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Modeling a Wealth Tax

paulgraham.com

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Re: Modeling a Wealth Tax

#361

Post by mathraki »

s17n wrote: post #347
mathraki wrote: post #325

Earlier quoted context omitted.

I'm shocked people think a wealth tax on startup founders is OK. Let's think of a scenario for instance: ACME startup raises Series C @500M. Founder equity is worth 100M on paper . Founder needs to borrow money every year to pay 'wealth' tax. After 10 years of struggles, company sells for $100M, VCs get money back, founder makes no money. But now founder is millions in debt for past 'wealth' tax payments. Founders wi…

This is a problem for startup employees, too, and should be solved in both cases by allowing you to defer the taxes on your paper gains until you can actually realize them (yeah, there would be issues here, but the issues are solvable).

That's exactly what capital gains taxes are tho?

Re: Modeling a Wealth Tax

#362

Post by tehalex »

arnvald wrote: post #129
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…

Let's say you have 1% wealth tax and $1,000. Without asset growth, after 1 year you have $990. If you include let's say 5% asset growth, after 1 year you have $1,000 * 1.05 * 0.99 = $1,039. Then after another year, without growth you have $980.1 With %5 growth you have $1,040 * 1.05 * 0.99 = $1,080. So the article claims that with 1% wealth tax you'll lose 45% of your assets over time. With any growth above 1% every…

It's almost like this was intentionally misleading...

Re: Modeling a Wealth Tax

#363

Post by dublidu »

IkmoIkmo wrote: post #276
sethbannon wrote: post #102

Let's look at what a 1% US wealth tax would mean for Jeff Bezos. He founded Amazon 26 years ago. A 1% wealth tax means he keeps 99% of Amazon stock each year. .99^26 = .77 = 77% So he'd currently be worth $145B instead of $188B. PG is saying Bezos would have left the US because of that? Edit after twitter conversation with PG: He doesn't believe Bezos would have not started Amazon in the US if there was a wealth tax.…

> He doesn't believe Bezos would have not started Amazon in the US if there was a wealth tax. Did he elaborate? That seems like such a joke to me. Denying yourself access to the world's biggest market because, if you make it big, you'll only have $145 billion instead of $188 billion... Although it is interesting of course that Amazon was founded/located right from the start in part on a tax optimisation. I can imagin…

I think a 1% wealth tax is enough to encourage billionaires to move out or CA, but probably not out or US. I doubt most startup founders would consider it when founding the company.

Re: Modeling a Wealth Tax

#364

Post by nightski »

thomasdullien wrote: post #93

Perhaps notable: Switzerland has a wealth tax (of up to 0.3%), and there is zero evidence that this has any deterrent effect on wealthy people settling in Switzerland or startups being created in Switzerland. Other features of the tax system more than offset the 0.3% wealth tax. Personally, I am a bit disappointed by the lack of depth of the discourse: Wealth taxes and their effect have been studied quite a bit in ec…

Wealth taxes are one solution. But in my opinion the only way to get extremely wealthy is to own a company that goes public. Personally I'm starting to think that when a company goes public there should be limits on what percentage of that company an individual can hold. Bezos being able to control 11.1% of Amazon given it's size seems a little ridiculous. The entire point of the stock market or "going public" was to allow public ownership and benefit of these massive behemouths (whether they should even grow that large in the first place is another discussion).

But when one person owns such a large percentage it really tips the scales.

I don't know how you'd solve this. Forced pay out to the owners when a stock goes public? There are probably negatives I am not thinking of. But it just seems like public markets let companies grow to levels so large that having an individual have such a large share doesn't make sense anymore.

Re: Modeling a Wealth Tax

#365

Post by dalbasal »

sam_lowry_ wrote: post #354
dalbasal wrote: post #332

Earlier quoted context omitted.

I'm not sure european examples are a great comparison. First, most european wealth taxes (including recently defunct ones) have much lower floors than US proposals. $1m instead of $100m. That changes a lot. France did experience "capital flight," famously Gerard Depardieu. Second, "capital flight" has always been present in Europe. There's a long history of it, and practical realities make it relevant. I do agree abo…

Gerard Depardieu and Bernard Arnault returned their assets to France, and their flight was not without scandals. Their reputation shattered.

Granted.

I was just using the bruhaha to demonstrate a point. A millionaire tax and a billionaire tax are totally different in practice, both operationally and socially.

Re: Modeling a Wealth Tax

#366

Post by cafxx »

Isn't his claim kinda... laughable? Most of us live in countries were overall income taxation is over the 26% that in his calculation correspond to the mystical 0.5% wealth tax that over 60 years would scare founders away.

Re: Modeling a Wealth Tax

#367

Post by usefulcat »

Simon321 wrote: post #51

This would only be true if you allow your money to rot and don't do anything with it for 60 years. Inflation would eat into that a lot more in that scenario. Average inflation is roughly 3%. As others pointed out, equity returns are 5-6% so if you do something with your money this won't be the case and you'll actually increase your wealth a lot. Assuming 5% return, this is an 18x return over 60 years.

> This would only be true if you allow your money to rot and don't do anything with it for 60 years. Inflation would eat into that a lot more in that scenario. Average inflation is roughly 3%.

This statement assumes that 'wealth' == money.

Re: Modeling a Wealth Tax

#368

Post by viburnum »

Good thing about wealth taxes is they don’t penalize changing your asset allocation. Capital gains is weird because you don’t get taxed for owning things, only for reallocating them.

Re: Modeling a Wealth Tax

#369

Post by tehlike »

nybble41 wrote: post #190
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.…

You can take a loan on your shares to pay for the tax, which happens all the time for most expenses.

Re: Modeling a Wealth Tax

#370

Post by cycomanic »

dalbasal wrote: post #332
thomasdullien wrote: post #93

Perhaps notable: Switzerland has a wealth tax (of up to 0.3%), and there is zero evidence that this has any deterrent effect on wealthy people settling in Switzerland or startups being created in Switzerland. Other features of the tax system more than offset the 0.3% wealth tax. Personally, I am a bit disappointed by the lack of depth of the discourse: Wealth taxes and their effect have been studied quite a bit in ec…

I'm not sure european examples are a great comparison. First, most european wealth taxes (including recently defunct ones) have much lower floors than US proposals. $1m instead of $100m. That changes a lot. France did experience "capital flight," famously Gerard Depardieu. Second, "capital flight" has always been present in Europe. There's a long history of it, and practical realities make it relevant. I do agree abo…

The question if billionaires are bad for society is pretty much the same question as asking if the aristocracy was bad for previous societies. The existence of billionaires clearly undermines the core principles of democracy which is that all people have essentially the same political power. The existence of many laws which clearly aim to benefit billionaires only is enough evidence that this power balance does not exist when there are billionaires. Essentially strong wealth imbalance leads to unstable societies.

I find it ironic that the US which was largely founded by people who left their home because of entrenched economics and limited opportunities and who used to have some of the highest taxes for the top brackets and strong eversion to the development of a new aristocracy have after Reagan developed into a nation of defenders log the superrich.

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