> 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 obtains all his income from labor: To him, a N% wealth tax = 0% income tax for all N. Those with -some- savings are somewhere in the middle.
It is a very sneaky way to argue that a wealth tax should be as across-the-board unpopular as a large income tax increase. But Graham's math is only applicable to those flush with investments and with relatively small salaries from labor, so a wealth tax is only unpopular to that particular group.
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.
On the other hand, almost a majority of people already pay no federal income tax anyways. Mitt Romney mentioned a number of 47% during his presidential campaign and that number was mostly true. https://www.politifact.com/factchecks/2012/sep/18/mitt-romne...
People love to talk about the marginal tax rates but not the average tax rates. And I think that’s right because the conversation should be focused on the wealthiest people.
The ultra rich are desperate to maintain their exclusive access to essentially pay no taxes through their "Buy, Borrow, Die" strategy (if you don't understand what that is you should stop and read this: https://gemini.google.com/share/e230bcecaaeb) and so they are using scare tactics / gaslighting around wealth taxes because a wealth tax would disrupt this essentially zero tax strategy.
"Buy, borrow, die" is a bit of a bogeyman of the Left; it's not a common strategy for HNW or UHNW individuals, and to the extent it is used, there are much better ways to close it than a wealth tax, which is coarse and rife with implementation issues.
The main implementation issue with a wealth tax is that it doesn’t at all interact with the capital gains tax. It’s easy to fix the implementation issue by integrating the wealth tax into the capital gains tax (call it unrealized capital gains tax for starters), make the tax refundable when an asset loses value, and netting it against the actual capital gains tax.
With this framing, the wealth tax isn’t a new tax; it is only prepaying the capital gains tax instead of allowing it to be deferred forever.
Don't speak to loudly of this fact, otherwise some leftist politician could come to the conclusion that human capital – the discounted cash flow of one's future labor income – should be taxed as wealth, too.
> 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 ineffective against them, and if that doesn't work they can just move somewhere else. Income tax was the same.
On top of that it seems to imply that a 20% effective tax rate is outrageous even though that's totally normal for most. Maybe it's not what you're used to as really wealthy person who avoids realized income and has a 0 or 5 or 10 percent effective rate. But it's totally normal for most middle and median income folks who actually pay income taxes.
It's 20% equivalent income tax rate if you have no conventionally taxable income. Otherwise it's 20% on top of your marginal rate. In his $100 example, you'd pay $1 in wealth tax on the $100 and $1 in tax on the $5 income earned, so your total tax is $2 on $5 of income, an effective tax rate of 40%.
But any real wealth tax is going to have exemptions, only apply to wealth above some threshold, and for the wealthy who structure their finances so as to have little or no taxable income, well they end up paying 20% like all the rest of us do.
20% tax on wealth (aka the potentially liquidatable value of an asset) would absolutely destroy anyone using an asset. For a classic example, look at property taxes which are a classic wealth tax. Grandma’s, people on pensions, and even middle class folks who own a home but have relatively low rates of salary increases get destroyed (and have to sell and move out) in places like Texas where property taxes aren’t capped/controlled like California under prop 13 when property prices go up.
Having your house get ‘too expensive to live in’, in fact, is a classic issue with property taxes, and was happening in California - which is exactly why prop 13 happened. And most of those locations the maximum tax is around 1-3%!
‘Wealth’ is not the same as income, because wealth is potential money, if you can sell - and if you sell, you lose access to it.
A 20% wealth tax would mean any asset which doesn’t earning free cash flow returns of at least 20% a year, or which isn’t appreciating at least 20% a year in a risk free way would be impossible to hold for anyone except the most rich people. And even they couldn’t do it for long.
I can’t think of anything which that realistically describes.
A 20% income tax reduces actual cash in hand to 80% of what you’d otherwise have, which isn’t great. But you still get the actual 80% cash in hand right now, and can use it.
You can’t have ‘80% control/ownership for the year’ of a house in a meaningful way, and especially for people actually using/relying on the asset to live, they can’t find 20% (or in most cases even 5%!) of the value in cash for the asset every year. They’d go bankrupt.
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 overlooking the possibility that such a tax structure could create an effective wealth cap at some level.
The problem in California is that it's very hard to change laws. Likewise in my state, where many aspects of the tax system are constrained by the state constitution.
Sure. The issue I’d see is in 20 years inflation might mean that applies to almost everyone, like AMT, but that is a future us issue.
The biggest personal complaint I have is why should the government be getting more tax money when all they seem to use it for is blowing up random countries in the Middle East and spying on law abiding citizens for whatever random reason.
These wealth taxes are not proposed to apply to everyone evenly, that would be a regressive tax policy. There is a wealth cutoff, most commonly proposed to be around $50M.
If grandma has $50M in her house and pension, she can afford to pay a tiny tiny tiny fraction of her wealth to make sure her grandkids still have a place to live that's not falling apart.
You obviously didn't read the thing. 20% is not on wealth. The argument in the piece is that 1% on wealth is the same as 20% on income, and therefore 1% on wealth is obscene.
Please read before making replies that don't make sense in context. When I refer to 20% I'm referring the PG's characterization of a 1% wealth tax as an effective 20% income tax, not a 20% wealth tax.
Read my comment - it is completely irrelevant to the discussion being had about the linked article, and no one on the planet is suggesting a 20% wealth tax. That is my point.
I'm retired. I hope to get a 3% per year income from my savings every year after inflation and taxes. If my state implemented a 1% wealth tax on savings each year, I would go bankrupt in 20 years. I am hoping that I will live 20 years.
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.
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?
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).
I'm sure any wealth tax would only apply to wealth above a certain amount. For instance, inheritance tax only applies to $15mil and above. Likewise, when you sell a house the first $500K (I believe) in capital gains from the sale is tax free.
I don't think people with savings of $15mil and above (assuming that would be the cutoff) are in danger of going bankrupt in 20 yrs from a 1% wealth tax. Assuming your 3% return, they'd be earning $450,000 a year that wouldn't be touched by the wealth tax.
I can't tell if this is sarcasm or a serious point.
Obviously people who have retired and based their entire life plan on making that work have many fewer options than those who are still working. You are arguing that nobody can plan for any kind of secure retirement, including you.
It depends on the net wealth we're discussing. I'm sorry if I touched someone who lives with $1M saving. But should I be sorry for someone with $10M, which might be way more than 30 years of lifetime earnings of p80 population? Wealth tax is obviously targeting the latter.
Having progressive tax rate might be a better way to discuss, instead of blaming whole points.
It isn't, because the ultra rich have no capital gains. They get ultra low interest rate loans against assets so they never have to sell assets and trigger capital gains. Google "Buy, Borrow, Die" if you don't understand this strategy.
They have to sell eventually to pay off the loans. And if they die, their estate has to sell the assets to pay off the loans, and then their heir will pay inheritance taxes on top of that.
Unless their spouse is still alive. In the US, assets' cost bases are reset when a spouse dies. That is the main way that rich people avoid capital gains taxes. I'd much prefer simply stopping that cost basis reset instead of implementing a wealth tax.
> I'd much prefer simply stopping that cost basis reset instead of implementing a wealth tax.
Neither of these would really work against the people you actually want it to work against.
If you don't have a basis reset then they just do a transaction that has the same effect, e.g. create a new corporation owned by the recipient and then have it repeatedly enter into slightly favorable transactions with the one owned by the donor until the new one has all the assets, or any of a hundred other things.
If you try to do a wealth tax then their assets end up in another country under whatever arrangement is necessary to give them de facto control but not formal ownership.
The best way to solve the "buy, borrow, die" thing is actually a consumption tax because then borrowing money in order to spend it doesn't avoid the tax.
> But Graham's math is only applicable to those flush with investments and with relatively small salaries from labor, so a wealth tax is only unpopular to that particular group.
Not quite, because you're using the opposite extreme where someone has no assets. Meanwhile the median net worth in the US ~$200k, which would be $2000/year in tax for every 1% in wealth tax. That's certainly enough for ordinary people to notice.
On top of that, the conversion is even worse than that implies for ordinary people, because the primary reason the median is ~$200k isn't that the median person has $200k their whole lives, it's that they have ~$0 when they're 18 and ~$400k when they retire and the median person is about halfway to retirement age. If you transfer tax burden from income tax to wealth tax then that means they'll be paying more in wealth tax in the second half of their life, which means they need to be saving rather than spending the money not paid in income tax, including during the first half of their life. But that causes their net worth to go up on paper by more/sooner, because they're essentially holding extra money they'll only have to pay in tax later, which in turn causes them to pay more in tax for a tax on holding assets.
Moreover, then you can't say that Alice always benefits because she has no assets and Bob always pays more because he has $400,000 because what's actually happening is that Alice pays less when she's 20 and more when she's 60. That's going to be unpopular because the 20 year olds are generally expecting to be 60 someday but the 60 year olds never expect to be 20 again.
I've never seen a wealth tax proposal where "wealth" was defined as ~400K in assets. They tend to start in the millions with generous carve outs for IRAs and primary residences.
> Nobody is talking about a wealth tax on someone with a net worth of ~$200k or ~$400k.
If that were the case the criticism of Paul Graham's reasoning would be wrong to begin with because the only people paying it would be the people who do get most of their income from investments.
Moreover, your proposal doesn't actually work. If corporations don't pay a wealth tax then rich people just put their assets into corporations that they control but don't formally own (there are many ways to do this). But if they do then ordinary people with ordinary retirement savings can't be spared, since it doesn't change your finances to have the companies your retirement savings are invested in give you lower returns by the amount they pay in wealth tax than to have you pay a wealth tax out of the returns.
They don't even have to change the number. Per capita GDP growth and inflation cause the same number to impact more ordinary people over time by doing nothing.
> The math doesn't math for someone on the other extreme end of the spectrum who has zero savings or investments and obtains all his income from labor: To him, a N% wealth tax = 0% income tax for all N. Those with -some- savings are somewhere in the middle.
Productivity comes from labor AND assets though. You need the farmer and the tractor. Why would we create a tax system that encourages people to divorce themselves from having a stake in the means of production?
> Productivity comes from labor AND assets though. You need the farmer and the tractor. Why would we create a tax system that encourages people to divorce themselves from having a stake in the means of production?
This is exactly why economic models broadly show that taxing capital assets makes workers worse off in the long run. An abundance of capital means that workers will be more productive on the margin, so their wage will be higher. This extends to the capital-income taxation involved in income taxes: pure labor taxes or consumption taxes are inherently more efficient. There are countervailing effects (taxing capital income works as an effective way of indirectly taxing the unearned value of resource-like assets, or of idiosyncratic skills that happen to correlate with holding more capital-like assets) but they can only roughly justify the current income tax arrangement, not some extra tax on assets.
Oh good! I was worried that trickle down economics was self-serving nonsense pushed by think tank economists on behalf of their benefactors. Since it is economic fact rather than self-serving fiction, when I review its track record I will find that it caused an upward inflection in real wages, right? Right?
As long as capital doesn't get involved in some kind of highly financialized spiral getting further and further divorced from the real economy, we should be good.
That could never happen here. We have a history of strongly regulating capital and banks. Why look at all the executives we jailed for the 2008 financial crisis!
Total labor compensation has in fact grown. Unfortunately, much of the non-wage compensation involves services like healthcare that has become a lot more expensive over time due to burdensome overregulation and an overall lack of price transparency.
>Since it is economic fact rather than self-serving fiction [...]
You deride the weak justification for trickle down economics, then proceed to link wtfhappenedin1971.com, a site that tries to argue for the reintroduction of the gold standard through a gish-gallop of random charts?
The gap between productivity and wages is striking, isn't it?
I'm not perfectly aligned with gold bug politics. Their faith in the Kindleberger world is misplaced and their tax aversion can make them useful to my opponents, but at the same time they tend to take the Cantillon Pump and Balance of Payments mechanisms seriously while my traditional allies do not.
No, I don't mind borrowing their charts. Why? Do you have a better go-to link for The Wedge?
>The gap between productivity and wages is striking, isn't it?
It's not. The (in)famous epi.org is flawed for all sorts of reasons, from excluding noproduction/supervisory workers (the highest compensated ones!), to excluding non-wage compensation (eg. benefits), to different deflators for compensation vs productivity. If you adjust for all of that, the chart is unremarkable.
That incidentally, is the exact problem with the site. It presents a barrage of charts, without regard to relevance or rigor, and tries to persuade through sheer volume alone. Yet, if you scrutinize any of them, it quickly falls apart. That's probably why the site doesn't even bother justifying the charts, or even state the thesis, for that matter.
This smells like the think-tank "CEO comp justifies worker underpayment" and "health care inflation is wages" arguments, I'll look into your source but I can't pretend to have high hopes.
As for "gish gallop," right back atcha: those billionaire-funded think tanks firehose a lot of nonsense into the economic discourse (and curricula!)
What percentage of increased productivity has gone back to the workers as increased financial health during the last say 20 years? Not increased wages. Their increase in end of day actual financial health versus end of day increase in actual financial health of the owning class? Not some Peter/Paul highlighting Peter 'wages have gone up' while ignoring any stealing from Paul 'actual financial health' has gone down metric.
300 years of thinking has established that copyright is the best way to sustain ongoing creation of knowledge and thought, yet the same crowd seem pretty fine gutting that 300 years of understanding because of their judgement that their desired use case for today outweighs the cost to society of lost future knowledge creation, so they seem plenty happy to ignore established thought when it benefits them.
People at the bottom end of the income scale are sharply deterred from holding any meaningful amounts of savings, because this can exclude them from 'means tested' benefits. This is effectively a disguised ~100% "wealth tax" that hits many among the most heavily disadvantaged and marginalized. We're essentially telling people that they have to be living literally hand-to-mouth before they're deemed to deserve any kind of broader social support.
The current system without wealth taxes already largely divorces labor from equity stake. Unless you're one of the relatively few tech or office workers who get equity compensation or have a large savings rate, you currently don't have much of a stake in any means of production.
Why do I get the feeling that you would never field the structurally identical complaint against disproportionately taxing labor and consumption, even though that's a much more prominent feature of our current tax policy?
In any case, taxes do not go into a black hole, no matter how much the right likes to encourage this self-serving fiction. Taxes generally get spent down the economic ladder and move people up the economic ladder, increasing their marginal propensity to save. People must have money if you want them to save money.
Even more concretely: reversing the policies which dissolved the middle class might reasonably be expected to restore the middle class, or at least slow their demise.
Well for a start it pressurises asset holders to sell their assets.
But the point isn't to increase stakeholdership so much as to stop privileging stakeholders with very low effective tax bills relative to mere workers, which means that there's a lot less cause for concern about those workers not owning their means of production
> Well for a start it pressurises asset holders to sell their assets.
To whom are the selling? The buyers would be only those that can make efficient enough returns to offset this tax due to their existing systemic advantages, like economies of scale or regulatory lobbying.
> But the point isn't to increase stakeholdership so much as to stop privileging stakeholders with very low effective tax bills relative to mere workers
At this point I think there is ample evidence that policy in this country does not move forward without the consent of these so-called privileged stakeholders. If you take that as a given, why would you support handing these people an economic machine gun to point at your future self?
>Well for a start it pressurises asset holders to sell their assets.
Even assuming this is true, then what? Do you think the average joe is going to suddenly buy alphabet or meta stocks because bill ackman or ken griffin sold their shares to buy bigger yachts?
Regular people have less and less savings to buy "stakes in the means of production". Capital is getting more and more concentrated in fewer and fewer hands: the top 10% of the country owns almost 80% of it all. Wealth needs to be taxed and redistributed.
I think it’s a good point that these taxes don’t apply to most people. Another reason they don’t apply is that most people save for retirement using retirement accounts.
But nothing in the article implies that these wealth taxes apply to most people. The argument is that a 1% wealth tax is equivalent to a 20% income tax because, under certain assumptions, the government gets the same amount of money.
Only in theory. In practice it’s not equivalent at all because once you reach a certain (very high) level of wealth, there’s the “buy, borrow, die” strategy that avoids realizing most of your capital gains. I’ve also heard of proposals to tax asset-backed loans above a certain threshold, which is aimed at the “borrow” part of the strategy. But the concern there is that the super wealthy may quickly find a different strategy for tax avoidance, so a blanket wealth tax should be harder to circumvent. But as with anything to do with the tax code, those with the best tax accountants and lawyers seldom end up losing.
> because once you reach a certain (very high) level of wealth, there’s the “buy, borrow, die” strategy that avoids realizing most of your capital gains
If that is what is being targeted, then why not actually target that. Apply some percent taxation on the current value of all assets transferred because of death. And, if they want, only apply it to estates over some X threshold in size.
Performing the taxation at time of probate makes the valuation easy (unlike a 'wealth tax') because the valuation could be one of "value at time of death" or "value at time of transfer". And, if the ultra wealthy are using this angle to avoid taxes, then this taxes some of that transferred value.
Of course, just like with subscriptions, to the politicians a yearly wealth tax is far more valuable than a one time tax on the total value of the estate.
>If that is what is being targeted, then why not actually target that. Apply some percent taxation on the current value of all assets transferred because of death.
That already exists. The rate is 40% of the asset value.
There is no evidence[0] that the wealthy use the "buy, borrow, die" strategy in any significant way. The underlying financial math doesn't make sense if the goal is to maximize wealth so it isn't surprising that wealthy people don't actually do it.
"Focusing on the top 1 %, while total borrowing is substantial, new borrowing each year is fairly small (1–2 % of economic income) compared to their new unrealized gains"
"1 % of wealth-holders (above $14 million in 2022)"
1-2% of $14,000,000 is $140,000 to $280,000 a year. The median personal income is $45,140. They are benefiting untaxed to the tune of 3-6 times the median American income.
1-2% of 100 million is 1-2 million dollars a year untaxed benefit (44x median income). That is substantial. That their wealth is growing so fast that that is fairly small to them and makes the median American income seem small doesn't sell me.
How is an economic benefit of 3-44X the median income insignificant? I would love to benefit anually by that 'insignificant' amount. By this argument why should we not then exclude all economic income below $140,000 to $2,000,000 from taxation? Since it's 'insignificant'.
I feel the same way. I hear a lot of complains about wealth tax but it always seems like the problems mainly pertain to billionaires. I don't see why we should optimize for that small minority.
If we moved to a wealth tax I'd be the first in line to pay it. So long as everyone else had to pay it too.
If you mean that a person with 0 savings pays 0 wealth tax, then sure. Most people when they earn income save some of it. Therefore it is wealth taxed.
>Most people when they earn income save some of it. Therefore it is wealth taxed.
This is one of those “check your privilege” moments and one where it is best to look at the median and not just the average when talking about household wealth in the US. Between 57% and 67% of U.S. adults are estimated to live paycheck to paycheck. They aren’t saving it, they’re going into debt because the only local grocery store is a Dollar General and it’s just a clever name nowadays.
Almost all wealth tax proposal I’ve seen start at the level of 8-9 figures of wealth. Why are we now talking about it as if it’s going to apply to your average person’s savings account? If we’re just going to accept these billionaire-invented narratives around the wealth tax, then there’s really no point in discussing the actual pros and cons of these proposals.
Because it’s the standard playbook for dealing with even the slightest suggestion of fairer taxation. Trot out an old dude in a suit from a Foundation, make sure to avoid anyone knowing exactly what that foundation does or who funds it and have him suggest it’s a really nice idea, but the unforeseen consequences will actually hurt “working people like you and me”. Present as fact, job done.
> But Graham's math is only applicable to those flush with investments and with relatively small salaries from labor, so a wealth tax is only unpopular to that particular group.
That can be quite a lot of people on HN, and also including FIRE people, so I can see why it's unpopular.
It will never stop at $50M. Once the law is created it is sooo much easier to just lower the threshold. Even if not lowered, in 30 years inflation means it will capture a whole different number of people - maybe you. Maybe it will bankrupt your children.
It's so funny to me how many people have taken envy up as their core personality. Billionaires happened to have created the most opportunities for everybody. Amazon is amazing for the consumer that seeks convenience, but it's also amazing if you want to dropship and make your living off of that. Independent sellers make up 65% of all sales on Amazon. So somewhere the idea that nobody benefits from the creations of billionaires has to be questioned.
Illegal and legal immigrants are being completely supported by Uber right now in NYC. If you lived here you would know that this is their primary source of income for many of them.
The gate that previously blocked your ability to disseminate your ideas to a wide audience and create a living off of it has been completely torn down by the billionaires that create platforms like Tiktok. There are scores of people that have made a living off of this, which was virtually impossible before. The barrier to entry to start from grass roots and build a following and then monetize it has been erased.
It's completely banal at this point to just point at billionaires and say they are the problem just because of envy. I wish there was a plugin for it so I can erase it from my consumption.
The premise that billionaires are less efficient than the government at deploying capital to serve society is incongruent with reality, but sure, they are a convenient scapegoat if your heart is poisoned by envy and lack. That's really all it is and it needs to be called out more often because it's a mind virus that is easy to infect others with. Your life is not served by being clouded by envy and lack, and spreading it is detrimental to all consciousness.
There is objectively more paths to success than ever before. Being preoccupied with what you don't have currently and pointing the finger to blame at some boogeyman billionaire is not going to change anything for your personal life. The buck is on the person with the finger to improve their life and take advantage of the opportunities that are presented to them. Spending your time being mad that people have created something society deems worthwhile and are being rewarded for it is spending your time being envious about something that has nothing to do with your own problems.
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 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.
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 want to make wealth irrelevant then at least come up with a real system where wealth does not exist, because that's an intrinsic property of wealth.
The idea that you can distribute wealth is actually the tell for envy. You want to distribute power because you want power. It has nothing to do with billionaires and it has everything to do with people with more wealth than you having more power. That's envy. How far do you have to distribute before power is meaningless? I'd say all the way. It's not about billionaires, you want billionaires to be on the same level as everybody else. That also means you'll eventually want millionaires to be on the same level as everybody else. You can repeat this exercise all you want but the fact remains the same: if there's a wealth disparity there is a power disparity. Getting rid of billionaires changes nothing because the millionaires will have all the power. etc.
The truth is that there are more billionaires than ever before and that number is growing. It would seem that having power is becoming more democratized over time too. If we go back 500 years the number of people that had this level of power were limited to actual Kings. You are closer to a billionaire in your capabilities and agency in this society than a peasant was under an actual King.
> 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 companies and founders have given back to society at the scale that these uber wealthy people have? Entire new economies have been built up.
> ungodly and idiotic level of uber wealth.
This is still just envy. You should try to prove that you're being oppressed by the systems these billionaires have created because we don't have to go very far back to observe when these systems and economies did not exist. I'll remind you that for example, in NYC before Uber, taxi medallions were being sold for over a million dollars and people were going into debt just for the opportunity to drive a cab. If you go far back enough creating a virtual store front to sell your ideas and goods was a gate that was actually very high. Thanks to the systems that are in place now you have the opportunity to spin this up for very little risk and prove out your idea. 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. You can launch an entire grass roots political campaign on social media for free. Does that sound like a system that oppresses or is that a system that has given you opportunity to enact change?
Even the barrier to invest in companies and participate directly in the profits and value creation has been erased or lowered. Hundreds of millions of people are directly benefitting from this everyday. It is now a few simple clicks of a button and you're in. Who lowered that barrier? It was the billionaires. And yes, because they did that they will get an asymmetrical reward because their impact and value creation for society is asymmetrical to yours.
You're not doing this, but when you try to have this conversation amongst the general population what is the response? Once you start poking holes at the concept it always reverts to "you're a bootlicker", "why are you defending billionaires, they don't care about you". These responses highlight envy, not reality or the desire to be objective.
Deep down a lot people either don't realize how much free will and agency they now have in this society or they are just living with contempt because everywhere they look they see people that are using that free will to accomplish more than them. It's lack and envy all the way through.
I think the assumption that we're looking for an equivalence here is fundamentally flawed and with it the entire post.
For most people income is tied to selling their time. It doesn't scale at all. Unless the income comes from wealth.
The societal problem here is a group with self-reinforcing run-away levels of wealth. And to counter that you do need something more extreme than this nonsensical equivalency of income tax
The big flaw in his argument is that a mere 1% which is actually 20% of annual return is still less than the average income tax rate on workers, levied on people who have a lot more money and in some cases don't do anything resembling work. It's trivially true that 1% wealth taxes represent something in the region of a fifth of the average annual return on wealth, it's rather less convincing when it's suggested that this is harsh compared with income tax when people who pay more than half their much lower income in overall taxes whilst working 60 hour weeks and actually worrying about paying bills.
There are arguments about wealth taxes inducing capital flight and investment disincentives, the difficulty of paying tax bills from illiquid intangible wealth or even quantifying it, and whether it's really a good thing to pressure people building a company to sell much of it off, but telling income tax payers that an effective tax rate of 20% is high isn't one of them...
> There are arguments about wealth taxes inducing capital flight and investment disincentives
If the US and the EU introduced a wealth tax then it would be relatively difficult for the capital flight fears to materialise. But yeah, the trouble with wealth taxes is that wealth (i.e. capital) is mobile.
Which is why land and property taxes are probably the most effective way of taxing wealth.
Switzerland has cantonal wealth taxes, as does Norway and afair Spain. Italy, Belgium, Netherlands have a somewhat equivalent one on money held in securities or savings accounts. It's not that big of a deal if the rate is low enough.
Most of us would not prefer to follow the EU into irrelevancy. If they were the model for how we should be running things how come they are not the ones running the show on innovation?
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 money through the government has not been a particularly successful strategy for improving the overall standard of living.
That's how you end up with an over-regulated country where people doing great things for the country's economy start choosing a different country to build their dreams in.
It's also how you drive the currently-wealthy to other countries to spend and invest their fortunes in.
The possibility of being ultra-wealthy is a huge reason to build awesome shit in the US that creates millions of jobs and brings the US economy ahead.
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.
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 adding a "mere 20%" to the income tax rate
On the opposite, they understand it right, and PG is completely wrong here: it's not about adding income tax rate to someone that already pay income taxes, it's about making wealthy people, who don't currently pay this tax rate, pay the same rate as people living from their income.
> So in the median case, a state adding an additional 20% in income tax would have a total marginal tax rate of 37% + 4.75% + 20%, or 61.75%.
Bezos, Musk, Zuck and the likes (or even PG himself, likely) don't pay 40℅ tax on their wealth growth, they currently pays 0%.
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.
I really like the way you framed it. I've never really been against a wealth tax but making it equivalent to income feels fair to me. I don't think the math works out with rates where they are today, though.
I guess the simplest approach is, if you're making money, it should be taxed fairly, regardless of how you're making it.
The trick is clarifying that "making money" means "increasing your wealth". Currently there are many ways of increasing wealth that don't "count" as making money.
> it's not about adding income tax rate to someone that already pay income taxes, it's about making wealthy people, who don't currently pay this tax rate, pay the same rate as people living from their income.
That's exactly it. I've been really shocked at the willful ignorance (or deceit) coming from the billionaire class on this. I mean, OBVIOUSLY the practical operation of the tax regime is unfair at the top end. If you put a billion dollars in assets somewhere, almost any asset (including e.g. stock in a company you can't sell because you need to own it), growth of that asset is (1) trivially liquid via loans[1] or deals and (2) COMPLETELY UNTAXABLE IN PRACTICE because there's never (ever!) going to be a point where it's traded or converted in such a way that it becomes a "capital gain".
[1] e.g. Bezos goes to Citi or whoever and writes up a contract for a $100M loan to be collateralized with ever-appreciating AMZN shares, likely at a deeply discounted rate (low risk, plus the "keep Jeff in the rolodex" benefit to the bank) then pays it back on schedule with another loan taken out on his now-even-larger stake in AMZN. Who pays the tax here? It's not "income"!
> In fact the conversion rate between them is about 20. A wealth tax of 1% is equivalent to an income tax of 20%.
Sure, but you actually have to work for continued income. Wealth accumulates with no input once established.
Wealth has the ability to increase (capital gains) without having to pay tax until it changes hands, whereas when income increases it is immediately taxed at a higher rate. Additionally, wealthy people can use securities as collateral for near zero interest lifetime loans which also bypass having to pay income tax.
> Wealth accumulates with no input once established.
This is incorrect, historically you'll pay a ~2%-3% loss via inflation if you keep your money in cash. If you invest (making it capital) in bonds or securities then you will see accumulation, but thats actually a risk premium.
> Additionally, wealthy people can use securities as collateral for near zero interest lifetime loans which also bypass having to pay income tax.
This is true, its typically called "Buy, Borrow, Die" but the reality is that it is only available to a very small percent of wealthy individuals and exists because of the way inheritance is handled ("stepped-up basis"). Even reasonably (not fabulously) wealthy people will still pay retail rates on the loans making the tactic basically ineffective. Last I heard you needed something like 100M+ liquid for lenders to even consider it (presumably, because they will make more off of some other deal with you)
Step-up basis is important for anyone who inherits property from their parents. That can be substantial in places like California where real estate has gone up a lot.
And for inherited rental property, there is another huge loophole: you can can depreciate the full market value of an asset that you got for free. That’s a substantial tax benefit for many years.
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.
There is little evidence that wealthy people actually borrow for income in any significant way. For example, this paper[0] finds that borrowing only accounts for 1-2% of economic income among the top 1%.
This makes sense. Borrowing for income in most scenarios is strictly worse financially than recognizing conventional income if you actually do the math. Wealthy people are optimizing for financial outcomes, not avoiding taxes per se.
>...Additionally, wealthy people can use securities as collateral for near zero interest lifetime loans which also bypass having to pay income tax.
This is just Internet mythology. The IRS would go after such arrangements very quickly - the IRS has the Applicable Federal Rate for loans. Though this really isn't an issue with banks as they are not charities and tend to want to make money.
This is simultaneously incredibly condescending and hopelessly naive. Politicians understand perfectly well that a 1% wealth tax is not a small tax on wealthy individuals. That's the whole point. They are engaging in basic political rhetoric when they say things like "a mere 1% tax".
I'm not an expert in this, but I thought one of the biggest arguments for why a wealth tax is needed the whole "buy, borrow, die" thing where the ultra rich can use their assets as collateral to take out a never ending series of ultra low interest loans until they die and then have most of the tax burden of selling assets to pay off those loans wiped out because the tax code is much more favorable to selling assets to pay off the debt of someone's estate.
If (big if) I'm remembering that correctly, I don't get why we just go after the problem directly and do something like treat putting down collateral for these type of loans as a taxable event. I'm sure it's not as straight forward as it sounds, but I can't imagine it'd be more convoluted that needing to track the wealth of every high net worth individual.
Maybe I'm in the minority on this, but I actually don't care if Jeff Bezos' net worth went up by $5 billion because Amazon had a good day in the market. If the shares are just sitting in an account doing nothing other than proving ownership it's all kind of just numbers in a computer, IMO. A painting is probably a better example than stock, but if I have a painting on my wall that was worth $1 million dollars yesterday and today it's worth $10 million that change in valuation is essentially meaningless as long as the only thing the painting is doing is hanging on my wall.
What I do care about is when he's able to access the cash value of that $5 billion of Amazon stock without paying the taxes that would come along with selling the stock. If he wants to leave $5 billion in Amazon stock just sitting in his account doing nothing until the day he dies, that's totally fine, but the second he puts it up for collateral we should tax that. I think this has the added benefit of simplifying things by avoiding a lot of questions around fair valuation of assets. If I have a $10 million dollar one of a kind painting on my wall that I'm never planning on selling, it's kind of hard to put a valuation on that and it can be easily manipulated by finding the right appraiser. If I put a painting up as collateral for a $10 million loan it becomes a lot harder for the owner to argue that it's actually worthless or the IRS to argue that it's actually worth $1 billion.
> I'm not an expert in this... [makes up a bunch of imaginary scenarios]
there's a certain kind of hacker news discourse, "battle of imaginations," where a bunch of people imagine something, so it's just whatever imagination sounds better and it's the one that gets the most upvotes.
what i like about battle of imaginations is that this sounds like the math department, and that's what the moderators and readers like, great.
it is hard to understand why battle of imaginations is bad, because it is fun after all. the best way i've heard it said is, "when people complain about bicyclists online, it's usually something that almost happened. when people complain about cars online, it's usually about stuff that did in fact happen, like crash deaths." we could talk about valuations of paintings maybe going up or down, or random numbers or whatever, ... here's what your post would look like without battle of imaginations:
"collateral [that belongs to the very rich: ] we should tax that"
okay? that's the meat of it. no imagining necessary. it's just an opinion. this whole article could be, "should we tax the rich more? pg thinks no." it doesn't have to be complicated. some other rich people think you should tax the rich more! pg didn't need to write or explain anything. he's trading in the very same, meaningless imagination rhetoric that he accuses his opponents of doing.
Moreover if the bug is that income isn't tax at death, why not just fix that bug? Otherwise it's like arguing: "wow there are people in poverty? Better have a communist revolution to fix that!"
This is exactly the reason -- or a tax against borrowing against assets once your net worth is high enough -- or not reseting capital gains at death. The entire system is currently basically rigged such that these ultra rich people pay no taxes.
There is a bit more to the story than a 1% wealth being "equivalent" to a 20% income tax. The primary difference is that unrealized gains are taxed by a wealth tax. We need a mechanism for assets to be sold by the richest in society. If those with assets keep accruing more assets the median person will suffer. When we're talking about real assets (housing, retail shops, warehouses, land) we don't need to be concerned about capital flight. The assets are still there on the ground. Reducing the cost of those assets is exactly what we need to help a local economy.
That being said, the richest are effectively _not_ paying the highest marginal tax rate considering all the tax structuring they do. Claiming that they would be paying the highest income tax in the world is misleading, for one. Secondly, the richest in the world _should be_ paying the highest income tax.
If those with assets keep accruing more assets the median person will suffer.
How will they suffer? The people with assets, to realize a benefit from them, have to spend money. If they don't spend the money, then what's the problem?
When more assets are sold than are bought, that leads to the destruction of assets on a broad scale. It's the economic equivalent of eating one's seed corn. This would not be good for the median person. You can and should tax land (meaning the land value component of real estate in general) and natural resources more generally, but that's an entirely different game: it has next to nothing to do with wealth taxes as generally understood.
How does this make sense? If Johnny sells 5 cars, that means 5 cars were bought. How can Johnny sell more cars than are being bought? Do you mean that Johnny has more cars to sell than are being bought?
It's like a hot potato where people want to sell assets over buying them. Obviously at any given moment there are as many buyers as sellers, but this is exactly why trying to force people to sell at rock bottom prices brings widespread asset destruction.
Man, as a young programmer coming up I really looked up to Paul Graham, but now as a seasoned vet in the industry, it's remarkable (and disappointing) to see him publish an article based on such a false equivalency. I mean this level of missing the forest-for-the-trees is the type of thing that routinely prevents senior engineers from getting promoted to staff because they're pedantically fixated on the wrong details. And that's on top of failing to read the room as to why people are even calling for a wealth tax in the first place.
The more obvious reason to not tax wealth is because it's hard to measure, and if you try to do it you will incentivize hiding it. Meanwhile, there are obvious obvious loopholes that the ultra-wealthy enjoy which could be reasonably closed. Namely, close the buy-borrow-die loophole, don't allow step-up basis for inherited wealth, and tax capital gains at least as much as income. Now people with a lot of money can afford to fund a lot of premium think tanks to come up with fancy economic reasoning why those ideas are Really Bad™, but at this point it's clear that's bullshit propaganda and the unintended consequences are exceedingly unlikely to be worse than the current unchecked consolidation of wealth and power enabled by the current loopholes.
I would love, LOVE to pay 20% in taxes! Goes without saying, I work for a living and have far less wealth and power compared to PG.
I think there is kind of a breakdown in social order here. If society allows you to become the chief, it ought to also impose upon you a burden, an obligation, to wield your power over the tribe fairly, generously. To care for the weak, to make sure that everyone benefits, to ensure that things stay stable and safe under your leadership... The standard is higher, not lower. The sacrifice is greater, not lesser.
It is absolutely bizarre and you can see exactly thew way PG, and other like him, are thinking. They all want to have this immense power (and it truly is immense, more immense than ever in modern history!) but they want none of the obligation, none of the responsibility.
Even asking for 20 percent is too much, apparently.
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 <10 -> <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 would go from 0% to 20% (functionally a small amount may be sold to pay interest, so really assume 1% or 2% taxes default). The horror!
The wealth tax argument actually is because our current 2 party political system is set up to where politicians effectively "pay" their corporate constituency with their discretionary spending, which has increased the national debt substantially.
The only way this system can continue is if we increase the receipts (aka tax revenue).
The political class has very wisely targeted "the wealthy," who are capable of tactically avoiding taxes, but as always it will eventually include the middle class who will ultimately be paying the tax. From their standpoint they will popularize this tactic because it will work
This is being sold as class warfare, but its really the evolution of our political system into an unsustainable system of patronage with public funds.
We have plenty of other problems like "buy, borrow, die" (discussed elsewhere in this thread), but ultimately the wealth tax stems from needing more public funds, which stems from politicians spending all of our money.
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.
Wealthy people pay a lot of taxes in the USA. If they aren't routinely avoiding paying income tax and taxes in general, how could that be the point?
It may be more realistic to view this in terms of elite power struggle. There are some constituencies that have found their way into positions of some power -- in government and public service -- that are in conflict with other elites, who have found some power in private enterprise. These groups battle for control of things. One strategy in the battle is managing the other group's access to money.
It's not clear from any kind of first principles, that we are better off with government allocation of a large portion of the society's capital. That hasn't historically been a big winner. Private ordering seems to net out a higher quality of life overall, even with income inequality.
What's wrong with a 20% tax? We who make a living from labor instead of capital pay more than that.
Paul tries to frame it as an increase of 20% in the tax rate, but in reality the increase is from 0% to 20%, and it's hard to see why that's unfair.
The reason I say it's currently 0% is of course that for the wealthy most of these 5% gains are unrealized (e.g. inflation in the value of their assets) and untaxed.
> most of these 5% gains are unrealized (e.g. inflation in the value of their assets) and untaxed.
The worst part is that even when they need to realize their profits, they have schemes that allow them to avoid taxes (guess how much taxes Musk paid for his $20B realized profits from his Tesla shares he sold to buy Twitter).
If you are wealthy enough, you can live off of untaxed loans from your “unrealized” gains, and never pay taxes on that money at any rate. Meanwhile, I am paying an effective tax rate of around 35%.
The principle is simple: if you are spending the money, your gains are realized, and you should pay taxes.
Loans against unrealized gains should just be taxed directly as income. Not indirectly creating more loopholes. Same way stock buybacks should be taxed at the same rate as short term capital gains.
Yes let's encourage more risky behavior! Absolutely braindead takes.
This sort of proposal would establish a minimum 35 % return in any project. Thus halting investment entirely
Let's put this in perspective. I'm currently going to collaterize a few hundred thousand in equity to take a loan to develop homes in my very housing short city of Portland. My calculated return is 40%. This is an excellent return..
It this were taxed then my initial loan would have to be 40% larger which means all my profit would go into paying that back, which means this project never gets done.
You are already going to get the money once the homes are sold and the capital gains are realized. Why is everyone so greedy? You essentially want to tax twice
There's a related calculation you can do -- what percent of your net worth is your employability? Take your salary, divide by 0.05 (or multiply by 20) -- if you had that much additional wealth earning 5%, you could replace your job's income.
For most people their ability to earn is by far their largest asset. You can kind of get a feel for how difficult it is to bootstrap into generational wealth if you think about the math -- it takes time to replace that earnings portion of your own balance sheet, and even more to well replace it; a lot has to go right in the interim.
There's a secondary side effect of wealth taxes: they redirect investments (I'm Argentinian and we have wealth taxes).
Investments shift to things whose tax value updates slowly, for example property which typically adjusted more slowly than other financial assets. This tends to rise property prices and concentrate ownership.
It causes other distortions in allocation depending on the tax details, but wealthy people tend to adjust more aggressively to changing conditions.
You don’t need to teach anyone about this. The wealth tax should apply to extremely wealthy people, not everyone.
If you accumulated a fortune, there was some skill at play. There was also considerable luck and some exploitation. The wealth tax is a way of paying back for the luck and exploitation.
You will still be extremely wealthy.
Paul wants to play the fairness card. Life is not fair and those who accumulated massive fortunes won the lottery. Don’t let the massively rich conflate issues. Don’t get fooled.
> 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 adding a "mere 20%" to the income tax rate, even though that's mathematically the same thing. [2]
This is the wrong way of thinking about it. It's not adding 20% to an already taxed entity, it's adding taxes where there weren't before. Adding 20% on top of the income tax would indeed be controversial. In his framing the rate of return is effectively untaxed income, so it would be more accurate to say that this is like adding income tax to a currently untaxed income stream.
The bigger difference between an income tax and a wealth tax isn't the numbers. A wealth tax, for better or worse requires some realization of paper gains that very wealthy folks normally go to great lengths to avoid because their wealth is largely based on a broadly shared polite fiction. So imposing some realization of that wealth requires accountability that doesn't always pan out.
A much more interesting formula would be how to convert between income and income tax - you'd think it worked according to the superficial bracket system, but in fact, it works along the lines of going to 0 at the top.
P.S. a wealth tax is a property tax. They have existed in the US since before the income tax (which was originally considered unconstitutional by its opponents).
I think the limit it can reach without carried forward losses is 20% because that's the top long-term capital gains tax rate. The other thing I can think of is if you sell a QSBS business, then your capital gains are taxed at 0, and you wouldn't pay income tax at all on that money either. So it's in theory possible that someone could make millions tax free from selling a business, but that's a rare case and one the tax code explicitly allows for.
Not everybody uses money to make more money, Paul. Most people work, get paid, and spend the money on their needs. In other words, you are in a position to care about the question, it's OK if you are taxed a bit more.
As an aside, in Islam, people have to pay a 2.5% wealth tax annually for charity.[1]
This does make retiring a tad bit complicated. Say you've saved $3M and are ready to retire. That means each year you're spending $75K just to satisfy this tax.
[1] Depending on how your wealth is structured. Cash is 2.5%, but if you own, say, a business, you pay the tax on the value of the goods, not on the value of the building, hardware, etc. You don't pay Zakat on the house you live on. Agriculture is actually taxed at 10%, etc.
Isn't PG's conflation of Denmark's high income tax with a proposed wealth tax a clear flaw in his math and argument re: "the highest taxes in the world"? Why wouldn't you instead compare to other countries that also have both income and wealth taxes?
Wow, I like to actually see the numbers laid out like this. Most of the ultra-wealthy pay almost nothing on their income taxes from investments because they have found ways to avoid capital gains, and even if they were paying long term capital gains rates of 15%, pg’s assertion that the wealth tax adds another 20% doesn’t seem unreasonable at all. If anything, it makes me think 1% is not nearly enough of a wealth tax!
> You can tell from the way they talk about the subject that they don't understand the momentousness of what they're proposing.
I think that what you can tell is that they think the voting public won't understand the momentousness of what they're proposing (or that their "color" will cheer that very momentousness).
Whether they themselves do or don't understand how impactful the proposal would be is much harder to guess.
I think that is the glaring hole here - via an insane number of instruments from the various investments, they can reduce their tax liability (fed and state) to be very close to 0%. I believe a main idea of the wealth tax is to get around the insanely complicated tax code w/ all its loopholes.
A national sales tax also gets around the insanely complicated tax code without government confiscation of wealth. Regardless of how it is earned money eventually gets spent. Rich people spend far more than lower incomes so they pay more taxes. If they pass their wealth on it will still eventually get spent by somebody. That fixes the stepped basis problem of inheritance. If they use equity to get loans they are still spending money so it fixes that problem too. It is also easier and less costly to collect and enforce. No special forms for specific types of income to make sure you are getting taxed enough and no army of IRS agents to check that everybody is following the tax code.
The most common opposition to replacing income tax with a sales tax is saying it is regressive because "poor" people will need to spend a larger portion of their income on taxes than a wealthy person. Ok, so don't food or primary residence. A poor person isn't buying a $300,000 car or a second home. The best part is that if somebody is having a hard time getting by, every dollar they earn can be saved instead of giving Uncle Sam a short term loan until tax day.
A lot of countries require you to declare your total wealth on your tax forms. Then once someone gets audited, that gets checked. Obviously it’s possible to hide it, but that in itself is a crime, and not everyone is willing to risk going to jail over paying taxes.
The first step we need to take is to invest in the IRS. Every dollar invested in the IRS returns between $5-9. Couple that with fines that offset the cost of auditing, and "hidden wealth" becomes a liability too expensive for people to bother with.
The post goes out of it's way to mischaracterize the strategy (and purpose) of wealth taxes being proposed.
> Each 1% of wealth tax is equivalent to 20% of income tax.
Mathematically sound.
> Politicians understand that an additional 20% income tax would be a lot. And indeed a US state that added 20% to its top income tax rate would have extraordinarily high taxes.
That's the point.
> In the median case, US state politicians talking about adding a "mere 1%" wealth tax are talking about causing the residents of their state to have the highest taxes in the world. That's not the sort of decision you make lightly.
Not "all of the residents". Specifically the ultra wealthy that have a billion dollars. 20% at that point, is 20% of lots. You still have lots left over.
Mathematical fairness isn't the point, which is one reason there isn't a flat tax rate.
> > Each 1% of wealth tax is equivalent to 20% of income tax.
> Mathematically sound.
Don't most wealth taxes that have been proposed have a certain level of wealth that you pay no taxes on? If so, doesn't that make this at least partially incorrect?
Maybe I'm missing something, but if I have $100 and have to pay a 1% wealth tax on it then sure that's roughly 20%. If I have $100, but I only have to pay a 1% wealth tax on everything over $90 that's more like a 2% income tax.
I live in Switzerland. All residents are assessed a wealth tax. It would not be just the top x%. Wealth taxes are a bad idea tried in Europe and then later repealed.
If he can phone it in why cant I? His entire framing.
Income (or revenue), what is left over freom the paycheque (profits) and net worth (market cap) - applying a simple ratio to companies of revenue to market cap doesnt work, why would applying a simple ratio of income to net worth for people who live hand to mouth and billionaires work any better.
I think you may have missed the background: US tax rhetoric -- he's doing what I think is pretty fair math with a fair take -- the math is supposed to break down what percent income tax you need to get the same dollars in tax revenue as a 1% wealth tax (on the wealthy). I think you could quibble with his risk free rate of return number, but most conservative planners would recommend a 4 - 5 % budget for risk free rate of return.
It's not about companies - it's about showing an equivalency between a Piketty-style tax of wealth setup and what we're used to thinking about in the US, an income-style tax setup on individuals.
Always a pleasure to hear capital explain to labor why taxing capital is bad, but this seems like a giant red herring. I don't want a wealth tax so I can cut my income tax, I want a wealth tax to address inequality. Our existing policies have produced a very bad bad outcome - wealth inequality exceeding that of pre-Industrial England led by a small, essentially randomly-selected group of people so wealthy that they effectively run everything who have entirely captured a corrupt government and are very close to making the situation permanent - and a wealth tax is the only policy idea I know of with any chance of changing that.
If you follow his logic and believe that the ultra-wealthy pay too little tax (as e.g. Warren Buffett does), then a balanced approach is to set the tax rate to: "37% of income or 1.85% of wealth, whichever is higher".
This would close the gap between Buffett's tax rate and that of his secretary, but would not be the "highest taxes in the world" that PG decries.
Whenever I've seen anyone suggesting a wealth tax, it is specifically to address the very wealthy who pay an effective 0% tax rate, because they use the "buy, borrow, die" strategy. These are not wage earners, working a regular job, these are folks who own enough assets that they can borrow their way through life, living lavishly, never contributing meaningfully to the common good, the roads they are chauffeured over, the infrastructure and laws they benefit mightily from, the police who protect their assets, etc.
Since a lot of billionaires pay practically nothing in taxes, relative to their wealth, a wealth tax that equates to a 20% income tax would be entirely reasonable, and they'd still pay a much smaller percentage than the taxes I pay from my wages. It closes a loophole, it doesn't punish the very rich. And, nobody is suggesting the average 401k or Robinhood portfolio should be subject to a wealth tax.
Are there serious proposals to just add a wealth tax on top of the existing income tax that would apply to the sort of people who actually pay much in income tax vs capital gains? It's an honest question; I haven't seen proposals of that sort, so I'm skeptical that the arguments are meaningful here. For an individual like Jeff Bezos, he's paying virtually no tax under the normal income tax rates referenced in the article, but rather capital gains tax, which tops out at 20%, not 37%.
None that I've seen, though I'm sure somebody somewhere has introduced something.
All that I've seen are wealth taxes on top of some arbitrary (but very large) wealth level. The latest proposal from Congress applied a 2% tax to wealth above $50 million with an additional 1% (3% total) on wealth over $1 billion. Plus a 40% exit tax to stop them all from fleeing to the Bahamas or Monaco.
The conversion would be more accurate if it compared wealth and capital gains taxes, no?
A defining feature of wealth taxes is that they only tax those that make most of their income through capital gains. This is why they're popular among much of the population.
Now the question is, if we lowered capgains tax rate by 20% but instituted a 1% wealth tax, would that be better or worse? My guess would be worse because wealth taxes are nearly unenforcable, but I wonder if there are good arguments for the other position.
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 wealth individuals now making most of their money through dynastic trusts and inheritance.
This combination ends up making it so that, as Warren Buffet would put it, he ends up paying a lower effective tax rate than his secretary.
I effectively don't really care if it's a wealth tax or some other more targeted technical fix, but it's not sustainable to have the very wealthiest individuals taxed at a lower effective tax rate than everyone else and also able to pass on their wealth directly to heirs without significant estate taxes.
Americans really struggle to understand how tax work outside of their country.
First, the whole premise of income to wealth tax equivalence is non sensical, because interests are rarely literally in the form of coupons/payments, but rather left as compounding value. This is the whole point of share buybacks, reinvested ETFs, etc; and Paul Graham knows that of course. If you are rich, you don't need the cash of your investments, so you don't want to trigger taxable events, so you are effectively at 0% tax rate and just let it compound.
> Currently the country with the highest marginal income tax rate is Denmark, at 60.5%
This is the most BS statement ever, and would only be believable to Americans with no understanding of how foreign country do taxes. Which is at best very naive of him, or highly disingenuous. This is because "tax" in the US is essentially employee paid, whereas most other countries split the bill between employer and employee at a higher proportion. The result is the same, but the employee part only is labeled "tax", the employer part being often called "contribution".
When comparing across countries, you have to look at the tax wedge (super gross to net), not the tax rate (gross to net).
And if you do that, well the US has a lower tax wedge than even the most generous European countries (Ireland).
In France for instance, the tax wedge is close to 70% for the higher bracket. Yes, that means if your employer pays $100, you get $30. And that's in a country with 20% VAT compared to US ~8%.
Not to mention, except super rich little little business-hub countries (Hong Kong, Singapore, Ireland, Malta, Cayman Islands, etc), pretty much all _developed_ countries have some form of wealth tax, it's just common sense.
I'm skeptical that the super-rich are only generating 5% on their money. My anecdotal experience is that it's usually north of 15%. They have access to investments that main-street does not.
If we plug in 15% instead of 5% in PG's reasoning, the effective income tax increase is quite a bit lower.
True enough, but it doesn't address the motivation or the issues presented by California's proposed wealth tax.
It's a big democracy red flag when a majority wants to take a lot from a tiny minority; the moral hazard of the unfairness is that it's unclear where this ends. (Saying "one-time" and "1%" are trying to limit that risk)
It's a democracy red flag when an unpopular minority is vilified as the cause of society's problems. It short-circuits real policy making and distracts from real issues.
The bargain of private wealth is that it's better at innovation that should spread widely -- if it's subject to competition and does not export costs.
One problem is that one of the best investments is to change the law to reduce competition, increase market power, and export costs -- i.e., to weaken politics.
Another is that wealth used to mostly invest locally (information and transaction costs), so locals would see some benefit. No longer.
Finally, as an accelerant, enterprises are made of legions of managers and experts, who now compete more than ever; they would lose that competition by supporting less extractive policies or gentler politics.
Net result is that wealth seems not productive but extractive, and there is no negative feedback to reduce that.
Once the grand gambit of goodwill is lost, it cannot be recovered for at least a generation, but there's no real feedback to prevent that. The political viability of something like a wealth tax is just an early indicator.
Wealthy people are taking food out of my mouth by driving up asset prices, and deploying capital in ways that will never benefit me, either in employment or in quality of life. The premise of reducing taxes on wealthy people was that everyone would broadly benefit. This has not happened. The contract is broken. I want my money back.
> It's a big democracy red flag when a majority wants to take a lot from a tiny minority; the moral hazard of the unfairness is that it's unclear where this ends. (Saying "one-time" and "1%" are trying to limit that risk)
In the absence of any other considerations, I'd agree with you. However, the last half-century has seen that same tiny minority taking nearly all productivity gains from the rest, to the point that wealth inequality is greater now than during the first gilded age, so I have somewhat less sympathy for the tiny minority when the rest want to claw some of that back.
> It's a democracy red flag when an unpopular minority is vilified as the cause of society's problems. It short-circuits real policy making and distracts from real issues.
It's less of a red flag when that unpopular minority is the cause of society's problems. The ultra-wealthy have commandeered government to enrich themselves at the expense of the rest of us.
We have massive consolidation of markets and media due to lobbying for deregulation and against enforcing anti-trust laws. We have further wealth concentration, the likes of which exceeds even the first gilded age at the hands of massive tax cuts and loopholes predominantly benefiting only the wealthiest, while also cutting tax enforcement personnel, making it easier to get away with tax evasion. Of course, in the face of the massive budget deficits resulting from those tax cuts, we make cuts to important social programs affecting many (and with largely positive ROI) while protecting subsidies to some of the most profitable businesses on the planet and leaping at any chance to start wars abroad whenever we need to distract from embarrassments at home. We have lax enforcement of labor laws which would allow workers to organize and demand higher wages, while at the same time passing unconstitutional laws at the state level which try to prevent organized labor in the first place. We have not only allowed the federal minimum wage to lag significantly behind inflation, but we have lobbying groups coming out of the woodwork to stop any proposed increase. When we have large economic crises caused by the malfeasance of the wealthiest of the wealthy, our corrupt Congress passes large bail-outs for the culprits while telling the majority of us to suck it up and tighten our belts. Of course, our consolidated media landscape increasingly obfuscates the real problems, presenting alternate boogeymen like immigrants so the downward spiral continues.
Allowing so much wealth to concentrate in the hands of a tiny minority is itself a giant democracy red flag. The US is on the cusp of losing its democracy as a direct result, damaging global security and markets in its death throes. The mere existence of billionaires and their corrupting influence on government is the issue.
Stop thinking about taxes as a way to fund the government.
Money in the long run can buy anything, including political influence. There are no regulations that can effectively preclude this. (And empirically, America over the past 40 years has seen moneyed entities successfully re-align politics and economic policy with their interests -- this was entirely predictable). An unequal society therefore cannot be a democracy. If you believe in democracy, then you necessarily must believe in wealth redistribution. (In fact, I argue that any person who believes that the American Revolution was justified, for any non-trivial reason, will likely find that those the same non-trivial reason could be invoked to reallocate wealth away from today's wealthy.)
Counterarguments to this view (i.e. a different top-level value than democracy / meaningful sovereignty over the society in which one lives) might invoke utilitarianism: an unequal society potentially produces "better" outcomes if capitalism is allowed to run unrestrained.
But a problem this argument encounters is who gets to decide what "better" is? All systems are economic in the long term, including political ones. A good framework for understanding is that a society in the long term is not "one person one vote" but rather "one dollar one vote." Today's preferences are dollar-weighted. Those with money decide what is better. The economy serves the average dollar's interests. And the average dollar's interest are the wealth-weighted preferences of society's members.
We started with an income tax to fund the government. But today our most pressing issue is not funding the government, but not having an oligarchy. Wealth is the thing that most needs to be taxed in order to allow for any semblance of democracy. Analogies drawn to income, though interesting, are meaningless.
The wealth tax that we should have is a federal property tax, in the form of a land-value tax. A property tax is more enforceable and produces much better incentives than an income tax or capital gains tax or death tax or wealth taxes in other forms.
I think it's underestimated how important ease of enforcement is for taxes and laws in general. Laws that are hard to enforce require more powerful law enforcement agencies, more invasion of privacy, more punishment, more restriction of freedom. Enforcing a death tax, for example, necessarily requires limiting and tracking of all transfers of money or assets between people including personal gifts. A property tax merely requires keeping track of land ownership, which is a function governments already do, and in the worst case you can simply physically go to the land and see who is using it or seize it.
I think the post is correct in a one-period sense, though I’m not sure the equivalence survives once you model long-term compounding, additional capital gains taxation and liquidity constraints.
The argument is plausible - that you can treat wealth taxes as equivalent to income taxes if you treat wealth taxes as a tax on the ostensible income generation of the wealth.
Of course there's more complexity than this, but that aspect is a plausible reductive lens.
But the conclusion is silly. We all know the extremely wealthy who'd be subject to a wealth tax basically don't pay taxes and that a 20% tax is totally right around what the typical overall tax burden is for the middle class or median households. The 1% example equating to 20% is basically saying the wealth tax would be in line with a flat tax, not even with a progressive rate tax. The wealthy have turned the tax system into one that's functionally regressive for the most wealthy and then PG complains that a proposal that makes it more like a flat tax is "not understood" by lawmakers?
Yet... an entire industry (financial advisors) will happily charge you a 1% "wealth tax" to manage your money. And you don't see lengthy articles from luminary venture capitalists about that.
Feel free to just tell the masses to eat cake since bread is so expensive while you dine on your mega-yacht. Just like the market can stay irrational longer than you can stay solvent, you may or may not be able to outlive the eventual violent outburst from the rest of the 99%. Scott Galloway is right on that the anti-data center backlash is just a proxy for anger at wealth inequality.
Anymore I think the question shouldn't be about some kind of economic fairness (the time value of money thing being discussed) but the idea that wealth accumulation is a disease that afflicts society. I don't think anyone should have the level of control or influence on others that having a billion dollars currently allows. If a millionaire gives $100 to a political candidate it probably doesn't require too much thought. It's impressive to note that a 10-billionaire can give $1M just as easily, and so we have a class of folks who can throw around influence, who can order a team of lawyers to do things, can employ their legion of sycophantic followers to harass people, or can threaten the employment of many people not-of-their-class because they can make decisions that threaten someone's employer's bottom line. And note that above I compared a millionaire to the 10-billionaire, but there are plenty of folks, especially around the planet, who economically live several orders of magnitude below the millionaire.
As a bit of an aside, "spending more time with family" is an often-used euphemism around someone being fired, but if you have more money than you know what to do with and you aren't using it to spend more time with those you love, then what on earth is it for?
I know this is tangential to your main point, but in the US, you can only give a max of $3,500 to a candidate per election cycle, for each the primaries and general election.
To give more financial support, you have to do independent, uncoordinated campaigning for the candidate. So you can spend a million dollars on ads saying to vote for a candidate, but you can't give that money to the candidate's campaign and the candidate can't coordinate with you. This is what Super PACs do.
I only write this because a lot of people are unclear on the rules. I'm not making an argument about billionaires.
How do you think society works without wealth accumulation? There would be no incentive to innovate to push forward. You wouldn’t have your iPhone, computer, or car. Want to see the result of societies that forbid wealth creation? Go to Cuba.
It's an interesting question. If we lived in a universe in which we weren't in fear of losing access to basic necessities of food, shelter, and healthcare, but had to work to have anything beyond those, what would happen? I don't truly know and I don't believe we have done the experiment anywhere. But I do know that the system we have not only produces innovative products but also corruption, oligopolies, and steamrolls over labor and the environment if not regulated.
I'm not naive enough to think communism is a magical answer (but Cuba is not some A/B experiment - the U.S. in particular has done a lot to make sure Cuba didn't succeed) - it ends up concentrating the wealth too. I would favor some form of democratic socialism, with leaders who can be kicked out if they abuse their power and limits on the influence of rich individuals and corporations.
On the latter, I think we forget that corporations are a legal construct intended to benefit society by allowing risk pooling - they are not people and should not be considered as such for things like free speech rights. Corporations should not be allowed to make political contributions in any way.
I think a lot of ink has been spilled on the problems with the proposed California Wealth tax, the main points being:
1- Is this in fact a 1-time tax or is that a dishonest narrative to make the proposal easier to swallow?
2- How do you prevent capital flight to other states?
3- How do those with paper money or more voting shares than
equity shares cover their tax bill?
That being said, I think more creative energy needs to be spent on the problem itself.
What do we do about individuals with $100M+ of unrealized capital gains that through various methods will never have to realize those gains to live an extraordinary lavish lifestyle, and their children will inherit the money with a step-up in basis? For those who make all their money from W2s, they pay very high tax burdens, while those who strictly have capital gains generally pay at most around ~20% for LTCG.
To those criticizing the California Wealth Tax, how do we solve this? How do we make billionaires pay more and lawyers/doctors/software engineers pay less?
Paul the billionaire ignoring that billionaires often don't pay any income tax at all. Come on man, we're not stupid just because we don't own superyachts.
This is wrong. You can’t convert between the two because it’s possible to have a lot of wealth with very little (even zero) income. Billionaires can completely avoid income taxes by paying themselves a very low salary and instead borrowing money against their assets (usually stock), which is not taxed as income.
There are all kinds of irrevocable trusts that exist to remove assets from your taxable estate so that they can be passed to heirs without paying estate tax. Raising the estate tax (which is already 40%) would just make planning to use these techniques more attractive.
The existence of perpetual trusts is solvable in a world that has decided to fix the insanity caused by intergenerational wealth transfer instead of propping it up. "This thing we could also eliminate stops us from eliminating this other thing" is a silly platform. Just eliminate them both.
Perpetual trusts are different from irrevocable trusts, which have legitimate use cases. I don't really see how irrevocable trusts would be gotten rid of. In most states all trusts are irrevocable by default and there is a huge body of law dealing with trusts. Getting rid of them is essentially impossible without huge changes in the political/legal system.
Lots of confusion and misunderstanding in these comments. Not surprising, given the highly charged nature of the subject. I highly recommend Ray Madoff's book The Second Estate [1] to learn more about the topic.
I believe some of Ray Madoff's points are that the tax code and most tax intuitions kinda differ.
There's the idea that "wealth" gains tend to not be taxed for a variety of reasons. The common parlance of "Buy, Borrow, Die" category things. The "step-up in basis" category things - i.e. no capital gains tax realized on lots of inherited wealth. (The inheritance tax might trigger in some cases, but oddly the capital gains tax often might not be triggered on transferred assets because they were never sold and the new possessor will be taxed at the stepped up received value if they ever sell. So there's a chunk of appreciation that never received capital gains taxation.) Trust related things.
There's the idea that 501(c)(4)s allow wealth to be transferred untaxed while retaining control over the assets (particularly because those organizations can engage in political activity, but I'd guess generally some of the organizations exert lots of influence/prestige.)
So perhaps OP is suggesting that maybe there's some fungibility in income tax % and wealth tax %, but when you look at the tax code the equivalency looks pretty weak currently.
Isn't this argument simply confusing income tax with capital gains tax? Because that's the tax you pay on your investment returns, and it's actually capped (in the US) at around 20%.
No, he's disingenuously talking specifically about income tax, on interests.
Capital gains are on realized gains. Based on the difference between purchase price and selling price.
The thing is, wealthy people don't have interests bearing investments, because they don't need the cash right now. They either have unrealized gains (shares, real estate, etc), or interest bearing products wrapped in marked to market vehicules with reinvestment (ETFs, life insurance, mutual fund, etc).
Unrealized gains are not taxed as long as you don't sell them. If you need cash, you can borrow against them, so problem solved.
As for interest bearing investments, most companies nowadays use buybacks instead of dividends to avoid withholding taxes.
Here is a better algorithm to edify the masses: if someone is such a massive billionaire as to have the boldness to teach the public basic 5th-grade math, their wealth tax rate should be set at 10%. From that point on, the rate goes in proportion to their level of condescension.
> In 1940, the federal tax rate on income over $200,000 started at 66 percent. By 1944, the top tax rate on all income over $200,000 — about $3.4 million in today’s dollars — had jumped to 94 percent.
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 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.
As others have mentioned this is wrong. Here's 3 accounts on how it is so:
1- Fundamentally, they are magnitudes of different units, one is tax/income, the other is tax/wealth/time. Not only is the denominator different, one being calculated over income, the other over wealth, but there is an additional inverse time factor.
In income tax, whether the period is yearly or monthly or hourly, is an administrative matter that doesn't materially change the rate, 1%/month is the same as 12%/month, however in wealth tax, 1% wealth tax per year is not the same as 1% wealth tax per month. In many respects one might consider wealth tax to be a second order derivative of income with respect to time. Which is again very similar to a progressive income tax. Anyone that studied polynomials knows that there is no such equivalence between ax and bx^2, they are irreducible mathematical forms.
2)Trivially, in the scenario Paul proposed, Wealth tax is comparable to income tax only with respect to capital gains. That is, if he did find an equivalence between income tax and wealth tax for capital gains (which he didn't), income tax would still apply non capital gain taxes. But I will concede that there may be an argument that, if such an equivalence were found, it could be considered that there exists an Income Tax which will always yield more tax than another specific wealth tax.
3) The equivalence between wealth and income tax cannot be linear. The example given applied to 1% wealth tax and was compared to 20%, and a risk free interest of 5%. If the wealth tax were of 2%, 5% or 10%, would that be equivalent to 40%, 100%, and 200% income tax respectively? The last one is especially ridiculous.
Based on available data deep contempt for working people should be assumed until proven otherwise, even for billionaires who are 'self-made' by way of a lot of right-time-right-place luck.
Income is money that comes from actually laboring and contributing to society. Wealth tax is tax from sitting on your ass doing nothing.
Also, taxes don’t have to be a flat percentage. Like income tax, a good wealth tax would be progressive. Only wealth beyond a certain amount would be taxed, and the percentages would scale.
This is why we should have income taxes that are as low as possible, but still progressively scaled. We should similarly have a progressive scaling wealth tax, but it should be much harsher than the income tax because we want people to work.
> Wealth tax is tax from sitting on your ass doing nothing.
Related point is monetary system and monetary plumbing should be boring like electricity or water supply but because of distortions making money out of money has become the hottest thing.
The very wealthy are paying very low effective rates on their investment gains. Various billionaires have publicly described the truth of this. This is not 20% on top of 35%. They are paying a marginal rate of 35% of deliberately minimized taxable income and zero on deliberately maximized unrealized gains. Then 20% when realized, but as we all know by now there are ways to make sure it’s never realized.
I don’t know what the best approach is here, but I know this framing is nonsense.
Thank you. This is exactly the problem- pg is twisting the conversation by saying "look how painful taxes are for you, pleb!" When in reality, the taxation levels on the ultra-wealthy (whom this is targeted toward) are so much smaller not only on a %'age level, but on an impact level as well.
> 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 adding a "mere 20%" to the income tax rate, even though that's mathematically the same thing. [2]
I am fully against any wealth tax but 'Don't get this'?
Who says they don't get it. It doesn't serve their purpose so of course (like anyone selling) they are not going to disclose it.
There are numbers in this post, but only in the technical sense.
My read of this is "the discussion of taxing wealth makes me anxious. i will do a tap dance, please become mired in watching / discussing my tap dance so that we can put off the inevitable and ultimately necessary a little longer"
To the "conversion rate": maybe, but who cares? The answer here is: apply the tax, see if we still have billionaires afterwards. If we do, then keep doing it.
The thing that all these asshole billionaires don't want anyone to think about is that not taxing wealth means that a person who primarily accumulates non-income capital only ever pays taxes on what they spend while the rest of us pay taxes on approximately everything we get regardless of whether we spend it.
Because billionaires accumulate wealth through assets and unrealized gains, many of them skip taking a traditional income and pay. If the numbers in the links below are to be believed, according to paulgraham's calculations, this might bump them into a ~fair range (when comparing to average/median earners).
Here's a crucial mechanism that Paul Graham did not mention:
With a wealth tax using his calculation, the higher your returns, the lower the comparable income tax would be. If your returns are 10% you'll pay $1 on $10 capital gains which is 10% and you end up with $109. Conversely someone achieving a mere 1% cap gains would be essentially taxed for 100% of his return.
With income taxes it's usually the opposite: the more you earn, the higher the tax bracket you will be put into.
Somebody like Paul Graham surely has higher than 10% capital gains, otherwise he'd not be exactly a great investor.
Personally I'm against wealth taxes, I think capital gains taxes are a much more appropriate and fairer tool. I also think taxes in general are way too high, if you are part of the middle class and add up everything you pay in taxes, fees, insurance, duties and whatnot you can end up losing 70-90% of whatever you earn. It's extremely hard to actually accumulate wealth for the vast majority of people.
Paul doesn't mention that these aren't exclusive. The California "Billionaires Tax" (which will likely soon become a "Millionaires Tax" after all the Billionaires exit the state), is levied on top of the regular state income tax.
>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 adding a "mere 20%" to the income tax rate, even though that's mathematically the same thing.
His core point seems to be that taking $20 from him is mathematically equivalent to taking $20 from a homeless girl's hat.
I guess mathematically it is the same number if you dont normalize for that, which he wont.
> 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 adding a "mere 20%" to the income tax rate, even though that's mathematically the same thing.
Uh … sure I would? Why not? The top bracket was 70% in the 80s. So that 61% is still a fair bit short of what it was then. (And the 80s isn't the highest point, either.)
IDK if it would be a good idea or not, but I'd entertain the debate, certainly. To state that this is unarguable, though, well…
Utter nonsense. You can't convert between a wealth tax and an income tax in any manner as simple as this, unless the wealth tax and the income tax were implemented in a simplistic way unlike any actual proposal. Most obviously, there is no such thing as "the" income tax rate, because different people pay different rates; those rates depend most obviously on the amount of income but also on various kinds of accounting gimmicks that allow wealthy people to pay less. Similarly, no one is proposing a flat wealth tax that would tax 1% of everyone's wealth.
The "example" discussing paying income tax on your $5 of return on your capital is similar nonsense. You don't pay anything on that gain unless it's income, which it isn't unless it's realized. So (assuming the various parameters of a wealth tax meant this mythical $100 person would indeed pay a wealth tax), the comparison is between zero income tax and some nonzero amount of wealth tax.
> None of them would speak of adding a "mere 20%" to the income tax rate, even though that's mathematically the same thing.
Plenty of politicians (e.g., Bernie Sanders, AOC) have pointed out that the top income tax rate during the 1950s was over 90%, and have suggested raising rates back or near to that level, which would be well more than a 20% increase in the income tax rate.
The real problem is our politicians aren't representing our people. All these other issues of wasteful spending and money printing and inflation and whatnot are downstream of that main crux of problem. People don't hate wealthy perse but when laypeople aren't provided proper means of living, they will try anything as a solution, even throwing a wrench in the system. That's how we got Trump.
Completely ignores the true distinction between wealth and income taxes.
Person A has one billion dollars. Holds it in cash in a vault deep in a mountain he owns. He does not earn any wages.[1]
20% income tax: $0.00
01% wealth tax: $10,000,000.00
[1] Every billionaire controls their taxable income. Unlike wage earners, billionaires have 100% control over how much taxable income they have each year. They make choices.
They can have the vault in the cave. Or they can put money into artwork that grows in value and only generates income upon sale. Or a million other ways they can choose to control taxable income.
> That's why I think few politicians currently understand how to convert between wealth and income taxes. You can tell from the way they talk about the subject that they don't understand the momentousness of what they're proposing. But I'm optimistic that we can teach them. The answer's not hard to understand, once you realize the question exists.
What a pompous and uninformed "I am smarter than others" way to think. And very 'parental' (ie 'we can teach them').
Note that Politicians (in order to remain in their job) need to think in terms of the people they represent and getting re-elected by those people. You may not like it it may not be good for you but understand that in the position they are in why they do it.
> So in the median case, a state adding an additional 20% in income tax would have a total marginal tax rate of 37% + 4.75% + 20%, or 61.75%
Good! It should still be higher!
There's nothing more tone deaf than an uber wealthy man arguing he shouldn't pay more in taxes to the system that allows him to be uber wealthy and to be deliberately misleading at the same time.
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 accumulate enough to begin to dictate how much they can access (by having decision power around wages). There is no reason to assume private individual wealth-hoarders have public interest in mind, and indeed they have often proven that they don't. They want to maximize value at specific points in the system, which is the literal definition of instability and eventual collapse in chaos theory. You need to bring the system back to stability through structural intervention and regulation. Tax the rich. Cap individual accumulation. It's that simple. The world does need or benefit from kings, whether minted through politic or finance.
I think Paul thinks people care about the distinction, or think that a 20% marginal increase to the nation's wealthiest is something the public would find "unfair".
Rich people need to stop hanging out with other rich people.
1. Most people do not derive even a fraction of their income from interest on wealth.
2. Earning income from interest on wealth requires zero effort. That isn't true for salaries.
3. Income and wealth are totally different things. You can find a way to equate them in one contrived example but there are so many other factors involved in the real world.
> In the median case, US state politicians talking about adding a "mere 1%" wealth tax are talking about causing the residents of their state to have the highest taxes in the world. That's not the sort of decision you make lightly.
The missed point is that a 1% wealth tax 'only for a select group' can easily become later a 1% (or higher) wealth tax 'for a less select group'.
I recently read 'the second estate' and reading about the number of loopholes the ultra wealthy exploit to pay almost no taxes and establish dynastic wealth does boil the blood.
Off the top of my head:
* 'Income' generated from loans using shares pledged as collateral should be treated the same as if you sold those shares.
* Someone receiving an inheritance over x million dollars (carve out 95% of family farms and small businesses if you want), should pay taxes on it as if it were any other windfall
* Donor advised funds should have a 5% distribution / yr requirement, same as private foundations
* capital gains should probably be treated as regular income. I have no idea why 50k in gains on INTC is somehow privileged over the salary paid to a roofer working in the hot sun.
According to Google, this claim is sourced to a person rather famous for baseless claims, from the founding of companies he owns, to the capabilities of his products, to cash prizes for registering to vote, to when he will send humans to mars.
Continuing to accept this person as a credible source of information isnt a reasonable thing to do.
Prof G Markets podcast just had an episode on this with Ray Madoff. They talk about the claim that "the top 1% of Americans pay 40% of the income tax". But Ray points out that is misleading because the 1% is basically lawyers, physicians, accountants etc that make like $500,000/yr. These people still pay income tax and that's the group paying 40% of income tax. What that claim misses is the 0.1% that pay 0 income tax because they have no income. The claim makes people believe that the billionaires are the ones paying that huge sum but we fail to realize that the 1% is our neighbours, not just the billionaires flying private jets across the world.
$0 just feels like a concept -- I can imagine a really high quality structuring exercise that gets tax low by making sure leverage on capital is what's used for spending, but I'd be really surprised to see a 0.1%-er (or 0.001%-er) post $0 income tax. For one, it's disadvantageous for certain kinds of bank interactions. But also, capital calls come in, investments that are made often require a step-up in basis, leverage is taken out on assets that require a margin call or a sale, there are alternative tax regimes, the corporations that are owned by these parties have their own tax burdens..
To say the wealthy can afford to radically optimize taxes and that our system taxes capital much more lightly than labor seems accurate to me, but I just haven't seen offers for "pay zero tax for all your life" from high grade professionals.
If US citizens want that, they generally give up their citizenship, pay their exit tax, and live in a low tax jurisdiction. I do know people like this, and they are very unlike the 0.1% types you're referring to here, and they've given up the benefits of being a US citizen in exchange for their preferred lifestyle. (And paid a mark to market exit tax on all assets on their way out of the country)
> Consider Bezos’ 2007, one of the years he paid zero in federal income taxes. Amazon’s stock more than doubled. Bezos’ fortune leapt $3.8 billion, according to Forbes, whose wealth estimates are widely cited. How did a person enjoying that sort of wealth explosion end up paying no income tax?
Or the President (now permanently immune from audit, incidentally):
Yeah and he lost money for a decade or more. Blame the system that you can loss harvest. Or call it fair that we don’t penalise business for having bad years.
I have some quibbles about the ProPublica definitions -- for instance market liquidity matters when calculating public company stock wealth -- and even if you're going to borrow against it, there are additional costs and pledges that must be made that significantly reduce the available capital.
The propublica number was like 4.5% or so if I recall, and does not count the taxes paid by the companies these people owned, nor does it imagine the financial benefits to say California teachers or firemen who co-own the companies through pension funds, nor does it reduce for effective wealth, nor does it reduce for unutilized wealth, e.g. if the stock price goes up and you don't sell or borrow against it, have you received benefit that makes sense to tax?
But if you net all those out and told me the effective rate was 12-15% on utilized capital, I wouldn't be surprised. I would be really surprised if it was $0 though.
The funds don't get taxed on unrealized gains. Nor do the pensioners. They do get taxed on spendable income they get out of the fund's investments, just like the other owners of the company.
> [Should we look at the benefits to society of corporations paying taxes?]
if you havent noticed yet, you are talking with someone who owns a private equity fund and, apparently, has "lost more than $1bn twice".
in other words, you are talking to someone in the stupid-wealthy class. you are not going to convince them of anything -- especially not that billionaires should pay more.
its like trying to convince Jon Moore (Phillip Morris USA CEO) that cigarettes should be banned.
As a percentage of their income? Because that's the only number I care about. You don't get to hoard wealth off the backs of tens of thousands of workers and then act like paying a smaller percentage is some good deed being done. The more one benefits from society (and billionaires depend most on the financial security and infrastructure setup by society), the more one needs to pay back into the system they gained their wealth from.
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, followed by benefits recipients and pensioners, followed by low income workers, followed finally by the middle classes.
Are you sure you want that to be your guiding principle?
This is misleading and not the point of the wealth tax.
If you’re lucky enough that you don’t need to work for your income, you should be taxed. A lot. How much? Enough to make sure you don’t become so rich that your children don’t need to work.
Being rich is not fair, it’s very rarely deserved, and it needs to be taxed unfairly.
I think your blog post is confused. People on the left are pro-taxation because they (a) think billionaires do not have superpowers, and are benefiting from some combination of systemic injustices and plain old fraud gussied up for the modern era, and (b) think superheroes actually shouldn't be allowed to have 1,000,000 times the influence over the structure of the world and its economy compared to a mundane human, even if they existed.
There isn't a level of competence or ability that shifts the answer to the morality of power. There's not an earning threshold you can cross that entitles you to own a fiefdom or a level of genius that grants you moral right to dictate how others use your inventions. We create democracy and grant everyone an equal vote in matters that impact their lives. The economy gets layered on top to allocate resources efficiently. If the economy is deciding that some people live like kings and some like serfs, then we've failed to construct an economy that lives up to liberal values.
That is not illuminating at all. Like, the author just imagines the premise and finds three ways to repeat it. There is no exploration into why people think inequality is unfair; the underlying assumption is that it is perfectly natural and trying to address it is hypocritical and harmful.
The other major assumption is that billionaires are rich because of something they did or are good at doing, better than anyone else could in their position. There is no challenge to this assumption in the text.
This belies a deep disconnect with reality, and an unwillingness to confront the idea that maybe excessive inequality is caused by too much concentrated power changing the rules to further concentrate power. Taxation is just one mechanism to combat this tendency; another way is the guillotine.
I can't speak for others, but this doesn't match my thinking at all.
I want to heavily tax the ultra rich because money is power, and vast inequality in power is undemocratic and just plain dangerous.
I don't really care if somebody buys ten massive yachts. It's annoying and seems wasteful but it's not worth too much of my attention.
But it's another matter if somebody buys politicians, laws, social change. The issue with someone like Elon Musk isn't that he owns a private jet, or even that he owns a rocket company, it's that he bought his way to taking an axe to major parts of our government by pouring unimaginable amounts of money into buying a presidential election.
It's not about grabbing stuff, it's about preventing people from accumulating too much power. The ultra-wealthy should be heavily taxed for the same reason the President shouldn't be given unlimited power to do whatever they want.
You cannot have billionaires and them not be immensely, structurally powerful.
That's the entire point of capitalism, that resources, including labor, be directed by those with capital.
Believing you can have a single human being in control of a non-negligible percentage of all resources of a country, and they wont somehow be actually powerful or influential is moronic.
Taking the power away from billionaires literally IS taking their money.
That’s the stupidest thing I’ve ever read. Power is power. Members of the Communist Party in the USSR were as wealthy as their subjects, their power differential was enormous.
It's the degree of power they hold, not a binary. A politican in Switzerland has much less power than a politician in China.
When your power is to determine which day the recycling truck is dropping-by, hardly anyone wants to coerce that power. But when it is e.g printing money the calculus is massively different.
I know, that's why I want to tax them, to remove their power.
Of course, you probably mean to remove their power centers without removing their money. But that doesn't make any sense. Money is power. You can't remove the power from a billionaire and leave them a billionaire.
A Marxist peddles restructuring of the government to better represent the people. Notable attempts at that replaced existing governments with autocracies that promptly killed the Marxists and Anarchists among them, which is not what you were talking about, I don't think. What kind of revolutionary wants only to tear down their government and not replace it? Anarcho-primitivists, I guess?
this is some of the most insipid dreck i've read in a long time. the only thing illuminated here is the author's complete lack of understanding regarding ability and worth and total inability to think beyond a system imposed upon him by others. i think the kids would say he's "billionaire glazing".
The vibe I get is that he's saying "you poors are just jealous of the billionaires who are smarter and richer than you, so you want to take it away from them"
The comparison to _literal super heroes_ from comic books definitely made me roll my eyes
My problem with billionaires is that their gains are in part from exploitation. I just don't believe that one person can actually produce billions of dollars of value all by themselves. They extract that value from other people and our whole system is structured to promote this.
There are probably millions people who could have been Mark Zuckerberg or Bill Gates or Elon Musk or whoever. A million people with the right skills who maybe were born a few years too late or didn't have the right connections or just didn't have rich enough parents. It's a little too "winner take all" for my taste. And then those few winners end up having disproportionate affect on politics and issues that affect us all. It's just not a great system.
> People usually become billionaires via having “super-powers,” i.e., very unusual abilities, at least within some context.
There are certainly sometimes unusual abilities in a positive sense, but the common case likely falls closer to having an unusual degree of sociopathy. It is unclear to me how else one could view the state of perfectly solvable human suffering in the world and continue to prioritize accumulating wealth over all else, moreover and overwhelmingly at the cost of being party to the suffering itself. Indeed, I suspect having such callous disregard for your fellow person is prerequisite to encountering these unfathomable sums.
When people with an intact capacity for empathy come into huge amounts of money I think it's far more common to give a large proportion of it away (say, Jane Street workers have a culture of doing this). And thus you only stay 'comfortably' wealthy, rather than accumulating so much that it distorts society around your singular existence.
> People usually become billionaires via having “super-powers,” i.e., very unusual abilities, at least within some context.
If you count luck, maybe.
> But what if most billionaires had super-powers of the traditional comic book sort, like x-ray vision or an ability to fly, etc.? That is, what if people with physical super-powers earned billions in the labor market by selling the use of these powers? Would folks be just as eager to tax them to reduce unfair inequality?
Yes, I would.
> But if those few very rich folks had real physical super-powers, we would be a lot more afraid of their simple physical retaliation. They might be very effective at physically resisting our attempts to take their stuff.
Yes, and this is why a lot of superhero movies involve fighting the greedy superpowered villain.
> 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 obtains all his income from labor: To him, a N% wealth tax = 0% income tax for all N. Those with -some- savings are somewhere in the middle.
It is a very sneaky way to argue that a wealth tax should be as across-the-board unpopular as a large income tax increase. But Graham's math is only applicable to those flush with investments and with relatively small salaries from labor, so a wealth tax is only unpopular to that particular group.
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.
On the other hand, almost a majority of people already pay no federal income tax anyways. Mitt Romney mentioned a number of 47% during his presidential campaign and that number was mostly true. https://www.politifact.com/factchecks/2012/sep/18/mitt-romne...
People love to talk about the marginal tax rates but not the average tax rates. And I think that’s right because the conversation should be focused on the wealthiest people.
The ultra rich are desperate to maintain their exclusive access to essentially pay no taxes through their "Buy, Borrow, Die" strategy (if you don't understand what that is you should stop and read this: https://gemini.google.com/share/e230bcecaaeb) and so they are using scare tactics / gaslighting around wealth taxes because a wealth tax would disrupt this essentially zero tax strategy.
"Buy, borrow, die" is a bit of a bogeyman of the Left; it's not a common strategy for HNW or UHNW individuals, and to the extent it is used, there are much better ways to close it than a wealth tax, which is coarse and rife with implementation issues.
The main implementation issue with a wealth tax is that it doesn’t at all interact with the capital gains tax. It’s easy to fix the implementation issue by integrating the wealth tax into the capital gains tax (call it unrealized capital gains tax for starters), make the tax refundable when an asset loses value, and netting it against the actual capital gains tax.
With this framing, the wealth tax isn’t a new tax; it is only prepaying the capital gains tax instead of allowing it to be deferred forever.
Don't speak to loudly of this fact, otherwise some leftist politician could come to the conclusion that human capital – the discounted cash flow of one's future labor income – should be taxed as wealth, too.
> 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 ineffective against them, and if that doesn't work they can just move somewhere else. Income tax was the same.
On top of that it seems to imply that a 20% effective tax rate is outrageous even though that's totally normal for most. Maybe it's not what you're used to as really wealthy person who avoids realized income and has a 0 or 5 or 10 percent effective rate. But it's totally normal for most middle and median income folks who actually pay income taxes.
It's 20% equivalent income tax rate if you have no conventionally taxable income. Otherwise it's 20% on top of your marginal rate. In his $100 example, you'd pay $1 in wealth tax on the $100 and $1 in tax on the $5 income earned, so your total tax is $2 on $5 of income, an effective tax rate of 40%.
But any real wealth tax is going to have exemptions, only apply to wealth above some threshold, and for the wealthy who structure their finances so as to have little or no taxable income, well they end up paying 20% like all the rest of us do.
> an effective tax rate of 40%.
It's not. That calculation would say that if you have $1000 of wealth and $5 of income your effective tax rate is 220%. It's bad math.
Your conventional income is taxed separately.
A wealth tax sort of stacks with capital gains, but capital gains is way too low anyway.
20% tax on wealth (aka the potentially liquidatable value of an asset) would absolutely destroy anyone using an asset. For a classic example, look at property taxes which are a classic wealth tax. Grandma’s, people on pensions, and even middle class folks who own a home but have relatively low rates of salary increases get destroyed (and have to sell and move out) in places like Texas where property taxes aren’t capped/controlled like California under prop 13 when property prices go up.
Having your house get ‘too expensive to live in’, in fact, is a classic issue with property taxes, and was happening in California - which is exactly why prop 13 happened. And most of those locations the maximum tax is around 1-3%!
‘Wealth’ is not the same as income, because wealth is potential money, if you can sell - and if you sell, you lose access to it.
A 20% wealth tax would mean any asset which doesn’t earning free cash flow returns of at least 20% a year, or which isn’t appreciating at least 20% a year in a risk free way would be impossible to hold for anyone except the most rich people. And even they couldn’t do it for long.
I can’t think of anything which that realistically describes.
A 20% income tax reduces actual cash in hand to 80% of what you’d otherwise have, which isn’t great. But you still get the actual 80% cash in hand right now, and can use it.
You can’t have ‘80% control/ownership for the year’ of a house in a meaningful way, and especially for people actually using/relying on the asset to live, they can’t find 20% (or in most cases even 5%!) of the value in cash for the asset every year. They’d go bankrupt.
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 overlooking the possibility that such a tax structure could create an effective wealth cap at some level.
The problem in California is that it's very hard to change laws. Likewise in my state, where many aspects of the tax system are constrained by the state constitution.
Sure. The issue I’d see is in 20 years inflation might mean that applies to almost everyone, like AMT, but that is a future us issue.
The biggest personal complaint I have is why should the government be getting more tax money when all they seem to use it for is blowing up random countries in the Middle East and spying on law abiding citizens for whatever random reason.
These wealth taxes are not proposed to apply to everyone evenly, that would be a regressive tax policy. There is a wealth cutoff, most commonly proposed to be around $50M.
If grandma has $50M in her house and pension, she can afford to pay a tiny tiny tiny fraction of her wealth to make sure her grandkids still have a place to live that's not falling apart.
You obviously didn't read the thing. 20% is not on wealth. The argument in the piece is that 1% on wealth is the same as 20% on income, and therefore 1% on wealth is obscene.
Please read before making replies that don't make sense in context. When I refer to 20% I'm referring the PG's characterization of a 1% wealth tax as an effective 20% income tax, not a 20% wealth tax.
I read it, and was replying in context.
> 20% tax on wealth
Thank god no one is talking about this, then. According to Graham, a 20% wealth tax is equivalent to a 400% income tax.
Read my comment - it likely would be equivalently impossible. That is my point.
Read my comment - it is completely irrelevant to the discussion being had about the linked article, and no one on the planet is suggesting a 20% wealth tax. That is my point.
The argument was that it was ludicrous to say a wealth tax of x percent > income tax of x percent in actual impact, yes?
It is clearly the case if you try to apply the income tax rate as a wealth tax using concrete real world examples.
Even a 3% property tax makes it very difficult for many normal people to own those assets in many real world economic circumstances.
I'm retired. I hope to get a 3% per year income from my savings every year after inflation and taxes. If my state implemented a 1% wealth tax on savings each year, I would go bankrupt in 20 years. I am hoping that I will live 20 years.
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.
Today, sure. In 30 years I wouldn't expect to be able to retire with less that $50 million in savings.
> 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?
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...
Sort of like how the income tax in America started with it only applying to the top 1% of earners?
I'm sure any wealth tax would only apply to wealth above a certain amount. For instance, inheritance tax only applies to $15mil and above. Likewise, when you sell a house the first $500K (I believe) in capital gains from the sale is tax free.
I don't think people with savings of $15mil and above (assuming that would be the cutoff) are in danger of going bankrupt in 20 yrs from a 1% wealth tax. Assuming your 3% return, they'd be earning $450,000 a year that wouldn't be touched by the wealth tax.
But why wage earners should support you by paying more taxes? Reduce your spending by 33% to keep up.
I can't tell if this is sarcasm or a serious point.
Obviously people who have retired and based their entire life plan on making that work have many fewer options than those who are still working. You are arguing that nobody can plan for any kind of secure retirement, including you.
It depends on the net wealth we're discussing. I'm sorry if I touched someone who lives with $1M saving. But should I be sorry for someone with $10M, which might be way more than 30 years of lifetime earnings of p80 population? Wealth tax is obviously targeting the latter.
Having progressive tax rate might be a better way to discuss, instead of blaming whole points.
Corrected version:
A wealth tax of 1% is equivalent to an income tax of 20% on capital gains.
With different issues than the ones caused by deferring gains forever through shenanigans.
It isn't, because the ultra rich have no capital gains. They get ultra low interest rate loans against assets so they never have to sell assets and trigger capital gains. Google "Buy, Borrow, Die" if you don't understand this strategy.
They have to sell eventually to pay off the loans. And if they die, their estate has to sell the assets to pay off the loans, and then their heir will pay inheritance taxes on top of that.
Unless their spouse is still alive. In the US, assets' cost bases are reset when a spouse dies. That is the main way that rich people avoid capital gains taxes. I'd much prefer simply stopping that cost basis reset instead of implementing a wealth tax.
> I'd much prefer simply stopping that cost basis reset instead of implementing a wealth tax.
Neither of these would really work against the people you actually want it to work against.
If you don't have a basis reset then they just do a transaction that has the same effect, e.g. create a new corporation owned by the recipient and then have it repeatedly enter into slightly favorable transactions with the one owned by the donor until the new one has all the assets, or any of a hundred other things.
If you try to do a wealth tax then their assets end up in another country under whatever arrangement is necessary to give them de facto control but not formal ownership.
The best way to solve the "buy, borrow, die" thing is actually a consumption tax because then borrowing money in order to spend it doesn't avoid the tax.
> But Graham's math is only applicable to those flush with investments and with relatively small salaries from labor, so a wealth tax is only unpopular to that particular group.
Not quite, because you're using the opposite extreme where someone has no assets. Meanwhile the median net worth in the US ~$200k, which would be $2000/year in tax for every 1% in wealth tax. That's certainly enough for ordinary people to notice.
On top of that, the conversion is even worse than that implies for ordinary people, because the primary reason the median is ~$200k isn't that the median person has $200k their whole lives, it's that they have ~$0 when they're 18 and ~$400k when they retire and the median person is about halfway to retirement age. If you transfer tax burden from income tax to wealth tax then that means they'll be paying more in wealth tax in the second half of their life, which means they need to be saving rather than spending the money not paid in income tax, including during the first half of their life. But that causes their net worth to go up on paper by more/sooner, because they're essentially holding extra money they'll only have to pay in tax later, which in turn causes them to pay more in tax for a tax on holding assets.
Moreover, then you can't say that Alice always benefits because she has no assets and Bob always pays more because he has $400,000 because what's actually happening is that Alice pays less when she's 20 and more when she's 60. That's going to be unpopular because the 20 year olds are generally expecting to be 60 someday but the 60 year olds never expect to be 20 again.
I've never seen a wealth tax proposal where "wealth" was defined as ~400K in assets. They tend to start in the millions with generous carve outs for IRAs and primary residences.
See reply to the sister comment posted earlier than yours and saying the same thing.
Nobody is talking about a wealth tax on someone with a net worth of ~$200k or ~$400k.
> Nobody is talking about a wealth tax on someone with a net worth of ~$200k or ~$400k.
If that were the case the criticism of Paul Graham's reasoning would be wrong to begin with because the only people paying it would be the people who do get most of their income from investments.
Moreover, your proposal doesn't actually work. If corporations don't pay a wealth tax then rich people just put their assets into corporations that they control but don't formally own (there are many ways to do this). But if they do then ordinary people with ordinary retirement savings can't be spared, since it doesn't change your finances to have the companies your retirement savings are invested in give you lower returns by the amount they pay in wealth tax than to have you pay a wealth tax out of the returns.
When income tax was first implemented, less then 1% of people had to pay it. Taxes are a slippery slope, and that number will slide down.
They don't even have to change the number. Per capita GDP growth and inflation cause the same number to impact more ordinary people over time by doing nothing.
We don't know, actually. If the threshold for "wealth" is set to be >100k, then we are.
> The math doesn't math for someone on the other extreme end of the spectrum who has zero savings or investments and obtains all his income from labor: To him, a N% wealth tax = 0% income tax for all N. Those with -some- savings are somewhere in the middle.
Productivity comes from labor AND assets though. You need the farmer and the tractor. Why would we create a tax system that encourages people to divorce themselves from having a stake in the means of production?
> Productivity comes from labor AND assets though. You need the farmer and the tractor. Why would we create a tax system that encourages people to divorce themselves from having a stake in the means of production?
This is exactly why economic models broadly show that taxing capital assets makes workers worse off in the long run. An abundance of capital means that workers will be more productive on the margin, so their wage will be higher. This extends to the capital-income taxation involved in income taxes: pure labor taxes or consumption taxes are inherently more efficient. There are countervailing effects (taxing capital income works as an effective way of indirectly taxing the unearned value of resource-like assets, or of idiosyncratic skills that happen to correlate with holding more capital-like assets) but they can only roughly justify the current income tax arrangement, not some extra tax on assets.
Oh good! I was worried that trickle down economics was self-serving nonsense pushed by think tank economists on behalf of their benefactors. Since it is economic fact rather than self-serving fiction, when I review its track record I will find that it caused an upward inflection in real wages, right? Right?
https://wtfhappenedin1971.com/
Oops!
As long as capital doesn't get involved in some kind of highly financialized spiral getting further and further divorced from the real economy, we should be good.
That could never happen here. We have a history of strongly regulating capital and banks. Why look at all the executives we jailed for the 2008 financial crisis!
Total labor compensation has in fact grown. Unfortunately, much of the non-wage compensation involves services like healthcare that has become a lot more expensive over time due to burdensome overregulation and an overall lack of price transparency.
>Since it is economic fact rather than self-serving fiction [...]
You deride the weak justification for trickle down economics, then proceed to link wtfhappenedin1971.com, a site that tries to argue for the reintroduction of the gold standard through a gish-gallop of random charts?
The gap between productivity and wages is striking, isn't it?
I'm not perfectly aligned with gold bug politics. Their faith in the Kindleberger world is misplaced and their tax aversion can make them useful to my opponents, but at the same time they tend to take the Cantillon Pump and Balance of Payments mechanisms seriously while my traditional allies do not.
No, I don't mind borrowing their charts. Why? Do you have a better go-to link for The Wedge?
>The gap between productivity and wages is striking, isn't it?
It's not. The (in)famous epi.org is flawed for all sorts of reasons, from excluding noproduction/supervisory workers (the highest compensated ones!), to excluding non-wage compensation (eg. benefits), to different deflators for compensation vs productivity. If you adjust for all of that, the chart is unremarkable.
https://www.piie.com/blogs/realtime-economic-issues-watch/gr...
That incidentally, is the exact problem with the site. It presents a barrage of charts, without regard to relevance or rigor, and tries to persuade through sheer volume alone. Yet, if you scrutinize any of them, it quickly falls apart. That's probably why the site doesn't even bother justifying the charts, or even state the thesis, for that matter.
This smells like the think-tank "CEO comp justifies worker underpayment" and "health care inflation is wages" arguments, I'll look into your source but I can't pretend to have high hopes.
As for "gish gallop," right back atcha: those billionaire-funded think tanks firehose a lot of nonsense into the economic discourse (and curricula!)
What percentage of increased productivity has gone back to the workers as increased financial health during the last say 20 years? Not increased wages. Their increase in end of day actual financial health versus end of day increase in actual financial health of the owning class? Not some Peter/Paul highlighting Peter 'wages have gone up' while ignoring any stealing from Paul 'actual financial health' has gone down metric.
300 years of thinking has established that copyright is the best way to sustain ongoing creation of knowledge and thought, yet the same crowd seem pretty fine gutting that 300 years of understanding because of their judgement that their desired use case for today outweighs the cost to society of lost future knowledge creation, so they seem plenty happy to ignore established thought when it benefits them.
People at the bottom end of the income scale are sharply deterred from holding any meaningful amounts of savings, because this can exclude them from 'means tested' benefits. This is effectively a disguised ~100% "wealth tax" that hits many among the most heavily disadvantaged and marginalized. We're essentially telling people that they have to be living literally hand-to-mouth before they're deemed to deserve any kind of broader social support.
The current system without wealth taxes already largely divorces labor from equity stake. Unless you're one of the relatively few tech or office workers who get equity compensation or have a large savings rate, you currently don't have much of a stake in any means of production.
I'm not disputing the claim that few people are able to save and invest into having a stake in the means of production.
However, if your goal is to increase stakeholdership, how would a policy that explicitly disincentivizes that behavior fix anything?
Why do I get the feeling that you would never field the structurally identical complaint against disproportionately taxing labor and consumption, even though that's a much more prominent feature of our current tax policy?
In any case, taxes do not go into a black hole, no matter how much the right likes to encourage this self-serving fiction. Taxes generally get spent down the economic ladder and move people up the economic ladder, increasing their marginal propensity to save. People must have money if you want them to save money.
Even more concretely: reversing the policies which dissolved the middle class might reasonably be expected to restore the middle class, or at least slow their demise.
How does it disincentivize "stakeholdership"? Are people expected to say, please don't make me rich, because I'd have to pay 1% of it?
Well for a start it pressurises asset holders to sell their assets.
But the point isn't to increase stakeholdership so much as to stop privileging stakeholders with very low effective tax bills relative to mere workers, which means that there's a lot less cause for concern about those workers not owning their means of production
> Well for a start it pressurises asset holders to sell their assets.
To whom are the selling? The buyers would be only those that can make efficient enough returns to offset this tax due to their existing systemic advantages, like economies of scale or regulatory lobbying.
> But the point isn't to increase stakeholdership so much as to stop privileging stakeholders with very low effective tax bills relative to mere workers
At this point I think there is ample evidence that policy in this country does not move forward without the consent of these so-called privileged stakeholders. If you take that as a given, why would you support handing these people an economic machine gun to point at your future self?
>Well for a start it pressurises asset holders to sell their assets.
Even assuming this is true, then what? Do you think the average joe is going to suddenly buy alphabet or meta stocks because bill ackman or ken griffin sold their shares to buy bigger yachts?
Regular people have less and less savings to buy "stakes in the means of production". Capital is getting more and more concentrated in fewer and fewer hands: the top 10% of the country owns almost 80% of it all. Wealth needs to be taxed and redistributed.
I think it’s a good point that these taxes don’t apply to most people. Another reason they don’t apply is that most people save for retirement using retirement accounts.
But nothing in the article implies that these wealth taxes apply to most people. The argument is that a 1% wealth tax is equivalent to a 20% income tax because, under certain assumptions, the government gets the same amount of money.
Only in theory. In practice it’s not equivalent at all because once you reach a certain (very high) level of wealth, there’s the “buy, borrow, die” strategy that avoids realizing most of your capital gains. I’ve also heard of proposals to tax asset-backed loans above a certain threshold, which is aimed at the “borrow” part of the strategy. But the concern there is that the super wealthy may quickly find a different strategy for tax avoidance, so a blanket wealth tax should be harder to circumvent. But as with anything to do with the tax code, those with the best tax accountants and lawyers seldom end up losing.
> because once you reach a certain (very high) level of wealth, there’s the “buy, borrow, die” strategy that avoids realizing most of your capital gains
If that is what is being targeted, then why not actually target that. Apply some percent taxation on the current value of all assets transferred because of death. And, if they want, only apply it to estates over some X threshold in size.
Performing the taxation at time of probate makes the valuation easy (unlike a 'wealth tax') because the valuation could be one of "value at time of death" or "value at time of transfer". And, if the ultra wealthy are using this angle to avoid taxes, then this taxes some of that transferred value.
Of course, just like with subscriptions, to the politicians a yearly wealth tax is far more valuable than a one time tax on the total value of the estate.
>If that is what is being targeted, then why not actually target that. Apply some percent taxation on the current value of all assets transferred because of death.
That already exists. The rate is 40% of the asset value.
There is no evidence[0] that the wealthy use the "buy, borrow, die" strategy in any significant way. The underlying financial math doesn't make sense if the goal is to maximize wealth so it isn't surprising that wealthy people don't actually do it.
[0] https://www.sciencedirect.com/science/article/abs/pii/S00472...
That paper is looking at the top 1%. Buy, borrow, die is the realm of the top 0.1 % or 0.01%.
Are you saying that billionaires are actually realizing capital gains to afford yachts, private jets, and mansions?
"Focusing on the top 1 %, while total borrowing is substantial, new borrowing each year is fairly small (1–2 % of economic income) compared to their new unrealized gains"
"1 % of wealth-holders (above $14 million in 2022)"
1-2% of $14,000,000 is $140,000 to $280,000 a year. The median personal income is $45,140. They are benefiting untaxed to the tune of 3-6 times the median American income.
1-2% of 100 million is 1-2 million dollars a year untaxed benefit (44x median income). That is substantial. That their wealth is growing so fast that that is fairly small to them and makes the median American income seem small doesn't sell me.
How is an economic benefit of 3-44X the median income insignificant? I would love to benefit anually by that 'insignificant' amount. By this argument why should we not then exclude all economic income below $140,000 to $2,000,000 from taxation? Since it's 'insignificant'.
I feel the same way. I hear a lot of complains about wealth tax but it always seems like the problems mainly pertain to billionaires. I don't see why we should optimize for that small minority.
If we moved to a wealth tax I'd be the first in line to pay it. So long as everyone else had to pay it too.
WSJ Opinion Piece: "Why It'd Be A Mistake To Inconvenience Billionaires" -Some Other Billionaire
If you mean that a person with 0 savings pays 0 wealth tax, then sure. Most people when they earn income save some of it. Therefore it is wealth taxed.
It seems fairly simple to have a standard deduction so that only folks with wealth over a certain amount get taxed.
>Most people when they earn income save some of it. Therefore it is wealth taxed.
This is one of those “check your privilege” moments and one where it is best to look at the median and not just the average when talking about household wealth in the US. Between 57% and 67% of U.S. adults are estimated to live paycheck to paycheck. They aren’t saving it, they’re going into debt because the only local grocery store is a Dollar General and it’s just a clever name nowadays.
Almost all wealth tax proposal I’ve seen start at the level of 8-9 figures of wealth. Why are we now talking about it as if it’s going to apply to your average person’s savings account? If we’re just going to accept these billionaire-invented narratives around the wealth tax, then there’s really no point in discussing the actual pros and cons of these proposals.
Because it’s the standard playbook for dealing with even the slightest suggestion of fairer taxation. Trot out an old dude in a suit from a Foundation, make sure to avoid anyone knowing exactly what that foundation does or who funds it and have him suggest it’s a really nice idea, but the unforeseen consequences will actually hurt “working people like you and me”. Present as fact, job done.
> But Graham's math is only applicable to those flush with investments and with relatively small salaries from labor, so a wealth tax is only unpopular to that particular group.
That can be quite a lot of people on HN, and also including FIRE people, so I can see why it's unpopular.
Most FIRE people aren't going to have $50 million plus and be hit by this.
It will never stop at $50M. Once the law is created it is sooo much easier to just lower the threshold. Even if not lowered, in 30 years inflation means it will capture a whole different number of people - maybe you. Maybe it will bankrupt your children.
Billionaires gonna billionaire, I guess.
It's so funny to me how many people have taken envy up as their core personality. Billionaires happened to have created the most opportunities for everybody. Amazon is amazing for the consumer that seeks convenience, but it's also amazing if you want to dropship and make your living off of that. Independent sellers make up 65% of all sales on Amazon. So somewhere the idea that nobody benefits from the creations of billionaires has to be questioned.
Illegal and legal immigrants are being completely supported by Uber right now in NYC. If you lived here you would know that this is their primary source of income for many of them.
The gate that previously blocked your ability to disseminate your ideas to a wide audience and create a living off of it has been completely torn down by the billionaires that create platforms like Tiktok. There are scores of people that have made a living off of this, which was virtually impossible before. The barrier to entry to start from grass roots and build a following and then monetize it has been erased.
It's completely banal at this point to just point at billionaires and say they are the problem just because of envy. I wish there was a plugin for it so I can erase it from my consumption.
The premise that billionaires are less efficient than the government at deploying capital to serve society is incongruent with reality, but sure, they are a convenient scapegoat if your heart is poisoned by envy and lack. That's really all it is and it needs to be called out more often because it's a mind virus that is easy to infect others with. Your life is not served by being clouded by envy and lack, and spreading it is detrimental to all consciousness.
There is objectively more paths to success than ever before. Being preoccupied with what you don't have currently and pointing the finger to blame at some boogeyman billionaire is not going to change anything for your personal life. The buck is on the person with the finger to improve their life and take advantage of the opportunities that are presented to them. Spending your time being mad that people have created something society deems worthwhile and are being rewarded for it is spending your time being envious about something that has nothing to do with your own problems.
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.
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 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.
this post drips with envy
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 want to make wealth irrelevant then at least come up with a real system where wealth does not exist, because that's an intrinsic property of wealth.
The idea that you can distribute wealth is actually the tell for envy. You want to distribute power because you want power. It has nothing to do with billionaires and it has everything to do with people with more wealth than you having more power. That's envy. How far do you have to distribute before power is meaningless? I'd say all the way. It's not about billionaires, you want billionaires to be on the same level as everybody else. That also means you'll eventually want millionaires to be on the same level as everybody else. You can repeat this exercise all you want but the fact remains the same: if there's a wealth disparity there is a power disparity. Getting rid of billionaires changes nothing because the millionaires will have all the power. etc.
The truth is that there are more billionaires than ever before and that number is growing. It would seem that having power is becoming more democratized over time too. If we go back 500 years the number of people that had this level of power were limited to actual Kings. You are closer to a billionaire in your capabilities and agency in this society than a peasant was under an actual King.
> 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 companies and founders have given back to society at the scale that these uber wealthy people have? Entire new economies have been built up.
> ungodly and idiotic level of uber wealth.
This is still just envy. You should try to prove that you're being oppressed by the systems these billionaires have created because we don't have to go very far back to observe when these systems and economies did not exist. I'll remind you that for example, in NYC before Uber, taxi medallions were being sold for over a million dollars and people were going into debt just for the opportunity to drive a cab. If you go far back enough creating a virtual store front to sell your ideas and goods was a gate that was actually very high. Thanks to the systems that are in place now you have the opportunity to spin this up for very little risk and prove out your idea. 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. You can launch an entire grass roots political campaign on social media for free. Does that sound like a system that oppresses or is that a system that has given you opportunity to enact change?
Even the barrier to invest in companies and participate directly in the profits and value creation has been erased or lowered. Hundreds of millions of people are directly benefitting from this everyday. It is now a few simple clicks of a button and you're in. Who lowered that barrier? It was the billionaires. And yes, because they did that they will get an asymmetrical reward because their impact and value creation for society is asymmetrical to yours.
You're not doing this, but when you try to have this conversation amongst the general population what is the response? Once you start poking holes at the concept it always reverts to "you're a bootlicker", "why are you defending billionaires, they don't care about you". These responses highlight envy, not reality or the desire to be objective.
Deep down a lot people either don't realize how much free will and agency they now have in this society or they are just living with contempt because everywhere they look they see people that are using that free will to accomplish more than them. It's lack and envy all the way through.
I think the assumption that we're looking for an equivalence here is fundamentally flawed and with it the entire post.
For most people income is tied to selling their time. It doesn't scale at all. Unless the income comes from wealth.
The societal problem here is a group with self-reinforcing run-away levels of wealth. And to counter that you do need something more extreme than this nonsensical equivalency of income tax
The big flaw in his argument is that a mere 1% which is actually 20% of annual return is still less than the average income tax rate on workers, levied on people who have a lot more money and in some cases don't do anything resembling work. It's trivially true that 1% wealth taxes represent something in the region of a fifth of the average annual return on wealth, it's rather less convincing when it's suggested that this is harsh compared with income tax when people who pay more than half their much lower income in overall taxes whilst working 60 hour weeks and actually worrying about paying bills.
There are arguments about wealth taxes inducing capital flight and investment disincentives, the difficulty of paying tax bills from illiquid intangible wealth or even quantifying it, and whether it's really a good thing to pressure people building a company to sell much of it off, but telling income tax payers that an effective tax rate of 20% is high isn't one of them...
> The big flaw in his argument is that a mere 1% which is actually 20% of annual return is still less than the average income tax rate on workers
This is untrue btw
50% of people in the US pay effectively no net taxes
No net income taxes.
They still pay payroll taxes, state taxes, sales taxes, and various other state or local taxes and fees.
> 50% of people in the US pay effectively no net taxes
Billionaires included, defence contracts and corporate subsidies count just as much as food stamps.
Or put another way, are subsidized by others.
Or put another way, they already make so little money it isn't worth taking any from them.
> There are arguments about wealth taxes inducing capital flight and investment disincentives
If the US and the EU introduced a wealth tax then it would be relatively difficult for the capital flight fears to materialise. But yeah, the trouble with wealth taxes is that wealth (i.e. capital) is mobile.
Which is why land and property taxes are probably the most effective way of taxing wealth.
Switzerland has cantonal wealth taxes, as does Norway and afair Spain. Italy, Belgium, Netherlands have a somewhat equivalent one on money held in securities or savings accounts. It's not that big of a deal if the rate is low enough.
Most of us would not prefer to follow the EU into irrelevancy. If they were the model for how we should be running things how come they are not the ones running the show on innovation?
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 money through the government has not been a particularly successful strategy for improving the overall standard of living.
> you do need something more extreme
That's how you end up with an over-regulated country where people doing great things for the country's economy start choosing a different country to build their dreams in.
It's also how you drive the currently-wealthy to other countries to spend and invest their fortunes in.
The possibility of being ultra-wealthy is a huge reason to build awesome shit in the US that creates millions of jobs and brings the US economy ahead.
How is rent-seeking and monopolizing "doing great things for the country's economy"?
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.
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 adding a "mere 20%" to the income tax rate
On the opposite, they understand it right, and PG is completely wrong here: it's not about adding income tax rate to someone that already pay income taxes, it's about making wealthy people, who don't currently pay this tax rate, pay the same rate as people living from their income.
> So in the median case, a state adding an additional 20% in income tax would have a total marginal tax rate of 37% + 4.75% + 20%, or 61.75%.
Bezos, Musk, Zuck and the likes (or even PG himself, likely) don't pay 40℅ tax on their wealth growth, they currently pays 0%.
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.
I really like the way you framed it. I've never really been against a wealth tax but making it equivalent to income feels fair to me. I don't think the math works out with rates where they are today, though.
I guess the simplest approach is, if you're making money, it should be taxed fairly, regardless of how you're making it.
The trick is clarifying that "making money" means "increasing your wealth". Currently there are many ways of increasing wealth that don't "count" as making money.
> it's not about adding income tax rate to someone that already pay income taxes, it's about making wealthy people, who don't currently pay this tax rate, pay the same rate as people living from their income.
That's exactly it. I've been really shocked at the willful ignorance (or deceit) coming from the billionaire class on this. I mean, OBVIOUSLY the practical operation of the tax regime is unfair at the top end. If you put a billion dollars in assets somewhere, almost any asset (including e.g. stock in a company you can't sell because you need to own it), growth of that asset is (1) trivially liquid via loans[1] or deals and (2) COMPLETELY UNTAXABLE IN PRACTICE because there's never (ever!) going to be a point where it's traded or converted in such a way that it becomes a "capital gain".
[1] e.g. Bezos goes to Citi or whoever and writes up a contract for a $100M loan to be collateralized with ever-appreciating AMZN shares, likely at a deeply discounted rate (low risk, plus the "keep Jeff in the rolodex" benefit to the bank) then pays it back on schedule with another loan taken out on his now-even-larger stake in AMZN. Who pays the tax here? It's not "income"!
> In fact the conversion rate between them is about 20. A wealth tax of 1% is equivalent to an income tax of 20%.
Sure, but you actually have to work for continued income. Wealth accumulates with no input once established.
Wealth has the ability to increase (capital gains) without having to pay tax until it changes hands, whereas when income increases it is immediately taxed at a higher rate. Additionally, wealthy people can use securities as collateral for near zero interest lifetime loans which also bypass having to pay income tax.
> Wealth accumulates with no input once established.
This is incorrect, historically you'll pay a ~2%-3% loss via inflation if you keep your money in cash. If you invest (making it capital) in bonds or securities then you will see accumulation, but thats actually a risk premium.
> Additionally, wealthy people can use securities as collateral for near zero interest lifetime loans which also bypass having to pay income tax.
This is true, its typically called "Buy, Borrow, Die" but the reality is that it is only available to a very small percent of wealthy individuals and exists because of the way inheritance is handled ("stepped-up basis"). Even reasonably (not fabulously) wealthy people will still pay retail rates on the loans making the tactic basically ineffective. Last I heard you needed something like 100M+ liquid for lenders to even consider it (presumably, because they will make more off of some other deal with you)
Step-up basis is important for anyone who inherits property from their parents. That can be substantial in places like California where real estate has gone up a lot.
And for inherited rental property, there is another huge loophole: you can can depreciate the full market value of an asset that you got for free. That’s a substantial tax benefit for many years.
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.
There is little evidence that wealthy people actually borrow for income in any significant way. For example, this paper[0] finds that borrowing only accounts for 1-2% of economic income among the top 1%.
This makes sense. Borrowing for income in most scenarios is strictly worse financially than recognizing conventional income if you actually do the math. Wealthy people are optimizing for financial outcomes, not avoiding taxes per se.
[0] https://www.sciencedirect.com/science/article/abs/pii/S00472...
>...Additionally, wealthy people can use securities as collateral for near zero interest lifetime loans which also bypass having to pay income tax.
This is just Internet mythology. The IRS would go after such arrangements very quickly - the IRS has the Applicable Federal Rate for loans. Though this really isn't an issue with banks as they are not charities and tend to want to make money.
Ironically, a wealth tax of 1% is equivalent to 20% of the risk free earnings on that wealth.
This is simultaneously incredibly condescending and hopelessly naive. Politicians understand perfectly well that a 1% wealth tax is not a small tax on wealthy individuals. That's the whole point. They are engaging in basic political rhetoric when they say things like "a mere 1% tax".
I'm not an expert in this, but I thought one of the biggest arguments for why a wealth tax is needed the whole "buy, borrow, die" thing where the ultra rich can use their assets as collateral to take out a never ending series of ultra low interest loans until they die and then have most of the tax burden of selling assets to pay off those loans wiped out because the tax code is much more favorable to selling assets to pay off the debt of someone's estate.
If (big if) I'm remembering that correctly, I don't get why we just go after the problem directly and do something like treat putting down collateral for these type of loans as a taxable event. I'm sure it's not as straight forward as it sounds, but I can't imagine it'd be more convoluted that needing to track the wealth of every high net worth individual.
Maybe I'm in the minority on this, but I actually don't care if Jeff Bezos' net worth went up by $5 billion because Amazon had a good day in the market. If the shares are just sitting in an account doing nothing other than proving ownership it's all kind of just numbers in a computer, IMO. A painting is probably a better example than stock, but if I have a painting on my wall that was worth $1 million dollars yesterday and today it's worth $10 million that change in valuation is essentially meaningless as long as the only thing the painting is doing is hanging on my wall.
What I do care about is when he's able to access the cash value of that $5 billion of Amazon stock without paying the taxes that would come along with selling the stock. If he wants to leave $5 billion in Amazon stock just sitting in his account doing nothing until the day he dies, that's totally fine, but the second he puts it up for collateral we should tax that. I think this has the added benefit of simplifying things by avoiding a lot of questions around fair valuation of assets. If I have a $10 million dollar one of a kind painting on my wall that I'm never planning on selling, it's kind of hard to put a valuation on that and it can be easily manipulated by finding the right appraiser. If I put a painting up as collateral for a $10 million loan it becomes a lot harder for the owner to argue that it's actually worthless or the IRS to argue that it's actually worth $1 billion.
> I'm not an expert in this... [makes up a bunch of imaginary scenarios]
there's a certain kind of hacker news discourse, "battle of imaginations," where a bunch of people imagine something, so it's just whatever imagination sounds better and it's the one that gets the most upvotes.
what i like about battle of imaginations is that this sounds like the math department, and that's what the moderators and readers like, great.
it is hard to understand why battle of imaginations is bad, because it is fun after all. the best way i've heard it said is, "when people complain about bicyclists online, it's usually something that almost happened. when people complain about cars online, it's usually about stuff that did in fact happen, like crash deaths." we could talk about valuations of paintings maybe going up or down, or random numbers or whatever, ... here's what your post would look like without battle of imaginations:
"collateral [that belongs to the very rich: ] we should tax that"
okay? that's the meat of it. no imagining necessary. it's just an opinion. this whole article could be, "should we tax the rich more? pg thinks no." it doesn't have to be complicated. some other rich people think you should tax the rich more! pg didn't need to write or explain anything. he's trading in the very same, meaningless imagination rhetoric that he accuses his opponents of doing.
>why a wealth tax is needed the whole "buy, borrow, die" thing [...]
see: https://news.ycombinator.com/item?id=48239802
Moreover if the bug is that income isn't tax at death, why not just fix that bug? Otherwise it's like arguing: "wow there are people in poverty? Better have a communist revolution to fix that!"
This is exactly the reason -- or a tax against borrowing against assets once your net worth is high enough -- or not reseting capital gains at death. The entire system is currently basically rigged such that these ultra rich people pay no taxes.
There is a bit more to the story than a 1% wealth being "equivalent" to a 20% income tax. The primary difference is that unrealized gains are taxed by a wealth tax. We need a mechanism for assets to be sold by the richest in society. If those with assets keep accruing more assets the median person will suffer. When we're talking about real assets (housing, retail shops, warehouses, land) we don't need to be concerned about capital flight. The assets are still there on the ground. Reducing the cost of those assets is exactly what we need to help a local economy.
That being said, the richest are effectively _not_ paying the highest marginal tax rate considering all the tax structuring they do. Claiming that they would be paying the highest income tax in the world is misleading, for one. Secondly, the richest in the world _should be_ paying the highest income tax.
If those with assets keep accruing more assets the median person will suffer.
How will they suffer? The people with assets, to realize a benefit from them, have to spend money. If they don't spend the money, then what's the problem?
When more assets are sold than are bought, that leads to the destruction of assets on a broad scale. It's the economic equivalent of eating one's seed corn. This would not be good for the median person. You can and should tax land (meaning the land value component of real estate in general) and natural resources more generally, but that's an entirely different game: it has next to nothing to do with wealth taxes as generally understood.
> When more assets are sold than are bought
How does this make sense? If Johnny sells 5 cars, that means 5 cars were bought. How can Johnny sell more cars than are being bought? Do you mean that Johnny has more cars to sell than are being bought?
It's like a hot potato where people want to sell assets over buying them. Obviously at any given moment there are as many buyers as sellers, but this is exactly why trying to force people to sell at rock bottom prices brings widespread asset destruction.
Man, as a young programmer coming up I really looked up to Paul Graham, but now as a seasoned vet in the industry, it's remarkable (and disappointing) to see him publish an article based on such a false equivalency. I mean this level of missing the forest-for-the-trees is the type of thing that routinely prevents senior engineers from getting promoted to staff because they're pedantically fixated on the wrong details. And that's on top of failing to read the room as to why people are even calling for a wealth tax in the first place.
The more obvious reason to not tax wealth is because it's hard to measure, and if you try to do it you will incentivize hiding it. Meanwhile, there are obvious obvious loopholes that the ultra-wealthy enjoy which could be reasonably closed. Namely, close the buy-borrow-die loophole, don't allow step-up basis for inherited wealth, and tax capital gains at least as much as income. Now people with a lot of money can afford to fund a lot of premium think tanks to come up with fancy economic reasoning why those ideas are Really Bad™, but at this point it's clear that's bullshit propaganda and the unintended consequences are exceedingly unlikely to be worse than the current unchecked consolidation of wealth and power enabled by the current loopholes.
I would love, LOVE to pay 20% in taxes! Goes without saying, I work for a living and have far less wealth and power compared to PG.
I think there is kind of a breakdown in social order here. If society allows you to become the chief, it ought to also impose upon you a burden, an obligation, to wield your power over the tribe fairly, generously. To care for the weak, to make sure that everyone benefits, to ensure that things stay stable and safe under your leadership... The standard is higher, not lower. The sacrifice is greater, not lesser.
It is absolutely bizarre and you can see exactly thew way PG, and other like him, are thinking. They all want to have this immense power (and it truly is immense, more immense than ever in modern history!) but they want none of the obligation, none of the responsibility.
Even asking for 20 percent is too much, apparently.
It's really sick.
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 <10 -> <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 would go from 0% to 20% (functionally a small amount may be sold to pay interest, so really assume 1% or 2% taxes default). The horror!
The wealth tax argument actually is because our current 2 party political system is set up to where politicians effectively "pay" their corporate constituency with their discretionary spending, which has increased the national debt substantially.
The only way this system can continue is if we increase the receipts (aka tax revenue).
The political class has very wisely targeted "the wealthy," who are capable of tactically avoiding taxes, but as always it will eventually include the middle class who will ultimately be paying the tax. From their standpoint they will popularize this tactic because it will work
This is being sold as class warfare, but its really the evolution of our political system into an unsustainable system of patronage with public funds.
We have plenty of other problems like "buy, borrow, die" (discussed elsewhere in this thread), but ultimately the wealth tax stems from needing more public funds, which stems from politicians spending all of our money.
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.
5% richest includes hand to mouth workers earning $100k.
Wealthy people pay a lot of taxes in the USA. If they aren't routinely avoiding paying income tax and taxes in general, how could that be the point?
It may be more realistic to view this in terms of elite power struggle. There are some constituencies that have found their way into positions of some power -- in government and public service -- that are in conflict with other elites, who have found some power in private enterprise. These groups battle for control of things. One strategy in the battle is managing the other group's access to money.
It's not clear from any kind of first principles, that we are better off with government allocation of a large portion of the society's capital. That hasn't historically been a big winner. Private ordering seems to net out a higher quality of life overall, even with income inequality.
No it's just harder to accurately tax each and every form of wealth so we proxy it by taxing income.
What's wrong with a 20% tax? We who make a living from labor instead of capital pay more than that.
Paul tries to frame it as an increase of 20% in the tax rate, but in reality the increase is from 0% to 20%, and it's hard to see why that's unfair.
The reason I say it's currently 0% is of course that for the wealthy most of these 5% gains are unrealized (e.g. inflation in the value of their assets) and untaxed.
> most of these 5% gains are unrealized (e.g. inflation in the value of their assets) and untaxed.
The worst part is that even when they need to realize their profits, they have schemes that allow them to avoid taxes (guess how much taxes Musk paid for his $20B realized profits from his Tesla shares he sold to buy Twitter).
If you are wealthy enough, you can live off of untaxed loans from your “unrealized” gains, and never pay taxes on that money at any rate. Meanwhile, I am paying an effective tax rate of around 35%.
The principle is simple: if you are spending the money, your gains are realized, and you should pay taxes.
Loans against unrealized gains should just be taxed directly as income. Not indirectly creating more loopholes. Same way stock buybacks should be taxed at the same rate as short term capital gains.
Yes let's encourage more risky behavior! Absolutely braindead takes.
This sort of proposal would establish a minimum 35 % return in any project. Thus halting investment entirely
Let's put this in perspective. I'm currently going to collaterize a few hundred thousand in equity to take a loan to develop homes in my very housing short city of Portland. My calculated return is 40%. This is an excellent return..
It this were taxed then my initial loan would have to be 40% larger which means all my profit would go into paying that back, which means this project never gets done.
You are already going to get the money once the homes are sold and the capital gains are realized. Why is everyone so greedy? You essentially want to tax twice
There's a related calculation you can do -- what percent of your net worth is your employability? Take your salary, divide by 0.05 (or multiply by 20) -- if you had that much additional wealth earning 5%, you could replace your job's income.
For most people their ability to earn is by far their largest asset. You can kind of get a feel for how difficult it is to bootstrap into generational wealth if you think about the math -- it takes time to replace that earnings portion of your own balance sheet, and even more to well replace it; a lot has to go right in the interim.
There's a secondary side effect of wealth taxes: they redirect investments (I'm Argentinian and we have wealth taxes).
Investments shift to things whose tax value updates slowly, for example property which typically adjusted more slowly than other financial assets. This tends to rise property prices and concentrate ownership.
It causes other distortions in allocation depending on the tax details, but wealthy people tend to adjust more aggressively to changing conditions.
> This tends to rise property prices and concentrate ownership.
We are already there in US. Real estate is already controlled by companies, and rental costs are through the roof.
You don’t need to teach anyone about this. The wealth tax should apply to extremely wealthy people, not everyone.
If you accumulated a fortune, there was some skill at play. There was also considerable luck and some exploitation. The wealth tax is a way of paying back for the luck and exploitation.
You will still be extremely wealthy.
Paul wants to play the fairness card. Life is not fair and those who accumulated massive fortunes won the lottery. Don’t let the massively rich conflate issues. Don’t get fooled.
> 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 adding a "mere 20%" to the income tax rate, even though that's mathematically the same thing. [2]
This is the wrong way of thinking about it. It's not adding 20% to an already taxed entity, it's adding taxes where there weren't before. Adding 20% on top of the income tax would indeed be controversial. In his framing the rate of return is effectively untaxed income, so it would be more accurate to say that this is like adding income tax to a currently untaxed income stream.
The bigger difference between an income tax and a wealth tax isn't the numbers. A wealth tax, for better or worse requires some realization of paper gains that very wealthy folks normally go to great lengths to avoid because their wealth is largely based on a broadly shared polite fiction. So imposing some realization of that wealth requires accountability that doesn't always pan out.
A much more interesting formula would be how to convert between income and income tax - you'd think it worked according to the superficial bracket system, but in fact, it works along the lines of going to 0 at the top.
P.S. a wealth tax is a property tax. They have existed in the US since before the income tax (which was originally considered unconstitutional by its opponents).
I think the limit it can reach without carried forward losses is 20% because that's the top long-term capital gains tax rate. The other thing I can think of is if you sell a QSBS business, then your capital gains are taxed at 0, and you wouldn't pay income tax at all on that money either. So it's in theory possible that someone could make millions tax free from selling a business, but that's a rare case and one the tax code explicitly allows for.
Not everybody uses money to make more money, Paul. Most people work, get paid, and spend the money on their needs. In other words, you are in a position to care about the question, it's OK if you are taxed a bit more.
As an aside, in Islam, people have to pay a 2.5% wealth tax annually for charity.[1]
This does make retiring a tad bit complicated. Say you've saved $3M and are ready to retire. That means each year you're spending $75K just to satisfy this tax.
[1] Depending on how your wealth is structured. Cash is 2.5%, but if you own, say, a business, you pay the tax on the value of the goods, not on the value of the building, hardware, etc. You don't pay Zakat on the house you live on. Agriculture is actually taxed at 10%, etc.
Isn't PG's conflation of Denmark's high income tax with a proposed wealth tax a clear flaw in his math and argument re: "the highest taxes in the world"? Why wouldn't you instead compare to other countries that also have both income and wealth taxes?
As a layman, bringing up a purely income based argument with Denmark, seemed to be an odd juxtaposition.
Wow, I like to actually see the numbers laid out like this. Most of the ultra-wealthy pay almost nothing on their income taxes from investments because they have found ways to avoid capital gains, and even if they were paying long term capital gains rates of 15%, pg’s assertion that the wealth tax adds another 20% doesn’t seem unreasonable at all. If anything, it makes me think 1% is not nearly enough of a wealth tax!
> You can tell from the way they talk about the subject that they don't understand the momentousness of what they're proposing.
I think that what you can tell is that they think the voting public won't understand the momentousness of what they're proposing (or that their "color" will cheer that very momentousness).
Whether they themselves do or don't understand how impactful the proposal would be is much harder to guess.
So, if we go with 2% wealth tax(instead of 1%) we can cut income tax offset -20%? Go do it right now.
I think 1% wealth tax should be a replacement for income tax. That way only the wealthy will pay taxes.
I think that is the glaring hole here - via an insane number of instruments from the various investments, they can reduce their tax liability (fed and state) to be very close to 0%. I believe a main idea of the wealth tax is to get around the insanely complicated tax code w/ all its loopholes.
A national sales tax also gets around the insanely complicated tax code without government confiscation of wealth. Regardless of how it is earned money eventually gets spent. Rich people spend far more than lower incomes so they pay more taxes. If they pass their wealth on it will still eventually get spent by somebody. That fixes the stepped basis problem of inheritance. If they use equity to get loans they are still spending money so it fixes that problem too. It is also easier and less costly to collect and enforce. No special forms for specific types of income to make sure you are getting taxed enough and no army of IRS agents to check that everybody is following the tax code.
The most common opposition to replacing income tax with a sales tax is saying it is regressive because "poor" people will need to spend a larger portion of their income on taxes than a wealthy person. Ok, so don't food or primary residence. A poor person isn't buying a $300,000 car or a second home. The best part is that if somebody is having a hard time getting by, every dollar they earn can be saved instead of giving Uncle Sam a short term loan until tax day.
How do you propose we measure a person's wealth, when wealth is easily hidden? When it needs to be done now, it is usually a years long audit.
A lot of countries require you to declare your total wealth on your tax forms. Then once someone gets audited, that gets checked. Obviously it’s possible to hide it, but that in itself is a crime, and not everyone is willing to risk going to jail over paying taxes.
> A lot of countries require you to declare your total wealth on your tax forms.
If you own shares of $MCD, you can get wealth taking share prices and shares owned.
But if own a McDonald's franchise, how do you measure the 'wealth' of it? Annual profit? Last x years profit, averaged?
The first step we need to take is to invest in the IRS. Every dollar invested in the IRS returns between $5-9. Couple that with fines that offset the cost of auditing, and "hidden wealth" becomes a liability too expensive for people to bother with.
It's clear from the way paulgraham talks about the subject that they not only don't know the answer, but don't even realize there's such a question.
You can tell from the way they talk about the subject that they don't understand what they're talking about.
The post goes out of it's way to mischaracterize the strategy (and purpose) of wealth taxes being proposed.
> Each 1% of wealth tax is equivalent to 20% of income tax.
Mathematically sound.
> Politicians understand that an additional 20% income tax would be a lot. And indeed a US state that added 20% to its top income tax rate would have extraordinarily high taxes.
That's the point.
> In the median case, US state politicians talking about adding a "mere 1%" wealth tax are talking about causing the residents of their state to have the highest taxes in the world. That's not the sort of decision you make lightly.
Not "all of the residents". Specifically the ultra wealthy that have a billion dollars. 20% at that point, is 20% of lots. You still have lots left over.
Mathematical fairness isn't the point, which is one reason there isn't a flat tax rate.
> > Each 1% of wealth tax is equivalent to 20% of income tax.
> Mathematically sound.
Don't most wealth taxes that have been proposed have a certain level of wealth that you pay no taxes on? If so, doesn't that make this at least partially incorrect?
Maybe I'm missing something, but if I have $100 and have to pay a 1% wealth tax on it then sure that's roughly 20%. If I have $100, but I only have to pay a 1% wealth tax on everything over $90 that's more like a 2% income tax.
I live in Switzerland. All residents are assessed a wealth tax. It would not be just the top x%. Wealth taxes are a bad idea tried in Europe and then later repealed.
Famously, Switzerland is a socialist failed state where no one wants to live, of course.
Please make higher quality posts -- what in specific do you think pg has missed or does not understand?
If he can phone it in why cant I? His entire framing.
Income (or revenue), what is left over freom the paycheque (profits) and net worth (market cap) - applying a simple ratio to companies of revenue to market cap doesnt work, why would applying a simple ratio of income to net worth for people who live hand to mouth and billionaires work any better.
I think you may have missed the background: US tax rhetoric -- he's doing what I think is pretty fair math with a fair take -- the math is supposed to break down what percent income tax you need to get the same dollars in tax revenue as a 1% wealth tax (on the wealthy). I think you could quibble with his risk free rate of return number, but most conservative planners would recommend a 4 - 5 % budget for risk free rate of return.
It's not about companies - it's about showing an equivalency between a Piketty-style tax of wealth setup and what we're used to thinking about in the US, an income-style tax setup on individuals.
Always a pleasure to hear capital explain to labor why taxing capital is bad, but this seems like a giant red herring. I don't want a wealth tax so I can cut my income tax, I want a wealth tax to address inequality. Our existing policies have produced a very bad bad outcome - wealth inequality exceeding that of pre-Industrial England led by a small, essentially randomly-selected group of people so wealthy that they effectively run everything who have entirely captured a corrupt government and are very close to making the situation permanent - and a wealth tax is the only policy idea I know of with any chance of changing that.
If you follow his logic and believe that the ultra-wealthy pay too little tax (as e.g. Warren Buffett does), then a balanced approach is to set the tax rate to: "37% of income or 1.85% of wealth, whichever is higher".
This would close the gap between Buffett's tax rate and that of his secretary, but would not be the "highest taxes in the world" that PG decries.
It's not excessive to charge a 1% wealth tax when the people paying it don't pay any income tax thanks to their financial engineering.
Whenever I've seen anyone suggesting a wealth tax, it is specifically to address the very wealthy who pay an effective 0% tax rate, because they use the "buy, borrow, die" strategy. These are not wage earners, working a regular job, these are folks who own enough assets that they can borrow their way through life, living lavishly, never contributing meaningfully to the common good, the roads they are chauffeured over, the infrastructure and laws they benefit mightily from, the police who protect their assets, etc.
Since a lot of billionaires pay practically nothing in taxes, relative to their wealth, a wealth tax that equates to a 20% income tax would be entirely reasonable, and they'd still pay a much smaller percentage than the taxes I pay from my wages. It closes a loophole, it doesn't punish the very rich. And, nobody is suggesting the average 401k or Robinhood portfolio should be subject to a wealth tax.
It's not excessive to charge a 1% wealth tax when the people paying it don't pay any income tax thanks to their financial engineering.
Here is a cool website showing Wealth, shown to scale.
https://wealth.ronnycoste.com
This blog post is incredibly tasteless. Really Paul should take it down and get the butler to wipe the egg off his face
Are there serious proposals to just add a wealth tax on top of the existing income tax that would apply to the sort of people who actually pay much in income tax vs capital gains? It's an honest question; I haven't seen proposals of that sort, so I'm skeptical that the arguments are meaningful here. For an individual like Jeff Bezos, he's paying virtually no tax under the normal income tax rates referenced in the article, but rather capital gains tax, which tops out at 20%, not 37%.
None that I've seen, though I'm sure somebody somewhere has introduced something.
All that I've seen are wealth taxes on top of some arbitrary (but very large) wealth level. The latest proposal from Congress applied a 2% tax to wealth above $50 million with an additional 1% (3% total) on wealth over $1 billion. Plus a 40% exit tax to stop them all from fleeing to the Bahamas or Monaco.
The conversion would be more accurate if it compared wealth and capital gains taxes, no?
A defining feature of wealth taxes is that they only tax those that make most of their income through capital gains. This is why they're popular among much of the population.
Now the question is, if we lowered capgains tax rate by 20% but instituted a 1% wealth tax, would that be better or worse? My guess would be worse because wealth taxes are nearly unenforcable, but I wonder if there are good arguments for the other position.
What makes them unenforceable?
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 wealth individuals now making most of their money through dynastic trusts and inheritance.
This combination ends up making it so that, as Warren Buffet would put it, he ends up paying a lower effective tax rate than his secretary.
I effectively don't really care if it's a wealth tax or some other more targeted technical fix, but it's not sustainable to have the very wealthiest individuals taxed at a lower effective tax rate than everyone else and also able to pass on their wealth directly to heirs without significant estate taxes.
Hahaha this is so bogus.
Americans really struggle to understand how tax work outside of their country.
First, the whole premise of income to wealth tax equivalence is non sensical, because interests are rarely literally in the form of coupons/payments, but rather left as compounding value. This is the whole point of share buybacks, reinvested ETFs, etc; and Paul Graham knows that of course. If you are rich, you don't need the cash of your investments, so you don't want to trigger taxable events, so you are effectively at 0% tax rate and just let it compound.
> Currently the country with the highest marginal income tax rate is Denmark, at 60.5%
This is the most BS statement ever, and would only be believable to Americans with no understanding of how foreign country do taxes. Which is at best very naive of him, or highly disingenuous. This is because "tax" in the US is essentially employee paid, whereas most other countries split the bill between employer and employee at a higher proportion. The result is the same, but the employee part only is labeled "tax", the employer part being often called "contribution".
When comparing across countries, you have to look at the tax wedge (super gross to net), not the tax rate (gross to net).
And if you do that, well the US has a lower tax wedge than even the most generous European countries (Ireland).
In France for instance, the tax wedge is close to 70% for the higher bracket. Yes, that means if your employer pays $100, you get $30. And that's in a country with 20% VAT compared to US ~8%.
Not to mention, except super rich little little business-hub countries (Hong Kong, Singapore, Ireland, Malta, Cayman Islands, etc), pretty much all _developed_ countries have some form of wealth tax, it's just common sense.
I appreciate PG's writing as always.
I'm skeptical that the super-rich are only generating 5% on their money. My anecdotal experience is that it's usually north of 15%. They have access to investments that main-street does not.
If we plug in 15% instead of 5% in PG's reasoning, the effective income tax increase is quite a bit lower.
There is a footnote discussing this point; he uses 5% as the risk-free rate.
Is 5% risk free even available to the little guys?
No.
True enough, but it doesn't address the motivation or the issues presented by California's proposed wealth tax.
It's a big democracy red flag when a majority wants to take a lot from a tiny minority; the moral hazard of the unfairness is that it's unclear where this ends. (Saying "one-time" and "1%" are trying to limit that risk)
It's a democracy red flag when an unpopular minority is vilified as the cause of society's problems. It short-circuits real policy making and distracts from real issues.
The bargain of private wealth is that it's better at innovation that should spread widely -- if it's subject to competition and does not export costs.
One problem is that one of the best investments is to change the law to reduce competition, increase market power, and export costs -- i.e., to weaken politics.
Another is that wealth used to mostly invest locally (information and transaction costs), so locals would see some benefit. No longer.
Finally, as an accelerant, enterprises are made of legions of managers and experts, who now compete more than ever; they would lose that competition by supporting less extractive policies or gentler politics.
Net result is that wealth seems not productive but extractive, and there is no negative feedback to reduce that.
Once the grand gambit of goodwill is lost, it cannot be recovered for at least a generation, but there's no real feedback to prevent that. The political viability of something like a wealth tax is just an early indicator.
Wealthy people are taking food out of my mouth by driving up asset prices, and deploying capital in ways that will never benefit me, either in employment or in quality of life. The premise of reducing taxes on wealthy people was that everyone would broadly benefit. This has not happened. The contract is broken. I want my money back.
> It's a big democracy red flag when a majority wants to take a lot from a tiny minority
not to forget that the inverse is also bad; generally people shouldn't take from each other
> It's a big democracy red flag when a majority wants to take a lot from a tiny minority
It’s not “taking”. The rich give out some money so the society has a higher probability to stay peaceful. or a violent revolution may happen.
This is really a win win situation
> It's a big democracy red flag when a majority wants to take a lot from a tiny minority; the moral hazard of the unfairness is that it's unclear where this ends. (Saying "one-time" and "1%" are trying to limit that risk)
In the absence of any other considerations, I'd agree with you. However, the last half-century has seen that same tiny minority taking nearly all productivity gains from the rest, to the point that wealth inequality is greater now than during the first gilded age, so I have somewhat less sympathy for the tiny minority when the rest want to claw some of that back.
> It's a democracy red flag when an unpopular minority is vilified as the cause of society's problems. It short-circuits real policy making and distracts from real issues.
It's less of a red flag when that unpopular minority is the cause of society's problems. The ultra-wealthy have commandeered government to enrich themselves at the expense of the rest of us.
We have massive consolidation of markets and media due to lobbying for deregulation and against enforcing anti-trust laws. We have further wealth concentration, the likes of which exceeds even the first gilded age at the hands of massive tax cuts and loopholes predominantly benefiting only the wealthiest, while also cutting tax enforcement personnel, making it easier to get away with tax evasion. Of course, in the face of the massive budget deficits resulting from those tax cuts, we make cuts to important social programs affecting many (and with largely positive ROI) while protecting subsidies to some of the most profitable businesses on the planet and leaping at any chance to start wars abroad whenever we need to distract from embarrassments at home. We have lax enforcement of labor laws which would allow workers to organize and demand higher wages, while at the same time passing unconstitutional laws at the state level which try to prevent organized labor in the first place. We have not only allowed the federal minimum wage to lag significantly behind inflation, but we have lobbying groups coming out of the woodwork to stop any proposed increase. When we have large economic crises caused by the malfeasance of the wealthiest of the wealthy, our corrupt Congress passes large bail-outs for the culprits while telling the majority of us to suck it up and tighten our belts. Of course, our consolidated media landscape increasingly obfuscates the real problems, presenting alternate boogeymen like immigrants so the downward spiral continues.
Allowing so much wealth to concentrate in the hands of a tiny minority is itself a giant democracy red flag. The US is on the cusp of losing its democracy as a direct result, damaging global security and markets in its death throes. The mere existence of billionaires and their corrupting influence on government is the issue.
You obviously can’t convert between the two directly and suggesting that is disingenuous.
Income tax doesn’t affect unrealized capital gains (where the rich “hide” most of their income).
A wealth tax (even without a minimum threshold) doesn’t apply to the poorest who can’t accumulate enough to even have any savings.
This conversion only works for income that is entirely saved and reinvested, which the majority of people can’t afford to do.
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%”
Stop thinking about taxes as a way to fund the government.
Money in the long run can buy anything, including political influence. There are no regulations that can effectively preclude this. (And empirically, America over the past 40 years has seen moneyed entities successfully re-align politics and economic policy with their interests -- this was entirely predictable). An unequal society therefore cannot be a democracy. If you believe in democracy, then you necessarily must believe in wealth redistribution. (In fact, I argue that any person who believes that the American Revolution was justified, for any non-trivial reason, will likely find that those the same non-trivial reason could be invoked to reallocate wealth away from today's wealthy.)
Counterarguments to this view (i.e. a different top-level value than democracy / meaningful sovereignty over the society in which one lives) might invoke utilitarianism: an unequal society potentially produces "better" outcomes if capitalism is allowed to run unrestrained.
But a problem this argument encounters is who gets to decide what "better" is? All systems are economic in the long term, including political ones. A good framework for understanding is that a society in the long term is not "one person one vote" but rather "one dollar one vote." Today's preferences are dollar-weighted. Those with money decide what is better. The economy serves the average dollar's interests. And the average dollar's interest are the wealth-weighted preferences of society's members.
We started with an income tax to fund the government. But today our most pressing issue is not funding the government, but not having an oligarchy. Wealth is the thing that most needs to be taxed in order to allow for any semblance of democracy. Analogies drawn to income, though interesting, are meaningless.
The wealth tax that we should have is a federal property tax, in the form of a land-value tax. A property tax is more enforceable and produces much better incentives than an income tax or capital gains tax or death tax or wealth taxes in other forms.
I think it's underestimated how important ease of enforcement is for taxes and laws in general. Laws that are hard to enforce require more powerful law enforcement agencies, more invasion of privacy, more punishment, more restriction of freedom. Enforcing a death tax, for example, necessarily requires limiting and tracking of all transfers of money or assets between people including personal gifts. A property tax merely requires keeping track of land ownership, which is a function governments already do, and in the worst case you can simply physically go to the land and see who is using it or seize it.
I think the post is correct in a one-period sense, though I’m not sure the equivalence survives once you model long-term compounding, additional capital gains taxation and liquidity constraints.
The argument is plausible - that you can treat wealth taxes as equivalent to income taxes if you treat wealth taxes as a tax on the ostensible income generation of the wealth.
Of course there's more complexity than this, but that aspect is a plausible reductive lens.
But the conclusion is silly. We all know the extremely wealthy who'd be subject to a wealth tax basically don't pay taxes and that a 20% tax is totally right around what the typical overall tax burden is for the middle class or median households. The 1% example equating to 20% is basically saying the wealth tax would be in line with a flat tax, not even with a progressive rate tax. The wealthy have turned the tax system into one that's functionally regressive for the most wealthy and then PG complains that a proposal that makes it more like a flat tax is "not understood" by lawmakers?
It sounds ridiculous to me.
Or maybe I'm missing something.
Yet... an entire industry (financial advisors) will happily charge you a 1% "wealth tax" to manage your money. And you don't see lengthy articles from luminary venture capitalists about that.
Feel free to just tell the masses to eat cake since bread is so expensive while you dine on your mega-yacht. Just like the market can stay irrational longer than you can stay solvent, you may or may not be able to outlive the eventual violent outburst from the rest of the 99%. Scott Galloway is right on that the anti-data center backlash is just a proxy for anger at wealth inequality.
The entry level rate for >$10M AUM is ~0.5%
That's a 10% tax! <gasp>
Anymore I think the question shouldn't be about some kind of economic fairness (the time value of money thing being discussed) but the idea that wealth accumulation is a disease that afflicts society. I don't think anyone should have the level of control or influence on others that having a billion dollars currently allows. If a millionaire gives $100 to a political candidate it probably doesn't require too much thought. It's impressive to note that a 10-billionaire can give $1M just as easily, and so we have a class of folks who can throw around influence, who can order a team of lawyers to do things, can employ their legion of sycophantic followers to harass people, or can threaten the employment of many people not-of-their-class because they can make decisions that threaten someone's employer's bottom line. And note that above I compared a millionaire to the 10-billionaire, but there are plenty of folks, especially around the planet, who economically live several orders of magnitude below the millionaire.
As a bit of an aside, "spending more time with family" is an often-used euphemism around someone being fired, but if you have more money than you know what to do with and you aren't using it to spend more time with those you love, then what on earth is it for?
I know this is tangential to your main point, but in the US, you can only give a max of $3,500 to a candidate per election cycle, for each the primaries and general election.
To give more financial support, you have to do independent, uncoordinated campaigning for the candidate. So you can spend a million dollars on ads saying to vote for a candidate, but you can't give that money to the candidate's campaign and the candidate can't coordinate with you. This is what Super PACs do.
I only write this because a lot of people are unclear on the rules. I'm not making an argument about billionaires.
That’s the law, yes, but in practice it’s murkier: https://www.opensecrets.org/news/2023/08/super-pacs-raise-mi...
> In fact, not a single coordination investigation has ever resulted in a PAC being fined.
As one example see million dollar donations to inaugurations.
How do you think society works without wealth accumulation? There would be no incentive to innovate to push forward. You wouldn’t have your iPhone, computer, or car. Want to see the result of societies that forbid wealth creation? Go to Cuba.
It's an interesting question. If we lived in a universe in which we weren't in fear of losing access to basic necessities of food, shelter, and healthcare, but had to work to have anything beyond those, what would happen? I don't truly know and I don't believe we have done the experiment anywhere. But I do know that the system we have not only produces innovative products but also corruption, oligopolies, and steamrolls over labor and the environment if not regulated.
I'm not naive enough to think communism is a magical answer (but Cuba is not some A/B experiment - the U.S. in particular has done a lot to make sure Cuba didn't succeed) - it ends up concentrating the wealth too. I would favor some form of democratic socialism, with leaders who can be kicked out if they abuse their power and limits on the influence of rich individuals and corporations.
On the latter, I think we forget that corporations are a legal construct intended to benefit society by allowing risk pooling - they are not people and should not be considered as such for things like free speech rights. Corporations should not be allowed to make political contributions in any way.
I think a lot of ink has been spilled on the problems with the proposed California Wealth tax, the main points being:
1- Is this in fact a 1-time tax or is that a dishonest narrative to make the proposal easier to swallow?
2- How do you prevent capital flight to other states?
3- How do those with paper money or more voting shares than equity shares cover their tax bill?
That being said, I think more creative energy needs to be spent on the problem itself.
What do we do about individuals with $100M+ of unrealized capital gains that through various methods will never have to realize those gains to live an extraordinary lavish lifestyle, and their children will inherit the money with a step-up in basis? For those who make all their money from W2s, they pay very high tax burdens, while those who strictly have capital gains generally pay at most around ~20% for LTCG.
To those criticizing the California Wealth Tax, how do we solve this? How do we make billionaires pay more and lawyers/doctors/software engineers pay less?
Paul the billionaire ignoring that billionaires often don't pay any income tax at all. Come on man, we're not stupid just because we don't own superyachts.
https://www.propublica.org/article/the-secret-irs-files-trov...
This is wrong. You can’t convert between the two because it’s possible to have a lot of wealth with very little (even zero) income. Billionaires can completely avoid income taxes by paying themselves a very low salary and instead borrowing money against their assets (usually stock), which is not taxed as income.
Source: The Second Estate by Ray Madoff (2025)
Wealth tax is highly impractical. Very high and inescapable death taxes is what we need. Like 80% after an initial exemption amount. https://www.yesigiveafig.com/p/the-summer-slide-part-3-the-t... https://m.youtube.com/watch?v=mX5U5DNUfBc
There are all kinds of irrevocable trusts that exist to remove assets from your taxable estate so that they can be passed to heirs without paying estate tax. Raising the estate tax (which is already 40%) would just make planning to use these techniques more attractive.
The existence of perpetual trusts is solvable in a world that has decided to fix the insanity caused by intergenerational wealth transfer instead of propping it up. "This thing we could also eliminate stops us from eliminating this other thing" is a silly platform. Just eliminate them both.
Perpetual trusts are different from irrevocable trusts, which have legitimate use cases. I don't really see how irrevocable trusts would be gotten rid of. In most states all trusts are irrevocable by default and there is a huge body of law dealing with trusts. Getting rid of them is essentially impossible without huge changes in the political/legal system.
Lots of confusion and misunderstanding in these comments. Not surprising, given the highly charged nature of the subject. I highly recommend Ray Madoff's book The Second Estate [1] to learn more about the topic.
[1] https://press.uchicago.edu/ucp/books/book/chicago/S/bo256019...
Mind sharing what commenters are getting wrong?
I believe some of Ray Madoff's points are that the tax code and most tax intuitions kinda differ.
There's the idea that "wealth" gains tend to not be taxed for a variety of reasons. The common parlance of "Buy, Borrow, Die" category things. The "step-up in basis" category things - i.e. no capital gains tax realized on lots of inherited wealth. (The inheritance tax might trigger in some cases, but oddly the capital gains tax often might not be triggered on transferred assets because they were never sold and the new possessor will be taxed at the stepped up received value if they ever sell. So there's a chunk of appreciation that never received capital gains taxation.) Trust related things.
There's the idea that 501(c)(4)s allow wealth to be transferred untaxed while retaining control over the assets (particularly because those organizations can engage in political activity, but I'd guess generally some of the organizations exert lots of influence/prestige.)
So perhaps OP is suggesting that maybe there's some fungibility in income tax % and wealth tax %, but when you look at the tax code the equivalency looks pretty weak currently.
Isn't this argument simply confusing income tax with capital gains tax? Because that's the tax you pay on your investment returns, and it's actually capped (in the US) at around 20%.
No, he's disingenuously talking specifically about income tax, on interests.
Capital gains are on realized gains. Based on the difference between purchase price and selling price.
The thing is, wealthy people don't have interests bearing investments, because they don't need the cash right now. They either have unrealized gains (shares, real estate, etc), or interest bearing products wrapped in marked to market vehicules with reinvestment (ETFs, life insurance, mutual fund, etc).
Unrealized gains are not taxed as long as you don't sell them. If you need cash, you can borrow against them, so problem solved.
As for interest bearing investments, most companies nowadays use buybacks instead of dividends to avoid withholding taxes.
Here is a better algorithm to edify the masses: if someone is such a massive billionaire as to have the boldness to teach the public basic 5th-grade math, their wealth tax rate should be set at 10%. From that point on, the rate goes in proportion to their level of condescension.
That's so unambitious, I'd argue.
> In 1940, the federal tax rate on income over $200,000 started at 66 percent. By 1944, the top tax rate on all income over $200,000 — about $3.4 million in today’s dollars — had jumped to 94 percent.
https://inequality.org/article/tax-the-rich-we-did-that-once...
Just going to put this here to open up discussion: https://en.wikipedia.org/wiki/Georgism
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
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 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.
As others have mentioned this is wrong. Here's 3 accounts on how it is so:
1- Fundamentally, they are magnitudes of different units, one is tax/income, the other is tax/wealth/time. Not only is the denominator different, one being calculated over income, the other over wealth, but there is an additional inverse time factor.
In income tax, whether the period is yearly or monthly or hourly, is an administrative matter that doesn't materially change the rate, 1%/month is the same as 12%/month, however in wealth tax, 1% wealth tax per year is not the same as 1% wealth tax per month. In many respects one might consider wealth tax to be a second order derivative of income with respect to time. Which is again very similar to a progressive income tax. Anyone that studied polynomials knows that there is no such equivalence between ax and bx^2, they are irreducible mathematical forms.
2)Trivially, in the scenario Paul proposed, Wealth tax is comparable to income tax only with respect to capital gains. That is, if he did find an equivalence between income tax and wealth tax for capital gains (which he didn't), income tax would still apply non capital gain taxes. But I will concede that there may be an argument that, if such an equivalence were found, it could be considered that there exists an Income Tax which will always yield more tax than another specific wealth tax.
3) The equivalence between wealth and income tax cannot be linear. The example given applied to 1% wealth tax and was compared to 20%, and a risk free interest of 5%. If the wealth tax were of 2%, 5% or 10%, would that be equivalent to 40%, 100%, and 200% income tax respectively? The last one is especially ridiculous.
Is this Graham accidentally revealing his contempt for working people?
He's a billionaire.
Based on available data deep contempt for working people should be assumed until proven otherwise, even for billionaires who are 'self-made' by way of a lot of right-time-right-place luck.
His math is correct, but the conclusion is wrong.
Income is money that comes from actually laboring and contributing to society. Wealth tax is tax from sitting on your ass doing nothing.
Also, taxes don’t have to be a flat percentage. Like income tax, a good wealth tax would be progressive. Only wealth beyond a certain amount would be taxed, and the percentages would scale.
This is why we should have income taxes that are as low as possible, but still progressively scaled. We should similarly have a progressive scaling wealth tax, but it should be much harsher than the income tax because we want people to work.
> Wealth tax is tax from sitting on your ass doing nothing.
Related point is monetary system and monetary plumbing should be boring like electricity or water supply but because of distortions making money out of money has become the hottest thing.
This is a transparently misleading framing.
The very wealthy are paying very low effective rates on their investment gains. Various billionaires have publicly described the truth of this. This is not 20% on top of 35%. They are paying a marginal rate of 35% of deliberately minimized taxable income and zero on deliberately maximized unrealized gains. Then 20% when realized, but as we all know by now there are ways to make sure it’s never realized.
I don’t know what the best approach is here, but I know this framing is nonsense.
Thank you. This is exactly the problem- pg is twisting the conversation by saying "look how painful taxes are for you, pleb!" When in reality, the taxation levels on the ultra-wealthy (whom this is targeted toward) are so much smaller not only on a %'age level, but on an impact level as well.
> 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 adding a "mere 20%" to the income tax rate, even though that's mathematically the same thing. [2]
I am fully against any wealth tax but 'Don't get this'?
Who says they don't get it. It doesn't serve their purpose so of course (like anyone selling) they are not going to disclose it.
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
There are numbers in this post, but only in the technical sense.
My read of this is "the discussion of taxing wealth makes me anxious. i will do a tap dance, please become mired in watching / discussing my tap dance so that we can put off the inevitable and ultimately necessary a little longer"
To the "conversion rate": maybe, but who cares? The answer here is: apply the tax, see if we still have billionaires afterwards. If we do, then keep doing it.
But income from most comes from labor, whereas wealth is passive.
I don't want to do math, but they aren't the same.
And people aren't investing 100% of their income in risk free 5% assets.
This treats all income like Labor income and completely ignores Investment income and long-term capital gains and losses.
How I pay tax on my labor income doesn't have a lot to do with how Paul pays taxes on his investments. Paul makes his money from investment income.
The thing that all these asshole billionaires don't want anyone to think about is that not taxing wealth means that a person who primarily accumulates non-income capital only ever pays taxes on what they spend while the rest of us pay taxes on approximately everything we get regardless of whether we spend it.
Because billionaires accumulate wealth through assets and unrealized gains, many of them skip taking a traditional income and pay. If the numbers in the links below are to be believed, according to paulgraham's calculations, this might bump them into a ~fair range (when comparing to average/median earners).
https://www.nber.org/papers/w34170 https://www.propublica.org/article/how-we-calculated-the-tru...
Here's a crucial mechanism that Paul Graham did not mention:
With a wealth tax using his calculation, the higher your returns, the lower the comparable income tax would be. If your returns are 10% you'll pay $1 on $10 capital gains which is 10% and you end up with $109. Conversely someone achieving a mere 1% cap gains would be essentially taxed for 100% of his return.
With income taxes it's usually the opposite: the more you earn, the higher the tax bracket you will be put into.
Somebody like Paul Graham surely has higher than 10% capital gains, otherwise he'd not be exactly a great investor.
Personally I'm against wealth taxes, I think capital gains taxes are a much more appropriate and fairer tool. I also think taxes in general are way too high, if you are part of the middle class and add up everything you pay in taxes, fees, insurance, duties and whatnot you can end up losing 70-90% of whatever you earn. It's extremely hard to actually accumulate wealth for the vast majority of people.
Well he does qualify this in his post, "The conversion rate of 20 comes from assuming that the risk-free rate of return is 5%."
Paul doesn't mention that these aren't exclusive. The California "Billionaires Tax" (which will likely soon become a "Millionaires Tax" after all the Billionaires exit the state), is levied on top of the regular state income tax.
> None of them would speak of adding a "mere 20%" to the income tax rate, even though that's mathematically the same thing.
I sure would, if I was talking about someone who makes more money in a week than most of us will make in our entire lives.
I think pg has forgotten that most people aren't rich.
>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 adding a "mere 20%" to the income tax rate, even though that's mathematically the same thing.
His core point seems to be that taking $20 from him is mathematically equivalent to taking $20 from a homeless girl's hat.
I guess mathematically it is the same number if you dont normalize for that, which he wont.
> 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 adding a "mere 20%" to the income tax rate, even though that's mathematically the same thing.
Uh … sure I would? Why not? The top bracket was 70% in the 80s. So that 61% is still a fair bit short of what it was then. (And the 80s isn't the highest point, either.)
IDK if it would be a good idea or not, but I'd entertain the debate, certainly. To state that this is unarguable, though, well…
I used to be against wealth taxes but as inequality gets out of hand I've more and more felt like they are the right move.
Hell, I'll be the first in line to pay the damn tax so long as billionaires are right in line with me too.
Utter nonsense. You can't convert between a wealth tax and an income tax in any manner as simple as this, unless the wealth tax and the income tax were implemented in a simplistic way unlike any actual proposal. Most obviously, there is no such thing as "the" income tax rate, because different people pay different rates; those rates depend most obviously on the amount of income but also on various kinds of accounting gimmicks that allow wealthy people to pay less. Similarly, no one is proposing a flat wealth tax that would tax 1% of everyone's wealth.
The "example" discussing paying income tax on your $5 of return on your capital is similar nonsense. You don't pay anything on that gain unless it's income, which it isn't unless it's realized. So (assuming the various parameters of a wealth tax meant this mythical $100 person would indeed pay a wealth tax), the comparison is between zero income tax and some nonzero amount of wealth tax.
> None of them would speak of adding a "mere 20%" to the income tax rate, even though that's mathematically the same thing.
Plenty of politicians (e.g., Bernie Sanders, AOC) have pointed out that the top income tax rate during the 1950s was over 90%, and have suggested raising rates back or near to that level, which would be well more than a 20% increase in the income tax rate.
The real problem is our politicians aren't representing our people. All these other issues of wasteful spending and money printing and inflation and whatnot are downstream of that main crux of problem. People don't hate wealthy perse but when laypeople aren't provided proper means of living, they will try anything as a solution, even throwing a wrench in the system. That's how we got Trump.
Completely ignores the true distinction between wealth and income taxes.
Person A has one billion dollars. Holds it in cash in a vault deep in a mountain he owns. He does not earn any wages.[1]
20% income tax: $0.00
01% wealth tax: $10,000,000.00
[1] Every billionaire controls their taxable income. Unlike wage earners, billionaires have 100% control over how much taxable income they have each year. They make choices.
They can have the vault in the cave. Or they can put money into artwork that grows in value and only generates income upon sale. Or a million other ways they can choose to control taxable income.
Except they already paid taxes on that one billion in cash. The receipt of that cash is taxable income.
> That's why I think few politicians currently understand how to convert between wealth and income taxes. You can tell from the way they talk about the subject that they don't understand the momentousness of what they're proposing. But I'm optimistic that we can teach them. The answer's not hard to understand, once you realize the question exists.
What a pompous and uninformed "I am smarter than others" way to think. And very 'parental' (ie 'we can teach them').
Note that Politicians (in order to remain in their job) need to think in terms of the people they represent and getting re-elected by those people. You may not like it it may not be good for you but understand that in the position they are in why they do it.
> So in the median case, a state adding an additional 20% in income tax would have a total marginal tax rate of 37% + 4.75% + 20%, or 61.75%
Good! It should still be higher!
There's nothing more tone deaf than an uber wealthy man arguing he shouldn't pay more in taxes to the system that allows him to be uber wealthy and to be deliberately misleading at the same time.
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 accumulate enough to begin to dictate how much they can access (by having decision power around wages). There is no reason to assume private individual wealth-hoarders have public interest in mind, and indeed they have often proven that they don't. They want to maximize value at specific points in the system, which is the literal definition of instability and eventual collapse in chaos theory. You need to bring the system back to stability through structural intervention and regulation. Tax the rich. Cap individual accumulation. It's that simple. The world does need or benefit from kings, whether minted through politic or finance.
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.
I think Paul thinks people care about the distinction, or think that a 20% marginal increase to the nation's wealthiest is something the public would find "unfair".
Rich people need to stop hanging out with other rich people.
Yeah this ignores at least three things:
1. Most people do not derive even a fraction of their income from interest on wealth.
2. Earning income from interest on wealth requires zero effort. That isn't true for salaries.
3. Income and wealth are totally different things. You can find a way to equate them in one contrived example but there are so many other factors involved in the real world.
Billionaires gonna billionaire.
> In the median case, US state politicians talking about adding a "mere 1%" wealth tax are talking about causing the residents of their state to have the highest taxes in the world. That's not the sort of decision you make lightly.
The missed point is that a 1% wealth tax 'only for a select group' can easily become later a 1% (or higher) wealth tax 'for a less select group'.
Imagine, poor person, if you had to pay an additional 20% in income tax! That would not be fair!
Fuck off paul. Billionaires aren’t paying anything in income tax when they should be paying 60 or even 90.
So, yes, let’s hit them with a 5% wealth tax.
I recently read 'the second estate' and reading about the number of loopholes the ultra wealthy exploit to pay almost no taxes and establish dynastic wealth does boil the blood.
Off the top of my head:
* 'Income' generated from loans using shares pledged as collateral should be treated the same as if you sold those shares.
* Someone receiving an inheritance over x million dollars (carve out 95% of family farms and small businesses if you want), should pay taxes on it as if it were any other windfall
* Donor advised funds should have a 5% distribution / yr requirement, same as private foundations
* capital gains should probably be treated as regular income. I have no idea why 50k in gains on INTC is somehow privileged over the salary paid to a roofer working in the hot sun.
This just isn't true, unless you're the president.
Who is the single largest taxpayer in US history? I'll wait while you google it.
According to Google, this claim is sourced to a person rather famous for baseless claims, from the founding of companies he owns, to the capabilities of his products, to cash prizes for registering to vote, to when he will send humans to mars.
Continuing to accept this person as a credible source of information isnt a reasonable thing to do.
Prof G Markets podcast just had an episode on this with Ray Madoff. They talk about the claim that "the top 1% of Americans pay 40% of the income tax". But Ray points out that is misleading because the 1% is basically lawyers, physicians, accountants etc that make like $500,000/yr. These people still pay income tax and that's the group paying 40% of income tax. What that claim misses is the 0.1% that pay 0 income tax because they have no income. The claim makes people believe that the billionaires are the ones paying that huge sum but we fail to realize that the 1% is our neighbours, not just the billionaires flying private jets across the world.
$0 just feels like a concept -- I can imagine a really high quality structuring exercise that gets tax low by making sure leverage on capital is what's used for spending, but I'd be really surprised to see a 0.1%-er (or 0.001%-er) post $0 income tax. For one, it's disadvantageous for certain kinds of bank interactions. But also, capital calls come in, investments that are made often require a step-up in basis, leverage is taken out on assets that require a margin call or a sale, there are alternative tax regimes, the corporations that are owned by these parties have their own tax burdens..
To say the wealthy can afford to radically optimize taxes and that our system taxes capital much more lightly than labor seems accurate to me, but I just haven't seen offers for "pay zero tax for all your life" from high grade professionals.
If US citizens want that, they generally give up their citizenship, pay their exit tax, and live in a low tax jurisdiction. I do know people like this, and they are very unlike the 0.1% types you're referring to here, and they've given up the benefits of being a US citizen in exchange for their preferred lifestyle. (And paid a mark to market exit tax on all assets on their way out of the country)
> I'd be really surprised to see a 0.1%-er (or 0.001%-er) post $0 income tax.
Bezos did, in 2007.
https://www.propublica.org/article/the-secret-irs-files-trov...
> Consider Bezos’ 2007, one of the years he paid zero in federal income taxes. Amazon’s stock more than doubled. Bezos’ fortune leapt $3.8 billion, according to Forbes, whose wealth estimates are widely cited. How did a person enjoying that sort of wealth explosion end up paying no income tax?
Or the President (now permanently immune from audit, incidentally):
https://www.nytimes.com/interactive/2020/09/27/us/donald-tru...
> He had paid no income taxes at all in 10 of the previous 15 years — largely because he reported losing much more money than he made.
Yeah and he lost money for a decade or more. Blame the system that you can loss harvest. Or call it fair that we don’t penalise business for having bad years.
This. The paragraph might have backed up and said "Bezos, after sustaining over 95% capital losses in the prior decade,.."
> Yeah and he lost money for a decade or more.
On paper, I'm sure. Let's not pretend that's reality.
There's not an easy source for that information, especially not inflation adjusted. Who do you think the answer is?
Musk paid $11B in a year his wealth went up $86B on his way to likely being the first trillionaire. Are we supposed to cry about it?
The median net worth in the US is ~$200k. A lot of middle-class folks have likely paid more taxes in their lifetime than their entire net worth.
Nope. Just not post things like "billionaires pay no taxes."
They don't pay zero tax, for sure.
But they certainly get clever about techniques to keep it as low as possible, for shockingly low effective tax rates.
https://www.propublica.org/article/the-secret-irs-files-trov... has a whole bunch of examples.
I have some quibbles about the ProPublica definitions -- for instance market liquidity matters when calculating public company stock wealth -- and even if you're going to borrow against it, there are additional costs and pledges that must be made that significantly reduce the available capital.
The propublica number was like 4.5% or so if I recall, and does not count the taxes paid by the companies these people owned, nor does it imagine the financial benefits to say California teachers or firemen who co-own the companies through pension funds, nor does it reduce for effective wealth, nor does it reduce for unutilized wealth, e.g. if the stock price goes up and you don't sell or borrow against it, have you received benefit that makes sense to tax?
But if you net all those out and told me the effective rate was 12-15% on utilized capital, I wouldn't be surprised. I would be really surprised if it was $0 though.
> does not count the taxes paid by the companies these people owned
Why should they? Should I get to count the taxes paid by my local water treatment plant workers because I shit in the toilet?
> nor does it imagine the financial benefits to say California teachers or firemen who co-own the companies through pension funds
They get taxed on that!
> They get taxed on that!
The funds don't get taxed on unrealized gains. Nor do the pensioners. They do get taxed on spendable income they get out of the fund's investments, just like the other owners of the company.
> [Should we look at the benefits to society of corporations paying taxes?]
I think so.
if you havent noticed yet, you are talking with someone who owns a private equity fund and, apparently, has "lost more than $1bn twice".
in other words, you are talking to someone in the stupid-wealthy class. you are not going to convince them of anything -- especially not that billionaires should pay more.
its like trying to convince Jon Moore (Phillip Morris USA CEO) that cigarettes should be banned.
The only reason he paid $11B that year was because he exercised Tesla options. Many other years his tax bill has ranged from zero to millions.
What did he pay in previous years? To borrow a phrase, I’ll wait while you google it.
As a percentage of their income? Because that's the only number I care about. You don't get to hoard wealth off the backs of tens of thousands of workers and then act like paying a smaller percentage is some good deed being done. The more one benefits from society (and billionaires depend most on the financial security and infrastructure setup by society), the more one needs to pay back into the system they gained their wealth from.
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, followed by benefits recipients and pensioners, followed by low income workers, followed finally by the middle classes.
Are you sure you want that to be your guiding principle?
In what reality does a business owner get to claim their customers’ taxes as their own contribution?
Do you think employees and "customers" of the government don't pay tax?
Get rid of the employees and the taxes no longer get paid.
Get rid of the billionaire and the taxes still get paid.
Why do we credit those taxes to the billionaire rather than the employees?
This is misleading and not the point of the wealth tax.
If you’re lucky enough that you don’t need to work for your income, you should be taxed. A lot. How much? Enough to make sure you don’t become so rich that your children don’t need to work.
Being rich is not fair, it’s very rarely deserved, and it needs to be taxed unfairly.
If you want to understand why someone would even propose taking from the rich and complain about inequality, this post titled "Inequality Talk Is About Grabbing " is illuminating: https://www.overcomingbias.com/p/inequality-is-about-grabbin...
I think your blog post is confused. People on the left are pro-taxation because they (a) think billionaires do not have superpowers, and are benefiting from some combination of systemic injustices and plain old fraud gussied up for the modern era, and (b) think superheroes actually shouldn't be allowed to have 1,000,000 times the influence over the structure of the world and its economy compared to a mundane human, even if they existed.
There isn't a level of competence or ability that shifts the answer to the morality of power. There's not an earning threshold you can cross that entitles you to own a fiefdom or a level of genius that grants you moral right to dictate how others use your inventions. We create democracy and grant everyone an equal vote in matters that impact their lives. The economy gets layered on top to allocate resources efficiently. If the economy is deciding that some people live like kings and some like serfs, then we've failed to construct an economy that lives up to liberal values.
That is not illuminating at all. Like, the author just imagines the premise and finds three ways to repeat it. There is no exploration into why people think inequality is unfair; the underlying assumption is that it is perfectly natural and trying to address it is hypocritical and harmful.
The other major assumption is that billionaires are rich because of something they did or are good at doing, better than anyone else could in their position. There is no challenge to this assumption in the text.
This belies a deep disconnect with reality, and an unwillingness to confront the idea that maybe excessive inequality is caused by too much concentrated power changing the rules to further concentrate power. Taxation is just one mechanism to combat this tendency; another way is the guillotine.
> If you want to understand why someone would even propose taking from the rich and complain about inequality,
Because they want to take back what was taken from them.
Why is that the case?
Wow, what a piece of text. Just, wow. Our poor billionaires and their tasty, tasty boots.
I can't speak for others, but this doesn't match my thinking at all.
I want to heavily tax the ultra rich because money is power, and vast inequality in power is undemocratic and just plain dangerous.
I don't really care if somebody buys ten massive yachts. It's annoying and seems wasteful but it's not worth too much of my attention.
But it's another matter if somebody buys politicians, laws, social change. The issue with someone like Elon Musk isn't that he owns a private jet, or even that he owns a rocket company, it's that he bought his way to taking an axe to major parts of our government by pouring unimaginable amounts of money into buying a presidential election.
It's not about grabbing stuff, it's about preventing people from accumulating too much power. The ultra-wealthy should be heavily taxed for the same reason the President shouldn't be given unlimited power to do whatever they want.
Easily solved, remove the power centers and then the billionaires will have no power to buy or influence with their money.
There's no such thing as "Power centers".
Money is that power.
You cannot have billionaires and them not be immensely, structurally powerful.
That's the entire point of capitalism, that resources, including labor, be directed by those with capital.
Believing you can have a single human being in control of a non-negligible percentage of all resources of a country, and they wont somehow be actually powerful or influential is moronic.
Taking the power away from billionaires literally IS taking their money.
“Money is that power.”
That’s the stupidest thing I’ve ever read. Power is power. Members of the Communist Party in the USSR were as wealthy as their subjects, their power differential was enormous.
Not all power is money, but money is power.
Define "easily" for us, please.
Don't hand over power to politicians, bureaucrats and NGOs. It's not rocket science to need further explanation.
Politicians, by definition, have power. How do you easily remove or withhold it?
It's the degree of power they hold, not a binary. A politican in Switzerland has much less power than a politician in China.
When your power is to determine which day the recycling truck is dropping-by, hardly anyone wants to coerce that power. But when it is e.g printing money the calculus is massively different.
> When your power is to determine which day the recycling truck is dropping-by, hardly anyone wants to coerce that power.
I take it you've never encountered a homeowner's association.
I thought you said it was easy?
I know, that's why I want to tax them, to remove their power.
Of course, you probably mean to remove their power centers without removing their money. But that doesn't make any sense. Money is power. You can't remove the power from a billionaire and leave them a billionaire.
"Don't want to be ruled by billionaires, peasants? Have you tried dismantling your government so they can't buy it? That will surely save you."
Isn’t that what Anarchists and Marxists peddle to the peasants?
A Marxist peddles restructuring of the government to better represent the people. Notable attempts at that replaced existing governments with autocracies that promptly killed the Marxists and Anarchists among them, which is not what you were talking about, I don't think. What kind of revolutionary wants only to tear down their government and not replace it? Anarcho-primitivists, I guess?
this is some of the most insipid dreck i've read in a long time. the only thing illuminated here is the author's complete lack of understanding regarding ability and worth and total inability to think beyond a system imposed upon him by others. i think the kids would say he's "billionaire glazing".
The vibe I get is that he's saying "you poors are just jealous of the billionaires who are smarter and richer than you, so you want to take it away from them"
The comparison to _literal super heroes_ from comic books definitely made me roll my eyes
My problem with billionaires is that their gains are in part from exploitation. I just don't believe that one person can actually produce billions of dollars of value all by themselves. They extract that value from other people and our whole system is structured to promote this.
There are probably millions people who could have been Mark Zuckerberg or Bill Gates or Elon Musk or whoever. A million people with the right skills who maybe were born a few years too late or didn't have the right connections or just didn't have rich enough parents. It's a little too "winner take all" for my taste. And then those few winners end up having disproportionate affect on politics and issues that affect us all. It's just not a great system.
> People usually become billionaires via having “super-powers,” i.e., very unusual abilities, at least within some context.
There are certainly sometimes unusual abilities in a positive sense, but the common case likely falls closer to having an unusual degree of sociopathy. It is unclear to me how else one could view the state of perfectly solvable human suffering in the world and continue to prioritize accumulating wealth over all else, moreover and overwhelmingly at the cost of being party to the suffering itself. Indeed, I suspect having such callous disregard for your fellow person is prerequisite to encountering these unfathomable sums.
When people with an intact capacity for empathy come into huge amounts of money I think it's far more common to give a large proportion of it away (say, Jane Street workers have a culture of doing this). And thus you only stay 'comfortably' wealthy, rather than accumulating so much that it distorts society around your singular existence.
> People usually become billionaires via having “super-powers,” i.e., very unusual abilities, at least within some context.
If you count luck, maybe.
> But what if most billionaires had super-powers of the traditional comic book sort, like x-ray vision or an ability to fly, etc.? That is, what if people with physical super-powers earned billions in the labor market by selling the use of these powers? Would folks be just as eager to tax them to reduce unfair inequality?
Yes, I would.
> But if those few very rich folks had real physical super-powers, we would be a lot more afraid of their simple physical retaliation. They might be very effective at physically resisting our attempts to take their stuff.
Yes, and this is why a lot of superhero movies involve fighting the greedy superpowered villain.
Right, as presented, these people are closer to Lex Luthor than Superman.
And I would still want to tax Superman.