Hacker News Board Hacker News, browsed like a classic message board
Live data from Hacker News

How to convert between wealth and income tax

paulgraham.com

Post reply on HN
Print view View original

481–490 of 727 posts

Re: How to convert between wealth and income tax

#481

Post by Jblx2 »

jmcmaster wrote: post #65

So make income tax a deduction on a wealth tax, and avoid penalizing people who do indeed pay top marginal rate income tax on a large salary/bonus. Given that the ultrarich pay very little to no income tax then Paul’s argument is “don’t increase my income tax from unnoticeable to 20%”

You probably mean that incomes taxes should be subtracted from wealth taxes? (I don't know that "deduction" is right technical term). That sounds like a good idea, and should probably also include subtracting out capital gains taxes as well. So if you had a $500,000 calculated income tax liability, and a $600,000 calculated wealth tax liability, you would only end up paying $600,000 in taxes (instead of $1,100,000).

  $tax_paid = max($income_tax_liability + $capital_gain_tax_liability, $wealth_tax_liability)
...that does seem like it would seem to alleviate PG's concerns about adding "a mere 20%" to the income tax rate.

Re: How to convert between wealth and income tax

#482

Post by topaz0 »

sokoloff wrote: post #428
PokedBear wrote: post #191

Earlier quoted context omitted.

The step up basis makes sense in a world where you still have to pay substantial inheritance taxes. But with minimal to no inheritance taxes, the step up is a giveaway.

It’s also a practical policy. It’s far easier to know the stepped-up basis on the date of X’s death than it is to know the basis that X had in something once X is dead.

Which argues in favor of the inheritance tax mentioned.

There could be other solutions too -- say, require a virtual wash trade at time of inheritance, so the capital gains from the parent's lifetime are taxed at time of death and the child gets the stepped up basis. Somewhat different than an inheritance tax, but at least not a giveaway.

Re: How to convert between wealth and income tax

#483

Post by greedo »

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.

They never sell their shares. They borrow against them, write off the interest, and then when they die, their heirs get a stepped up cost basis.

Re: How to convert between wealth and income tax

#484

Post by bellowsgulch »

you know that one guy, Ross Scott, who thought he wasn't going to get anywhere with stop killing games, but he thought, why not, let me ask people on YouTube whether or not people want to get together to stop video game publishers from killing service-based games

i think about that mentality all the time

one person just said, I don't think I'm going to be able to change the world, but well, why don't I try anyway because I don't see anyone else doing it, and instead thinking that a politician is responsible for my future instead of me and you

such a great mentality, I really do think about it all the time

Re: How to convert between wealth and income tax

#485

Post by Dylan16807 »

NoMoreNicksLeft wrote: post #357
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…

>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…

> No one has a billion in cash that I've ever heard of.

What's the biggest amount anyone has in treasury bonds or gold? You could easily liquidate a ton of that.

> but what happens when he only gets $70mil for it because the stock price tanked? Should he sell more, until he comes up with that original 20% of his "billion"?

If the stock tanks that much while he's selling, then the company is only worth about $300 million now, and the money he owes drops to $60 million.

Though I don't see why it would tank that much.

Re: How to convert between wealth and income tax

#487

Post by jwlake »

anon291 wrote: post #448
jwlake wrote: post #444

Earlier quoted context omitted.

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

2008 was literally people getting mortgages on unrealized gains, and then getting more loans. Even if the market wouldn't support the sale, they borrow against it and then get another load and causing an asset bubble. Its not ancient history.

Re: How to convert between wealth and income tax

#488

Post by BosunoB »

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…

If you paid attention to proponents of a wealth tax in the US, you would be aware that they only ever suggest it for vast wealths of like $10 million+.

Re: How to convert between wealth and income tax

#489

Post by frmersdog »

whodidntante wrote: post #402
SoftTalker wrote: post #295

Earlier quoted context omitted.

The minimum net worth of the top 1% of households is roughly $13.7 million[1]. So at $50 million they can say "we're only taxing the top of the top 1%" as a way to sell it. "The top 1%" is a popular target for these schemes because 99% of people might be convinced to support it, since it won't affect them (at least not directly). [1] https://www.investopedia.com/financial-edge/1212/average-net...

A wealth tax will affect the distribution of investments. It might make higher risk investments like stocks more attractive as compared to bonds, it might make them less attractive. More likely it might make publicly available instruments less attractive in general, as private investments have more flexibility in how they are evaluated. In any case, there will be winners and losers as the investment landscape shifts,…

Yeah, "It won't affect the 99%," is the wrong framing. The entire point is for it to affect the 99% (by undoing the effect disproportionately high wealth among the wealthiest and disproportionately low wealth among the middle and least wealthy).

I think your assumptions are off, though; less wealthy people might not be "forced" into investment at all, but given the "opportunity" to pay off debt or increase/diversify consumption. In the end, the important part is the wealth transfer downward, wherever it ends up. No trickle, but you can pump it.

Re: How to convert between wealth and income tax

#490

Post by throw0101a »

bagels wrote: post #456
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.

Homeowners already pay a wealth tax.

> Homeowners already pay a wealth tax.

If you're talking about property taxes, then renters pay that as well through their rent (which passes through the landlord before getting to the city/county).

* https://realestatemagazine.ca/do-residential-tenants-pay-pro...

And is some (many?) cases higher rates than owners:

* https://www.renx.ca/renters-often-pay-higher-municipal-taxes...

Post reply on HN