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Modeling a Wealth Tax

paulgraham.com

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Re: Modeling a Wealth Tax

#181

Post by TheTruth321 »

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.

Yes, they invest it in dormant apartment blocks in Bangkok ...

Maybe we don't need a wealth tax, but a way of unlocking capital from banks to excellent resource allocators (to be defined).

Re: Modeling a Wealth Tax

#182

Post by msoad »

This is pg's privilege to be able to write such a shallow article and get this much attention. There has been so many studies on this topic. There are places with Wealth Tax. France experimented with it and kind of failed. Switzerland has Wealth Tax. None of that was mentioned. Just a 4th grader math and a basic HTML table. God damn it I wish I was VC. Anything I say would be gold. This is pure @VCBrags material

Re: Modeling a Wealth Tax

#183

Post by thaumasiotes »

epistasis wrote: post #95
bhupy wrote: post #45

Earlier quoted context omitted.

But a wealth tax also targets owners of assets that don’t appreciate. It taxes both the winners and the losers, and for the latter it’s nothing but a forced divestiture of their ownership stake. A capital gains tax, on the other hand, strictly targets those whose assets have appreciated in value. Wealth is always eventually taxed when it’s liquidated. And if it is never liquidated, then it arguably doesn’t really mat…

Wealth hoarding matters immensely for things like land, which is why the most common wealth tax is a tax on real estate holdings. It can also matter for other resources which are finite, but land is one of the most crucial one in our current times, and why we are seeing such ridiculously large gains in housing costs in the past few decades after a century of housing costs remaining fairly constant.

> It can also matter for other resources which are finite, but land is one of the most crucial one in our current times, and why we are seeing such ridiculously large gains in housing costs in the past few decades after a century of housing costs remaining fairly constant.

If we were being restricted by land availability, we could fix that easily by putting more housing on the same amount of land. That problem was solved long ago.

Re: Modeling a Wealth Tax

#184

Post by wycy »

smileysteve wrote: post #134

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…

There's nothing wrong with a tax on non-liquid assets. We already have taxes like that: property tax.

Re: Modeling a Wealth Tax

#185

Post by eastdakota »

Perhaps a different way of thinking about it is control. For a founder in their 20s whose wealth is entirely in the stock of the successful company they created, assuming one vote per share, a wealth tax greater than 1% will force them to lose control of the company they created within their expected lifetime, even if they bootstrapped and never raised any money from outside investors.

Re: Modeling a Wealth Tax

#186

Post by japhyr »

> Even a .5% wealth tax would start to keep founders away from a state or country that imposed it.

In the US, health care is tied to employment for most people. Many people are stuck in jobs they aren't particularly excited about because they need, or can't risk losing, their health care.

If a new tax structure allowed us to finally implement universal health care, how much innovation would that inspire? We have this notion that the freedom to acquire great wealth is the only driver of innovation. But covering people's basic needs is a great driver of creativity and innovation as well, possibly even greater.

Re: Modeling a Wealth Tax

#187

Post by drewg123 »

I think a wealth tax sounds good, but the implementation scares me.

What I worry about most with a wealth tax is calculating your wealth. Income tax is already hard enough. Now start adding up the value of your stock, your real estate, your personal property, etc.

And are you committing tax fraud because you have a million dollar painting that was hanging on your parents wall for decades that you inherited and never realized was valuable? Are you committing tax fraud if you have some crypto currency that you forgot about that has skyrocketed in value? If not, then these things can be used as tax dodges by the wealthy. If so, then it just makes everybody a potential criminal.

Re: Modeling a Wealth Tax

#188

Post by theplague42 »

throwaway7281 wrote: post #112

Oh my, more state money would mean probably a more equal society - more money for roads, schools, teachers, research labs, health care, infrastructure and much more. All things by the way any entrepreneur is happy to "take" or accept as given. Forgive me, but watching extremely privileged people's viewpoint, that they are so genius is so much missing the point (of luck, and of course a society that nourishes and carr…

Yeah I love how he starts the essay with "assume you start a successful startup in your 20s, so successful you never have to work another day in your life." It's just appealing to 20-somethings with a bad faith argument about a tax that would likely be linearly correlated with age.

Re: Modeling a Wealth Tax

#189

Post by SpicyLemonZest »

Loughla wrote: post #117
bulka wrote: post #77

Earlier quoted context omitted.

> 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.

>Do you think it might influence where they start it? This has always been the argument, and I've never bought it. Now, more than ever, is the time to start a company remotely, thanks to Mr./Mrs. Covid. Have we seen a massive move away from SV and other tech centers? Have we seen a massive wave of startups in 'flyover' country?

I don't think we'd know yet if there were one.

Re: Modeling a Wealth Tax

#190

Post by nybble41 »

hkhanna wrote: post #78

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 do…

> The dollar value of shares tend to increase over time, a basic fact not reflected in this model.

This is not reflected in the model because the price of the shares cancels out: a higher price means a higher tax in absolute dollars, and a lower price means a lower dollar amount in tax. For a given tax rate you end up with the same fraction of the shares regardless of any appreciation or depreciation in their value.

A 1% wealth tax means that you cannot remain a majority owner of your own startup for longer than 70 years, at least not without sacrificing other assets above and beyond their own share of the wealth tax. At that point the government has claimed over 50% of the startup's value, regardless of any change in the share price.

A 2% wealth tax means you will lose your majority ownership within 35 years.

At a 5% wealth tax we're down to 14 years of owning your own startup.

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