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Modeling a Wealth Tax

paulgraham.com

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Re: Modeling a Wealth Tax

#691

Post by theplague42 »

logicchains wrote: post #120
AussieCoder wrote: post #88

Every proposal I have seen kicks in after $100m. That's a level of wealth where even paying a 5% tax is likely to result in an annual net increase in wealth, as when you have that amount of money to invest achieving 5%+ returns is not unusual. The net result is that wealth would still increase, just at a slower rate. Additionally, even amongst the general population, let alone startup founders, the number of people w…

>What this means is that people arguing against a wealth tax are happy to disadvantage 330m people to protect the wealth of a low number of thousands. By not giving 1% of your wealth to Africa you're disadvantaging a billion people to protect the wealth of one. It's not a disadvantage to someone that they're not getting a part of somebody else's wealth; we're not born with some divine right to other people's money.

It's not other people's money, it's the government's money! They printed it.

Re: Modeling a Wealth Tax

#692

Post by mapgrep »

This post completely ignores that even safe investments are going to earn a return over 1% on wealth. So even a founder who liquidated all her stock and parked it in a prime money market fund would have earned 1.3% over the past year — and that’s at a time of near record low interest rates.

A founder with any sizable wealth and a long time horizon (>15yrs) would earn much better than 1%. Even conservative retirement calculators given such a horizon will steer you toward a real return of 3%, or 5-6% after inflation. That’s an estimated return in stock heavy index funds. Someone with most of their net worth in a successful startup — precisely the person Paul frets about — will do much much better than that for at least several years earning startup returns. (Those not so successful won’t have much wealth to tax.)

Basically I think it’s a little silly to wring hands over the compound impact of a wealth tax and at the same time give no acknowledgment to the compound returns available to the average long term investor to say nothing of the very wealthy. A wealth tax has a real impact but it’s more about dragging down returns on wealth than eroding wealth per se.

Inflation has a very similar compound impact on any given sum.

Further, Paul does not acknowledge the benefits to a person AND a tech company of being based in the US over other countries, or past crucial investments by our people in basic research enabling many if not all YC and other Valley startups.

Re: Modeling a Wealth Tax

#693

Post by amelius »

> 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.

But so does wealth. Being wealthy gives you lots of advantages; one is that it makes it easier to gain more wealth.

Re: Modeling a Wealth Tax

#694

Post by francisofascii »

randomdata wrote: post #569
narrator wrote: post #384

Earlier quoted context omitted.

One problem with a wealth tax is rich people who are not in publicly traded corporations are not extremely liquid. Often times this means having to sell off assets which is hard to do if their assets are largely in private corporations.

I always wonder how the farmer would deal with a wealth tax. Farmland, for example, is worth an incredible amount of money (where I live, at least), but cashflow is marginal, and net incomes are often negative. That would mean that the farmers would often have to sell off their land to cover a wealth tax on the land. Severing farmland is rarely permitted, so it would have to be entire parcels. It seems like soon you'…

If done properly, the tax would never be more than the annual net return of the farming activities. In theory, if the net gain is low, then the value of the land should also be low. If the land is worth an incredible amount, but not as a farm, well, that is a different problem worth solving. It will always be a never ending races to cover up new loopholes and create proper incentives.

Re: Modeling a Wealth Tax

#695

Post by robertofmoria »

Wealth tax already exists in several forms. There is tax on property, income, employee wages, sales tax, etc. All are "wealth" taxes. Someone without wealth cannot be taxed!

Do the wealthy have more power in government than the average person? Yes and no. They have money to buy and make their voice loud, but so do other wealthy people that disagree. It is individual responsibility to vote and hold government accountable which it will always be. Taxing good behavior or morals does not work. A wealth tax on top of what already exists is bullshit. Not to mention if the wealthy control the government a wealth tax isn't going to change that. It will just allow the wealthiest access to more people's money that wasn't theirs to begin with.

Re: Modeling a Wealth Tax

#697

Post by KarlKode »

gridlockd wrote: post #349
hospadar wrote: post #259

Boooooooo This is just bad (bad == misleading) math. Where's the appreciation of the assets? Where's the real examples from other countries that have tried wealth taxes? I don't know what he's _trying_ to do, but the effect of his rhetoric certainly seems to me that "If you won the lottery, you this would be bad for you! [but if you don't, it'd be great for you, and really only bad for ultra-rich people like me]" I'd…

The problem is that a wealth tax of just 1% doesn't actually raise that much money, a proposed wealth tax of 2-3% (Warren) would be the highest in the world. If you have that kind of money, why would you not just take it elsewhere? Think about it, if that capital is actually creating returns to make up for the depreciation, it must be working capital . Removing it from the economy would be damaging. What if the money…

If you inductionally apply the argument that you shouldn't increase taxes because someplace else offers a lower tax burden, no place can raise it's taxes. There are other factors in choosing your country of residence (and nationality) than taxes.

Re: Modeling a Wealth Tax

#698

Post by mcguire »

"Suppose you start a successful startup in your twenties..."

Suppose you are a spherical cow of uniform density...

"...and then live for another 60 years."

...having converted your stock to greenback dollars and never making another dime...

Suppose you exit your startup with $10,000,000 in stock, that it (or your portfolio containing it) grows by 5%/year, and that you pay 1%/year wealth tax. After 60 years, your value will be about $100,000,000 and you will have paid about $25,000,000. If I'm doing the math right, you could have ended with $190,000,000, meaning a 1% wealth tax would have theoretically cost you $90,000,000.

    initial_value = 10000000
    growth_rate   = 0.05
    tax_rate      = 0.01

    value = initial_value
    total_growth = 0.0
    total_tax = 0.0
    for y in range(0, 60):
      growth = value * growth_rate
      total_growth += growth
      value = value + growth
      tax = value * tax_rate
      total_tax += tax
      value = value - tax
      print(y, value, growth, tax)

    print(value, total_growth, total_tax)

Re: Modeling a Wealth Tax

#699

Post by francisofascii »

kgwgk wrote: post #360
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…

On the other hand, the wealth tax is not the same across the country and definitely there is evidence of wealthy people choosing their residence accordingly.

Which is a good reason to only tax natural resource wealth, rather than all assets. You can't move a private beach or a n oil reserve from one country to another. It also is a fairer way to tax, since natural resources are not wealth created.

Re: Modeling a Wealth Tax

#700

Post by defen »

bhupy wrote: post #65
defen wrote: post #57

Earlier quoted context omitted.

They would just take out loans against their assets and pay the interest using relatively small asset sales.

But even if they take out a collateralized loan, they need to be realize some gain somewhere to pay back that loan. Wherever that happens, it is taxed either as income or capital gain. Nobody is going to loan Bezos billions and expect not to be eventually paid back, and that repayment can only happen if the wealth is realized as income, and then taxed. > using relatively small asset sales Those "small asset sales" ar…

Someone like Bezos could probably take out a 100 million dollar loan at 2% interest and just pay $2 million/year in interest in perpetuity, right (via realized capital gains)? Then they'd be well under any plausible 100% tax window.
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