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

Re: How to convert between wealth and income tax

#211

Post by Glyptodon » Fri, May 22, 2026, 6:50 PM UTC

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…

On top of that it seems to imply that a 20% effective tax rate is outrageous even though that's totally normal for most. Maybe it's not what you're used to as really wealthy person who avoids realized income and has a 0 or 5 or 10 percent effective rate. But it's totally normal for most middle and median income folks who actually pay income taxes.

Re: How to convert between wealth and income tax

#212

Post by qzw » Fri, May 22, 2026, 6:52 PM UTC

arh5451 wrote: post #54

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…

If you mean that a person with 0 savings pays 0 wealth tax, then sure. Most people when they earn income save some of it. Therefore it is wealth taxed.

Almost all wealth tax proposal I’ve seen start at the level of 8-9 figures of wealth. Why are we now talking about it as if it’s going to apply to your average person’s savings account? If we’re just going to accept these billionaire-invented narratives around the wealth tax, then there’s really no point in discussing the actual pros and cons of these proposals.

Re: How to convert between wealth and income tax

#213

Post by MattPalmer1086 » Fri, May 22, 2026, 6:52 PM UTC

blmarket wrote: post #203

irchans wrote: post #179

Earlier quoted context omitted.

I'm retired. I hope to get a 3% per year income from my savings every year after inflation and taxes. If my state implemented a 1% wealth tax on savings each year, I would go bankrupt in 20 years. I am hoping that I will live 20 years.

But why wage earners should support you by paying more taxes? Reduce your spending by 33% to keep up.

I can't tell if this is sarcasm or a serious point.

Obviously people who have retired and based their entire life plan on making that work have many fewer options than those who are still working. You are arguing that nobody can plan for any kind of secure retirement, including you.

Re: How to convert between wealth and income tax

#214

Post by scientator » Fri, May 22, 2026, 6:52 PM UTC

irchans wrote: post #179

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'm retired. I hope to get a 3% per year income from my savings every year after inflation and taxes. If my state implemented a 1% wealth tax on savings each year, I would go bankrupt in 20 years. I am hoping that I will live 20 years.

I'm sure any wealth tax would only apply to wealth above a certain amount. For instance, inheritance tax only applies to $15mil and above. Likewise, when you sell a house the first $500K (I believe) in capital gains from the sale is tax free.

I don't think people with savings of $15mil and above (assuming that would be the cutoff) are in danger of going bankrupt in 20 yrs from a 1% wealth tax. Assuming your 3% return, they'd be earning $450,000 a year that wouldn't be touched by the wealth tax.

Re: How to convert between wealth and income tax

#215

Post by jsrozner » Fri, May 22, 2026, 6:52 PM UTC

Stop thinking about taxes as a way to fund the government.

Money in the long run can buy anything, including political influence. There are no regulations that can effectively preclude this. (And empirically, America over the past 40 years has seen moneyed entities successfully re-align politics and economic policy with their interests -- this was entirely predictable). An unequal society therefore cannot be a democracy. If you believe in democracy, then you necessarily must believe in wealth redistribution. (In fact, I argue that any person who believes that the American Revolution was justified, for any non-trivial reason, will likely find that those the same non-trivial reason could be invoked to reallocate wealth away from today's wealthy.)

Counterarguments to this view (i.e. a different top-level value than democracy / meaningful sovereignty over the society in which one lives) might invoke utilitarianism: an unequal society potentially produces "better" outcomes if capitalism is allowed to run unrestrained.

But a problem this argument encounters is who gets to decide what "better" is? All systems are economic in the long term, including political ones. A good framework for understanding is that a society in the long term is not "one person one vote" but rather "one dollar one vote." Today's preferences are dollar-weighted. Those with money decide what is better. The economy serves the average dollar's interests. And the average dollar's interest are the wealth-weighted preferences of society's members.

We started with an income tax to fund the government. But today our most pressing issue is not funding the government, but not having an oligarchy. Wealth is the thing that most needs to be taxed in order to allow for any semblance of democracy. Analogies drawn to income, though interesting, are meaningless.

Re: How to convert between wealth and income tax

#216

Post by superfrank » Fri, May 22, 2026, 6:52 PM UTC

I'm not an expert in this, but I thought one of the biggest arguments for why a wealth tax is needed the whole "buy, borrow, die" thing where the ultra rich can use their assets as collateral to take out a never ending series of ultra low interest loans until they die and then have most of the tax burden of selling assets to pay off those loans wiped out because the tax code is much more favorable to selling assets to pay off the debt of someone's estate.

If (big if) I'm remembering that correctly, I don't get why we just go after the problem directly and do something like treat putting down collateral for these type of loans as a taxable event. I'm sure it's not as straight forward as it sounds, but I can't imagine it'd be more convoluted that needing to track the wealth of every high net worth individual.

Maybe I'm in the minority on this, but I actually don't care if Jeff Bezos' net worth went up by $5 billion because Amazon had a good day in the market. If the shares are just sitting in an account doing nothing other than proving ownership it's all kind of just numbers in a computer, IMO. A painting is probably a better example than stock, but if I have a painting on my wall that was worth $1 million dollars yesterday and today it's worth $10 million that change in valuation is essentially meaningless as long as the only thing the painting is doing is hanging on my wall.

What I do care about is when he's able to access the cash value of that $5 billion of Amazon stock without paying the taxes that would come along with selling the stock. If he wants to leave $5 billion in Amazon stock just sitting in his account doing nothing until the day he dies, that's totally fine, but the second he puts it up for collateral we should tax that. I think this has the added benefit of simplifying things by avoiding a lot of questions around fair valuation of assets. If I have a $10 million dollar one of a kind painting on my wall that I'm never planning on selling, it's kind of hard to put a valuation on that and it can be easily manipulated by finding the right appraiser. If I put a painting up as collateral for a $10 million loan it becomes a lot harder for the owner to argue that it's actually worthless or the IRS to argue that it's actually worth $1 billion.

Re: How to convert between wealth and income tax

#217

Post by Glyptodon » Fri, May 22, 2026, 6:53 PM UTC

irchans wrote: post #179

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'm retired. I hope to get a 3% per year income from my savings every year after inflation and taxes. If my state implemented a 1% wealth tax on savings each year, I would go bankrupt in 20 years. I am hoping that I will live 20 years.

Lol, that's still totally feasible for normal FIRE/retirement situations, my understanding is that most proposals only start at $50 million or more. You can still have a super cushy retirement with $3mil+ and 3% withdrawal forever.

Re: How to convert between wealth and income tax

#218

Post by zardo » Fri, May 22, 2026, 6:54 PM UTC

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!

As long as capital doesn't get involved in some kind of highly financialized spiral getting further and further divorced from the real economy, we should be good.

Re: How to convert between wealth and income tax

#219

Post by Glyptodon » Fri, May 22, 2026, 6:54 PM UTC

ximm wrote: post #155

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 .

With different issues than the ones caused by deferring gains forever through shenanigans.

Re: How to convert between wealth and income tax

#220

Post by Glyptodon » Fri, May 22, 2026, 6:55 PM UTC

satvikpendem wrote: post #202

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…

> But Graham's math is only applicable to those flush with investments and with relatively small salaries from labor, so a wealth tax is only unpopular to that particular group. That can be quite a lot of people on HN, and also including FIRE people, so I can see why it's unpopular.

Most FIRE people aren't going to have $50 million plus and be hit by this.