Modeling a Wealth Tax • Hacker News Board

Re: Modeling a Wealth Tax

#791

Post by patmcc » Tue, Aug 18, 2020, 10:13 PM UTC

waterhouse wrote: post #750

patmcc wrote: post #704

This is simplistic to the point of absurdity, and doesn't model how any sensible wealth tax would be implemented or paid. First, any wealth tax being seriously discussed has a floor and/or has marginal rates, probably starting at 1 or 5 or 10 million (or higher). Second, taxes don't disappear into nothingness - they pay for civilization. It is clearly beneficial to everyone to live in a society where people are well…

Your first point doesn't really apply, because PG is talking about someone who starts a successful startup, which—at least for Silicon Valley levels of success—would be above the relevant floor. (And he specifies: "over the threshold at which the tax starts".) Your second point isn't really relevant for a founder who can choose between one developed country with a wealth tax and another one without. Unless you think…

The wealth taxes being talked about, broadly, would impact people with wealth of tens of millions of dollars and above. But PG talks about what they would "mean in practice for a startup founder." Already he's made a clever rhetorical move and conflated startup founders (a large group) with very successful startup founder (a much much smaller group), in attempting to broaden the people who look like they're impacted directly by his argument.

Over the medium-long term, I think any countries that don't implement a wealth tax (or some other way of addressing wealth inequality) will not remain developed countries.

PG uses 'stock' throughout the essay as opposed to 'wealth', and I believe he did so on purpose; he's appealing to emotion. Startup founders care a great deal about control and ownership, more so than wealth in the abstract. Look later as well - "And at 5% this threshold is getting asymptotically close to being an upper bound on how much of the company you get to keep." - he's directly talking about ownership/control rather than simple wealth.

Yes, this is obviously true. But again, PG's phrasing here is key; he's making it seem like you'll have only 55% of what you start with, which isn't remotely true. It just means your wealth compounds at a lower rate. Much less impactful, clearly.

Maybe. A wealth tax on its own doesn't solve this, you also need to sort out tax havens. And again, you need to look at the real cost of these people leaving - if a billionaire moves away (instead of paying a wealth tax) what does that cost us?

Re: Modeling a Wealth Tax

#792

Post by graeme » Tue, Aug 18, 2020, 10:16 PM UTC

Something I haven’t quite wrapped my head around. Many reasonable critiques here say “wealth appreciates about 6% per year, so nobody will lose money with a 1% tax. You gain 5% per year”

But Graham’s post talks bout stock. See this:

> And at 5% this threshold is getting asymptotically close to being an upper bound on how much of the company you get to keep.

We actually have a real life example of such a founder. Warren Buffett owns about 18% of of Berkshire Hatheway. He took control of Bwrkahire Hatheway 58 years ago. So had there been a 1% wealth tax, Buffett would only have about 9% of Berkshire.

You get a larger effect the larger the tax. The result is gradual loss of control of the company shares.

People have been focussing on the performance of a mixed stock portfolio. But from the perspective of a startup founder who wants to maintain active control over a company for a long period, Graham seems to have raised a central point. Other than massive debt, there would be no way to keep the same stock share if a wealth tax took part of it year on year.

Or am I missing something?

Re: Modeling a Wealth Tax

#793

Post by bfieidhbrjr » Tue, Aug 18, 2020, 10:16 PM UTC

patmcc wrote: post #704

This is simplistic to the point of absurdity, and doesn't model how any sensible wealth tax would be implemented or paid. First, any wealth tax being seriously discussed has a floor and/or has marginal rates, probably starting at 1 or 5 or 10 million (or higher). Second, taxes don't disappear into nothingness - they pay for civilization. It is clearly beneficial to everyone to live in a society where people are well…

> Second, taxes don't disappear into nothingness - they pay for civilization

You've never worked in government it sounds like. It's a bonfire of money.

Re: Modeling a Wealth Tax

#794

Post by billiam » Tue, Aug 18, 2020, 10:16 PM UTC

This "model" is so stilted and devoid of common sense that I wonder if this guy wrote it late at night on his phone after a few.

Re: Modeling a Wealth Tax

#795

Post by defnotashton2 » Tue, Aug 18, 2020, 10:17 PM UTC

carlob wrote: post #273

gabaix wrote: post #48

Thomas Piketty's Capital in the Twenty-First Century advocates for a wealth tax of up to 2%. This is the only remedy to combat the structural rising inequality in capitalism. He also admits the tax would be difficult to implement. He should know. France wealth tax has existed for more than 30 years. It was not a success, in part because the wealthy found ways to avoid it. It was as simple as moving residence to Belgi…

His newest book goes much further, if you read Capital in the XXI Century you should give it a try. My takeaway from this blog post and his book is that: 1. we should have way more transparency on who owns what: currently information about who owns what stock is in the hands of private companies and it's not disclosed to the public. One of the effects of having an income tax is that we have very detailed information…

Exit taxes decrease competition among state entities themselves, who have the largest monopolies of anyone.

Re: Modeling a Wealth Tax

#796

Post by mac01021 » Tue, Aug 18, 2020, 10:18 PM UTC

coryfklein wrote: post #568

mac01021 wrote: post #350

Earlier quoted context omitted.

It doesn't matter how much your shares appreciate. You can't retain control of your company if you have to give up a significant fraction of your votes every year.

Unless you draw a salary or receive dividends from your stock.

Suppose I do. That's good money for me, but it doesn't amount to a controlling share in the company.

Re: Modeling a Wealth Tax

#797

Post by lemmsjid » Tue, Aug 18, 2020, 10:18 PM UTC

macspoofing wrote: post #784

cies wrote: post #778

Earlier quoted context omitted.

> the idea that people [read: super rich] "will just move to another country" is very silly. This is a recurring theme in owners/investors: they always have some story that they will be forced to leave or close shop if some labour-proteaction-laws (like weekends, or 8h days, or banning of child labour), or taxes are implemented. It's a very old story, there's a history to it. Please note that we have weekends/8h work…

This is a great illustration that the wealth tax is not about rational policy. It's based on nothing but emotion and ideology. We're not debating here the need for taxes, or labor protections. You don't get to justify bad policies by pointing that there are places where government regulation is called for. Wealth tax is bad policy. Justify it on its own merits.

Here's my own-merits justification:

Holding on to wealth is an inherently risky prospect. Let's say you are very wealthy but live in an unstable country. You're like a dragon sleeping on its pile of gold. Your wealth is a target. You need to hire considerable amounts of security, stockpile weapons, etc. in order to preserve that wealth.

In a stable country, your wealth is not under that risk and you do not need to pay for that risk mitigation. You accrue the benefits of the wealth without taking on the risk.

In other words, the act of amassing wealth and keeping it is a direct function of the stability and prosperity of the country in which you live.

Because larger amounts of wealth incur larger amounts of risk, it makes sense that a portion of that wealth should be distributed to the country at large: for example, to pay for the less wealthy people who join the military to protect your wealth.

Now: what separates that from the existing notion of income tax, capital gains tax, etc? The idea that your wealth, as it is sitting there (not its growth, not what you are earning), is incurring a cost to society, and that society is taking on risk in order to keep your wealth safe. Risk you are not directly paying for.

Furthermore, in a stable and modern country holding onto wealth is so safe and protected that you can safely invest your wealth in markets and accrue compound interest. That is the polar opposite of what you would do in an unstable country, where you would keep your wealth hidden away underground, in mattresses, etc. So you are gaining a tremendous wealth-growth benefit by being in a stable country. (This doesn't seem to be addressed in pg's post, which I found confusing, because at 1% taxation you'd be below average market gains and would still gain).

I'm not sold on the above argument being a truly compelling and overriding one for wealth tax, it's just some foundational thinking. I do think it explains, in part, why a wealthy person might choose to live in a country with a wealth tax over a country without one, assuming wealth tax became fashionable across most stable countries.

Re: Modeling a Wealth Tax

#798

Post by unethical_ban » Tue, Aug 18, 2020, 10:18 PM UTC

This is foolish on its face: Does PG think a wealth tax means giving up ownership in a company? What documentation or policy proposal is he reading where he would not sell some amount of stock on the market to pay for that tax? Or, that he doesn't have cash on hand to pay for his wealth tax?

This is incomprehensible.

Re: Modeling a Wealth Tax

#799

Post by thorwasdfasdf » Tue, Aug 18, 2020, 10:19 PM UTC

patmcc wrote: post #704

This is simplistic to the point of absurdity, and doesn't model how any sensible wealth tax would be implemented or paid. First, any wealth tax being seriously discussed has a floor and/or has marginal rates, probably starting at 1 or 5 or 10 million (or higher). Second, taxes don't disappear into nothingness - they pay for civilization. It is clearly beneficial to everyone to live in a society where people are well…

Government already owns 40% of what everyone earns in the US (see government spend as % of GDP is about 40% now). If that's not enough to pay for stuff, nothing ever will be. And it's much much higher if you're living in a blue state where salaries and COL are much higher, not to mention their state taxes are higher.

Taxing the wealthy is not an effective means of helping people. If you taxed every last billionaire in the US, 100% of all the wealth they earned over the last 50 years and gave it to every member of the US, split evenly, and divided by 50 years, you'd get a pitiful small number of about 200$ per person per head. (2.7 trillion total billionaire net worth in US / 300 million / 50 )

Re: Modeling a Wealth Tax

#800

Post by didibus » Tue, Aug 18, 2020, 10:19 PM UTC

patmcc wrote: post #748

didibus wrote: post #742

Earlier quoted context omitted.

I agree with you, but I do think something has to be discussed about the the issue with shares. Selling shares to pay tax does seem strange, the impact of losing ownership just to pay tax is weird to me. Seems it make more sense to tax when the shares are sold, but with a percentage based not on your taxed income, but your whole asset holding. Or just to tax the companies themselves more heavily.

Right, but I'm saying no one would actually sell off their shares to pay the wealth tax (I mean, maybe some would in some years). They'd borrow against the assets, or take dividends, or whatever.

I get that, but it seems quite cumbersome and complicated to me. There's got to be a simpler solution that won't involve borrowing. That's where a simple change on income tax like I described I feel might be nicer.

The end result is the wealthier do get taxed more, but the taxing still only happens at liquidation.

Whereas currently this isn't the case. Since a wealthy person can cash out 10 million a year, be taxed on that to the same extent as someone else who made 10 million, yet the next year the wealthy person total wealth could have gone up, making it they can cash out 10 million year over year forever and still grow richer, all because they always get taxed the same as someone who is less wealthy but of a similar income.