Modeling a Wealth Tax • Hacker News Board

Re: Modeling a Wealth Tax

#131

Post by bitcurious » Tue, Aug 18, 2020, 2:06 PM UTC

nemo44x wrote: post #109

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…

> Wealth tax proposals I've seen don't kick in until $50 million or $100 million. This means that there is a floor on how "poor" the government can make you via a wealth tax. That’s just the starting point. Once people begin to figure out how to avoid it or have been tapped then the qualifier will be lowered to 40m. And then eventually 30m and do on until anyone above average is paying it. And then anyone above media…

>The state will, as always, become reliant on it and find ways to expand it to wield more power and pay debts that were taken on to “collect/spend in advance” as they’ve done countless times.

This hasn't been true for the income tax [0], nor the capital gains tax [1], nor (at least in Silicon Valley) for real estate taxes[2], which are closest to a wealth tax. It's a reasonable thing to consider, but given the evidence we have, should not be a driving consideration.

[0] https://bradfordtaxinstitute.com/Free_Resources/Federal-Inco...

[1] https://en.wikipedia.org/wiki/File:Federal_Capital_Gains_Tax...

[2] https://www.boe.ca.gov/proptaxes/decline-in-value/

edit: I was misinformed re: income tax, tracking only the top rate.

Re: Modeling a Wealth Tax

#132

Post by maest » Tue, Aug 18, 2020, 2:06 PM UTC

Even ignoring the several flaws in this toy model (which other comments have discussed), it strikes me that this model doesn't show that a wealth tax is "bad" in some sense.

The main takeaway is that the overall impact on wealth is larger than perhaps intuitively expected initially. This is not a problem with the wealth tax itself, it just means the correct tax level should arguably be <0.5%.

Re: Modeling a Wealth Tax

#133

Post by Simon_says » Tue, Aug 18, 2020, 2:06 PM UTC

Miner49er wrote: post #73

aww_dang wrote: post #54

Earlier quoted context omitted.

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.

The amount of the wealth tax also appreciates over time.

Re: Modeling a Wealth Tax

#134

Post by smileysteve » Tue, Aug 18, 2020, 2:07 PM UTC

I agree with Paul here;

A Wealth Tax adds a seemingly arbitrary additional rule that is based on less than liquid assets; It also adds significant complexity to the system.

Versus, a progressive income tax is less arbitrary and less "complex" (though many people do not comprehend the concept.)

To take the simplicity further; we should eliminate capital gains and qualified dividends special tax rates coordinated with the corporate tax rate to 0%; This structure already exists in the REIT tax code.

In addition, while there is an argument that Social Security is tied to an individual, the base level and Medicare/Medicaid are not; so instead of being "flat taxes" should be moved to be paid for by the progressive income tax. (Similarly, if universal healthcare were to become policy, this is much better as a progressive tax)

Re: Modeling a Wealth Tax

#135

Post by dpeterson » Tue, Aug 18, 2020, 2:07 PM UTC

nemo44x wrote: post #109

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…

> Wealth tax proposals I've seen don't kick in until $50 million or $100 million. This means that there is a floor on how "poor" the government can make you via a wealth tax. That’s just the starting point. Once people begin to figure out how to avoid it or have been tapped then the qualifier will be lowered to 40m. And then eventually 30m and do on until anyone above average is paying it. And then anyone above media…

I wish you had made this as a top level comment. This should be at the top, not the pro wealth tax comment. Like you said, the net always gets wider and wider.

Re: Modeling a Wealth Tax

#136

Post by 0xfaded » Tue, Aug 18, 2020, 2:07 PM UTC

Meanwhile, capital gains tax is lower than normal income tax because that $10k of savings you used as seed capital to start your company was "already taxed" before it became $10b. The problem is that there currently exists a way to acquire wealth without paying income taxes. If the wealthy would like to avoid a wealth tax, I'm sure they happily compromise by closing the loopholes after making a one time contribution of 50% of their wealth to public coffers.

As an aside: I'm a startup founder in Denmark, which has a notion of a holding company. My holding company (which I seeded with 10k of savings) owns my shares in the startup. If the startup sells for 100x, my holding company will not be taxed on the on the capital gains. I can reinvest the money in a new venture without paying any capital gains. But the moment I buy a (hypothetical) Aston Martin, I pay normal income tax on the money I transfer out of the holding company. (income tax will be about 56%, cars have an extra 160% excise. A $1m fancy pants car will require $5.91m from the holding company. Ouch)

This system works well, windfalls can be reinvested easily, but there's no loophole to avoid paying income tax. There is one stupid side, which is that the barrier between private and commercial uses of money needs to be excessively rigid (try setting up a non-profit makerspace where people can work on startups. pain). Additionally, 1/200th of the Danish workforce is directly employed by the tax office, which is ridiculous.

Re: Modeling a Wealth Tax

#137

Post by crispyporkbites » Tue, Aug 18, 2020, 2:07 PM UTC

influx wrote: post #104

crispyporkbites wrote: post #60

Earlier quoted context omitted.

This has been downvoted, can someone add a counter-argument for this? I.e. why should someone with higher wealth be able to pay less tax (in absolute and relative figures) than someone with lower wealth?

How does one pay a wealth tax on an inherited house? Do they have to sell the house?

No you misunderstand- they only pay tax on income, but the % is based on their total wealth.

Eg if I have a total net worth of 2mn, my income tax might be 50%, and if I have a total net worth of 0, my income tax could be just 10%.

This would encourage people to earn more who have little now, and encourage people who have a lot to spend/scale back their earnings. Ideally it would lower the gap between lower and middle class people.

Re: Modeling a Wealth Tax

#138

Post by weatherman2 » Tue, Aug 18, 2020, 2:07 PM UTC

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.

Modeling the growth does not change the results in any way that makes the tax seem more favorable.

Taxing away 1% of an asset that grows 0% every year leaves 45% of the assets that would be present without the tax after 60 years.

Taxing away 1% of an asset that grows 7% every year leaves 45% of the assets that would be present without the tax after 60 years.

However, to be more realistic, modeling growth makes the taxation even worse, because at times when your equity is at a high valuation, you need to sell some equity and then some extra on top of that in case your equity value crashes before the end of the year/ end of the tax period. You are forced to act defensively.

Re: Modeling a Wealth Tax

#139

Post by bhupy » Tue, Aug 18, 2020, 2:07 PM UTC

bitdivision wrote: post #106

stickyricky wrote: post #96

Earlier quoted context omitted.

Why does asset growth matter if you're taking n% no matter what? Edit: After reading the responses, I think people are confusing themselves with dollar amounts. If I have 100 units of X. The government takes 1 unit in the first year, 0.99 units the next, and so on. Over time my total number of units decreases. The notional value of those units can fluctuate but the absolute number of units owed to the government rema…

Because if your asset is growing at 5% and the wealth tax is taking 1%, your asset is still growing overall

But asset isn't guaranteed to grow at 5%, it only grows that much on average.

What you say makes sense if the wealth tax is applied on ETF/index fund holdings, but for most founders, the wealth is concentrated in holdings in their own company. On average, across all founders, the asset growth might be 5%, but for each individual there is significant variance. For nearly half of founders, wealth tax would take 1% on either a flat or a depreciating asset..

Re: Modeling a Wealth Tax

#140

Post by vmception » Tue, Aug 18, 2020, 2:07 PM UTC

How about a wealth tax that causes mandatory share dilution giving shares to citizens? Like not even state ownership.

The shares can become their own currency as not all people would sell them for fiat, and the company and largest shareholders wouldnt have to sell to pay the tax

The market would just keep lapping it up