Modeling a Wealth Tax

After being one of the top-rated commenters on HN for some years, I have not commented in a long while. For what it is worth, here is my two cents on a topic - a wealth tax - that may seem on the surface to be benign but that is in fact just the opposite.

Silicon Valley was founded in a spirit of freedom and flexibility but that spirit is clearly and dangerously on the wane insofar as the political environment surrounding the Valley is concerned.

By the 1970s, American enterprise was in decline, a victim of the "big government/big business/big labor" trends glamorized by establishment types of that day. What this did was take away choice and flexibility.

Tech changed all that and it did so from the heart of Silicon Valley. Tech arose from a spirit of freedom and flexibility. Founders would get an idea and would have countless ways of experimenting with what they could do with it with the aim of building a venture. Many of the most wildly successful ventures came out of nowhere. No central committee could have planned for them. No overlords of big business could have had the imagination or risk-taking fortitude to push them at the expense of their established cash cows of that day. No union could comfortably impose rigid work rules onto such amorphous ventures (the first thing Intel workers did even after the company succeeded was to reject unionization). No minimum wage or overtime rules applied. Benefits packages of the type widely deployed in the analog-based large businesses of that day were unheard of.

Regulators and taxers of that era continually tried to realize their vision of locking people into situations by which they would have guaranteed security, ossifying the mature businesses over which they had control, but tech simply outran them through innovation. And, in time, upended them by disrupting their industries through innovation and risk-taking.

Today, the spirit of Silicon Valley has changed and is yielding to a belief system by which the overlords of politics believe they can dictate outcomes that will give people locked-in security forever. Want to do something as an independent to earn a livelihood? Sorry, AB5 forbids that and will penalize the hell out of any venture that seeks to use fleelancing and flexibility as a foundation for innovation and growth. Your choice to act an an independent is frozen out by dictates that, if you act at all to make a living, you must do it within rigid systems that guarantee minimum compensation, regulate overtime, prescribe minimum guaranteed benefits, and the like. If this kills opportunities, no problem: there will be other rules that guarantee basic income, limit the rent you have to pay, and otherwise regulate society such that people are guaranteed a risk-free existence courtesy of decrees enacted by political proclamation.

This new mindset is precisely the one of the 1970s-era leaders who managed to choke off innovation and growth in old-line businesses and gave a massive opening to tech innovators, particularly those in Silicon Valley.

pg's modeling of the effects of a wealth tax is spot on. And it confirms that such a tax is an innovation-killing idea that would destroy the spirit of Silicon Valley. Of course, tech innovation will not cease. It will just move elsewhere to escape the tax. Europe in the 1990s had a couple of dozen or more countries that imposed wealth taxes. Today it has three, if I recall. There is a reason for that. It is a highly pernicious tax that kills enterprise and that veers from a capitalist (even progressive) philosophy into one that is directly of a Marxist/communist variety that has left so many nations in rubble once fully implemented. Smart, innovative people are not going to stick around for the con game. They will leave.

I have watched Silicon Valley grow and flourish for decades now and have been directly involved in working with thousands of entrepreneurs who have been a part of it. There have been a lot of political changes over those decades but one thing remained constant: the foundational thinking in California always assumed a capitalistic structure. Once that is abandoned, Silicon Valley will be no more.

I know that the vast majority of HN'ers are progressive in their thinking and we all can have our own ideas about what makes for a good and just society. I am not commenting on that here.

There is a line that cannot be crossed, however, without killing the Valley itself and all that it stands for. The wealth tax clearly crosses that line and, if things are allowed to go that way, the consequences may not be what you expect them to be. It doesn't take much to switch from a tax of .4% on assets over $30M (bad as that is in itself) to a tax of a much higher rate on a much lower threshold of assets. Once that monster is unleased, who knows where it will go. It will be fundamental transformation of the Valley, and not a good one.

As I said, just my two cents.

No wealth tax proposal is flat like this. It's well known that flat taxes are regressive and disproportionately hurt lower-income (or in this case, lower-wealth) people. It is suspiciously disingenuous to strawman wealth taxes like this, while couching the revenue in terms of "your stock". Honestly expected better from pg.

In ancient Judaism there was the concept of "jubilee" in which all debts were forgiven. Zakat seems like a better version, as jubilee seems like it could be easily gamed and would dis-incentivize borrowing around the time of its action. I find it troublesome that modern nations can't see what much smaller nations or tribes found self-evident long ago: regular corrective actions keep the interests of a peoples aligned, as empathy is a weaker force than self-interest; downturns, poor future betting and wealth loss among the oligarch class, and natural disaster will Balkanize and disunite peoples unless losses are shared and create civilization-destroying or civilization-uniting opportunities for change. In a market guided by self-interest, eventually someone or some group will win the game, and when that happens people lose the incentive to cooperate and trade and a type of rot will take hold, the taxes of the State will pale in comparison to the hidden oligarch tithe enacted on all who made the grievous mistake of relying upon the beast to survive.

Maybe because the country that benefits them more doesn’t really want them, either?

I know a lot of HNWI and they all complain about tax burden regularly and never mention anything even resembling 'relative position'. IMO the relative status thing is a myth perpetuated by people with a political axe to grind. Most people who keep working past a high level of net worth just like working... don't forget there's a lot of moral value and personal inspiration in building a second or third company that 'changes the world'.