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Modeling a Wealth Tax

paulgraham.com

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Re: Modeling a Wealth Tax

#441

Post by mathraki »

solidasparagus wrote: post #387
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…

Won't startups just go public sooner? Or maybe private company valuations will become less ridiculous since the value of your shares would actually matter for something besides ego now? I do think that taxing paper wealth is a problem, but if you are creating billions of dollars in economic value, there is usually a solution (e.g. as part of raising that $500M, a portion of that goes towards paying wealth taxes). Any…

People want to exit but in most cases can't because the company is not doing well. Everyone who has tried fundraising with bad results knows it's super hard. Despite popular stories in the press, that's the fate of most startups.

Having a struggling company is super stressful, adding the government asking you to come up with money to pay personally, because you are 'wealthy' on a paper would take it to a different level.

Re: Modeling a Wealth Tax

#442

Post by SoylentOrange »

I would like to raise a different point from the many valid points already raised in this thread.

I understand this might depend on the definition of “wealth tax”, but if the founder uses the money they make in their 20s to, for example, buy a home; buy cars and other assets; invest in another company; give the money to charity... then the money remains largely intact. It is only by hoarding the wealth for 60 years that a founder would lose ~45%.

This doesn’t seem unreasonable, as people respond to incentives and will try to avoid the bad outcome by being proactive. This is akin to saying “if I have less than $1000 in my bank account, the bank will charge me a $5 fee each month. Then after just 16 years, all the money will be gone.” This is technically true, but no rational actor would actually just keep their money in the bank under these circumstances.

Re: Modeling a Wealth Tax

#443

Post by irq-1 »

barretts wrote: post #33

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.

The time-value of money is basic. 1% wealth tax, 3% inflation and 5% annual growth leads to more money in the future, not less. (Those percents are conservative.) Is it possible that PG doesn't understand this? Or is it shallow politics; lying and using his platform spread FUD. For shame.

https://en.wikipedia.org/wiki/Time_value_of_money

Re: Modeling a Wealth Tax

#444

Post by option »

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…

“ and there is zero evidence that this has any deterrent effect on wealthy people settling in Switzerland or startups being created in Switzerland.” - I can’t name any startup out of Switzerland, but can name at least one for pretty much any european country.

Re: Modeling a Wealth Tax

#445

Post by tempsy »

This is such a strange and bad faith argument.

I don't think pg actually doesn't understand the notion of inflation, asset value increases, dividends, etc.

I mean our entire pension system is built on top of the assumption that equity holders will see an average of 6-7% returns annually over a long stretch of time (TBD if this holds true).

If you're going to argue against a wealth tax and this is what you've got then you're really just saying you have nothing.

Re: Modeling a Wealth Tax

#446

Post by topaz0 »

bhupy wrote: post #45
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.

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…

"taxes both the winners and the losers".

Nobody who's sitting on $50M of assets is a loser.

Re: Modeling a Wealth Tax

#447

Post by nafey »

Why is progressive wealth tax not being considered? The wealth tax steadily increases as your possessions increase. I think that will result in a much fairer system.

Re: Modeling a Wealth Tax

#448

Post by bhupy »

topaz0 wrote: post #446
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…

"taxes both the winners and the losers". Nobody who's sitting on $50M of assets is a loser.

> Nobody who's sitting on $50M of assets is a loser.

First of all, we're not talking about "$50M of assets", we're talking about $50M ownership in your company. That is un-diversified.

Second of all, a wealth tax necessarily means that you will have to relinquish ownership of your own company unless you're "a winner".

Re: Modeling a Wealth Tax

#449

Post by chii »

JoeAltmaier wrote: post #195
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…

How about: you're committing fraud if you bury a jar of gold coins in your back yard. What business is it of anyone elses' what you do in your own home? This idea of 'you have something; give it to us!!!' is very disturbing at some level. Its different from other taxes, that tax an interchange with another person or entity. That is supported by society and its mechanisms, for which government (e.g. all of us) have so…

> Its different from other taxes, that tax an interchange with another person or entity.

yes, taxing transactions between entities makes sense, because transactions is where wealth (or value) is generated.

Taxing accumulated wealth does not make for a good policy, since this erodes stored wealth. Unless it's somehow paired with a reduction in other taxes (and thus defeat the point of the wealth tax in the first place as a way to levy more revenue to the gov't).

This is why a consumption tax is, in my opinion, the best kind of tax.

Re: Modeling a Wealth Tax

#450

Post by rswail »

Zak wrote: post #413
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…

> One point that PG does address which is often skipped over is that a wealth tax is a "deplete billionaires" policy It has long been my impression that eliminating or reducing billionaires is the primary goal of wealth tax advocates other than those whose advocacy primarily consists of sharing memes on social media. Raising revenue is largely a red herring.

It's the primary goal of a wealth tax. To reduce the concentration of wealth in a small minority of the population.

Let's say that there was a 1% wealth tax on all wealth over $1b. So Bezos would have to liquidate say $1b each year for that tax.

Yes, he'd have to sell Amazon stock. That would feed into the stock price of Amazon in terms of increased liquidity of the stock, but it has zero effect on the operations or growth or income of Amazon itself.

Arguably it would have little or no impact on Bezos' activities. He would still be running Amazon, he would still be working to make it grow etc.

What would change is that over time, the wealth would be distributed via the items funded by that tax.

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