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Modeling a Wealth Tax

paulgraham.com

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Re: Modeling a Wealth Tax

#211

Post by barrkel »

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 don't understand why you think the slippery slope argument works for the rate and threshold, but not for the existence.

The problem with wealth taxes is not slippery slope, but rather that wealth can be obfuscated and moved around much more easily. Transactions are easy to tax; wealth worth taxing is about what you control, rather than stuff you have.

There's good reasons the most successful wealth taxes are land taxes. You can't easily move land.

Re: Modeling a Wealth Tax

#212

Post by sjm »

So what _is_ Paul's suggestion for addressing the insane amount of wealth inequality in 2020? Nothing better shows how rigged the game is than the S&P500 about to hit another all-time high while we're in a recession, with unemployment also hitting an all-time high just a few months ago.

Re: Modeling a Wealth Tax

#213

Post by martythemaniak »

I once did a bit of napkin math for a progressive friend of mine and have used it more widely since. Most people end up shocked and unwilling to accept this, which amuses me.

I ask: "Suppose the government took 100% of corporate profits every year and distributed them evenly to the people, how much will everybody make?" I do this for Canada and if you take the average of corporate profits over the last 10 years and divide by the population it's $7,500/a.

People don't like this, they're convinced there's way more money "out there" than there actually is. There isn't, we're all poor, and the existence of inequality doesn't change that.

Re: Modeling a Wealth Tax

#214

Post by maxehmookau »

Right or wrong, this reads as "Rich person doesn't like the government taking his money"

Whether or not the content is correct, it's tone deaf in a country with such incredible wealth inqeuality.

Re: Modeling a Wealth Tax

#215

Post by gregwebs »

I am not opposed to a wealth tax, but I wish we understood what it is we are undoing here. The Federal Reserve is now printing trillions of dollars. Some of this is going to Congress to attempt to distribute fairly. However, most goes towards buying financial assets that are overwhelmingly owned by the wealthy.

This printing, which has been going on in extreme for a decade since the housing crisis, is one of the main drivers of the current wealth gap leading to populism and necessitating a wealth tax. To me it makes more sense to figure out how to stop this process or fundamentally alter it then to keep it going and then tax it.

Re: Modeling a Wealth Tax

#216

Post by mrob »

robjan wrote: post #72
mrob wrote: post #56

Earlier quoted context omitted.

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.

That's still a discontinuity in the marginal value of income. You don't need the slope of the post-tax income:pre-tax income graph to go negative for there to be inefficiency. Any sharp change in the curve is enough.

Re: Modeling a Wealth Tax

#217

Post by hkhanna »

cltby wrote: post #124
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…

> a wealth tax is a percentage of the dollar value of wealth, not a percentage of the number of shares of stock you own. If I expropriate 5% of your wealth, and ~100% of your wealth is in shares of stock, what percent of your shares have I taken?

The answer is: it depends on the fair market value of the shares of stock I own. If the shares are publicly traded, there's an easy answer.

If they're not publicly traded, it depends on how FMV is determined, but it would not surprise me if the wealth tax allowed the 409A valuation to be used for this purpose.

Re: Modeling a Wealth Tax

#218

Post by jacknews »

Isn't this just about what we want?

If you do some amazing thing, you should get rich.

But if you then rest on your laurels, you should get diminishing returns from your amazing thing over time.

Currently, with startups etc, you get accelerating returns, since other people who join your company propel it forward, but you get most of their reward (unless it's a co-op), just because you sowed the initial seed.

Re: Modeling a Wealth Tax

#219

Post by elliekelly »

drewg123 wrote: post #187

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…

> What I worry about most with a wealth tax is calculating your wealth.

This is an issue that the vast majority of people will never have to deal with. And the people who do have to deal with it won’t have to waste time worrying about it either because they will outsource their worry to an army of lobbyists followed by an army of CPAs.

Re: Modeling a Wealth Tax

#220

Post by zeveb »

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.

The very first U.S. income tax, imposed during the Civil War (the nation's bloodiest conflict), was 3% on income over $12,720, rising all the way to 5% on income over $159,000 (in 2020 dollars). This was unconstitutional at the time, and was eventually repealed.

The first income tax imposed after the ratification of the 16th Amendment was 1% on income over $78,510, with an additional 6% on income over $26,170,000 (2020 dollars).

The current U.S. income tax ranges from 10% to 37%, with a standard deduction of at least $12,200. There are also payroll taxes under FICA, which are even more.

I recount all this riveting history as evidence for my contention that there is absolutely no way that a wealth tax would remain at 1% for anything above $50 million. I guarantee that within a few years to decades most citizens would be required to pay wealth taxes, and that they would amount to a considerable amount even before taking into account their compounding nature.

> This means that there is a floor on how "poor" the government can make you via a wealth tax.

The only floor is zero: a government can, if it chooses, take everything from its subjects — or just from some of them.

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