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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

#551

Post by thrance »

GS523523 wrote: post #511
thrance wrote: post #251

Earlier quoted context omitted.

This nefarious logic has been used for 50 years to justify ever worse austerity and tax breaks for the wealthy. And look at the situation today: pedophile oligarchs rule the world while we fight for scraps. The West has no future, unless we start aggressively redistributing wealth.

Hasn't a rich oligarchy been the status quo for most of humanity? It seems to me most of humanity has had quite a future to look forward to, historically speaking.

I'd be reluctant to call the lords from the feudal system "oligarchs". Really, the people currently called such could only exist in a globalized economy.

But anyway, oligarchs weren't this powerful in the mid-century. FDR's New Deal was successful in bringing down the Robber Barons and ushering in America's golden age. Coincidentally, things started to go to shit with the introduction of Reaganomics and the promise that letting a few private individuals concentrate more and more wealth would be beneficial to the economy.

Re: How to convert between wealth and income tax

#552

Post by adverbly »

I'll have some of whatever PG is smoking here!

This might be one point of view, but if you imagine an economy where everyone is poor/living paycheck-to-paycheck, then this looks super wrong:

Everyone has $100, earns $100/month, and spends $100/month.

at 1% wealth tax, they pay $1/year.

at 20% income tax, they pay $240/year.

Those are obviously not interchangeable taxes from a government revenue perspective!

Re: How to convert between wealth and income tax

#553

Post by defrost »

solidsnack9000 wrote: post #548
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…

When a PE fund buys an apartment building, isn't that really competing with landlords, not renters? The PE fund is not living in the apartment -- they have to try to rent it out, after all.

> they have to try to rent it out, after all.

Not really.

It's also a plan to hold onto real estate as market prices rise, flip for profit later, and not deal with all the issues that renters bring (management and maintenance costs, bringing up and keeping to code, potential damages and law suits, etc).

Keeping a floor or two active for Air BnB type short churn rentals while shuttering the bulk of a building can make $$$-sense to a PE.

Re: How to convert between wealth and income tax

#554

Post by anon291 »

jwlake wrote: post #487
anon291 wrote: post #448

Earlier quoted context omitted.

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.

My issue is singling out stocks for this. Try telling people they're laying taxes on their heloc and that this is now income so their 300k heloc cash out now puts them in the highest tax bracket! Good luck

Of course people taking out equity cash for investments are actually putting the money for productive use.

How about there's no capital gains tax on equity if it's rolled into another investment of any kind. Eliminate the like kind nonsense. Tax only consumption income.

Re: How to convert between wealth and income tax

#555

Post by solidsnack9000 »

defrost wrote: post #553
solidsnack9000 wrote: post #548

Earlier quoted context omitted.

When a PE fund buys an apartment building, isn't that really competing with landlords, not renters? The PE fund is not living in the apartment -- they have to try to rent it out, after all.

> they have to try to rent it out, after all. Not really. It's also a plan to hold onto real estate as market prices rise, flip for profit later, and not deal with all the issues that renters bring (management and maintenance costs, bringing up and keeping to code, potential damages and law suits, etc). Keeping a floor or two active for Air BnB type short churn rentals while shuttering the bulk of a building can make…

Because a PE can have longer time horizons than a landlord or a real estate company?

Re: How to convert between wealth and income tax

#556

Post by lifeisstillgood »

Terr_ wrote: post #504
bhelkey wrote: post #430

Earlier quoted context omitted.

> I still haven't heard a solid explanation of how taxing loans as "income" is going to work. The idea is that taking a secured loan out using an asset as collateral would be a taxable event for that asset. That is to say, if you buy a house for $400,000 and it appreciates to be worth $850,000 then take a home equity loan out against the house, you would owe capital gains on the $450,000 appreciation. With the curren…

> The idea is that taking a secured loan out using an asset as collateral would be a taxable event for that asset. Doesn't that puts valuations in the hands of people who could conspire to manipulate them, creating false data points? For example, suppose you bought something for $25 a long time ago, and it has, very unofficially, appreciated to ~$100. I could lend you $100, and the contract will say that I'm only ask…

That’s an interesting take.

I certainly agree with the estate / inheritance tax (the main issue is “resetting” the value to market at point of inheritance)

But as for the valuation problem I think that can only stretch so far. If you put up a million shares of $TechFirm as collateral for a loan to buy a yacht, it’s hard to claim they aren’t worth what the NYSE listed them as. If instead you put up 250,000 shares as partial collateral the bank has to put the missing collateral on its balance sheet (else some one is committing fraud)

The thing is it’s common. We on HN know all about “borrow till you die”, that Trump got Mar-a-lago valued at a billion dollars. The problem is not banks doing favours for valued clients, it’s so common and normalised that we don’t notice.

Re: How to convert between wealth and income tax

#557

Post by AnimalMuppet »

postflopclarity wrote: post #196
AnimalMuppet wrote: post #146

Earlier quoted context omitted.

Which is a tax on only one kind of wealth. Back when that was the kind that mattered most, that made sense. Today? Not so much.

it's more than that, because it's the one kind of wealth that has an (almost) completely inelastic supply

Same is true of gold. So why single out land?

Re: How to convert between wealth and income tax

#558

Post by AnimalMuppet »

adverbly wrote: post #547
AnimalMuppet wrote: post #146

Earlier quoted context omitted.

Which is a tax on only one kind of wealth. Back when that was the kind that mattered most, that made sense. Today? Not so much.

Still, seems like table stakes. Start with georgist/pigouvian taxes, and then expand to other kinds of income/wealth afterwards. But Georgist taxes can go really far I'd imagine.

No, why? If we're going to do a wealth tax, then do a wealth tax. Why single out only one kind of wealth, and the kind that is not even the most important these days?

(What's more important? IP. The value of Google, say, isn't in the land it owns. It's in the code, the database of web pages, and the google.com domain name.)

Re: How to convert between wealth and income tax

#559

Post by verteu »

HDThoreaun wrote: post #525
blackjack_ wrote: post #60

Earlier quoted context omitted.

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.

Indeed, the ultra-wealthy pay far less than 40% effective estate tax. Seems closer to 15% due to creative accounting, which is further reduced to 6.8% by charitable contributions:

> Specifically, for single decedents, estate taxes paid equal 6.8% of the value of Forbes wealth at death. The value of their gross estate is 39% of the Forbes estimate of their wealth. This large gap, already noted in earlier work (Raub et al., 2010), is likely to reflect the various techniques available to high-net-worth individuals to undervalue assets in the context of the estate tax. Taxable estate is then 45% of gross estate (due to deductions primarily gifts to charities) and on that base the tax rate is 39% (Balkir et al., 2025, Table 4 Panel B).

https://www.nber.org/system/files/working_papers/w34170/w341...

Re: How to convert between wealth and income tax

#560

Post by verteu »

jdauriemma wrote: post #200
fourseventy wrote: post #175

Earlier quoted context omitted.

The idea that rich people don't pay taxes is a myth. The top 5% richest people in America account for 60% of all of the federal income tax. The bottom 50% on the other hand only account for a total of 3%. When Elon sold a bunch of Tesla stock in 2021 he paid $11 Billion in capital gains tax on it... That's more than entire cities worth of people combined would ever pay for the rest of their lives.

Can you share a source? Of course the top 5% of _earners_ would pay more, but that's not necessarily the same crew as the top 5% in net worth. And 5% is a large share of the population. I'd be more interested in the top 1% of 1% in terms of wealth.

Indeed GP is falsely equating "wealthiest" with "highest taxable income".

They are likely referring to a stat like this: https://usafacts.org/articles/who-pays-the-most-income-tax/

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