Live data from Hacker News

Modeling a Wealth Tax

paulgraham.com

421–430 of 1001 posts

Re: Modeling a Wealth Tax

#421

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…

The first thing to notice about a wealth tax is how little it fundamentally differs from an income tax on investment income. If you have a billion dollars and you get a 2% return and pay 15% capital gains tax, you paid 0.3% of your wealth in tax. So then what's the difference?

For one, it pushes people towards riskier investments. At a 1% annual return, a 0.3% wealth tax is equivalent to a 30% income tax. At a 5% annual return, it's equivalent to a 6% income tax. This has various consequences, but a big one of note is that it makes it much less desirable to own government debt, which has a low rate of return, which means the government could end up having to pay significantly higher interest on the debt. It could also incentivize excessive risk taking.

Another concern is that it requires investments to be liquidated in order to pay the tax. Generally we defer taxes on investment income until the investment is sold in order to avoid this, because it can be quite problematic, e.g. you own 51% of your company but over time you're forced to become a minority shareholder just in order to pay the tax, or you owned 100% of it and are required to take on external investment over time just to stay in business. This also costs the government money because the government pays lower interest on borrowing than average investment returns, so paying 0.7% to borrow money in the interim while the investor is earning 5% returns on the money you'd have collected as tax means that when the tax is ultimately paid, the government ends up with more additional revenue than they paid in interest in the meantime.

It also increases foreign ownership of domestic resources, because domestic owners are forced to liquidate in order to pay the tax and domestic buyers are in the same boat so the liquidated securities go primarily to foreign buyers.

Another problem is that a lot of forms of wealth are hard to value. If you had a wealth tax and someone owned a piece of art, or some intellectual property, or shares in a privately held company, what are they worth? It's inherently subjective and estimates can very wildly. But then you're creating an opportunity for accountants to do their thing and avoid the tax. Waiting until the property is sold and then taxing the gain solves this neatly because then you have the sale price to go on.

Re: Modeling a Wealth Tax

#422

For a guy who's always railing about the value of honest, rational discourse, he's unbelievably misleading and political in this post. He ignores asset growth and the fact that all the wealth tax proposals have a very high floor for the tax. Saying the government will take 45% of your wealth above $100M is very different than saying the government will take 45% of your wealth.

Asset growth is taxed by capital gains tax.

Yes, but we're talking about a wealth tax. Which specifically does require that a wealthy person actually liquidate some of that wealth every year.

Not sure why people are discussing this as if it's not exactly that. PG is right in what he's saying, but wrong on the impact.

Assuming his figures are correct, then I would expect to own 45% of something much bigger than what I owned 100% of 60 years before.

Re: Modeling a Wealth Tax

#423

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…

Agreed. I doubt a very wealthy man's short blog post against taxing very wealthy people would make it to the front page of HN if it wasn't for the identity of the very wealthy man.

Re: Modeling a Wealth Tax

#424

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 most important nuance being that you control most of this wealth for most of this time and will be paying your taxes out of interest.

Then a wealth tax boils down to a punitive tax on interest income. Which means billionaires will be incented to save or invest a lot less, and consume a lot more of their wealth since they're going to lose it either way. (See, e.g. Larry Ellison's yachts as an especially obvious example of billionaires' consumption.) That's an "economic policy tool", alright. It's not as clear that it's a sensible one.

Re: Modeling a Wealth Tax

#425
This is an incredibly stupid and mendacious line of reasoning. This is just the action of an incredibly rich guy afraid to give up a small sliver of his enormous wealth, and grasping at straws to do so.

A simple way to see how silly this argument is - replace "0.5% wealth tax" with "2% VC fund management fee", and see how that changes the conclusion!

Re: Modeling a Wealth Tax

#426

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…

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 e…

> question if billionaires are bad for society

Inflation changes this detail daily. A billion is just a number of units of an arbitrary currency.

The real issue goes beyond the number and is more about generative assets vs liability / depreciating ones.

IMO the real problem is money in politics. Fix that and many of these issues with billionaires will sort themselves out as the system corrects itself.

EDIT: By "money in politics" I mean big money that overwhelms small distributed money. (ie money that does not look democratic) . Obviously it's always going to _take_ money to run campaigns

Re: Modeling a Wealth Tax

#427

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…

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…

Why do you assume the wealth tax has to be paid each year in dollars?

Maybe you could pay it in shares, so no borrowing required.

Or maybe for illiquid assets including non-public stock it could be warrants that you only have to settle at a liquidity event.

It's a strawman to assume a wealth tax will be set up in a broken way when non-broken ways are possible.

Re: Modeling a Wealth Tax

#428

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…

In the case of billionaires like Musk, Bezos, Gates... It's unrealistic to think that the government would make better use of that capital. It'll absolutely be wasted in comparison.

Taking ever more capital from the most effective/productive allocators and giving it to one of the least effective doesn't strike me as a good strategy.

A case like the Walton heirs is another story. I suspect we'd be better off taxing most of that wealth.

Re: Modeling a Wealth Tax

#429

It's important to note that leaving the United States to avoid future taxation is not an option for even upper middle class without serious penalty. The US is the only country in the world that taxes their citizens who are residing in other countries. Even if you move to another county, you still pay US taxes every year. If you'd like to renounce your citizenship to avoid that, the US has that covered. There is also…

This is somewhat misleading, especially the "30% of your wealth bit". What the expatriation tax does is tax you as if you had sold all your property for cash on the day you renounce your citizenship, though it does apply a $600k+ exclusion to the proceeds of the "sale".

Put another way, it's the US saying "you don't get to accumulate wealth in the US and then leave without paying taxes on it." It's not great (I'm an expat, so if I ever considered relinquishing my citizenship, it might affect me), but it's certainly not as terrible as you made it sound.

That said, it is pretty annoying that the US taxes you on worldwide income, independent of residence. And a lot of people who give up their citizenship do so because that plus the enforcement regimes imposed by the US on foreign banks mean that it's very hard to actually live abroad as a US citizen.

Post reply on HN