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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

#531

Post by nullc »

ojbyrne wrote: post #82

Why choose the median state tax? The proposed wealth tax is in California, where the top tax rate is 13%. Also relevant would be Medicare (1.45% or 2.35% depending on your employment income) and presumably for billionaires, the Net Investment Income Tax, another 3.8%. I understand why he simplifies things, but it doesn’t really jive with saying politicians don’t understand how taxes work. I think politicians have a b…

> where the top tax rate is 13%

13.3%

> and presumably for billionaires, the Net Investment Income Tax,

NIIT kicks in at 200k, you presumably know this but I thought your comment could be misread as implying it only mattered for billionaires. :P

> I think politicians have a better understanding of taxes than Paul does, and they have a better understanding of how politics work - basically as in all things political, if you convince the majority that you’re dumping on minorities (billionaires, immigrants, trans people) you’ll do well

The author presumably understands this, but it's often more effective to pretend that your opposition is confused then to admit that you believe they are corrupt, unethical, dishonest, and actively trying to perpetrate evil. If nothing else, it gives them a more face saving avenue to course correct. And sometimes they really just didn't know better...

Re: How to convert between wealth and income tax

#532

Post by triceratops »

kansface wrote: post #453
triceratops wrote: post #338

There's a way to levy a wealth tax that requires no asset liquidation whatsoever . Allow paying taxes with assets. The assets go into a sovereign wealth fund. At scale the fund effectively holds a percentage of the entire economy. Its returns should only be used to reduce income tax.

The sovereign wealth fund would be a stakeholder in equities and estates. It would have to exercise voting privileges and be a party to lawsuits. Do you want Trump getting control of the board of eg SpaceX or Meta?

> It would have to exercise voting privileges

There's never a requirement to vote your shares. I've never cast a single shareholder vote in my life. The fund could be legally required to not exercise any votes.

> be a party to lawsuits

Since when are shareholders a party to lawsuits? It's called limited liability for a reason.

> Do you want Trump getting control of the board

I'd normally say "legally structure it so that doesn't happen" and "follow best practices".But laws only mean anything if someone enforces them. If the government doesn't function correctly no government function can work correctly.

Re: How to convert between wealth and income tax

#533

Post by adrianwaj »

Hnrobert42 wrote: post #526
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 c…

That's true, the only thing I can think of is an "amplification curve" being set on whatever is paid, and that can be paid by everyone after any given period based on all the flows a person was involved in during that time.

So if a frugal rich person can be paying a similar amount to a poor person in overall tax looking at living expenses alone, one can also look at all the extra income the rich person gets from assets.

So this inequality/imbalance can be lessened through an amplification factor: by looking at the overall position of a person's flows.

The governments can decide how much to "squash down" down the inequality in society.

Would this address the issue raised?

The other thing interesting about a transaction tax is that individuals don't necessarily even need to be identified - only flows. That would suit the privacy-side of crypto. But I'm not sure how the final setup would look. And that could appeal to the super-rich who want to remain anonymous.

Maybe what I'm getting at is a blockchain tax: a proportion of transaction fees gets automatically routed to government coffers. Alternatively, add a staking tax as well.

This will all make more sense when more real-world assets go on-chain.

Re: How to convert between wealth and income tax

#534

Post by nullc »

kommunicate wrote: post #188

This argument strikes me as massively disingenuous. The central problem of the US tax system is caused by a combination of: - high net wealth individuals essentially being indifferent to income tax. - income tax and short term capital gains are taxed at much higher rates to long term capital gains. - lower net wealth folks (ie. the general public) receiving most of their income as income. - high and ultra high net we…

LTCG + Corp tax rate >= income tax rate. It's an error to disregard the taxes your investments pay before they pass that wealth back to you.

Re: How to convert between wealth and income tax

#535

Post by ethbr1 »

HDThoreaun wrote: post #521
accrual wrote: post #494

Earlier quoted context omitted.

> 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

What's to stop PE from supporting NIMBYism in markets they're part of?

Re: How to convert between wealth and income tax

#536

Post by m11a »

credit_guy wrote: post #458
BugsJustFindMe wrote: post #372

Earlier quoted context omitted.

> 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 litt…

That's not all that matters. The main reason to have taxes is to fund the government, not to make society a more just society. And thinking that billionaires will just take a wealth tax as served, and perhaps will ask "can I have some more" is one way to think about this, but probably not the best way. A better way to think is that action might be followed by reaction. There is no manifest destiny for California to b…

California already has very high taxes. I think marginal tax rates are higher in California than for UK tax residents, certainly for CGT, and roughly similar for income tax.

I'd say the fact that California remains the epicenter of tech despite its high taxes suggests concentration of talent matters far more than tax rates.

Re: How to convert between wealth and income tax

#537

Post by nullc »

outside1234 wrote: post #232

You need to understand the "Buy/Build, Borrow, Die" cycle that the ultra rich use to avoid basically any taxes. Explained here: https://gemini.google.com/share/e230bcecaaeb

That's a distraction. Were that the issue politicians and the media were actually concerned about they could implement policy which made it ineffective at avoiding taxes-- e.g. requiring appreciated assets used as collateral to throw off an implied return which you're taxed on and which gets added to the asset's cost basis. We already have analogous tax rules e.g. using options trades to nullify the risk on an asset causes it to be treated as sold for tax purposes.

The reality is that the total financial effect of that sort of technique is not that considerable, but the political noise that can be made out of turning it into a perpetual problem (e.g. by only proposing to fix it with drastic non-solutions like wealth taxes) is gold to the people that profit from making us hate each other.

Re: How to convert between wealth and income tax

#538

Post by nullc »

blanched wrote: post #28
philipallstar wrote: post #13

Earlier quoted context omitted.

This seems like such a poor understanding of reality. If you want to rank order people who contribute net taxes, you would put billionaires at the top, as they not only pay taxes themselves, but their businesses pay taxes, and their employees pay taxes, and their customers potentially pay taxes (VAT) as well. The bottom of the list would be anyone who works for the state, as they are a massive net tax negative, follo…

In what reality does a business owner get to claim their customers’ taxes as their own contribution?

Parent poster was being a bit grandiose, but there is at least something in the idea that if your company produces a product that I make myself economical prosperous with... some credit for the taxes I pay is owed to you.

Re: How to convert between wealth and income tax

#539

Post by [deleted] »

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?

[deleted]
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