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Modeling a Wealth Tax

paulgraham.com

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Re: Modeling a Wealth Tax

#611

Post by vannevar »

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…

Agreed, I've always thought these sorts of "Atlas Shrugged" arguments were ironic coming from free-market thinkers. In a free market, if one person refuses to work for less than $100 million, there's always someone right behind them willing to work for $99M. It would take a pretty extraordinary tax to have any effect on motivation in the economy at large.

Re: Modeling a Wealth Tax

#612

Post by zxcmx »

zozbot234 wrote: post #424
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 most important nuance being that you control most of this wealth for most of this time and will be paying your taxes out of interest. Then a wealth tax boils down to a punitive tax on interest income. Which means billionaires will be incented to save or invest a lot less, and consume a lot more of their wealth since they're going to lose it either way. (See, e.g. Larry Ellison's yachts as an especially obvious…

This is trickier than it might seem. A yacht is actually an asset! (Albeit one that depreciates quickly and has enormous running costs).

Practically everything a billionaire could spend money on "at scale" is just another asset. Although again, "yacht" is a terrible asset class.

To actually get rid of enormous wealth you have to either waste it (throw a huge party? own assets that depreciate a lot? shoot it into space?) or give it away somehow.

Re: Modeling a Wealth Tax

#613

Post by awkward »

The goal of the current startup system - YC especially - is to do productive work young, and make money off investment later. There's no reason you can't do productive work in your thirties - I am, and plan to continue for a couple decades. As a life plan, however, it's incompatible with the plans that YC is selling.

Re: Modeling a Wealth Tax

#614

Post by cascom »

theplague42 wrote: post #170
cascom wrote: post #148

Earlier quoted context omitted.

I honestly think your underestimating the amount of wealth stored in private companies, real-estate, art and other il-liquid assets

Dividends? Rental income? People own these things for a reason and it's not necessarily just raw capital appreciation.

My point is that many entrepreneurs have the majority of their wealth tied up in their business, and many people that may be worth 30m might have 10m of that in personal real estate - all of which is hard to value precisely without trying to sell it.

Re: Modeling a Wealth Tax

#615

Post by Keverw »

I think it sounds crazy the gov wants to tax people when earned but also tax their savings 1% yearly. There's debates that it's unconstitutional so that's why it hasn't happened due to the uncertainty.

I think if a single state like New York did it instead of nationwide, then they'll drive just people away to states like Texas, Florida and Tennessee. Some finical companies have already left New York or downsides. Some guy who owned a hedge fund relocated to Miami and then Goldman Sachs relocated some positions to Salt Lake City. Many other examples too. Sounds like they'd want to try to attract new businesses, startups, investors but instead they are driving away their best and brightest.

Re: Modeling a Wealth Tax

#616

Post by conscion »

AnthonyMouse wrote: post #421
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…

The first thing to notice about a wealth tax is how little it fundamentally differs from an income tax on investment income. If you have a billion dollars and you get a 2% return and pay 15% capital gains tax, you paid 0.3% of your wealth in tax. So then what's the difference? For one, it pushes people towards riskier investments. At a 1% annual return, a 0.3% wealth tax is equivalent to a 30% income tax. At a 5% ann…

> you own 51% of your company but over time you're forced to become a minority shareholder just in order to pay the tax, or you owned 100% of it and are required to take on external investment over time just to stay in business

Doesn't this assume the owner receives no other income? I assume owners either receive a salary from the company, or are paid a dividend with which they could use to pay the monetary-valued tax.

Or especially in the case of 100% owned company, the owner pays themselves a "bonus" equal to the tax. The company now is worth less, reduced by the amount of that bonus, so the owner's wealth has decrease and the tax has been paid.

Re: Modeling a Wealth Tax

#618

Post by pbk1 »

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…

FYI - Keith's response is in your link; he responded before you wrote this comment

Re: Modeling a Wealth Tax

#619

Post by macrolime »

mathraki wrote: post #325
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'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…

It's like this in some European countries and the situation you describe with founders having to declare bankruptcy has happened some times. It doesn't make it impossible to own volatile assets, but it increases the risk.

Some places the rules have changed a bit to avoid some of these cases where people owe more tax that they can pay, but it can still happen.

Re: Modeling a Wealth Tax

#620

Post by jgalt212 »

> The reason wealth taxes have such dramatic effects is that they're applied over and over to the same money. Income tax happens every year, but only to that year's income. Whereas if you live for 60 years after acquiring some asset, a wealth tax will tax that same asset 60 times. A wealth tax compounds.

That's really a bit inane in the sense that income tax on disposable income (earned and especially passive) compounds the same way that a wealth tax does.

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