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Modeling a Wealth Tax

paulgraham.com

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Re: Modeling a Wealth Tax

#431

Post by mathraki »

metzby wrote: post #427
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…

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.

So the government takes a board seat (or two or three) eventually in the company?

There are a lot of rights and some obligations that come with equity ownership in a company beyond financial return.

Re: Modeling a Wealth Tax

#432

Post by rswail »

maest wrote: post #116
hajile wrote: post #101

Earlier quoted context omitted.

> 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. We already do that via inflation. Leave your money uninvested and we tax it 2% or more per year, every year.

One big difference here is that inflation affects everyone equally (not exactly right, but let's ignore that for now). A wealth tax would act as an extra tax on ultra wealthy individuals.

That is absolutely correct. It would be an extra tax on ultra wealthy individuals.

That is its purpose. I'm not sure why people think otherwise.

Whether you think that purpose is a good reason to have a wealth tax is a separate argument.

Re: Modeling a Wealth Tax

#433

Post by chii »

jacknews wrote: post #218

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.

> you should get diminishing returns from your amazing thing over time

why should this always be the case? If you made wealth, why, after you stopped working (to enjoy said wealth), should it be taxed continuously?

Re: Modeling a Wealth Tax

#434

Post by dkural »

gridlockd wrote: post #349
hospadar wrote: post #259

Boooooooo This is just bad (bad == misleading) math. Where's the appreciation of the assets? Where's the real examples from other countries that have tried wealth taxes? I don't know what he's _trying_ to do, but the effect of his rhetoric certainly seems to me that "If you won the lottery, you this would be bad for you! [but if you don't, it'd be great for you, and really only bad for ultra-rich people like me]" I'd…

The problem is that a wealth tax of just 1% doesn't actually raise that much money, a proposed wealth tax of 2-3% (Warren) would be the highest in the world. If you have that kind of money, why would you not just take it elsewhere? Think about it, if that capital is actually creating returns to make up for the depreciation, it must be working capital . Removing it from the economy would be damaging. What if the money…

They'll have to renounce their US citizenship. And the wealth will get reinvested in wherever it produces the highest returns, like it already is right now.

Re: Modeling a Wealth Tax

#436

Post by cik2e »

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'd also like to point out that we already have a wealth tax for everyone who would otherwise put their income taxes into savings. The lower the savings rate, the higher the effective wealth tax rate on the middle class.

Assuming an absurdly high 25% savings rate on your pre-tax income and a 25% tax rate on that income, boom, there's your 50% wealth tax. So the 45% wealth loss over 60 years in PG's toy example that ignores asset growth sounds totally fair to me in this light.

And with this "absurd" wealth tax on the middle class, why do we still have educated people from all over the world pounding at the door to get into the US? I would posit that it's for the same reasons that a wealth tax wouldn't suppress startups in this country.

Re: Modeling a Wealth Tax

#437

Post by dodnest »

This piece is barely a page long. I've been so disappointed with Paul's work recently, he's just been getting lazier and lazier with his essays and I think his political worries and biases are starting to show.

Re: Modeling a Wealth Tax

#438

Post by [deleted] »

metzby wrote: post #427
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…

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.

[deleted]

Re: Modeling a Wealth Tax

#439

Post by chii »

karl11 wrote: post #163

Incentives are powerful, and typically get the result they are incentivizing in the end. All taxes are a form of incentive, we should always be careful of taxing things that we want more of. If you favor a wealth tax, you are implicitly arguing in favor of incentives to create less wealth. If you tax investment, there will be less investment. If you tax the rewards from great risk taking, there will be less great ris…

> My sense is that many people advocating for a wealth tax do not understand this conceptually.

or they do, and yet still advocate for it because they know they will never be affected by this tax, but the tax will benefit them (indirectly via more social welfare funded by said tax).

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