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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

#521

Post by HDThoreaun »

accrual wrote: post #494
solidsnack9000 wrote: post #274

Earlier quoted context omitted.

I'm not sure how there is a societal problem with "run-away levels of wealth". We have societal problems around food costs, housing costs, healthcare costs, &c; but people with extreme wealth are not bidding up sandwiches, studio apartments, &c, &c. If we "solve" their wealth by taking it from them and giving it to the government, what does that help? What good is the government going to do with that? Allocating mone…

> but people with extreme wealth are not bidding up sandwiches, studio apartments They are, though. Private equity continues to buy apartments and increase rates. States with increasing PE ownership also have increasing rates of cost-burdened renters spending more than 30% of income on rent and utilities, e.g. in Tampa, Phoenix, DFW, and Atlanta. Maybe not specific people , but the ultrawealthy nonetheless drive thes…

Housing is only a good investment when supply is constrained. These PE firms buy housing because they see that NIMBYs are in control. As they predict rents soon begin to rise. Youve got the cause backwards

Re: How to convert between wealth and income tax

#522

Post by ethbr1 »

credit_guy wrote: post #516
mannanj wrote: post #471

Earlier quoted context omitted.

Does the government not have the goal to make society a more just society? When did that stop being a priority of government? Even a teeny, tiny one?

Sure, the government has that goal too. But the government has many tools, and using taxes for that is using the wrong tool. Or maybe you think that billionaires owe us not only to pay taxes, but also to play nice, and pay those taxes with a smile on their face?

> pay those taxes with a smile on their face

The government's monopoly on punitive violence isn't only intended for the peasantry...

Re: How to convert between wealth and income tax

#523

Post by sokoloff »

vineyardmike wrote: post #518
sokoloff wrote: post #418

Earlier quoted context omitted.

> no "I'm a billionaire so I can spend as much as I want on myself" To me, that would seem extremely difficult for Congress to pass a law restricting individual speech in this particular way that would pass First Amendment muster, and I don’t think we should be at “let’s just set aside the Constitution when it clearly says something we don’t like” because I don’t think that ends well in today’s political climate (or…

We already have laws that limit how much you can give to someone else’s campaign. We’ve already crossed that threshold in terms of “free speech”.

Passing a law that restricts the amount of my own money that I can spend talking about myself seems especially directly a 1A violation.

Re: How to convert between wealth and income tax

#524

Post by ethbr1 »

auggierose wrote: post #501
lotsofpulp wrote: post #457

Earlier quoted context omitted.

If the government mandates it under threat of violence, it’s called a tax. It could also be classified as an insurance premium, but a government mandating it is the key characteristic of a tax. But the fact that the government reduces the annuity amount by increasing retirement age and benefit purchasing power means it is not insurance either. It is wealth redistribution from the working to the non working.

Yeah, that's how insurance works: it is wealth distribution from those who have not become (yet) an insurance case to those who have not. If you have a car, you need to pay car insurance. Is that also a tax? The concept of insurance is independent of mandatory or not. That should be obvious, I wonder why it isn't to you. Maybe your ideology prohibits clear thinking and makes you vote Trump?

Something can be mandatory insurance AND a tax.

Re: How to convert between wealth and income tax

#525

Post by HDThoreaun »

blackjack_ wrote: post #60
goyozi wrote: post #21

I don’t follow the debate and situation in the US that closely but isn’t (part of) the point of wealth tax to offset the fact that rich people are routinely avoiding paying income tax and taxes in general? Thus even if we assume the simplistic conversion here, it’s not that they’re moved from 40->60 bracket but more like <30 ?

Yes. And that wealthy individuals are avoiding taxes via things like buy -> borrow -> die, in which high stock valuations that increase but are not sold are not ever taxed, and roll over the taxation potential upon death to their current value. Thus by borrowing against them until death, the inheritor will inherit with a tax basis at the current value upon receipt and thus all taxes are avoided. In which case the tax…

Buy borrow die as you describe still ends up with a 40% estate tax. Most uber wealthy want to avoid the estate tax so they utilize trusts, which cant die. Really the people who benefit the most from buy borrow die are those with 10-50 million. Not enough to pay serious estate tax because of the exemption. Above that everyone uses trusts which work differently. Not that the trusts dont have their own loopholes.

Re: How to convert between wealth and income tax

#526

Post by Hnrobert42 »

adrianwaj wrote: post #519

Perhaps all taxes should be abolished and then a new one introduced: a transaction tax. The question then remains, does the sender add a bit more before sending to move any given amount, or do they pay a given amount with the recipient getting less? The system certainly scales well for net-worth and one's economic activity. The question then remains - who/what is considered an "outside" party for a tax to operate in…

Transaction taxes are considered regressive. That is, they disproportionately affect the poor.

The idea is that everyone must spend a certain amount of money to live. For the poor, that amount is a greater proportion of their total income and wealth.

Basically, a wealthy person can choose to pay the same taxes as a poor person by only spending as much as a poor person.

Maybe that's fair. Maybe it's not. But it is a criticism of sales/transaction taxes.

Re: How to convert between wealth and income tax

#527

Post by lacewing »

deeponey wrote: post #467
pzo wrote: post #436

Earlier quoted context omitted.

at least all financial assets (stocks, etc) are easy to assess value so why not start with that? same with gold, silver etc. Some minimal amount you can make it nontaxable to reduce administrative burden.

this a million times. Land easy, already being taxed. Any regulated financial instrument, also easy, take the minimum average yearly price of held assets. Tricky things like privately held companies, maybe we solve that one later, but even then there are valuations made at various points, anchor to those, be conservative in every case. If the gov primarily exists to enforce property rights... then people should pay i…

> Tricky things like privately held companies, maybe we solve that one later

So I spend 30 minutes to set up an LLC and then transfer my assets to that LLC. Now, I don't hold the assets; I hold a stake in a privately-held company.

Ultimately, the solution you come up with needs to be at least somewhat airtight; otherwise, it just penalizes people who spend less money on tax advisors. The generation of income is a fairly well-defined point where assets change hands and you can apply some quasi-clear rules. Ongoing taxes on the potential to make money are a lot harder. So I buy some gold bars or valuable paintings and stash them in the attic. Gold / Picasso appreciates. How do you tax me on that? Do I submit an inventory of everything I own to the government every year? How does the government check - do they get to rifle through my stuff every December?

And hey, here's a cool one: if my parent owns a company and puts it in their will that it's mine when they die, is that promise an asset I owe taxes on every year? It's clearly worth something: it's potential money down the line.

Re: How to convert between wealth and income tax

#528

Post by jgord »

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…

Australia is proposing a CGT tax of 30% on "capital gains" .. essentially taxing the _income_ from wealth.

This is more of a fair comparable to reason about when comparing taxing wealth and taxing wages.

In nerd-speak, taxing the Derivative of Wealth is comparable to taxing Income.

You could argue that a fair comparison of wages and wealth would first subtract the minimum cost of living, so that wage tax is effectively a tax on the growing wealth of wage-earners. This would arguably be a fairer tax comparison - in both cases it is the derivative of wealth that is being taxed.

If a large portion of the populace spends all their income on basic food, rent and petrol then they have no chance of wealth increase, and perhaps should fairly be charged 30% of their $0 growth in annual wealth.

Re: How to convert between wealth and income tax

#529

Post by ashdksnndck »

chasd00 wrote: post #257
Glyptodon wrote: post #217

Earlier quoted context omitted.

Lol, that's still totally feasible for normal FIRE/retirement situations, my understanding is that most proposals only start at $50 million or more. You can still have a super cushy retirement with $3mil+ and 3% withdrawal forever.

> only start at $50 million or more curious how they came to that number. There's probably plenty of voters willing to cast a vote for $0.5M+ and plenty ready to cast a vote for $100M+. How was the line drawn?

In 2020, there was a campaign (prop 15) to legalize increases on the property tax rate in California that only applied to commercial and industrial properties. Intuitively, the constituency for prop 15 should be very similar to a wealth tax on $0.5M+, since the set of people owning commercial/industrial real estate in California are mostly a subset of people with $0.5M+ wealth. What actually happened is there was heavy opposition and prop 15 was narrowly rejected by the voters. Organizations opposing the proposition included the American Legion, the NAACP, and California Beer and Beverage Distributors.

Arguably, there’s a disconnect where the people who lead civic organizations don’t have a great deal in common with the median member. They might be wealthier and generally more plugged in to power structures. They might not support policies that are in the best interest of members they represent, especially people who have a hard time representing themselves.

Anyway, if your goal is to get a policy enacted, it’s not enough for your policy to be theoretically good for the median voter. You need a winning political coalition.

Re: How to convert between wealth and income tax

#530

Post by adverbly »

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.

Bingo!

Yes! A tax system that incentivizes productivity! You for president! I would vote for this so f*** hard!

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