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

Re: How to convert between wealth and income tax

#191

Post by PokedBear » Fri, May 22, 2026, 6:34 PM UTC

skybrian wrote: post #113

jppope wrote: post #97

Earlier quoted context omitted.

> 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.

The step up basis makes sense in a world where you still have to pay substantial inheritance taxes. But with minimal to no inheritance taxes, the step up is a giveaway.

Re: How to convert between wealth and income tax

#192

Post by smallmancontrov » Fri, May 22, 2026, 6:34 PM UTC

zozbot234 wrote: post #189

smallmancontrov wrote: post #184

Earlier quoted context omitted.

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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Re: How to convert between wealth and income tax

#193

Post by mayneack » Fri, May 22, 2026, 6:35 PM UTC

> It's clear that politicians don't get this from the way they talk about a "mere 1%" wealth tax. None of them would speak of adding a "mere 20%" to the income tax rate, even though that's mathematically the same thing. [2]

This is the wrong way of thinking about it. It's not adding 20% to an already taxed entity, it's adding taxes where there weren't before. Adding 20% on top of the income tax would indeed be controversial. In his framing the rate of return is effectively untaxed income, so it would be more accurate to say that this is like adding income tax to a currently untaxed income stream.

Re: How to convert between wealth and income tax

#194

Post by noelsusman » Fri, May 22, 2026, 6:35 PM UTC

This is simultaneously incredibly condescending and hopelessly naive. Politicians understand perfectly well that a 1% wealth tax is not a small tax on wealthy individuals. That's the whole point. They are engaging in basic political rhetoric when they say things like "a mere 1% tax".

Re: How to convert between wealth and income tax

#195

Post by Cider9986 » Fri, May 22, 2026, 6:35 PM UTC

It's not excessive to charge a 1% wealth tax when the people paying it don't pay any income tax thanks to their financial engineering.

Here is a cool website showing Wealth, shown to scale.

https://wealth.ronnycoste.com

Re: How to convert between wealth and income tax

#196

Post by postflopclarity » Fri, May 22, 2026, 6:36 PM UTC

AnimalMuppet wrote: post #146

jppope wrote: post #145

Just going to put this here to open up discussion: https://en.wikipedia.org/wiki/Georgism

Which is a tax on only one kind of wealth. Back when that was the kind that mattered most, that made sense. Today? Not so much.

it's more than that, because it's the one kind of wealth that has an (almost) completely inelastic supply

Re: How to convert between wealth and income tax

#197

Post by jppope » Fri, May 22, 2026, 6:41 PM UTC

ryeats wrote: post #88

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 ?

No it's just harder to accurately tax each and every form of wealth so we proxy it by taxing income.

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Re: How to convert between wealth and income tax

#198

Post by qzw » Fri, May 22, 2026, 6:41 PM UTC

skybrian wrote: post #100

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.

Only in theory. In practice it’s not equivalent at all because once you reach a certain (very high) level of wealth, there’s the “buy, borrow, die” strategy that avoids realizing most of your capital gains. I’ve also heard of proposals to tax asset-backed loans above a certain threshold, which is aimed at the “borrow” part of the strategy. But the concern there is that the super wealthy may quickly find a different strategy for tax avoidance, so a blanket wealth tax should be harder to circumvent. But as with anything to do with the tax code, those with the best tax accountants and lawyers seldom end up losing.

Re: How to convert between wealth and income tax

#199

Post by ipython » Fri, May 22, 2026, 6:42 PM UTC

fraserharris wrote: post #185

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%

That's a 10% tax!

Re: How to convert between wealth and income tax

#200

Post by jdauriemma » Fri, May 22, 2026, 6:43 PM UTC

fourseventy wrote: post #175

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 idea that rich people don't pay taxes is a myth. The top 5% richest people in America account for 60% of all of the federal income tax. The bottom 50% on the other hand only account for a total of 3%. When Elon sold a bunch of Tesla stock in 2021 he paid $11 Billion in capital gains tax on it... That's more than entire cities worth of people combined would ever pay for the rest of their lives.

Can you share a source? Of course the top 5% of _earners_ would pay more, but that's not necessarily the same crew as the top 5% in net worth. And 5% is a large share of the population. I'd be more interested in the top 1% of 1% in terms of wealth.