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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

#441

Post by jlhawn »

I was waiting for him to make some point but then it ended up being that a wealth tax is like increasing regular income taxes by 20% which makes it seem like PG is trying to confuse people about what a wealth tax is designed to target. It's not targeting your wages or salary, or even your interest or dividends. It's primarily targeting unrealized gains on financial securities.

Maybe he should spend his time trying to work with these politicians to design something that is more fair? Like making it actually act as a tax on unrealized gains over $1B (so that it takes cost basis into consideration) OR make it so that if you need to sell some assets to pay the tax, you can writeoff the wealth tax you paid from your regular/capital-gains income so that you aren't taxed twice? There's a lot of actually useful stuff he could write about in this policy area instead of blogging about the financial equivalence between stocks and flows.

Re: How to convert between wealth and income tax

#442

Post by pzo »

harimau777 wrote: post #384
lazide wrote: post #284

Earlier quoted context omitted.

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.

I compare ultra wealthy to blackholes - overtime they accumulate more and more mass and reduce mass elsewhere. But even in nature we have Hawking radiation (which leads to black hole evaporation). So for me wealth taxation is similar like this slow black hole evaporation which seems fair.

Re: How to convert between wealth and income tax

#443

Post by wsng »

philipallstar wrote: post #394
harimau777 wrote: post #373

Earlier quoted context omitted.

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.

All their "money" is in business ownership percentages. It's not money.

It's ok if they pay their taxes in shares, in case they ran out of money.

Re: How to convert between wealth and income tax

#444

Post by jwlake »

anon291 wrote: post #278
jwlake wrote: post #174

Earlier quoted context omitted.

Loans against unrealized gains should just be taxed directly as income. Not indirectly creating more loopholes. Same way stock buybacks should be taxed at the same rate as short term capital gains.

Yes let's encourage more risky behavior! Absolutely braindead takes. This sort of proposal would establish a minimum 35 % return in any project. Thus halting investment entirely Let's put this in perspective. I'm currently going to collaterize a few hundred thousand in equity to take a loan to develop homes in my very housing short city of Portland. My calculated return is 40%. This is an excellent return.. It this w…

The point is you should realize your gains before you reinvest the money. Circular borrowing causes asset bubbles. You could collateralize against OTHER assets, but unrealized gains you should be paying taxes on if you are borrowing against them. It's really just closing a loophole. If the loophole is BIG enough, the you could lower the rate for everyone!

Re: How to convert between wealth and income tax

#446

Post by kansface »

bo1024 wrote: post #302

What's wrong with a 20% tax? We who make a living from labor instead of capital pay more than that. Paul tries to frame it as an increase of 20% in the tax rate, but in reality the increase is from 0% to 20%, and it's hard to see why that's unfair. The reason I say it's currently 0% is of course that for the wealthy most of these 5% gains are unrealized (e.g. inflation in the value of their assets) and untaxed.

Income (returns) are not guaranteed. Go for progressive capital gains if that’s what you want. A wealth tax is a crazy bad idea.

Re: How to convert between wealth and income tax

#447

Post by topaz0 »

philipallstar wrote: post #397
Barrin92 wrote: post #371

Earlier quoted context omitted.

>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 t…

> it simply means wealth grows slower, but still increases But what does this mean? If you have a load of money in some companies, that's helping to fund their activities, and the companies' share price goes up a bit, you haven't gained any money. And you won't gain any until you sell some shares, which is already taxed.

Rich people have been borrowing with their stock as collateral to access their wealth tax free for decades.

Re: How to convert between wealth and income tax

#448

Post by anon291 »

jwlake wrote: post #444
anon291 wrote: post #278

Earlier quoted context omitted.

Yes let's encourage more risky behavior! Absolutely braindead takes. This sort of proposal would establish a minimum 35 % return in any project. Thus halting investment entirely Let's put this in perspective. I'm currently going to collaterize a few hundred thousand in equity to take a loan to develop homes in my very housing short city of Portland. My calculated return is 40%. This is an excellent return.. It this w…

The point is you should realize your gains before you reinvest the money. Circular borrowing causes asset bubbles. You could collateralize against OTHER assets, but unrealized gains you should be paying taxes on if you are borrowing against them. It's really just closing a loophole. If the loophole is BIG enough, the you could lower the rate for everyone!

Taxation would only worsen the bubble as people are left unable to pay.

Again the tax rate sets a minimum return. These high returns encourage too much risk.

Collateralizing other assets is the standard way in which capital grows. I don't see how equities and any different than homes.

There is no 'circular' borrowing other than the normal creation of money through lending

Re: How to convert between wealth and income tax

#449

Post by servo_sausage »

harimau777 wrote: post #380
jppope wrote: post #312

Earlier quoted context omitted.

> 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.

Even that is subject to shenanigans... above a certain level of wealth the overhead of establishing companies, tax residencies, and complex debt arrangements become a rounding error.

Some of the mechanisms are loopholes, that might be closed l. But many start to interact with international business regulations that exist for considered reasons, and are harder to change even if it is serving as a loophole.

You end up with only the small wealth (one lifetime as a skilled professional) group getting caught

Re: How to convert between wealth and income tax

#450

Post by topaz0 »

irchans wrote: post #179
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'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.

A sane taxation scheme should of course be paired with a humane social safety net that could pay you a comfortable pension.
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