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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

#341

Post by naijaboiler »

kccqzy wrote: post #241
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.

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 wealthi…

i hate when people bring it up. everybody that works pays payroll taxes which is around 25% when you count both sides.

Re: How to convert between wealth and income tax

#342

Post by triceratops »

throw0101c wrote: post #122
Matheus28 wrote: post #73

Earlier quoted context omitted.

A lot of countries require you to declare your total wealth on your tax forms. Then once someone gets audited, that gets checked. Obviously it’s possible to hide it, but that in itself is a crime, and not everyone is willing to risk going to jail over paying taxes.

> A lot of countries require you to declare your total wealth on your tax forms. If you own shares of $MCD, you can get wealth taking share prices and shares owned. But if own a McDonald's franchise, how do you measure the 'wealth' of it? Annual profit? Last x years profit, averaged?

Comparable sales. Discounted cash flow model. There are many ways.

Re: How to convert between wealth and income tax

#343

Post by SoftTalker »

Dylan16807 wrote: post #326
SoftTalker wrote: post #313

Earlier quoted context omitted.

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…

> an effective tax rate of 40%. It's not. That calculation would say that if you have $1000 of wealth and $5 of income your effective tax rate is 220%. It's bad math. Your conventional income is taxed separately. A wealth tax sort of stacks with capital gains, but capital gains is way too low anyway.

Yes it is.

($1,000 * 1%) + ($5 * 20%) = $11 tax due on $5 income. They are separate taxes but he's expressing them both in terms of an effective income tax rate.

In this case, since you owe more taxes than income you've earned, you'll need to sell off some of your wealth to pay up.

If you have no income at all, but do have wealth, then you get a division by zero error so I do get that it's maybe absurd to frame it this way, but the premise of TFA was "how to convert between a wealth tax and an income tax" and the context is a presumed 5% return on capital.

Re: How to convert between wealth and income tax

#344

Post by naijaboiler »

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…

whats all this talk about 20% wealth tax. We are asking for 1% per year, and the rich are still screaming. damn I pay more than that on my house.

Re: How to convert between wealth and income tax

#345

Post by Epa095 »

lazide wrote: post #284
analog31 wrote: post #249

Earlier quoted context omitted.

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 over…

Sure. The issue I’d see is in 20 years inflation might mean that applies to almost everyone, like AMT, but that is a future us issue. The biggest personal complaint I have is why should the government be getting more tax money when all they seem to use it for is blowing up random countries in the Middle East and spying on law abiding citizens for whatever random reason.

Then let's bake it into a compromise, we add a wealth tax and decrease income tax with the same amount of money.

Labour is what actually creates value in society, let's tax it less and ownership more.

Re: How to convert between wealth and income tax

#346

Post by omoikane »

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…

> pay 40℅ tax

Offtopic but I thought your percent looked weird. Turns out, that's the "care of" symbol (℅, U+2105) and not percent (%, U+0025).

Re: How to convert between wealth and income tax

#347

Post by abcd_f »

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

All proposals focus on ultra-wealthy individuals. This "momentousness" wouldn't really touch the absolute vast majority of the taxpayers.

But, yeah, I bet the targeted people are getting nervous.

Re: How to convert between wealth and income tax

#348

Post by BugsJustFindMe »

jeffreyrogers wrote: post #322
BugsJustFindMe wrote: post #169

Earlier quoted context omitted.

The existence of perpetual trusts is solvable in a world that has decided to fix the insanity caused by intergenerational wealth transfer instead of propping it up. "This thing we could also eliminate stops us from eliminating this other thing" is a silly platform. Just eliminate them both.

Perpetual trusts are different from irrevocable trusts, which have legitimate use cases. I don't really see how irrevocable trusts would be gotten rid of. In most states all trusts are irrevocable by default and there is a huge body of law dealing with trusts. Getting rid of them is essentially impossible without huge changes in the political/legal system.

> Getting rid of them is essentially impossible without huge changes in the political/legal system.

So is getting rid of intergenerational wealth transfer. So since we're already dreaming about a new system that seems irrelevant.

> legitimate use cases

Intergenerational wealth transfer also has "legitimate use cases" if one gets to define "legitimate". I'm curious what legitimate cases you have in mind.

Re: How to convert between wealth and income tax

#349

Post by Manuel_D »

AnthonyMouse wrote: post #318
Manuel_D wrote: post #309

Earlier quoted context omitted.

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 b…

That scheme still wouldn't work. When that new corporation is first formed, it's near worthless. After the series of favorable deals, the value of each share in that corporation goes up. Thus it still incurs capital gains taxes.

Of course people will try to cheat taxes, but they'll try to cheat any form of tax: income, capital gains, inheritance taxes, etc. People are good to try and evade taxes regardless of the tax mechanism.

Consumption taxes are regressive: a sales tax is a flat tax that taxes a billion on their $10 latte the same as a poor person. Consumption also doesn't scale linearly with wealth: most billionaires don't consume 1000x as much as a millionaire.

Re: How to convert between wealth and income tax

#350

Post by relium »

naijaboiler wrote: post #341
kccqzy wrote: post #241

Earlier quoted context omitted.

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 wealthi…

i hate when people bring it up. everybody that works pays payroll taxes which is around 25% when you count both sides.

Federal payroll taxes in the US are 15.3% (7.65% for each side).
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