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Modeling a Wealth Tax

paulgraham.com

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Re: Modeling a Wealth Tax

#491

Post by nybble41 »

tehlike wrote: post #369
nybble41 wrote: post #190

Earlier quoted context omitted.

> 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.

You have to pay back the loan eventually, with interest. This doesn't change the fundamentals. It just means you're paying a bit more overall to defer selling the shares.

It does bring up an interesting point, however. Is this tax applied to net wealth? Can you subtract money that you owe to someone else? What if the lender is outside the country and thus not subject to the wealth tax? And what happens if your net wealth is negative—do you get a refund?

Re: Modeling a Wealth Tax

#492

Post by kyranjamie »

em500 wrote: post #241
I_am_tiberius wrote: post #149

Earlier quoted context omitted.

Switzerland can afford taxing based on wealth because other taxes are very low (e.g. only ~20 % of tax on your salary).

The Netherlands also has a wealth tax. Other taxes are not low (income tax of around 37%-49%, 21% VAT).

And it kicks in at €30,000

Re: Modeling a Wealth Tax

#493

Post by mbesto »

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.

> For a guy who's always railing about the value of honest, rational discourse, he's unbelievably misleading and political in this post.

Where does pg rail about honest rational discourse? If you follow him on twitter for the last couple of years it's been nothing but pontification.

Re: Modeling a Wealth Tax

#494

Post by prionassembly »

nightski wrote: post #364
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…

I don't necessarily disagree with what you said. This is because I don't know what you're arguing for.

Wealth taxes are one solution for what? For the anger people feel when they realize billionaires exist, absolutely. To improve the lot of the very poor, maybe (but an argument needs to be made here).

These discussions assume too much about the end goal of society.

Re: Modeling a Wealth Tax

#495

Post by Nursie »

Reedx wrote: post #428
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…

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 mo…

> It's unrealistic to think that the government would make better use of that capital.

Yep, what has the government ever done for anyone!

Re: Modeling a Wealth Tax

#496

Post by chii »

marcus_holmes wrote: post #59
mjburgess wrote: post #24

Earlier quoted context omitted.

PG is talking about investing in companies, not general funds. For a founder to invest (eg., $1m) in starting a company, there is of them losing their total investment. The expected ROI needs to be fairly high to offset that. The only people who /could/ make money under such a scenario are super-rich investors making many bets that average out risk. And they wouldnt, given -- as you say -- general equity would perfor…

> For a founder to invest (eg., $1m) in starting a company Do you mean founder, or investor? I don't know any founders who invest that much into their startup. Startups are high-risk, high-return investments. If a wealth tax was introduced, wealthy people would need higher returns (as others have pointed out) to cover their tax obligations and so would invest in riskier investments. Like startups. So startup investme…

> to cover their tax obligations and so would invest in riskier investments.

Just because the investment is riskier, doesn't mean the returns are automatically better. It only goes one way - higher returns are automatically more risky.

If wealth tax is implemented, then an investment automatically becomes lower return (since the wealth generated is also going to be taxed indefinitely). So an equivalent startup that would've returned 10x with no wealth tax will _need_ to return 11x (or something higher) to make the investment worth the same risk as before the wealth tax. i.e., there will be fewer investment opportunities that are suitable, given the higher bar it must reach under a wealth tax.

It's been shown time and time again, that a tax on something will discourage it (in the aggregate). I don't think a wealth tax is any different - it will discourage wealth creation.

Re: Modeling a Wealth Tax

#497

Post by gadders »

Retric wrote: post #268
bluelu wrote: post #146

Earlier quoted context omitted.

That's not true. In some cantons, the very rich get extra deals, called Lump-sum tax, independently of their revenues. E.g. the Ikea founder only paid around 165000$ in total taxes in 2014 on a fortune of 46.5 billion US $ and all his revenues which he had. Source: https://www.20min.ch/story/so-wenig-steuern-zahlte-der-ikea-... )

That’s often reported but factually incorrect he did not own 100% of Ikea. https://en.wikipedia.org/wiki/Stichting_INGKA_Foundation . That charity was valued at 36 Billion in 2006 and controls most IKEA stores and assets. The family owned https://en.wikipedia.org/wiki/Interogo_Foundation which was valued at 15B in 2011 which controls IP and collects 3% of revenue from each store.

We all know that's a tax dodge though, right? https://www.economist.com/business/2006/05/11/flat-pack-acco...

Re: Modeling a Wealth Tax

#498

Post by giantg2 »

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.

I would think it's valid to make that assumption given taxes must currently be paid in dollars and I don't know of any places that allow it to be paid in equity. I would also think out debt obligations to the world bank must be paid in currency.

Re: Modeling a Wealth Tax

#499

Post by pampersluxer »

dragonwriter wrote: post #465
pampersluxer wrote: post #454

Earlier quoted context omitted.

Taxing unrealized capital gains is incredibly harsh. Basically cuts your yearly returns in half, and that completely destroys your returns over long periods of time (30 years). Out of all the proposals, this seems the most insidious.

Taxing unrealized capital gains (provided you also allow deduction of unrealized losses) is equivalent to taxing net realized gains except in effect on the power people holding large unrealized gains can exercise over society. It doesn't have any effect on net, after taxes returns.

I'm not sure I follow. Let's assume 10% growth of your assets every year, with 50% tax on gains. You start with $1k. After 30 years you liquidate all assets.

If taxing unrealized gains, you end up with $1k * (1.05)^30 = 4,321 If not taxing unrealized gains, you end up with $1k * 1.1^30 = $17,449 and then pay 50% tax on $16,449 when you liquidate, so you end up with $9,224.

Re: Modeling a Wealth Tax

#500

Post by garmaine »

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…

I am a multimillionaire on paper due to restricted founder stock from a previous startup. I have left that job and don’t expect to ever see that money as the guys in charge now are unlikely to ever realize an exit. I’m now back to earning just a regular software dev salary at a big corporation. I never got to see a return on any of my founder shares and not wealthy by any means.

Nevertheless, I’m now at risk of having a six figure tax bill every year for paper wealth that is 100% illiquid.

If this passes I would be leaving the state and guarantee you I would NEVER found a startup in California again.

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