How to convert between wealth and income tax • Hacker News Board

Re: How to convert between wealth and income tax

#111

Post by ceejayoz » Fri, May 22, 2026, 4:29 PM UTC

vessenes wrote: post #108

ceejayoz wrote: post #68

Earlier quoted context omitted.

They don't pay zero tax, for sure. But they certainly get clever about techniques to keep it as low as possible, for shockingly low effective tax rates. https://www.propublica.org/article/the-secret-irs-files-trov... has a whole bunch of examples.

I have some quibbles about the ProPublica definitions -- for instance market liquidity matters when calculating public company stock wealth -- and even if you're going to borrow against it, there are additional costs and pledges that must be made that significantly reduce the available capital. The propublica number was like 4.5% or so if I recall, and does not count the taxes paid by the companies these people owned…

> does not count the taxes paid by the companies these people owned

Why should they? Should I get to count the taxes paid by my local water treatment plant workers because I shit in the toilet?

> nor does it imagine the financial benefits to say California teachers or firemen who co-own the companies through pension funds

They get taxed on that!

Re: How to convert between wealth and income tax

#112

Post by mw1 » Fri, May 22, 2026, 4:30 PM UTC

Wow, I like to actually see the numbers laid out like this. Most of the ultra-wealthy pay almost nothing on their income taxes from investments because they have found ways to avoid capital gains, and even if they were paying long term capital gains rates of 15%, pg’s assertion that the wealth tax adds another 20% doesn’t seem unreasonable at all. If anything, it makes me think 1% is not nearly enough of a wealth tax!

Re: How to convert between wealth and income tax

#113

Post by skybrian » Fri, May 22, 2026, 4:31 PM UTC

jppope wrote: post #97

__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…

Step-up basis is important for anyone who inherits property from their parents. That can be substantial in places like California where real estate has gone up a lot.

And for inherited rental property, there is another huge loophole: you can can depreciate the full market value of an asset that you got for free. That’s a substantial tax benefit for many years.

Re: How to convert between wealth and income tax

#114

Post by big_toast » Fri, May 22, 2026, 4:32 PM UTC

dgellow wrote: post #75

k2enemy wrote: post #43

Lots of confusion and misunderstanding in these comments. Not surprising, given the highly charged nature of the subject. I highly recommend Ray Madoff's book The Second Estate [1] to learn more about the topic. [1] https://press.uchicago.edu/ucp/books/book/chicago/S/bo256019...

Mind sharing what commenters are getting wrong?

I believe some of Ray Madoff's points are that the tax code and most tax intuitions kinda differ.

There's the idea that "wealth" gains tend to not be taxed for a variety of reasons. The common parlance of "Buy, Borrow, Die" category things. The "step-up in basis" category things - i.e. no capital gains tax realized on lots of inherited wealth. (The inheritance tax might trigger in some cases, but oddly the capital gains tax often might not be triggered on transferred assets because they were never sold and the new possessor will be taxed at the stepped up received value if they ever sell. So there's a chunk of appreciation that never received capital gains taxation.) Trust related things.

There's the idea that 501(c)(4)s allow wealth to be transferred untaxed while retaining control over the assets (particularly because those organizations can engage in political activity, but I'd guess generally some of the organizations exert lots of influence/prestige.)

So perhaps OP is suggesting that maybe there's some fungibility in income tax % and wealth tax %, but when you look at the tax code the equivalency looks pretty weak currently.

Re: How to convert between wealth and income tax

#115

Post by w10-1 » Fri, May 22, 2026, 4:32 PM UTC

True enough, but it doesn't address the motivation or the issues presented by California's proposed wealth tax.

It's a big democracy red flag when a majority wants to take a lot from a tiny minority; the moral hazard of the unfairness is that it's unclear where this ends. (Saying "one-time" and "1%" are trying to limit that risk)

It's a democracy red flag when an unpopular minority is vilified as the cause of society's problems. It short-circuits real policy making and distracts from real issues.

The bargain of private wealth is that it's better at innovation that should spread widely -- if it's subject to competition and does not export costs.

One problem is that one of the best investments is to change the law to reduce competition, increase market power, and export costs -- i.e., to weaken politics.

Another is that wealth used to mostly invest locally (information and transaction costs), so locals would see some benefit. No longer.

Finally, as an accelerant, enterprises are made of legions of managers and experts, who now compete more than ever; they would lose that competition by supporting less extractive policies or gentler politics.

Net result is that wealth seems not productive but extractive, and there is no negative feedback to reduce that.

Once the grand gambit of goodwill is lost, it cannot be recovered for at least a generation, but there's no real feedback to prevent that. The political viability of something like a wealth tax is just an early indicator.

Re: How to convert between wealth and income tax

#116

Post by ceejayoz » Fri, May 22, 2026, 4:33 PM UTC

vessenes wrote: post #99

giarc wrote: post #57

Earlier quoted context omitted.

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, levera…

> I'd be really surprised to see a 0.1%-er (or 0.001%-er) post $0 income tax.

Bezos did, in 2007.

https://www.propublica.org/article/the-secret-irs-files-trov...

> Consider Bezos’ 2007, one of the years he paid zero in federal income taxes. Amazon’s stock more than doubled. Bezos’ fortune leapt $3.8 billion, according to Forbes, whose wealth estimates are widely cited. How did a person enjoying that sort of wealth explosion end up paying no income tax?

Or the President (now permanently immune from audit, incidentally):

https://www.nytimes.com/interactive/2020/09/27/us/donald-tru...

> He had paid no income taxes at all in 10 of the previous 15 years — largely because he reported losing much more money than he made.

Re: How to convert between wealth and income tax

#117

Post by nearbuy » Fri, May 22, 2026, 4:36 PM UTC

klaff wrote: post #86

Anymore I think the question shouldn't be about some kind of economic fairness (the time value of money thing being discussed) but the idea that wealth accumulation is a disease that afflicts society. I don't think anyone should have the level of control or influence on others that having a billion dollars currently allows. If a millionaire gives $100 to a political candidate it probably doesn't require too much thou…

I know this is tangential to your main point, but in the US, you can only give a max of $3,500 to a candidate per election cycle, for each the primaries and general election.

To give more financial support, you have to do independent, uncoordinated campaigning for the candidate. So you can spend a million dollars on ads saying to vote for a candidate, but you can't give that money to the candidate's campaign and the candidate can't coordinate with you. This is what Super PACs do.

I only write this because a lot of people are unclear on the rules. I'm not making an argument about billionaires.

Re: How to convert between wealth and income tax

#118

Post by arh5451 » Fri, May 22, 2026, 4:37 PM UTC

klaff wrote: post #86

Anymore I think the question shouldn't be about some kind of economic fairness (the time value of money thing being discussed) but the idea that wealth accumulation is a disease that afflicts society. I don't think anyone should have the level of control or influence on others that having a billion dollars currently allows. If a millionaire gives $100 to a political candidate it probably doesn't require too much thou…

How do you think society works without wealth accumulation? There would be no incentive to innovate to push forward. You wouldn’t have your iPhone, computer, or car. Want to see the result of societies that forbid wealth creation? Go to Cuba.

Re: How to convert between wealth and income tax

#119

Post by jppope » Fri, May 22, 2026, 4:41 PM UTC

goyozi wrote: post #21

I don’t follow the debate and situation in the US that closely but isn’t (part of) the point of wealth tax to offset the fact that rich people are routinely avoiding paying income tax and taxes in general? Thus even if we assume the simplistic conversion here, it’s not that they’re moved from 40->60 bracket but more like <30 ?

The wealth tax argument actually is because our current 2 party political system is set up to where politicians effectively "pay" their corporate constituency with their discretionary spending, which has increased the national debt substantially.

The only way this system can continue is if we increase the receipts (aka tax revenue).

The political class has very wisely targeted "the wealthy," who are capable of tactically avoiding taxes, but as always it will eventually include the middle class who will ultimately be paying the tax. From their standpoint they will popularize this tactic because it will work

This is being sold as class warfare, but its really the evolution of our political system into an unsustainable system of patronage with public funds.

We have plenty of other problems like "buy, borrow, die" (discussed elsewhere in this thread), but ultimately the wealth tax stems from needing more public funds, which stems from politicians spending all of our money.

Re: How to convert between wealth and income tax

#120

Post by arh5451 » Fri, May 22, 2026, 4:41 PM UTC

ceejayoz wrote: post #116

vessenes wrote: post #99

Earlier quoted context omitted.

$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, levera…

> I'd be really surprised to see a 0.1%-er (or 0.001%-er) post $0 income tax. Bezos did, in 2007. https://www.propublica.org/article/the-secret-irs-files-trov... > Consider Bezos’ 2007, one of the years he paid zero in federal income taxes. Amazon’s stock more than doubled. Bezos’ fortune leapt $3.8 billion, according to Forbes, whose wealth estimates are widely cited. How did a person enjoying that sort of wealth ex…

Yeah and he lost money for a decade or more. Blame the system that you can loss harvest. Or call it fair that we don’t penalise business for having bad years.