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Modeling a Wealth Tax

paulgraham.com

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Re: Modeling a Wealth Tax

#931

Post by ivalm »

bhupy wrote: post #916
ivalm wrote: post #817

Earlier quoted context omitted.

Wealth tax proposals target only very high nw people. There is no inherent right to be very high net worth, if you are not productive with your wealth then it is more efficient for the society if that wealth is reallocated. This is what wealth tax does.

> there is no inherent right to be very high net worth But there is an inherent right to the ownership of property (enshrined in the US Constitution). A Federal wealth tax is currently unconstitutional for the same reason that you don’t have Federal property taxes: the Constitution explicitly prohibits the Federal government from levying direct taxes except for income (via the 16th Amendment). Wealth is not income.

Sure, I am all for an amendment.

Re: Modeling a Wealth Tax

#932

Post by ouroboros1 »

Another way of looking at it is: what proportion of your wealth would you give to be wealthy for e.g. 60 years. This tax doesn't transform wealthy a wealthy person into a non wealthy person over time.

Re: Modeling a Wealth Tax

#933

Post by gok »

dmode wrote: post #888
misun78 wrote: post #843

Earlier quoted context omitted.

People can question all they want about why wealth is not trickling down but that doesn’t change the underlying analysis or outcomes around why this is a bad idea. You may get income redistribution and trickle down but if it changes the underlying systems that create wealthy, those same people will just end up poorer but more equitable.

Is there any evidence for that assertion ? I mean you take any European country such as Norway, Denmark, Netherlands, Switzerland, UK, and even France. Where taxes are remarkably high, and definitely far fewer billionaires per capita. Europe has better health outcomes, better income equality, and extremely low poverty rate compared to the US. [1] [1] https://data.oecd.org/netherlands.htm

Norway, Sweden, Switzerland, and Iceland all have more billionaires per capita than the US.

Re: Modeling a Wealth Tax

#934

Post by patmcc »

CryptoPunk wrote: post #880
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…

The exasperated/condescending tone of your comment is really inappropriate, given the number of specious and economically fallacious arguments contained in it. Let's go through each: >>There's a reason failed states and unstable/developing countries generally aren't where people are looking to startup the next big tech company. There's a negative correlation between government spending levels as a percentage of GDP,…

>>>There's a negative correlation between government spending levels as a percentage of GDP, and economic growth rates. Your implication, that society is better off with high levels of taxation, is not supported by the science on the matter.

I don't think your correlation suggests what you think it does - look closer at which countries have the highest GDP growth rates. Economic growth rates are not a good indication of countries where people would generally choose to live. I'd generally use HDI, happiness, life satisfaction, or similar, all of which correlate to higher government spending.

>>>Wrong. The losses also have to be compounded. That 1%, had it remained invested, would have grown at a compounding rate as well. So you lose the 1% and all compounded gains on it.

Yes, of course. So your wealth (above the threshold) grows at an effective 3% instead of 4% (or whatever). PG's essay makes it seem like your fortune will dwindle away to nothing, which isn't true. It'll just grow more slowly than it could.

>>>Firms in low tax tax jurisdictions will outcompete firms in high tax ones, ceteris paribus

But this misses the point - other things aren't equal! California already has a higher tax burden than many other states, the US already has higher taxes than many other nations, and still they are among the richest places on earth. Higher taxes can create a society much more beneficial to all of its members, including the rich ones.

>>>How much more do you think government spending should increase? What share of private economic output should be non-consensually redistributed for social welfare programs in your mind?

Enough to make sure every person has enough to eat, somewhere to live, universal healthcare, access to education, and the opportunity to succeed.

>>>Will there ever reach a stage where you think the negative effects on capital formation, from further tax hikes, will outweigh the positive effects of a greater share of economic output being available to the poor in the form of cash payments and social services?

Unlikely. If there is such a stage, I suggest to you it's well below ~5% on all wealth above ~$10 million (which is at the top range of what is discussed in these kind of wealth tax proposals).

Re: Modeling a Wealth Tax

#935

Post by paconbork »

coryfklein wrote: post #552

Graham does the classic magician's trick of showing you something shiny so you don't see what he's doing with his other hand. In this case, the shiny is the scary 45% figure. What he draws your attention away from is the bizarre hypothetical: > Suppose you start a successful startup in your twenties, and then live for another 60 years. How much of your stock will a wealth tax consume? Who is this hypothetical 20 year…

A $50M company that gives $1M in dividends is worth $49M. It would need ~12% growth to be worth $55M. A company deciding to issue dividends does not change the net worth of any shareholder (it can actually have a negative effect due to tax inefficiency).

So to your example: A $50M company grows 5% a year. Lucky 20-something holds a stock+dividend value of $52.5M before tax at year's end. Of her $1M salary, ~$330k goes to federal income taxes, another $30k to FICA. Too bad she's in California, that's another $100k in state income taxes.

Still, she has ~$540K left over in liquid income. Perhaps she can use this to pay off her $500K wealth tax liability and keep full company ownership if she lives modestly.

Next year presents a bigger challenge. Lucky 20-something's company has grown in value by 5%, and so too has her wealth tax burden. However, her salary needs to grow by ~7% to account for income taxes (and a higher growth rate would have made this worse). This is clearly unsustainable and she will need to sell some company shares before her exponentially growing salary eclipses the value of the whole company!

She'll still be rich enough to retire whenever and sip martinis in Florida of course, she just won't hold the majority of the shares of the company she founded.

Edit: I realize that I sort of neglected dividends after the initial bit. A company could pay off 1.2% (to account for capital gains tax) of it's total value as dividends assuming it had sufficient liquid holdings (and it can't sell stock to come up with them, as that would defeat the purpose). In this case, it would cut company growth potential by about 25% but could allow lucky 20-something to retain control, provided the company can always come up with the liquid assets, even in down years. But that's probably the most realistic scenario of this working.

Re: Modeling a Wealth Tax

#936

Post by around_here »

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…

"Founders" that the author wrings his hands about so much, owe 99% of their ability to generate wealth to the government. If you're from the US, you own most of it to global American imperialism and hegemony. You should be giving it up so that others can have the same opportunity as you did.

Re: Modeling a Wealth Tax

#937

Post by tekknik »

patmcc wrote: post #811
macspoofing wrote: post #758

Earlier quoted context omitted.

>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). Uh huh. >Second, taxes don't disappear into nothingness - they pay for civilization. But there are bad taxes. There is such a thing as too much tax. So you have to justify the wealth tax on its own merits instead of trying to pull a motte-and-bailey fallacy by pushing a wealth…

Do any wealth taxes being seriously discussed not have floors/exemptions for primary residences/marginal rates/whatever? Why is a wealth tax a bad tax? Why is it worse than income tax or a VAT or anything else we currently do? Many places currently have property taxes (a type of wealth tax) and they tend to work well. You need to redo your math. If your net worth is $10+ million and isn't increasing by at least ~4% a…

> You need to redo your math. If your net worth is $10+ million and isn't increasing by at least ~4% a year you're doing something very wrong. So ~1% of your wealth going to taxes is eminently affordable. No need to lose control.

So now if I make $10mil, which is plenty to live off of today and likely in the near future, and want to call it quits and retire, I now have to continue to make 4% (why 4% also, seems arbitrary) so I can support a wealth tax? Do you not see you’re taking an option away by forcing someone to cover this tax with further gains?

Re: Modeling a Wealth Tax

#938

Post by atlgator »

ntSean wrote: post #884
grellas wrote: post #551

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 surrou…

You point towards regulation as the culprit of innovation being killed; I wonder how you are not aware most people live pay-check to pay-check, and therefore can not adopt the risk necessary to be entrepreneurial? We all, live in an extremely divided economic landscape - the _most_ divided in modern history. I do not understand how this is not a focus of your argument. With this in mind, if our government offers supp…

You're going from one extreme to another. Starting your own business is not the only alternative to working for big business. There is a remarkable difference between working at Lockheed Martin and working at SpaceX, for example. One is arguably a lot more innovative than the other. And you do know that politicians are responsible for globalism right? It can be curtailed as easily as it was expanded.

Re: Modeling a Wealth Tax

#939

Post by darksaints »

imgabe wrote: post #838
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…

Then why are all the manufacturing jobs in China and other countries without those labor laws? The remaining jobs in the US are salaried position where "8 hour workday" and "weekend" are often meaningless. Plus we're talking about a wealth tax in California. You can start a company in Nevada and still access the market of California just fine.

The US GDP contribution of manufacturing is about $2 trillion per year, and employs about 9% of our workforce. That is a far cry from having all of our manufacturing jobs shipped overseas.

Re: Modeling a Wealth Tax

#940

Post by camhart »

How does a rich person being rich harm my chances of becoming rich myself? Until someone can answer this, I'll continue to believe a wealth tax is nothing more than legalized robbery.

If it's a company using anti-competitive behaviors, attack that. If it's unfair laws due to lobbyist, fix it. If it's underpaid employees, figure out how to increase their pay. If housing/healthcare/education is too expensive, figure out how to fix the system to decrease the price.

Government's shouldn't be allowed to pick favorites like this--especially from individuals.

The real solution to a shrinking middle class won't be solved by taking money from the wealthy and putting it into the governments hands. Governments do a poor job with the money they're given already. Why? because there's no competition in government. There's no one holding governments accountable for how they actually use the funds.

I think http://paulgraham.com/wealth.html is a good supplement to this.

Hello down votes.

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