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

Re: How to convert between wealth and income tax

#241

Post by kccqzy » Fri, May 22, 2026, 7:07 PM UTC

colinmarc wrote: post #164

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 can't tell what's worse: intentionally obscuring the fact that the vast majority of people would pay ~no wealth tax or unintentionally forgetting that the vast majority of people would pay ~no wealth tax.

On the other hand, almost a majority of people already pay no federal income tax anyways. Mitt Romney mentioned a number of 47% during his presidential campaign and that number was mostly true. https://www.politifact.com/factchecks/2012/sep/18/mitt-romne...

People love to talk about the marginal tax rates but not the average tax rates. And I think that’s right because the conversation should be focused on the wealthiest people.

Re: How to convert between wealth and income tax

#242

Post by outside1234 » Fri, May 22, 2026, 7:07 PM UTC

superfrank wrote: post #216

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 t…

This is exactly the reason -- or a tax against borrowing against assets once your net worth is high enough -- or not reseting capital gains at death. The entire system is currently basically rigged such that these ultra rich people pay no taxes.

Re: How to convert between wealth and income tax

#243

Post by abletonlive » Fri, May 22, 2026, 7:08 PM UTC

booleanbetrayal wrote: post #227

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…

Billionaires gonna billionaire, I guess.

[flagged]

Re: How to convert between wealth and income tax

#244

Post by nkmnz » Fri, May 22, 2026, 7:08 PM UTC

colinmarc wrote: post #164

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 can't tell what's worse: intentionally obscuring the fact that the vast majority of people would pay ~no wealth tax or unintentionally forgetting that the vast majority of people would pay ~no wealth tax.

Don't speak to loudly of this fact, otherwise some leftist politician could come to the conclusion that human capital – the discounted cash flow of one's future labor income – should be taxed as wealth, too.

Re: How to convert between wealth and income tax

#245

Post by trollbridge » Fri, May 22, 2026, 7:09 PM UTC

Glyptodon wrote: post #217

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.

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.

Sort of like how the income tax in America started with it only applying to the top 1% of earners?

Re: How to convert between wealth and income tax

#246

Post by drivebyhooting » Fri, May 22, 2026, 7:10 PM UTC

levocardia wrote: post #152

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.

Is 5% risk free even available to the little guys?

No.

Re: How to convert between wealth and income tax

#247

Post by meta_gunslinger » Fri, May 22, 2026, 7:10 PM UTC

idle_zealot wrote: post #93

meta_gunslinger wrote: post #59

Earlier quoted context omitted.

Easily solved, remove the power centers and then the billionaires will have no power to buy or influence with their money.

"Don't want to be ruled by billionaires, peasants? Have you tried dismantling your government so they can't buy it? That will surely save you."

Isn’t that what Anarchists and Marxists peddle to the peasants?

Re: How to convert between wealth and income tax

#248

Post by malfist » Fri, May 22, 2026, 7:11 PM UTC

lazide wrote: post #224

Glyptodon wrote: post #211

Earlier quoted context omitted.

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.

20% tax on wealth (aka the potentially liquidatable value of an asset) would absolutely destroy anyone using an asset. For a classic example, look at property taxes which are a classic wealth tax. Grandma’s, people on pensions, and even middle class folks who own a home but have relatively low rates of salary increases get destroyed (and have to sell and move out) in places like Texas where property taxes aren’t capp…

These wealth taxes are not proposed to apply to everyone evenly, that would be a regressive tax policy. There is a wealth cutoff, most commonly proposed to be around $50M.

If grandma has $50M in her house and pension, she can afford to pay a tiny tiny tiny fraction of her wealth to make sure her grandkids still have a place to live that's not falling apart.

Re: How to convert between wealth and income tax

#249

Post by analog31 » Fri, May 22, 2026, 7:12 PM UTC

lazide wrote: post #224

Glyptodon wrote: post #211

Earlier quoted context omitted.

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.

20% tax on wealth (aka the potentially liquidatable value of an asset) would absolutely destroy anyone using an asset. For a classic example, look at property taxes which are a classic wealth tax. Grandma’s, people on pensions, and even middle class folks who own a home but have relatively low rates of salary increases get destroyed (and have to sell and move out) in places like Texas where property taxes aren’t capp…

All of the people I mention wealth tax to give me the same two counter cases: Grandma and Elon.

I think there's no reason why a wealth tax can't be progressive. Just making up numbers here, it could be zero for your first 30 million, and rise to some palpable amount for your first billion.

This would protect granny from being taxed out of her house, and in fact would affect relatively few salary earners.

I'm not overlooking the possibility that such a tax structure could create an effective wealth cap at some level.

The problem in California is that it's very hard to change laws. Likewise in my state, where many aspects of the tax system are constrained by the state constitution.

Re: How to convert between wealth and income tax

#250

Post by tastyfreeze » Fri, May 22, 2026, 7:12 PM UTC

niwtsol wrote: post #121

grassfedgeek wrote: post #6

I think 1% wealth tax should be a replacement for income tax. That way only the wealthy will pay taxes.

I think that is the glaring hole here - via an insane number of instruments from the various investments, they can reduce their tax liability (fed and state) to be very close to 0%. I believe a main idea of the wealth tax is to get around the insanely complicated tax code w/ all its loopholes.

A national sales tax also gets around the insanely complicated tax code without government confiscation of wealth. Regardless of how it is earned money eventually gets spent. Rich people spend far more than lower incomes so they pay more taxes. If they pass their wealth on it will still eventually get spent by somebody. That fixes the stepped basis problem of inheritance. If they use equity to get loans they are still spending money so it fixes that problem too. It is also easier and less costly to collect and enforce. No special forms for specific types of income to make sure you are getting taxed enough and no army of IRS agents to check that everybody is following the tax code.

The most common opposition to replacing income tax with a sales tax is saying it is regressive because "poor" people will need to spend a larger portion of their income on taxes than a wealthy person. Ok, so don't food or primary residence. A poor person isn't buying a $300,000 car or a second home. The best part is that if somebody is having a hard time getting by, every dollar they earn can be saved instead of giving Uncle Sam a short term loan until tax day.