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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

#151

Post by larme »

w10-1 wrote: post #115

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…

> It's a big democracy red flag when a majority wants to take a lot from a tiny minority

It’s not “taking”. The rich give out some money so the society has a higher probability to stay peaceful. or a violent revolution may happen.

This is really a win win situation

Re: How to convert between wealth and income tax

#152

Post by levocardia »

Hongwei wrote: post #133

I appreciate PG's writing as always. I'm skeptical that the super-rich are only generating 5% on their money. My anecdotal experience is that it's usually north of 15%. They have access to investments that main-street does not. If we plug in 15% instead of 5% in PG's reasoning, the effective income tax increase is quite a bit lower.

There is a footnote discussing this point; he uses 5% as the risk-free rate.

Re: How to convert between wealth and income tax

#153

Post by ipython »

Yet... an entire industry (financial advisors) will happily charge you a 1% "wealth tax" to manage your money. And you don't see lengthy articles from luminary venture capitalists about that.

Feel free to just tell the masses to eat cake since bread is so expensive while you dine on your mega-yacht. Just like the market can stay irrational longer than you can stay solvent, you may or may not be able to outlive the eventual violent outburst from the rest of the 99%. Scott Galloway is right on that the anti-data center backlash is just a proxy for anger at wealth inequality.

Re: How to convert between wealth and income tax

#154

Post by mbgerring »

If you are wealthy enough, you can live off of untaxed loans from your “unrealized” gains, and never pay taxes on that money at any rate. Meanwhile, I am paying an effective tax rate of around 35%.

The principle is simple: if you are spending the money, your gains are realized, and you should pay taxes.

Re: How to convert between wealth and income tax

#155

Post by ximm »

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…

Corrected version:

A wealth tax of 1% is equivalent to an income tax of 20% on capital gains.

Re: How to convert between wealth and income tax

#156

Post by ipython »

robotresearcher wrote: post #53

This is a transparently misleading framing. The very wealthy are paying very low effective rates on their investment gains. Various billionaires have publicly described the truth of this. This is not 20% on top of 35%. They are paying a marginal rate of 35% of deliberately minimized taxable income and zero on deliberately maximized unrealized gains. Then 20% when realized, but as we all know by now there are ways to…

Thank you. This is exactly the problem- pg is twisting the conversation by saying "look how painful taxes are for you, pleb!" When in reality, the taxation levels on the ultra-wealthy (whom this is targeted toward) are so much smaller not only on a %'age level, but on an impact level as well.

Re: How to convert between wealth and income tax

#158

Post by superfrank »

Supermancho wrote: post #24
blitzar wrote: post #3

[flagged]

The post goes out of it's way to mischaracterize the strategy (and purpose) of wealth taxes being proposed. > Each 1% of wealth tax is equivalent to 20% of income tax. Mathematically sound. > Politicians understand that an additional 20% income tax would be a lot. And indeed a US state that added 20% to its top income tax rate would have extraordinarily high taxes. That's the point. > In the median case, US state pol…

> > Each 1% of wealth tax is equivalent to 20% of income tax.

> Mathematically sound.

Don't most wealth taxes that have been proposed have a certain level of wealth that you pay no taxes on? If so, doesn't that make this at least partially incorrect?

Maybe I'm missing something, but if I have $100 and have to pay a 1% wealth tax on it then sure that's roughly 20%. If I have $100, but I only have to pay a 1% wealth tax on everything over $90 that's more like a 2% income tax.

Re: How to convert between wealth and income tax

#159

Post by dheera »

Havoc wrote: post #23

I think the assumption that we're looking for an equivalence here is fundamentally flawed and with it the entire post. For most people income is tied to selling their time. It doesn't scale at all. Unless the income comes from wealth. The societal problem here is a group with self-reinforcing run-away levels of wealth. And to counter that you do need something more extreme than this nonsensical equivalency of income…

> you do need something more extreme

That's how you end up with an over-regulated country where people doing great things for the country's economy start choosing a different country to build their dreams in.

It's also how you drive the currently-wealthy to other countries to spend and invest their fortunes in.

The possibility of being ultra-wealthy is a huge reason to build awesome shit in the US that creates millions of jobs and brings the US economy ahead.

Re: How to convert between wealth and income tax

#160

Post by mbgerring »

w10-1 wrote: post #115

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…

Wealthy people are taking food out of my mouth by driving up asset prices, and deploying capital in ways that will never benefit me, either in employment or in quality of life. The premise of reducing taxes on wealthy people was that everyone would broadly benefit. This has not happened. The contract is broken. I want my money back.
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