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How to convert between wealth and income tax

paulgraham.com

591–600 of 727 posts

Re: How to convert between wealth and income tax

#591
post #566

Earlier quoted context omitted.

Like I said: the sky is not falling.

I don’t think I understand your argument. If a wealth tax causes the wealthy to leave then you have even less tax revenue than before, right?

There was no tax revenue to begin with-nobody paid income taxes in WA before the millionaire tax. The jobs the rich will take with are few and very specialized: tax accountants, security people, some administrative assistants. When billionaires leave whoever mowed their lawn or cleaned their pool will do the same job - for the next owner.

What the politicians will do with these taxes does not matter to me. The only thing I dispute is this sense of doom because, of my god, Bill Gates and Andy Jassy and Howard Schultz and Ballmer will pick up their toys and leave.

Re: How to convert between wealth and income tax

#592

It's funny, because even though he got the math right, PG got the reasoning completely wrong. > Each 1% of wealth tax is equivalent to 20% of income tax. Yes, this is the right part. Taxing wealth at 1% is equivalent to taxing income at 20-25% (depending on which return you count as baseline) > It's clear that politicians don't get this from the way they talk about a "mere 1%" wealth tax. None of them would speak of…

>Bezos, Musk, Zuck and the likes (or even PG himself, likely) don't pay 40% tax on their wealth growth, they currently pays 0%.

No one should pay taxes on "wealth growth" because it's not realized. They paid income taxes on the shares once they received them, and will pay capital gains taxes once they sell them.

>In fact, to make them pay as much tax as their employees, there should be a 2% wealth tax, not 1%. Hence, a “mere 1%” is in fact a very generous proposal by leftists politicians and economists, as it would still mean the wealthy only get half the rate of working people.

They paid the same tax as their employees once they received the stocks. They will pay the same capital gains taxes as their employees once they sell.

Re: How to convert between wealth and income tax

#593
post #396

So 5% wealth tax would be the same as 100% income tax, 6% would de 120% AND 100% wealth tax would be the same as 2000% income tax. I think some relevant factors are missing. What is the polite way of putting it... Ah right! You are a clown!

A 6% wealth tax indeed taxes more than the expected rate of return on the base assets. That is indeed equivalent to a higher rate than 100% in terms of an income tax. This math is in favor of PG’s argument.

Certainly, but it's about as useful as comparing the range of a radio with that of a car.

We might also compare tax revenue. For the US 1% wealth tax (for the 0.1%) would generate 250ish billion while 1% income tax would also generate 250 b. Then say 50% worth of increased tax evasion. 2% wealth tax is equal to 1% income tax.

Re: How to convert between wealth and income tax

#594

Earlier quoted context omitted.

I don't think anyone is simply envious. People mean to point out that allowing individual accumulation of wealth to extreme degrees lead to runaway structural problems. Billionaires and companies existing and providing wages are not inextricably intertwined. It's entirely possible to have one while preventing the other. The idea that the only way you can incentivize individuals to start companies is to allow them to…

> I don't think anyone is simply envious. I think most are. > The idea that the only way you can incentivize individuals to start companies is to allow them to accumulate so much wealth that they become tiny kings is patently absurd. The world has thousands of companies and founders who happily sustain their businesses without ever reaching this ungodly and idiotic level of uber wealth. And how many of those companie…

> given back to society

I wouldn't necessarily categorize giving people opportunity to do underpaid, tenuous, non-career, zero-mobility gig work as "giving back to society" nor would I classify the unregulated harms of social media, phone additions, etc. as social good either. That's not to say some of these things aren't also good in many ways, but I also still don't understand why you think this somehow leads to a moral or social justification for unbounded levels of amassed wealth to a single individual.

> Structural problems such as what? The idea that wealth is power? That's the same structural problem that has always existed, except that there are more players than ever before.

So your response to issues such as most people being unable to have a single living wage, rising homelessness, unaffordable housing, is "shrug wealth is power". This is not some kind of inviolable law of nature. We as human beings defining the terms of the game, can set up some legislation.

Learn history. America specifically has combated very similar issues in the past and curbing unimpeded accumulation and breaking up monopolies led to more innovation more diversity in the market and a better distribution of wealth. America has taxed the wealthiest classes more in the past and it wasn't a disaster. Look up the new deal.

> You're not doing this, but when you try to have this conversation amongst the general population what is the response?

Who are you conversing with, me, or the general population? What do you mean when you try to ascribe a belief to the general population? Have you done polling on this? Or are you basing this on media? What are you actually talking about? Why are you so confident in arguing against some perceived hypothetical belief you think "the general population" holds? How do you know there aren't more people who actually agree with your perspective?

> Who lowered that barrier? It was the billionaires

No. Scores of laborers employed by the billionaires lowered the barrier. Yes, many of the billionaires begin with a great idea, but there's no reason having an idea justifies having unbounded wealth. All enterprises depend on legions of people to actually materialize production. There is nothing written in nature that states that the person risking upfront capital should always be compensated more than the people who make production a reality, nor is there any corollary that states that the accumulation permitted should be completely unbounded.

You have convinced yourself that anyone not agreeing with your own belief is ruled by nothing but an emotional or psychological state rather than rational, but different, perspective. This is a perfect way to be a stubborn ass and ensure that no one will ever change your mind. It is anti-intellectualism at its finest. I hope one day you realize how foolish you are being about this.

Since you seem to be into super-reductive arguments, here's mine: we are all clearly hyper-dependent on one another on this planet. There is no reason people who make lots of money shouldn't have to give a reasonable portion of it back to the government and country that they draw labor, customers, and much more from daily. There is no reason that accumulation should be permitted without bound. It is pointless and leads to problems. We can and should argue for reasonable limits or at the very least taxation on massive wealth.

As for me, no envy here. I live comfortably and I am happy with what means I have, something most billionaires don't ever seem to experience. However, I also have eyes and functioning neurons so when I clearly see other human beings unable to afford basic necessities without feeling tremendous stress and pressure and then I see certain high-profile billionaires blowing money on dumb shit, underpaying and abusing workers (piss bottles) and more, I can understand why people want better guardrails in place, and no, wanting to limit the degree to which random people who got lucky in the market can exploit you is not envy.

Re: How to convert between wealth and income tax

#595

Earlier quoted context omitted.

It is less amusing how many of our brethren think the Landed Gentry got there by merit and deserve to live in their castles untroubled by the rabble.

Some 20% of US billionaires grew up poor, or at least without well-off parents. 60+% were upper middle class or below. So, I think we can note that they've created enough value for the rest of us and deserve to keep the fraction of that value that they were able to negotiate.

What is the demographics breakdown on those statistics? How much is old vs new wealth vs generational wealth?

A lot has changed in the U.S. in the last 20-40 years.

Also I'm not really convinced that the existence of individuals with over a billion dollars in wealth is a net positive for society or really anyone except that individual.

Re: How to convert between wealth and income tax

#596
post #297

Earlier quoted context omitted.

If they were saying that kings shouldn't have the unchecked right to execute people, this response would be akin to "Oh, you just wish you could kill anyone. Your argument is invalid."

Not really. The person saying that billionaires shouldn't exist is just failing to describe why that number is so mystical or interesting to them. If billionaires don't exist are we saying that people worth 500 million won't have power? you can keep doing this but the end result is the same. Power is asymmetrical and the system is self balancing. Those that have more wealth have more power. It's that simple. If you w…

I think there is a massive difference between wanting power and wanting freedom and security from undue exploitation and/or economic hardship.

Most people I know don't "want power". They just want to be able to afford basic necessities (food, housing, clothing) without feeling like they are on the brink of survival every day.

Billionaires are starting to take the heat because people are starting to recognize that the wealth created for these billionaires is 100% dependent on their labor, time, and sweat, yet many of them see fractions of fractions of what the billionaires make. If it's somehow unfair for the billionaires to have to pay the government a wealth tax it is equally unfair for said billionaires to withhold so much of the capital generated by their workforces for themselves.

Re: How to convert between wealth and income tax

#597
post #564

Earlier quoted context omitted.

It is called “Buy, Borrow, Die” and it is a very real thing.

The buy, borrow, die idea came from McCaffery in the 90s which was before various IRS sections like 1259 and 7701(o) were codified. Go get a calculator - if you took out a loan and had the interest set a the minimum of the AFR, what would it compound to in 30 years? It would obviously be much higher than just selling stock and paying capital gains on it. The ultra rich do take out loans, and these loans do get repaid…

You're going to have a hard time convincing me the wealthy aren't gaming the tax system after all the reporting and leaks over the last ~40 years.

I suspect you are simplifying what's happening quite a bit, not sure if it's intentional or otherwise. But wouldn't the more likely scenario be that you borrow 100m with a 10 year draw at x% interest and then at the end of the 10 years you do a stock sale (some taxes paid), pay the interest (interest is generally non-taxable) and then take out a new loan for 500m based on your much larger portfolio, and finally claim significant losses against some other asset (regain your actual stock sale taxes losses "oh no my art lost value!")? Repeat ad nauseam until you're dead.

Re: How to convert between wealth and income tax

#598

yawn hack writer issues wealth-hoarding and inequality apologia. Economics is simple. Resources are finite, and money plus markets preserve that finitude as an invariant (that's why it works as a store of value). If you sit on more money and accumulate more money a natural consequence is that someone else has less access to the finite resources available (either in actuality or in potentia), period, because you can a…

Investments aren’t money. They’re just things you own, and their value can go up and down. They don’t affect the money supply.

Many investments are considered a liquid asset precisely because they are basically money.

You're missing the point on a stupid technicality.

If I have more liquid and therefore more purchasing and capital power than you, I have access to more resources than you, and I am immediately in a position in which I can potentially exploit you (get you to labor to generate more resources in exchange for some of the capital I have, then retain most of all of the newly generated capital and production from your labor for myself while paying you a fraction of what's generated because you are in a position of immediate need (need access to necessities) and I wasn't).

Re: How to convert between wealth and income tax

#599
post #504

Earlier quoted context omitted.

> 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 p…

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Re: How to convert between wealth and income tax

#600
post #562

Earlier quoted context omitted.

When market cap goes down because overall valuation does, what do you think is happening? Valuation hasn’t been tied or related to earnings for top stocks in at least a decade. It isn’t ’wealth redistribution’. Removing half or more of market demand isn’t going to be pretty.

Market cap and valuation are the same thing.

That’s what I said, yes.
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