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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

#181

Post by renticulous »

Apreche wrote: post #58

His math is correct, but the conclusion is wrong. Income is money that comes from actually laboring and contributing to society. Wealth tax is tax from sitting on your ass doing nothing. Also, taxes don’t have to be a flat percentage. Like income tax, a good wealth tax would be progressive. Only wealth beyond a certain amount would be taxed, and the percentages would scale. This is why we should have income taxes tha…

> Wealth tax is tax from sitting on your ass doing nothing.

Related point is monetary system and monetary plumbing should be boring like electricity or water supply but because of distortions making money out of money has become the hottest thing.

Re: How to convert between wealth and income tax

#182

Post by opo »

__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…

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

This is just Internet mythology. The IRS would go after such arrangements very quickly - the IRS has the Applicable Federal Rate for loans. Though this really isn't an issue with banks as they are not charities and tend to want to make money.

Re: How to convert between wealth and income tax

#183

Post by bayarearefugee »

drcongo wrote: post #171

Is this Graham accidentally revealing his contempt for working people?

He's a billionaire.

Based on available data deep contempt for working people should be assumed until proven otherwise, even for billionaires who are 'self-made' by way of a lot of right-time-right-place luck.

Re: How to convert between wealth and income tax

#184

Post by smallmancontrov »

zozbot234 wrote: post #163
tengbretson wrote: post #104

Earlier quoted context omitted.

> The math doesn't math for someone on the other extreme end of the spectrum who has zero savings or investments and obtains all his income from labor: To him, a N% wealth tax = 0% income tax for all N. Those with -some- savings are somewhere in the middle. Productivity comes from labor AND assets though. You need the farmer and the tractor. Why would we create a tax system that encourages people to divorce themselve…

> Productivity comes from labor AND assets though. You need the farmer and the tractor. Why would we create a tax system that encourages people to divorce themselves from having a stake in the means of production? This is exactly why economic models broadly show that taxing capital assets makes workers worse off in the long run. An abundance of capital means that workers will be more productive on the margin, so thei…

Oh good! I was worried that trickle down economics was self-serving nonsense pushed by think tank economists on behalf of their benefactors. Since it is economic fact rather than self-serving fiction, when I review its track record I will find that it caused an upward inflection in real wages, right? Right?

https://wtfhappenedin1971.com/

Oops!

Re: How to convert between wealth and income tax

#185

Post by fraserharris »

ipython wrote: post #153

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 ev…

The entry level rate for >$10M AUM is ~0.5%

Re: How to convert between wealth and income tax

#186

Post by alistairSH »

zedpm wrote: post #40

Are there serious proposals to just add a wealth tax on top of the existing income tax that would apply to the sort of people who actually pay much in income tax vs capital gains? It's an honest question; I haven't seen proposals of that sort, so I'm skeptical that the arguments are meaningful here. For an individual like Jeff Bezos, he's paying virtually no tax under the normal income tax rates referenced in the art…

None that I've seen, though I'm sure somebody somewhere has introduced something.

All that I've seen are wealth taxes on top of some arbitrary (but very large) wealth level. The latest proposal from Congress applied a 2% tax to wealth above $50 million with an additional 1% (3% total) on wealth over $1 billion. Plus a 40% exit tax to stop them all from fleeing to the Bahamas or Monaco.

Re: How to convert between wealth and income tax

#187

Post by jandrewrogers »

__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…

There is little evidence that wealthy people actually borrow for income in any significant way. For example, this paper[0] finds that borrowing only accounts for 1-2% of economic income among the top 1%.

This makes sense. Borrowing for income in most scenarios is strictly worse financially than recognizing conventional income if you actually do the math. Wealthy people are optimizing for financial outcomes, not avoiding taxes per se.

[0] https://www.sciencedirect.com/science/article/abs/pii/S00472...

Re: How to convert between wealth and income tax

#188

Post by kommunicate »

This argument strikes me as massively disingenuous. The central problem of the US tax system is caused by a combination of:

- high net wealth individuals essentially being indifferent to income tax.

- income tax and short term capital gains are taxed at much higher rates to long term capital gains.

- lower net wealth folks (ie. the general public) receiving most of their income as income.

- high and ultra high net wealth individuals now making most of their money through dynastic trusts and inheritance.

This combination ends up making it so that, as Warren Buffet would put it, he ends up paying a lower effective tax rate than his secretary.

I effectively don't really care if it's a wealth tax or some other more targeted technical fix, but it's not sustainable to have the very wealthiest individuals taxed at a lower effective tax rate than everyone else and also able to pass on their wealth directly to heirs without significant estate taxes.

Re: How to convert between wealth and income tax

#189

Post by zozbot234 »

smallmancontrov wrote: post #184
zozbot234 wrote: post #163

Earlier quoted context omitted.

> Productivity comes from labor AND assets though. You need the farmer and the tractor. Why would we create a tax system that encourages people to divorce themselves from having a stake in the means of production? This is exactly why economic models broadly show that taxing capital assets makes workers worse off in the long run. An abundance of capital means that workers will be more productive on the margin, so thei…

Oh good! I was worried that trickle down economics was self-serving nonsense pushed by think tank economists on behalf of their benefactors. Since it is economic fact rather than self-serving fiction, when I review its track record I will find that it caused an upward inflection in real wages, right? Right? https://wtfhappenedin1971.com/ Oops!

Total labor compensation has in fact grown. Unfortunately, much of the non-wage compensation involves services like healthcare that has become a lot more expensive over time due to burdensome overregulation and an overall lack of price transparency.
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