Modeling a Wealth Tax

I've always had a crazy idea that a wealth based income tax would be the way to go. ie. the more wealth you have, the harder it is to get more. This sounds like the capitalist's nightmare; but it encourages spending, and encourages innovation.

The problem with wealth based tax is how to accurately assess an individual's wealth. If someone has a resource for how that would work, I'd be interested.

Norway is not famous for it's innovation or industry - much less than equally-populated Denmark and twice-as-populated Sweden with which it shares most culture, weather, genetics (and essentially also language). Neither are Belgium or Spain, and Switzerland, though more established, is no industrial powerhouse.

I do not claim that this is a result of the wealth tax, but it definitely doesn't attract innovators and industrialists.

Norway's wealth tax starts at ~$200K and has minor discounts for main residence and volatile shares, but that's about it.

And, yes, it is often possible to take dividends from an established, profitable business - but it is horrible for the way the startup (and investment in distant future) economy works, which is likely pg's frame of reference -

I start a company, a very promising one, but it needs 20 years and billions of capital to get there. I raise $30M, still keeping 50% of my company at this point; Oops; on paper, I'm worth $30M, and have to pay (at e.g. 1%) $300K wealth tax in the first year. I cannot get any dividend; I usually can't even sell my shares or borrow against them. And it gets worse each time the company valuation grows (whether I raise more money or not). Seems far fetched? That's Amazon. Okay, Amazon is one in a million you say - but notice that the bad parts apply to ALL founded companies, whether or not they were as successful as Amazon.

So, in addition to the wealth tax, something's got to give.

Either you exclude non-liquid assets (which is a huge hole that will render wealth tax moot). Or you accept wealth-tax-payment-in-kind (that is, you put 1% of your shares into government custodianship every year, and then can convert them to tax money whenever this becomes a possibility).

Or, the entire investment world changes - either investors will have to get used to paying an extra 1.5% to cover the founder's tax liability; or valuations will drop an order of magnitude to let founders pay out of their own pocket. Or investment will be diverted to places that don't have this tax. Or it will just drop significantly.

But the assumption that wealth tax will have minor (if any) effect is ridiculous. Somewhat comparably, Israel put a very small turnover tax on stock exchange trading (which is not wealth tax, but is close enough for practical purposes) and as a result, the Tel-Aviv Stock Exchange volumes went down by an order of magnitude.

Assuming your thesis that taxing wealth encourages riskier investments for a minute. Why is that a problem? Isn't putting money into riskier assets a good thing for long term advancements in asset classes with high potential reward?

It doesn't seem like low risk investments like sticking money in the bank to be lent as mortgages or investing in government bonds are as good for humanity over the long term.

> You're sitting on greater than 50 million dollars?

Outside of Disney comic books, money doesn't sit around.

The money "in" my savings account is just bits in a database. The value it represents has been loaned by the bank to someone who is doing something with it.

When I sell stock to pay a tax, the money to pay that tax has to come from someone who bought it. That value represented by that money is value that won't be used for other things.

Are you certain that what govt will do with that value is better than what those someones are doing with it? That's the question because taxing me means that they won't have that money and govt will. (Taxation doesn't create value - it moves it.)

All of the talk about roads and stuff is somewhat dishonest. Transfer payments dominate govt spending, not production of goods and services.

> That what a wealth tax would most likely target

Ah yes, the "the tax will only affect bad things" rule. Is there any good reason to believe that the folks who are pretty much responsible for the current tax system will somehow figure out how to do this correctly?

Your belief about "money just sitting around" is not encouraging.

When things go south, we'll hear about the value of breaking eggs, but for some reason the omelets don't show up.