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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

#331

Post by BrenBarn »

xyzzy_plugh wrote: post #324
stymaar wrote: post #300

It's funny, because even though he got the math right, PG got the reasoning completely wrong. > Each 1% of wealth tax is equivalent to 20% of income tax. Yes, this is the right part. Taxing wealth at 1% is equivalent to taxing income at 20-25% (depending on which return you count as baseline) > 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…

I really like the way you framed it. I've never really been against a wealth tax but making it equivalent to income feels fair to me. I don't think the math works out with rates where they are today, though. I guess the simplest approach is, if you're making money, it should be taxed fairly, regardless of how you're making it.

The trick is clarifying that "making money" means "increasing your wealth". Currently there are many ways of increasing wealth that don't "count" as making money.

Re: How to convert between wealth and income tax

#332

Post by kccqzy »

scarmig wrote: post #262
outside1234 wrote: post #235

Earlier quoted context omitted.

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.

The main implementation issue with a wealth tax is that it doesn’t at all interact with the capital gains tax. It’s easy to fix the implementation issue by integrating the wealth tax into the capital gains tax (call it unrealized capital gains tax for starters), make the tax refundable when an asset loses value, and netting it against the actual capital gains tax.

With this framing, the wealth tax isn’t a new tax; it is only prepaying the capital gains tax instead of allowing it to be deferred forever.

Re: How to convert between wealth and income tax

#333

Post by AnthonyMouse »

Ensorceled wrote: post #314
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…

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.

See reply to the sister comment posted earlier than yours and saying the same thing.

Re: How to convert between wealth and income tax

#334

Post by robertoandred »

keernan wrote: post #137

Completely ignores the true distinction between wealth and income taxes. Person A has one billion dollars. Holds it in cash in a vault deep in a mountain he owns. He does not earn any wages.[1] 20% income tax: $0.00 01% wealth tax: $10,000,000.00 [1] Every billionaire controls their taxable income. Unlike wage earners, billionaires have 100% control over how much taxable income they have each year. They make choices.…

Except they already paid taxes on that one billion in cash. The receipt of that cash is taxable income.

Re: How to convert between wealth and income tax

#335

Post by dasil003 »

Man, as a young programmer coming up I really looked up to Paul Graham, but now as a seasoned vet in the industry, it's remarkable (and disappointing) to see him publish an article based on such a false equivalency. I mean this level of missing the forest-for-the-trees is the type of thing that routinely prevents senior engineers from getting promoted to staff because they're pedantically fixated on the wrong details. And that's on top of failing to read the room as to why people are even calling for a wealth tax in the first place.

The more obvious reason to not tax wealth is because it's hard to measure, and if you try to do it you will incentivize hiding it. Meanwhile, there are obvious obvious loopholes that the ultra-wealthy enjoy which could be reasonably closed. Namely, close the buy-borrow-die loophole, don't allow step-up basis for inherited wealth, and tax capital gains at least as much as income. Now people with a lot of money can afford to fund a lot of premium think tanks to come up with fancy economic reasoning why those ideas are Really Bad™, but at this point it's clear that's bullshit propaganda and the unintended consequences are exceedingly unlikely to be worse than the current unchecked consolidation of wealth and power enabled by the current loopholes.

Re: How to convert between wealth and income tax

#336

Post by tengbretson »

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.

Today, sure. In 30 years I wouldn't expect to be able to retire with less that $50 million in savings.

Re: How to convert between wealth and income tax

#337

Post by triceratops »

everfrustrated wrote: post #294
jdasdf wrote: post #276

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 This is untrue btw 50% of people in the US pay effectively no net taxes

Or put another way, are subsidized by others.

Or put another way, they already make so little money it isn't worth taking any from them.

Re: How to convert between wealth and income tax

#338

Post by triceratops »

There's a way to levy a wealth tax that requires no asset liquidation whatsoever. Allow paying taxes with assets. The assets go into a sovereign wealth fund. At scale the fund effectively holds a percentage of the entire economy. Its returns should only be used to reduce income tax.

Re: How to convert between wealth and income tax

#339

Post by zzrrt »

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

Earlier quoted context omitted.

Billionaires gonna billionaire, I guess.

[flagged]

> the idea that nobody benefits from the creations of billionaires has to be questioned

Who said that? Not in the post that prompted your reply, nor in the parent post.

> Illegal and legal immigrants are being completely supported by Uber right now in NYC.

Can you prove that taxis wouldn't have been able to do that, if Uber didn't exist? That wealth taxes wouldn't have been able to support them?

> The gate that previously blocked your ability to disseminate your ideas to a wide audience and create a living off of it has been completely torn down by the billionaires that create platforms

Musk is also erecting new gates, to promote himself and his ideas. I have to admit, I'm surprised what he lets stay up there, but I still don't believe it's an actual free platform.

> I wish there was a plugin for it so I can erase it from my consumption.

Vibecode it; the billionaires tore down the gates that previously blocked your ability to have any software you want -- as long as the billionaires accede to your use of their AI and running your own software against their platforms, of course.

You complain about open platforms filled with people giving you their ideas for free, and you just don't like what they're saying, but you just cited exactly that openness as one of the valuable things that billionaires deserve to have billions for.

> The premise that billionaires are less efficient than the government at deploying capital to serve society is incongruent with reality

Nobody said that, explicitly. Maybe the people arguing against billionaires don't believe capital efficiency is paramount, so you'd have to persuade them of that first, otherwise you're just saying "But capitalism is the right way, of course!"

Re: How to convert between wealth and income tax

#340

Post by triceratops »

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.

> The top 5% richest people in America account for 60% of all of the federal income tax

I see this repeated all the time and it's worthless without context. What percent of all income do the top 5% earn? What's their share of national wealth?

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