How to convert between wealth and income tax • Hacker News Board

Re: How to convert between wealth and income tax

#381

Post by fblp » Fri, May 22, 2026, 9:02 PM UTC

This grossly simplifies things.

In the US the max federal tax rate is 20% on capital gains, that is the gains realized when you typically sell an asset. The max tax rate on ordinary income is 37%. Some states don't tax at capital gains at all. Others make also tax capital gains.

There are a myriad of loopholes to defer and minimise capital gains ranging from QSBS (first 10mil in small businesses) to trusts to foundations to offset losses. Billionaires are incentivised to hold their assets and let them accrue rather than deploying that capital.

Yes, you could argue that billionaires have earned his billions. But could you really argue that the tax system should be configured to reward them for sitting on those billions and those gains should be taxed at a rate lower than someone working every day to earn 200k in wage income?

The economy has a fundamental division between those who earn income off the gains on assets, and those who earn an income on wages. Wealth taxes help level the playing field by those who already have a tax system in their favor.

Trickel down economics does not work when you earn more holding on to what you have.

Re: How to convert between wealth and income tax

#382

Post by lifeisstillgood » Fri, May 22, 2026, 9:02 PM UTC

Some thoughts I have been having recently

1. Wealthy more or less means able to live off the investments (passive income). Usually it means live off the interest of the interest (generally assessed as 8 million bucks nest egg)

2. It’s an obvious logical step but it is literally impossible for everyone to be independently wealthy. As in everyone cannot have a passive income.

3. So this debate just chnages when we ask “how do we make everyone wealthy” we can’t given the definition we have.

4. So we have to change the definition

5. How can we make everyone in society share fairly in the wealth that society has?

6. What if we made it much harder for wealth to Snowball into more wealth pulling it away from middle class

7. What if instead of a foolish wealth tax where we assess wealth, we stick to the “freely entered into transaction situation”

8. So Capital Gains taxes at same rates as income Also tax the “borrow till you die” idea - over a certain yearly amount, borrowing against your assets (ie Deutsche Bank lending you 100M against 1M shares of Blurb corporation should be treated as income just as if you sold the shares.)

I know that get hard but in the end we need money to circulate.

That’s how everyone shares

Re: How to convert between wealth and income tax

#383

Post by bombcar » Fri, May 22, 2026, 9:02 PM UTC

tclancy wrote: post #291

arh5451 wrote: post #54

Earlier quoted context omitted.

If you mean that a person with 0 savings pays 0 wealth tax, then sure. Most people when they earn income save some of it. Therefore it is wealth taxed.

>Most people when they earn income save some of it. Therefore it is wealth taxed. This is one of those “check your privilege” moments and one where it is best to look at the median and not just the average when talking about household wealth in the US. Between 57% and 67% of U.S. adults are estimated to live paycheck to paycheck. They aren’t saving it, they’re going into debt because the only local grocery store is a…

Do they still live paycheck to paycheck after receiving a raise?

If so, the problem likely isn’t the paycheck.

Re: How to convert between wealth and income tax

#384

Post by harimau777 » Fri, May 22, 2026, 9:03 PM UTC

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.

You could peg the numbers to inflation.

Personally, I see a big benefit of a wealth tax being lowering wealth inequality; even if the money isn't actually used for anything useful. That would at least help prevent the ultra wealthy from being able to unilaterally ruin society.

Re: How to convert between wealth and income tax

#385

Post by underlipton » Fri, May 22, 2026, 9:05 PM UTC

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…

Not even that. Someone who got laid off by one of Paul Graham's friends likely has decent investments and is receiving relatively small salaries from labor (that is, 0, unless you're counting unemployment insurance, and then, is that saved-up labor pay, delayed and amortized, or "investment" income from your taxes?). And if that person is class-conscious, or at least self-interested, they should be 100% on-board with a wealth tax.

Re: How to convert between wealth and income tax

#386

Post by trollbridge » Fri, May 22, 2026, 9:06 PM UTC

lifeisstillgood wrote: post #382

Some thoughts I have been having recently 1. Wealthy more or less means able to live off the investments (passive income). Usually it means live off the interest of the interest (generally assessed as 8 million bucks nest egg) 2. It’s an obvious logical step but it is literally impossible for everyone to be independently wealthy. As in everyone cannot have a passive income. 3. So this debate just chnages when we ask…

I still haven't heard a solid explanation of how taxing loans as "income" is going to work.

Being able to borrow against assets is a pretty essential part of the present-day economy. Almost everybody does it, from the very poorest taking out a car-title loan (however ill-advised) to middle-class people with home equity loans to medium sized businesses and farms who often have loans against their entire assets in order to buy more equipment or keep their operations going.

Re: How to convert between wealth and income tax

#387

Post by trollbridge » Fri, May 22, 2026, 9:06 PM UTC

kccqzy wrote: post #332

scarmig wrote: post #262

Earlier quoted context omitted.

"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…

Unrealised capital gains tax requires some way to assess the value of assets. This is a lot harder than it sounds.

It already exists in the form of property taxes, which are quite unpopular.

Re: How to convert between wealth and income tax

#388

Post by ecshafer » Fri, May 22, 2026, 9:07 PM UTC

zug_zug wrote: post #379

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?

The book Progress and Poverty argues this. Basically as we see wealth increase, increases in population and productivity raise the value of land (economic rent). Landowners capture this value, while wages for labor stagnate. A Land Value Tax and other taxes on rents removes that extraction, so people are able to reap its benefits. Meanwhile it also stop taxing productive things, like capital and labor, incentivizing people to work harder and invest. Runaway wealth is often parked in land other rents, but as land is taxed it, in incentivized investment: more housing, more innovation, etc to be more utilized more efficienty.

Re: How to convert between wealth and income tax

#389

Post by harimau777 » Fri, May 22, 2026, 9:07 PM UTC

lazide wrote: post #310

pessimizer wrote: post #304

Earlier quoted context omitted.

Read my comment - it is completely irrelevant to the discussion being had about the linked article, and no one on the planet is suggesting a 20% wealth tax. That is my point.

The argument was that it was ludicrous to say a wealth tax of x percent > income tax of x percent in actual impact, yes? It is clearly the case if you try to apply the income tax rate as a wealth tax using concrete real world examples. Even a 3% property tax makes it very difficult for many normal people to own those assets in many real world economic circumstances.

I don't think that those issues would be too difficult to fix.

The tax could be made progressive so that it doesn't impact people who can't afford it.

Someone's primary home and vehicle could be omitted from the tax.

Re: How to convert between wealth and income tax

#390

Post by NoMoreNicksLeft » Fri, May 22, 2026, 9:07 PM UTC

QuercusMax wrote: post #370

NoMoreNicksLeft wrote: post #357

Earlier quoted context omitted.

>I'm not overlooking the possibility that such a tax structure could create an effective wealth cap at some level. No, I think what that does is create an effective corporate decimation. No one has a billion in cash that I've ever heard of. When you say "tax the billionaires of their wealth" because this billionaire has $1 billion, you're talking about his shares right? Maybe in one company, maybe across many. Is he…

Your argument must not be very convincing if need to refer to your opponents using slurs. Using a wealth tax to nationalize corporations sounds like exactly what we should be doing.

>Using a wealth tax to nationalize corporations sounds like exactly what we should be doing.

You want Trump and company in charge of it all? Or are we finally back to "the next time Democrats win it will be forever!" wishful thinking? I mean, even if you want to nationalize everything, it's as if you dreamt up the worst possible way to go about doing that so that they've cratered first and started hemorrhaging all their talent in the leadup.