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Modeling a Wealth Tax

paulgraham.com

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Re: Modeling a Wealth Tax

#601

Post by smallgovt »

awinder wrote: post #176
foogazi wrote: post #97

Earlier quoted context omitted.

Asset growth does not matter here since the wealth tax is setup as a percentage - the government will still take 45% over time

Yeah but if your wealth has compounded 400% over 40 years, and they took 40% compounded, then that paints a different picture. He’s playing games around the idea that 100% is the cap because that’s how most people would think about money.

My guess is that you're the one misunderstanding the math here.

At a 1% wealth tax, you will end up being 45% less wealthy in 40 years than you would be without the wealth tax.

There is a 100% cap on what the government can take from you. And, with a 1% wealth tax, they are taking 45% of it (spread over 40 years).

Put another way, the 1% wealth tax is similar to a 45% capital gains tax (where the cap is also 100%). Capital gains is just more front-loaded (paid upon liquidation) whereas wealth tax is paid over time.

Re: Modeling a Wealth Tax

#603

Post by dlp211 »

mathraki wrote: post #582
irq-1 wrote: post #443

Earlier quoted context omitted.

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

So 5% - 3% = 2% real annual growth. So 1% wealth tax is equivalent to 50% tax on the return of the asset, every year. Say what you want, but this makes holding the asset or investing a lot less attractive. It will affect people's decisions and willingness to invest. Maybe we're OK with less investment but we shouldn't assume there is no impact. In addition what if this is a volatile asset (read: startup) whose value…

> Say what you want, but this makes holding the asset or investing a lot less attractive.

Not really. Where else is that money going to go? It's not enough to just say there is a disincentive, you have to show that the disincentive is so great that it makes other opportunities more attractive. But those other opportunities don't exist, because it is a wealth tax, it doesn't matter what instrument you use, the tax will still hit you.

Also, those numbers are pretty much non-sense in today's economy, with inflation consistently below 2% and nominal capital asset growth being closer to 10%, a 1% wealth tax represents a tax rate of ~12.5%.

I'm not losing sleep over a startup founder who owns so much of a company to be worth over $100MM on paper or otherwise. Startup founders have the ability to sell a part of their shares in liquidity events. If they choose to hold onto their shares above all else, it's on them to figure out how to pay the tax. It might even create a whole new financial instrument or class of investments.

Re: Modeling a Wealth Tax

#604

Post by nightski »

giantg2 wrote: post #379
nightski wrote: post #364

Earlier quoted context omitted.

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…

There are plenty of companies that are private that have large ownership shares. The point of going public is to raise capital buy relinquishing some ownership. Owners don't want to give their shares unless they have to. If there were mandates to sell out of a company that you started and at a stage before you realized the gains on the capital you raised, it would incentivize companies to stay private and find their…

I agree with what you are saying. But by relinquishing ownership they are gaining the ability to receive far more capital than they would without the public market from what I understand. If this is reinvested in the business it allows said company to grow to levels that would not be possible as a privately owned company. Even the largest privately owned company, Cargill, is making interesting restructuring moves that point to it possibly going public.

I'm actually fine with companies staying private because I fundamentally believe this seriously restricts their growth. I do not think a company like Amazon, Facebook, Microsoft, or Google (20% of the S&P 500) would be able to reach the size they did without access to going public.

Of course I fully admit I could be wrong and would love to hear interesting arguments why.

Re: Modeling a Wealth Tax

#605

Post by nightski »

prionassembly wrote: post #494
nightski wrote: post #364

Earlier quoted context omitted.

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.

Sorry if my point was unclear. I'm arguing that not only does the stock market allow companies to grow too large (stifling innovation and competition), but also allowing large ownership to become too wealthy at the expense of society in general.

If a company goes public I think there should be some consequences to that since it allows for this insane growth. Such as a more even diversification of ownership among the general public (aka investors on the public stock market). This spreads the wealth so to speak in a much more straightforward fashion than taxing the rich which leads to all the money flowing into the government.

Re: Modeling a Wealth Tax

#606

Post by fallingfrog »

Well, of course my take on this is that having the provisioning of capital in private, unaccountable hands is absurd, you wouldn’t have the army be unaccountable to the people, why the stewardship of capital? Capital ought to be under worker control and management via democratic means.

Local capital should be under local control; also some capital should be under the control of nationwide democratic structures. That capital would have to be removed from the capitalist aristocracy that currently holds it- so what I’m saying is, forget 1%, let’s start talking about 100%.

Re: Modeling a Wealth Tax

#607

Post by zeveb »

spencerflem wrote: post #535
zeveb wrote: post #220

Earlier quoted context omitted.

> Wealth tax proposals I've seen don't kick in until $50 million or $100 million. The very first U.S. income tax, imposed during the Civil War (the nation's bloodiest conflict), was 3% on income over $12,720, rising all the way to 5% on income over $159,000 (in 2020 dollars). This was unconstitutional at the time, and was eventually repealed. The first income tax imposed after the ratification of the 16th Amendment w…

The fact that the government taxes normal people at a rate much higher than they deserve seems to be an argument for a wealth tax and not against it

If it taxes the income of normal people at a higher rate than they deserve, why do you think it would refrain from taxing the wealth of normal people higher than they deserve?

Re: Modeling a Wealth Tax

#608

Post by heylook »

darth_avocado wrote: post #600
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…

You are right that the discourse is not nuanced, but it highlights a very basic problem with taxing an asset again and again, especially on unrealized gains. We gladly support this idea, because it affects "the billionaires" but not when it comes to everyone else and for good reason. Repeated taxation on an asset can erode your wealth really quickly. Here in California, your house gets taxed on the purchase price, bu…

> it highlights a very basic problem with taxing an asset again and again, especially on unrealized gains.

Why is it so hard to understand the concept of a floor? If we only tax wealth above $10m or $100m, it will literally never result in "all of your wealth" disappearing.

> We gladly support this idea, because it affects "the billionaires" but not when it comes to everyone else and for good reason.

> Ironically this is one of the main contributor to sky high real estate prices and housing crisis

Right. We support it, but we don't do anything about it, even though it causes one of the most obvious policy problems in the state.

> if we do, most people would lose all their wealth in a matter of couple of years.

Like literally every other state? I'm sorry, no. This comment is internally logically inconsistent, ignores obvious examples to the contrary, and asserts itself as its own proof.

Re: Modeling a Wealth Tax

#609

Post by rurp »

nemo44x wrote: post #109
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…

> 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. That’s just the starting point. Once people begin to figure out how to avoid it or have been tapped then the qualifier will be lowered to 40m. And then eventually 30m and do on until anyone above average is paying it. And then anyone above media…

> These things always get a wider, and wider net until anyone just starting to get ahead is caught in it.

No, they don't. You only have to go back a couple years in the US for an example where tax rates for the wealthy were massively cut.

Re: Modeling a Wealth Tax

#610

Post by andrewtbham »

cycomanic wrote: post #370
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…

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…

billionaires definitely can be good for society. they do things that are in the public interest but governments can't attempt because they are inherently risk adverse because politicians want to get re-elected.

Bill Gates does high risk speculative, investments for causes such as eradicating diseases.

Elon Musk is attempting to colonize Mars. Because Presidential administrations are a maximum of 8 years and it takes longer to achieve a big goal in space, such as moon or mars colonization, Nasa has had a hard time sticking to a long term goal for space.

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