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Modeling a Wealth Tax

paulgraham.com

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Re: Modeling a Wealth Tax

#81

Post by Miner49er »

rel2thr wrote: post #67
paulhart wrote: post #9

Someone forgot to model growth in the value of the asset, and/or putting the wealth to use. A wealth tax is, to an approximation, the equivalent of the "management fee" that an ETF charges, but with the revenues going to the government. If you have a bucket of money that isn't doing anything, then what value does it actually bring to the economy? Penalizing static value seems almost reasonable.

I don’t think Paul forgot, it’s why he phrased it in terms of stock not dollars. If you start a company and hold on to ownership for 60+ years, you could be forced to sell X% to cover the wealth tax over the years

Yes, but at the end you'll still have more real value in that stock then you had at the start, assuming your stock at least performs equal with the market.

Re: Modeling a Wealth Tax

#82

Post by [deleted] »

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…

[deleted]

Re: Modeling a Wealth Tax

#83

Post by logicchains »

ampron wrote: post #39
logicchains wrote: post #20

Earlier quoted context omitted.

>If you have a bucket of money that isn't doing anything, then what value does it actually bring to the economy Wealthy people don't just leave their money under a mattress, they invest it in something. Even if they just left it in a bank, the bank is still going to lend that money out and invest it. Taxing wealth just encourages riskier investments, as higher risk is needed to achieve comparable post-tax return.

“Riskier”, but how much riskier? Having to beat inflation by 1% is not that much riskier compared to the gained equality in taxation. Bad argument. You can’t leave off the amount and implicitly use the worst case scenario to argue against all cases.

Considering the risk-free interest rate in the US is currently around 0.7%, finding a low-risk extra percentage point return is non-trivial. Most of these people have wealth managers or invest in funds; you think if they could earn an extra percentage point return without much risk, they wouldn't already be doing that?

Re: Modeling a Wealth Tax

#84

Post by jcfrei »

logicchains wrote: post #20
paulhart wrote: post #9

Someone forgot to model growth in the value of the asset, and/or putting the wealth to use. A wealth tax is, to an approximation, the equivalent of the "management fee" that an ETF charges, but with the revenues going to the government. If you have a bucket of money that isn't doing anything, then what value does it actually bring to the economy? Penalizing static value seems almost reasonable.

>If you have a bucket of money that isn't doing anything, then what value does it actually bring to the economy Wealthy people don't just leave their money under a mattress, they invest it in something. Even if they just left it in a bank, the bank is still going to lend that money out and invest it. Taxing wealth just encourages riskier investments, as higher risk is needed to achieve comparable post-tax return.

Evidence points to the contrary: Taxes reduce profitability and therefore limit risk taking behaviour by companies. Same is most likely true for individuals because it reduces their income.

Re: Modeling a Wealth Tax

#85

Post by Applejinx »

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…

Also, wealth inequality isn't really the issue: few people are going for literal equality here, and it's misleading and disconcerting to people.

The problem is wealth EXPONENTIALITY. Pretty much any billionaire or trillionaire, as a person, produced more effectively when they were a millionaire, or even less wealthy than that. There is NO benefit to having individuals directly control wealth on the scale of small (or large) countries, and very little benefit to having collective entities like corporations controlling wealth which is that out of scale with other entities in their environment.

Wealth exponentiality is the problem. Equality isn't at all necessary.

Re: Modeling a Wealth Tax

#86

Post by supercanuck »

paulhart wrote: post #9

Someone forgot to model growth in the value of the asset, and/or putting the wealth to use. A wealth tax is, to an approximation, the equivalent of the "management fee" that an ETF charges, but with the revenues going to the government. If you have a bucket of money that isn't doing anything, then what value does it actually bring to the economy? Penalizing static value seems almost reasonable.

Government Spending is included in GDP and government services have value to a society.

It is not simple just a management fee because instead of being used to purchase a luxury goods it may be used to improve healthcare, infrastructure or regulating industry.

If it wasn’t for government investing into DARPA none of these startups would even exist.

Re: Modeling a Wealth Tax

#88

Post by AussieCoder »

Every proposal I have seen kicks in after $100m. That's a level of wealth where even paying a 5% tax is likely to result in an annual net increase in wealth, as when you have that amount of money to invest achieving 5%+ returns is not unusual. The net result is that wealth would still increase, just at a slower rate.

Additionally, even amongst the general population, let alone startup founders, the number of people with wealth in excess of $100m is tiny. Numbers are hard to come by but I've seen estimates of 5,000 people in the US. What this means is that people arguing against a wealth tax are happy to disadvantage 330m people to protect the wealth of a low number of thousands.

Re: Modeling a Wealth Tax

#89

Post by cascom »

This gets really sticky in a few areas: 1. Il-liquid assets and their values + the expense of constant appraisals 2. See #1 When they don’t produce cash - sure your stock ‘s “worth” $30m but doesn’t pay a dividend and you can’t sell it... so you have to borrow agains your extremely risky asset to pay your tax bill? 3. Has the potential to create real downward pressure on asset prices (which may or may not be a good thing) given the huge negative annuity associated with some non-cash producing assets

Re: Modeling a Wealth Tax

#90

Post by NationalPark »

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.

Marginal tax rates are how this problem is avoided.
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