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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

#261

Post by pessimizer »

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…

> 20% tax on wealth

Thank god no one is talking about this, then. According to Graham, a 20% wealth tax is equivalent to a 400% income tax.

Re: How to convert between wealth and income tax

#262

Post by scarmig »

outside1234 wrote: post #235
colinmarc wrote: post #164

Earlier quoted context omitted.

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.

The ultra rich are desperate to maintain their exclusive access to essentially pay no taxes through their "Buy, Borrow, Die" strategy (if you don't understand what that is you should stop and read this: https://gemini.google.com/share/e230bcecaaeb ) and so they are using scare tactics / gaslighting around wealth taxes because a wealth tax would disrupt this essentially zero tax strategy.

"Buy, borrow, die" is a bit of a bogeyman of the Left; it's not a common strategy for HNW or UHNW individuals, and to the extent it is used, there are much better ways to close it than a wealth tax, which is coarse and rife with implementation issues.

Re: How to convert between wealth and income tax

#263

Post by zozbot234 »

wyre wrote: post #208
zozbot234 wrote: post #170

Earlier quoted context omitted.

When more assets are sold than are bought, that leads to the destruction of assets on a broad scale. It's the economic equivalent of eating one's seed corn. This would not be good for the median person. You can and should tax land (meaning the land value component of real estate in general) and natural resources more generally, but that's an entirely different game: it has next to nothing to do with wealth taxes as g…

> When more assets are sold than are bought How does this make sense? If Johnny sells 5 cars, that means 5 cars were bought. How can Johnny sell more cars than are being bought? Do you mean that Johnny has more cars to sell than are being bought?

It's like a hot potato where people want to sell assets over buying them. Obviously at any given moment there are as many buyers as sellers, but this is exactly why trying to force people to sell at rock bottom prices brings widespread asset destruction.

Re: How to convert between wealth and income tax

#264

Post by Galanwe »

Hahaha this is so bogus.

Americans really struggle to understand how tax work outside of their country.

First, the whole premise of income to wealth tax equivalence is non sensical, because interests are rarely literally in the form of coupons/payments, but rather left as compounding value. This is the whole point of share buybacks, reinvested ETFs, etc; and Paul Graham knows that of course. If you are rich, you don't need the cash of your investments, so you don't want to trigger taxable events, so you are effectively at 0% tax rate and just let it compound.

> Currently the country with the highest marginal income tax rate is Denmark, at 60.5%

This is the most BS statement ever, and would only be believable to Americans with no understanding of how foreign country do taxes. Which is at best very naive of him, or highly disingenuous. This is because "tax" in the US is essentially employee paid, whereas most other countries split the bill between employer and employee at a higher proportion. The result is the same, but the employee part only is labeled "tax", the employer part being often called "contribution".

When comparing across countries, you have to look at the tax wedge (super gross to net), not the tax rate (gross to net).

And if you do that, well the US has a lower tax wedge than even the most generous European countries (Ireland).

In France for instance, the tax wedge is close to 70% for the higher bracket. Yes, that means if your employer pays $100, you get $30. And that's in a country with 20% VAT compared to US ~8%.

Not to mention, except super rich little little business-hub countries (Hong Kong, Singapore, Ireland, Malta, Cayman Islands, etc), pretty much all _developed_ countries have some form of wealth tax, it's just common sense.

Re: How to convert between wealth and income tax

#265

Post by TZubiri »

As others have mentioned this is wrong. Here's 3 accounts on how it is so:

1- Fundamentally, they are magnitudes of different units, one is tax/income, the other is tax/wealth/time. Not only is the denominator different, one being calculated over income, the other over wealth, but there is an additional inverse time factor.

In income tax, whether the period is yearly or monthly or hourly, is an administrative matter that doesn't materially change the rate, 1%/month is the same as 12%/month, however in wealth tax, 1% wealth tax per year is not the same as 1% wealth tax per month. In many respects one might consider wealth tax to be a second order derivative of income with respect to time. Which is again very similar to a progressive income tax. Anyone that studied polynomials knows that there is no such equivalence between ax and bx^2, they are irreducible mathematical forms.

2)Trivially, in the scenario Paul proposed, Wealth tax is comparable to income tax only with respect to capital gains. That is, if he did find an equivalence between income tax and wealth tax for capital gains (which he didn't), income tax would still apply non capital gain taxes. But I will concede that there may be an argument that, if such an equivalence were found, it could be considered that there exists an Income Tax which will always yield more tax than another specific wealth tax.

3) The equivalence between wealth and income tax cannot be linear. The example given applied to 1% wealth tax and was compared to 20%, and a risk free interest of 5%. If the wealth tax were of 2%, 5% or 10%, would that be equivalent to 40%, 100%, and 200% income tax respectively? The last one is especially ridiculous.

Re: How to convert between wealth and income tax

#266

Post by sokoloff »

> You can tell from the way they talk about the subject that they don't understand the momentousness of what they're proposing.

I think that what you can tell is that they think the voting public won't understand the momentousness of what they're proposing (or that their "color" will cheer that very momentousness).

Whether they themselves do or don't understand how impactful the proposal would be is much harder to guess.

Re: How to convert between wealth and income tax

#267

Post by lazide »

Glyptodon wrote: post #229
lazide wrote: post #224

Earlier quoted context omitted.

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…

You obviously didn't read the thing. 20% is not on wealth. The argument in the piece is that 1% on wealth is the same as 20% on income, and therefore 1% on wealth is obscene. Please read before making replies that don't make sense in context. When I refer to 20% I'm referring the PG's characterization of a 1% wealth tax as an effective 20% income tax, not a 20% wealth tax.

I read it, and was replying in context.

Re: How to convert between wealth and income tax

#268

Post by voidhorse »

abletonlive wrote: post #243
booleanbetrayal wrote: post #227

Earlier quoted context omitted.

Billionaires gonna billionaire, I guess.

[flagged]

I don't think anyone is simply envious. People mean to point out that allowing individual accumulation of wealth to extreme degrees lead to runaway structural problems. Billionaires and companies existing and providing wages are not inextricably intertwined. It's entirely possible to have one while preventing the other. The idea that the only way you can incentivize individuals to start companies is to allow them to accumulate so much wealth that they become tiny kings is patently absurd. The world has thousands of companies and founders who happily sustain their businesses without ever reaching this ungodly and idiotic level of uber wealth.

Re: How to convert between wealth and income tax

#269

Post by lazide »

pessimizer wrote: post #261
lazide wrote: post #224

Earlier quoted context omitted.

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…

> 20% tax on wealth Thank god no one is talking about this, then. According to Graham, a 20% wealth tax is equivalent to a 400% income tax.

Read my comment - it likely would be equivalently impossible. That is my point.

Re: How to convert between wealth and income tax

#270

Post by zozbot234 »

_DeadFred_ wrote: post #204
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…

What percentage of increased productivity has gone back to the workers as increased financial health during the last say 20 years? Not increased wages. Their increase in end of day actual financial health versus end of day increase in actual financial health of the owning class? Not some Peter/Paul highlighting Peter 'wages have gone up' while ignoring any stealing from Paul 'actual financial health' has gone down me…

People at the bottom end of the income scale are sharply deterred from holding any meaningful amounts of savings, because this can exclude them from 'means tested' benefits. This is effectively a disguised ~100% "wealth tax" that hits many among the most heavily disadvantaged and marginalized. We're essentially telling people that they have to be living literally hand-to-mouth before they're deemed to deserve any kind of broader social support.
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