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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

#311

Post by riffraff »

disgruntledphd2 wrote: post #180
notahacker wrote: post #165

Earlier quoted context omitted.

The big flaw in his argument is that a mere 1% which is actually 20% of annual return is still less than the average income tax rate on workers, levied on people who have a lot more money and in some cases don't do anything resembling work. It's trivially true that 1% wealth taxes represent something in the region of a fifth of the average annual return on wealth, it's rather less convincing when it's suggested that…

> There are arguments about wealth taxes inducing capital flight and investment disincentives If the US and the EU introduced a wealth tax then it would be relatively difficult for the capital flight fears to materialise. But yeah, the trouble with wealth taxes is that wealth (i.e. capital) is mobile. Which is why land and property taxes are probably the most effective way of taxing wealth.

Switzerland has cantonal wealth taxes, as does Norway and afair Spain. Italy, Belgium, Netherlands have a somewhat equivalent one on money held in securities or savings accounts. It's not that big of a deal if the rate is low enough.

Re: How to convert between wealth and income tax

#312

Post by jppope »

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.

> 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.

I consider this fine, because proponents of a wealth tax consistently omit that it will ultimately be the middle class who pays the tax... the ultra-wealthy and wealthy can afford sophisticated strategies to render a wealth tax ineffective against them, and if that doesn't work they can just move somewhere else. Income tax was the same.

Re: How to convert between wealth and income tax

#313

Post by SoftTalker »

Glyptodon wrote: post #211
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.

It's 20% equivalent income tax rate if you have no conventionally taxable income. Otherwise it's 20% on top of your marginal rate. In his $100 example, you'd pay $1 in wealth tax on the $100 and $1 in tax on the $5 income earned, so your total tax is $2 on $5 of income, an effective tax rate of 40%.

But any real wealth tax is going to have exemptions, only apply to wealth above some threshold, and for the wealthy who structure their finances so as to have little or no taxable income, well they end up paying 20% like all the rest of us do.

Re: How to convert between wealth and income tax

#314

Post by Ensorceled »

AnthonyMouse wrote: post #259
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. Not quite, because you're using the opposite extreme where someone has no assets. Meanwhile the median net worth in the US ~$200k, which would be $2000/year in tax for every 1% in wealth tax. That's certainly enough for ordinary people to not…

I've never seen a wealth tax proposal where "wealth" was defined as ~400K in assets. They tend to start in the millions with generous carve outs for IRAs and primary residences.

Re: How to convert between wealth and income tax

#315

Post by blitzar »

jdasdf wrote: post #276
notahacker wrote: post #165

Earlier quoted context omitted.

The big flaw in his argument is that a mere 1% which is actually 20% of annual return is still less than the average income tax rate on workers, levied on people who have a lot more money and in some cases don't do anything resembling work. It's trivially true that 1% wealth taxes represent something in the region of a fifth of the average annual return on wealth, it's rather less convincing when it's suggested that…

> The big flaw in his argument is that a mere 1% which is actually 20% of annual return is still less than the average income tax rate on workers This is untrue btw 50% of people in the US pay effectively no net taxes

> 50% of people in the US pay effectively no net taxes

Billionaires included, defence contracts and corporate subsidies count just as much as food stamps.

Re: How to convert between wealth and income tax

#316

Post by blmarket »

MattPalmer1086 wrote: post #213
blmarket wrote: post #203

Earlier quoted context omitted.

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.

It depends on the net wealth we're discussing. I'm sorry if I touched someone who lives with $1M saving. But should I be sorry for someone with $10M, which might be way more than 30 years of lifetime earnings of p80 population? Wealth tax is obviously targeting the latter.

Having progressive tax rate might be a better way to discuss, instead of blaming whole points.

Re: How to convert between wealth and income tax

#317

Post by tengbretson »

notahacker wrote: post #172
tengbretson wrote: post #125

Earlier quoted context omitted.

I'm not disputing the claim that few people are able to save and invest into having a stake in the means of production. However, if your goal is to increase stakeholdership, how would a policy that explicitly disincentivizes that behavior fix anything?

Well for a start it pressurises asset holders to sell their assets. But the point isn't to increase stakeholdership so much as to stop privileging stakeholders with very low effective tax bills relative to mere workers, which means that there's a lot less cause for concern about those workers not owning their means of production

> Well for a start it pressurises asset holders to sell their assets.

To whom are the selling? The buyers would be only those that can make efficient enough returns to offset this tax due to their existing systemic advantages, like economies of scale or regulatory lobbying. This would accelerate consolidation.

> But the point isn't to increase stakeholdership so much as to stop privileging stakeholders with very low effective tax bills relative to mere workers

At this point I think there is ample evidence that policy in this country does not move forward without the consent of these so-called privileged stakeholders. If you take that as a given, why would you support handing these people an economic machine gun to point at your future self?

Re: How to convert between wealth and income tax

#318

Post by AnthonyMouse »

Manuel_D wrote: post #309
outside1234 wrote: post #237

Earlier quoted context omitted.

It isn't, because the ultra rich have no capital gains. They get ultra low interest rate loans against assets so they never have to sell assets and trigger capital gains. Google "Buy, Borrow, Die" if you don't understand this strategy.

They have to sell eventually to pay off the loans. And if they die, their estate has to sell the assets to pay off the loans, and then their heir will pay inheritance taxes on top of that. Unless their spouse is still alive. In the US, assets' cost bases are reset when a spouse dies. That is the main way that rich people avoid capital gains taxes. I'd much prefer simply stopping that cost basis reset instead of imple…

> I'd much prefer simply stopping that cost basis reset instead of implementing a wealth tax.

Neither of these would really work against the people you actually want it to work against.

If you don't have a basis reset then they just do a transaction that has the same effect, e.g. create a new corporation owned by the recipient and then have it repeatedly enter into slightly favorable transactions with the one owned by the donor until the new one has all the assets, or any of a hundred other things.

If you try to do a wealth tax then their assets end up in another country under whatever arrangement is necessary to give them de facto control but not formal ownership.

The best way to solve the "buy, borrow, die" thing is actually a consumption tax because then borrowing money in order to spend it doesn't avoid the tax.

Re: How to convert between wealth and income tax

#319

Post by abletonlive »

zzrrt wrote: post #297
someguydave wrote: post #285

Earlier quoted context omitted.

this post drips with envy

If they were saying that kings shouldn't have the unchecked right to execute people, this response would be akin to "Oh, you just wish you could kill anyone. Your argument is invalid."

Not really. The person saying that billionaires shouldn't exist is just failing to describe why that number is so mystical or interesting to them. If billionaires don't exist are we saying that people worth 500 million won't have power? you can keep doing this but the end result is the same. Power is asymmetrical and the system is self balancing. Those that have more wealth have more power. It's that simple. If you want to make wealth irrelevant then at least come up with a real system where wealth does not exist, because power is an intrinsic property of wealth.

The idea that you can distribute wealth is actually the tell for envy. You want to distribute power because you want power. And you won't be satisfied until that power reaches you, therefore you need to eliminate not just the billionaires, but after it trickles to centimillionaires and decamillionaires after that. If your premise is based on billionaires not existing because they have outsized power you're not going to be satisfied until that power eventually reaches where you are stationed in society.

  It has nothing to do with billionaires and it has everything to do with people with more wealth than you having more power. That's envy. How far do you have to distribute before power is meaningless?
The truth is that there are more billionaires than ever before and that number is growing. It would seem that having power is becoming more democratized over time too. If we go back 500 years the number of people that had this level of power were limited to actual Kings. You are closer to a billionaire in your capabilities and agency in this society than a peasant was under an actual King. 500 years ago if you made a tiktok video about your King's private affairs and his properties while trying to tell everybody that the king doesn't deserve their power and the king should be taxed, you'd be executed in the town square. Yet somehow people that have the mindset that "billionaires should not exist" fail to convey how we've suddenly reached some tipping point where there's no going back.

Re: How to convert between wealth and income tax

#320

Post by bigfishrunning »

SoftTalker wrote: post #290
AnthonyMouse wrote: post #259

Earlier quoted context omitted.

> 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. Not quite, because you're using the opposite extreme where someone has no assets. Meanwhile the median net worth in the US ~$200k, which would be $2000/year in tax for every 1% in wealth tax. That's certainly enough for ordinary people to not…

Nobody is talking about a wealth tax on someone with a net worth of ~$200k or ~$400k.

When income tax was first implemented, less then 1% of people had to pay it. Taxes are a slippery slope, and that number will slide down.
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