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How to convert between wealth and income tax

paulgraham.com

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Re: How to convert between wealth and income tax

#91

Post by jmcmaster »

vessenes wrote: post #47
ceejayoz wrote: post #41

Earlier quoted context omitted.

Musk paid $11B in a year his wealth went up $86B on his way to likely being the first trillionaire. Are we supposed to cry about it? The median net worth in the US is ~$200k. A lot of middle-class folks have likely paid more taxes in their lifetime than their entire net worth .

Nope. Just not post things like "billionaires pay no taxes."

The only reason he paid $11B that year was because he exercised Tesla options. Many other years his tax bill has ranged from zero to millions.

Re: How to convert between wealth and income tax

#92

Post by futter9 »

ceejayoz wrote: post #26
futter9 wrote: post #14

Earlier quoted context omitted.

[flagged]

> What motivates this? An element of fairness. > Why can't you just leave people be? Because they're making employees piss in bottles to survive the workday? They're buying up the representatives who are supposed to represent me? They're driving services we rely on into austerity? They get bailouts when they fuck up?

[flagged]

Re: How to convert between wealth and income tax

#93

Post by idle_zealot »

meta_gunslinger wrote: post #59
wat10000 wrote: post #31

Earlier quoted context omitted.

I can't speak for others, but this doesn't match my thinking at all. I want to heavily tax the ultra rich because money is power, and vast inequality in power is undemocratic and just plain dangerous. I don't really care if somebody buys ten massive yachts. It's annoying and seems wasteful but it's not worth too much of my attention. But it's another matter if somebody buys politicians, laws, social change. The issue…

Easily solved, remove the power centers and then the billionaires will have no power to buy or influence with their money.

"Don't want to be ruled by billionaires, peasants? Have you tried dismantling your government so they can't buy it? That will surely save you."

Re: How to convert between wealth and income tax

#94

Post by jeffreyrogers »

whatshisface wrote: post #10

A much more interesting formula would be how to convert between income and income tax - you'd think it worked according to the superficial bracket system, but in fact, it works along the lines of going to 0 at the top. P.S. a wealth tax is a property tax. They have existed in the US since before the income tax (which was originally considered unconstitutional by its opponents).

I think the limit it can reach without carried forward losses is 20% because that's the top long-term capital gains tax rate. The other thing I can think of is if you sell a QSBS business, then your capital gains are taxed at 0, and you wouldn't pay income tax at all on that money either. So it's in theory possible that someone could make millions tax free from selling a business, but that's a rare case and one the tax code explicitly allows for.

Re: How to convert between wealth and income tax

#95

Post by meta_gunslinger »

blanched wrote: post #90
meta_gunslinger wrote: post #83

Earlier quoted context omitted.

Don't hand over power to politicians, bureaucrats and NGOs. It's not rocket science to need further explanation.

Politicians, by definition , have power. How do you easily remove or withhold it?

It's the degree of power they hold, not a binary. A politican in Switzerland has much less power than a politician in China.

When your power is to determine which day the recycling truck is dropping-by, hardly anyone wants to coerce that power. But when it is e.g printing money the calculus is massively different.

Re: How to convert between wealth and income tax

#97

Post by jppope »

__turbobrew__ wrote: post #64

> In fact the conversion rate between them is about 20. A wealth tax of 1% is equivalent to an income tax of 20%. Sure, but you actually have to work for continued income. Wealth accumulates with no input once established. Wealth has the ability to increase (capital gains) without having to pay tax until it changes hands, whereas when income increases it is immediately taxed at a higher rate. Additionally, wealthy pe…

> Wealth accumulates with no input once established.

This is incorrect, historically you'll pay a ~2%-3% loss via inflation if you keep your money in cash. If you invest (making it capital) in bonds or securities then you will see accumulation, but thats actually a risk premium.

> Additionally, wealthy people can use securities as collateral for near zero interest lifetime loans which also bypass having to pay income tax.

This is true, its typically called "Buy, Borrow, Die" but the reality is that it is only available to a very small percent of wealthy individuals and exists because of the way inheritance is handled ("stepped-up basis"). Even reasonably (not fabulously) wealthy people will still pay retail rates on the loans making the tactic basically ineffective. Last I heard you needed something like 100M+ liquid for lenders to even consider it (presumably, because they will make more off of some other deal with you)

Re: How to convert between wealth and income tax

#98

Post by tyleo »

ryandrake wrote: post #8

> To convert between wealth and income tax rates, you have to divide by the rate of return on capital. The conversion rate of 20 comes from assuming that the risk-free rate of return is 5%. This seems to only be true for people whose income entirely comes from their wealth, rather than their labor. The math doesn't math for someone on the other extreme end of the spectrum who has zero savings or investments and obtai…

I feel the same way. I hear a lot of complains about wealth tax but it always seems like the problems mainly pertain to billionaires. I don't see why we should optimize for that small minority.

If we moved to a wealth tax I'd be the first in line to pay it. So long as everyone else had to pay it too.

Re: How to convert between wealth and income tax

#99

Post by vessenes »

giarc wrote: post #57
vessenes wrote: post #16

Earlier quoted context omitted.

This just isn't true, unless you're the president. Who is the single largest taxpayer in US history? I'll wait while you google it.

Prof G Markets podcast just had an episode on this with Ray Madoff. They talk about the claim that "the top 1% of Americans pay 40% of the income tax". But Ray points out that is misleading because the 1% is basically lawyers, physicians, accountants etc that make like $500,000/yr. These people still pay income tax and that's the group paying 40% of income tax. What that claim misses is the 0.1% that pay 0 income tax…

$0 just feels like a concept -- I can imagine a really high quality structuring exercise that gets tax low by making sure leverage on capital is what's used for spending, but I'd be really surprised to see a 0.1%-er (or 0.001%-er) post $0 income tax. For one, it's disadvantageous for certain kinds of bank interactions. But also, capital calls come in, investments that are made often require a step-up in basis, leverage is taken out on assets that require a margin call or a sale, there are alternative tax regimes, the corporations that are owned by these parties have their own tax burdens..

To say the wealthy can afford to radically optimize taxes and that our system taxes capital much more lightly than labor seems accurate to me, but I just haven't seen offers for "pay zero tax for all your life" from high grade professionals.

If US citizens want that, they generally give up their citizenship, pay their exit tax, and live in a low tax jurisdiction. I do know people like this, and they are very unlike the 0.1% types you're referring to here, and they've given up the benefits of being a US citizen in exchange for their preferred lifestyle. (And paid a mark to market exit tax on all assets on their way out of the country)

Re: How to convert between wealth and income tax

#100

Post by skybrian »

ryandrake wrote: post #8

> To convert between wealth and income tax rates, you have to divide by the rate of return on capital. The conversion rate of 20 comes from assuming that the risk-free rate of return is 5%. This seems to only be true for people whose income entirely comes from their wealth, rather than their labor. The math doesn't math for someone on the other extreme end of the spectrum who has zero savings or investments and obtai…

I think it’s a good point that these taxes don’t apply to most people. Another reason they don’t apply is that most people save for retirement using retirement accounts.

But nothing in the article implies that these wealth taxes apply to most people. The argument is that a 1% wealth tax is equivalent to a 20% income tax because, under certain assumptions, the government gets the same amount of money.

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