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Modeling a Wealth Tax

paulgraham.com

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Re: Modeling a Wealth Tax

#71

Post by ralmidani »

I see no reason to be alarmed. It’s highly unlikely the government would be taking from your stock directly. Requiring shareholders to pay cash equivalent to a percentage of their shares is reasonable, although with hyper-growth companies that don’t pay dividends, this could get tricky. Maybe it would incentivize more investment in dividend-paying companies?

Also, FWIW, I think it would be better to impose a wealth tax in place of income tax, as much as possible, rather than add the wealth tax on top. Income taxes are fundamentally unfair to people with high healthcare expenses, children in college, etc.

A common objection to wealth taxes is the difficulty of tracing assets. But in the Muslim world, for example, a 2.5% tax on wealth was collected more than a thousand years ago, and I would imagine most rational, even moderately wealthy people today keep most of their money with financial institutions, making the government’s job much easier than it was in the past. And the danger of people hiding their wealth in diamonds, paintings, yachts, etc. could easily be avoided with a tax on luxury goods.

Re: Modeling a Wealth Tax

#72

Post by robjan »

mrob wrote: post #56
Lavery wrote: post #5

This ignores the fact that everywhere (including countries where wealth taxes are implemented today), there is a floor below which the tax does not kick in.

All breakpoints in tax systems contribute to market inefficiency, because they incentivize manipulating your finances to stay below breakpoints instead of maximizing efficiency. It would be better to apply a flat wealth tax and correct for the regressive effect of decreasing marginal utility of money with UBI.

That doesn't make sense. Once you hit a threshold, usually the amount of money below the threshold is taxed at 0% or a lower percentage, then anything earned on top is taxed at a higher rate. You still earn more money by earning above the threshold.

Re: Modeling a Wealth Tax

#73

Post by Miner49er »

aww_dang wrote: post #54
barretts wrote: post #33

For a guy who's always railing about the value of honest, rational discourse, he's unbelievably misleading and political in this post. He ignores asset growth and the fact that all the wealth tax proposals have a very high floor for the tax. Saying the government will take 45% of your wealth above $100M is very different than saying the government will take 45% of your wealth.

From the bottom of the page: >"Even a .5% wealth tax would start to keep founders away from a state or country that imposed it. That's more than a quarter of your stock."

The point is that he arrived at this conclusion by building up a strawman.

That 26% is over 60 years, ignores the fact that the stock will appreciate over time, ignores the fact that all wealth taxes have high floors, etc.

Re: Modeling a Wealth Tax

#74

Post by arconis987 »

The 50% tax that pg dislikes for startup founders is basically what I experienced during our startup’s liquidity event. I imagine that a fairly large number liquidity events are the same.

The acquirer paid us out in cash, which meant we were taxed at the highest marginal federal income tax rate of 37%. California taxed 10%, making the total 47%.

I only kept a little more than half of the upside, but it was still life changing.

I had to pay the taxes immediately. In pg’s example, the wealth tax would require payment over 6 decades, which is easier.

The wealth tax seems fine to me.

Re: Modeling a Wealth Tax

#75

Post by hexxiiiz »

Lavery wrote: post #5

This ignores the fact that everywhere (including countries where wealth taxes are implemented today), there is a floor below which the tax does not kick in.

Very much. The numbers politicians have thrown around have had floors from 100 million to a billion. If Graham is speaking to the interests of future 100 millionaires I think most of them should be far more concerned about the country they live in when they almost assuredly never get anywhere close to that ceiling. For the few who do, who can shed tears when someone with 100s of millions is thwarted by government policy from reaching levels already so far beyond that which would compromise the happiness of an extremely privileged person. Nobody realistically suggesting something that is going to blunt startup Johnny's adventure to make enough money to buy a huge condo in SF, a Rolls Royce, a yaht, and a private waitstaff, if that is what Graham is raising alarms over. Johnny can keep dreaming.

Re: Modeling a Wealth Tax

#76

Post by aidenn0 »

gabaix wrote: post #48

Thomas Piketty's Capital in the Twenty-First Century advocates for a wealth tax of up to 2%. This is the only remedy to combat the structural rising inequality in capitalism. He also admits the tax would be difficult to implement. He should know. France wealth tax has existed for more than 30 years. It was not a success, in part because the wealthy found ways to avoid it. It was as simple as moving residence to Belgi…

Did piketty explore unifying capital gains with a progressive income tax? Inflation is already a tax on wealth, but the wealthy beat it by the large return on investment. If you reduce the return on investments to below the rise of wages, then doesn't that solve the problem he describes in his book?

Re: Modeling a Wealth Tax

#77

Post by bulka »

bitcurious wrote: post #26

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 onl…

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

Discourage starting a company at all? Probably not, but the article does not suggest that. Do you think it might influence where they start it? Looks reasonable to me, at least qualitatively.

Re: Modeling a Wealth Tax

#78

Post by hkhanna »

I'm not necessarily in favor of a wealth tax, but this essay is deeply flawed for the many reasons identified in other comments.

What struck me is that I showed it to my partner who has no formal finance training and she quickly identified the major flaw that seems to have escaped Paul Graham: a wealth tax is a percentage of the dollar value of wealth, not a percentage of the number of shares of stock you own. The dollar value of shares tend to increase over time, a basic fact not reflected in this model.

Re: Modeling a Wealth Tax

#79

Post by aww_dang »

qznc wrote: post #44
bengotow wrote: post #12

Wow, this ignores both the "floor" below which you would not be subject to the wealth tax (in the US, most recently by Elizabeth Warren, this has been discussed as $50M+), and ALSO fails to take into account that you would be growing your principal at ~3-8% a year through investment, etc. Sure, I guess with no floor on the tax and with your money just literally sitting in a pile, the government would eventually take…

Also, inflation currently does the modeled loss at 1-2% already without a floor. Wealthy people are still fine.

If we accept that price inflation is driven by inflation of the money supply, and that Cantillon effects send most of this new money to the financial markets, then we may conclude that this process drives asset inflation in the financial markets in which the wealthy participate.

That is to say that inflation doesn't harm the wealthy. They benefit from it. Inflation will cause the floor to creep up to everyone else.

Re: Modeling a Wealth Tax

#80

Post by [deleted] »

jbellis wrote: post #30

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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