and Model S.
There's a reason CEO's at this level take $1 in salary.
I think what most people want is for billionaires to pay their true rate of income instead of artificially low percentages because they have access to financial instruments that most don't.
That doesn't make any sense -- something that applies to "all music rock stars" would have to come from a mastering engineer or someone at that level and even then it wouldn't be universally applicable.
That's ridiculous. Tesla's market value gain since it went public is around $1T. The aggregate profits since then are at most a couple billion and may even be a loss. Paying out a salary to cover the gains is impossible.
What are you getting in return? The USA is turning rapidly communist, authoritarian, and corrupt, thanks to the current ruling Washington elite (and specific political party).
This tax move is little different than Communist China's recent crackdown against corporations. Its just a power grab to shift power from the corporate to political sector.
Founder CEOs like Tim Sweeney, Elon Musk etc. are the core drivers of American innovation. Otherwise you just get mediocrity like in Europe.
If you want to deal with Government spending, then reign in pensions, and secure the Southern Border. If you want to tax something, then tax land, and carbon emissions.
I think the law is bad, but if we had a sane center-right party we wouldn't be in this situation. We're missing a liberal center and it's not found in either party, many (myself included) think the stuff like denying the election results are higher risk so I'm forced to vote against them on that alone.
I mostly agree otherwise re: innovation (though think the southern border is not that relevant).
What we're actually missing is any party that hasn't been completely pwnt by corporations. If you take a look at this proposed law, it explicitly excepts hedge funds and the like. Yet again the authoritarian ratchet will click for individuals while corporations escape regulation, leaving them even more powerful. The hypocrisy is blinding when you really dig into the mechanics of tax law - individuals have to pay taxes on their expenses of shelter, transportation, food, whereas if the same situation were interpreted as a business those would all be deductible as expenses necessary to earn income.
What if instead we flipped the paradigm such that if you want a government granted charter to create a liability limiting entity, that is what gets heavily taxed while individuals would get left alone for the most part. Require bookkeeping only from the entities that live on it, rather than forcing the yoke onto human beings. Applying this to income-distributing trusts as well would go a long way towards fixing dynastic wealth, without even touching the estate tax.
And tangentially the right thing to do about the massive paper gains of the stonk market over the past nineteen months months is to call in all those loans made by the Fed by raising interest rates back to a reasonable level. But that would stop the fake riches gravy train and hamper trickle-up wealth redistribution, so corporatist policy will continue to carry the day while individuals get squeezed by the resulting increased financialization.
I think Biden is a pretty moderate Obama style neo-liberal, but that's not really true of Elizabeth Warren, Bernie Sanders, or a lot of representatives in congress.
I'm happy Biden won and I voted for him (well I voted for Bloomberg in the primary before it was obvious who would win and then Biden in the general), but it was looking scary there for a while. The democratic party is definitely more moderate compared to republicans (where all but a tiny handful are just trump loyalists), but that's a pretty low bar - they still have a lot of policies I don't like in addition to the woke stuff. Obviously this is a super flame-bait topic probably not good for HN so I'll leave it here. I just wish there could be principled discussion and legislating without tribal craziness. America is healthier with two reasonable parties to balance each other out.
> that's not really true of Elizabeth Warren, Bernie Sanders, or a lot of representatives in congress
We can cite a few examples, but the great majority of elected Democrats, including the most powerful one (Biden) are centrists.
> The democratic party is definitely more moderate compared to republicans (where all but a tiny handful are just trump loyalists), but that's a pretty low bar - they still have a lot of policies I don't like in addition to the woke stuff.
If by 'moderate' you mean, 'between the current partisan positions', then moderate is just a different kind of partisan, one who makes choices by (bizarrely) navigating between what other people say.
But if we mean, 'non-partisan', let's evaluate policies based on their consequences, not based on what partisan rhetoric and positioning they've been tagged with.
IME, many moderates are the former (to be clear, I have no idea about you) - they are afraid of the conflict imposed mostly by the neo-reactionary right (which now runs the GOP), so they go along on reactionary commentary (attacking 'woke' people) because it's safe - the progressives have little power to threaten them - and then quietly object to some reactionary policies.
One thing that keeps me honest there is that I hold positions across the political spectrum (not all in the center) - usually this makes partisans uncomfortable because they don’t know which “camp” I’m in.
I think dismissing the anti-woke stuff in the way you do isn’t an accurate portrayal, sure partisanship is definitely motivating some but not all (not me) - it’s because I think it’s genuinely bad policy.
I’m not making a false equivalence either - the trump stuff is awful and a lot worse. Which is why I wish there was a sane center-right party.
> I think dismissing the anti-woke stuff in the way you do isn’t an accurate portrayal, sure partisanship is definitely motivating some but not all (not me) - it’s because I think it’s genuinely bad policy.
I think either favoring 'woke' or being 'anti-woke' is partisanship. It's applying a label and dismissing it. The non-partisan thing is to look at each policy, regardless of labels applied by others. Even using the term is arguably (and arguably unintentionally) partisan - it adds nothing to the analysis and even works against it: It encourages inflames partisanship, which is a cancer.
You lose credibility when you throw out nonsense like "The USA is turning rapidly communist." I do not see any argument that could be made to justify such a claim.
The current tax situation is like property taxes in California before Prop 19: nobody sells, so ownership and control never changes. This facilitates wealth transfer from generation to generation (in the equity case, though the use of trusts) and perpetuates wealth inequality.
A tax on personal unrealized capital gains will not take away any money from the company. It's privately-held, and has no effect on a company's balance sheet.
I don't follow your reasoning, either. Do you really think that a new tax on several hundred billionaires will discourage the hundreds of thousands of entrepreneurs that are out there, that a significant amount of them will not bother since they can only make a few hundred million before they have an extra 15% of their money collected in taxes?
Most entrepreneurs would be overjoyed to be a billionaire and have to pay that extra 15%. Seems like they'd be the lucky ones. Seems like a billionaire or an aspiring billionaire complaining about such a thing would be pretty weird.
The parent you replied to mentioned wealth being locked up to avoid capital gains taxes. There are other pros and cons, I'm sure. Do you think this new tax on billionaires means that less people will be trying to become multi-millionaires?
Note that I'm not happy with the current tax system, and this seems like another kludge. I also don't know that we need to coddle or incentivize wealth maintenance, it's not an end in and of itself.
Extracting the money from them will mean less investment. It's simple mathematics. You take away a billion from an investor, then a billion is not invested.
Even worse, you're taking the money away from the most effective investors.
Maybe that's the part I'm confused about. Aren't they talking about taxing unrealized capital gains, i.e. money that is being left locked up in a single stock, in order to avoid being taxed when it is moved? Wouldn't one of the effects of this tax be to incentive these effective/successful billionaires into moving their money into new investments, instead of being left parked in their already successful investment?
And most entrepreneurs are not, nor will never be, billionaires who are subject to this extra tax. That being the case I wouldn't think that this will put a dent in overall entrepreneurship. It might have the opposite effect, where there are numerically more entrepreneurs making capital allocation decisions, which might be better for society than having fewer people (billionaires) controlling an ever increasing amount of capital.
I grant that tax changes like this have numerous conflicting effects, sometimes unpredictable. Perhaps their will be another art bubble...
I don't think that it's a good thing that we structure our society for the convenience of those who can amass money. I'm definitely not fond of kludgy taxes like this one, but I also don't understand why so many jump to the defense of so few billionaires.
We’ll when musk started both those companies he wouldn’t be affected by this tax. In fact it wouldn’t have hit him until a few years ago and he hasn’t given either company money in longer than that.
And Steve jobs did t inject money into apple when they were creating the iPhone.
So you’re entire point has been pretty much invalidated
Jobs put most of his fortune from Apple into developing Pixar, transforming it from a failure into a powerhouse.
The rest went into Next, which formed the core(!) of Apple's resurgence when Apple merged with it.
Musk currently has a controlling interest in Tesla because of his stock holdings. Under the proposal, he would no longer have the holdings, and thus no longer control the company.
You mean old middle class, and poor homeowners, can stay in the house they raised a family in?
The only reason my high school educated 80 years old mother in declining health can stay in a home, and county, she feels somewhat safe is because of prop 13.
Her biannual property taxes are still a big deal when they arrive.
I've said this before, but I'm beginning to think if you didn't live through the craziness before Prop 13, you won't ever quite get it.
Prop 13 has been the only blessing most homeowners have been given.
If you want to put income limits on the gift of prop 13 fine, but doing away with it completely would be evil. By income limits I mean the guy making $600,000/year, and a huge bank account, could probally still survive without prop 13 protection.
The 80 year old lady, or man, surviving on 1/2 widower's blue collar pension is another story.
(I'm for means testing on all programs. I'm also for tieing all societal fees/fines---speeding tickets, registration, patent fees, etc. to 1040 income/assets wealth.)
I didn't think we reached the point where people are arguing that things that make housing more valuable disincentivize building more homes - but here we are.
It is zoning restrictions, EIR, etc., that disincentivize housing.
Prop 13 absolutely disincentivizes building housing. Other policies can also be bad. But grandma's house isn't being bulldozed to make way for a quadplex because she's insulated from the market.
What seems odd to me (if I understand it correctly) is that prop 13 keeps your property tax low, but you still get the full benefit of the appreciation in price when you sell the property. It kind of seems like if it's artificially keeping the tax low, the full tax bill should come due at some point, which would logically be at the change of ownership.
Property tax is the recurring value tax, kind of a wealth tax while you hold a property, and prop 13 does shield much of the appreciated value from this. A new homeowner might be paying 1-2% of market price per year, while an elderly neighbor might pay 1-2% of an assessed value that is closer to a market value from 20+ years ago. The assessment does increase at a very slow rate, and in larger jumps with remodeling or other improvements.
At the sale, the appreciation becomes realized as capital gains income. There are some rules making a portion of gains tax-exempt for a typical homeowner, but the remainder of a large appreciation is taxed as income. There can also be a sales/transfer tax on the transaction, which is of a comparable rate to the annual property tax rate.
The third significant event is inheritance, where the house could pass to an heir without a sale and have its basis updated to current value. This is when the appreciated gains can really go untaxed.
1. Name one other perk government gave poor, or middle class, homeowners. If you are lucky, and hard working, you might end up being a homeowner. You will appreciate a reasonable tax bill when you arn't spunky, and making money, later in life.
2. Not all of us are budding business owners--excuse me Start-ups. We don't have business deductions, or anything else fancy. We fill out the short form.
3. I saw my father cry twice. Once at his mother's funeral, and yes when he opened that ever increasing property tax bill in the 70's.
4. People have no idea how county officials wasted those funds in the 70's. There were pet political projects, and just waste.
5. America was different back then. Most stuff was made here. Blaming Prop 13 is misdirected.
6. There's a part of me that wants to let the youngsters have their wish. I will sit back and watch homes being snatched up by wealthy foreigners, and corporations.
They will buy up those homes, and we be in the same spot.
Your mother could easily pay higher property taxes with a home equity line of credit. She probably should also be using that HELOC to fund a more comfortable lifestyle -- she probably needs that money more than her heirs do. (I'm assuming, given that you're posting on HN).
She's not in poverty. She has everything she wants. Her biggest want is living in the modest home she raised us.
She knows about Home Equity Loans, and Reverse mortgages.
Actually, I inherited my father's half of the home.
I quitclimed it to my mother the minute I saw the final Accounting of Probate.
I have a thankless job in a few states away. I have nothing. It would be nice being a blue collar worker to have something later in life if my mom sees fit.
Life is complicated?
I just know revoking prop 13 is not the answer. I'm sure wealthy foreigners, and corporate home buyers, are hoping this prop 13 hate continues though.
(If you are going to rebut--please read the entire post.)
Generational wealth transfer is a good thing. It's the main reason most people work hard in life - to provide a better life for their offspring.
Wealth inequality is a good thing too. People who work harder necessarily live better lives. If you want to start stealing their hard work to give to the lazy, you're going to find that the hard-working flee the country à la the USSR.
I think the primary issue is not precisely 'wealth inequality' but rather a lack of accountability and responsibility from people with large amounts of wealth. If one has assets whose value is representative of the life's work of several thousand people, it's one thing to have someone who is demonstrably capable and responsible manage it, and another thing entirely to have someone /own/ it. If I had to guess (and I clearly am) a larger proportion of people are upset with the latter than the former.
Nothing is stopping someone from employing their wealth to build a yacht, fifteen McMansions, and a thirty-foot solid-gold Mothman statue just after getting off of a six-month prison stint for a billion dollars of ecological damage (all purely hypothetical but I would assert entirely plausible); that people exist with the right to exchange a colossal amount of wealth to be allowed to waste an equally colossal amount of actual effort and resources is the problem.
I won't say nobody has an issue with individual people being allowed to direct huge amounts of funding, but I would assert that more people recognize that extravagant waste for the purpose of status should not be scaled to the extant degree of wealth disparity.
If you own your house, is it unfair that you don't share it with all the people who contributed to building it? Or is it fair that you paid them what they asked for their efforts?
This is not really the point that I'm arguing--my point would be that if you wanted your house entirely encrusted in precious jewels, each of which was individually polished by a team of people paid 50 USD an hour to do this weekly, nothing stops you from making that decision even though you are monopolizing a large quantity of resources for status, almost entirely. Someone with a large amount of wealth is generally within their rights to do this, which I would view as a problem.
This isn't to say that I would accuse the majority (or even very many) individuals in positions where they're able to leverage a lot of wealth of anything specifically this egregious, but rather that because they're able to control many resources because their efforts have enormous leverage (and therefore are worth more to the system they operate in), they can consume orders of magnitude more resources to gain comparably minuscule increases in personal utility.
In addition, because of how valuable their leverage makes their effort, when they cause damage whose negative value is on the scale of individuals, the disparity leads a system that's self-interested to forgive them much more quickly--if someone can get 1% more value out of 10 billion dollars' resources than anyone else, that system doesn't have any purely value-driven reason to replace them in their position if they should murder someone and its negative effects never amount to more than a couple million dollars' loss in value. From any ethical standpoint that holds "death at the whims of billionaires" incompatible with "certain unalienable rights", this is a problem.
There's been a surge in real estate values lately. I've yet to see any homeowner decide they owe part of that gain to the people who built the house or the folks who mow their lawns.
I'm... confused as to what your interpretation of my comments here is. I'm explicitly stating that the issue isn't about people deciding they owe something to other people, or what the market decides the value of something is--it is about people in highly-leveraged positions who are currently able to waste resources or actively cause damage with some impunity because of the value their leverage allows them to provide.
I'm not making the suggestion that those who are wealthy should divest themselves of their wealth and donate it to charity, the point I'm intending to communicate is that such leverage shouldn't act as a pass to engage in unethical behavior.
This comment is insulting and has no basis in fact.
There is no evidence that rich people work harder than poor people. In fact the opposite is far more likely to be true given the unique stresses of manual labour.
And there is no evidence that the driver of success is providing for their offspring. There are a whole range of factors at play.
> There is no evidence that rich people work harder than poor people.
It's not about working hard, it's about working smart. I.e. leverage.
For example, my patio door kept getting stuck. I spend a lot of time with a file and chisel trying and failing to get it to fit properly. Finally, I bought a grinder for a few bucks from the pawn shop and had it fixed in a couple minutes, and it looked a lot better, too.
I simply disagree that an economic incentive is necessary or useful for people with extreme wealth. Already rich people who are primarily motivated by the accumulation of wealth are unlikely to have some unique skill that society needs in our active labour force. If our tax structure made them more likely to retire early, our workforce would not be starved of useful skill.
Genuinely smart people with genuinely valuable skill (like Musk or Jobs) would work equally hard whether their offspring were set to inherit 10 million or 10 billion dollars.
Except there’s a 40% estate tax still levied at each generation. Plus unlike European aristocracy, American plutocrats rarely intermarry. Even if you’re only reproducing at replacement, your wealth gets diluted by 50% each generation. Stack the two and you’re getting slashed by 80% every generation.
Don’t take my word for it. How many fourth generational heirs do we see among America’s wealthiest billionaires? Essentially zero.
There are ways around this in the UK system, however. It's probably the same case in the US. The short of it is you transfer the wealth well before (15-20 years) the death occurs, thus there is no inheritance.
This was used recently by an MP.
That being said I agree with your thoughts, however:
> How many fourth generational heirs do we see among America’s wealthiest billionaires? Essentially zero.
This is probably true but I'd like to ask the question: how many of them simply inherit a lot of money without any of the fame associated with it, and just go unnoticed? I've met such a person, actually.
> There are ways around this in the UK system, however. It's probably the same case in the US. The short of it is you transfer the wealth well before (15-20 years) the death occurs, thus there is no inheritance.
> How many fourth generational heirs do we see among America’s wealthiest billionaires? Essentially zero.
Quite a few. Not sure how long you would make four generations, but let's say 100 years.
There are the obvious famous families; Ford, Rockafellers, Du Pont, Mellon, Mars, Hearst, SC Johnson ("a family company"), etc. But there are a number of billionaire families that aren't recognized much outside of their "home towns" because they started mundane things like retail stores or own mineral rights.
That's not even getting into families whose wealth has diluted, but whose descendents are politicians, actors, or otherwise notable / influential people.
Granted, most billion dollar businesses are <4 generations old, but more sophisticated investment vehicles exists for preserving wealth than existed even 50 years ago.
So at least on this list, https://www.forbes.com/forbes-400/, the vast majority do not have families that been on the list (or would have potentially been on the list if it existed 100 years ago) for 4 generations.
I went to a an expensive private school for college and there were a lot of old money students there. They didn’t all have the last name “Carnegie” or something else imminently recognizable, of course.
Plus, that money may get divided and spent over time, but it’s usually invested. It’s not like after 100 years it’s the same amount of money adjusted for inflation, if the next generations didn’t mismanage it.
Walmart didn't go from mom and pop store to national corporation without an IPO.
I'm going by wiki data here, which says they had 18 stores and annual revenue of 9 million in 1968. If they had stayed private they were probably clearing a million dollars a year, give or take. To get from there to billions they had to raise outside money, specifically by selling stock and debt to someone else. That is by definition "not owning it anymore" because they're selling (some of) it to raise funding.
Like I said, there are no mom and pop billionaires. To get from millionaire to billionaire requires outside money. And yes, that includes tech companies. I know tech founders like to write false hagiographies for themselves after the fact about starting XYZ in a garage, but dig far enough and you usually find it was more like "garage + 25 million from Sequoia Capital," like Google.
And the Income Tax originally was only 3% and only applied to less than 1% of the population.
The idea that it would apply to everyone, and be 20% was literally laughed out of the debate on implementing a national income tax as a "crazy conspiracy", it took less than 50 years before that crazy conspiracy was reality.
There is little reason to believe history will not play out the same, and it will not be long before this expands beyond the evil billionaires you despise soo much to those mom and pop stores you seem to claim love for...
Most of these billionaires are founders of companies that were worth many billions of dollars before they ever turned a profit. There is no option just to pay out the cash to cover the gains tax.
I don't really see a problem. There would just be a new equilibrium. Pay salary->increased burn->lower valuation. The valuations are mostly detached from reality currently, it would bring it more in line.
you wanna take a loan against your stock? you pay taxes on that loan.
That’s exactly the problem —- loans aren’t income, they’re debt, and debt isn’t taxed. Worse yet, the ultra-elite can carry out “buy (or ‘found’), borrow, die” strategies that let them pass the debt onto their kids, who can sell the securities at a tax advantage due to the stepped-up basis loophole.
How important are Bezos, Musk, Page, Brin and Zuckerberg to society?
It’s hard to fathom FB, Amazon, Tesla and SpaceX becoming the behemoths they are without a dictatorish stock holder with absolute control. Amongst those, certainly Musks’ contribution from an electric car and space exploration standpoint are societally argueably positive. Tesla and SpaceX simply would not have happened without him.
You say they wouldn’t be behemoths like that’s a bad thing. There’s weekly threads on HN about Amazon, Google and FB abusing their position on the market.
> The specific people mentioned are certainly nowhere near as important to society as their wealth makes it appear
No one knows how much someone is "worth to society". Not me, and not you. Not even Bezos. This is not even a well-defined question.
But what we do know is that this is not what money measures, and attempts to politicize that -- to create some algorithm that decides what someone is worth to society, and then pay them according to that algorithm, always lead to terrible outcomes.
In the same way, we don't know how good or evil Bezos is, and neither is money a measure of good points net evil points.
The sooner we abandon these weird discourses around money, trying to endow it as some kind of metaphysical tally, or make it conform to some metaphysical tally, the better.
Well, one workaround would be to treat securitization of shares (eg for a loan) as a taxable event. This is a common (and currently legal) tax avoidance strategy.
Another consideration is that maybe having sole control of a massive pot of cash or financial instruments by an individual is just a Bad Thing. Consider how Zuckerberg structured FB so that while he it's a public company, the bulk of the stock is non-voting so he has de facto sole control of the firm. No matter how destructive of shareholder value or public goods his executive decisions, it's virtually impossible for anyone else to overturn them barring some novel legal line of attack.
I have no particular feelings about Tim Sweeney/Epic, but would the economy or the gaming world be worse off if he no longer had founder control? If he's great at his job I presume shareholders would want to keep him on as CEO and would compensate him handsomely in cash money.
Actually, why wouldn't the Epic's of the world just issue themselves shares with super voting power, like what Facebook and Google did. That would address the concern in his tweet.
You only get to do that if you're printing money at such an astounding rate that investors will do anything to get you to let them invest in you. FB and Google, yes, most other companies, not so much.
> Well, one workaround would be to treat securitization of shares (eg for a loan) as a taxable event. This is a common (and currently legal) tax avoidance strategy.
agreed. that should 100% be a taxable event and it's totally absurd that it's not. and i'm sure there's a lot of... lobbying that will never allow that kind of law to pass.
It does seem like a loophole, such funds when used as income should be taxed. Probably more complicated in practice but it does seem like a strategy that runs counter to the intent of taxation laws.
And I'd bet if it was a strategy employed effectively by the 99% it would be vigorously labelled as tax evasion and dealt with accordingly
This is not a loophole. Collateralizing a loan against assets does not produce income. It produces cash and an even larger liability.
That loan still has to be paid off with separate, regularly taxed, income.
Also this is a strategy used all the time by the 99%. It's called a second mortgage. This proposal would mean that taking out a loan against the equity in a home would become a taxable event.
Of course it's a loophole. Elon Musk takes essentially no salary, never sells his shares yet lives the life of a workaholic billionaire. The only reason he has any taxes at all is because he is taxed on his stock grants. He also has > $1B in debt.
The first $500K in residential capital gains aren't taxable. I sure hope your second mortgage is less than that.
Taxing the securitization of assets should cause a step up in the base cost of the asset. So it doesn't reduce the amount of tax you owe, it just changes when you owe it. (Unless you avoid the tax by dying).
I don't think anyone's arguing people should be taxed twice.
What they are arguing is that individuals should be taxed at the event of first utility (that is, realizing value from the gains). And then the tax is paid, so not paid again, or offset, later.
And what we're really talking about here is individuals using equity loans for the majority of their income.
I kinda disagree. Yes it's a loophole to get around tax, but taking a loan against assets you own should not be taxable. It's the same pathway that people use to take a loan against their property and other assets, and having to pay tax on that is absurd
Similarly, stocks (or things like gold) that one owns have some worth, and using it as collateral for taking a loan against it is a completely valid thing to do
Any assets, above $100M, used to collateralize a loan are taxed as if they are realized capital gains at the time that you collateralize the loan.
I don't think the loan itself should be taxed, but if you use assets to collateralize a loan, those assets should be taxed as if they're realized income—since by taking the loan you are now "realizing" the value of those appreciating assets.
Honestly, maybe people should pay taxes on that. Remember, it only applies to the gain in value, so loans up to the original purchase price would not be taxed. The tax is assessed based on the maximum collateralization minus the purchase price and minus any value previously taxed as a capital gain, as I understand it. In a practical sense, they have gained spending power they wouldn't have otherwise.
>It's the same pathway that people use to take a loan against their property and other assets, and having to pay tax on that is absurd
you bought house for $600K cash (for simplicity). Some years later the house appreciated to $1.5M, and you take out a $1M loan against it - you are obviously realizing a $400K of the value of the house as otherwise those additional $400K can only come from thin air. So those $400K of the realized value of the house (not the loan) need to be taxed with the house adjusted cost basis becoming $1M. If you sell the house later for $1.5M the remaining $500K would get taxed as the difference between sale proceeds and the adjusted cost basis.
> Similarly, stocks (or things like gold) that one owns have some worth, and using it as collateral for taking a loan against it is a completely valid thing to do
It's how the entire banking system works. Taking out loans against collateral deposited in the bank.
People also take out a loan every time they use a credit card. Is that income, too?
That doesn’t make any sense, presuming you meant “collateralize.”
I put up $100k of stock for a $100k loan, I do nothing, turn around and pay the money back, and now I have a tax bill? If I repeat this process, I can have an infinite tax liability with no realized gain or net income. Am I missing something?
The “repeating the process” is entirely the problem. If you perpetually roll over your loans you are able to spend large amounts of money without ever realizing a cent of it, thus never paying taxes (since your estate would end up paying it but then financial trickery makes the realization there non taxable).
It would be easy to avoid this infinite tax liability by not taking out an infinite amount of loans…
You can presumably adjust this for how much money you actually took out. If you got a line of credit on your house/stocks, but you didn't take out a cent, then you don't owe anything. If you took out 10% of your portfolio value in cash, and the LTV ratio was 50% (that is, you can borrow up to 50% of your portfolio's value), then you're deemed to have sold 20% of your portfolio and have to pay capital taxes. You're free to play around with the parameters when it comes to how the capital gains are calculated (eg. tax lot, which stock was "sold").
And then you pay back the loan (worth 10% of your portfolio.) So now you've been taxed for what exactly? Having access to a pile of cash for some temporary period that expired? It makes no sense to me. We don't tax you on the principal of a loan since it's not income, its debt.
>No matter how destructive of shareholder value or public goods his executive decisions, it's virtually impossible for anyone else to overturn them barring some novel legal line of attack...
IMHO, if the CEO's decisions are destructive of public goods, shareholders aren't the ones we should go to. We should be able to stop the CEO via government powers.
>but would the economy or the gaming world be worse off if he no longer had founder control?
Shareholder activism has a very double edged record. Their interests aren't necessarily the public's interest or the company's. Maybe they like dividends now rather than investment - their incentives definitely point that way. Giving them more power is unlikely to end well.
I doubt SpaceX or Tesla would exist if they were controlled by a committee. Doing great things usually requires control by a single person who is able to say "screw it, we're going for X".
All companies once they reach a certain size (including Tesla, SpaceX) have a Senior Leadership Team which decides on the critical decisions affecting the company.
This personality obsession is really only perpetuated by people who haven't worked in business and don't realise just how much of a team effort it is.
The thing is, it's really critical to have that <strike>dictator</strike>CEO in charge of the company to reign in the senior leadership, otherwise what happens is the creation of fiefdoms and <strike>intra-oligarchic</strike>turf battles at the expense of overall success.
I've been in companies that became founder led to professional CEO led, and you can see the difference in how effective a company is. I think there is great shareholder value also in founder led companies too, which have led to the growth of some of the largest and most successful companies in the world. When gates left microsoft was probably the begining of the company becoming somewhat irrellevant. Apple, tesla, epic, facebook, google, etc are all great examples of this.
There is a really great possibility that america shoots it's future economic growth in the foot with something like this, just because it's future superstars companies are not led by their great founders.
I think their point is that you can have a strong leader that doesn't have control of the company through ownership mechanism.
Steve Jobs at Apple is a perfect example, since it was a publicly traded company that Steve Jobs didn't control. However, he was still able to be an extremely effective leader as the CEO.
He had de facto control. Nobody was able to successfully defy him. He used this control to force his vision upon Apple. No committee would have done what he did.
That's... not the point at all? This post is about a law that (to Sweeney's claim) would force founders to sell their controlling stock. This law wouldn't affect "de facto" control of a company -- it would affect actual stock-driven control of a company. The fact that Jobs did not have stock-driven control of Apple, and yet he was still able to "force his vision upon Apple" as you said, would make him a good example of why this law could be effective, since this law would not have affected Jobs' control of Apple.
It's possible to be CEO, and exert control over a company without literally owning >51% of the voting shares.
A good leader can "control" a company without having legal control over it. That's exactly the point about Steve Jobs.
The assertion is that: It is possible to be a dictatorial executive CEO, without having 51% of the voting rights of the company. This is the corollary of "losing control of the voting rights of the company doesn't automatically imply that the company must be run by committee". Steve Jobs proves both of those assertions to be true.
I worked at Apple when Steve Jobs was there. Yes he's amazing.
But people like Avie Tevanian, Tim Cook, Bertrand Serlet, Bob Mansfield, Johnny Ive, Dan Riccio etc. all played critical roles in turning Apple around.
iPhone simply isn't a success without all of the above functioning at a high level.
But there's no doubt who was in charge and who set the direction. From everything I've read about Apple, it was Jobs who was in command, and everyone else followed.
Well I would suggesting looking a bit more into the company.
Because it's never been the case that Steve Jobs was in charge and everyone just fell in line. It's always been consultative and has always been the leadership team making the decisions. It's in fact how most companies run.
Especially given Steve was not 100% during most of his time at Apple.
The point is there has to be someone to make the final decisions, be they talented or not. You could vote on everything, but I don't think that would be efficient or even make sense for all circumstances.
A senior leadership team without a key decision maker is fundamentally lost and seeks only self preservation through short term goals.
Here's another example: every government on Earth. All have a single key decision maker at the top. In democracies they can be kicked out, but they have total control while they're in power.
> All have a single key decision maker at the top. In democracies they can be kicked out, but they have total control while they're in power
This isn't remotely correct.
a) All democracies I can think of are derived from the Westminister system where there are branches of government e.g. House/Senate who need to agree to get laws passed. Pretty far from total control as Biden is experiencing now.
b) Many democracies e.g. Australia don't have the PM/President be directly elected and instead are appointed by the winning party. Thus their power and control is limited to what is gifted by the party and can be withdrawn at any time at which point a new leader is appointed. Again pretty far from total control.
any actual data to back that up? Looking at the top 50 American businesses by market cap probably 90%+ aren't run by founders, and plenty of the largest ones have continued to grow just fine. Apple, Microsoft just two name to trillion dollar businesses.
Also look at the top 50 businesses and how many still have founder control. In none of them does the founder still control 50% of the stock, and only a few of them (at least Facebook and Google) do the founder(s) control over 50% of the voting stock.
For example, Bezos only owns 16% of the voting stock of Amazon, Musk only owns 22% of the voting stock of Tesla yet neither are in any danger.
Yes, they do not have a controlling stake (50%+1) but both Bezos and Musk are the largest shareholders in their respective companies wielding huge influence.
I'm in sympathy with that argument, but I don't think that singularly driven people are motivated by profit alone, and that they'll stop if there's some change is the underlying property ownership calculus.
Also, it's worth considering that not everything great is good, so perhaps a braking or governance system (in the sense of an engine) is worth requiring on any enterprise sufficiently large to become a juggernaut.
If a committee can reject their initiatives, how are they going to implement them?
> it's worth considering that not everything great is good, so perhaps a braking or governance system (in the sense of an engine) is worth requiring on any enterprise sufficiently large to become a juggernaut.
Yeah, let's just throw SpaceX in the trash heap. Nevermind that NASA, the organization run by committee, has failed to make space accessible and routine.
The "braking system" is already in place. It's the free market. Once the "juggernaut" fails to please the customers, it goes down the tubes.
SpaceX is already run by committee. The president of SpaceX is Gwynne Shotwell and she is widely believed to regularly reign in Elon Musk. For example Elon wanted to cancel the Falcon Heavy project when NASA said they would never man-rate it, but Shotwell over-ruled him until he changed his mind.
Musk controls enough shares that he could get rid of Shotwell at any time, or reduce her power, but he chooses not to.
Smart leaders have a nay-sayer to whisper in their ears when they're making a mistake. That doesn't mean they aren't in command, though.
The fact that Musk can get rid of her at any time speaks for itself. It doesn't mean she's a committee, either.
I've long suspected that the reason McCartney and Lennon wrote great songs for the Beatles, and not-so-great ones afterwards, is because each was willing to tell the other when their work was crap. Afterwards, they just had sycophants who'd tell them every note they wrote was fantastic.
Elon Musk controls less than 25% of the voting shares of Tesla, yet the company still exists and in fact is thriving.
How many shares of Apple did Steve Jobs control when he was the CEO?
This is just a ridiculous argument that companies can only succeed if the Founders/CEOs have absolute voting control. There are many examples of shareholders being more than happy to put their votes behind whatever the CEO wants as long as they believe in the CEO.
It's not a binary situation where you either own 51% or not. The larger the share of the company you own, the fewer stakeholders you need to convince to vote in your favor.
e.g. having 49% equity only requires ~2% of remaining shareholders to agree with any of your decisions.
If you're making remotely justifiable decisions, you're likely to get a decent chunk of shareholders supporting pretty much any position.
Also it's common to stack the board with allies who you can trust to vote in your favor/support your decisions.
So doesn't require much equity to have de facto control. But there will likely be a big difference in influence between, say, 10% and 20%
> Well, one workaround would be to treat securitization of shares (eg for a loan) as a taxable event. This is a common (and currently legal) tax avoidance strategy.
I suspect it would be harder to stop this strategy than it might seem, because someone could happen to make me a large personal loan at a low interest rate when I happened to have a large portfolio with them. If the numbers are big enough, it makes sense to do.
If you treated all loans as income, but got a deduction for making payments... Maybe you could make it work. Although, that's kind of rough for mortgage and auto loans.
Mortgage and auto loans are usually cash secured, so there are no gains to realize. This tax treatment could (I would say should) only apply to e.g. shares on the difference between the cost basis and amount used to collateralize the loan.
One quirk of that is that regular Joe could then get a loan against their cost basis in their portfolio and still have no taxes. E.g. they bought 10shares of $X at $100 and now it’s $200. A loan secured against those shares would not be taxable up to $1000 and the portion between $1000 and $2000 would be taxable. This still stops mega billionaires from never paying taxes because the cost bases on their shares are usually very low.
>I think everyone needs to read the bill and calm down.
"Gains on private assets -- including harder-to-value assets like real estate, art and private companies -- would escape the annual levy, and only be taxable when sold. "
>Every time a company’s value doubles, the government would force founders like me to sell 25% of our stake to pay the government. Epic’s value has doubled 8 times in the past 5 years. If this tax scheme had been place, I’d have been forced to liquidate nearly my entire ownership.
Think about it. 1 Billion.
A person who lived 100 years would have $27,397 a day to spend. Including as a newborn infant.
At Bezos levels? roughly $5.3 million a day.
What could you do with 5 million a day? Well for the first 3 months of your life as a newborn, not much probably.
But as an adult certainly, you could find ways to spend it right? Great. Society would love to see some cash splashed around. The economics people always love to see money sloshing around society.
So why can't these people simply stop accumulating and start letting it flow? They'd get to enjoy it. Their society would benefit from it. It'd be good for everyone.
The more these people are forced to spend down their wealth - however they want to! - the better.
with that logic, what's the threshold for forcing them to spend down their wealth? 1 billion, half a billion, 1 million, 1 hundred thousand?
If the government takes it, what are they going to spend it on? Foreign wars, jails, lavish mansions for leaders?
But quite honestly, if somebody makes a successful business, wise investments, or works their ass off building an empire, who's to say they can't enjoy all the wealth they've brought in?
Bezos may be filthy rich, but because of the countless hours of work he put in (don't tell me he didn't work nights and weekends while his employees worked 9-5) so you can enjoy groceries on demand, 2 day delivery on almost anything you want, and great video streaming. Stop using the services he created if you want his wealth to go down.
Threshold? Say a billion. To be revised as inflation does it's thing.
I never mentioned the government taking it.
I want them to enjoy the wealth they have! Not as a big number, but as use of that number to buy/experience/do things. Bezos can buy 5 Ferraris a day for the rest of his life if he wants to for all I care. Just use the stuff.
Bezos is indeed rich, and no doubt worked long hours. But it wasn't the hours he did.
#1 Median wealth american = $121,760
Bezos wealth = 196.1 billion
If it was just the hours then
(median wealth american work hours) x 1.6million = bezos work hours.
If the median american worked a mere 1 hour a week, then Bezos is working 1.6 million hours a week. Seems kinda tough to fit into the schedule...
No, he has leverage. And in this thread I am not even questioning whether he should have that leverage. Just saying, he's got money, he should spend it.
And I do try to avoid Amazon as best I can. But it is embedded in computing/supply chains and there's only so much anyone can do.
> If he's great at his job I presume shareholders would want to keep him on as CEO and would compensate him handsomely in cash money.
This really isn't how the real world works. It's easy to design rules that would work acceptably if no humans were involved, but in reality this would ensure there are no sole owners of companies with control. Sooner or later, every CEO does something that "conventional wisdom" doesn't agree with, and if he doesn't have corporate control, he's out.
Yes, this would "hurt" gaming and the economy, because it would change the ownership of companies for the worse. If every game company was Bethesda, mediocrity and micropayments would rule the gaming world, because every company would pursue whatever strategy is perceived to be "obvious" to make shareholders' money increase.
If this tax had existed when Doom came out, Id software and the effects it had on gaming as we know it would never have existed.
On a side note, the people here commenting that companies could just pay a salary to their CEOs large enough to cover the wealth tax apparently have never owned or run a company. Any company being forced to pay out liquid cash equal to 20% of its stock valuation would go under. The usual killer of small to medium companies is cash flow.. having enough money to buy what you need to keep producing and paying bills until your customers pay their bills.
Also, if they're trying to tax theoretical gains, are they also going to pay out when companies' valuation decreases?
In corporate performance, you get what you measure. If the tax is charged based on companies gaining value, companies won't gain value.
That plus the fact that certain corporations are exempted from it (hedge funds) makes it a non starter.
It will also add very odd incentive to not grow your company after you reach the billionaire tax-level.
A. you'll maintain ownership
B. you wont have to pay taxes on the gains
Tons lot of founders care about 'A' a lot more than is "rational".
It sounds okay, but the USA will miss out on a lot of potential wealth and tax revenue from people who choose not to grow their companies into huge multinational corporations.
Smaller companies may be a net benefit over the long term. These super large companies tend to become over dominant in their markets and and start engaging in anti-competetive behaviours.
Big businesses are the engines the drive the economy. Small businesses are the future big businesses.
A healthy economy needs both.
After Japan was burned to the ground in WW2, the US sent in academics to structure the economic recovery. They thought big business was bad, and only allowed small companies to operate. The economy flatlined.
Finally, they allowed big business to resume operations. The economy went straight up until 1990 or so when it became moribund for other reasons.
> These super large companies tend to become over dominant in their markets and and start engaging in anti-competetive behaviours.
This complaint I've heard my entire life about the dominant companies of the day that have since collapsed of their own accord. Companies like RCA, IBM, Sears, Kodak, etc.
10 biggest companies by market cap 20 years ago:
GE
Cisco
Exxon
Phizer
Microsoft
Walmart
Citigroup
Vodafone
Intel
Royal Dutch Shell
and today:
Apple
Microsoft
Alphabet
Amazon
Facebook
Tesla
Berkshire Hathaway
TSMC
Tencent
Nvidia
The fact that giant companies eventually collapse under the weight of their own greed and complacency doesn’t mean they don’t engage in anticompetitive behavior while they’re at the top.
My point is huge companies can engage can have negative effects on competition even if they eventually fall.
How many businesses has Amazon whipped out in the retail space by leaning on the profits from the cloud division?
Just the other day we saw documents from the DOJ’s lawsuit against Google for anticompetitive behavior. In the those documents we saw internal communication about a desire for Google to use their dominance in the browser space to create the web into a walled garden [0].
Those largest companies from 20 years ago didn't fail, they are all doing very well (well, GE excepted), they just did not grow nearly as fast as new tech did.
"Palantir wants to push the envelope further though with a three-class structure that would prioritize Thiel, Karp, and Cohen above all others. In Palantir’s model, there would be a Class A share with 1 vote, a Class B share with 10 votes, and a special “Class F” share with variable votes.
Class F shares would share 49.999999% (six 9s in the decimal – I counted twice) of the voting power of Palantir at all times, regardless of the underlying ownership of shares. Important to note that that is not a “majority” and thus they will not have literally a controlling stake in the public company."
> It doesn’t apply to shares held by hedge funds like KKR, nor to corporate investors like Tencent and Sony.
If that's the case, then what prevents billionaires like him from creating "Tim Sweeney angel fund LLC" and have that entity retain control of Epic?
Then since this entity is private, couldn't it defer that tax at the time it sells the entity?
With the whole deferred tax scheme that applies to assets not traded on an exchange, i.e. a "deferral charge meant to replicate interest payments on taxes that went unpaid each year, together totalling a tax capped at 49%" as described in https://www.rollcall.com/2021/10/27/wyden-details-proposed-t...
Surprisingly, tax schemes invented at the last minute to thread the needle with a couple of moderate senators and a Byzantine reconciliation process are not typically well thought-out!
LLC are discarded entities for tax purposes so no change there. The reason it’s not an issue for hedge funds is ownership is split among many non billionaire owners. As opposed to llcs, setting up a shell corporation for stock holdings would lead to accumulated earnings tax. I think you will see some asset hiding as always but the obvious solution is the Peter Thiel billion dollar Roth IRA trick. Assuming roths are excluded I mean.
Indeed, whatever conditions there are on this tax, will become the new standard conditions all sufficiently wealthy people will have their accountants arrange their finances to satisfy in order to be excluded.
Because his shares on "Tim Sweeney angel fund LLC" would appreciate every year and he'd have to pay the same taxes on unrealized gains.
The only way to avoid this is being a foreigner.
Effectively, what they'll accomplish with this tax is either:
1) Letting only foreign billionaires control American companies; or
2) Force American entrepreneurs to waive their citizenship (which, in practice, is #1).
So, yeah, it seems these politicians are either blind or are legislating against American entrepreneurship, in favor of foreign billionaires.
tldr: waaahhhhhh I might possibly have to pay taxes while I'm alive instead of living off of effectively no interest loans on my hoarded treasure because I got lucky and made a mint in imaginary money.
the reasonable thing, would be to tax loans underwritten by securities as income. that loophole, of borrowing on stocks you own is pretty much giving a bazooka to sycophants or crooks who are prone to abusing it. look at adam neuman for example. otherwise, this so called bill is gonna punish the people it didn't intend to punish, while leaving the current beneficiaries of low wealth tax unharmed.
I'm curious how new tax schemes like the proposal Sweeney is criticizing get vetted. It's probably impossible to determine actual economic effects of radical tax reform in advance. Further, from a rational perspective there's no incentive for the best minds to advocate loophole closure in tax schemes as there's more value in exploiting them.
I wonder if this is the kind of thing CNNs might be good at simulating some day.
Bad idea to tax unrealized capital gains. Proposal; How about we gut our entire tax code and replace it with a single tax that taxes when money moves from one entity to another. Let's call it a Transaction Tax. It would replace Sales Tax, Income Tax, Capital Gains Tax, Inheritance Tax, etc and introduce tax on debt creation (when the bank gives you the money). This would close all loop holes and put the entire tax industry out of business. Given it would be taking a slice of every transaction, the rate could probably be super low. 1-2% would be my guess. What can you see wrong with this proposal?
If it leads to lower consumption that would be better for the environment and would probably lead to a more sustainable economy with less incentive to go into debt.
Because it fails to sate the emotional rationalization that sits behind so much of the rhetoric that has been used to justify such measures. The wealthy are evil, duplicitous, exploitative, and in the best cases, merely lucky... regardless of what a wealthy person actually did or didn't do to come to their wealth... and the not wealthy are blameless, innocent, unlucky victims that are unable to change their lot in life in part because of the oppression of the wealthy and in part because their betters in government aren't yet empowered enough to protect their best interests.... again all without regard to how they came to their unfortunate lot in life.
Now, of course, I'm exaggerating, but only a little I think. And, of course, this happens on both sides of the debate... but the side in power right now is the one making taxation proposals. Personally, I support your idea by and large. An amount that scales to the degree of the transaction ensures that big transactions pay larger amounts and that everyone has a stake.
You are not wrong. The only thing I would add to that is the wealthy invariably means simply "much richer than me". In particular it is obscene to see that the people who most hate billionaires and agitate for their punishment are, for the most part, millionaires. The whole movement is rooted in envy, transparently disguised as virtue.
I highly doubt the majority of people agitating against billionaires are millionaires. There aren’t enough millionaires for that to be likely. And I think there are lots of good arguments being made about the detriments of income inequality if you don’t dismiss the people making them as envious out of hand...
There are millions of millionaires in the US. A lot of fairly normal doctors, lawyers, and engineers will reach this bar by late middle age if they're saving and investing part of their income.
Very cursory search suggests 8% of US adults are millionaires according to CNBC. That means there's something like 300 million non-millionaires compared to 30 million millionaires.
The rate of "billionaire hate" would need to be astronomically higher among millionaires than non-millionaires for millionaires to make up any sort of the majority of people complaining about income inequality.
On top of that, NPR polling suggest about 45% of top 1% income earners on up to about 65% of low income earners (>$35k household) are concerned about income inequality, which flies in the face of the idea that it's mostly jealous millionaires complaining up. A majority of every income segment in America other than the top 1% believes this is a problem.
I didn't mean to suggest that millionares are a majority in the US. But they may well be a majority of those with the time, energy, money, and influence to meaningfully invest into political activities. A majority of those elected to Congress, including major wealth tax pushers Elizabeth Warren and Bernie Sanders, are millionares.
Broke people everywhere may harbor resentment toward the ultrarich, but it wouldn't be the national dialog we're having if millionaires in Congress and their millionaire friends in media didn't find it politically advantageous to turn billionaires into boogeymen.
Broke people everywhere have no use for the distinction between millionaire and billionaire. They are one and the same for those of us that cannot pay their credit card debt. As you say, its patently obvious that the people actually doing the most strident complaining are the members of the virtue signaling, chattering, millionaire class. Since they are complaining on behalf of the poor masses they get to act out their resentment while displaying their virtue. Win, win.
> The whole movement is rooted in envy, transparently disguised as virtue.
Our whole economic system is itself grounded in the vicious promotion of the parochial interest of the capitalist, née mercantile, class, rooted in their envy of the privileges previously enjoyed by the feudal aristocracy, dressed up as virtue.
The capitalist class is now in the position the feudal aristocracy was in when the movement toward capitalism was young, for much the same reason.
Brazil had such a tax for a long time. It was sub-1%, and was largely agreed as a bad model, since it led to lower liquidity, drying of credit markets, lower consumption, cash hoarding, etc. So not necessarily a great idea.
No, _saving_ is when you put money aside and hopefully keep its value at least above inflation. Cash hoarding means individuals and businesses stash bills under the mattress, and business will even decline to sell you anything on credit. And of course, that money devalues with inflation, so it’s not useful as a savings mechanism.
This conveys a misunderstanding of money creation. The bank specifically does not need your cash to make loans; that is in fact what makes it a bank. However, putting your cash inside your mattress withholds your funds from the investment manager, who would or could invest it in risk assets.
They need the money to lend. Otherwise they couldn't give you money. Tge holy grail of any lender is being able to get money from consumers. So they can lend that same money (I e. You dont have to get a credit line to get money you'll lend)
That's the reason countries have made regulations that I sure money you deposit in your bank (FDIC in the USA?) : if banks screw up with crazy debt, your money is still safe. In Mexico one way it works is that banks must keep x% of the lent money available.
Responding to all of the responses here: this is not correct. Banks explicitly do not 'need money' to lend. They need equity to maintain their capital adequacy ratio to be able to lend. Banks literally beget money and are governed only by regulation. Non-bank institutions cannot do so. Deposits are merely a less-expensive-than-'fed-funds' liability. Here to understand this popular misconception: https://news.ycombinator.com/item?id=28473807
Would it tax loans? If not, how do you tax billionaires who never sell their stock and just get loans with their stock as collateral. How bezos pays minimal taxes without having realize gains by selling his stock.
“introduce tax on debt creation (when the bank gives you the money).”
> If not, how do you tax billionaires who never sell their stock and just get loans with their stock as collateral.
Depending on how serious you are about taxing gross transfers, giving a collateral interest is also a transfer of interest in money, so you could tax that, too. Valuing the collateral interest could be tricky, though.
The loan eventually must be repaid. If it's repaid after death, a 40% federal estate tax (+16% if you're in NY or CA) takes it's cut.
I'm not sure who originated this "loans are an infinite money cheat" narrative, but I've been seeing it all over the internet recently and it's simply not true.
Does the tax apply when money moves from one entity I control to another entity I control?
If so, that's clearly a problem.
If not, that's definitely a different set of problems.
Everything seems simple at first, and then it isn't. Every change in taxation rewards some behaviors and punishes others. Either your proposal would result in more tax revenue or less, either of which is a problem for someone, Maybe many someones.
The most obvious issue with the tax structure you describe--aside from who controls which entities--is that it is one of the most regressive tax policies I can imagine. Those at or near the poverty line would now be paying a percentage of everything they earn, while those earning far more would be paying that percentage on only a small subset of their earnings. Considered another way, while this seems mathematically equal, it's most burdensome on those with the least ability to afford it.
Seems to me stock asset taxes should be on the same order as real estate taxes...1% per year or so of total assets (with a very healthy carve-out/minimum). If it's truly 25% per increase that seems counter-productive.
This is legitimately one of the dumbest, most boneheaded tax schemes I've ever seen the left devise. I'm all for taxing the rich, but not like this.
First, this creates a perverse incentive for founders to stifle the growth (or more specifically, in private companies: valuation) of their companies in order to avoid a high-tax event. This may actually be something the Board would approve, in some companies, because this high-tax event would involve the dilution of founder control; companies grant founders tons of shares for a reason, its because they're assumedly doing something to deserve it, and if the Board wanted those shares in someone else's hands they would have done that in the first place.
Second, this is again especially true for private companies but also applies to public ones: it adversely impacts American companies and American founders. We are a global society. If a strong, American company is forced to sell a significant portion of their shares, either on the public market or through private investors, in order to pay a large tax bill, who is going to buy those shares? Investors, generally, which includes entities both domestic AND FOREIGN. These taxable events will move significant wealth out of American hands and into foreign investment entities who are not subject to the same laws.
Third, many people don't realize that the total valuation of the stock market outweighs the total value of all US Dollars in circulation by ~30x (~$50T vs ~$1.5T). Tim could not be more right when he says that he's not really a billionaire, and Musk is not an almost-trillionaire. Stock wealth ISN'T REAL, and I don't just mean that in nebulous, floaty terms, I mean it in very physical, real, "If Democrats try to make stock market wealth real, they will destroy the economy, full stop, there are literally not enough US Dollars to represent the wealth of the US Stock market in real terms." Because taxes are paid in US Dollars, not in TSLA shares, these taxable events will reify a MASSIVE portion of fake-wealth currently tied up in the stock market, which is already significantly inflated due to the Fed's QE over the past decade.
Fourth, this is basically a "Delaware C-Corp" situation; the only reason this tax bill would generate so much income for the US Government is because it is new; billionaires haven't prepared for it. So, it'll make a ton of money, ONE TIME. Looking into the future, its unsustainable; it creates a massive incentive to offshore personal founder wealth, and possibly even citizenship and corporate headquartering. With COVID accelerating remote work, there's a ridiculously real possibility of companies, in the near near future, being founded outside the US, but still accessing as much US talent as they need. The USG can tax the middle class people who work for the company within their borders, but the rich founders? They're on an island. Ayn Rand was an idiot, but she wasn't wrong about everything; rich people will do anything to escape a tax bill.
But the dumbest thing, above all else, is how fucking self-servingly idiotic this bill is. I know our policymakers all share one brain cell, and Biden has been using it a lot recently, but this is beyond reproach. The democrats need money to pay for social programs. That isn't wealth redistribution; its a handout. That money will come from taxing American businesspeople, forcing them to sell shares, which will then be bought by other corporations and investment entities, and the wealth gap will just keep getting bigger and bigger; on the one side are average Americans who can't breach into the INSANE wealth inside corporate America, but are at least kept going on food stamps and free childcare. On the other side, people still insanely rich, just a little bit less so, and their companies are now owned by Tencent and the CCP.
The better path forward for some kind of wealth redistribution bill is something which creates incentives for companies to distribut...
1. While there might be attempts to "juke" 409a valuations, a tax on capital appreciation still makes founders wealthier if their stock holdings appreciates in value. They might get 75 cents for every dollar of appreciation due to taxes, but it's irrational to think there isn't an incentive to continue growing their companies and wealth.
2. In order to maintain control of their companies, and avoid taxation, it's possible for companies to create separate classes of voting, non-voting, and sometimes super-voting shares. Even though only one of GOOG and GOOGL holds voting power, they still trade relatively closely in value.
3. Founders of privately held companies can choose who they want to sell their shares to. It's possible they might sell them to closely-tied venture capital firms or pension funds. I don't know why you're so concerned about foreign purchasers, when they already have the ability to purchase public and private companies. It's not like anything is changing in that regard.
5. It's possible that some existing billionaires will attempt to avoid these taxes, but it's hard to expect that future founders will have the foresight to prematurely sacrifice founding their business in a country that attracts investment and talent.
It's certainly possible, but if founding a business in the USA is a common characteristic among billionaire founders, it's hard to imagine entrepreneurs who aren't yet billionaires will take their business somewhere else due to the potential future tax consequences of becoming a billionaire.
1. Whatever happened to increasing tax rates, like pretty much every other country? Why these weird gimmicks?
2. A much greater cause of elite wealth accumulation is running deficits. Deficits are when you want to spend on social welfare but don't have the courage to pay for it with taxes. So you make both sides happy and increase spending while running up deficits. The reason we've seen this astronomical increase in top incomes is because of massive deficit spending.
3. Any tax bill targeting billionaires is going to fail since they can give up US citizenship and offshore whatever they want. If you are serious about soaking the rich, you need controls on capital flight. But that goes against the neoliberal project of globalization. Commitment to that project is going to make any soak-the-rich effort not work. It will end up hitting the upper middle class that can't offshore -- they are the real targets.
4. Envy-based politics don't work. There is a dangerous game being played here. You want to inculcate solidarity and national purpose, but again that goes against the liberal project that only tells us who we are supposed to hate based on their race and/or class.
5. If you have a low interest rate policy, then you are going to make a lot of billionaires much richer via capital appreciation. That's not the fault of the billionaires. If you want to reduce that, then raise interest rates. All these billionaires will become much poorer. Because this is all just paper wealth.
6. The Original Sin of the left is trying to mess with prices instead of incomes. Tax incomes, not repricing of wealth.
I agree with a lot of that but regarding (3), there's already an exit tax, which is the same as the capital gains tax if you sold everything.
This is less of an issue for those who inherited wealth, since a lot of it might already be in offshore trusts. Company founders don't have an easy out.
That's a valid point. Short term, you'll soak some founders, but future founders can set up the offshore trust, or just start their business elsewhere.
That's no true with deficits. The way we have historically choosen to do monetary policy has some bad distributional effects, but regular fiscal policy or a UBI does not.
This is, frankly, an extremely dangerous misunderstanding because it's austerity and slack labor markets markets that have immiserated the non-rich. Deficits themselves are never the problem.
Look mo further than the pandemic checks causing us to live in a time of renewed labor unrest rather than a second great depression.
If you believe in Ricardian Equivalence, then sure, the future deficits are matched by private savings to offset future tax liabilities. Well, what do you think an increase in networth is other than an increase in private savings?
But if you do not believe in Ricardian Equivalence, then the deficit spending is an increase in net-wealth, which again shows up disproportionately on the balance sheets of the wealthy.
So there is really no way around it. Merely calling this "wrong" and "dangerous" is not an argument -- when a government wants to pay benefits but refuses to fund them with taxes, then given that taxes are disproportionately paid for by the wealthy, you are going to have distributional effects.
This is just the flip-side of the old Keynesian saw about balanced budget multipliers.
I really don't see how this is controversial except for the crowd that wants more spending but knows there is not the political will to fund it with taxes. Then this is an unpleasant side effect that they don't want to think about, but that doesn't make it "not true".
Well I certainly do not agree with Ricardian equivalence. For it to hold, one must assume lump sun taxes which one cannot avoid by being poor. That's a ridiculous assumption.
> But if you do not believe in Ricardian Equivalence, then the deficit spending is an increase in net-wealth, which again shows up disproportionately on the balance sheets of the wealthy.
My whole point was that this is not necessarily true, and depends on the form the spending takes place. Did you miss that?
Even if a UBI eventually trickles up, we must not conflate solvency and liquidity. The boss has power because the worker's consumption is more time sensative than the production. A good UBI takes away that coercive power not (just) by increasing worker savings, but by making an income floor. (Stock vs flow).
That's like giving people the ability to go longer without food and water so long as their nutritional needs are still met on a (longer term) average.
> My whole point was that this is not necessarily true, and depends on the form the spending takes place. Did you miss that?
Nope, I didn't miss it, because it's not relevant. Giving money to poor tenants ends up in the pocket of landlords. Letting poorer people buy iPhones ends up in the money of shareholders and is realized as an increase in Apple stock price, etc.
When you have a small group of the people disproportionately own the capital stock, then giving people more spending money absolutely ends up benefiting those people disproportionately.
> Even if a UBI eventually trickles up, we must not conflate solvency and liquidity.
Neither is being discussed here. I am saying that if you have an economy in which people earn unequal incomes which, you know, must happen given that people make unequal contributions to society, then things like supports for the poor have to be funded with taxes, otherwise this will drive more inequality.
And given that the wealthy pay by far the most taxes, then deficit spending disproportionately benefits the wealthy.
I don't think we can have conversation. To me, the numbers are secondary to their effects, that is kind of the thesis of the function finance paper too.
Concretely stuff like UBI and a JG at least in the first order takes away a power of employers now amount of nominal inequality can give back. And if the limits to spending are real and not nominal, and rich people don't spend their wealth so much, taxing them hardly makes a difference w.r.t those constraints. Conversely, if they do spend it, easy to levy consumption taxes will be less recessive.
If you want to continue to the debate, I think need to you get more precise about what exactly is bad about the nominal inequality you speak of. I think that is the only way to reconcile our analytical frames.
So, consider for a moment that I've understood MMT for almost two decades now.
Also consider that there is a lot that MMT does not address, in its maniacal focus on whether it's possible to fund government programs without paying for them with taxes. There are other problems, like assuming savings demands are inelastic, but let's just focus on the distributional aspects.
One of the main drawbacks is that ZIRP or massive deficit spending is always and everywhere correlated to increasing wealth inequality vis-a-vis nations that have more balanced budgets.
Then consider that none of the social democracies that have large safety nets use MMT principles and all of them run fairly balanced budgets for a reason, and that reason is not lack of knowledge about fiat currencies. Really there is a lot less here than meets the eye, and you pay a big price for adopting these kinds of policies.
ZIRP is also a great way to privilege land over productive investment, because when you increase the duration of assets, then you want more stable assets whose value is guaranteed at the expense of more risky (productive) assets.
And it's a great way to drive down the marginal product of capital -- a good example of all these effects playing out would be Japan. Rapidly increasing inequality, small businesses are starved for loans, but tons of free money for incumbent bureaucracies and housing, and hugely inefficient large corporate bureaucracies.
By the way, it's no accident that Warren Mosler is a wealthy former hedge fund guy. It is literally the utopian economic policy of Finance, because MMT is clear that it does not want banks subject to discipline on the liability side of the balance sheet (Mosler owns his own bank and would like lower funding costs), and folks like Mosler even advocate eliminating income taxes entirely and funding the government -- oops, I forgot to say "anchoring the currency" -- based solely on a property tax. So this is a mix of forced savings, inefficient business, rising inequality, and credit allocated towards non-productive industries at the expense of productive industries.
Anyways, if you want to create a feudal society, then this is a good way to do it. But don't worry, there will be a job guarantee in there for you.
It's great you are familiar with the stuff, but you against skirted the question I asked. I'll repeate what is so bad about inequality? To be clear I don't think it's good either, and I would not be opposed to all manner of wealth taxes. But just saying "It's bad, duh", "MMT is a con for Mosler" doesn't give me anything concrete to respond to.
I mean really, would would you want me to say in response? Mosler would need a time machine to con Abba Lerner or Kalecki.
> Then consider that none of the social democracies that have large safety nets use MMT principles and all of them run fairly balanced budgets for a reason. That reason is not lack of knowledge about fiat currencies.
A good reason? The Euro is constitutionally ordoliberal and fucking over Greece in a way that makes the even Krugmans cringe doesn't look like deep wisdom to me. German nuclear policy is also insane, fwiw. I don't see the EU as being especially enlightened at all, I just saw a better and stronger legacy of the postwar era than over here, and better voting systems on the national level.
I can well believe they don't get it same as over here by and large, and the left fringe is only "wiser" in the anglosphere as a consequence of being radicalized harder by pan-Anglo austerity. That's certainly not an accelerationism worth being proud of.
> ZIRP is also a great way to privilege land over productive investment, because when you increase the duration of assets, then you want more stable assets whose value is guaranteed at the expense of more risky (productive) assets.
So do the hardcore form LVT where we essentially, and instant-auction keeps self-assessments honest.
> Anyways, if you want to create a feudal society, then this is a good way to do it. But don't worry, there will be a job guarantee in there for you.
FWIW I am clearly not a 100% MMT orthodox person because I kept on bringing up UBI in a positive light. I do want to reduce working hours and the cultural valorization of work too and so I find pure JG kind of aethetically abhorent, even if it could put preasure on the workweek.
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To sum up, I fully grant that unchecked unequality could allow a new powerful elite to suddenly end the JG or UBI. But a world in which either of those are possible in the first place is a) quite different b) should allow for the type of politics that also go after wealth / massage private property / undemocratic workplaces / whatever your boogieman is.
But I believe that in great powers not savaged by war, there can't be good politics without tight labor markets, so to the extent there is a economic--political chicken and egg problem, Post-Keynesian ideas like this provide when of the few forseable bootstraps.
If we fail to do so, we will get to that neo-feudalism you fear by austerity anyways, as lax labor markets make capital investment including maintainence uneconomical, and we barrel towards a less productive more dysfunctional society.
>Nope, I didn't miss it, because it's not relevant. Giving money to poor tenants ends up in the pocket of landlords. Letting poorer people buy iPhones ends up in the money of shareholders and is realized as an increase in Apple stock price, etc.
That's a little extreme. It's fair to argue that giving money or benefits to poor people may not directly reduce inequality. More importantly, since progressive taxes do reduce inequality, it follows that the same level of spending with lower tax rates results in higher inequality than the spending with a balanced budget up to inflation.
But it also has positive externalities, such as improved public health. By contrast quantitative easing, almost by definition, has minimal externalities, although I'm partial to the argument that subsidizing real estate prices tends to increase inequality. These externalities disproportionately accrue to the poor because rich people tend to manage their personal environments in a way that insulates them from the winds of the societal landscape. Sometimes these are not easy to account for financially but that does not impugn their value.
So deficit spending on the war in Afghanistan, for example, is probably worse for inequality than deficit spending on education.
Yeah really simply, if absent enough taxes, money "pools" to the rich and doesn't keep on circulating, that also means the rich aren't spending it. By definition.
If so....then what's the problem?
One possible answer is "well, the Rich have more risk tolerance, so they can just summon a catastrophe to improve their relative standing in a negative-sum situation with little pain" I think that's a fair argument. Do MMT, and the rich try to sabotage undoing global warming so they can rule the roost in some max max situation sure. But such analysis means we have to broach Solvency vs Liquidity as PP didn't want to. A UBI-empowered workforce can also more and safely easily go after the rich with pitchforks and shear numbers, strike at the plants that arm their body guards, not treat them when they are sick in the hospital.
Keynes and Marx disagreed on many things, but did agree on C-M-C vs M-C-M. In regular-enough times, firms are slaves to nominal values: boost aggregate demand and they will not be able to able to boycott and resist. But also, workers are not slaves to rich people's unspent inert savings if empowered by means external to private emplyment. "Nominal dollar power" works better on the former than the latter.
>causing us to live in a time of renewed labor unrest rather than a second great depression.
So far, it's showing signs of being both.
UBI is a non starter for at least the next three or four decades except in limited cases. Education of all the rural ("red state") voters has to happen before anything like that would be possible to enact... right now their perception that other people are having an easier time in life because they're given things that the first group had to work for is reason enough for them to have put Trump in power.
Why would a billionaire leave the US? There they are like gods with services to cater to their every whim. Nowhere else in the world will roll out the carpet for big money like the US does (excluding maybe Monaco and other small states). I just see 3 as a false assumption, as any country they 'flee' to will have higher taxes anyway.
I live in New Zealand and a billionaire here can have a lot of land but otherwise we just don't have the infrastructure to support that ultra high end lifestyle. They would basically be average people with nice toys and a big house here.
Do all billionaires want the big carpet? What about those that want a lot of land and houses, complete financial irrelevance for their family's lifestyles, and perhaps meaningful work by directing a large company or endowment.
Warren Buffet lives in a 6000 sq ft (~600 sqm) house, drives a 2014 Cadillac, and has McDonald's for breakfast. Despite owning one of the most valuable companies in the world at most one could say he lives like a single-digit millionaire. If your characterization of the "average people" of New Zealand is true, then it seems like he would have no problem fitting right in.
So why would he uproot his entire life that he's happy with to move somewhere with a slightly lower tax rate when he can still support his relatively modest lifestyle a thousand times over?
If the United States accepts a federal wealth tax, moving to a low tax state like South Dakota or Alaska won't help. And despite what you imply in your last statement, owning a successful business isn't just limited to how much money it makes. Few people just give up the sum of their life's work or accept others' taking away from it. Just because others believe that the Warren Buffets of the world have achieved "enough" does not make it so.
Warren Buffet would be welcome but he'd have a hard time meeting new founders and companies to invest in. Gabe Newell has been hanging out here for a while too and he's fairly down to earth.
I guess my point is that you lose a lot of the perks of being rich by leaving the USA. If you are happy without them then maybe the wealth tax doesn't impact you anyway and you stay where you are
The thing is, it is really foolish to make economic policy based on what, as the economist Brad deLong likes to call our East African Plain Ape brain, thinks of as fair. That's just atavistic sentiment. If you run an economy based on these types of emotions, you will end up with a terrible economy in which people are worse off.
Instead, we want to make economic policy based on what will do the most good, not what we think of as being "fair" or "equitable".
The idea of "fairness" says you should shut down gifted programs because they don't support "equity" -- another name for fairness. The smart policy is to have gifted programs even if the result does not seem fair to you. Because that improves living standards for everyone. Having those people drive innovation in the economy is a good thing, even if they are not racially balanced according to whatever bucket system you are using. Constantly worrying that someone else might have more than you is a great way to create an impoverished society, even though that is what the Plains Ape brain worries about.
Now we already disproportionately tax people -- quite a bit. There is no need to disincentivize entrepreneurship in order to satisfy our base instincts for "fairness". If you want to raise marginal rates -- fine, do that. If you want to eliminate the preferential tax treatment for long term capital gains, fine, do that. I'm happy treating all income the same and taxing it according to a single progressive rate. But I would not support taxing paper wealth or unrealized gains merely as a result of repricing of assets. There are other tax reforms that are less harmful to capital formation.
Modern societies are not capital constrained, so capital formation is superfluous. The world is awash in excess capital among the rich, so providing government subsidies to facilitate further capital formation among the rich will not improve living standards.
What you're describing is the failed mentality of the early 1980's : the idea that the wealthy are "better" at capital allocation than everyone else. What it leads to is not some utopia, but simply bigger yachts, and more expensive sports teams, and more expensive land, while the human capital of the poor goes neglected and untapped.
What does the most good for living standards is the government investing in humans and households without capital. More broadly distributed capital, in other words.
You have cause and effect backwards. The modern world is not capital constrained because capital formation is (in certain locations) superfluous. When it is not, it is.
> Modern societies are not capital constrained, so capital formation is superfluous
So modern economies are not constrained for money, since money is just paper you can print.
But we are not talking about financial capital, but real capital. E.g. entrepeneurs taking big risks to start businesses instead of just getting some cushy sinecure. And the problem is that although the government can print money, Elon Musk can't. He has to risk his own money and his own time, in order to place big bets. He is the one working 14 hour days, creating new fields, while everyone else tells him it's a crazy idea that will never work.
As you start to punish those people and become angry at them for succeeding (ignoring the massive survival bias) they start saying screw it, and don't make those big bets, or move to a different country and place big bets there.
And it is the ability to organize production in innovative ways that is scarce in the society, not paper and ink to create money. So we should focus our economy on rewarding and encourgaging that type of entrepeneurship, and fostering the growth of productive ecosystems, because that creates the surplus wealth that gives value to the government's paper and ink.
Your grandma bought a house for cheap, you inherited it, and because it's in the silicon valley, that house and the plot is now worth eg. $10mio. Your buddies grandma did the same, but her house is in bumfuck alabama, and it's worth $50k.
Technically you two own the same thing, but you'll get fucked by taxes and he wont.
Why would you be taxed on something you you already paid tax for to buy?
Renting out the house? Sure, get taxed. Selling the house? Sure, get taxed on the price difference. You're growing weed there? Sure, got taxed on profits from that. Otherwise, you never own anything.
> 1. Whatever happened to increasing tax rates, like pretty much every other country? Why these weird gimmicks?
I got tired of reading the daily play-by-plays, but something to do with appeasing Kirsten Sinema's objection to a more straightforward tax hike.
Very few people are going to give up US citizenship. A lot of these guys can't even stand living in Florida; they're not going to hang out in the Caribbean for the rest of their lives.
> 1. Whatever happened to increasing tax rates, like pretty much every other country? Why these weird gimmicks?
I live in one of those countries,... I used to live in another country, that had a red star in the flag, I haven't moved, but I now live in another country... which again has new parties with red star flags.
Every time I hear "tax the rich", the same thing happens... the poor already pay almost zero tax, so nothing happens to them. The rich open a company two countries away in one direction, and register their car two countries away in a different direction, and in the end, pay very little tax. And me? Earning an above-national-average engineering pay, but way below "rich" enough to make such manipulations worth it? I get fucked with new taxes.
In an ideal world, both people like me and people like bezos would pay a same amount (percentage) of tax for every dollar/euro going from our workplace to the crap we both buy, but somehow i get taxed as fuck, and Bezos doesnt ( https://www.businessinsider.com/jeff-bezos-did-not-pay-incom... ).
So how about we first tax Amazon and Bezos at the same rate we tax the local mom and pop bookstore, and their owners paychecks, and then continue from there.
1) They're trying to create a billionaire tax that will somehow pass the corrupt mess in the US Federal government and also not permit loopholes for tax evasion. I think it might be just a dog and pony show since there's little chance of anything passing the Senate at the moment and because it's a non starter for Republicans.
2) I don't agree with your reasoning here.
3) The US is pushing extraterritoriality pretty well, and the nations of the world have agreed to try to eliminate tax havens. Pretty soon there won't be an "overseas" to go to.
4) I don't accept the terms "liberal" or "conservative" to mean what most of the people who use them mean. As labels, they promote sloppy thinking. I consider the authors of this tax to be the Democratic party, who have already proven they are far too establishment to be allowed to continue to exist.
5) Not really possible, because raising those interest rates has other effects. Rather than taxing theoretical company values, tax purchases, VAT- style.
6) You're treating "the left" here as if it's a hard and fast definition of a group of people. Politics in the US is far more complicated than that. There may be some truth to what you say here if you are talking about specific groups of people, but just equating Democrats/the authors of this bill to "the left" isn't accurate, and that sort of inaccuracy perpetuates political partisanship and extremist thinking.
Okay, doesn't it feel crazy that we're just throwing ideas out there and if it seems to justify the spending for something totally unrelated, it'll have a reasonable chance of becoming literally the highest law of the land?
Maybe it's because I'm not in the room, but this feels incredibly slapdash for something so incredibly important.
I expect to see a lot of crazy selfdestructive, self-sabotaging schemes from the USA during the remainder of the attempt at empire, which I expect to last the entirety of the rest of my life.
Most of the up and coming interesting industries that have been happening in the last ten years are mostly happening outside of the USA, and this trend will only continue as it becomes harder and harder to operate there.
Cryptocurrencies, advanced semiconductors, and cheap per-passenger rail/aircraft.
USA is winning on rockets and EVs but that is 100% because of one person and not wider US policy (and I assume most of his production of the latter will be non-US within 5 years).
Samsung (South Korea), TSMC (Taiwan) and Intel (US, Israel) locate their fabs in small countries that are heavily dependent on the US for ensuring their neighbors do not attack.
Two of those three (TSMC & Intel) are building fabs in Arizona due to political pressure, hefty subsidies and geological stability of the area (reducing the number of defects in chips).
You don't think AZ already has a massive fab industry? What is so hard to believe about two more fabs opening up to add to the four Intel already has in the state, together with the new fab already opened by NXP? It's true that Motorola shut down it's old plant in Mesa, but still there is a large workforce in the area.
This language was proposed by Wyden at least two years ago, and has gone through multiple rounds of refinements. (For example, the original text didn’t exempt private assets.) It’s not unrelated because income taxes are how we pay for general expenses in this country. (Granted, limiting it to billionaires always struck me as a way to make it palatable for a lower, e.g. $10mm, threshold.)
And my point is I would expect something more thought through than trotting out each legislator's favorite pet taxation overhaul. A few days to consider amongst the options doesn't really seem like enough time, but I guess we're still talking about "a framework" so there will be more time. They're not attempting to pass any of this right now.
The options have been considered and developed for years, decades even. There should be public debate, but these aren't new ideas that some novices are pulling out of a hat.
I know it because I've read about them for years. Keep up on public affairs; it's sometimes almost impossible to show up at the last minute and be informed.
Well that's the thing; I do keep pretty well up with public affairs, and from what I can tell, most of these ideas come from academia, but without much rigor or data to support these new taxation plans, and the legislators who support them do so for largely un-scientific reasons (e.g. has a good hook for a title).
So when I say this all seems slapdash, I mean that I'm thoroughly unimpressed with the way by which these taxation plans are coming out of the woodwork. Feels like an episode of West Wing, the one with the Cartographers for Social Equity.
If you want to keep up on it, a great source is The Economist. They have a strong free market bias (it is the solution to all things) but they provide serious analysis, including serious economics, accessibly and succinctly. Paul Krugman is good too, when he writes an article on economics - he clearly distinguishes his political preferences from the economics, and presents all serious sides of economic debates (and he has a Nobel Prize in economics).
> from what I can tell, most of these ideas come from academia, but without much rigor or data to support these new taxation plans, and the legislators who support them do so for largely un-scientific reasons (e.g. has a good hook for a title)
Can you give some examples? I think it's too easy to deride everything and everyone; some are good and some are bad ideas.
I agree that policy inevitably goes through the filter of politics, though I think that's essential: The economists who designed the policy cannot know the needs of people in District 9 of North Carolina, and human nature is to designate inconvenient needs of others as nice-to-have, but unnecessary category. (That's how, IMHO, so many policies benefit the wealthy but not working class or poor: It's wealthy people making the policies.)
Of course, that can go too far. We won't get perfect laws.
Nice! I read The Economist weekly (the old fashioned way, from the mail), as well as WSJ, WaPo, NYT, Newsweek, probably ~40 articles a day from Memeorandum, whatever dreck gets put on Twitter, here, and Reddit. I've also got a handful of daily newsletters I subscribe to that I usually get through most of, as well. I'm a bit of a news junky. :)
I don't really have time today to compile a list of proposed tax legislation and their sources (or what I think of those plans), but reading through just the Wyden proposal [0], I can already see more of the "this guy agrees with me politically" crowd coming out than any real example of what Wyden bases this plan on. You've got the bill text, a summary of each section, and a summary of the bill, but no "and here's why we think this". Just the usual "WORKING AMERICANS NEED THIS" filler text that every bill has.
My point is that the "filter of politics" is exhausting and not necessary (to this degree). I do not think it's okay to propose legislation without explaining why it will do what you say, rather than some other thing. We're needlessly rushing the process
Sorry, I misunderstood you about what you read. Now I'd like to know how you have time! If you have any highly efficient curated news aggregation (high value information, generally non-partisan), I'd love to know.
> My point is that the "filter of politics" is exhausting and not necessary (to this degree). I do not think it's okay to propose legislation without explaining why it will do what you say, rather than some other thing. We're needlessly rushing the process
I agree with all that, other than rushing the process. These bills have been discussed for a long time, the tax debates are old (even if not appropriately explained), and the impact of delay is substantial, including reducing the chance of getting anything at all done. The alternative may be 'nothing'.
> If you have any highly efficient curated news aggregation (high value information, generally non-partisan), I'd love to know.
Hah! Literally exactly the thing I'd like to build (productize my process, attach relevant metadata for filtering/sorting, imagine being able to "dial in" your partisan feed to get a sense of what each wing is saying) when I somehow do find some time. I've been spewing ideas at my wife about it for over a year now, but life circumstances threw me in a different direction temporarily.
Basically they're trying to figure out how to increase revenue while still being able to claim they're not increasing personal income or corporate tax rates. That's why theyre also looking at schemes like reducing maximum retirement contributions- it's technically not a tax increase, it's just a change that increases the taxes you'll have to pay in retirement
If the rate is too high, I suspect wealth will be transferred to assets like real estate with lower annual taxations. And this will lead to a new class of speculation. Or rearranging deck chairs on the Titanic because we haven't solved the fundamental problem that there are just too many bespoke deductions for the rich.
This proposal seemed utterly reasonable to me, especially this:
> US budget deficits don’t require a radical confiscation scheme like this. We already have a very effective progressive tax system which applies the same rules - but different rates - to everyone. If tax revenue is too low, just raise the top tax brackets
That, together with closing the step-up-in-basis loophole, are the simplest ways to more equitably raise revenue.
The issue is that many billionaires effectively have zero revenue. For example, Elon's salary at Tesla is 0$ per year. So you can increase the top bracket all you want, they won't pay more.
Instead they get liquidity through loans backed by their shares, on which they of course have no tax.
I agree that taxing based on unrealised gains is not a good solution, but I don't see how raising the top bracket solves that either.
People keep using this example, but it doesn't really make sense. If you take out a loan against the value of your increased shares, then you still have to pay that loan back eventually, and when you do, you have to pay tax on whatever you liquidate to get the funds to pay back the loan (in addition to paying interest on the loans). This is literally how all loans work.
The one loophole here is that if you don't pay your loans back until you die, then your heirs have to pay back the loan. But there is a special "step up in basis" provision where your heirs wouldn't have to pay capital gains tax on the rise in the value of your shares (but you would). Close that loophole and then you'd have a fair system.
As I understand, though, the USA CGT rate is basically half the income tax rate, so even if they eventually pay tax on disposal to meet the loan repayments (which they don't, at least not on a 100% basis), they still pay only half the effective tax rate.
Even if heirs do have to pay tax eventually, do we really want to wait 40+ years to collect taxes on wealth that is being generated using today's resources? If I recall correctly, Elon has been rolling over his personal loans for a while now, in excess of a billion dollars. At this point, these are basically untaxed stock sales.
Beside of whether this particular tax reform bill is good or not, does it have any chance to survive in the current Supreme Court setup? If it's definitely not, I don't think it's a good idea to pursue it's going to shrink the future political possibility of taxing multi-billionaires.
Would this also not affect angel investing/seed investing by individuals?
If there's no huge incentive for an investor once a company makes it to hold their stock, every successful company will be led by corporate hedge funds/investment firms.
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[ 3.2 ms ] story [ 438 ms ] threadAre those markets liquid enough to support large sales by the owners though?
As long as he has no legal fiduciary duty, it seems like an obvious thing to do. It's definitely what I would do.
And in 4 more years the new tax laws could be anything.
I've long held that there should be public liquidity in all companies over a certain valuation and the company should not be allowed to bar you from selling the stock (though it could retain right to beat any pending offers)
It's asinine that companies are allowed to treat equity pay as pay, and IRS can tax it as realized (AMT), but the worker does not in fact have any instrument with which to pay the bill.
Edit: Also this is a really smart tweet IMO
https://twitter.com/macrofacet/status/1453487461989076997The valuation would grow slower due to burn rate, but the ownership % would not change.
Sometimes the bet pays off, very very well. Take for example Musk. You can say whatever about him, but it's extremely clear he has a vision, and does pretty much anything to get there. I'm not sure tesla or spacex would've survived 2018 with someone else at the helm or if a shareholder revolt happened. Just by that metric he is already worth dozens of billions to the rest of the shareholders.
Zuck is also a good example of investors trading off votes for a more wall st. independant, steadier long term eadership.
Now keep in mind those are exceptions. Having supervoting shares orbmultiple classes of shareholders is very often not a good thing and usually leads to less value being generated.
Accountability to shareholders is usually good and very important to ensure sane corporate governance. Which is why CEOs and founders absolutely love having ever less powerful shareholders and we end up in situations like now where even the crappiest IPO has absurdly overgeared supervoting classes. Who doesn't want to buy in a deeply in debt, cash burning ipo with very questionable growth who's founder has a perpetual 80% of the votes?
https://www.ft.com/content/993e4c11-8729-3168-a280-69e1d400b...
If they already have control, they'll want to keep that control.
Investors (VC, etc) have made 20x or more on their investment already and no one is going to go on a fight with successful founders, for a variety of reasons but primarily, they don't care how a company performs in the long run because their fund has already sold their stake and closed already.
The person controlling the company potentially has a much greater and longer lasting influence on the stock price!
Epic isn't going to be part of the S&P when it's private anyway, so obviously that's not a top concern for Sweeney.
Teslas market cap is 1030m on 31.5m of revenue. GM is 79m on revenue of 122.5m. That's 50x the market cap per revenue.
https://twitter.com/elonmusk/status/1256239815256797184
If having too big of a market cap relative to revenue is wrong, then you're basically saying that companies should not invest too much in their future, just use their money to sell as much as possible right now.
You know who else has extremely high ratios of mktcap/revenue? Pharmaceutical companies trying to cure diseases that have no available cure. Is it wrong to try to cure those diseases?
Unless you think it's higher quality or in a different area... but the whole world is going toward electric cars and autonomous driving. Tesla AutoPilot comes in a distant second to GM according to Consumer Reports: https://www.cnbc.com/2020/10/28/gms-super-cruise-tops-teslas...
Tesla build quality also ranks low, even according to Elon: https://www.cnn.com/2021/02/03/business/elon-musk-tesla-qual...
It's kind of the reason Toyota has a monopoly on hybrids: they have a patent on the best kind of hybrid system. Ford held a similar enough patent that Toyota entered into a license agreement with them.
Getting a 20 year monopoly on key EV/battery tech will be worth an unimaginable sum.
I don't agree with Telsa's valuation, but I can appreciate why investors support them at their current price.
They will always be quite disjoint when viewed with an single/small number of revenue data points.
Also what if it had been in place during the dotcom boom and bust?
There's a reason CEO's at this level take $1 in salary.
Is there some specific critique you have of what OP has said ?
That statement could be interesting if you’re a rockstar. If not, then not so much.
This tax move is little different than Communist China's recent crackdown against corporations. Its just a power grab to shift power from the corporate to political sector.
Founder CEOs like Tim Sweeney, Elon Musk etc. are the core drivers of American innovation. Otherwise you just get mediocrity like in Europe.
If you want to deal with Government spending, then reign in pensions, and secure the Southern Border. If you want to tax something, then tax land, and carbon emissions.
I mostly agree otherwise re: innovation (though think the southern border is not that relevant).
What if instead we flipped the paradigm such that if you want a government granted charter to create a liability limiting entity, that is what gets heavily taxed while individuals would get left alone for the most part. Require bookkeeping only from the entities that live on it, rather than forcing the yoke onto human beings. Applying this to income-distributing trusts as well would go a long way towards fixing dynastic wealth, without even touching the estate tax.
And tangentially the right thing to do about the massive paper gains of the stonk market over the past nineteen months months is to call in all those loans made by the Fed by raising interest rates back to a reasonable level. But that would stop the fake riches gravy train and hamper trickle-up wealth redistribution, so corporatist policy will continue to carry the day while individuals get squeezed by the resulting increased financialization.
The White House and most of the Democratic party are centrists.
I'm happy Biden won and I voted for him (well I voted for Bloomberg in the primary before it was obvious who would win and then Biden in the general), but it was looking scary there for a while. The democratic party is definitely more moderate compared to republicans (where all but a tiny handful are just trump loyalists), but that's a pretty low bar - they still have a lot of policies I don't like in addition to the woke stuff. Obviously this is a super flame-bait topic probably not good for HN so I'll leave it here. I just wish there could be principled discussion and legislating without tribal craziness. America is healthier with two reasonable parties to balance each other out.
We can cite a few examples, but the great majority of elected Democrats, including the most powerful one (Biden) are centrists.
> The democratic party is definitely more moderate compared to republicans (where all but a tiny handful are just trump loyalists), but that's a pretty low bar - they still have a lot of policies I don't like in addition to the woke stuff.
If by 'moderate' you mean, 'between the current partisan positions', then moderate is just a different kind of partisan, one who makes choices by (bizarrely) navigating between what other people say.
But if we mean, 'non-partisan', let's evaluate policies based on their consequences, not based on what partisan rhetoric and positioning they've been tagged with.
IME, many moderates are the former (to be clear, I have no idea about you) - they are afraid of the conflict imposed mostly by the neo-reactionary right (which now runs the GOP), so they go along on reactionary commentary (attacking 'woke' people) because it's safe - the progressives have little power to threaten them - and then quietly object to some reactionary policies.
One thing that keeps me honest there is that I hold positions across the political spectrum (not all in the center) - usually this makes partisans uncomfortable because they don’t know which “camp” I’m in.
I think dismissing the anti-woke stuff in the way you do isn’t an accurate portrayal, sure partisanship is definitely motivating some but not all (not me) - it’s because I think it’s genuinely bad policy.
I’m not making a false equivalence either - the trump stuff is awful and a lot worse. Which is why I wish there was a sane center-right party.
I think either favoring 'woke' or being 'anti-woke' is partisanship. It's applying a label and dismissing it. The non-partisan thing is to look at each policy, regardless of labels applied by others. Even using the term is arguably (and arguably unintentionally) partisan - it adds nothing to the analysis and even works against it: It encourages inflames partisanship, which is a cancer.
And stop spending a trillion dollars a year on a global military empire and sprawling police state comprised of dozens of 3-letter agencies.
Entrepeneurs aren't going to not build a company because of some specific tax treatment that only applies whilst they are wildly successful.
No SpaceX, no Tesla, no iPhone, etc.
Selling masses of stock to pay the tax will push the value of the stock down. That has a large effect on the company's ability to raise capital.
As for the entrepreneur, he'll have much less capital to invest.
It's a fantasy that one can extract endless billions from a company and its investors without consequences.
Most entrepreneurs would be overjoyed to be a billionaire and have to pay that extra 15%. Seems like they'd be the lucky ones. Seems like a billionaire or an aspiring billionaire complaining about such a thing would be pretty weird.
The parent you replied to mentioned wealth being locked up to avoid capital gains taxes. There are other pros and cons, I'm sure. Do you think this new tax on billionaires means that less people will be trying to become multi-millionaires?
Note that I'm not happy with the current tax system, and this seems like another kludge. I also don't know that we need to coddle or incentivize wealth maintenance, it's not an end in and of itself.
Even worse, you're taking the money away from the most effective investors.
It eliminates the risk to established entities to be disrupted.
And most entrepreneurs are not, nor will never be, billionaires who are subject to this extra tax. That being the case I wouldn't think that this will put a dent in overall entrepreneurship. It might have the opposite effect, where there are numerically more entrepreneurs making capital allocation decisions, which might be better for society than having fewer people (billionaires) controlling an ever increasing amount of capital.
I grant that tax changes like this have numerous conflicting effects, sometimes unpredictable. Perhaps their will be another art bubble...
I don't think that it's a good thing that we structure our society for the convenience of those who can amass money. I'm definitely not fond of kludgy taxes like this one, but I also don't understand why so many jump to the defense of so few billionaires.
And Steve jobs did t inject money into apple when they were creating the iPhone.
So you’re entire point has been pretty much invalidated
No Jobs money => no Pixar => no Next => no iPhone
Neener neener!
The only reason my high school educated 80 years old mother in declining health can stay in a home, and county, she feels somewhat safe is because of prop 13.
Her biannual property taxes are still a big deal when they arrive.
I've said this before, but I'm beginning to think if you didn't live through the craziness before Prop 13, you won't ever quite get it.
Prop 13 has been the only blessing most homeowners have been given.
If you want to put income limits on the gift of prop 13 fine, but doing away with it completely would be evil. By income limits I mean the guy making $600,000/year, and a huge bank account, could probally still survive without prop 13 protection.
The 80 year old lady, or man, surviving on 1/2 widower's blue collar pension is another story.
(I'm for means testing on all programs. I'm also for tieing all societal fees/fines---speeding tickets, registration, patent fees, etc. to 1040 income/assets wealth.)
Stop calling people evil just because your grandmother isn't the center of their policy concerns.
I didn't think we reached the point where people are arguing that things that make housing more valuable disincentivize building more homes - but here we are.
It is zoning restrictions, EIR, etc., that disincentivize housing.
https://www.kqed.org/news/11700683/too-few-homes-is-proposit...
But if you own a home in California, you are incentivized to maintain prop 13.
It's funny how hard it is for people to understand something when it cuts against their personal interests.
At the sale, the appreciation becomes realized as capital gains income. There are some rules making a portion of gains tax-exempt for a typical homeowner, but the remainder of a large appreciation is taxed as income. There can also be a sales/transfer tax on the transaction, which is of a comparable rate to the annual property tax rate.
The third significant event is inheritance, where the house could pass to an heir without a sale and have its basis updated to current value. This is when the appreciated gains can really go untaxed.
2. Not all of us are budding business owners--excuse me Start-ups. We don't have business deductions, or anything else fancy. We fill out the short form.
3. I saw my father cry twice. Once at his mother's funeral, and yes when he opened that ever increasing property tax bill in the 70's.
4. People have no idea how county officials wasted those funds in the 70's. There were pet political projects, and just waste.
5. America was different back then. Most stuff was made here. Blaming Prop 13 is misdirected.
6. There's a part of me that wants to let the youngsters have their wish. I will sit back and watch homes being snatched up by wealthy foreigners, and corporations.
They will buy up those homes, and we be in the same spot.
She knows about Home Equity Loans, and Reverse mortgages.
Actually, I inherited my father's half of the home.
I quitclimed it to my mother the minute I saw the final Accounting of Probate.
I have a thankless job in a few states away. I have nothing. It would be nice being a blue collar worker to have something later in life if my mom sees fit.
Life is complicated?
I just know revoking prop 13 is not the answer. I'm sure wealthy foreigners, and corporate home buyers, are hoping this prop 13 hate continues though.
(If you are going to rebut--please read the entire post.)
Wealth inequality is a good thing too. People who work harder necessarily live better lives. If you want to start stealing their hard work to give to the lazy, you're going to find that the hard-working flee the country à la the USSR.
Nothing is stopping someone from employing their wealth to build a yacht, fifteen McMansions, and a thirty-foot solid-gold Mothman statue just after getting off of a six-month prison stint for a billion dollars of ecological damage (all purely hypothetical but I would assert entirely plausible); that people exist with the right to exchange a colossal amount of wealth to be allowed to waste an equally colossal amount of actual effort and resources is the problem.
I won't say nobody has an issue with individual people being allowed to direct huge amounts of funding, but I would assert that more people recognize that extravagant waste for the purpose of status should not be scaled to the extant degree of wealth disparity.
This isn't to say that I would accuse the majority (or even very many) individuals in positions where they're able to leverage a lot of wealth of anything specifically this egregious, but rather that because they're able to control many resources because their efforts have enormous leverage (and therefore are worth more to the system they operate in), they can consume orders of magnitude more resources to gain comparably minuscule increases in personal utility.
In addition, because of how valuable their leverage makes their effort, when they cause damage whose negative value is on the scale of individuals, the disparity leads a system that's self-interested to forgive them much more quickly--if someone can get 1% more value out of 10 billion dollars' resources than anyone else, that system doesn't have any purely value-driven reason to replace them in their position if they should murder someone and its negative effects never amount to more than a couple million dollars' loss in value. From any ethical standpoint that holds "death at the whims of billionaires" incompatible with "certain unalienable rights", this is a problem.
I'm not making the suggestion that those who are wealthy should divest themselves of their wealth and donate it to charity, the point I'm intending to communicate is that such leverage shouldn't act as a pass to engage in unethical behavior.
There is no evidence that rich people work harder than poor people. In fact the opposite is far more likely to be true given the unique stresses of manual labour.
And there is no evidence that the driver of success is providing for their offspring. There are a whole range of factors at play.
It's not about working hard, it's about working smart. I.e. leverage.
For example, my patio door kept getting stuck. I spend a lot of time with a file and chisel trying and failing to get it to fit properly. Finally, I bought a grinder for a few bucks from the pawn shop and had it fixed in a couple minutes, and it looked a lot better, too.
But you earn orders of magnitude more.
Income and wealth aren't solely functions of who worked the hardest and they never have been.
Genuinely smart people with genuinely valuable skill (like Musk or Jobs) would work equally hard whether their offspring were set to inherit 10 million or 10 billion dollars.
Do you believe people without children have no motivation to work hard?
The words "CITATION NEEDED"— in bold 72 point-font flashing letters—spring to mind.
Do you have any data, or other evidence, to back that claim up?
Don’t take my word for it. How many fourth generational heirs do we see among America’s wealthiest billionaires? Essentially zero.
This was used recently by an MP.
That being said I agree with your thoughts, however:
> How many fourth generational heirs do we see among America’s wealthiest billionaires? Essentially zero.
This is probably true but I'd like to ask the question: how many of them simply inherit a lot of money without any of the fame associated with it, and just go unnoticed? I've met such a person, actually.
EDIT: https://www.bbc.com/news/business-36009963 - this is what I was thinking about.
So, you pay gift taxes instead.
Unless you use fake business transactions.
Quite a few. Not sure how long you would make four generations, but let's say 100 years.
There are the obvious famous families; Ford, Rockafellers, Du Pont, Mellon, Mars, Hearst, SC Johnson ("a family company"), etc. But there are a number of billionaire families that aren't recognized much outside of their "home towns" because they started mundane things like retail stores or own mineral rights.
That's not even getting into families whose wealth has diluted, but whose descendents are politicians, actors, or otherwise notable / influential people.
Granted, most billion dollar businesses are <4 generations old, but more sophisticated investment vehicles exists for preserving wealth than existed even 50 years ago.
Plus, that money may get divided and spent over time, but it’s usually invested. It’s not like after 100 years it’s the same amount of money adjusted for inflation, if the next generations didn’t mismanage it.
Well, arguably it's the step up in basis that enables generational transfer without taxation.
I'm going by wiki data here, which says they had 18 stores and annual revenue of 9 million in 1968. If they had stayed private they were probably clearing a million dollars a year, give or take. To get from there to billions they had to raise outside money, specifically by selling stock and debt to someone else. That is by definition "not owning it anymore" because they're selling (some of) it to raise funding.
Like I said, there are no mom and pop billionaires. To get from millionaire to billionaire requires outside money. And yes, that includes tech companies. I know tech founders like to write false hagiographies for themselves after the fact about starting XYZ in a garage, but dig far enough and you usually find it was more like "garage + 25 million from Sequoia Capital," like Google.
Bloomberg is another example.
The idea that it would apply to everyone, and be 20% was literally laughed out of the debate on implementing a national income tax as a "crazy conspiracy", it took less than 50 years before that crazy conspiracy was reality.
There is little reason to believe history will not play out the same, and it will not be long before this expands beyond the evil billionaires you despise soo much to those mom and pop stores you seem to claim love for...
Changes in law often result in changes to how companies operate, they're not forced to stick with status quo.
you wanna take a loan against your stock? you pay taxes on that loan.
you wanna sell your stock? you pay taxes on the stock you sell.
you just get your salary from the company and never sell stock? you pay taxes on your salary, and not on stock that are doing nothing.
That’s exactly the problem —- loans aren’t income, they’re debt, and debt isn’t taxed. Worse yet, the ultra-elite can carry out “buy (or ‘found’), borrow, die” strategies that let them pass the debt onto their kids, who can sell the securities at a tax advantage due to the stepped-up basis loophole.
but they aren't.
and now we wonder why some "loopholes" are closed and some are not.
It’s hard to fathom FB, Amazon, Tesla and SpaceX becoming the behemoths they are without a dictatorish stock holder with absolute control. Amongst those, certainly Musks’ contribution from an electric car and space exploration standpoint are societally argueably positive. Tesla and SpaceX simply would not have happened without him.
Can you honestly point to Bezos and say he is "worth" 196,100,000 times more to society than the Amazon warehouse worker who has $1000 in the bank?
Did he put in 190 million man hours more than the Warehouse worker?
Did he have ideas that were 190 million times better? What kind of IQ would you need to pull that off?
It a matter of good ideas, some long hours no doubt, right time, right place and leverage the work of many thousands of others.
Smart work, but not worth 190 million times his lowest paid.
This level of wealth inequality is indicative of a broken system.
No one knows how much someone is "worth to society". Not me, and not you. Not even Bezos. This is not even a well-defined question.
But what we do know is that this is not what money measures, and attempts to politicize that -- to create some algorithm that decides what someone is worth to society, and then pay them according to that algorithm, always lead to terrible outcomes.
In the same way, we don't know how good or evil Bezos is, and neither is money a measure of good points net evil points.
The sooner we abandon these weird discourses around money, trying to endow it as some kind of metaphysical tally, or make it conform to some metaphysical tally, the better.
And money doesn't measure that, nor serve as a cosmic measure of morality.
If you remove wealth as being an indicator of worth to society, then Bezos has one less reason for such wealth.
The only reason he has the money is that he played the game well. But society makes the rules of the game and I think they should change.
Another consideration is that maybe having sole control of a massive pot of cash or financial instruments by an individual is just a Bad Thing. Consider how Zuckerberg structured FB so that while he it's a public company, the bulk of the stock is non-voting so he has de facto sole control of the firm. No matter how destructive of shareholder value or public goods his executive decisions, it's virtually impossible for anyone else to overturn them barring some novel legal line of attack.
I have no particular feelings about Tim Sweeney/Epic, but would the economy or the gaming world be worse off if he no longer had founder control? If he's great at his job I presume shareholders would want to keep him on as CEO and would compensate him handsomely in cash money.
It only really requires that shareholders trust the owners of the special class shares.
agreed. that should 100% be a taxable event and it's totally absurd that it's not. and i'm sure there's a lot of... lobbying that will never allow that kind of law to pass.
And I'd bet if it was a strategy employed effectively by the 99% it would be vigorously labelled as tax evasion and dealt with accordingly
That loan still has to be paid off with separate, regularly taxed, income.
Also this is a strategy used all the time by the 99%. It's called a second mortgage. This proposal would mean that taking out a loan against the equity in a home would become a taxable event.
The first $500K in residential capital gains aren't taxable. I sure hope your second mortgage is less than that.
Taxing the securitization of assets should cause a step up in the base cost of the asset. So it doesn't reduce the amount of tax you owe, it just changes when you owe it. (Unless you avoid the tax by dying).
What they are arguing is that individuals should be taxed at the event of first utility (that is, realizing value from the gains). And then the tax is paid, so not paid again, or offset, later.
And what we're really talking about here is individuals using equity loans for the majority of their income.
Similarly, stocks (or things like gold) that one owns have some worth, and using it as collateral for taking a loan against it is a completely valid thing to do
Any assets, above $100M, used to collateralize a loan are taxed as if they are realized capital gains at the time that you collateralize the loan.
I don't think the loan itself should be taxed, but if you use assets to collateralize a loan, those assets should be taxed as if they're realized income—since by taking the loan you are now "realizing" the value of those appreciating assets.
you bought house for $600K cash (for simplicity). Some years later the house appreciated to $1.5M, and you take out a $1M loan against it - you are obviously realizing a $400K of the value of the house as otherwise those additional $400K can only come from thin air. So those $400K of the realized value of the house (not the loan) need to be taxed with the house adjusted cost basis becoming $1M. If you sell the house later for $1.5M the remaining $500K would get taxed as the difference between sale proceeds and the adjusted cost basis.
It's how the entire banking system works. Taking out loans against collateral deposited in the bank.
People also take out a loan every time they use a credit card. Is that income, too?
They'll come after your assets. And it's very hard to get a credit card without assets.
I put up $100k of stock for a $100k loan, I do nothing, turn around and pay the money back, and now I have a tax bill? If I repeat this process, I can have an infinite tax liability with no realized gain or net income. Am I missing something?
Also, you only tax people in this way if they're over a certain level of net worth/income.
It would be easy to avoid this infinite tax liability by not taking out an infinite amount of loans…
IMHO, if the CEO's decisions are destructive of public goods, shareholders aren't the ones we should go to. We should be able to stop the CEO via government powers.
>but would the economy or the gaming world be worse off if he no longer had founder control?
Shareholder activism has a very double edged record. Their interests aren't necessarily the public's interest or the company's. Maybe they like dividends now rather than investment - their incentives definitely point that way. Giving them more power is unlikely to end well.
All companies once they reach a certain size (including Tesla, SpaceX) have a Senior Leadership Team which decides on the critical decisions affecting the company.
This personality obsession is really only perpetuated by people who haven't worked in business and don't realise just how much of a team effort it is.
Someone on this site mentioned Pournelle's Iron Law of Bureaucracy: https://en.wikipedia.org/wiki/Jerry_Pournelle#Pournelle's_ir...
And the CEO is the counterweight to that oligarchic rule. You see this, for example, in the constant battles that kings wage against the nobility.
There is a really great possibility that america shoots it's future economic growth in the foot with something like this, just because it's future superstars companies are not led by their great founders.
May I present Steve Jobs, another obvious example? Ray Croc who built McDonald's from a single location into a world empire.
Steve Jobs at Apple is a perfect example, since it was a publicly traded company that Steve Jobs didn't control. However, he was still able to be an extremely effective leader as the CEO.
It's possible to be CEO, and exert control over a company without literally owning >51% of the voting shares.
A good leader can "control" a company without having legal control over it. That's exactly the point about Steve Jobs.
The assertion is that: It is possible to be a dictatorial executive CEO, without having 51% of the voting rights of the company. This is the corollary of "losing control of the voting rights of the company doesn't automatically imply that the company must be run by committee". Steve Jobs proves both of those assertions to be true.
But people like Avie Tevanian, Tim Cook, Bertrand Serlet, Bob Mansfield, Johnny Ive, Dan Riccio etc. all played critical roles in turning Apple around.
iPhone simply isn't a success without all of the above functioning at a high level.
But there's no doubt who was in charge and who set the direction. From everything I've read about Apple, it was Jobs who was in command, and everyone else followed.
Because it's never been the case that Steve Jobs was in charge and everyone just fell in line. It's always been consultative and has always been the leadership team making the decisions. It's in fact how most companies run.
Especially given Steve was not 100% during most of his time at Apple.
A senior leadership team without a key decision maker is fundamentally lost and seeks only self preservation through short term goals.
Here's another example: every government on Earth. All have a single key decision maker at the top. In democracies they can be kicked out, but they have total control while they're in power.
This isn't remotely correct.
a) All democracies I can think of are derived from the Westminister system where there are branches of government e.g. House/Senate who need to agree to get laws passed. Pretty far from total control as Biden is experiencing now.
b) Many democracies e.g. Australia don't have the PM/President be directly elected and instead are appointed by the winning party. Thus their power and control is limited to what is gifted by the party and can be withdrawn at any time at which point a new leader is appointed. Again pretty far from total control.
No, they don't. A system with a council with a chair with no significant additional decisionmaking power over other members is not unheard of.
For example, Bezos only owns 16% of the voting stock of Amazon, Musk only owns 22% of the voting stock of Tesla yet neither are in any danger.
Also, it's worth considering that not everything great is good, so perhaps a braking or governance system (in the sense of an engine) is worth requiring on any enterprise sufficiently large to become a juggernaut.
> it's worth considering that not everything great is good, so perhaps a braking or governance system (in the sense of an engine) is worth requiring on any enterprise sufficiently large to become a juggernaut.
Yeah, let's just throw SpaceX in the trash heap. Nevermind that NASA, the organization run by committee, has failed to make space accessible and routine.
The "braking system" is already in place. It's the free market. Once the "juggernaut" fails to please the customers, it goes down the tubes.
Musk controls enough shares that he could get rid of Shotwell at any time, or reduce her power, but he chooses not to.
The fact that Musk can get rid of her at any time speaks for itself. It doesn't mean she's a committee, either.
I've long suspected that the reason McCartney and Lennon wrote great songs for the Beatles, and not-so-great ones afterwards, is because each was willing to tell the other when their work was crap. Afterwards, they just had sycophants who'd tell them every note they wrote was fantastic.
How many shares of Apple did Steve Jobs control when he was the CEO?
This is just a ridiculous argument that companies can only succeed if the Founders/CEOs have absolute voting control. There are many examples of shareholders being more than happy to put their votes behind whatever the CEO wants as long as they believe in the CEO.
e.g. having 49% equity only requires ~2% of remaining shareholders to agree with any of your decisions.
If you're making remotely justifiable decisions, you're likely to get a decent chunk of shareholders supporting pretty much any position.
Also it's common to stack the board with allies who you can trust to vote in your favor/support your decisions.
So doesn't require much equity to have de facto control. But there will likely be a big difference in influence between, say, 10% and 20%
I suspect it would be harder to stop this strategy than it might seem, because someone could happen to make me a large personal loan at a low interest rate when I happened to have a large portfolio with them. If the numbers are big enough, it makes sense to do.
If you treated all loans as income, but got a deduction for making payments... Maybe you could make it work. Although, that's kind of rough for mortgage and auto loans.
One quirk of that is that regular Joe could then get a loan against their cost basis in their portfolio and still have no taxes. E.g. they bought 10shares of $X at $100 and now it’s $200. A loan secured against those shares would not be taxable up to $1000 and the portion between $1000 and $2000 would be taxable. This still stops mega billionaires from never paying taxes because the cost bases on their shares are usually very low.
>I think everyone needs to read the bill and calm down. "Gains on private assets -- including harder-to-value assets like real estate, art and private companies -- would escape the annual levy, and only be taxable when sold. "
>Every time a company’s value doubles, the government would force founders like me to sell 25% of our stake to pay the government. Epic’s value has doubled 8 times in the past 5 years. If this tax scheme had been place, I’d have been forced to liquidate nearly my entire ownership.
Epic Games has always been a private company.
Think about it. 1 Billion. A person who lived 100 years would have $27,397 a day to spend. Including as a newborn infant.
At Bezos levels? roughly $5.3 million a day.
What could you do with 5 million a day? Well for the first 3 months of your life as a newborn, not much probably.
But as an adult certainly, you could find ways to spend it right? Great. Society would love to see some cash splashed around. The economics people always love to see money sloshing around society.
So why can't these people simply stop accumulating and start letting it flow? They'd get to enjoy it. Their society would benefit from it. It'd be good for everyone.
The more these people are forced to spend down their wealth - however they want to! - the better.
If the government takes it, what are they going to spend it on? Foreign wars, jails, lavish mansions for leaders?
But quite honestly, if somebody makes a successful business, wise investments, or works their ass off building an empire, who's to say they can't enjoy all the wealth they've brought in?
Bezos may be filthy rich, but because of the countless hours of work he put in (don't tell me he didn't work nights and weekends while his employees worked 9-5) so you can enjoy groceries on demand, 2 day delivery on almost anything you want, and great video streaming. Stop using the services he created if you want his wealth to go down.
I never mentioned the government taking it.
I want them to enjoy the wealth they have! Not as a big number, but as use of that number to buy/experience/do things. Bezos can buy 5 Ferraris a day for the rest of his life if he wants to for all I care. Just use the stuff.
Bezos is indeed rich, and no doubt worked long hours. But it wasn't the hours he did.
#1 Median wealth american = $121,760 Bezos wealth = 196.1 billion
If it was just the hours then (median wealth american work hours) x 1.6million = bezos work hours.
If the median american worked a mere 1 hour a week, then Bezos is working 1.6 million hours a week. Seems kinda tough to fit into the schedule...
No, he has leverage. And in this thread I am not even questioning whether he should have that leverage. Just saying, he's got money, he should spend it.
And I do try to avoid Amazon as best I can. But it is embedded in computing/supply chains and there's only so much anyone can do.
#1 https://www.forbes.com/advisor/investing/average-net-worth/
This really isn't how the real world works. It's easy to design rules that would work acceptably if no humans were involved, but in reality this would ensure there are no sole owners of companies with control. Sooner or later, every CEO does something that "conventional wisdom" doesn't agree with, and if he doesn't have corporate control, he's out.
Yes, this would "hurt" gaming and the economy, because it would change the ownership of companies for the worse. If every game company was Bethesda, mediocrity and micropayments would rule the gaming world, because every company would pursue whatever strategy is perceived to be "obvious" to make shareholders' money increase.
If this tax had existed when Doom came out, Id software and the effects it had on gaming as we know it would never have existed.
On a side note, the people here commenting that companies could just pay a salary to their CEOs large enough to cover the wealth tax apparently have never owned or run a company. Any company being forced to pay out liquid cash equal to 20% of its stock valuation would go under. The usual killer of small to medium companies is cash flow.. having enough money to buy what you need to keep producing and paying bills until your customers pay their bills.
Also, if they're trying to tax theoretical gains, are they also going to pay out when companies' valuation decreases?
In corporate performance, you get what you measure. If the tax is charged based on companies gaining value, companies won't gain value.
That plus the fact that certain corporations are exempted from it (hedge funds) makes it a non starter.
A. you'll maintain ownership
B. you wont have to pay taxes on the gains
Tons lot of founders care about 'A' a lot more than is "rational".
It sounds okay, but the USA will miss out on a lot of potential wealth and tax revenue from people who choose not to grow their companies into huge multinational corporations.
All the FAANG companies are American. What country wouldn't like to have just one of them?
A healthy economy needs both.
After Japan was burned to the ground in WW2, the US sent in academics to structure the economic recovery. They thought big business was bad, and only allowed small companies to operate. The economy flatlined.
Finally, they allowed big business to resume operations. The economy went straight up until 1990 or so when it became moribund for other reasons.
This complaint I've heard my entire life about the dominant companies of the day that have since collapsed of their own accord. Companies like RCA, IBM, Sears, Kodak, etc.
10 biggest companies by market cap 20 years ago:
GE Cisco Exxon Phizer Microsoft Walmart Citigroup Vodafone Intel Royal Dutch Shell
and today:
Apple Microsoft Alphabet Amazon Facebook Tesla Berkshire Hathaway TSMC Tencent Nvidia
How many businesses has Amazon whipped out in the retail space by leaning on the profits from the cloud division?
Just the other day we saw documents from the DOJ’s lawsuit against Google for anticompetitive behavior. In the those documents we saw internal communication about a desire for Google to use their dominance in the browser space to create the web into a walled garden [0].
[0] https://news.ycombinator.com/item?id=28974798
Google turning the web into a walled garden will simply create opportunity for others.
How's Intel doing lately? Nvidia ate their ice cream.
Cisco and Intel could do no wrong prior to 2000.
If you're lucky you'll have enough common stock to sell off. But eventually you'll run out.
See: https://techcrunch.com/2020/08/21/palantir-three-class-votin...
"Palantir wants to push the envelope further though with a three-class structure that would prioritize Thiel, Karp, and Cohen above all others. In Palantir’s model, there would be a Class A share with 1 vote, a Class B share with 10 votes, and a special “Class F” share with variable votes.
Class F shares would share 49.999999% (six 9s in the decimal – I counted twice) of the voting power of Palantir at all times, regardless of the underlying ownership of shares. Important to note that that is not a “majority” and thus they will not have literally a controlling stake in the public company."
If that's the case, then what prevents billionaires like him from creating "Tim Sweeney angel fund LLC" and have that entity retain control of Epic?
Then since this entity is private, couldn't it defer that tax at the time it sells the entity?
With the whole deferred tax scheme that applies to assets not traded on an exchange, i.e. a "deferral charge meant to replicate interest payments on taxes that went unpaid each year, together totalling a tax capped at 49%" as described in https://www.rollcall.com/2021/10/27/wyden-details-proposed-t...
The only way to avoid this is being a foreigner.
Effectively, what they'll accomplish with this tax is either:
1) Letting only foreign billionaires control American companies; or 2) Force American entrepreneurs to waive their citizenship (which, in practice, is #1).
So, yeah, it seems these politicians are either blind or are legislating against American entrepreneurship, in favor of foreign billionaires.
I wonder if this is the kind of thing CNNs might be good at simulating some day.
Now, of course, I'm exaggerating, but only a little I think. And, of course, this happens on both sides of the debate... but the side in power right now is the one making taxation proposals. Personally, I support your idea by and large. An amount that scales to the degree of the transaction ensures that big transactions pay larger amounts and that everyone has a stake.
The rate of "billionaire hate" would need to be astronomically higher among millionaires than non-millionaires for millionaires to make up any sort of the majority of people complaining about income inequality.
On top of that, NPR polling suggest about 45% of top 1% income earners on up to about 65% of low income earners (>$35k household) are concerned about income inequality, which flies in the face of the idea that it's mostly jealous millionaires complaining up. A majority of every income segment in America other than the top 1% believes this is a problem.
Broke people everywhere may harbor resentment toward the ultrarich, but it wouldn't be the national dialog we're having if millionaires in Congress and their millionaire friends in media didn't find it politically advantageous to turn billionaires into boogeymen.
Our whole economic system is itself grounded in the vicious promotion of the parochial interest of the capitalist, née mercantile, class, rooted in their envy of the privileges previously enjoyed by the feudal aristocracy, dressed up as virtue.
The capitalist class is now in the position the feudal aristocracy was in when the movement toward capitalism was young, for much the same reason.
https://www.researchgate.net/publication/249882612_The_Econo...
That used to be called saving and it was considered a good thing. Lower consumption would be better for the environment as well.
Putting cash under your mattress just takes it out of circulation.
They do: the more money a bank has, the more they can loan.
That's the reason countries have made regulations that I sure money you deposit in your bank (FDIC in the USA?) : if banks screw up with crazy debt, your money is still safe. In Mexico one way it works is that banks must keep x% of the lent money available.
This is the whole reason the VAT taxes value added, not the whole transaction.
I have to wonder whether you’ve even looked at existing tax systems, or spent any time sketching out what the consequences of yours might be.
Yes. But maybe having a long chain of suppliers is worth a tax penalty.
The vertically integrated company has a stronger incentive to stay solvent.
I’m thinking particularly about construction businesses here.
“introduce tax on debt creation (when the bank gives you the money).”
> If not, how do you tax billionaires who never sell their stock and just get loans with their stock as collateral.
Depending on how serious you are about taxing gross transfers, giving a collateral interest is also a transfer of interest in money, so you could tax that, too. Valuing the collateral interest could be tricky, though.
I'm not sure who originated this "loans are an infinite money cheat" narrative, but I've been seeing it all over the internet recently and it's simply not true.
Any transaction tax would need to take that into account.
If so, that's clearly a problem.
If not, that's definitely a different set of problems.
Everything seems simple at first, and then it isn't. Every change in taxation rewards some behaviors and punishes others. Either your proposal would result in more tax revenue or less, either of which is a problem for someone, Maybe many someones.
The most obvious issue with the tax structure you describe--aside from who controls which entities--is that it is one of the most regressive tax policies I can imagine. Those at or near the poverty line would now be paying a percentage of everything they earn, while those earning far more would be paying that percentage on only a small subset of their earnings. Considered another way, while this seems mathematically equal, it's most burdensome on those with the least ability to afford it.
First, this creates a perverse incentive for founders to stifle the growth (or more specifically, in private companies: valuation) of their companies in order to avoid a high-tax event. This may actually be something the Board would approve, in some companies, because this high-tax event would involve the dilution of founder control; companies grant founders tons of shares for a reason, its because they're assumedly doing something to deserve it, and if the Board wanted those shares in someone else's hands they would have done that in the first place.
Second, this is again especially true for private companies but also applies to public ones: it adversely impacts American companies and American founders. We are a global society. If a strong, American company is forced to sell a significant portion of their shares, either on the public market or through private investors, in order to pay a large tax bill, who is going to buy those shares? Investors, generally, which includes entities both domestic AND FOREIGN. These taxable events will move significant wealth out of American hands and into foreign investment entities who are not subject to the same laws.
Third, many people don't realize that the total valuation of the stock market outweighs the total value of all US Dollars in circulation by ~30x (~$50T vs ~$1.5T). Tim could not be more right when he says that he's not really a billionaire, and Musk is not an almost-trillionaire. Stock wealth ISN'T REAL, and I don't just mean that in nebulous, floaty terms, I mean it in very physical, real, "If Democrats try to make stock market wealth real, they will destroy the economy, full stop, there are literally not enough US Dollars to represent the wealth of the US Stock market in real terms." Because taxes are paid in US Dollars, not in TSLA shares, these taxable events will reify a MASSIVE portion of fake-wealth currently tied up in the stock market, which is already significantly inflated due to the Fed's QE over the past decade.
Fourth, this is basically a "Delaware C-Corp" situation; the only reason this tax bill would generate so much income for the US Government is because it is new; billionaires haven't prepared for it. So, it'll make a ton of money, ONE TIME. Looking into the future, its unsustainable; it creates a massive incentive to offshore personal founder wealth, and possibly even citizenship and corporate headquartering. With COVID accelerating remote work, there's a ridiculously real possibility of companies, in the near near future, being founded outside the US, but still accessing as much US talent as they need. The USG can tax the middle class people who work for the company within their borders, but the rich founders? They're on an island. Ayn Rand was an idiot, but she wasn't wrong about everything; rich people will do anything to escape a tax bill.
But the dumbest thing, above all else, is how fucking self-servingly idiotic this bill is. I know our policymakers all share one brain cell, and Biden has been using it a lot recently, but this is beyond reproach. The democrats need money to pay for social programs. That isn't wealth redistribution; its a handout. That money will come from taxing American businesspeople, forcing them to sell shares, which will then be bought by other corporations and investment entities, and the wealth gap will just keep getting bigger and bigger; on the one side are average Americans who can't breach into the INSANE wealth inside corporate America, but are at least kept going on food stamps and free childcare. On the other side, people still insanely rich, just a little bit less so, and their companies are now owned by Tencent and the CCP.
The better path forward for some kind of wealth redistribution bill is something which creates incentives for companies to distribut...
1. While there might be attempts to "juke" 409a valuations, a tax on capital appreciation still makes founders wealthier if their stock holdings appreciates in value. They might get 75 cents for every dollar of appreciation due to taxes, but it's irrational to think there isn't an incentive to continue growing their companies and wealth.
2. In order to maintain control of their companies, and avoid taxation, it's possible for companies to create separate classes of voting, non-voting, and sometimes super-voting shares. Even though only one of GOOG and GOOGL holds voting power, they still trade relatively closely in value.
3. Founders of privately held companies can choose who they want to sell their shares to. It's possible they might sell them to closely-tied venture capital firms or pension funds. I don't know why you're so concerned about foreign purchasers, when they already have the ability to purchase public and private companies. It's not like anything is changing in that regard.
4. The amount of currency in circulation might seem relatively small, but pales in comparison to the $29 trillion held in savings accounts and Money Market Funds. The NASDAQ had $300 billion in transactions on Tuesday October 26th, so dollar liquidity is hardly an issue. https://fred.stlouisfed.org/series/M2SL https://www.nasdaqtrader.com/Trader.aspx?id=DailyMarketSumma...
5. It's possible that some existing billionaires will attempt to avoid these taxes, but it's hard to expect that future founders will have the foresight to prematurely sacrifice founding their business in a country that attracts investment and talent.
It's certainly possible, but if founding a business in the USA is a common characteristic among billionaire founders, it's hard to imagine entrepreneurs who aren't yet billionaires will take their business somewhere else due to the potential future tax consequences of becoming a billionaire.
1. Whatever happened to increasing tax rates, like pretty much every other country? Why these weird gimmicks?
2. A much greater cause of elite wealth accumulation is running deficits. Deficits are when you want to spend on social welfare but don't have the courage to pay for it with taxes. So you make both sides happy and increase spending while running up deficits. The reason we've seen this astronomical increase in top incomes is because of massive deficit spending.
3. Any tax bill targeting billionaires is going to fail since they can give up US citizenship and offshore whatever they want. If you are serious about soaking the rich, you need controls on capital flight. But that goes against the neoliberal project of globalization. Commitment to that project is going to make any soak-the-rich effort not work. It will end up hitting the upper middle class that can't offshore -- they are the real targets.
4. Envy-based politics don't work. There is a dangerous game being played here. You want to inculcate solidarity and national purpose, but again that goes against the liberal project that only tells us who we are supposed to hate based on their race and/or class.
5. If you have a low interest rate policy, then you are going to make a lot of billionaires much richer via capital appreciation. That's not the fault of the billionaires. If you want to reduce that, then raise interest rates. All these billionaires will become much poorer. Because this is all just paper wealth.
6. The Original Sin of the left is trying to mess with prices instead of incomes. Tax incomes, not repricing of wealth.
But they'll also get taxed out the wazoo when they do so, so it won't really avoid the problem causing them to leave in the first place.
This is less of an issue for those who inherited wealth, since a lot of it might already be in offshore trusts. Company founders don't have an easy out.
This is, frankly, an extremely dangerous misunderstanding because it's austerity and slack labor markets markets that have immiserated the non-rich. Deficits themselves are never the problem.
Look mo further than the pandemic checks causing us to live in a time of renewed labor unrest rather than a second great depression.
Also debt financing is a charade. Read https://www.jstor.org/stable/40981939 which spells it out clearly.
Honestly, that's not much of a rebuttal.
If you believe in Ricardian Equivalence, then sure, the future deficits are matched by private savings to offset future tax liabilities. Well, what do you think an increase in networth is other than an increase in private savings?
But if you do not believe in Ricardian Equivalence, then the deficit spending is an increase in net-wealth, which again shows up disproportionately on the balance sheets of the wealthy.
So there is really no way around it. Merely calling this "wrong" and "dangerous" is not an argument -- when a government wants to pay benefits but refuses to fund them with taxes, then given that taxes are disproportionately paid for by the wealthy, you are going to have distributional effects.
This is just the flip-side of the old Keynesian saw about balanced budget multipliers.
I really don't see how this is controversial except for the crowd that wants more spending but knows there is not the political will to fund it with taxes. Then this is an unpleasant side effect that they don't want to think about, but that doesn't make it "not true".
> But if you do not believe in Ricardian Equivalence, then the deficit spending is an increase in net-wealth, which again shows up disproportionately on the balance sheets of the wealthy.
My whole point was that this is not necessarily true, and depends on the form the spending takes place. Did you miss that?
Even if a UBI eventually trickles up, we must not conflate solvency and liquidity. The boss has power because the worker's consumption is more time sensative than the production. A good UBI takes away that coercive power not (just) by increasing worker savings, but by making an income floor. (Stock vs flow).
That's like giving people the ability to go longer without food and water so long as their nutritional needs are still met on a (longer term) average.
Nope, I didn't miss it, because it's not relevant. Giving money to poor tenants ends up in the pocket of landlords. Letting poorer people buy iPhones ends up in the money of shareholders and is realized as an increase in Apple stock price, etc.
When you have a small group of the people disproportionately own the capital stock, then giving people more spending money absolutely ends up benefiting those people disproportionately.
> Even if a UBI eventually trickles up, we must not conflate solvency and liquidity.
Neither is being discussed here. I am saying that if you have an economy in which people earn unequal incomes which, you know, must happen given that people make unequal contributions to society, then things like supports for the poor have to be funded with taxes, otherwise this will drive more inequality.
And given that the wealthy pay by far the most taxes, then deficit spending disproportionately benefits the wealthy.
Concretely stuff like UBI and a JG at least in the first order takes away a power of employers now amount of nominal inequality can give back. And if the limits to spending are real and not nominal, and rich people don't spend their wealth so much, taxing them hardly makes a difference w.r.t those constraints. Conversely, if they do spend it, easy to levy consumption taxes will be less recessive.
If you want to continue to the debate, I think need to you get more precise about what exactly is bad about the nominal inequality you speak of. I think that is the only way to reconcile our analytical frames.
Also consider that there is a lot that MMT does not address, in its maniacal focus on whether it's possible to fund government programs without paying for them with taxes. There are other problems, like assuming savings demands are inelastic, but let's just focus on the distributional aspects.
One of the main drawbacks is that ZIRP or massive deficit spending is always and everywhere correlated to increasing wealth inequality vis-a-vis nations that have more balanced budgets.
Then consider that none of the social democracies that have large safety nets use MMT principles and all of them run fairly balanced budgets for a reason, and that reason is not lack of knowledge about fiat currencies. Really there is a lot less here than meets the eye, and you pay a big price for adopting these kinds of policies.
ZIRP is also a great way to privilege land over productive investment, because when you increase the duration of assets, then you want more stable assets whose value is guaranteed at the expense of more risky (productive) assets.
And it's a great way to drive down the marginal product of capital -- a good example of all these effects playing out would be Japan. Rapidly increasing inequality, small businesses are starved for loans, but tons of free money for incumbent bureaucracies and housing, and hugely inefficient large corporate bureaucracies.
By the way, it's no accident that Warren Mosler is a wealthy former hedge fund guy. It is literally the utopian economic policy of Finance, because MMT is clear that it does not want banks subject to discipline on the liability side of the balance sheet (Mosler owns his own bank and would like lower funding costs), and folks like Mosler even advocate eliminating income taxes entirely and funding the government -- oops, I forgot to say "anchoring the currency" -- based solely on a property tax. So this is a mix of forced savings, inefficient business, rising inequality, and credit allocated towards non-productive industries at the expense of productive industries.
Anyways, if you want to create a feudal society, then this is a good way to do it. But don't worry, there will be a job guarantee in there for you.
I mean really, would would you want me to say in response? Mosler would need a time machine to con Abba Lerner or Kalecki.
> Then consider that none of the social democracies that have large safety nets use MMT principles and all of them run fairly balanced budgets for a reason. That reason is not lack of knowledge about fiat currencies.
A good reason? The Euro is constitutionally ordoliberal and fucking over Greece in a way that makes the even Krugmans cringe doesn't look like deep wisdom to me. German nuclear policy is also insane, fwiw. I don't see the EU as being especially enlightened at all, I just saw a better and stronger legacy of the postwar era than over here, and better voting systems on the national level.
I can well believe they don't get it same as over here by and large, and the left fringe is only "wiser" in the anglosphere as a consequence of being radicalized harder by pan-Anglo austerity. That's certainly not an accelerationism worth being proud of.
> ZIRP is also a great way to privilege land over productive investment, because when you increase the duration of assets, then you want more stable assets whose value is guaranteed at the expense of more risky (productive) assets.
So do the hardcore form LVT where we essentially, and instant-auction keeps self-assessments honest.
> Anyways, if you want to create a feudal society, then this is a good way to do it. But don't worry, there will be a job guarantee in there for you.
FWIW I am clearly not a 100% MMT orthodox person because I kept on bringing up UBI in a positive light. I do want to reduce working hours and the cultural valorization of work too and so I find pure JG kind of aethetically abhorent, even if it could put preasure on the workweek.
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To sum up, I fully grant that unchecked unequality could allow a new powerful elite to suddenly end the JG or UBI. But a world in which either of those are possible in the first place is a) quite different b) should allow for the type of politics that also go after wealth / massage private property / undemocratic workplaces / whatever your boogieman is.
But I believe that in great powers not savaged by war, there can't be good politics without tight labor markets, so to the extent there is a economic--political chicken and egg problem, Post-Keynesian ideas like this provide when of the few forseable bootstraps.
If we fail to do so, we will get to that neo-feudalism you fear by austerity anyways, as lax labor markets make capital investment including maintainence uneconomical, and we barrel towards a less productive more dysfunctional society.
That's a little extreme. It's fair to argue that giving money or benefits to poor people may not directly reduce inequality. More importantly, since progressive taxes do reduce inequality, it follows that the same level of spending with lower tax rates results in higher inequality than the spending with a balanced budget up to inflation.
But it also has positive externalities, such as improved public health. By contrast quantitative easing, almost by definition, has minimal externalities, although I'm partial to the argument that subsidizing real estate prices tends to increase inequality. These externalities disproportionately accrue to the poor because rich people tend to manage their personal environments in a way that insulates them from the winds of the societal landscape. Sometimes these are not easy to account for financially but that does not impugn their value.
So deficit spending on the war in Afghanistan, for example, is probably worse for inequality than deficit spending on education.
If so....then what's the problem?
One possible answer is "well, the Rich have more risk tolerance, so they can just summon a catastrophe to improve their relative standing in a negative-sum situation with little pain" I think that's a fair argument. Do MMT, and the rich try to sabotage undoing global warming so they can rule the roost in some max max situation sure. But such analysis means we have to broach Solvency vs Liquidity as PP didn't want to. A UBI-empowered workforce can also more and safely easily go after the rich with pitchforks and shear numbers, strike at the plants that arm their body guards, not treat them when they are sick in the hospital.
Keynes and Marx disagreed on many things, but did agree on C-M-C vs M-C-M. In regular-enough times, firms are slaves to nominal values: boost aggregate demand and they will not be able to able to boycott and resist. But also, workers are not slaves to rich people's unspent inert savings if empowered by means external to private emplyment. "Nominal dollar power" works better on the former than the latter.
So far, it's showing signs of being both.
UBI is a non starter for at least the next three or four decades except in limited cases. Education of all the rural ("red state") voters has to happen before anything like that would be possible to enact... right now their perception that other people are having an easier time in life because they're given things that the first group had to work for is reason enough for them to have put Trump in power.
I live in New Zealand and a billionaire here can have a lot of land but otherwise we just don't have the infrastructure to support that ultra high end lifestyle. They would basically be average people with nice toys and a big house here.
I guess my point is that you lose a lot of the perks of being rich by leaving the USA. If you are happy without them then maybe the wealth tax doesn't impact you anyway and you stay where you are
Instead, we want to make economic policy based on what will do the most good, not what we think of as being "fair" or "equitable".
The idea of "fairness" says you should shut down gifted programs because they don't support "equity" -- another name for fairness. The smart policy is to have gifted programs even if the result does not seem fair to you. Because that improves living standards for everyone. Having those people drive innovation in the economy is a good thing, even if they are not racially balanced according to whatever bucket system you are using. Constantly worrying that someone else might have more than you is a great way to create an impoverished society, even though that is what the Plains Ape brain worries about.
Now we already disproportionately tax people -- quite a bit. There is no need to disincentivize entrepreneurship in order to satisfy our base instincts for "fairness". If you want to raise marginal rates -- fine, do that. If you want to eliminate the preferential tax treatment for long term capital gains, fine, do that. I'm happy treating all income the same and taxing it according to a single progressive rate. But I would not support taxing paper wealth or unrealized gains merely as a result of repricing of assets. There are other tax reforms that are less harmful to capital formation.
What you're describing is the failed mentality of the early 1980's : the idea that the wealthy are "better" at capital allocation than everyone else. What it leads to is not some utopia, but simply bigger yachts, and more expensive sports teams, and more expensive land, while the human capital of the poor goes neglected and untapped.
What does the most good for living standards is the government investing in humans and households without capital. More broadly distributed capital, in other words.
So modern economies are not constrained for money, since money is just paper you can print.
But we are not talking about financial capital, but real capital. E.g. entrepeneurs taking big risks to start businesses instead of just getting some cushy sinecure. And the problem is that although the government can print money, Elon Musk can't. He has to risk his own money and his own time, in order to place big bets. He is the one working 14 hour days, creating new fields, while everyone else tells him it's a crazy idea that will never work.
As you start to punish those people and become angry at them for succeeding (ignoring the massive survival bias) they start saying screw it, and don't make those big bets, or move to a different country and place big bets there.
And it is the ability to organize production in innovative ways that is scarce in the society, not paper and ink to create money. So we should focus our economy on rewarding and encourgaging that type of entrepeneurship, and fostering the growth of productive ecosystems, because that creates the surplus wealth that gives value to the government's paper and ink.
Technically you two own the same thing, but you'll get fucked by taxes and he wont.
Why would you be taxed on something you you already paid tax for to buy?
Renting out the house? Sure, get taxed. Selling the house? Sure, get taxed on the price difference. You're growing weed there? Sure, got taxed on profits from that. Otherwise, you never own anything.
I got tired of reading the daily play-by-plays, but something to do with appeasing Kirsten Sinema's objection to a more straightforward tax hike.
Very few people are going to give up US citizenship. A lot of these guys can't even stand living in Florida; they're not going to hang out in the Caribbean for the rest of their lives.
I live in one of those countries,... I used to live in another country, that had a red star in the flag, I haven't moved, but I now live in another country... which again has new parties with red star flags.
Every time I hear "tax the rich", the same thing happens... the poor already pay almost zero tax, so nothing happens to them. The rich open a company two countries away in one direction, and register their car two countries away in a different direction, and in the end, pay very little tax. And me? Earning an above-national-average engineering pay, but way below "rich" enough to make such manipulations worth it? I get fucked with new taxes.
In an ideal world, both people like me and people like bezos would pay a same amount (percentage) of tax for every dollar/euro going from our workplace to the crap we both buy, but somehow i get taxed as fuck, and Bezos doesnt ( https://www.businessinsider.com/jeff-bezos-did-not-pay-incom... ).
So how about we first tax Amazon and Bezos at the same rate we tax the local mom and pop bookstore, and their owners paychecks, and then continue from there.
2) I don't agree with your reasoning here.
3) The US is pushing extraterritoriality pretty well, and the nations of the world have agreed to try to eliminate tax havens. Pretty soon there won't be an "overseas" to go to.
4) I don't accept the terms "liberal" or "conservative" to mean what most of the people who use them mean. As labels, they promote sloppy thinking. I consider the authors of this tax to be the Democratic party, who have already proven they are far too establishment to be allowed to continue to exist.
5) Not really possible, because raising those interest rates has other effects. Rather than taxing theoretical company values, tax purchases, VAT- style.
6) You're treating "the left" here as if it's a hard and fast definition of a group of people. Politics in the US is far more complicated than that. There may be some truth to what you say here if you are talking about specific groups of people, but just equating Democrats/the authors of this bill to "the left" isn't accurate, and that sort of inaccuracy perpetuates political partisanship and extremist thinking.
Maybe it's because I'm not in the room, but this feels incredibly slapdash for something so incredibly important.
Most of the up and coming interesting industries that have been happening in the last ten years are mostly happening outside of the USA, and this trend will only continue as it becomes harder and harder to operate there.
USA is winning on rockets and EVs but that is 100% because of one person and not wider US policy (and I assume most of his production of the latter will be non-US within 5 years).
Two of those three (TSMC & Intel) are building fabs in Arizona due to political pressure, hefty subsidies and geological stability of the area (reducing the number of defects in chips).
I'll believe it when I see it if the things actually start producing chips within a couple decades.
https://www.allaboutcircuits.com/news/semiconductor-fabs-dot...
https://www.phonearena.com/news/construction-of-tsmc-5nm-fab...
The US has been far ahead in space since the 1960s, and advanced work in space is by NASA (and contractors). SpaceX has advanced orbital launches.
The US is the leader in many, many industries, including IT.
This language was proposed by Wyden at least two years ago, and has gone through multiple rounds of refinements. (For example, the original text didn’t exempt private assets.) It’s not unrelated because income taxes are how we pay for general expenses in this country. (Granted, limiting it to billionaires always struck me as a way to make it palatable for a lower, e.g. $10mm, threshold.)
Income taxes pay for almost everything; should they only pay for things related to income? I don't understand that.
And my point is I would expect something more thought through than trotting out each legislator's favorite pet taxation overhaul. A few days to consider amongst the options doesn't really seem like enough time, but I guess we're still talking about "a framework" so there will be more time. They're not attempting to pass any of this right now.
[0] - https://www.taxpolicycenter.org/briefing-book/what-are-sourc...
So when I say this all seems slapdash, I mean that I'm thoroughly unimpressed with the way by which these taxation plans are coming out of the woodwork. Feels like an episode of West Wing, the one with the Cartographers for Social Equity.
> from what I can tell, most of these ideas come from academia, but without much rigor or data to support these new taxation plans, and the legislators who support them do so for largely un-scientific reasons (e.g. has a good hook for a title)
Can you give some examples? I think it's too easy to deride everything and everyone; some are good and some are bad ideas.
I agree that policy inevitably goes through the filter of politics, though I think that's essential: The economists who designed the policy cannot know the needs of people in District 9 of North Carolina, and human nature is to designate inconvenient needs of others as nice-to-have, but unnecessary category. (That's how, IMHO, so many policies benefit the wealthy but not working class or poor: It's wealthy people making the policies.)
Of course, that can go too far. We won't get perfect laws.
I don't really have time today to compile a list of proposed tax legislation and their sources (or what I think of those plans), but reading through just the Wyden proposal [0], I can already see more of the "this guy agrees with me politically" crowd coming out than any real example of what Wyden bases this plan on. You've got the bill text, a summary of each section, and a summary of the bill, but no "and here's why we think this". Just the usual "WORKING AMERICANS NEED THIS" filler text that every bill has.
My point is that the "filter of politics" is exhausting and not necessary (to this degree). I do not think it's okay to propose legislation without explaining why it will do what you say, rather than some other thing. We're needlessly rushing the process
[0] - https://www.finance.senate.gov/chairmans-news/wyden-unveils-...
> My point is that the "filter of politics" is exhausting and not necessary (to this degree). I do not think it's okay to propose legislation without explaining why it will do what you say, rather than some other thing. We're needlessly rushing the process
I agree with all that, other than rushing the process. These bills have been discussed for a long time, the tax debates are old (even if not appropriately explained), and the impact of delay is substantial, including reducing the chance of getting anything at all done. The alternative may be 'nothing'.
Hah! Literally exactly the thing I'd like to build (productize my process, attach relevant metadata for filtering/sorting, imagine being able to "dial in" your partisan feed to get a sense of what each wing is saying) when I somehow do find some time. I've been spewing ideas at my wife about it for over a year now, but life circumstances threw me in a different direction temporarily.
> US budget deficits don’t require a radical confiscation scheme like this. We already have a very effective progressive tax system which applies the same rules - but different rates - to everyone. If tax revenue is too low, just raise the top tax brackets
That, together with closing the step-up-in-basis loophole, are the simplest ways to more equitably raise revenue.
Instead they get liquidity through loans backed by their shares, on which they of course have no tax.
I agree that taxing based on unrealised gains is not a good solution, but I don't see how raising the top bracket solves that either.
The one loophole here is that if you don't pay your loans back until you die, then your heirs have to pay back the loan. But there is a special "step up in basis" provision where your heirs wouldn't have to pay capital gains tax on the rise in the value of your shares (but you would). Close that loophole and then you'd have a fair system.
If there's no huge incentive for an investor once a company makes it to hold their stock, every successful company will be led by corporate hedge funds/investment firms.