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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

#371

Post by Barrin92 »

slowmovintarget wrote: post #354
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.

You seem to forget that given the way taxes work, eventually, anyone, with any amount of money, will be considered "wealthy" because we'll keep running out of other people's money. You're wealthy, or the definition will change to include you. The spice must flow.

>because we'll keep running out of other people's money.

that doesn't make a whole lot of sense, for two reasons. For one, as even Paul points out in the piece, a wealth tax below what's practically a risk free return on capital (~5%) doesn't eat into the capital stock, it simply means wealth grows slower, but still increases.

Secondly, there's no monotonous historical direction towards higher wealth taxes, in fact the opposite. We're living in an age of low wealth taxation, with only half a dozen countries or so, if I'm not mistaken, imposing one at all.

Re: How to convert between wealth and income tax

#372

Post by BugsJustFindMe »

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…

> On the other hand, almost a majority of people already pay no federal income tax anyways.

That's an irrelevant diversion though, because the measure that matters when discussing the fairness of taxes is how much people are left with at the end after paying whatever taxes they pay, including sales tax, income tax, and any other kind of tax. And for those particular people you're talking about the answer is very little, next to none, and for the people for whom a wealth tax would even apply the answer is unimaginable amounts.

Re: How to convert between wealth and income tax

#373

Post by harimau777 »

slowmovintarget wrote: post #354
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.

You seem to forget that given the way taxes work, eventually, anyone, with any amount of money, will be considered "wealthy" because we'll keep running out of other people's money. You're wealthy, or the definition will change to include you. The spice must flow.

Running out of billionaire's money would be a good thing[1].

If they don't have money then they can't buy elections and aren't insulated from the consequences of their actions.

[1] Note: I don't really think we should literally take all their money. Just enough to reduce some of the power imbalance.

Re: How to convert between wealth and income tax

#374

Post by madaxe_again »

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…

Lol nah. The assets are held by a trust. The trust, being a friendly bunch, loan you capital which it gets by liquidating assets, at a rate of 0% with “don’t worry about it” default terms. You’ll probably pay a management fee for each loan.

You croak, your heirs become the beneficiaries of the trust. Rinse, repeat.

Re: How to convert between wealth and income tax

#375

Post by bombcar »

scientator wrote: post #214
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.

I'm sure any wealth tax would only apply to wealth above a certain amount. For instance, inheritance tax only applies to $15mil and above. Likewise, when you sell a house the first $500K (I believe) in capital gains from the sale is tax free. I don't think people with savings of $15mil and above (assuming that would be the cutoff) are in danger of going bankrupt in 20 yrs from a 1% wealth tax. Assuming your 3% return…

Sale of a house isn’t a wealth tax - that would be the property tax you pay, and the exclusions are pennies on the dollar on those.

Re: How to convert between wealth and income tax

#376

Post by Epa095 »

juancn wrote: post #134

There's a secondary side effect of wealth taxes: they redirect investments (I'm Argentinian and we have wealth taxes). Investments shift to things whose tax value updates slowly, for example property which typically adjusted more slowly than other financial assets. This tends to rise property prices and concentrate ownership. It causes other distortions in allocation depending on the tax details, but wealthy people t…

In Norway the valuation of publicly listed stock companies is different than the valuation of non-traded companies (for publicly traded stocks it's the market value, while for the other companies it's their assets minus debt, so usually roughly 10x smaller). The effect of this is increased investment in small and medium sized companies compared to keeping the money passively in index founds.

Re: How to convert between wealth and income tax

#377

Post by ecshafer »

drivebyhooting wrote: post #230
fourseventy wrote: post #175

Earlier quoted context omitted.

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.

5% richest includes hand to mouth workers earning $100k.

95th percentile is around $150k individual and $330k joint income.

Re: How to convert between wealth and income tax

#378

Post by armitron »

jppope wrote: post #312
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.

> 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 ineffectiv…

As has happened in nearly every European state with wealth taxes. But the elephant in the room is that these policies give the same ineffective, corrupt and entirely worthless politicians even more money to "manage". The very definition of delusional wishful thinking.

Re: How to convert between wealth and income tax

#379

Post by zug_zug »

ecshafer wrote: post #369

Wealth and Income taxes are both wrong. What we need is to tax Land and Rents. By taxing land via a Land Value Tax system, and rent seeking monopolistic behavior, this will allow productive labor and productive capital to be exercised for economic growth.

Could you explain more or link a place that explains how this prevents the runaway wealth we are seeing?

Re: How to convert between wealth and income tax

#380

Post by harimau777 »

jppope wrote: post #312
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.

> 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 ineffectiv…

Them moving somewhere else is an easy fix. Just put an exit tax on the ultra wealthy.
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