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Modeling a Wealth Tax

paulgraham.com

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Re: Modeling a Wealth Tax

#21

Post by toomuchtodo »

iNate2000 wrote: post #14
toomuchtodo wrote: post #4

What percentage of founders experience a liquidity event netting them enough to be impacted by a wealth tax (90% of startups fail [1])? This is arguing against taxing a lottery ticket, while not addressing the issue of existing wealth inequality. “Socialism never took root in America because the poor see themselves not as an exploited proletariat but as temporarily embarrassed millionaires.” ― Ronald Wright EDIT: @Ap…

It’s not about how many founders actually gain the wealth; it’s about how the perceived reward motivates innovation. Or, rather, how the lack of reward fails to motivate.

> Or, rather, how the lack of reward fails to motivate.

One example that comes to mind is the entire open source community, the provides enormous amounts of productivity with little to no compensation, would rebut this argument. Another example would be Watsi, a YC startup, with enormous impact but no profit motive (there are many top notch YC non profits, I pick this one because it is my favorite).

Taxes are higher in most of the developed world. People still start businesses, people still go to work. We don't have to shy away from policies that make the wealthy nervous. I do not buy the argument that innovation will die because of higher taxes.

Re: Modeling a Wealth Tax

#22

Post by PaulHoule »

Note the "25% of the stock" is not too different from a typical person who might easily pay 25% of their income in income tax, sales, VAT taxes.

A more fundamental problem w/ wealth tax is administration. How do you tax unrealized capital gains?

Re: Modeling a Wealth Tax

#23

Post by LatteLazy »

What we need is inheritance tax. If you've made money, you can keep it. But you can't live for free just because some guy 100 years ago made money and you won the genetic lottery.

Re: Modeling a Wealth Tax

#24

Post by mjburgess »

glutamate wrote: post #2

Equity returns are on average 6% above inflation, so with a wealth tax of below 6% your wealth can still grow year on year indefinitely. EDIT: Source: https://www.frbsf.org/economic-research/files/wp2017-25.pdf . The precise number is real returns of 6.89% on equity, 7.05% on housing

PG is talking about investing in companies, not general funds.

For a founder to invest (eg., $1m) in starting a company, there is of them losing their total investment. The expected ROI needs to be fairly high to offset that.

The only people who /could/ make money under such a scenario are super-rich investors making many bets that average out risk. And they wouldnt, given -- as you say -- general equity would perform better.

Any policy implemented in this way, over trivial amounts (eg., over 0.5%), would destroy investment & the business opportunities of a generation.

Perhaps there's a different policy behind "wealth tax".

Re: Modeling a Wealth Tax

#25

Post by [deleted] »

dmichulke wrote: post #17
glutamate wrote: post #2

Equity returns are on average 6% above inflation, so with a wealth tax of below 6% your wealth can still grow year on year indefinitely. EDIT: Source: https://www.frbsf.org/economic-research/files/wp2017-25.pdf . The precise number is real returns of 6.89% on equity, 7.05% on housing

I.e., the government should be smart and take it's money from treasury auctions (interest ~ 0%) and invest in the stock market or housing? And if you think that's a bad idea, why should individuals do it in order to stay above the wealth tax?

[deleted]

Re: Modeling a Wealth Tax

#26

Post by bitcurious »

I'm highly skeptical of the claim that such tax would discourage startup founders.

Wealth tax proposals I've seen don't kick in until $50 million or $100 million. This means that there is a floor on how "poor" the government can make you via a wealth tax.

This has two implications:

1. Most "successful" startup founders don't break that threshold of personal wealth.

2. For most startup founders, the startup is the only way to get to $50 million. The practical lifestyle difference between $50 million and $1 million is a lot larger than the difference between $50 million and the unicorn-founder $ billion.

Furthermore, as noted by glutamate: money earns money. A conservative drawdown of 3% pay the most commonly proposed wealth tax while still leaving you wealthier at the end of the year.

Re: Modeling a Wealth Tax

#28

Post by bhupy »

I’m still not sure why the debate has converged around a wealth tax rather than just making the income tax rate on every dollar above $1 billion 100% (or close to 100%).

That way, on the day that the super rich decide to liquidate their assets, they only get taxed on the capital gain, and for billionaires that means they only keep some small portion of it in liquid cash. You also wouldn’t have to amend the Constitution to do this.

Re: Modeling a Wealth Tax

#30

Post by jbellis »

So many people here missing that PG is modeling "how much stock would you have to sell" not "how much would your remaining stock be worth."

Yes, your stock will on average be worth more over time but that is not what he is calculating.

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