After being one of the top-rated commenters on HN for some years, I have not commented in a long while. For what it is worth, here is my two cents on a topic - a wealth tax - that may seem on the surface to be benign but that is in fact just the opposite.
Silicon Valley was founded in a spirit of freedom and flexibility but that spirit is clearly and dangerously on the wane insofar as the political environment surrounding the Valley is concerned.
By the 1970s, American enterprise was in decline, a victim of the "big government/big business/big labor" trends glamorized by establishment types of that day. What this did was take away choice and flexibility.
Tech changed all that and it did so from the heart of Silicon Valley. Tech arose from a spirit of freedom and flexibility. Founders would get an idea and would have countless ways of experimenting with what they could do with it with the aim of building a venture. Many of the most wildly successful ventures came out of nowhere. No central committee could have planned for them. No overlords of big business could have had the imagination or risk-taking fortitude to push them at the expense of their established cash cows of that day. No union could comfortably impose rigid work rules onto such amorphous ventures (the first thing Intel workers did even after the company succeeded was to reject unionization). No minimum wage or overtime rules applied. Benefits packages of the type widely deployed in the analog-based large businesses of that day were unheard of.
Regulators and taxers of that era continually tried to realize their vision of locking people into situations by which they would have guaranteed security, ossifying the mature businesses over which they had control, but tech simply outran them through innovation. And, in time, upended them by disrupting their industries through innovation and risk-taking.
Today, the spirit of Silicon Valley has changed and is yielding to a belief system by which the overlords of politics believe they can dictate outcomes that will give people locked-in security forever. Want to do something as an independent to earn a livelihood? Sorry, AB5 forbids that and will penalize the hell out of any venture that seeks to use fleelancing and flexibility as a foundation for innovation and growth. Your choice to act an an independent is frozen out by dictates that, if you act at all to make a living, you must do it within rigid systems that guarantee minimum compensation, regulate overtime, prescribe minimum guaranteed benefits, and the like. If this kills opportunities, no problem: there will be other rules that guarantee basic income, limit the rent you have to pay, and otherwise regulate society such that people are guaranteed a risk-free existence courtesy of decrees enacted by political proclamation.
This new mindset is precisely the one of the 1970s-era leaders who managed to choke off innovation and growth in old-line businesses and gave a massive opening to tech innovators, particularly those in Silicon Valley.
pg's modeling of the effects of a wealth tax is spot on. And it confirms that such a tax is an innovation-killing idea that would destroy the spirit of Silicon Valley. Of course, tech innovation will not cease. It will just move elsewhere to escape the tax. Europe in the 1990s had a couple of dozen or more countries that imposed wealth taxes. Today it has three, if I recall. There is a reason for that. It is a highly pernicious tax that kills enterprise and that veers from a capitalist (even progressive) philosophy into one that is directly of a Marxist/communist variety that has left so many nations in rubble once fully implemented. Smart, innovative people are not going to stick around for the con game. They will leave.
I have watched Silicon Valley grow and flourish for decades now and have been directly involved in working with thousands of entrepreneurs who have been a part of it. There have been a lot of political changes over those decades but one thing remained constant: the foundational thinking in California always assumed a capitalistic structure. Once that is abandoned, Silicon Valley will be no more.
I know that the vast majority of HN'ers are progressive in their thinking and we all can have our own ideas about what makes for a good and just society. I am not commenting on that here.
There is a line that cannot be crossed, however, without killing the Valley itself and all that it stands for. The wealth tax clearly crosses that line and, if things are allowed to go that way, the consequences may not be what you expect them to be. It doesn't take much to switch from a tax of .4% on assets over $30M (bad as that is in itself) to a tax of a much higher rate on a much lower threshold of assets. Once that monster is unleased, who knows where it will go. It will be fundamental transformation of the Valley, and not a good one.
I think you are forgetting the major difference between now and 70s - massive wealth concentration, and the complete destruction of sustainable middle class jobs. Look at the pandemic. 40 mn people were unemployed, but billionaire wealth continued to grow. Most people in the US are one paycheck away from bankruptcy. Poverty rates among minority population have soared, and the impact is starkly reflected in COVID related death rates. One can sit in an ivory tower and deflect all societies problems to be taken care of by some mythical concept of freedom. But more and more people are questioning why wealth in the US is not trickling down. And these are very valid questions today that should really span beyond political lines
People can question all they want about why wealth is not trickling down but that doesn’t change the underlying analysis or outcomes around why this is a bad idea. You may get income redistribution and trickle down but if it changes the underlying systems that create wealthy, those same people will just end up poorer but more equitable.
Is there any evidence for that assertion ? I mean you take any European country such as Norway, Denmark, Netherlands, Switzerland, UK, and even France. Where taxes are remarkably high, and definitely far fewer billionaires per capita. Europe has better health outcomes, better income equality, and extremely low poverty rate compared to the US. [1]
[1] https://data.oecd.org/netherlands.htm
Note: Income inequality [0] and poverty rate [1] are in-distribution relative measures, not absolute measures. You could “improve” these measures by making everyone worse off (i.e. a Pareto worsening).
Europe is not the egalitarian utopia most Americans seem to think it is. Germany's wealth gini coefficient is 79.1. The US is 85.9 (100% is complete inequality, higher is worse).
Sweden and Norway are both in the 80s also -- two countries people in the US constantly point to as places where things are "fair". But in terms of wealth (and income) inequality, it's not that much different.
Well in defense of the European countries, the wealth might be unequally distributed here as well, but you also don't need wealth/money for education, health care, child care and/or pension.
If you don't need money you need luck, especially for education. There are limited seats. And in Germany, you are on track for university or not when you are very young.
You point towards regulation as the culprit of innovation being killed; I wonder how you are not aware most people live pay-check to pay-check, and therefore can not adopt the risk necessary to be entrepreneurial?
We all, live in an extremely divided economic landscape - the _most_ divided in modern history.
I do not understand how this is not a focus of your argument.
With this in mind, if our government offers support to the individual; we can innovate freely without imposing further employer regulation on private businesses. In a globalist society, where jobs are exported to the most exploitative country, this seems to be a promising solution.
The savings rate in China is 40%. Economists have observed a negative correlation between the personal savings rate and the availability of a social safety net. In societies where the state does not provide a substantial safety net, people adapt by saving high percentage of their income, and this is why the savings rate in China is so high.
Incomes are higher today than during the periods in American history when economic growth rates were highest, so the fact that more people are living paycheck to paycheck is more likely explained by the establishment of a comprehensive social safety net reducing the incentive to build up personal savings.
Social welfare spending has massively increased over the course of the last several decades.
You're going from one extreme to another. Starting your own business is not the only alternative to working for big business. There is a remarkable difference between working at Lockheed Martin and working at SpaceX, for example. One is arguably a lot more innovative than the other. And you do know that politicians are responsible for globalism right? It can be curtailed as easily as it was expanded.
Inequality in your country has risen dramatically the past 30 years. That's what your legislators are trying to address. A lot of value is created in the early stages. Should that be exempt? Remember, companies don't exist primarily to pay back investors, their first objective is to contribute to society.
Undue† wealth inequality is tied to the sort of rent-seeking that this tax will enable. Given the inordinate ways to classify and exempt movable property from a wealth tax (even greater than the existing insanity in income taxes), it is essentially inevitable that this will invite more lobbying and corruption, net more rent-seeking, and compound existing inequality.
† vs. inevitable/natural wealth inequality, associated with real disparities in productivity and the nature of sampling individuals on a widening curve
This is sadly true, but we have to fix our libertine taxing authority and corporate law in any case. These are assets that are not adding to overall societal welfare, so I would rather criminalize and tax the thing society needs to change rather than the gains to productivity being taxed in the current system.
> Remember, companies don't exist primarily to pay back investors, their first objective is to contribute to society.
If a company does pay back investors, that almost always means that it has contributed to society on net. Let me explain.
If people don't pay for a company's products, that company will go out of business. Unlike a government, a company has little coercive power. If I refuse to use Facebook, Mark Zuckerberg can't send men with guns to my home and force me to create an account. Even companies that benefit from network effects (such as social media companies) must build compelling products that people want to use.
Now one could claim that most people are mistaken in what they want, or that they lack the knowledge to understand what they're really getting into, but that would also mean that you disagree with the notion of democracy (since those same mistaken, ignorant people will pick the policies and leaders that control our lives).
There are only a few ways that a company can capture value without creating it. The first is fraud, which is illegal. The second is coercion. That means using violence (or the threat of violence), blackmail, or if they lean upon the state to coerce people. This is usually illegal, though there are some exceptions such as patent trolls. The third way is if they create negative externalities. For example: if I buy a car from a car company, I am better off but everyone else is slightly worse off from the pollution I create and the increased risk of being run over. The way we solve externalities is through insurance and taxes. If I'm required to have liability insurance for my vehicle, and I'm required to pay taxes based on how much my vehicle pollutes, then I pay the costs of my externalities and am properly incentivized to alter my behavior. Perhaps I drive less than I otherwise would. Perhaps I buy a vehicle that pollutes less.
As long as we ensure that parties pay the cost of the externalities they create, we can be confident that any profitable firms are creating more value than they capture. That means they're a net benefit to society.
Of course if we follow this logic, this means that some rather ridiculous firms are beneficial to society. Is World Wrestling Entertainment, Inc beneficial to society? As far as I can tell, WWE is a way to get people to pay outrageous amounts of money to watch roided-out actors pretend to fight. But if WWE pays for their externalities (such as actors' medical bills), who am I to judge? Everyone involved knows what they're getting into and consents. So what if I think the whole enterprise is a colossal waste of time and resources? I'm sure those people think the same of some of my interests.
The alternative to this is a world in which the majority decides for everyone what is beneficial to society or not. Considering the competence of the average voter (and the competence of our government), I'd prefer to err on the side of non-intervention.
> If I refuse to use Facebook, Mark Zuckerberg can't send men with guns to my home and force me to create an account. Even companies that benefit from network effects (such as social media companies) must build compelling products that people want to use.
If this was 2008 you may have an argument. It isn't and in 2020 I have no choice about using Facebook. Even if I delete my account I am still their product just by virtue of being on the web. Or existing.
Last year I was tagged in a photo from a camping trip by a person I met on that trip. That person's brother's girlfriend used to work with a guy I know from a totally different circle of people. He asked me about my camping trip because FB made the connections just based on who is in the picture.
I don't need a FB account for this to be possible, deleting my account doesn't prevent this.
Zuckerberg doesn't need to send goons to my house. He already has surveillance on my camping trips.
> As long as we ensure that parties pay the cost of the externalities they create, [...]
Right but we don't do that. The rest of your argument collapses when this assumption doesn't hold.
> The alternative to this is a world in which the majority decides for everyone what is beneficial to society or not.
You mean like a democracy?
> Considering the competence of the average voter (and the competence of our government), I'd prefer to err on the side of non-intervention.
Woah so who gets to make choices for the unwashed masses?
> Last year I was tagged in a photo from a camping trip by a person I met on that trip. That person's brother's girlfriend used to work with a guy I know from a totally different circle of people. He asked me about my camping trip because FB made the connections just based on who is in the picture.
First, most of your ire should be directed at whoever uploaded the photo to Facebook. Second, please notice how far afield you had to go to try and shape this conversation into "Facebook is coercing me": a friend asked you about your camping trip.
Compare that to what happens if you don't do things that the government wants you to do. If I don't go to jury duty, men with guns will come to my home and put me in a cage. If I don't pay 40% of my wages to the government, men with guns will come to my home and put me in a cage. Even though I object to how that money is being spent (such as bombing people in the middle east or developing ever more horrifying weapons of war), I am coerced under threat of violence into funding such atrocities.
But please go on about how terrible it was that your friend asked you about your camping trip.
> You mean like a democracy?
Should a democracy vote on which vehicle we must all drive? Which movies we must all watch? Which jobs we must work? Of course not. Likewise for which businesses each of us patrons. The crowning achievement of our constitution isn't the form of representation (which mostly serves to prevent violent revolution), but the concept of human rights: No matter how much people want to vote for it, the government is forbidden from doing certain things to you.
When corporations effectively control customer choice and eliminate competition, then yes, a democracy should break up the corporation to restore a level playing field. US anti-trust laws that were fairly applied in the past are not being applied today. This is a position independent of whether a wealth tax is applied or not. Big companies have become far too big with mergers and anti-competitive practices - they need to be broken up - for the very health and continuance of precious capitalism.
> It sounds like you're saying that profit is all that matters and you can't contribute to society without making a profit.
Those who advocate for a wealth tax seem to only care about money too, don't they? Why taxing wealth in particular? How about "taxing" beautiful and healthy? There's a huge prettiness gap in this country.
I simply argued that in a system where certain failure modes are ameliorated, a company that creates more value than it captures is a net benefit to society.
If I argued that strawberry cake was a net benefit to society, would you dismiss my views as "all that matters is strawberry cake and you can't contribute to society without making strawberry cake"? Of course not. So too for economics.
The facebook not forcing you to create account does not sound that good on a day when they force Oculus users to log in with one. Unless you live totally off the grid you are forced to interact with corporations and at every turn they have more power.
They are usually fine. The inequality was way higher for most of the history and hungry peasants are no match for the army. We just remember the cases when the revolution won because it’s a good story. And the result was usually worse conditions for the poor.
I’m afraid that social equality peaked in XX century. Automation makes imposing social order so much easier, we might be stuck with this one for a while.
Those hungry peasants weren't educated. You have far more bright people in the 99.9% today than in the 0.1% cream at the top.
Unless you decide on complete and utter genocide, An Army is utterly no match for clever people who will utilise every inch of their ingenuity in guiding riots, carrying out guerilla warfare with committed assassins targeting the 0.1% (and their families).
And a nation who chooses to kill its citizens 'en masse via its military forces will not be a nation for very long. There will be civil war.
Without shared prosperity, a nation will shatter very soon. A revolution doesn't need to "win" for the prosperous to loose their lives by the million-fold.
4 - Spain, Norway, Switzerland, and Belgium. I don't think it has stopped very wealthy people living in Switzerland or Norway in particular - but also I'm not sure how significant revenue it raises for the state.
I think it's becoming quite clear though that we need some more taxation on capital, particularly the rent-seeking kind, and more levelling of the playing field particularly in the field of education, which is primarily funded through taxes.
I'm aware of Swiss taxation differences between different cantons, as well as the ability to negotiate your taxes. The OP mentioned wealth tax in Europe and my comment was in reference to that.
I'm personally not sure wealth tax is the best way to tax capital, but I wouldn't rule it out either.
I must have hit a nerve to warrant accusation of ignorance.
Norway is not famous for it's innovation or industry - much less than equally-populated Denmark and twice-as-populated Sweden with which it shares most culture, weather, genetics (and essentially also language). Neither are Belgium or Spain, and Switzerland, though more established, is no industrial powerhouse.
I do not claim that this is a result of the wealth tax, but it definitely doesn't attract innovators and industrialists.
1) Framing it as "winners" and "losers" is entirely the problem. It's a pretty poor mindset when you equate getting rich with "winning" while ignoring everything else, including factors that lead to people getting rich in the first place.
2) A footrace (and sports in general) is a really poor metaphor for economics & tax policy. A better metaphor is pruning trees in a forest so that smaller ones actually get enough light to grow instead of withering away on the floor.
The forest metaphor implies that people with wealth get it by taking it away from someone else. That isn't the case. Bezos' wealth, for example, comes from the fact that he owns ~13% of Amazon, the company he founded. He didn't steal those shares from someone else. They were created out of nothing when he started the company. They only became valuable because it turned out that the company did things that many people found very useful.
You aren't going to "prune away" shares from Bezos and have more wealth magically filter onto the masses from the heavens. Wealth doesn't stream in from some outside source and some greedy people just grab more of it than others. People make it themselves. Making it harder for people to do so is going to result in less wealth, not more.
It comes from killing the offline retail (this is technological shift, so it might not be a good idea to stop it) and being both a marketplace and a player in that marketplace. Coupling with a highly profitable AWS so they can undercut the remains of competition does not help.
Decline of American retail produced orders of magnitude more “losers” than switch from coal to natural gas which grabbed so much attention.
You realize that Amazon stole market share from all kinds of other retailers, right?
Also, you're completely misinterpreting the metaphor to suit your own goals. Wealth redistribution demonstrably benefits society as a whole when said society has as many fundamental issues as the US does when it comes to basic standard of living (healthcare, education, living wage, etc.). You're making the exact same argument as people who think income tax shouldn't exist because taking some portion of income away from high earners magically makes them want to earn less. This is, of course, also demonstrably false and completely irrational.
It stole it? The market share was the legal property of those retailers? How? Where can I purchase some market share?
A company like Sears was well positioned to compete with and crush a fledgling Amazon if they had had the foresight and wherewithal to do it. They didn't, so they lumbered on doing the same thing they always did as the world changed around them and they eventually became irrelevant.
Other companies like Wal-Mart and Best Buy adapted and have remained competitive. It has nothing to do with sneaky Amazon burgling market share that is somehow the rightful property of someone else. That's not how that works. Amazon won the market share by doing a better job of serving the market.
Are you truly defending Amazon, one of the leading stars of anti-competitive practices - in-fact the textbook definition ? I am utterly flabbergasted and also a bit scared that someone on HN thinks that what they do just fine and dandy.
Where to start ? Shall we talk about the way they changed their algorithm to put their products first after claiming with a straight face they were only a neutral market place ? This while exercising 40% (and rising) of all e-commerce in the US ?
https://www.wsj.com/articles/amazon-changed-search-algorithm...
The company that blocks sellers from using Fedex ? That flexes its control - illegally - on logistics ?
This is just the tip of the ice-berg. We can go talk about the corruption behind Amazon's Choice program, their environment sustainability "joke", the Amazon "real worker ambassadors' who are "paid to praise" on social media and claim "great working conditions" while shooting down genuine grievances. Corporate Communism at its finest - praise the Party of Bezos - makes the CCP look like an amateur.
You can vote out Trump. You can't lift a finger against the march of Bezos and Amazon.
They are a horror company who are a clear and present danger to both US capitalism and democracy.
Several nations and states have now opened anti-trust investigations against Amazon. Lets pray something comes out of it or the world will be kneeling to Bezos before too long.
> A footrace (and sports in general) is a really poor metaphor for economics & tax policy. A better metaphor is pruning trees in a forest so that smaller ones actually get enough light to grow instead of withering away on the floor.
By that standard, a legit analogy in that case would still be basketball. Let's cut legs a bit to everyone taller 6' so that shorter ones actually get enough opportunity to score, instead of them abandoning this amazing sport and spending their days at office in a hope to get wealthy by their economic skills one day.
And there you go still using sports metaphors. Life is not a competition. Treating it like it is generally leads to bad outcomes for both individuals and societies.
That's the thing, a bit of tax won't knock anyone down. Using that money to provide more equal access to opportunity creates more winners.
Running doesn't require much money, so a lot of people can do it and therefore you can get someone as insanely good as Bolt. If running required startup capital of $100k, would we have Bolt?
Healthcare, education and a safe environment does require a lot of money in the USA. Specifically, it requires you to be born in a family that has it already. If not, you are born with your legs cut off, but if you work really really really hard, you can be one of the lucky few who make it out, and compete with those born with two legs. It's just an extremely uneven playingfield.
This would’ve been a great opportunity to share your unique expertise on the history, efficacy, or real mechanisms of tax laws that us non-lawyers aren’t privy to. E.g. comparative analysis of property taxes, which are wealth taxes but limited to one asset class.
In retort, these companies are started by young risk takers, many of whom have a safety net. A set of redistributive policies could expand that volume to folks who are arbitrarily excluded.
A property tax is different from a wealth tax for several reasons. Wealth is constantly created and destroyed. Land, not so much. Wealth can be easily moved around the world. Land can't. Wealth can be hidden to evade taxes. Land is hard to hide.
These differences mean that a tax on wealth tends to encourage wealth flight, tax evasion, etc, while a tax on property tends to encourage more productive use of the land. For example: An empty lot in the middle of a city would be taxed based on its value, which would be quite high. The owner would be incentivized to either build something that creates value or sell it to someone else who would do the same.
> a tax on wealth tends to encourage wealth flight, tax evasion, etc
A tax on income tends to encourage inequality, tax-advantaged income schemes, tax evasion, etc. Also, you didn't actually refute the parent poster's point that property tax is a subset of wealth tax.
Taxes like this appear to be quite unpopular though, right? You would expect this to help solve issues in, say, California's tech areas but I think many would agree that it hasn't happened. I'd be curious about whether a result like that is inevitable or just how it turned out this time.
Thanks for sharing. I don't expect to convince you but I want to make my opposing view clear.
For me the most important benefit of a wealth tax is eroding the wealth of billionaires. This is important because having that much money gives you _power_ in our society comparable to elected officials, but without any comparable accountability. If you have a billion dollars, you can employ two hundred people from your _personal wealth_ at $100k for fifty years each. Or, if you prefer, 2500 people for a four-year term. (This ignores the resources you have influence in deploying in business, though at least in that case there are other stakeholders. It also ignores connections.) This is a great deal of power, comparable to being an elected official, all the more so because elected officials are often constrained by politics. In my view, the existence of such a powerful and unaccountable interest group can only be a threat to democracy. Other commenters have outlined particular ways that this class has achieved its political goals in the USA. The class of billionaires poses such a threat that I would seriously consider giving up the IT revolution of the last fifty years to be rid of it.
I really appreciate this voice of reason and would further like to add a few points. As a tax paying citizen in my country i think that taxes are needed for the upheaval of the country as a whole in an "aggregate fashion". So my question is that even if a country implements wealth tax how is that money going to benefit or trickle down to the lower strata of the society? Do we just add more social benefits which i am against as if you just take money from people and redistribute you are essentially becoming a socialist economy.
Another question that arises here is if the discussion is happening because the tax collected is not sufficient currently? If that is the case then a proper solution would be to and i hate to say this increase the tax rates for everyone. The number of billionaires the people want to tax are essentially pretty low and in a country based economy where there are pretty large numbers haggling away their 1 percent wont really make a difference to a big country.
The issue with wealth tax is that it focusses on a particular well off section of society and that particular section of society is actually just being targeted because they are wealthy. The thing people take for granted is the number of jobs and employment they generate and the services they provide. They actually are so well off that i worry if someone would be able to stop them if they just decide to leave?
Its rather mundane to say that the wealth is not trickling down. These people are generating wealth. Why do you think US is the biggest world economy? Hint: its because of these billionaires we love to hate.
Thanks for coming back to share your perspectives.
While I agree that AB5 stifles freedom and innovation, it just doesn't compute for me that a wealth tax (especially the example of 1% over 50mm) would damage the spirit of freewheeling invention, creation, and capitalism.
As an entrepreneur, I feel much more stifled by FAANGs or regulation than the idea I might be taxed at less than my real rate of return one day.
I agree the spirit of the valley is on the decline, and part of that is due to things like AB5, but it feels more like the tech giants are just new giants, like those of the 70s, and will trend towards preservation of establishment and gradual decline as always.
Someone forgot to model growth in the value of the asset, and/or putting the wealth to use. A wealth tax is, to an approximation, the equivalent of the "management fee" that an ETF charges, but with the revenues going to the government.
If you have a bucket of money that isn't doing anything, then what value does it actually bring to the economy? Penalizing static value seems almost reasonable.
But a wealth tax also targets owners of assets that don’t appreciate. It taxes both the winners and the losers, and for the latter it’s nothing but a forced divestiture of their ownership stake.
A capital gains tax, on the other hand, strictly targets those whose assets have appreciated in value.
Wealth is always eventually taxed when it’s liquidated. And if it is never liquidated, then it arguably doesn’t really matter.
Wealth hoarding matters immensely for things like land, which is why the most common wealth tax is a tax on real estate holdings.
It can also matter for other resources which are finite, but land is one of the most crucial one in our current times, and why we are seeing such ridiculously large gains in housing costs in the past few decades after a century of housing costs remaining fairly constant.
I'm also fully in favor of wealth taxes, especially since the US has weakened estate taxes and other checks that would help mitigate increasing inequality.
I started mentioning land, as it's the most clear problem of idle wealth. But hugely unequal distribution of wealth also results in slower economic growth and overall less economic activity than if there is more equal access to capital and resources. Capital strikes can be just as effective as labor strikes, and though they don't get much attention they can cause great harm.
> But hugely unequal distribution of wealth also results in slower economic growth and overall less economic activity than if there is more equal access to capital and resources
But wealth != capital. Wealth only becomes capital when it is realized/liquidated, at which point it is taxed. Before that happens, one person's wealth doesn't preclude someone else from investing or being productive because unlike land, wealth is not zero-sum.
And because that liquidation or transformation is a taxable event, and holding the wealth is not, people are far more likely to hold onto wealth rather than try to transform it.
Totally agreed that wealth is not zero-sum, and I thank you for bringing it up, because zero-sum-thinking is all too common, and the reason for so much misery when it comes to thinking about these things. (But even as a non-zero-sum, availability of capital is highly influenced by the degree of idleness of wealth hoards.)
> And because that liquidation or transformation is a taxable event, and holding the wealth is not, people are far more likely to hold onto wealth rather than try to transform it.
But if wealth is never liquidated, then how is it anything more than just a life high score? It's inconsequential to the outside world.
If it were completely inconsequential to the outside world, then others would not value it, and it wouldn't be considered wealth.
But I do agree that since wealth is not zero sum, it is completely consequential. Where it really matters is when the wealth distribution becomes more unequal, resulting in less ability to initiate new economic ventures. Extreme wealth inequality results in only a very few people controlling the economy, and in those cases wealth hoarding becomes an end in itself to concentrate economic powers away from others, and an end in itself.
> If it were completely inconsequential to the outside world, then others would not value it, and it wouldn't be considered wealth.
That makes no sense. Just because the fair market value of Elon Musk's holdings in SpaceX and Tesla is some collectively decided amount, doesn't mean that Elon Musk actually possesses that money and can do anything meaningful with it.
If he wants to do anything meaningful at all with that theoretical value,
he will have to liquidate some of it and turn it into non-theoretical money, and that is taxed already. If he just lets it wither away, then it's of no use to anyone else.
> Where it really matters is when the wealth distribution becomes more unequal, resulting in less ability to initiate new economic ventures
But this just hasn't been true at all. Just because Bezos is a 100 billionaire on paper, doesn't mean that I will have a harder time raising venture capital for my startup. Wealth isn't zero-sum. And the paper value of one's wealth isn't backed by liquid money, I.e. Bezos's 100+ billion in wealth doesn't actually lock 100 billion dollars in cash from other investments.
If you're making the argument that it's difficult to initiate a new economic venture in the same space as Amazon, that's just because Amazon is a strong company — there is nothing wrong with that.
There's a huge difference between wealth and money; having massive wealth and valuing it in dollars may seem nonsensical, and at some level it is, yet it is the way that everybody operates. The "Fair market value" is not inconsequential even if wealth is not liquid.
Regarding going to a VC to get capital: think about how this process works in one very tiny slice of the economy. You build trust with a small set of people that are the arbiters of capital and who gets the resources to start a new venture. If there was only one VC firm in the valley, it would be disastrous because they would hold all the power. It is only through the agglomeration of many potential sources of capital that really makes the system run well.
In the rest of the economy, there are few VCs, and for a lot of profitable, but smaller businesses, capital is super hard to come by. A person who sees a future in, for example, electrification retrofits of homes and has several good ideas about how to make it cheaper and more economically efficient, is going to have a really hard tome getting going. However, if their own community knew about this person's ability to scale a small business, and knew of the intelligence and grit of a person through their own personal relationship, and if that community had small amounts of capital to throw in to get the newcomer off the ground, overall wealth is increased as the new venture starts serving the needs of people.
But this requires more equal distribution of capital, and to change the arbiters of capital from a few hundred people to everybody.
I don't really hear many people talking about friends, family, and fools rounds these days because the game has changed. However if we had more people that could use their knowledge of the local lay of the land to invest more wisely, we'd have far greater wealth generation.
IMHO, the problem with inequality isn't the person with $100B, the problem is all the talented and skilled people whose ideas go to waste because they can't get the attention of the very few people that have been entrusted with the ability to allocate capital.
The more inequality there is, the closer we get to central planning, and erasure of the talents of so many people.
Haven’te we heard less of friends and family rounds because there has been an exponential increase in seed funds?
People got wealthy invested into funds or started funds and are now committing capital back.
Having a hard time raising money is an issue but that’s because 90% of companies fail. As such that is too risky for a bank to lend into so you need to go to other segments.
> having massive wealth and valuing it in dollars may seem nonsensical, and at some level it is, yet it is the way that everybody operates.
If this was true, then why is nobody talking about imposing a tax on the market capitalization of corporations? Think about how much revenue you can raise by levying a 1% tax on Microsoft's market cap. But this is absurd, because the market cap doesn't represent actual money, it represents the theoretical value on all shares outstanding.
> In the rest of the economy, there are few VCs, and for a lot of profitable, but smaller businesses, capital is super hard to come by.
This is manifestly untrue. In the last 10 years of near-negative interest rates and quantitative easing, capital has been almost too easy to come by. Everyone and their mother is lending money.
> A person who sees a future in, for example, electrification retrofits of homes and has several good ideas about how to make it cheaper and more economically efficient, is going to have a really hard tome getting going.
Not true at all. Most banks and credit unions would extend dirt cheap loans. We are arguably over-leveraged on these kinds of loans.
> I don't really hear many people talking about friends, family, and fools rounds these days because the game has changed. However if we had more people that could use their knowledge of the local lay of the land to invest more wisely, we'd have far greater wealth generation.
The reason for this has everything to do with globalization and 21st century communications technology. It is no longer sufficient to be the best electrician in your neighborhood, you now need to be the best electrician in the country or perhaps even the world, given how easy it is to reach consumers today.
To give you a sense for how the scale of globalization has made it difficult to compete locally, consider how easy it is for a new business to reach every American today. There are 330 million people in America. You just need to provide $3 of value ONE TIME to every American, and you become a billionaire. Likewise, on a global scale, there are 7.8 billion people in the world. If you can get 1% of them to pay you a penny once a year, you're making $780k/year.
"Inequality" is inevitable in this world, but again the wealth isn't zero-sum. We're not remotely close to "central planning", because the wealthiest person on the planet (on paper) only represents ~0.5% of the annual GDP of the US alone. And that's not even an apples-to-apples comparison because the paper wealth is accumulated over years, whereas the GDP occurs every year. The accumulation of Bezos' wealth over the last 20 years is about 0.05% of the accumulated gross-product of the US, alone.
Yes. The point is exactly that globalization has made competing locally hard. That's the accepted fact. Globalization has increased, not decreased (as was the original hypothesis) the distance between the top and the average wealth holders in society.
The coalescing and hoarding of wealth results in the deterioration of the average value of a human life. This is bad for a western liberal society because it demonstrates that the values upon which the society operates do not yield positive outcomes for enough people to be satisfied and hopeful. If capitalism is to remain the dominant economic system, it either has to enslave the masses and oppress them into submission (which they are currently resisting), or it has to work to continually operate in a way such that the perception of wealth is maximally shared.
I agree inequality is inevitable. Everyone has different priorities, abilities, etc. But human rights must be preserved (globally) and access to opportunity and capital, hope, must be universally available. This is the only way to justify the inequality of outcomes.
To tax wealth is really to say that socially we don't want institutions to remain in comfortable positions of perceived power without continually demonstrating utility. You build up a large estate? Great. But you must continually demonstrate its utility by actively working to distribute the wealth, not just generate goods and services. Or, have it done for you.
It doesn't seem to me that it's a problem, per say, that wealth is not tangible. Money isn't really either. Cash is simply a tool that a capitalist society uses to encourage the exchange of goods and across markets where it wouldn't otherwise be obvious how to make an exchange. Having a lot of cash does not make one wealthy, and having wealth does not imply liquidity. At any moment one can become the other or simply evaporate altogether.
It seems that the point is really about how to mitigate the tendency for institutions that have extracted much wealth from society to deploy it in efforts of self preservation. In the current state, you need a revolution to tear down entrenched institutions. In this forum and generally in the valley where we have essentially arbitrary access to capital, we prefer (or have been trained) to be a little bit disruptive all the time rather than massively disruptive a little bit of the time. We've demonstrated that this model works. And fundamental to the model is essentially arbitrary access to capital.
So I guess my question is if as you suggest access to capital is more available than it's ever been, why isn't it being deployed? Perhaps globalization has driven the bastions of wealth to build such high walls that they find themselves among the clouds?
> The coalescing and hoarding of wealth results in the deterioration of the average value of a human life.
This is not true at all. If Bill Gates walks into a bar, the wealth distribution changes dramatically, but the absolute standard of living of the existing people doesn't change at all. In fact, you could even argue that the absolute standard of living increases, since almost nobody is super-wealthy in a vacuum; they enjoy their wealth because they provide value to others via goods & services. That's the whole point behind the argument that "wealth is not zero-sum".
> access to opportunity and capital, hope, must be universally available
Again, it's not clear at all how one's theoretical net worth negatively impacts someone else's access to opportunity / capital. When my rent goes up, it's not because I'm in a bidding war with Jeff Bezos. An MRI doesn't become unaffordable because Jeff Bezos exists.
> Money isn't really either. Cash is simply a tool that a capitalist society uses to encourage the exchange of goods and across markets where it wouldn't otherwise be obvious how to make an exchange.
Money is arguably zero-sum, because there's a finite amount of it. When someone else hoards billions in cash, it means that there is a significant portion of the total money supply that is out of circulation. That's what's bad for society. When wealth turns into money, we already tax it..
> It seems that the point is really about how to mitigate the tendency for institutions that have extracted much wealth from society
Wealth isn't "extracted from society", because it isn't zero-sum. It's not like there's some finite amount of wealth, and the super-rich have taken it from everyone else.
> So I guess my question is if as you suggest access to capital is more available than it's ever been, why isn't it being deployed?
I'm not sure the premise is correct. There is more capital deployed today, per capita, than at any time in human history, even after adjusting for inflation.
Sure, wealth isn't zero-sum, but when it's built on top of people making $7.25 an hour with no benefits (or less than that as a contractor), it may as well be.
And yes, there are other options for solving problems like that beyond just a wealth tax, but maybe a wealth tax is part of the solution.
> but when it's built on top of people making $7.25 an hour with no benefits, it may as well be.
But...it's not? The only person who has concentrated an unimaginable amount of wealth for which this might be true is Jeff Bezos's Amazon, except Amazon workers all earn a $15 minimum wage, 401k matching, and are part of the same group health insurance plan as the engineers and product managers. They happen to enjoy some of the best health insurance available to an entry level job that requires no college education.
Outside of Bezos, the vast majority of the wealthy pay their workers handsomely (Bloomberg, Bill Gates, Tim Cook, Page/Brin/Pichai).
And even if this was somehow a pervasive truth, the solution to that is a basic income, not a wealth tax. A wealth tax wouldn't even come remotely close to funding a basic income. If you were to seize 100% of all wealth of the top Forbes 500, you would get enough money to run the current Federal government for 8 months. Not 8 months per year, 8 months ONE TIME.
Jobs don't just grow out of thin air. That $7.25 job is self-evidently better for the worker than whatever other opportunities they had available, otherwise they wouldn't be doing it. Taking away that opportunity won't make their life any better, just means they end up on a worse job.
Well when we have lots of labor, and seemingly not enough jobs for people, even when they could be doing productive things that build their own wealth and others' wealth (like building homes), then that $7.25 wage being the "best" option is a failure of the system, because too few people I society have been empowered with the option of starting their own businesses, or having the access to the tools that would let them create wealth. Too much inequality, not enough people with money to spend, and not enough capital movement to allow people to create new jobs.
Capitalism is a fantastic means for directing economic forces as long as everybody has enough capital to do the voting, as it were. If only a few people hold all the capital, then only a few people make decisions and will often engage in capital strikes rather than risk the chance that their position may be threatened.
I agree that people lack opportunities and that's a failure of the system, but I think the problem isn't limited capital. I think the problem is the monopoly on land ownership. If there was land freely available, people would happily use it to generate wages, wealth, etc. Obviously land is a limited resource and we can't always just have more "freely available", but a land value tax could remove the monopoly and create new opportunity for development that's otherwise hindered.
I just read Progress and Poverty by Henry George and he makes this point very clearly. I highly recommend giving this book a read if you haven't yet.
Correct, they grow out of having a middle class with purchasing power, who can buy products and services, thus creating jobs for those who provide those things. But the middle class's effective purchasing has been going down for decades, while the wealth at the top has been increasing. So something needs to be done to balance these flows of capital - the current situation is not sustainable.
I agree that a UBI will probably be needed in the future, and that a wealth tax alone won't fund it - but it could be part of it. The way I see it a wealth tax is more like a 'catch all' tax - it's a fallback in case the other taxes and regulations that should be in place to counter-act income inequality fail. Those rules are much more important, but we might as well have the wealth tax too.
It is a fallacy and ignores the benefit to the economy that having a living wage level of pay for all citizenry vs the artificial corporate welfare support of having government entitlements (food stamps, medicaid, etc) making up the difference so that corporations can pay less. Lassez faire capitalism seems to be a common fallacy promulgated on HN a lot.
In fact, the vast majority of US wealth is tied up in private companies (and, of those, in a few extremely large companies). A wealth tax would not be ruinous for the entities paying it.
> It can also matter for other resources which are finite, but land is one of the most crucial one in our current times, and why we are seeing such ridiculously large gains in housing costs in the past few decades after a century of housing costs remaining fairly constant.
If we were being restricted by land availability, we could fix that easily by putting more housing on the same amount of land. That problem was solved long ago.
> we could fix that easily by putting more housing on the same amount of land
As somebody who has been watching the process for this for years, let me tell you that it is the exact opposite of easy, and nearly impossible.
And it's nearly impossible because current wealth holders are able to stop it from being built. And in most areas where there are housing shortages, locals and local governments consider the current land "built out" meaning that the zoning does not permit more housing or more height than is already built, an the notion of changing these arbitrary restrictions is so inconceivable that it almost never happens.
This is what has really changed over the past yes decades to make housing prices soar: refusal to allow more housing to be built on existing land.
This here is the argument that will make a wealth tax face severe opposition. Most wealth is held not by the 1%, but by the next 19%, living in their nice low-density suburban areas. Today there are proposals for taxing wealth over $50 million, but it’s just a matter of time before someone comes after their homes.
While I don't doubt that this rhetoric may be raised, the 19% are already exposed to much more wealth tax than the 1% because of property tax. However emotions and rhetoric about tax make people easily fooled in the political sphere.
You just suggested that the only way to solve housing shortages is to attack the broader upper middle classes with a wealth tax that will push many more of them out of their homes than are currently pushed out by property tax defaults. Funny for you to word it so passively as “this rhetoric will be raised”.
I don't know how I could have implied anything about pushing people out of their houses with taxes. Could you be more explicit about what I said that led you to this?
Building more housing on sites when they change hands, though normal, unforced moves, when a person retires and moves to a new location, or when a person gets a new job and moves for it will provide ample land to build more housing. As long as people are allowed to.
Property taxes forcing people out of homes is a common scare tactic, but it's simple to provide homestead protections that would prevent any forced moves, and also allow the homeowner to capture the fantastic gains in wealth that accompany any land market where there is a shortage of housing. Property taxes only shift the non-resident real estate investor to make sure that they are providing what people need, rather than using idle wealth to keep people out of an area where lots of people want to live.
The vast majority of low-density housing in the US is owner occupied, and the majority of investor owned properties are already multi-unit dwellings. There is already plenty of incentive for self-interested investors to increase housing supply, the it seems implied that you’re in favour of a policy that changes the tax situation for owner-occupied homes.
Wealth tax doesn’t push people out of assets, it makes assets less valuable because of higher discount rate. Making housing cheaper sounds like a good thing.
It's not a different analysis, it's my core point. Land is valued very differently depending on what it can be used for, and what it is close to, and is completely non-fungible.
Zoning restrictions have been used as a means to massively inflate home values in the US in high demand areas, and that program really came to fruition in the 80s and 90s as areas became "built out" according to allowed zoning. Which then fueled the massive inflation in housing costs.
This restriction on allowed uses has differing effects depending on whether it's applies in small areas or large areas: downzone a single lot or single neighborhood in a city and it may prevent those parcels from becoming too valuable because they have limited use. Downzone an entire city and it causes housing values to soar because it has created a housing shortage.
In the Bay Area we have a massive shortage of land that allows more housing to be built on it, and even land for which we can build offices.
> if it is never liquidated, then it arguably doesn’t really matter.
This is also not true. It does matter. It is not difficult to take extremely large "loans" (loans are not taxed) against assets that you own, in order to avoid actually selling the asset. This is a not-rocket-science way to reap the benefits of an absolutely massive fortune without any of it ever being "liquidated".
> You might argue that this is realm of the "Estate Tax", but that is a different topic.
What? Why? This is pretty squarely in the realm of how to taxa transfer of wealth. The wealth tax is a really ham-fisted way to solve this problem.
> It is not difficult to take extremely large "loans" (loans are not taxed) against assets that you own, in order to avoid actually selling the asset.
Even if one were to take a collateralized loan, it would need to eventually be repaid, and for this to happen, some gain would have to be realized somewhere. That money isn't free. No matter what, that wealth is eventually taxed.
1) I agree with you, taxing asset holdings is strange logistically.
I think it be best to tax income. The only change I'd make is currently, income is taxed at a percentage based on your total income in the year. What could change is to tax income at a percentage that is a function of the current estimated value of your wealth instead. So if you cashed out 1 million and that's all you have, you'd pay less tax on it than if someone cashed out 1 million but still had another 10 million worth.
2) Maybe it's a bad idea to allow anyone to own too much of anything of great value to society.
In that regard, it could make sense to force wealthy people to sell some of it, to whatever treshold we believe is too much for one person to own.
That's where I think a wealth tax could come in as a vehicle to force people who own too much to sell some of it. So that we have a more evenly distributed wealth ownership accross the board.
The only thing here is I'm not sure if a wealth tax is the best scheme for this. I think the income tax that I described in #1 would be good when it comes to taxes (money that goes to the government). For wealth, I'd be more inclined with something like where people have to sell a percentage, but taxes don't necessarily need to be involved (beyond the income tax as described from the sell). The idea here is just that no one should own too much, so at some point, you need to sell so that ownership is better distributed. Not necessarily that this should go towards taxes.
"relinquish ownership of your own company". Only down to the very generous floor of the wealth tax, and only in the very worst case where you have no other way to access liquidity based on the value of the company, which seems unlikely unless that value is extremely inflated. I see you make your case in a bunch of comments in this thread, and it seems to me applicable to a very narrow case, and even in that case doesn't have drastic consequences.
> and it seems to me applicable to a very narrow case
The floor of the wealth tax doesn't really refute the central argument, because it just means that it impacts anyone who owns a business worth over $50 million. This is a LOT of businesses in the US!
> and even in that case doesn't have drastic consequences.
That level of liquidation and lost ownership will have potentially disastrous ripple effects on the economy, because for a lot of companies, the theoretical market value — upon which one's theoretical net worth ("wealth") is calculated — is based in large part on that individual maintaining ownership and control of the company. Once a founder starts liquidating large portions of their wealth and divesting their ownership, it's difficult to predict what that could do to the value of the company, and consequently the value of pension funds and portfolios that rely on the stability of the corporate value, and ultimately impacts the employees of those very corporations.
> The floor of the wealth tax doesn't really refute the central argument, because it just means that it impacts anyone who owns a business worth over $50 million. This is a LOT of businesses in the US!
We can actually look at the Fed's Survey of Consumer Finances and get a reasonable number here. Household's with >$50m are top 0.07% percentile and there are approximately 84k of them out of around 130 million households....
The Cartesian product of all ownership * value that work out to > $50M is substantial enough that it's 1) probably not fair to individual business owners to force them to divest to raise a minuscule percentage of the Federal budget, and 2) probably not worth the potentially disastrous 2nd-order effects on pension funds and investment funds that are largely predicated on stable/competent corporate ownership.
In any case, it sounds like you've conceded that there is a forced divestiture, and now the argument boils down to: "is that justified?"
Just want to say I appreciate how civil you've been and thorough in replying to the comments. You've added so much knowledge and wisdom to this whole discussion I wish I could save all your comments.
We should incentivize productivity (thus low income/gains taxes) but pay for goods and services (thus wealth and inheritance taxes). There is nothing beneficial for society if there are people with large amounts of poorly allocated wealth (ie not productive enough to grow faster than tax rate).
Wealth tax proposals target only very high nw people. There is no inherent right to be very high net worth, if you are not productive with your wealth then it is more efficient for the society if that wealth is reallocated. This is what wealth tax does.
> there is no inherent right to be very high net worth
But there is an inherent right to the ownership of property (enshrined in the US Constitution).
A Federal wealth tax is currently unconstitutional for the same reason that you don’t have Federal property taxes: the Constitution explicitly prohibits the Federal government from levying direct taxes except for income (via the 16th Amendment). Wealth is not income.
Currently, capital gains is on taxed on sale. Even on sale there are ways to reduce or defer it (opportunity zone investments for example). Some also donate appreciated shares to charities that are suspect (Trump comes to mind).
Most billionaires don’t sell most of their stock during their entire lifetime.
Ah yes, the economic argument of "punish savers and people refraining from consumption will lead us to our Centrally Planned Utopia"
>If you have a bucket of money that isn't doing anything, then what value does it actually bring to the economy?
Do you and I live in the same reality? When a global pandemic has shown almost every single person on earth that cash balances should have been higher -- enough to sustain unexpected periods of inactivity -- it seems a little tone deaf to say saving money is unproductive. There's already a tax on holding central-bank money -- it's called engineer inflation and it's what's exacerbated the economic repercussions. Your Central ~~Bankers~~ Planners convince you taxing fiat money holdings (price inflation) and artificially reducing the cost of bringing future production to the present (downward interest-rate manipulation) will lead us to utopia when it's actually cause over consumption, over production, and a planned economy on the precipice of collapse.
> You're sitting on greater than 50 million dollars?
Outside of Disney comic books, money doesn't sit around.
The money "in" my savings account is just bits in a database. The value it represents has been loaned by the bank to someone who is doing something with it.
When I sell stock to pay a tax, the money to pay that tax has to come from someone who bought it. That value represented by that money is value that won't be used for other things.
Are you certain that what govt will do with that value is better than what those someones are doing with it? That's the question because taxing me means that they won't have that money and govt will. (Taxation doesn't create value - it moves it.)
All of the talk about roads and stuff is somewhat dishonest. Transfer payments dominate govt spending, not production of goods and services.
> That what a wealth tax would most likely target
Ah yes, the "the tax will only affect bad things" rule. Is there any good reason to believe that the folks who are pretty much responsible for the current tax system will somehow figure out how to do this correctly?
Your belief about "money just sitting around" is not encouraging.
When things go south, we'll hear about the value of breaking eggs, but for some reason the omelets don't show up.
Except any reasonable proposal for a wealth tax typically leaves the first 5-10 million untouched and marginally taxes amounts larger than that. If you have $10 million in the bank, you're not just a "saver" or "refraining from consumption".
>If you have $10 million in the bank, you're not just a "saver" or "refraining from consumption".
If an economic agent holds a money, they are -- by definition -- saving their money. If they instead decide to speculate with the money "Hmm I think gluten-free bread will be in higher demand next year, better buy ovens today, to sell to the baker then" they consume scarce resources (labor and materials to make the oven). If they invest the money in a business endeavor "Hmm I need to allocate capital from money to wheat, ovens, to turn a profit as a baker to produce bread" they consume scarce resources. These capital allocations change the exchange rates of these goods.
Try as you might to avoid it, all forms of punishing cash holding induces undue consumption.
>No-one is saying that regular Joe's with $800 in their savings account should be penalized for just letting them sit.
Does no one in this thread understand that there already exists wealth taxes in countries without explicit wealth taxes?
While many countries have explicit wealth taxes (Government agency that will demand you pay x on y), many (almost all) countries have wealth taxes that tax "regular Joe's with $800 in their savings account". The central bank in the USA literally has a charter to print enough money so that asset prices rise at a nominal 2%PA. If a central planner confiscates $16 in purchasing power from regular Joe does it matter if its done through direct taxation (taking the $16 dollars) or indirectly (printing enough money so that his future value of $800 will be only $784)?
You're falsely equating inflation with actual wealth tax when they work differently (wealth tax does not apply to every saver, or to every saver equally), and then just blame wealth tax for the faults of inflation that it does not share. Really.
Since you need it spelled out again: unlike inflation, actual wealth tax will not take $16 from your Joe because in case of actual wealth tax, $800 is three or four orders of magnitude below minimum taxable amount of savings.
>If you have a bucket of money that isn't doing anything, then what value does it actually bring to the economy
Wealthy people don't just leave their money under a mattress, they invest it in something. Even if they just left it in a bank, the bank is still going to lend that money out and invest it. Taxing wealth just encourages riskier investments, as higher risk is needed to achieve comparable post-tax return.
That effect would make startups more attractive. But it would be completely cancelled by a countervailing effect: the wealth tax strongly incentives liquid investments. Which of course heavily penalizes investing in startups as they're small, speculative privately-held, hard-to-value companies.
Currently investment is only taxed on a "realized basis". No tax bill is due until the investor realizes a cash profit, either by receiving a dividend or harvesting capital gains on sale of the asset. In contrast a wealth tax is assessed every year, regardless of whether the investor has actually earned any actual income.
Under current tax law, an investor is not penalized for continuing to hold a high-value asset. In contrast under a wealth tax regime, an investor would be forced to sell some portion of his portfolio every year just to pay his tax bill. That heavily favors large, liquid, public companies over startups. Selling a million dollars of Amazon shares is as easy as pressing a button. Selling a million dollars of a Series-A startup, especially at a fair price, is really hard.
This would especially impact early-stage employees, who usually hold a very high fraction of their net worth in their stock options. At least VC investors usually have other holdings that they could liquidate to pay their annual wealth tax.
Imagine you own 20% of a company with a $50 million valuation. On paper, you're a deca-millionaire. But in reality you could easily have an overdrawn checking account. How do you get your hands on $100k in cash to pay your tax bill? There's no real market to sell your shares, and very likely you can't even do so without board approval. You could borrow the money, but if the company fails, you're now left with huge debt and worthless equity.
In all likelihood a wealth tax would pretty much destroy the Silicon Valley startup ecosystem. Or at least remake it into something totally unrecognizable.
Evidence points to the contrary: Taxes reduce profitability and therefore limit risk taking behaviour by companies. Same is most likely true for individuals because it reduces their income.
> Taxes reduce profitability and therefore limit risk taking behaviour by companies.
But taxes provide services that give people a greater safety net. Healthcare is the canonical example but there are many other ways that taxes can help ensure that one mistake does not ruin the rest of your life.
Personally, I would love to live in a country where businesses took fewer risks and individuals could take more.
Exactly. Capital gains tax is equivalent to a wealth tax on appreciating assets only, which is the only kind of assets you should be targeting with a wealth tax. So just implement a sensible capital gains tax, and you're done.
Considering it's the ones who hold the largest pools of assets affected who can buy the changes to the tax code to build loopholes to get themselves exempted, that seems about impossible.
Assuming your thesis that taxing wealth encourages riskier investments for a minute. Why is that a problem? Isn't putting money into riskier assets a good thing for long term advancements in asset classes with high potential reward?
It doesn't seem like low risk investments like sticking money in the bank to be lent as mortgages or investing in government bonds are as good for humanity over the long term.
“Riskier”, but how much riskier? Having to beat inflation by 1% is not that much riskier compared to the gained equality in taxation. Bad argument. You can’t leave off the amount and implicitly use the worst case scenario to argue against all cases.
Considering the risk-free interest rate in the US is currently around 0.7%, finding a low-risk extra percentage point return is non-trivial. Most of these people have wealth managers or invest in funds; you think if they could earn an extra percentage point return without much risk, they wouldn't already be doing that?
Modeling the growth does not change the results in any way that makes the tax seem more favorable.
Taxing away 1% of an asset that grows 0% every year leaves 45% of the assets that would be present without the tax after 60 years.
Taxing away 1% of an asset that grows 7% every year leaves 45% of the assets that would be present without the tax after 60 years.
However, to be more realistic, modeling growth makes the taxation even worse, because at times when your equity is at a high valuation, you need to sell some equity and then some extra on top of that in case your equity value crashes before the end of the year/ end of the tax period. You are forced to act defensively.
I don’t think Paul forgot, it’s why he phrased it in terms of stock not dollars. If you start a company and hold on to ownership for 60+ years, you could be forced to sell X% to cover the wealth tax over the years
The board is unlikely to agree to give a CEO or board member enough stock to maintain control of the company. I don't even think this is an unintentional goal - most wealth tax proponents I've seen are explicitly trying to prevent situations like with Cargill or Walmart, where the founder and his descendants can control the company forever.
Yes, but at the end you'll still have more real value in that stock then you had at the start, assuming your stock at least performs equal with the market.
> If you have a bucket of money that isn't doing anything, then what value does it actually bring to the economy? Penalizing static value seems almost reasonable.
We already do that via inflation. Leave your money uninvested and we tax it 2% or more per year, every year.
One big difference here is that inflation affects everyone equally (not exactly right, but let's ignore that for now). A wealth tax would act as an extra tax on ultra wealthy individuals.
> Someone forgot to model growth in the value of the asset, and/or putting the wealth to use.
It's surprisingly not different.
If you have an asset that is dormant, is $100, and you tax it with 1% for 20 years, you get to $81.79 by calculating 1000.99^20.
Now suppose instead, your asset grows by 10% a year, and you have no tax. That asset grows to 1001.10^20 = $672
Now suppose that prior to the investment each year you tax it with 1% and invest the rest, for 20 years, again at 10%. So you get 1000.99^201.10^20 = $550
That $550 of $672 is exactly the same portion as $81.79 is of $100. In other words, growth or no growth, it has exactly the same effect, either way a 1% tax over 20 years takes 18.2%.
> Penalizing static value seems almost reasonable.
In the philosophy of taxation there's a different approach. Money you own is money you earned. Typically earnings are taxed. You produce X value, and a small portion of X is allocated to a general pot of money to fund general things in society, e.g. infrastructure, rule of law etc. But after that, it's your money. If you then invest it and earn more, again, a portion of those earnings are taxed. But if you don't do anything with the money, for the government to take it, is seen as a form of theft.
The principle why the one form of appropriation is okay and the other isn't, is because when you earn, you benefit. And the government benefits, too. When you just store, you don't benefit, and taking it is a purely negative experience. Many people are willing to share part of their new earnings. Few are willing to give up something that has always belonged to them.
Inflation is a natural penalty on static value anyway. So are opportunity costs. Plus, actually static value is quite rare, money in a savings account is being put to work by the bank. The amount of really static money (like money under your mattress, or a permanently vacant home) is quite a small portion of the financial system and again being penalised by inflation and opportunity costs already.
You're gussying up a "silicon valley" libertarian viewpoint in "philosophy of taxation."
> When you just store, you don't benefit, and taking it is a purely negative experience. Many people are willing to share part of their new earnings. Few are willing to give up something that has always belonged to them.
That's a real stretch when just a sentence earlier you talked about earned benefits and taxation of those benefits. Storage is just the accumulation of earned benefits beyond your spending habits. Value isn't created in a vacuum nor is it used in one. And current taxation doesn't preclude future taxation, it's why us common folk are told to do any of our retirement funding that we can as pre-tax, since who's to say something that is taxed today (and is expressly stated as not being taxable in the future) won't be taxed again later on appreciated or total value. So, by this alone, the government saying taxes now, and deferred taxes later if that valuation meets certain thresholds isn't something that the government can't or even shouldn't do.
And, in many cases, the tax wouldn't apply to startups or their founders unless they're already sitting on multiple tens of millions of static personal valuation; which is where this whole argument really breaks down, and shows its disingenuous colors. When someone like PG talks about these wealth tax valuations in general terms of percentages, many of us are still thinking on OUR terms, which means we're thinking on "normie" scales of 10s or 100s of thousands, or maybe a couple million, where a 1% drop in valuation YoY would make a significant dent in what we can and can't do; when a wealth tax is floated (at least in the US) it's looking at $10M+ in static assets at the individual level, and applies to a wealth class that only a small percentage of people can actually comprehend. And, when a wealth tax is floated in the US, it also has discussions around non-realized asset valuation (such as small businesses, start-ups, etc) and what classes of assets contribute to the total value of an individual wealth tax.
Applying a wealth tax in a general way like how PG has done it is a bit disingenuous, not wrong; but is prone to personal wealth view biases. It becomes even more obvious when we take your example and put it towards something that would actually be taxed... $100M; which you end up with $81M for static assets or $550M instead of $672M in PERSONAL assets. Most only think of numbers in these terms if the "win the lottery" so who in the general public thinks the difference of $122M over a lifetime of nearly 3/4 of a billion dollars in wealth (not earnings, but accumulated valuation) isn't a bit of a "whatever," they'll pay more in taxes on that Mega Millions winner and won't bat an eye. (this also works for the usual lower bound as well, $10M, but $100M is guaranteed to be included in any of the recently floated wealth taxes).
It doesn't matter how much your shares appreciate. You can't retain control of your company if you have to give up a significant fraction of your votes every year.
> If you have a bucket of money that isn't doing anything, then what value does it actually bring to the economy? Penalizing static value seems almost reasonable.
So now we should be penalizing unproductive assets? When did we all decide that was ok?
Based on that logic, wouldn't I be justified in draining someone's savings account in order to invest it more productively in stocks? Maybe it's ok to steal land from people if I will grow more crops on it than they will?
You can justify taking pretty much anything if you say you will use it for something more productive. What about property rights? Why should people who have played by the rules and built wealth in our society, which they were encouraged to do, then have to live in fear that their wealth might be taken from them?
> So now we should be penalizing unproductive assets? When did we all decide that was ok?
We already do that---it's called inflation. And the justification used by economists is that the economy will collapse without inflation to incentivize spending money.
Inflation was not intentionally invented as a tax. It is a characteristic of a monetary economy. Economists prefer it to deflation because it deflation is worse, but that doesn't mean that we invented inflation on purpose as some kind of social engineering tool.
> that doesn't mean that we invented inflation on purpose as some kind of social engineering tool.
We didn't invent inflation, but we absolutely do set a target inflation rate as a social engineering tool. And the reason that deflation is considered "worse" is because it lets people keep equity in unproductive assets instead of liquidating it and moving the money into more productive assets.
> And the reason that deflation is considered "worse" is because it lets people keep equity in unproductive assets instead of liquidating it and moving the money into more productive assets.
No, the reason deflation is considered worse is the possibility of a deflationary spiral.
The Fed is primarily interested in preventing a collapse of the banking system. They don't really care if people are spending their money on productive investments or hoarding it -- in fact, if everyone was spending their money on productive investments there wouldn't be any bank reserves, and the Fed would be very unhappy about that.
Government Spending is included in GDP and government services have value to a society.
It is not simple just a management fee because instead of being used to purchase a luxury goods it may be used to improve healthcare, infrastructure or regulating industry.
If it wasn’t for government investing into DARPA none of these startups would even exist.
But the wealth tax is on top of property tax. You would most likely have to sell it off in lots (if you could) to pay the wealth taxes on it if you aren't say farming or renting it and "making money" on it rather than it just sitting there storing value.
Graham does the classic magician's trick of showing you something shiny so you don't see what he's doing with his other hand.
In this case, the shiny is the scary 45% figure. What he draws your attention away from is the bizarre hypothetical:
> Suppose you start a successful startup in your twenties, and then live for another 60 years. How much of your stock will a wealth tax consume?
Who is this hypothetical 20 year old that becomes indepedently wealthy, and then doesn't work for the rest of her life? And despite being so wealthy, she opts to pay 100% of her taxes by liquidating her stock rather than out of her salary or investment dividends?
Even if we go with Graham's strange hypothetical, oh booh-hooh, this lucky individual can retire in their 20's and dies richer than 99% of the rest of us. But in reality the hypothetical looks more like this:
1. Very lucky 20-something makes it big and now owns $50M of stock in her company
2. She gets $1M per year in dividends, $1M per year in salary, and her stock increases in value by $5M per year (5% annual growth)
3. The first year she pays $1M on a 1% wealth tax, and her net worth increases by $6M. Similar math in following years.
4. She retires sipping martinis on a private island in Florida
The author is playing the typical Rich man's game. Oh woe is me, look at these poor people who this tax will destroy!
The fact that so many people here are defending them, is maddening and disheartening. Arguing that anyone with a value of over 50mm can't pay a higher tax rate on those funds is disengenous at best.
I find PG interesting to follow on Twitter in that I don't always agree at first with what he says, but it can lead me to investigate and confirm or adjust my position. But on these topics I often get the vibe that he's leaking personal concerns.
Maybe it's not purely selfish but the idea that he's looking out for his cohorts of young motivated founders, yet even that feels off. I doubt many start a business desperate for tens of millions; I'd guess the primary motivations are control of work schedule and basic FU money.
It's easy to dream up scenarios that prove your point. How about this one:
Company has a bad year. Dividends are cut to zero. Founder reduces salary to bare minimum required for her expenses. On paper, she still has $50 million net worth of illiquid non-public stock. Government demands $200,000 wealth tax. How does that play out?
A $50M company that gives $1M in dividends is worth $49M. It would need ~12% growth to be worth $55M. A company deciding to issue dividends does not change the net worth of any shareholder (it can actually have a negative effect due to tax inefficiency).
So to your example: A $50M company grows 5% a year. Lucky 20-something holds a stock+dividend value of $52.5M before tax at year's end. Of her $1M salary, ~$330k goes to federal income taxes, another $30k to FICA. Too bad she's in California, that's another $100k in state income taxes.
Still, she has ~$540K left over in liquid income. Perhaps she can use this to pay off her $500K wealth tax liability and keep full company ownership if she lives modestly.
Next year presents a bigger challenge. Lucky 20-something's company has grown in value by 5%, and so too has her wealth tax burden. However, her salary needs to grow by ~7% to account for income taxes (and a higher growth rate would have made this worse). This is clearly unsustainable and she will need to sell some company shares before her exponentially growing salary eclipses the value of the whole company!
She'll still be rich enough to retire whenever and sip martinis in Florida of course, she just won't hold the majority of the shares of the company she founded.
Edit: I realize that I sort of neglected dividends after the initial bit. A company could pay off 1.2% (to account for capital gains tax) of it's total value as dividends assuming it had sufficient liquid holdings (and it can't sell stock to come up with them, as that would defeat the purpose). In this case, it would cut company growth potential by about 25% but could allow lucky 20-something to retain control, provided the company can always come up with the liquid assets, even in down years. But that's probably the most realistic scenario of this working.
This is not modelling a wealth tax. This is disingenuous whining because it fails to take into account that wealth taxes kick in at the point that where people have become wealthy. Lets say it kicks in at 100 million. So you still get to keep 100 million before you pay any tax on that wealth? Or in other words you still get to be incredibly, obscenely wealthy, you just reduce the chance to become wealthy beyond the dreams of avarice. Not seeing how this is particularly demotivating to people want ting to found startups. Lets say it kicks in at 10 million instead. Again you still have the chance to become extremely wealthy before you have to pay it. And if you don't think being worth £10 million is extremely wealthy that's because youre comparing yourself to billionaires. Even if it kicks in a £1 million you still get the chance to become wealthy! Sure maybe at this point to you're reducing the number if people willing to put in 80 hour weeks in the hope of winning the startup lottery but given the number of people who pour their heart and soul into passion projects without the chance of becoming billionaires I don't see that as a problem. Seriously this idea that if we tax the wealthy to the point where they can only afford a single yacht and a modest private island they'll all go on some terrible Randian strike and well somehow lose the value they create is bollocks.
(1913 $3k -> roughly $80k 2020 in standard inflation adjustments. At a time when a recent-graduate civil engineer made ~$1k, or with 10 years experience in the low $2k's, according to https://libraryguides.missouri.edu/pricesandwages/1910-1919. A person making $3k was loaded.)
I'm answering a rant about how unreasonable it is for a nonwealthy person to care about a wealth tax. The income tax was sold to us as a tax on only very high earners, a tiny percent of everyone.
(I think it's fair to characterize rhetoric that starts with "disingenuous whining" and goes on from there as a rant.)
Think about it this way, in a very similar, live example:
It is common practice to pay a fee of 0.5-2% to a wealth manager. In practice for many people this fee is worthwhile and wonderful - the benefit is a safely managed and vigorously growing pool of assets.
Is a wealth tax as described by the author really so different? In one case you pay a fee to the manager, in the other case you pay the fee to a more abstract/distant manager (the social system). In both cases, that small fee (small if everyone is generally competent and the wealth grows) is what empowers further growth.
No sane, logical person complains about paying $0.20 when in return they get an extra $0.30 back. In this case, I suspect the author is trying to justify receiving that hypothetical $0.30 without having contributed their initial $0.20. Embarrassingly simplistic, selfish, and self-centered.
Reading that blog post, I’m reminded of the occasional, deluded person who believes that they alone are responsible for their successes and good fortune. In reality, all successes are collective accomplishments. This is a fundamental fact about human life.
> It is common practice to pay a fee of 0.5-2% to a wealth manager. In practice for many people this fee is worthwhile and wonderful - the benefit is a safely managed and vigorously growing pool of assets.
You pay that fee because the manager supposedly does something that helps your wealth grow faster than their fee.
When Vanguard comes along and shows you can get the same or even better returns with a 0.04% fee instead of a 2% fee, what happens? People take their money and move to where the lower fee is. Why would it be any different for a wealth tax?
Society may make wealth in general grow faster, there is no guarantee that it will help your specific wealth grow faster. You pay a wealth manager because they manage your wealth, specifically. They examine what opportunities are suitable for you based on your goals and risk profile and seek those out. "Society" doesn't do anything like that.
Let alone the fact that you are already paying taxes: income taxes, property taxes, sales taxes, payroll taxes, etc. etc. to pay for all of the benefits that society provides. If the wealth tax is going to replace some of those, then sure maybe we can talk about whether it's more efficient or effective than any of those. If we're just going to keep piling on tax after tax "because society" maybe we should ask if society needs to get its act together and use the tax revenue it already gets more efficiently.
1) Your reasoning, even if potentially valid (I don't think it is) is incredibly selfish and leads to the exact scenario of rising inequality that we have today.
2) Social benefits accrue to everyone, including wealthy people. They just accrue equally to everyone rather than unequally to your specific wealth. That's an important distinction here because you're basically saying you should get favoritism for your wealth because you happen to have more of it. That's a bit of a weird stance.
3) In case it's not clear, the US doesn't currently collect enough tax revenue to actually pay for a well-functioning society. Take a look at [1]. If you want a first-world society on par with Denmark or Sweden, guess what...
> Social benefits accrue to everyone, including wealthy people. They just accrue equally to everyone rather than unequally to your specific wealth. That's an important distinction here because you're basically saying you should get favoritism for your wealth because you happen to have more of it. That's a bit of a weird stance.
I'm not arguing for any kind of favoritism. You're saying we should welcome a wealth tax as a kind of management fee. I'm only pointing out that that is not the case. The government does not have any responsibility to act in your specific interest the way a wealth manager does. It is a false equivalence.
> In case it's not clear, the US doesn't currently collect enough tax revenue to actually pay for a well-functioning society. Take a look at [1]. If you want a first-world society on par with Denmark or Sweden, guess what...
Your chart shows taxation as a percentage of GDP. There are two ways that your tax revenue might be a low percentage of GDP, one is low taxes, the other is high GDP. The US also has a much higher GDP than any of these countries.
Are you arguing that the amount of money needed to "pay for a well-functioning society" is proportional to the GDP? That if our society produces lots of valuable goods and services then this means that it needs to spend more government money? Intuitively I would think the opposite would be true. A high GDP means a lot of people are producing valuable things, which should mean they need less assistance from the government.
Wait, what? You say you're not arguing for favoritism, and then you say that it's a false equivalence because the government doesn't have a responsibility to act in your specific interest. Acting in your specific interest is favoritism. You're not being consistent here.
I see what you're thinking on GDP, but the things a wealth tax would go to fund (and does go to fund where it exists today) are percentage of GDP services. Things like healthcare, education, and a social safety net. These services naturally rise in cost in accordance with GDP because standard of living is supposed to rise with GDP per capita as well. This is why topics like healthcare cost are just about always framed in per capita or % of GDP terms. It's just that in the US our inequality distorts things considerably. You're also implicitly conflating averages with medians. It is 100% possible that a high GDP reflects that monetary value is being produced by a small portion of the population (possibly by exploiting workers), while the rest of the population needs more government assistance. There's a strong case that the US embodies this situation more and more over time.
Yes, it's a false equivalence. That does not imply that the two things should be equivalent. Nowhere did I state that they should be equivalent. I'm just saying they're not. So your argument that "a wealth tax is good because it's the same thing as a management fee" is not valid, because the premise is false. A wealth tax is not the same thing as management fee. That doesn't mean that they should be the same thing. It means you cannot draw conclusions based on them being the same thing, because they are not.
> Things like healthcare, education, and a social safety net. These services naturally rise in cost in accordance with GDP because standard of living is supposed to rise with GDP per capita as well.
They don't have to. A more efficient and advanced economy should produce basic necessities with less effort and therefore less cost than less productive economies. The costs of things like healthcare and education in the US are vastly distorted for a number of reasons.
I don't think siphoning off wealth from productive areas of the economy and pushing into areas that are already overpriced is going to help. Education, for example, already receives massive Federal subsidies via guaranteed loans. That hasn't made it less expensive. It's made it more expensive as college raise prices to match the amount of capital available to pay them.
I can easily fire my asset manager, or switch to a plethora of low cost options, or manage my capital myself. How exactly will I have those options with the wealth tax if you like you said, I’m not getting that rate of return justifying the tax?
If you're a citizen of a country, you automatically get all of the benefits that come with it: personal safety, transportation networks, infrastructure, etc.—all things that enable your business to be successful. Since you can't opt out of these benefits (without leaving the country), it makes sense that you shouldn't be able to opt out of their cost.
Thinking more about this and taking the wealth manager analogy deeper...
In the case of a wealth tax, I imagine wealthy, powerful people would play a more active role in ensuring the competence of their elected officials. They'd like that tax they're paying to go a long, long way, much as clients expect their fees to a wealth manager to facilitate the best possible work.
This is simplistic to the point of absurdity, and doesn't model how any sensible wealth tax would be implemented or paid.
First, any wealth tax being seriously discussed has a floor and/or has marginal rates, probably starting at 1 or 5 or 10 million (or higher).
Second, taxes don't disappear into nothingness - they pay for civilization. It is clearly beneficial to everyone to live in a society where people are well cared for and have healthcare, public education, welfare, etc. There's a reason failed states and unstable/developing countries generally aren't where people are looking to startup the next big tech company.
Third, any smart founder isn't going to just sell 1% of their stock every year and pay the wealth tax with that. They'll take dividends, or take out a loan against the value of the stock, or use some cash from other investments, or whatever, and maintain control of their company. Yes, over the long term they'll lose some wealth, but not necessarily control of their company, unless that's the decision they make.
Fourth, this effectively ignores that wealth is a thing that grows and compounds. If your wealth is increasing at 4% a year (very attainable for the class of people a wealth tax would affect) a 1% wealth tax really doesn't have as big an impact on your long term wealth as this makes it seem.
Fifth, the idea that people "will just move to another country" is very silly. If some people do leave, or start companies only in other jurisdictions, that just means there's a market opportunity for the many people who remain. Unless this supposes that no one wants to take advantage of one of the richest markets in the world because they might have to pay a small fraction of their wealth to the government. Not to mention that even very wealthy people likely want to live in a good society - we don't see many people starting companies on boats in international waters for a number of reasons (left to the reader).
I suspect that Mr. Graham is wringing his hands over potentially having to cut a large (in absolute terms, but small in relative ones) cheque to the government in the future, and I certainly feel for him, but I'd much rather we have well funded schools and welfare for those who need it.
> the idea that people [read: super rich] "will just move to another country" is very silly.
This is a recurring theme in owners/investors: they always have some story that they will be forced to leave or close shop if some labour-proteaction-laws (like weekends, or 8h days, or banning of child labour), or taxes are implemented. It's a very old story, there's a history to it.
Please note that we have weekends/8h work day/ban on child labour and also still have the super rich. They never left. They did pass law that allow them to shift production overseas. But those laws can be repelled and then we will hear the story again of how this will kill their business,or force them to leave.
Let them leave. We have a government all the more for ourselves. We need not purchase products built with the exploitation of cheap, and even forced, labor.
Why are so many software engineer jobs in California, the highest cost of living state, and not in the lowest cost of living state with lowest taxes then?
You overlook the value of regional nexuses, and the positive externalities can dwarf the negatives of the taxes or regulations.
This is an artifact of history and where the companies that started Silicon Valley existed. California in the 50s, 60s, and 70s was a different place than it is today. It's remained a nexus in spite of the taxes and cost of living, not because of it. That doesn't mean you can raise taxes and cost of living arbitrarily high and the nexus will never shift. There is no force of nature keeping it in place, just habit and custom.
We're rapidly finding out this year that we don't even need to be in a particular place to continue working together, something that has only become true relatively recently.
It is dangerous to assume that things will remain the same as they always have been, regardless of other things that change.
There's obviously a breaking point at which people will leave. There's a thread here almost every day now about how everyone is moving out San Francisco.
It's also dangerous to assume that every business decision hinges on taxes. One of the extremely annoying things about politics is people constantly arguing that GDP growth is a function of some marginal tax rate here or there. The obsession with taxes overlooks so many other facts that govern success.
Why isn't Sweden a hellhole? They have higher taxes than many other EU localities, but have a more vibrant startup economy.
The artifact that created Silicon Valley was the University of California system, and the location of military and national labs, a nexus of government and academic R&D, with a ready and waiting STEM labor force. It was not because it was a tax and regulatory haven.
The academic and military labs were definitely big factors. There's also:
- California doesn't enforce non-competes - which allows people to leave and form new companies. The "traitorous eight" are as much part of the founding mythos of SV as the acadmic/military labs. That is a regulatory decision.
- Founders and early employees get paid largely in stock or stock options, which are taxed less than salary. This provides them with capital to become angel investors in new companies and provide not only funding, but mentorship and connections. That's partly a consequence of the way capital is taxed. If you start taxing capital so that founders aren't left with enough to become investors, you'll break that feedback loop.
They are not. In 2016 China produced about $4.566 trillion in manufactured goods. Coming in 2nd place, in 2016 the U.S produced about $3.602 trillion in manufactured goods.
He didn't say manufacturing output but jobs, a more relevant number for that argument would be total labor cost in the sector and it's change over time between two countries.
That's not such a relevant number because plenty of those US jobs went to automation, not to China. There are still over 12 million manufacturing jobs in the US. About 8% of all US jobs which is a significant chunk. Easily disapproving the wild exaggeration that "all of the manufacturing jobs are in China... ".
The point was that businesses actually have followed through on those threats to move away from countries with things like "workers rights" and "unions" and "8 hour workdays" - it just took a few years. The fact that all the major new businesses in the US are software and other 0-marginal-cost products should be a big warning sign.
As always, if you "tax" something (or otherwise make it more expensive), you will have less of it.
I don't buy it. "Worker rights" and "unions" aren't the drivers of globalization or deindustrialization.
Let's make an example. Suppose a "rational investor" in a globalized market is considering whether to manufacture a commodity in San Francisco or Jaipur.
The cost of living in San Francisco is 200%-2000% higher than the cost of living in Jaipur.
The rational, by-the-numbers move is to put the factory in Jaipur because exchange rates make it radically cheaper. That's the real driver. Even if the would-be workers in SF made every conscionable concession and slogged for 25 hours a day, it wouldn't overcome the currency differences. Even if the workers in Jaipur had the most generous PTO and the most corrupt union boss, it wouldn't overcome the currency differences.
Of course, if you were pitching a town in South Carolina against a town in Pennsylvania, then maybe you'd consider numerically small differentiators like "how much extra do you have to pay for the 9th hour of work" - because small differentiators are the only differentiators available.
But that's not the issue with globalization. "Globalization" doesn't mean "moved from PA to SC to trim wages by 5% via lax overtime rules". It means they moved to Vietnam or China or Bangladesh to change the basic unit of measure with an aim to slash labor costs by 50% or 80%.
> The cost of living in San Francisco is 200%-2000% higher than the cost of living in Jaipur.
Why on earth do you assume that this is unrelated to workers protections? These protections aren't a bad thing, but to ignore their negative impacts can be shortsighted...
It's not a warning sign. The biggest new Chinese companies are also software companies. The barriers to entry in manufacturing are fairly high and the opportunity for becoming a Facebook by making widgets is almost non-existent which is why almost no one is trying to change the world by starting a manufacturing company.
start-ups are even easier to Geo-arbitrage than manufacturing. I think we would definitely see an increase in companies moving abroad. That trend already exist with small companies in the "information economy". See the book "Nomad Capitalist"
The most significant reason why (manufacturing) jobs no longer exist in the US is our exorbitant privilege of being the global reserve currency. It has nothing to do with labor laws or taxes.
The US GDP contribution of manufacturing is about $2 trillion per year, and employs about 9% of our workforce. That is a far cry from having all of our manufacturing jobs shipped overseas.
Due to lower labor cost and relatively stable government. Nobody even knows what China’s tax rates are. These jobs are also not in Chad or Central African republic
Singapore exists at the behest of the United States. Its sovereign wealth fund is heavily invested in the United States and its geopolitical precariousness on the straits of malacca is predicated upon the implicit protection of the United States Navy.
It's a political choice to let millionaires flee there, just as it's a political choice not to tax them at home. A snap of the US's fingers will change Singapore's policy.
Like when Wrigley sent a US Congressman to visit - he snapped his fingers and chewing gum was no longer banned.
> Singapore exists at the behest of the United States.
That's true of basically 85% of the world. The only really independent countries, as far as I can tell are the US, China and Russia with France, Germany, UK and India on the edge.
I'm not sure what your point is unless you think the US will suddenly reverse its centuries old policy and start colonizing the world.
That's precisely why the argument of "if we tax the rich they'll just take their wealth elsewhere" doesn't stack up. If it happens, when it happens, it happens because we made a conscious decision to enable it.
> Like when Wrigley sent a US Congressman to visit - he snapped his fingers and chewing gum was no longer banned.
He must not have snapped very loudly, because the only way to buy chewing gum to this day is as medicine (e.g. nicotine gum) from a doctor or pharmacy.
The possession and consumption of chewing gum (this feels hilarious to type) have always been legal; the import, sale, and manufacturing of chewing gum was banned, as it still is save for the “medical” exceptions.
I can show an example otherwise - the PM of Singapore saying no to Bill Clinton when he asked the Singapore authorities to not impose corporal punishment on an American citizen (caught for vandalizing cars).
Singapore is not just dependent on the US. It depends heavily on China too. Defense wise, Singapore has one of the strongest forces in the region.
And most millionaires in Singapore are Singapore citizens.
Singapore's status is not just some offshore tax haven, as seen by many in the west. It has a diversified economy.
> There's a reason why Singapore has the highest concentration of millionaires in the world, and it's not because of their school system.
No, it's because it's a city-state, and millionaires tend to be urban, so comparison with countries with lower urbanization is misleading. New York City (which has a population not much larger, so it's a community of roughly comparable scale that, like Singapore, is 100% urban) has a notably higher concentration of millionaires than Singapore does. (1 in ~8.4 compared to Singapore's 1 in ~20.)
> how do you explain all the millionaires taking up residency in Florida to avoid NYC taxes
They treat Florida residency like a flag of convenience[1]. There are some who legitimately retire or move to Florida for a lifestyle change - not exactly a new phenomenon - and a bunch of young professionals who choose to live in Miami because it's Miami, but for most it's just paperwork.
David Tepper is a great example. He "lives" in Florida and moved Appaloosa to Miami, but Charlotte is now the center of his personal life and he spends almost half of his time there.
This is the exception that proves the rule; even with high taxes and low-tax alternatives reasonably close by, enough millionaires continue to choose NYC that it's among the most likely places you'll find one. Same goes for California.
> No, it's because it's a city-state, and millionaires tend to be urban, so comparison with countries with lower urbanization is misleading. New York City (which has a population not much larger, so it's a community of roughly comparable scale that, like Singapore, is 100% urban) has a notably higher concentration of millionaires than Singapore does. (1 in ~8.4 compared to Singapore's 1 in ~20.)
I'm not sure what your point is. Unless you're claiming that cities spontaneously generate millionaires?
From what I can tell, NYC has lots of millionaires primarily because rich people like to live there, so rich and talented people move to NYC from all over the US.
The same thing is true of Singapore, except that - as you so rightly point out - there is no "rest of Singapore" for them to come from. Instead, they come from the rest of the World, by necessity.
> From what I can tell, NYC has lots of millionaires primarily because rich people like to live there, so rich and talented people move to NYC from all over the US.
I couldn't find any data on this with a quick search, but my instinct is that NYC probably generates more millionaires than it acquires. You can move to the city straight out of college and become a millionaire in relatively short order if you land the right job; it's a much more circuitous path to get rich by starting, like, a construction company in rural Nebraska and then move to NYC.
The same seems (broadly) true of other financial or tech capitals. It's easier to build wealth in cities than outside of them.
> my instinct is that NYC probably generates more millionaires than it acquires. You can move to the city straight out of college and become a millionaire in relatively short order if you land the right job;
I guess it depends on how you count. I see most those people who would have been millionaires anywhere they moved to (e.g. top 10% Harvard law grad).
Will they make better money in NYC than probably anywhere else in the US? Probably. Are there more high paying law and finance jobs in NYC than anywhere in the US (with the possible exception of DC)? Probably.
But as many people are fond of pointing out, that doesn't really consider labor's role in this. NYC has jobs, but it needs talented people. There are plenty of talented people who are born and grow up in NYC, but there aren't nearly enough to fill the high salary jobs that open every year.
> I see most those people who would have been millionaires anywhere they moved to (e.g. top 10% Harvard law grad)...NYC has jobs, but it needs talented people.
This is kind of my point (and, I assume, the OP's): most of those people move to the city to become millionaires, not because they already are millionaires and prefer to live in the city.
In that regard, cities do sort of spontaneously generate millionaires in that most wealth is produced there and not (there's probably a better way to phrase this) imported.
> I'm not sure what your point is. Unless you're claiming that cities spontaneously generate millionaires?
There's nothing “spontaneous” about it; millionaires don't just appear out of the ground, they arise through economic activity that is more concentrated in centers of trade and commerce, aka, cities.
But indeed corporations (which are "people") have moved en masse to Ireland.
And New Jersey saw a significant exodus towards lower tax states among its richest.
It's not empty threats - it's just that the cost of the taxes has to be higher than the cost of moving. For most people, the cost of relocating is higher than the taxes. For the richest people, this wealth tax might just tip the scales.
Ted Arison and Eduardo Saverin are the most famous examples I'm aware of - it's mostly because laws were changed after they managed to move without being taxed. Do you think there are no more loopholes? Do you think these are the only cases?
This is a great illustration that the wealth tax is not about rational policy. It's based on nothing but emotion and ideology.
We're not debating here the need for taxes, or labor protections. You don't get to justify bad policies by pointing that there are places where government regulation is called for.
Wealth tax is bad policy. Justify it on its own merits.
Your absolutist statements ("based on nothing but emotion and ideology") do nothing but betray your own ignorance.
As an American living in Switzerland, a "good policy" (whatever that means) here has resulted in: 1) no capital gains tax, nor any capital losses and certainly no carryover loss shenanigans but 2) using a wealth tax in lieu of capital gains tax to collect any sort of tax on those who have presumably been using their capital to beget more capital.
Switzerland does not have any flight of capital, still actively is sought after for parking wealth (which is actually an economy-distorting problem as foreign investors seek to buy stable assets in the Swiss market), and definitely still has an ultra-rich class residing here or moving here.
So, if you thought wealth tax alone was bad policy, how does wealth tax plus removing everything-capital-gains (especially the carryover losses which the current US President likes to excessively utilize) sound as effective policy?
$3k is just the amount you can deduct from income each year. You can carry over the rest of the loss to future years until you die (not inherited by your heirs).
Holding on to wealth is an inherently risky prospect. Let's say you are very wealthy but live in an unstable country. You're like a dragon sleeping on its pile of gold. Your wealth is a target. You need to hire considerable amounts of security, stockpile weapons, etc. in order to preserve that wealth.
In a stable country, your wealth is not under that risk and you do not need to pay for that risk mitigation. You accrue the benefits of the wealth without taking on the risk.
In other words, the act of amassing wealth and keeping it is a direct function of the stability and prosperity of the country in which you live.
Because larger amounts of wealth incur larger amounts of risk, it makes sense that a portion of that wealth should be distributed to the country at large: for example, to pay for the less wealthy people who join the military to protect your wealth.
Now: what separates that from the existing notion of income tax, capital gains tax, etc? The idea that your wealth, as it is sitting there (not its growth, not what you are earning), is incurring a cost to society, and that society is taking on risk in order to keep your wealth safe. Risk you are not directly paying for.
Furthermore, in a stable and modern country holding onto wealth is so safe and protected that you can safely invest your wealth in markets and accrue compound interest. That is the polar opposite of what you would do in an unstable country, where you would keep your wealth hidden away underground, in mattresses, etc. So you are gaining a tremendous wealth-growth benefit by being in a stable country. (This doesn't seem to be addressed in pg's post, which I found confusing, because at 1% taxation you'd be below average market gains and would still gain).
I'm not sold on the above argument being a truly compelling and overriding one for wealth tax, it's just some foundational thinking. I do think it explains, in part, why a wealthy person might choose to live in a country with a wealth tax over a country without one, assuming wealth tax became fashionable across most stable countries.
Stability is one thing. But super rich like growth opportunity even more.
Now what about you can grow your wealth a lot faster if some laws change, would it justify a lobby campaign? Stability is one, but favourable laws for super rich have been passed and are upheld for so long.
The fact that fines are not wealth and/or income dependent is a testimony to the dysfunction of democracy. The absolute fines implemented in most countries enable certain "high net worth individuals" to ignore fine all together.
Well depending what the fine is for, absolute values might make more sense.
Eg for people overusing water during a drought, if you can fine them enough to build a water recycling plant that recovers the water they wasted, that essentially undoes the harm they caused. Why fine poor people less if they aren't doing less harm?
I don't see why. There's a huge body of work that shows that taxing wealth versus capital income is likely to increase productvity while reducing income inequality, which is a hug source of our current economic problems and polarization: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3454385. Two MIT economists just won a Nobel prize for showing the benefits not just in a developed economy but globally.
>>Please note that we have weekends/8h work day/ban on child labour and also still have the super rich. They never left.
The fact that are still super-rich people doesn't imply that such interventions did not have a negative on the number of people who are super-rich in the US. High taxes have a well-established negative effect on capital formation, and investment in-flows. This isn't some conspiracy theory promoted by the super-rich to manipulate you.
I think you're giving the arguments made against high taxes a very shallow treatment.
> High taxes have a well-established negative effect on capital formation, and investment
That's interesting because in absolute numbers countries with a very high taxation are among the first for number of millionaires.
Japan is 3rd, UK is 4th, Germany is 5th, France is 6th, Italy is 7th
Compared to the population, Switzerland and Honk Kong are 1st and 2nd
In Switzerland taxes are usually low compared to the rest of Europe, but in Geneva they are 45.5%, the highest rate for Switzerland and yet is the city with the highest concentration of millionaires per square kilometer in the World, more than Monaco and SF.
Millionaires in Switzerland are almost two times those of the US compared to the population (9.5k/100k vs 5k/100k)
4th is the Netherlands, 5th is Denmark and 7th is Sweden, three countries famous for their high tax rates but equally high social and economical wealth.
It must mean that high taxes don't have a negative effect on capital formation and that "developed" is more about fairness and justice of the system and not about "how many more billionaires there would be if the system was less fair?"
1. Development can roughly be summarized as a measure of per capita GDP.
2. The rest of the world has been gaining ground on the developed world over the last 50 years. A common pattern could be that countries institute sensible economic policies, based on what science (Economics) says works, and then when they get wealthy, become complacent, and adopt all sorts of anti-capitalistic policies that retard economic growth rates, which in turn results in all socioeconomic metrics stagnating.
Speaking of socio economic indicators, wanna talk about homicide rates in US, ten times higher than the European average and 1.5 times worse of Nigeria?
It means that every 2 homicides in 100K citizens in Nigeria there are 3 in USA.
It's easier to get shot and killed in USA than in Nigeria.
Doesn't sound very developed nor that the system is working towards a better life for everybody.
If you were right that would not be possible
If fighting for the children to stay alive after being born is anticapitalistic, than BIG THUMBS UP for the anticapitalism
Inequalities lead to very few living very well and the rest just surviving
Economics IS a science. This anti-Economics bias rears its head whenever people find economic evidence contradicts their ideological narrative.
It's similar to the anti-Medicine bias exhibited by anti-Vaxxers, who frequently cite the many mistakes made by the Medical establishment and orthodoxy, in an attempt to discredit it.
>>Unfortunately it also has one of the worst children mortality rate among the 36 most developed countries
The correlation between per capita GDP and quality of life is not perfect, yet it's there nonetheless.
Pointing out an outlier doesn't invalidate my point that development is generally a measure of per capita productivity.
And while we're on the subject: the US has unique attributes that have nothing to do with its economy, that result in higher infant mortality statistics.
For example, the US has a much higher proportion of its population of sub-Saharan African ancestry, which is a cohort that has higher infant mortality rates in European countries as well.
The US also has the best neonatal facilities in the world, with a much higher proportion of premature infants being counted as live births and subsequently cared for, than the norm in the developed world. Counting the deaths of premature babies as infant deaths, instead stillborn, is the biggest contributor to the US having higher infant mortality rates.
The rest of your comment is you veering even further from the subject matter, to attack the US. This shallow and overly emotional treatment of Economics doesn't do the complexity and importance of the subject justice.
>>Not because I am anti economics, but because there is no proof available
Yes, it is. Scientific proof is not available in economics, but that doesn't make it not a science.
You're disagreeing with academic consensus on what economics is when you claim it is not a science.
>>My parents are doctors
>>I know the difference
That you have these advantages and are exhibiting this clearly ideologically motivated anti-science bias is even worse.
>>Have you ever had an emperor that ruled your continent born in Africa?
What the hell does that have to do with anything?
>>Are you a racist?
Again, what do these despicable attempts at character assassination have to do with anything I argued.
>>It actually does not
People of sub-Saharan African ancestry in Europe DO have higher infant mortality rates..
>>Proof?
Do some research on the causes of higher infant mortality rates in the US. It mostly comes down to more pre-term births being counted as live births, and the deaths of these infants being counted toward infant mortality statistics, instead of being counted as stillbirths.
“Scientific proof” isn't a thing. Empirical falsification of a hypotheses is, and it is absolutely available for the subject matter of economics (as conventionally understood; Austrian-school ‘economics’ overtly is a system of working out the implementation of deontological principles and is thus more a branch of moral philosophy than of social science, but that's an exception.)
It's true that a lot of the work done on economics is or builds on speculation beyond the present practical capacity of reliable testing due to complexity, but that's not uncommon (even if the ratio may usually be lower) in other scientific disciplines.
Lay (and particularly government) people frequently fail to understand the status of various economic ideas and treat speculation on shaky foundations of simplified models taken outside of their area of utility as approximations as truth, but that is also not uncommon in other scientific domains, though the practical consequences of it in economics may be more pronounced.
> but that doesn't make it not a science.
Not being a domain in which hypotheses are subject to empirical falsification (the closest thing there is to “scientific proof” in any domain) would, indeed, make it not a science.
Economics is a social science, and is widely acknowledged as such.
Economic theories are not falsiable, but neither are climatology theories, and no one would claim climatology is not a science.
Soft sciences are distinguished from hard sciences for not being subject to controlled experimentation, which can derive something approaching scientific proof, pedantry notwithstanding.
What's motivating the 'economics is not a science' narrative here is the same thing that motivates attempts by anti-vaxxers to discredit Medicine and Epidiomology: their beliefs are being contradicted by the experts in the field.
Sorry I don't have the time to respond in more detail to your comment. I just wanted to quickly make that point.
> Yes, it is. Scientific proof is not available in economics, but that doesn't make it not a science.
It literally does.
> That you have these advantages
A doctor parent in Italy is not advantages, my parents come from poor families, are born during the ww2 and studied a lot to get there, working hard while studying to support their families
They are now retired and worked their whole.life for the public healthcare systems, they weren't high paid surgeons the like you see in US TV shows, they simply wanted to help people, not get rich.
That's why they never made a lot of money.
It is possible in countries where studying doesn't mean taking a loan of hundreds thousands of dollars, but it's almost free for everybody
You know that thing you hate there, called social welfare?
Makes miracles, especially for keeping babies alive.
> What the hell does that have to do with anything?
That most of us in Italy have African ancestry in our DNA
> People of sub-Saharan African ancestry in Europe DO have higher infant mortality rates..
They don't.
Look at France, 8% of the population comes from Africa, their infant mortality rate is 35% lower than the US
Not 1,2 or 3% less as one would expect from the richest country in the World, 35% less
It means US has 1.5 times worse infant mortality rate than France
Every 2 in France in US there are 3
That's a very large difference!
What's the explanation for having a 3.625 times worse infant mortality rate than Estonia whose GDP is so low that it is measured in billions?
> Do some research on the causes of higher infant mortality rates in the US.
Do some research on what make other countries have a better record than US
There are at least 33 of them
BTW what's your excuse for the mass shootings or the homicide rates worse than countries controlled by warlords or having the lowest life expectancy of the west?
Are those traits that actually make US better than, for example, Sweden?
Can you prove in any meaningful way that growth = general wellbeing?
I mean, without blaming black people if you can...
>>That most of us in Italy have African ancestry in our DNA
First of all, that has no relevance to the debate. Second, everyone has some trace of DNA from every region. That's not a revelation. Third, it was almost all North African admixture in the Italian population, not sub-Saharan African admixture, and it was people of sub-Saharan African ancestry which I specified as having high infant mortality rates in the US and Europe. So even your Red Herring is incorrect.
>>Look at France, 8% of the population comes from Africa, their infant mortality rate is 35% lower than the US
North African is not "sub-Saharan African". Most people of African ancestry in France are of North African descent.
And I didn't say demographics constituted the entire cause of the US's lower infant mortality statistics. I clearly said it's mostly due to methodology, with the US counting more premature births as live births, and consequently, the deaths of premature babies as infant deaths, while other countries count more deaths of premature babies as stillbirths.
Anyway, you've completely avoided dealing with the original subject matter. It was a broader point about how economies are organized, and all you seem to want to talk about is the US and how its national healthcare program doesn't offer universal coverage.
You seem have a very narrow agenda, focused entirely on confronting whoever you imagine to be opposed to socialized healthcare in the US. Diverting the discussion like this, to push your agenda, is very rude, and harmful to the public discourse.
>First, any wealth tax being seriously discussed has a floor and/or has marginal rates, probably starting at 1 or 5 or 10 million (or higher).
Uh huh.
>Second, taxes don't disappear into nothingness - they pay for civilization.
But there are bad taxes. There is such a thing as too much tax. So you have to justify the wealth tax on its own merits instead of trying to pull a motte-and-bailey fallacy by pushing a wealth tax and then arguing for the necessity of taxes when challenged. Taxes are a necessary part of a functioning modern economy. Wealth tax is not.
>Yes, over the long term they'll lose some wealth, but not necessarily control of their company, unless that's the decision they make.
No. What are you talking about? The math is very simple. You will lose control at some point, because there's only so many ways you can rearrange the deck chairs.
And no, dividends are not an option because issuing a dividend may not be in the best interest of the company. Dividends are also taxed separately.
That you think taking out debt to cover wealth taxes is a solution is insanity.
>Fifth, the idea that people "will just move to another country" is very silly
But that's exactly what happens. We have data on this from various experiments. It doesn't bring the revenue you expect it to because there is capital flight and brain drain from the country in response - and when that is taken into account, you may end up with a net loss in tax revenue. It's also expensive to administer and enforce because net-worth is not easy to calculate. It's no coincidence that this form taxation has been falling out of favor.
>I suspect that Mr. Graham is wringing his hands over potentially having to cut a large (in absolute terms, but small in relative ones) cheque to the government in the future,
No. That is a strawman if I ever seen one. Could Mr. Graham not be against this tax because it's an objectively bad tax with many unintended consequences?
Do any wealth taxes being seriously discussed not have floors/exemptions for primary residences/marginal rates/whatever?
Why is a wealth tax a bad tax? Why is it worse than income tax or a VAT or anything else we currently do? Many places currently have property taxes (a type of wealth tax) and they tend to work well.
You need to redo your math. If your net worth is $10+ million and isn't increasing by at least ~4% a year you're doing something very wrong. So ~1% of your wealth going to taxes is eminently affordable. No need to lose control.
Capital flight can be handled with exit taxes and restrictions on foreign ownership. Brain drain is usually high income (not high net worth) individuals leaving. The reason net-worth based taxation has been "falling out of favour" is because billionaires have an outsized impact on media and politics, and that very clearly suits their interests.
He could be - but if that was the case he'd have better arguments. Why didn't he talk about capital flight and brain drain, and how other taxes would be more appropriate? He's a skilled essayist; he chose his words carefully, and he used language around stocks, founders, and ownership specifically to appeal to tech geeks who expect to start successful companies.
I'm pretty opposed to estate taxes, they tend to penalize sudden deaths really heavily and place unfair stress and complication on widows/widowers. Plus the rates are sometimes high enough that they can lead to asset liquidation, selling of companies, etc. which I'm not a huge fan of. An annual wealth tax is much more sustainable for an individual or business.
Estate taxes almost always apply to estates valued at > $5m. Why anyone who isn't super rich would give two squirts boggles my mind, and it a symptom of the American "temporarily embarrassed millionaire" mindset. Sadly, the professional/managerial class seems to be wholly preoccupied with these fantasies.
Estate taxes are often on the order of ~20%+, so they can necessitate the sale of assets (real estate, companies, etc.) - and in the case of a sudden death, this can come at a very inopportune time, as well as being stressful on people who have just had a loved one die.
An annual wealth tax of ~1% doesn't come with the same complications - just like income tax, it can be predicted, saved for, etc.
Also most people with sizable estates (who have some idea they'll die in the next several years) can gift away or otherwise arrange to avoid estate taxes pretty successfully, so I don't think of them as especially useful.
I don't worry about it too much since estate taxes are usually on quite large estates (>$5mil), but I just don't see it as a very good tax.
This didn’t at all answer the question. You’ve basically said since it’s a static amount and because someone just died and also because it affects only large amounts it’s ok. None of this has anything to do with burden.
> If your net worth is $10+ million and isn't increasing by at least ~4% a year you're doing something very wrong.
So the argument a tax is good is that it's your fault if you don't make enough money? Is it everyone's purpose in life to make enough money to pay taxes?
> So ~1% of your wealth going to taxes is eminently affordable.
Being affordable does not mean it is right. I can afford a $1200 iPhone, but I will never spend that kind of money on a phone, so asking me to pay $1200 for a phone is not right just because I can afford it.
I was responding to a specific point - that a wealth tax means that someone will lose control of their company. That's all I was arguing against with those points.
No, you responded to arguments you thought I made, namely:
1) That a wealth tax is good because you should be making more money than the tax.
2) That a wealth tax is right simply because it's affordable.
I didn't make either of those arguments. For 1 - regardless of whether you're making or losing money, any sensible wealth tax is marginal, only on net worth of amounts over $10mil (or whatever). So the very worst a wealth tax will do is keep you at that cap - you don't pay anything on your first $10mil (or whatever).
For 2 - no, I'm saying a wealth tax is affordable, so it's clearly not wrong based on that alone. I'd say a wealth tax is right because it's progressive, not unaffordable, and ultimately not significantly impactful on the people it would impact (rich people).
We need to have taxes of some kind. What do you think is the most "right" kind to have? Why is it more right than a wealth tax?
Perhaps a flat sales tax? Or something fair? Why is there an attempt to punish the rich here? We need some taxes, but this shouldn’t be a blank check. At what point do you think the government should stop taking taxes? By your logic should we not just give 100% of our pay to the gov and start issuing cars, houses and other needs? Also why is anything good simply because it’s progressive? Is there no other factor?
What exactly is "fair"? There are lots of ways we could tax people, that some or other people would declare to be fair.
Sure, we could tax all sales at 20%, or 45%. That would be fair. Can you see any problems?
We could tax everyone a flat amount - $10k or something. That would be fair. Can you see any problems?
We could tax everyone a flat percentage - 15%, say. That would be fair. Can you see any problems?
We could tax everyone such that we all have the same income - $50k perhaps. That would be fair. Can you see any problems?
The idea that higher taxes "punish" the rich doesn't make sense to me. We have the money! Of course that's where taxes should come from. What, we're going to shake down the people making $12 /hour? They don't have any money.
Here is my thinking: we should decide, as a society, what is essential. Defense, roads, fire departments, schools, etc. And then we figure out the best tax system to pay for that. We should aim for that system to:
1) Gather as much money as we need to pay for the essentials.
2) Cost as little to administer as possible.
3) Discourage harmful societal behaviour and/or encourage beneficial societal behaviour (generally, the more you tax something, the less of that thing you get).
4) Impact people's lives as little as possible. This is where progressive taxation wins - if you tax a poor person, that's money they really, really need. They were going to spend that on essentials. If you tax a rich person, their quality of life isn't meaningfully impacted. If Jeff Bezos has to pay more taxes, that impacts his day-to-day life exactly not at all.
5) Be conceived from behind the 'veil of ignorance', as much as possible. (This is where the 'fairness' argument comes in)
So as a society we are saying it’s ok to tax the wealthy, but we also give people the opportunity to become wealthy and encourage it but then once you make it bad, time for punishment via taxes? What exactly did Bezos do that requires him to pay more taxes? He didn’t “get a small loan”, he earned his and now your saying people who have no desire in life to be anything more than a store clerk deserve some of his money. Can they afford it? Sure. Is it fair, absolutely not.
I think framing it as a punishment is a bit disingenuous. The idea is not to punish rich people, the idea is to change how the tax burden is distributed. I would turn the question around and ask why we as a society are intent on punishing the middle class with the tax burden?
It seems pretty spot on to me. Your rich, this is evil, and now you gotta pay.
Because the middle class is the one asking to increase it with the constant addition of social programs that benefit them and those in lower classes the most? Unless you want to get into some twisted math on how much resources they use by breathing.
What exactly is their duty? They earned money so they owe it to you as duty? What entitled you to their money? Do you have stuff? Can I come in your house and take things because it’s your duty?
The story of the rich who cry about their money being taken away by some evil entity, it's just the constant, endless, uberable whining of the wannabe rich people
So boring...
They are not giving them to ME, they are giving them back to society, the same society that made them rich.
There are many billionaires who wants to pay more taxes because it would simply be fairer.
> Can I come in your house and take things because it’s your duty?
You are wrong, again
1) If it was my duty, you couldn't do it, because you cannot collect what's in the government duty to collect.
2) Your duty would be, at best, to report to the authorities. But since you're one of those americans who don't understand what "society" means, you think everything revolves around you and you alone.
Spoiler: it doesn't.
Your duty is to contribute back in proportion of what you earn and own.
What about you simply do it and shut up?
p.s.: you are obsessed with punishment, are you one of those americans who believes that the bible is the law?
somebody already told you that
"framing it as a punishment is a bit disingenuous. The idea is not to punish rich people, the idea is to change how the tax burden is distributed. I would turn the question around and ask why we as a society are intent on punishing the middle class with the tax burden?"
Of course you have no answer to that, because you should admit that if it is wrong to punish rich people with taxes for being rich, it is vastly more wrong to punish people who are not rich for not being rich.
They leave the money in their companies that, like Apple, evade taxes sheltering their money through international tax heaven
They are worth billions not because they have billions cash on which they paid taxes, but because they own stocks and properties worth billions
So yeah, paying a marginal tax on their wealth is only fair
> Even if you could tax 100% of all billionaire money, you will only fund the entire federal governments spending by a year.
There are 11 million millionaires in USA, if you take the 1% of their wealth over a million you could have an healthcare systems that don't let you die like flies when the next COVID-19 hits
If they were willing to give volunterly that wouldn't be necessary
Taxes are always taken, even if you earn 20k/year
I know that the only reason USA are born was to avoid paying taxes, but it's a bit silly to think that a billionaire cannot be asked to contribute back to help those that are in need
A billionaire
It means at least a million times a thousand dollars
1% for them is virtually nothing
Unless billionaires want to send their children to collect trash, ship Amazon packages, drive cabs, keep the house clean, defend the country in the military (funny how rich people almost always skipped it) etc. etc. then they owe to society more than society owes to them
It's that simple
To not understand it one must be mentally challenged
The funniest thing is that you're not a billionaire and would only benefit from a more just society
But you felt for the same mistake that Scott Fitzgerald made many years ago.
"The rich are different from you and me” wrote in his novella, The Rich Boy, with a sense of romantic longing.
Ernest Hemingway is said to have replied “Yes, they have more money.”
Hemingway wrote later on, in a 1936 issue of Esquire magazine, “that was not humorous to Scott. He thought that they were a special glamorous race and when he found out they weren’t, it wrecked him"
That's the problem, because their wealth is many times larger than the bottom 90%
The top 1% of the population in US owns 39% of the wealth, top 10% own 76% of the wealth, bottom 50% owns only 1% of it.
If the system was fair, bottom 50% of the population should pay no taxes, because they own too little to live.
BTW you are another of the wannabe rich I guess who drank the billionaires cool aid, the top 1% only pays a marginal amount of the taxes
"Zucman, as detailed in his new book, "The Triumph of Injustice," written with fellow University of California at Berkeley economist Emmanuel Saez, found that the 400 richest Americans now pay a total tax rate of about 23% — that's lower than the bottom half of U.S. households, who pay a rate of about 24%"
American Scholars and the FED are making these analyses, not some hippie socialist in a kibbutz
> BTW you are another of the wannabe rich I guess who drank the billionaires cool aid, the top 1% only pays a marginal amount of the taxes
This is a horrible excuse. Nobody has ever argued they want things to stay this way because one day they’ll be rich. How the liberals got this idea is a great question. The reason why people care is because this is a slippery slope. One side thinks you can’t pay enough taxes, and the other side wants their money to spend on themselves. It’s not “wannabe rich” so quit running around spouting that off out of ignorance. What we want is fairness and we happen to understand the rich people own the businesses. If you keep reaching into their pocket they will leave. Then what? Businesses and money will magically appear? I think it’s time you wake up, unless this is gonna be a typical liberal tantrum where we won’t hear the end of it until we submit to further taxation.
To be clear, it is wrongful thinking because people cannot usually grasp the vastness of billions and make their idea around their thousands as of it was the same
It isn't
Consider this
If you had a billion today and paid 1% every year in 20 years you would pay 220 millions total
In those same 20 years if you invested in a conservative way, say 4% guaranteed, which is arguably easy if you have a billion, after 20 years you would have gained 1.2 billions
In other words a net positive of one billion
Talking about numbers helps because the ratio is the same if you apply them to 1 thousand dollars
220 dollars spent, 1.2 thousands gained, 1 thousand net positive
The only difference is that making 4% with a thousand dollars is harder than with a million times a thousand dollars
Simply put you have a million 1,000 dollars chances VS Just the one
Or put it another way you could spend 1k every day for a million days, which is approximately 2,740 years, it means you could spend 10k/day for 274 years or 100k/day for 27 years or a million every day for 3 years.
And the compound interest would keep the initial billion grow indefinitely.
It basically means you have infinite money.
And you are worried that taking 1% would be detrimental for billionaires?
> If you keep reaching into their pocket they will leave
Biases are so boring... (you used a mix of confirmation bias and ancoring bias)
We are not even reaching their pockets now, they are paying less than the poor
Wake up, or you end up living worse than rich people's dogs (you probably already are right now in US)
> And you are worried that taking 1% would be detrimental for billionaires?
Yes, because again it’s not fair. I completely ignored the rest of what was above this because I’m not a child and am quite capable of understanding quite advanced math and how large a billion is. So to recap you’re saying it’s ok because they have a lot of money.
I’m actually living quite well in the US, despite coming from a very poor family with both parents getting cancer and having absolutely no money to put me through school. Instead of complaining or finding new inventive ways to take others money I taught myself skills worth a lot of money and now no longer have to worry about it.
As far as your paying less than the poor statement, let’s get some facts to back that up? Actual facts, not liberal news articles.
Also I see we’re taking the “we want more of your money” tantrum route.
> You need to redo your math. If your net worth is $10+ million and isn't increasing by at least ~4% a year you're doing something very wrong. So ~1% of your wealth going to taxes is eminently affordable. No need to lose control.
So now if I make $10mil, which is plenty to live off of today and likely in the near future, and want to call it quits and retire, I now have to continue to make 4% (why 4% also, seems arbitrary) so I can support a wealth tax? Do you not see you’re taking an option away by forcing someone to cover this tax with further gains?
Mr Graham may have good reasons to be against this tax but he hasn’t argued them here. The analysis is so far below his usual clear and insightful reasoning that I wonder if it’s even his.
As an occasional entrepeneur I do not at all mind being subject to this tax. I’ll worry about the wealthy when I join them, not before. They don’t really worry about me.
I think most of the reasoned objection to various taxes was summed up by Bill Clinton in his first campaign: what people mind is not getting what they’ve paid for by their taxes.
The wealth tax as proposed should be concerning to everyone in CA whether they pay the tax or not.
It will be the state's 4th largest revenue stream but will be paid for by only 40,000~ people. It will definitely be volatile due to people leaving (see the governor of NY making personal appeals to wealthy NYers not to leave). The volatility will make hurt programs funded by the revenues.
CA's budget already goes thru painful boom / bust cycles because it relies so heavily on market gains - see all the painful cuts during the financial crisis. This adds to that instability.
If you want more revenue streams try making it so that they're sustainable and not subject to the whims of the ultra riches home address or how well the stock market does this year.
> The analysis is so far below his usual clear and insightful reasoning that I wonder if it’s even his.
OT but sadly this has been my reaction to most of his recent (last few years?) posts. :( He's definitely lost the well-reasoned, useful insight and interesting thoughts he had previously in his essays.
>As an occasional entrepeneur I do not at all mind being subject to this tax.
That is not an argument. You can be a masochist and love to be beaten, it is not an argument people should be beaten. If it does not matter to you it does not mean it does not matter to others, it does not mean you are representative and it does not mean it is morally good.
>>Second, taxes don't disappear into nothingness - they pay for civilization.
>But there are bad taxes. There is such a thing as too much tax. So you have to justify the wealth tax on its own merits instead of trying to pull a motte-and-bailey fallacy by pushing a wealth tax and then arguing for the necessity of taxes when challenged. Taxes are a necessary part of a functioning modern economy. Wealth tax is not.
Indeed. The parent is arguing that the wealth tax is better than, say, a carbon tax, which is considered a fairly efficient form of taxation.
> >I suspect that Mr. Graham is wringing his hands over potentially having to cut a large (in absolute terms, but small in relative ones) cheque to the government in the future,
>No. That is a strawman if I ever see one. Could Mr. Graham not be against this tax because it's an objectively bad tax with many unintended consequences?
To add to this, Paul Graham doesn’t live in California, and would not pay the tax. He’s opposed on principle.
We can have both carbon taxes AND wealth taxes, of course. Carbon taxes seem to be an excellent way to curb carbon emissions, which is necessary, but they're also regressive, and unlikely to be sufficient to pay for the things we expect the government to provide.
PG may not be impacted by a California wealth tax, but that doesn't mean his opposition isn't self-interested. If it succeeds in California it could be taken up by other states, or the US as a whole - maybe wiser (in PG's view) to nip it in the bud.
> But there are bad taxes. There is such a thing as too much tax.
Having a wealth tax doesn't mean the total tax goes up. Normally when discussing the merits of a certain kind of tax it's best to assume another tax is cut, otherwise it invariably becomes a discussion about whether high/low/more/less taxes are good.
Historically a wealth tax has been an increase in taxes that ironically led to increased regressive taxes as the projected gains failed to materialize due to business restructuring.
PG is tone deaf and missing the mood of the nation here.
He says:
> Even a .5% wealth tax would start to keep founders away from a state or country that imposed it.
Mr Graham doesn't consider the possibility of startup founders leaving / kept away from a place that doesn't impose a wealth tax. I am not a successful startup founder (yet), but I would consider it my duty to live in /start a company in a place with better laws and taxes that are more equitable for everyone.
Money is not the only thing that drives startup founders to do big things. Complaining about a wealth tax and suggesting it will ruin things in the valley / CA due to people leaving completely ignores the societal improvements that could come from those tax dollars.
The idea behind increasing taxes on the wealthy is to build a better society for everyone - including the wealthy! Why would the future prospective wealthy startup founders want to live in a massively unequal society, that is bent on increasing incoming inequality (the topic of another recent PG essay, where he argues that decreasing wealth inequality is a bad idea)? I sure wouldn't.
Mr Graham, a lot of startup founders may leave if large measures to improve society like a wealth tax are not 'imposed'.
You said,
> Taxes are a necessary part of a functioning modern economy. Wealth tax is not.
But you don't back this up. Why should wealth tax not be a part of modern economy? Modern economies are broken right now, obviously, for most people anyway, so keeping the status quo is a red flag and a bad sign.
> Could Mr. Graham not be against this tax because it's an objectively bad tax with many unintended consequences?
If that is his position, he does not explain it very well. Especially with the context of many of his recent essays, he does seem especially concerned with his image and wealth.
What about the unintended consequences of adopting policies that specifically intend to increase wealth inequality? PG doesn't seem to much consider the consequences that his models/opinions/plans would have on other people if implemented.
>PG is tone deaf and missing the mood of the nation here.
Twitter is not 'the mood of the nation'. You are not representative of 'the mood of the nation'. In fact, you're an outlier.
>The idea behind increasing taxes on the wealthy is to build a better society for everyone - including the wealthy!
You're trying to pull the same fast one as OP. Wealth tax is not the same as increasing taxes on the wealthy. You can make an argument that taxes should be increased and at the same time see that the wealth tax is a terrible way to do it.
> Why should wealth tax not be a part of modern economy?
Because it's a bad tax. It doesn't work. It doesn't bring revenue you think it does. It's expensive to administer and enforce. And it has many bad unintended consequences.
>Twitter is not 'the mood of the nation'. You are not representative of 'the mood of the nation'. In fact, you're an outlier.
According to a Reuters poll from this beginning of this year a large majority of Democrats and a slim majority of Republicans support the idea of a wealth tax. While there isn't a large amount of polling on the subject (that I can see), that somewhat undercuts the Twitterspace argument.
The specific question people responded to in that poll was "the very rich should contribute an extra share of their total wealth each year to support public programs" so you can dissect it at your will.
> According to a Reuters poll from this beginning of this year a large majority of Democrats and a slim majority of Republicans support the idea of a wealth tax.
That's only because they haven't seen the specifics.
I once dug around to specifically find out how gallup accounts for population and they simply don’t show you. You just have to take their word on it. So until opinion polls give exact equations used and raw data so I can verify myself I completely ignore them.
Yes, that is a problem with every opinion poll about a hypothetical policy proposal. Those polls aren't super useful for gauging how popular a concrete piece of legislation would be in practice.
Not sure what Twitter has to do with any of this. ?? Anyway..
Am I an outlier? Then I only know outliers in real life, I guess, since I only know people who share this opinion? I get that I'm in my bubble, but it seems like a really really widely shared bubble.
> Wealth tax is not the same as increasing taxes on the wealthy.
A wealth tax is a form of increasing the taxation against people who are wealthy. Are you saying this is false? What do you mean by that?
> see that the wealth tax is a terrible way to do it.
Why though? You haven't backed any of this up. I think a wealth tax is a great idea. Why are you so certain that it isn't?
> Because it's a bad tax. It doesn't work.
What do you mean by bad tax? You don't explain this and my googles turned up nothing. What about this tax makes it "bad"? Why does it "not work"?
> It doesn't bring revenue you think it does.
I don't think it brings in any particular revenue specifically. What do you have in mind by this statement?
> It's expensive to administer and enforce.
So are most good things that we have in this world. Something being expensive doesn't make it bad.
Paul's modeling of the wealth tax is incredibly naive and simplistic... to the point of either being extraordinarily dumb or intentional misleading. Given how intelligent Paul Graham is, I'm gonna say the later.
I don't even gross 200k USD per year and I could afford a 1-2% wealth tax, no sweat.. wouldn't even miss it. In fact my savings would continue to grow almost unabated.
The wealthy want us to believe that their money is the true wealth of America... that the {insert country} would fall apart if the wealthy left. In reality, our wealth is in our natural resources (food, energy generation, fresh water) and industrious, hardworking people of this country.
I say this clearly... Jeff Bezos, Elon Musk, Bill Gates (etc.) are not responsible for wealth creation in this country. There have been 10's of thousands of people who brought the technology of those respective companies to fruition, and an entire society that made it possible. The idea of the "self made millionaire/billionaire" is ridiculous in its essence.
That we DO NOT have a wealth tax, and high taxes on earning above a wealth threshold, is ridiculous and (dare I say) unethical/immoral. We need to entirely re-frame the argument surrounding taxes on corporations, wealth and sky-high incomes.
>I don't even gross 200k USD per year and I could afford a 1-2% wealth tax, no sweat.. wouldn't even miss it. In fact my savings would continue to grow almost unabated.
THIS! Most Americans just don't have many sitting assets, so even if you made the wealth tax apply equally to everyone, and we all had to pay an additional 1% on our net worth each year, for most of us that's either 1% of our house value or 1% of a small amount sitting in a bank account. For a billionaire that's $10M, which is about my city's whole budget. So another framing could be: "billionaires should annually pay for a small city's municipal expenses" -- it seems more than fair.
Even in the case of not-yet-wealthy-startup-folks, assuming shoddy implementation -- "my money isn't liquid -- paying 1% tax on $1M of monopoly money from a startup is going to be hard" it's actually just $10k. And marginal rates and floors can easily make it all work. I'm a spoiled tech employee, I'd pay 1% of my salary a year for the purpose of helping mitigate income and quality-of-life inequality.
His modeling could be naive and simplistic. But emotionally losing 2% on 200K and 200 billion have very different effects on human brain.
It's one thing to pay 2K totally different thing to pay 4 billion.
You could make an argument that for some one with 200 billion, paying 4 billion isn't that much. But they are likely thinking on the lines of some great grandchild inheriting that money.
Your first point doesn't really apply, because PG is talking about someone who starts a successful startup, which—at least for Silicon Valley levels of success—would be above the relevant floor. (And he specifies: "over the threshold at which the tax starts".)
Your second point isn't really relevant for a founder who can choose between one developed country with a wealth tax and another one without. Unless you think all developed countries are going to implement the wealth tax.
I don't think your third point speaks to the issue. The article didn't mention control of the startup, only finances, and I don't think the successful 28-year-old startup founder who's looking at the impact of a wealth tax 60 years in the future is primarily concerned with control of the company at age 88.
Your fourth point also makes no difference. Suppose you make $1 billion, and you earn zero interest on it. The wealth tax takes away 45.3% of that over 60 years. Suppose you make $1 billion and compounded interest at 4% would increase it to $10.5 billion over the course of 60 years. The 1% wealth tax still takes away 45.3% of that over 60 years, leaving you with 54.7% of the $10.5 billion. Multiplication is commutative.
To your fifth point—well, does anyone leave for tax havens, or arrange for as much as possible of a company to be officially inside a tax haven? I think they do. A wealth tax that ends up making a large difference over the long term might make a large difference in how many people leave.
I don't think you've shown that PG "doesn't model how any sensible wealth tax would be implemented or paid" in any significant way.
The wealth taxes being talked about, broadly, would impact people with wealth of tens of millions of dollars and above. But PG talks about what they would "mean in practice for a startup founder." Already he's made a clever rhetorical move and conflated startup founders (a large group) with very successful startup founder (a much much smaller group), in attempting to broaden the people who look like they're impacted directly by his argument.
Over the medium-long term, I think any countries that don't implement a wealth tax (or some other way of addressing wealth inequality) will not remain developed countries.
PG uses 'stock' throughout the essay as opposed to 'wealth', and I believe he did so on purpose; he's appealing to emotion. Startup founders care a great deal about control and ownership, more so than wealth in the abstract. Look later as well - "And at 5% this threshold is getting asymptotically close to being an upper bound on how much of the company you get to keep." - he's directly talking about ownership/control rather than simple wealth.
Yes, this is obviously true. But again, PG's phrasing here is key; he's making it seem like you'll have only 55% of what you start with, which isn't remotely true. It just means your wealth compounds at a lower rate. Much less impactful, clearly.
Maybe. A wealth tax on its own doesn't solve this, you also need to sort out tax havens. And again, you need to look at the real cost of these people leaving - if a billionaire moves away (instead of paying a wealth tax) what does that cost us?
One could perhaps argue that billionaires moving to other countries (and therefore taking their political lobbying that creates environments where becoming a billionaire is possible) might be a net gain for the country losing the billionaires. As other people have said in one form or another, becoming a millionaire is a reason for celebration, but billionaires are policy failures.
> Your second point isn't really relevant for a founder who can choose between one developed country with a wealth tax and another one without.
This is an incredibly simplistic take.
When choosing a USA with a hypothetical wealth tax versus other existing countries, the contrasts are far larger than just a wealth tax. The USA has increasingly bad health/medical costs, university tuition costs, cost of living in affluent areas, deteriorating infrastructure, political strife, etc. It's important to talk about this hypothetical wealth tax as a weighted component of all of the likely decision points.
> Your second point isn't really relevant for a founder who can choose between one developed country with a wealth tax and another one without.
I can't get why many who advocate against a wealth tax are afraid of raising a single penny on a billionaire amid the fears of scaring him off the country. This is really a bad refuse of Reagan politics that hasn't proved to be true. Moving wealth around while bypassing capital controls is expensive. Relocating a whole business is even more expensive. And if someone really wants to do it to make sure that they don't pay taxes on their billionaire wealth, then they're welcome to go - a developed country has plenty of talent to replace them, and in many cases there will be one less lobbyist to keep inequalities high and politics hostage of his own interests. Lots of taxes have been raised on low-earning classes in the past decades without the blink of an eye, but as soon as someone proposes a tax on the rich some people cry out against the exodus of billionaires.
> Suppose you make $1 billion, and you earn zero interest on it. The wealth tax takes away 45.3% of that over 60 years. Suppose you make $1 billion and compounded interest at 4% would increase it to $10.5 billion over the course of 60 years. The 1% wealth tax still takes away 45.3% of that over 60 years, leaving you with 54.7% of the $10.5 billion. Multiplication is commutative.
Taxation on real estate isn't that different. As an house owner I pay every year a tax that is proportional to the value of my house. Sure, if I look at how much the tax compounds over 60 years I may get scared, but on a yearly basis I can barely feel its impact on my finances. And I consider it a fair tax as well - having a house in the middle of Amsterdam is a privilege, and I feel that it's fair to pay for my privilege and redistribute that money back to society. I don't get how someone sitting on a $1 billion wealth may consider a $10 million tax unsustainable. A large house, a yacht, $1 billion shares in a company or a luxury car are privileges reserved for few, and it's unfair to just let those few sit on such wealth while the government every year has to raise money from those who earn much less. That inevitably ends up with most of the wealth is accumulated in the hands of few, and that's a scenario that society should avoid at all costs.
> And I consider it a fair tax as well - having a house in the middle of Amsterdam is a privilege, and I feel that it's fair to pay for my privilege and redistribute that money back to society.
I don't think that you are paying your fair share, because I am not able to own a house in the middle of Amsterdam, and I think that the wealth gap between us is too big. Your cushy privileged lifestyle is unfair and you should pay more. Consider giving away four fifths of your remaining earnings left after your monthly bills.
A wealth tax shouldn't be designed in such a way that everyone has the same access to the exact same things. It should be designed in a way that removes or lowers the barriers for accessing those things, and gives more people the opportunity to access those things.
On one extreme you have a wealth tax that ensures that everyone has the exact same access to everything - that degenerates in a communist regime where nobody can get richer than another and people don't really have any incentives to be more productive than others.
On the other extreme you have no wealth tax at all - that degenerates in the American plutocracy and anarcho-capitalism, where a tiny fraction of the population owns most of the wealth, can swing elections in whichever direction they like, can make sure that politicians never charge a penny on them, and where the GINI index is at the same levels as it was in 1929 and the intergenerational earnings elasticity is so low that basically the family where you are born determines how much you're going to earn, regardless of your merit.
Between these two extremes there's a wide spectrum of wealth tax rates that you can apply to redistribute wealth and opportunity in a fairer way and find the best trade-off between meritocracy and equality. "Wealth tax aims to make everyone earn the same" is pure bullshit. "If you don't tax the billionaires then they will invest more and the wealth will trickle down to the population" is also another piece of utter Reaganist bullshit. It's time to admit these simple truths, because I'm honestly getting sick of people concluding "a wealth tax is communist" without even considering how wide the spectrum between the two extremes actually is, and I'm starting to question their actual intelligence.
I'm concerned about your particulr privilege here, why should I care about people who are wealthier than you, it's you who can take care of that, isn't it? It's a race to the bottom after all. If you claim that billionaries should not exist, I definitely claim that you are not allowed to own a house in the middle of Amsterdam (I think you should start by moving to Diemen, then we'll let you know if that's enough), and I definitely claim that you shouldn't be wealthier than an average citizen of, let's say, Bangladesh. It definitely will lower the barrier for them. By the same standard that you apply to billionaires. Your arguments about two extremes and how the tax should be designed to not affect your lifestyle specifically is no less a pure bullshit coming from a privileged virtue-signalling and comfortably-living european.
On the fourth point, the distinction is material. A bystander may feel bad for the founder if their wealth drops from $1B to a mere $550mm. But the bystander is unlikely to feel bad for the founder if their wealth only rises, naturally, to $5.5B or so.
If the real (ie inflation adjusted) rate of growth of capital is greater than the wealth tax, the wealth tax does not cause _actual loss_ to the wealthy.
The nature of the psychology of loss aversion means the distinction between "loss" and "reduced gain" matters. The loss may sting enough to cause the founder of move, but reduced gain will only matter if it prevents them from achieving a material goal.
Of course all "developed" countries (i.e. countries with the high levels of education, health, and safety that can support development of high-margin industries) will institute a wealth tax. And, for the lucky ones that thrive without one, they'll eventually adopt it, too.
He tries to compare a wealth tax to an income tax. But they are not comparable. If a person's gains from capital are above a certain threshhold and exceed her gains from income, then that person can afford to pay an additonal tax, not based on income.
CEO's can infamously "work" for $1/year because they do not have to rely on income (labor) to support themselves.
At a certain point, "income tax" becomes a misnomer. Thanks to the value of capital, some people do not actually have to engage in labor. Through work done by well-paid advisors, it is at this point that many of them have also reduced their income tax liability to zero, more or less.
Comparing a wealth tax to an income tax makes little sense.
If Piketty is right, in today's world gains derived from capital always exceed gains from labor (income) over the long term. That excess just keeps accumulating. The wealthy keep getting wealthier. Quite the opposite picture from Graham's, where gains from wealth dissipate over a lifetime.
I will say this, his model looks great in a text-only browser. Wide margins, a basic table; succinct. The simplicity is pleasing to the eye.
Government already owns 40% of what everyone earns in the US (see government spend as % of GDP is about 40% now). If that's not enough to pay for stuff, nothing ever will be. And it's much much higher if you're living in a blue state where salaries and COL are much higher, not to mention their state taxes are higher.
Taxing the wealthy is not an effective means of helping people. If you taxed every last billionaire in the US, 100% of all the wealth they earned over the last 50 years and gave it to every member of the US, split evenly, and divided by 50 years, you'd get a pitiful small number of about 200$ per person per head. (2.7 trillion total billionaire net worth in US / 300 million / 50 )
Silicon Valley is full of millionaires who are temporarily embarrassed tech billionaires. Thus, why they come out in threads like this so wildly. Slow day at the home office - I guess.
The amount of people I know with millions in assets but think they're poor and will someday be a billionaire is astounding. ("I just bought a nice vacation home in Lake Tahoe and a rental property in Santa Clara but I'm struggling with my little home in Palo Alto, you know? I barely have any money." - real example I've encountered multiple times) They're, of course, against wealth taxes. They are all convinced they're gonna be the next billionaire and that any taxes will absolutely destroy them in their path to ... whatever their destination is. (They don't even know - they all just want recognition)
>First, any wealth tax being seriously discussed has a floor and/or has marginal rates, probably starting at 1 or 5 or 10 million (or higher).
The floor is adjustable. As more tax money is squander, the floor will be adjusted for greater taxation.
>Second, taxes don't disappear into nothingness
They actually do. The return on your tax dollar in California is abysmal.
>Fifth, the idea that people "will just move to another country" is very silly.
They can move to another state. Schwab is moving to TX. The tax savings will build their new corporate HQ in Westlake. How many Hedge Funds have left Conn, NY, NJ, etc for Florida?
I don't have a dog in this fight. Taxes are necessary but when the State is not held accountable for their spending and continues to squander tax dollars, there is no amount of money that will ever satiate them.
I hope California goes through with their plan. It will be an interesting to see the outcome.
There's a lot of assumptions in there that the economy is rapidly proving wrong right now. Wealth doesn't grow for everyone - and an income tax is more fair because people whose wealth is going up pay more than people whose wealth is going down.
We live in a world where remote work is rapidly becoming not just acceptable, but standard. Post-coronavirus geographic mobility will be high.
Look, we already have a wealth tax. Instead of dinging you every year and guaranteeing plenty of billable hours for accountants, we bundle it up in a big charge at the end. Everyone dies. How about we just enforce inheritance taxes and call it done?
There are a lot of weird incongruities in what you're saying here. First, how is an income tax more fair than a wealth tax? There is no guarantee at all that "people whose wealth is going up pay more than people whose wealth is going down.", let alone that the relative amounts of those items are fair. Additionally, wealth often accumulates via tax-advantaged vehicles that lower income individuals simply don't have access to.
Next, are you really implying that people will magically move to another country entirely because they can work remotely? The portion of workers who are even able to do such a thing, let alone likely to, is vanishingly small for many reasons (including, interestingly, income taxes).
And to your third point... again, you seem to not be aware of how estate planning works specifically to avoid paying taxes via things like trusts and inheriting shares in companies. Fixing inheritance taxation wouldn't come even close to being as effective as a wealth tax in preventing long-term accumulation of wealth with little economic input.
Here's where we're at: we have been trying income tax and the rich keep getting richer. Demonstrably and repeatedly. It isn't working, unless your definition of "working" is robber-baron era levels of economic disparity in America. If your proposed solution is variants of income taxes, well then you know the saying "define insanity". Wealth taxation is the only plan I've seen that logically prevents workarounds and actually serves to balance economic outcomes for Americans in the long term.
Yeah, but it does generally grow for people who have millions of dollars, especially over the course of the 60 year period that the original essay is discussing. In the short term, the stock market fluctuates and has recessions, but in the long term it's only ever gone up.
> How about we just enforce inheritance taxes and call it done?
Because having a semi-predictable tax base is good? It's a lot easier to manage the government budget if you get 2% of the value every year, versus 100% of the value in a lump sum at some unpredictable point in the future. There's only 630 billionaires in the US, so it doesn't seem like statistics helps even this out, either.
The difference between an income tax and a wealth tax is that currently those with wealth are able to avoid income taxes. Approaches like negative gearing and other strategies exist.
I'm on the fence on estate taxes as a general rule I'd say it definitely make sense above some threshold but if you look at the mess with Samsung there definitely needs to be some thought in how illiquid stocks are dealt with. I'd put a bit of cash on Lee Kun-hee sill being 'alive' until after my death or at least until a change in South Korean tax law.
> How about we just enforce inheritance taxes and call it done?
How about we just enforce an inheritance tax in your family alone, and donate everything you have to a local charity and see if it makes a difference in your community? Your goal is to give away your wealth, as far as your comment goes, so it sounds like a legit plan of action. Just don't impose the same goal on everyone else.
because that's not how societies work, you live in a state you benefit from the expenses and investments and other people in the state and you pay in to that, sorry it is the deal, in the last 40 years there has been a reversal of where the tax burden falls not to mention there are trillions of dollars of tax fraud https://www.taxjustice.net/2020/07/22/tax-justice-networks-o...
Can you prove that? So far I just see a bunch of people claiming other people's wealth their own to dispose of. That's definitely not how a healthy society is able to function in a long run. USSR tried that, Cambodia tried that, Venezuela is trying it now.
> Second, taxes don't disappear into nothingness - they pay for civilization.
Modern monetary theory disputes this commonly held idea that governments need to collect tax before they can spend it on public works. On the contrary, government creates money to pay for public works, which leads to money in circulation, and in turn allows tax to be paid. The purpose of tax is to redistribute wealth and lead to harmonious society.
Second, taxes don't disappear into nothingness - they pay for civilization. It is clearly beneficial to everyone to live in a society where people are well cared for and have healthcare, public education, welfare, etc.
Or, and that's another possibility we should consider, taxes disappear into the pockets of bureaucrats and a handful of rent seekers with very little effect on civilization.
Before arguing for additional taxes, one must first show some evidence that we're getting reasonable ROI on what we're already paying, and https://transparentcalifornia.com/ shows exactly the opposite.
I am 100% in support for public healthcare, for example, but it will continue to look like a financial absurd as long as a knee MRI is 3x of any other country. Same thing with the higher education, public housing, etc.
Don't forget that Paul's stock portfolio doubled in the past 4 months on the back of a "poor tax"... what the Fed printed and gave to banks to buy stocks (via buying bonds).
Right so the government that already has enough money to fund all those good public services will suddenly stop funding the military to a ridiculous degree and finally use taxes for the best interest of the people?
Oh, I don't disagree at all! Government spending is currently not how I would allocate things. But somehow I expect that wherever taxes were going, rich people would be displeased with the amount of taxes they were being told to pay. And honestly, I don't blame them, it's a very natural feeling, I'd rather not pay taxes either.
Here's my thinking: as a society, we should decide on what needs to be handled by the government. Defense, roads, pandemic response, scientific research, welfare, healthcare, whatever. Make your own list, we can all hash that out. Then we figure out how much that costs, then we figure out the best taxation method to pay for all of it. I think the goals of that tax system should be to encourage beneficial habits, support economic growth, lower people's standard of living as little as possible, and generally maximize utility. It seems pretty clear that in this kind of system, a progressive system that taxes the wealthy more is a clear winner.
We should also work out the costs of not having good cheap public healthcare, education, infrastructure - and not also having public access to the best R&D talent because it's working to make billionaires even richer through clever rent-extraction strategies from the markets.
And so on.
All of these negatives cost money. Aside from the humanitarian considerations - not trivial - they're a huge drag on social mobility, innovation, and business opportunity.
The fact that some people feel irrationally inconvenienced by the prospect of extra taxes - which in reality will not materially affect them or their opportunities in any significant way - is an unconvincing reason to ignore the staggering social, economic, and political costs of their uniquely privileged position.
If you are accepting that the statements (1) "[wealth tax] in reality will not materially affect them", and (2) "[status quo is] a huge drag on social mobility, innovation, and business opportunity" are correct; opposing them in principle is not rational.
> Here's my thinking: as a society, we should decide on what needs to be handled by the government. Defense, roads, pandemic response, scientific research, welfare, healthcare, whatever. Make your own list, we can all hash that out. Then we figure out how much that costs, then we figure out the best taxation method to pay for all of it.
We already do that. It's called politics. However, you seem to want a strictly regimented "waterfall" version of politics, but in reality it has to be continuously iterated and handle the complex interplay of many factors (like different people having mutually exclusive ideas of what the government should actually do).
I worded it badly - I mean that the paying of taxes will always lower someone's standard of living, but we should minimize that as much as possible - basically that progressive taxation is clearly the better way.
Both are true. It's a bonfire of money. And it gives us civilization. It's horribly inefficient and wasteful, and yet very few of us want to live without it. (But more efficiency would absolutely be welcome.)
Civilization is being created by the creators of wealth. Before you can distribute anything, that anything has to be created. Once it's been created, it belongs to its creator by the unalienable right of property, the right that made the Civilization that you are currently living in possible. If you believe otherwise, you should sell, let's say, 95% of your total assets immediately and distribute that wealth among memebers of your local community to make it a slightly better part of the civilization you want to live in.
I'm so tired of this boring old fairy tale where mythical "job creators" will the entirety of civilization into existence like gods raising the earth from the ocean with a touch of their spear, or Athena leaping fully formed from the head of Zeus. Frankly, the mythologizing serves to justify a level of deference to the ultra-rich that they simply have not earned.
In order for the "wealth creators" to work, they need a stable legal system and a currency just to start. Those things aren't free. And if they wanted to create, as a completely random example, a company that sells and delivers books, they might find it convenient for there to already be a well-developed trans-continental transportation infrastructure (and traffic laws, vehicle safety standards, air-traffic controllers, publicly-funded universities training students in logistics and supply-chain management), ports to receive goods from overseas (and trade agreements with other countries, and a navy to protect shipping lanes, and internationally standardized shipping crate sizes), a fire department to come rescue your investment when a warehouse full of books is burning, and perhaps a revolutionary global telecommunications system to let customers buy books with the click of a button (and a government research agency to invent it).
"Wealth creators" exist as a part of the system - not apart from it. Their attempts to create new and better products should be encouraged and even celebrated. But we should never forget that those opportunities only arose because of a collective investment by all of America, funded by American tax dollars. No investment - no Amazon, which is why Jeff Bezos doesn't live in the Democratic Republic of the Congo. So when "wealth creators" refuse to contribute to that investment, they are stifling the innovation and creative potential of the next generation of dreamers and inventors.
And as an aside, property rights are a social fiction. They exist only as long as it serves the collective interest of society. You "own" a particular piece of land because you happened to see it first, just as much as you "own" the front seat because you called shotgun. If you believe otherwise, you should immediately return your land to the native people it was stolen from.
> If you believe otherwise, you should immediately return your land to the native people it was stolen from.
Define native people. Did any other peoples live on that land before them? Did any tribe fight with the other for the same piece of land?
> And as an aside, property rights are a social fiction.
I'm glad you said that. Next time robbers get into your house don't call the police, instead suggest your service to them.
> In order for the "wealth creators" to work, they need a stable legal system and a currency just to start.
Before you have any currency you need a valuable stuff to be created so that you can measure its value by your currency. Before you have a legal system you have to agree on the fundamental principles foundational to your way of living. Unalienable property right is one of these fundamental principles that made possible all the stuff around you and that you benefit greatly from. If you believe otherwise, try a lifestyle in Venezuela or Somaliland for a change.
> they might find it convenient for there to already be a well-developed trans-continental transportation infrastructure
Infrastructure is created by the same wealth creators https://en.wikipedia.org/wiki/Great_Northern_Railway_(U.S.) Your government doesn't produce it out of nowhere, and before the government is able to contract any kind of infrastructure work, it has to extort money from those who created this currecny-measured value in the first place.
> Define native people. Did any other peoples live on that land before them?
Okay, how about "the people who first settled a particular piece of land, thereby laying an inalienable claim of ownership to it."
> Did any tribe fight with the other for the same piece of land?
Oh wait, never mind. If somebody else didn't recognize their rights, I guess you don't have to either. Sounds to me like you're fishing for a reason not not respect their claim to the land. I can't help but question how committed you are to the vision of property that you presented. Inalienable doesn't mean "absolute, except when somebody else violated it first", or "except when the theft happened a long time ago", or "except when somebody else is living there and it would make them really sad to have to leave". It means always, forever, no exceptions. So if you don't believe that, why not just admit so?
> Next time robbers get into your house don't call the police, instead suggest your service to them.
I'm glad you said that. It's an incredibly hackneyed trope, but also perfectly illustrates my point about how enforcement of property rights serves the collective interests of society and isn't absolute. The police are not actually there to protect my property at all costs. They are there to enforce the social contract to the extent that we have collectively decided is economical. This is a balancing of various concerns (privacy, safety, financial) of the community, not a recognition of any supreme right. In fact, barring extraordinary circumstances, the police will do absolutely nothing to help me recover my property. They will probably snap a couple pictures and take down a police report, but making me whole is the responsibility of my insurance company.
> Before you have any currency you need a valuable stuff to be created so that you can measure its value by your currency.
Finally an interesting point that directly addresses the substance of what I wrote. It's true enough, but misses the point that a "wealth creator" who lives in a non-monetary society probably isn't accumulating sufficient excess profits for it to be socially useful to tax them, which I will remind you is the context of this discussion.
> Before you have a legal system you have to agree on the fundamental principles foundational to your way of living.
No, you don't - a legal system is exactly how you reach that agreement. A system of laws isn't like a mathematical structure, with immutable axioms at the foundation and theorems built on top. It's more like an empirical science, where the theories evolve and adapt to fit the realities of the physical world. That's why even the constitution can be amended.
> try a lifestyle in Venezuela or Somaliland for a change.
If those countries have anything in common, it is that ownership, as defined by ability to occupy protect the land with a gun or a pointy stick, has subsumed all other aspects of the social contract. So if you want to live somewhere that respects your right to kill others in defense of property, those would be excellent choices. As I pointed out in my comment, my friend Jeff Bezos and I would prefer to stay in a society that takes a more holistic view of social obligations, instead of recognizing only the rights of whomever happens to be exploiting a piece of property at this particular moment.
First of all, here is a quote from the very top of the article you cite: "The Great Northern was the only successfully built privately funded transcontinental railroad in U.S. history.
No federal subsidies were used during its construction, unlike all other transcontinental railroads." I'm not sure this proves what you think it does. And even if it did, I offered an obnoxiously long list of other elements of the infrastructure that were provided, in part or in whole, by Uncle Sam. So unless you're going to claim that Amazon delivers exclusively via the only privately funded railroad, I'm not sure if I see the relevance of this point. But since you brought them up, I will also point out that the railroad industry was one of the most predatory monopolies that has ever existed, and is the root cause of much of current day anti-trust law, which was establish when society decided that their freedoms were being excessively harmed by allowing exclusive, unlimited control of such an important resource. Their operation is a perfect example of the consequences of unfettered accumulation of capital, and a great argument for a wealth tax. In fact, Andrew Carnegie is the only person in US history to ever have a tax bracket of his very own.
Where have you seen mine claiming that there's no role for the government as a protector of property rights? In fact, it's one of a few only valid purpouse of any state. Not welfare, not free stuff, but the protection of unalienable rights of individuals.
Your tax dollars as a wealthy individual also pay for the police forces to keep the less wealthy people from coming and just taking your property, as they might in a state with zero taxes and thus zero public services, without you spending extra money to hire security who would be loyal only to your dollar and who you couldn’t trust not to turn on you in an instant since it might just have no consequences for them without a judicial system.
> Your tax dollars as a wealthy individual also pay for the police forces to keep the less wealthy people from coming and just taking your property
No disagreement with that, I am willing to pay for police protection of my property and myself, after all that's a valid purpose of a government. Yet this topic is not about paying for your protection, is it? This topic is about ever-growing attempts to extort money for an unknown cause under a pretense of virtue.
> Fifth, the idea that people "will just move to another country" is very silly.
Definitely. After a certain point, increasing wealth isn't about wealth, it's about power. I would wager that most of the uber-wealthy would rather have slightly less power in a place that they want to have power in, rather than have marginally more power in a place that's not their home.
A long time ago the Western world had a voluntary wealth tax of sorts, the tithe. That's 10% of your income and/or property to your church. Admittedly taxes were then much lower, but whatever else you may think of them, churches poured vast energy and resources into social services.
Now that it's an elected government instead of an opaque non-profit providing social services, they've become unpopular with the wealthy. I suppose the government can't assure you a place in God's Kingdom :-)
I think most people who pay a tithe base(d) it on income, not wealth, so it doesn't have the snowball effect that a wealth tax does. Islam's zakat is the only exception I know of, but IIUC even that is paid only on excess wealth.
"Fifth, the idea that people "will just move to another country" is very silly. If some people do leave, or start companies only in other jurisdictions, that just means there's a market opportunity for the many people who remain."
I think you misunderstand this in two different ways.
First, retirees on fixed incomes are acutely, almost comically attuned to state income tax rates, property taxes, etc., and many of them plan their entire retirement and residency around it.
Second, although I agree with you that it is very difficult to just arbitrarily uproot and move your family, etc., because of a tax code change, it's not that difficult for wealthy people - especially those expecting a liquidity event - to buy a house on Lake Tahoe on the Nevada side and take the kids out of school for (365/2) days. "Remember that time we spent the ski season on the lake ?"
Wealth advisors and family office managers, etc., speak of this casually. Further, if you live in a wealthy community in the Bay Area (Ross ? Los Gatos ?) you'll see third or fourth cars with Nevada plates. Not an accident.
So, yes - I think you're right - nobody is going to stop living in California if we continue to increase the top end tax rate ... but define "living".
Third, the market is (with exceptions) global. If Google moves its headquarters to Toronto, that doesn’t open up an opportunity for a new American search engine.
I agree with you, but I do think something has to be discussed about the the issue with shares. Selling shares to pay tax does seem strange, the impact of losing ownership just to pay tax is weird to me.
Seems it make more sense to tax when the shares are sold, but with a percentage based not on your taxed income, but your whole asset holding. Or just to tax the companies themselves more heavily.
Right, but I'm saying no one would actually sell off their shares to pay the wealth tax (I mean, maybe some would in some years). They'd borrow against the assets, or take dividends, or whatever.
I get that, but it seems quite cumbersome and complicated to me. There's got to be a simpler solution that won't involve borrowing. That's where a simple change on income tax like I described I feel might be nicer.
The end result is the wealthier do get taxed more, but the taxing still only happens at liquidation.
Whereas currently this isn't the case. Since a wealthy person can cash out 10 million a year, be taxed on that to the same extent as someone else who made 10 million, yet the next year the wealthy person total wealth could have gone up, making it they can cash out 10 million year over year forever and still grow richer, all because they always get taxed the same as someone who is less wealthy but of a similar income.
Norway's wealth tax starts at ~$200K and has minor discounts for main residence and volatile shares, but that's about it.
And, yes, it is often possible to take dividends from an established, profitable business - but it is horrible for the way the startup (and investment in distant future) economy works, which is likely pg's frame of reference -
I start a company, a very promising one, but it needs 20 years and billions of capital to get there. I raise $30M, still keeping 50% of my company at this point; Oops; on paper, I'm worth $30M, and have to pay (at e.g. 1%) $300K wealth tax in the first year. I cannot get any dividend; I usually can't even sell my shares or borrow against them. And it gets worse each time the company valuation grows (whether I raise more money or not). Seems far fetched? That's Amazon. Okay, Amazon is one in a million you say - but notice that the bad parts apply to ALL founded companies, whether or not they were as successful as Amazon.
So, in addition to the wealth tax, something's got to give.
Either you exclude non-liquid assets (which is a huge hole that will render wealth tax moot). Or you accept wealth-tax-payment-in-kind (that is, you put 1% of your shares into government custodianship every year, and then can convert them to tax money whenever this becomes a possibility).
Or, the entire investment world changes - either investors will have to get used to paying an extra 1.5% to cover the founder's tax liability; or valuations will drop an order of magnitude to let founders pay out of their own pocket. Or investment will be diverted to places that don't have this tax. Or it will just drop significantly.
But the assumption that wealth tax will have minor (if any) effect is ridiculous. Somewhat comparably, Israel put a very small turnover tax on stock exchange trading (which is not wealth tax, but is close enough for practical purposes) and as a result, the Tel-Aviv Stock Exchange volumes went down by an order of magnitude.
"Founders" that the author wrings his hands about so much, owe 99% of their ability to generate wealth to the government. If you're from the US, you own most of it to global American imperialism and hegemony. You should be giving it up so that others can have the same opportunity as you did.
I live in a country with a 1.3% wealth tax (the Netherlands), but as long as you own more than 5% of a company it doesn't apply to that part (a bit more complicated than that, but effectively this is what happens).
The wealth tax does apply once it's cash, so dividends you received, or proceeds from selling (part of) the company. I would imagine a wealth tax in the US could do the same thing.
>taxes don't disappear into nothingness - they pay for civilization
Paying for civilization creates the conditions for even more elites to emerge. From an inequality perspective, you probably should disappear it into nothingness.
The exasperated/condescending tone of your comment is really inappropriate, given the number of specious and economically fallacious arguments contained in it.
Let's go through each:
>>There's a reason failed states and unstable/developing countries generally aren't where people are looking to startup the next big tech company.
There's a negative correlation between government spending levels as a percentage of GDP, and economic growth rates. Your implication, that society is better off with high levels of taxation, is not supported by the science on the matter.
>>Third, any smart founder isn't going to just sell 1% of their stock every year and pay the wealth tax with that. They'll take dividends, or take out a loan against the value of the stock, or use some cash from other investments, or whatever, and maintain control of their company. Yes, over the long term they'll lose some wealth, but not necessarily control of their company, unless that's the decision they make.
Completely irrelevant to the point. The point is that you lose much of the wealth you would have otherwise gained, in the absence of the wealth tax. Whether that's because you have to pay out more dividends, that would otherwise have been reinvested, to transfer to the IRS, or take on loans, that have to be paid back with revenue that would have otherwise been reinvested, is incidental.
>>Fourth, this effectively ignores that wealth is a thing that grows and compounds. If your wealth is increasing at 4% a year (very attainable for the class of people a wealth tax would affect) a 1% wealth tax really doesn't have as big an impact on your long term wealth as this makes it seem.
Wrong. The losses also have to be compounded. That 1%, had it remained invested, would have grown at a compounding rate as well. So you lose the 1% and all compounded gains on it.
>>Fifth, the idea that people "will just move to another country" is very silly. If some people do leave, or start companies only in other jurisdictions, that just means there's a market opportunity for the many people who remain.
This is a misunderstanding of the factors behind an investment. Investment does not automatically emerge to fill every market opportunity. It emerges when the ROI on potential investments meets the demands of the available investable financial capital. Investment decreases when the expected ROI decreases, and when the available investable financial capital decreases. A wealth tax decreases both the expected ROI, and the available investable financial capital.
Moreover, you're completley ignoring competitiveness. Firms in low tax tax jurisdictions will outcompete firms in high tax ones, ceteris paribus. Opportunities are not distributed across the world evenly, and one factor that affects opportunity is tax rates.
>>I'd much rather we have well funded schools and welfare for those who need it.
Government spending as a percentage of GDP has increased from 25% in the 1950s to 40% today. Social welfare spending increased by an average of 4.8%, EVERY YEAR, between 1972 and 2010.
How much more do you think government spending should increase? What share of private economic output should be non-consensually redistributed for social welfare programs in your mind? Will there ever reach a stage where you think the negative effects on capital formation, from further tax hikes, will outweigh the positive effects of a greater share of economic output being available to the poor in the form of cash payments and social services?
>>>There's a negative correlation between government spending levels as a percentage of GDP, and economic growth rates. Your implication, that society is better off with high levels of taxation, is not supported by the science on the matter.
I don't think your correlation suggests what you think it does - look closer at which countries have the highest GDP growth rates. Economic growth rates are not a good indication of countries where people would generally choose to live. I'd generally use HDI, happiness, life satisfaction, or similar, all of which correlate to higher government spending.
>>>Wrong. The losses also have to be compounded. That 1%, had it remained invested, would have grown at a compounding rate as well. So you lose the 1% and all compounded gains on it.
Yes, of course. So your wealth (above the threshold) grows at an effective 3% instead of 4% (or whatever). PG's essay makes it seem like your fortune will dwindle away to nothing, which isn't true. It'll just grow more slowly than it could.
>>>Firms in low tax tax jurisdictions will outcompete firms in high tax ones, ceteris paribus
But this misses the point - other things aren't equal! California already has a higher tax burden than many other states, the US already has higher taxes than many other nations, and still they are among the richest places on earth. Higher taxes can create a society much more beneficial to all of its members, including the rich ones.
>>>How much more do you think government spending should increase? What share of private economic output should be non-consensually redistributed for social welfare programs in your mind?
Enough to make sure every person has enough to eat, somewhere to live, universal healthcare, access to education, and the opportunity to succeed.
>>>Will there ever reach a stage where you think the negative effects on capital formation, from further tax hikes, will outweigh the positive effects of a greater share of economic output being available to the poor in the form of cash payments and social services?
Unlikely. If there is such a stage, I suggest to you it's well below ~5% on all wealth above ~$10 million (which is at the top range of what is discussed in these kind of wealth tax proposals).
>>I don't think your correlation suggests what you think it does - look closer at which countries have the highest GDP growth rates.
I don't follow. The countries with the highest GDP growth rates are the ones seeing standard of living and poverty rates improve the fastest.
Within the developed world, those countries with the highest GDP growth rates are those that are producing the highest wage growth for their people.
>>I'd generally use HDI, happiness, life satisfaction, or similar, all of which correlate to higher government spending.
HDI, happiness, etc improve faster in countries with higher economic growth rates. A common pattern could be that countries institute sensible economic policies, based on what science (Economics) says works, and then when they get wealthy, become complacent, and adopt all sorts of anti-capitalistic policies that retard economic growth rates, which in turn results in all socioeconomic metrics stagnating.
Look at the Scandinavian countries: they attained the highest life expectancy and health outcomes in the world by the 1960s, after a century of very free-market oriented policies and moderate tax rates.
Then they adopted very socialistic policies, and subsequently saw both their economic growth rates, and their rankings in metrics like per capita GDP and life expectancy, suffer.
Hong Kong and Singapore for example caught up to and surpassed every Scandinavian country in life expectancy over the last 50 years. That is not a sign of superior policy in the European social democracies. That's a sign of squandering a lead, based on economically misinformed narratives favoring non-consensual income redistribution.
>>So your wealth (above the threshold) grows at an effective 3% instead of 4% (or whatever). PG's essay makes it seem like your fortune will dwindle away to nothing, which isn't true. It'll just grow more slowly than it could.
The essay explains how much you're losing over time, compared to what you would have had in the absence of the wealth tax, but okay, fair enough.
>>But this misses the point - other things aren't equal! California already has a higher tax burden than many other states, the US already has higher taxes than many other nations, and still they are among the richest places on earth. Higher taxes can create a society much more beneficial to all of its members, including the rich ones.
Being among the richest places in the world is a consequences of centuries of prior policy, not the policy in this one snapshot in time alone! The labor productivity and wage growth rates clearly show a stagnation since the high-social-welfare-spending policies were instituted.
California has consistently lost the middle class to Texas since becoming a very high tax rate state. This pottentially indicates that the latter has better policy than the former.
>>Enough to make sure every person has enough to eat, somewhere to live, universal healthcare, access to education, and the opportunity to succeed.
What if that means 99% tax rate? Do you really think that is better for the population in the long run?
Where do you think opportunity comes from anyway? Your assumptions on what leads to societal progress contradicts the findings of a century of economic scholarship, and with all due respect, are every bit as ignorant as anti-vaxxerism.
>>Unlikely. If there is such a stage, I suggest to you it's well below
Wait, you think it's unlikely that there is a point at which higher tax rates for more social welfare programs would do more harm than good?
>>>I don't follow. The countries with the highest GDP growth rates are the ones seeing standard of living and poverty rates improve the fastest.
Right, because they have a lot of low hanging fruit to pick. I'd rather live in a advanced economy with a high standard of living than a developing one with a high growth rate.
>>>Look at the Scandinavian countries..
They still have excellent outcomes and high rankings in the HDI and Satisfaction with Life index. Hong Kong and Singapore are also doing excellent work, especially on the HDI. The Scandinavian nations are doing a lot better lowering poverty and wealth inequality though.
>>>The labor productivity and wage growth rates clearly show a stagnation since the high-social-welfare-spending policies were instituted.
Are you sure of the direction of that causation? Did welfare policies lead to low labour productivity/wage growth? Or were they introduced to address some of that stagnation?
>>>What if that means 99% tax rate? Do you really think that is better for the population in the long run? Where do you think opportunity comes from anyway? Your assumptions on what leads to societal progress contradicts the findings of a century of economic scholarship, and with all due respect, are every bit as ignorant as anti-vaxxerism.
A 99% tax rate on marginal incomes above, say, $10 million, or marginal wealth above $1 billion, would probably not be disastrous, no. I'm not suggesting it, I think ~60% max on marginal income and ~5% max on marginal wealth would be high enough. Please, lay out the harm for me there - what would befall us if we established even the 99% rates? What societal progress do you think is driven by high net worth individuals hoarding wealth? The growth of the middle class has been the overwhelming source of wealth and standard of living increases over the last century.
>>>Wait, you think it's unlikely that there is a point at which higher tax rates for more social welfare programs would do more harm than good?
Oh, sure, you could sabotage society easily enough if you had the highest marginal rates start at too low an income or wealth. But fundamentally, we could probably have a fully functional (better than the current) society where no one has more than $1 billion of wealth or $10 million/year income or something. But that's not really not what we're talking about - the question is if our richest 1% had slightly less money and our poorest 10% had slightly more, would society not be better off?
>>Right, because they have a lot of low hanging fruit to pick. I'd rather live in a advanced economy with a high standard of living than a developing one with a high growth rate.
Of course I would rather live in an advanced economy, but the question is, how does an economy become advanced.
The evidence strongly suggests it's most rapidly achieved through adoption of pro-market policies.
The last 30 years has seen the largest most rapid reduction in the global poverty rate in human history, and almost all the decline in poverty was due to economic development, which economists have concluded was massively facilitated by the spread of market institutions like property rights:
There is no reason to assume that this relationship between pro-market policies and high rates of economic growth stops existing for advanced economies.
We see indications of it manifesting across the developed world, like the superior performance of Hong Kong and Singapore relative to other developed economies, or Iceland relative to other Nordic countries, or in cross-European studies correlating low tax rates with high economic growth rates.
Economic growth is the primary source of all improvements in quality of life, so we should have policies that maximize it. It is how an advanced economy comes to be that way.
And there is no indication, or reason to believe, that economic growth's positive impact on quality of life disappears when economies become advanced. There is a strong correlation between per capita GDP and quality of life, and the reason is obvious: higher productivity gives people greater means to meet their needs.
>>They still have excellent outcomes and high rankings in the HDI and Satisfaction with Life index.
My point is that Hong Kong and Singapore did substantially better than them in improving their metrics.
Like I said, the Scandinavian countries attained the highest standard of living ranking in the 1960s, when they were still very free market oriented and had moderate tax rates, and had just had a century of the best economic growth rates in the world, again with free market economic policies.
Your analysis misattributes the cause of their high standard of living to their current social democratic policies, when all the evidence indicates that it was due to their previously more free market policies.
>>A 99% tax rate on marginal incomes above, say, $10 million, or marginal wealth above $1 billion, would probably not be disastrous, no.
This would be absolutely disastrous. Major companies, that bring in tens of billions in export revenue for the US, and produce groundbreaking innovations for the world, would have been founded and centered outside of the US, or simply never come into existence, with those kinds of disincentives for entrepreneurs and investors in place.
> Like I said, the Scandinavian countries attained the highest standard of living ranking in the 1960s, when they were still very free market oriented and had moderate tax rates, and had just had a century of the best economic growth rates in the world, again with free market economic policies.
As a Scandinavian that is an absolutely ridiculous claim. The free market period is now, with its quickly widening inequality, and the more socialistic period was during the period you claim to be "very free market" oriented.
The evidence contradicts your belief. Scandinavian countries have much higher levels of government spending, as a percentage of GDP, today, than any time before 1965. The majority of that government spending is on social welfare programs.
> The exasperated/condescending tone of your comment is really inappropriate, given the number of specious and economically fallacious arguments contained in it.
Your own comment is considerably more condescending. As for speciousness...
> There's a negative correlation between government spending levels as a percentage of GDP, and economic growth rates. Your implication, that society is better off with high levels of taxation, is not supported by the science on the matter.
That correlation is disputed, to say the least. Even if it weren't, economic growth rates, while important, are not the be-all and end-all of society being "better", especially when a large amount of the wealth is concentrated in a few hands.
>>Fourth, this effectively ignores that wealth is a thing that grows and compounds. If your wealth is increasing at 4% a year (very attainable for the class of people a wealth tax would affect) a 1% wealth tax really doesn't have as big an impact on your long term wealth as this makes it seem.
> Wrong. The losses also have to be compounded. That 1%, had it remained invested, would have grown at a compounding rate as well. So you lose the 1% and all compounded gains on it.
Perhaps. But a 4% rate of increase would still belie the contention in pg's post that "by 5% [the threshold at which the tax starts] is getting close to being an upper bound on how much of the company you get to keep". It seems probable that pg simply did not take interest into account.
> Government spending as a percentage of GDP has increased from 25% in the 1950s to 40% today. Social welfare spending increased by an average of 4.8%, EVERY YEAR, between 1972 and 2010.
Over the same period, the share of income going to the top 1% doubled.
> How much more do you think government spending should increase? What share of private economic output should be non-consensually redistributed for social welfare programs in your mind?
> Will there ever reach a stage where you think the negative effects on capital formation, from further tax hikes, will outweigh the positive effects of a greater share of economic output being available to the poor in the form of cash payments and social services?
Ever? Certainly, if you keep cranking up the number. But the United States isn't necessarily at or even near that stage, considering that several large European countries have strong economies despite much higher government spending as a percentage of GDP.
>>That correlation is disputed, to say the least. Even if it weren't, economic growth rates, while important, are not the be-all and end-all of society being "better", especially when a large amount of the wealth is concentrated in a few hands.
The correlation is plainly evident in the datasets. It's a very strong correlation that has been widely observed and studied.
>>It seems probable that pg simply did not take interest into account.
It's possible he did. Regardless, PG clearly laid out why such taxes are absolutely disastrous for both the incentives to start companies and the expansion rate of existing companies. You can fiddle around with the numbers, and the basic conclusion wouldn't change.
>> Even if it weren't, economic growth rates, while important, are not the be-all and end-all of society being "better", especially when a large amount of the wealth is concentrated in a few hands.
>>But the United States isn't necessarily at or even near that stage, considering that several large European countries have strong economies despite much higher government spending as a percentage of GDP.
The US and large European countries have all seen their economic and wage growth rates stagnate since 1970. This is disastrous for the objective of improving quality of life. Nothing has a larger long-term impact on quality of life than per capita GDP. Productivity growth is the basis of nearly every improvement in people's living conditions.
Of course, Western countries still have strong economies. Other countries cannot catch up to three centuries of superior industrial development in a single generation. But the rate of improvement has stagnated, and other less social democratic countries have closed their gap with the West, so there is absolutely no reason to assume the last 50 years' experiment in social democracy has been a success.
> Fifth, the idea that people "will just move to another country" is very silly. If some people do leave, or start companies only in other jurisdictions, that just means there's a market opportunity for the many people who remain.
You're just name-calling here, it's not "silly" just because you don't like the fact. If they leave, they actually leave, period. Sweden's left-wing majority abolished the inheritance tax(!) because so many wealthy people left because of it (among them, the famous IKEA founder).
It's sad that your non-arguments and whinging are being upvoted by people who "feel" the rich ought to be taxed but refuse to think about the consequences.
It is silly. Your example isn't even about a wealth tax, it's about an inheritance tax. Sweden has a 30% Capital Gains tax (likely the vehicle for any form of future wealth tax) and seems to be doing much better than the US.
Sweden -- along with virtually all European countries other than Switzerland, Norway and Luxembourg -- have much poorer middle classes than most US states.
Not sure what you mean by much poorer... in any case here is a list of European countries which have a higher median wealth per adult than the US, roughly in order of wealth per adult:
Switzerland, Iceland, Luxmbourg, Belgium, Ireland, France, UK, Spain, Austria, Italy, Malta, Norway.
If you go by mean wealth on the other hand, only Switzerland is higher than the US. But that is not a measure of middle class wealth.
A relevant factor is that the US has both a much higher income and a vastly lower savings rate than in Europe. Also, much of the wealth in Europe comes from hereditary property, which is not really a thing in the US. As a baseline, median Americans have much higher discretionary income than in Europe, so it is only savings habits that prevent many of them from accumulating wealth.
Americans with savings rates that are comparable to Europeans end up accumulating tremendous wealth over their careers, even in the middle class. This is offset by the majority that spend every penny. That Americans don’t save their prodigious income is an unfortunate artifact of having multiple generations of nearly unbroken prosperity.
Sure, they're related, but they are not equivalent and even oppose each other in some ways.
A society that emphasises wealth accumulation above all else will have the privileged accumulate so much wealth it'll be nearly impossible for the poor to catch up, no matter how talented or hardworking.
One way of measuring class mobility is looking at your liklihood of finishing your life in a higher 'class' (variously definied) than you started it, or than your parents had. With that kind of measure, Sweden does extremely well. Certainly much better than countries like the USA, which arguably do emphasise making the accumulation of wealth (when you already have a lot of it) easier.
This does seem a bit of a chicken and egg issue. If more countries followed suit, same as much of them followed suit on almost all other taxation schemes that were put in place in the past, then it's just a matter of time.
And the US is not Sweden. If the US blocks your company's access to its market for leaving or not paying taxes, you'll most likely lose more money than the tax.
Not saying I'm pro wealth tax, I'm still having to think about it, but I do feel the US is in a position to be able to protect itself from founders leaving.
I'm not saying that people won't leave, I'm sure some will. I'm saying worrying about some people leaving is silly. What disaster befell Sweden because the IKEA founder left?
> What disaster befell Sweden because the IKEA founder left?
It's not hard to figure out if you try to think about it in a curious, scientific manner instead of through your ideological glasses. Many wealthy people left and Sweden lost tax income, investments and angered people. To the point where the left-wing parties realized how bad an idea it was.
An annual wealth tax of ~0.5% and a floor of ~$10million is very, very different than an inheritance tax of 30%, to the point that they're not even that comparable. So sure, I agree we shouldn't have a high inheritance tax.
> An annual wealth tax of ~0.5% and a floor of ~$10million
... is pointless, as it will just drive wealthy people away, into tax evasion schemes etc. while providing only tax income from the stupid. I'm in that bracket and if my country decided to introduce such a tax, I'd be somewhere else in the EU in no time.
(still expecting a haircut-like single tax grab of 10% or more from our idiot government because of their ruinous Covid-19 politics though)
Let's talk rough numbers - I'll assume you have a net worth of $15 million. You'd owe 0.5% on $5 million - $25k a year. That would be significant enough to move countries over? Completely upend your life, move kids out of school, buy/sell a home, etc.? It just doesn't seem reasonable to me.
You assume a number that is too close to your floor. Duh, someone with $10.5 million would not care unless he expected his wealth to grow quickly, eh? My taxes under your scheme would be well into six figures, more than it takes to house and feed a upper middle-class family with room to spare. So yes, I'd leave for greener pastures, since my frugal lifestyle shouldn't be punished.
By the way, I already paid 25% capital gains tax when I sold my company I'd grown over the years, at the time it was easily 20% of my total wealth.
Right-wing parties abolishing wealth taxes is not the same as "Sweden realized". It's fascinating how often I hear these kind of arguments. It's as if there have never been right-wing parties in power in Sweden that have adopted, well, right-wing policies.
Why cut that check to the Feds? They have destroyed schools. Look at the American placement in international tests since the Feds took over in the 1970s. Downhill.
Why have them control health? They've shown they are incompetent with Medicare (look at the waste, fraud, abuse, and anger by doctors due to red tape).
Why not have the States set the wealth tax? Be like Switzerland. The cantons and municipals set the wealth tax.
Ultimately, for me, this entire topic throws into stark relief the fact that the Federal government needs to be brought to heel. It is too large. Too incompetent. Too impossible. Look at the EU (the closest thing in the West to the US by population and economic scope). The EU doesn't set an EU wealth tax. They do not set an EU health service. They set regulatory requirements that the individual countries (from a GDP perspective equal to US States) implement.
Perhaps notable: Switzerland has a wealth tax (of up to 0.3%), and there is zero evidence that this has any deterrent effect on wealthy people settling in Switzerland or startups being created in Switzerland.
Other features of the tax system more than offset the 0.3% wealth tax.
Personally, I am a bit disappointed by the lack of depth of the discourse: Wealth taxes and their effect have been studied quite a bit in economics literature, and there are various peer-reviewed papers that attempt to measure the effects, but the Silicon Valley crowd is strangely avoidant of examining evidence or explaining their opposition with real-world data. It's all 101ism and polemics.
I'm not sure european examples are a great comparison.
First, most european wealth taxes (including recently defunct ones) have much lower floors than US proposals. $1m instead of $100m. That changes a lot. France did experience "capital flight," famously Gerard Depardieu.
Second, "capital flight" has always been present in Europe. There's a long history of it, and practical realities make it relevant.
I do agree about depth though. One point that PG does address which is often skipped over is that a wealth tax is a "deplete billionaires" policy... or a "curb billionaire growth" policy. The premise is that the very wealthy are too wealthy and that this is bad.
A wealth tax is not like a VAT, corporate or personal income tax. The tax revenue is secondary, and relatively small. It's more like a tariff, tax as an economic policy tool.
I agree that considering a 2% wealth tax as a 70% depletion of wealth over 60 years is... not nuanced. The most important nuance being that you control most of this wealth for most of this time and will be paying your taxes out of interest. If you apply the model to actual examples (say Bezos or Buffet), you'll find that their wealth will still have increased... just at a reduced rate.
But, to be nuanced we also need to address the core question: "are billionaires bad for the rest of us?" That is the premise of a wealth tax, at least the currently popular one.
The question if billionaires are bad for society is pretty much the same question as asking if the aristocracy was bad for previous societies. The existence of billionaires clearly undermines the core principles of democracy which is that all people have essentially the same political power. The existence of many laws which clearly aim to benefit billionaires only is enough evidence that this power balance does not exist when there are billionaires. Essentially strong wealth imbalance leads to unstable societies.
I find it ironic that the US which was largely founded by people who left their home because of entrenched economics and limited opportunities and who used to have some of the highest taxes for the top brackets and strong eversion to the development of a new aristocracy have after Reagan developed into a nation of defenders log the superrich.
> is pretty much the same question as asking if the aristocracy was bad for previous societies.
Well... that's stacking the deck somewhat. We were talking about how to add nuance. Nuance would be "what do we expect the economic result to be" or "this is a matter of right and wrong, not money."
>I find it ironic that the US which was largely founded by people who left their home because of entrenched economics
This gets abstract, but... The individuals most influential in the Revolution itself were mostly high ranking colonial officials from British nouveau aristocracy families of the empire. Granting voting rights only to property owners was the default position. "Universal" suffrage limited to european males was the radical position.
Not a criticism of them. Just... we can't solve these things with history. If you think billionaires are harmful, why? Equality? Economics?
Contrast between a growing/innovative/free society and a stagnant/authoritarian one. Key difference is meritocracy -- can competent newcomers displace incumbents?
This is mirrored at smaller scales -- good leaders of healthy teams want newcomers to grow and learn and surpass them. Bad leaders are afraid of failure and don't want their people to fundamentally grow and change. Likewise good parents want their children to surpass them; bad parents harass and belittle and shame.
When Apple makes it painful to build sizable businesses on their platform, this is intentional stagnation to maximize profit.
When billionaires run think tanks, fund political campaigns, and rig laws to increase their power at the expense of the common good, this is intentional stagnation to maximize profit.
When you look at the data, most millionaires and billionaires don’t come from family wealth. Don’t misunderstand, I’m sure they’ve had “leg-ups” like going to private school, or having an SAT tutor, or having a professor at a top20 school as a family friend. So, we don’t really have stagnation of wealth.
35% of the Forbes 400 list was born into a middle class or lower household.
22% inherited up to $1m.
12% inherited between $1m and $50m
7% inherited more than $50m.
21% inherited enough for that alone ensure they are on the Forbes 400 list.
The first bucket is clearly self made. The last two buckets are clearly not self made. Depending on your definition of "self made" that would leave somewhere between 35% and 69% of these people as self made.
Self Made is interesting. Does your family background have enough to cushion you if your startup fails.
It costs at least 20k a year to live (rent and food). You can gamble if you have 100k of funding, but that's setting you back a lot on things like 401ks and property ladders. If you have security from your family then shoot for the stars, great.
Same applies in many cases, it's not always as simple as how much wealth has been transferred from one generation to the next.
One example want to get a traditional 'good job' in London, lawyer, jouranalists, finance, etc, you need to take an unpaid internship and low paid start to your career for 5 years, all while maintaining London expenses. If you live with parents in commuterville you can do that, if you 're from Newcastle you're screwed. After 5 years of rent free living with parents you're £60k better off even with no cash injection, that's enough buy a house which means you're paying far less than renting, you start building your wealth.
But taht assumes you get the entry level jobs on merit, and not because of parental contacts, which happens a lot. Work experience at your Dad's squash partner's firm will get you rolling, yet wouldn't factor into your 'self made' list.
No man is an island, no man is self made. Those who 'succeed' do so through grit and luck and are often blind to their own advantages. Those that fail do so despite working hard.
The American dream of 'work hard and be rewarded' is bollocks. So much relies on advantages you don't even realise you've had.
> The American dream of 'work hard and be rewarded' is bollocks.
It is indeed bollocks, because it is "work smart and be rewarded". You have to work on the right things. Working hard at digging holes and filling them in again will get you nowhere. Looking around for an unfilled need, then starting a business to fill that need, will get you everywhere. Preparing yourself to become a valuable employee is another path.
You are of course right, but lets not conflate someone saving 5 figures by living with their parents for a few years with people who inherited 8+ figures which seems to be roughly a third of the Forbes 400 list. I don't know exactly where the appropriate place is to draw a line between these groups, but it is clear that these are vastly different scenarios.
>35% of the Forbes 400 list was born into a middle class or lower household.
Just to provide a little more clarity. Those numbers are from 2012. In 1997, 31% were in born "in the batters box"
However, there is a wide range of circumstances in the batter box. Defined as: "individuals and families whose parents did not have great wealth or own a business with more than a few employees."
Perhaps we differentiate on self-made, but some of those 35% I would not consider self-made either.
I think focusing on “self-made” is a red herring. No one is truly self-made. The point is, a good portion of the top wealthy people were not born into families of the top wealthy people, 1 generation ago.
It depends on definitions of "good portion" and "top wealthy people", but I don't think the numbers show the conclusions you are drawing from them.
The numbers vary by year as people enter or drop out of the Forbes list. However generally speaking you can probably divide that list into rough thirds. One third is the first generation experiencing any wealth. One third was born into enough wealth that they likely would never have to work a day in their life, except they decided to work and were able to compound that wealth into a obscene amount of money. The last third was already born with that extravagant wealth and may or may not have done anything to increase it.
Back to the topic at hand, a wealth tax would not have prevented those first two-thirds from earning their fortune. It would only negatively impact the starting position of that last third. The primary impact of a wealth tax would be to decrease generational billionaires which serves to increases the meritocracy.
The percent of totally self-made rich seems to be around 56%, and partially self-made is at around 30%. Note also that the proportion of self-made rich people is actually growing, even as the amount of wealth the rich has has decreased a bit[1] (methodology of the quoted study[2]). Also take a look at this intergenerational income mobility chart in figure 3 of a Pew study[3]; it says that people are
"likely" to stay poor, but that's actually less than half, so I would say it's more like "unlikely."
That Pew study you cited is from 2012. It's an interesting read, for sure, but do you have any more recent studies? It seems that some factors that dampen economic mobility have been worsening since then[1] and the wealth gap has grown significantly since then, especially between the top 5% and the rest of us[2]
Shorter timescale than generational. Once anyone becomes a billionaire incentives push them towards extracting rents rather than creating wealth.
Rich founders who get pushed out often start new companies (Pixar, SpaceX, Square, etc..)
Rich founders who stay waste their talent & access to capital on moat digging.
Why did Gates, after inventing personal computing, spend the 90s killing Netscape and stagnating browser standards?
The trend of wealthy founders leaving their companies to become mentors/investors for the next batch of startups is likely the biggest contributor to the ongoing success and prosperity of Silicon Valley.
A "rotating" ruling class is a lot more contestable than a hereditary one. That makes it at least potentially more meritocratic. (It could also theoretically be less meritocratic, depending on how power is contended in any given case. But typically, the "hereditary" case involves battle-axes, dark intrigues and treacheries, which is the polar opposite of actual merit.)
It’s not very democratic. Someone was in the right place at the right time as much as they earned it, do they then deserve to have basically 100s of orders of magnitude more influence for their life? Just doesn’t add up.
> If you think billionaires are harmful, why? Equality? Economics?
They already answered that:
> The existence of billionaires clearly undermines the core principles of democracy which is that all people have essentially the same political power. The existence of many laws which clearly aim to benefit billionaires only is enough evidence that this power balance does not exist when there are billionaires.
I don't understand this. Clearly not all people have the same political power, regardless of the existence of billionaires.
AOC, as a party firebrand, has more political power than Jeff Bezos, although it manifests differently. You can argue that the power was "earned" (in the sense that AOC won a primary), but how is the power that Bezos has any less earned? The same argument applies not just to politicians, but literally any influential public figure (artists, authors, journalists, actors, etc.).
AOC's power stems from democratic support. Jeff Bezos' power stems from monetary wealth. It's the difference between oligopoly and democracy.
No, there will never be absolute equality of power. Certain people will always have a louder voice in the culture than others. But cultural power is fickle and comes and goes easily unlike wealth.
That's strictly not true. People vote for Amazon the product (over Walmart's web experience), they don't vote for Amazon the Jeff Bezos Political Agenda. Those are two totally different things. For instance, there's plenty of right-wing folks who shop on Amazon while simultaneously hating the Washington Post.
As mentioned upthread, this is the difference between democracy and rule by wealth.
Excellently put. And put differently: even if people actually thought that Bezos was just a brilliant businessman, why would anyone think that he's a brilliant social strategist? Or resource planner? Or commander-in-chief? Just because someone knows how to build and run a company that's great at selling stuff tells you absolutely about their qualities as a political/national leader.
Amazon tried to unseat a couple Seattle City Council members in the last election. It backfired, and Amazon faces a Council that has voted a huge payroll tax onto Amazon in revenge.
So if Amazon can't even control local elections, I wonder where all this supposed political power is?
Also, AOC was instrumental in preventing Amazon from establishing a second headquarters in NY. As a freshman Congressman.
You're welcome to take a hit to your wallet when you don't want to enrich a certain business leader. What you shouldn't have to do is take a hit to your wallet because you don't want to politically empower a certain business leader. This is especially true as there's less and less competition, and a few huge players control a disproportionate amount of the market (which is an issue on its own, albeit a separate one).
The idea behind a democracy for better or worse is one individual gets one vote. When you start having to figure out how you're voting by proxy through the leadership of each company you do business with, I'd wager, that wouldn't be within the spirit of the system.
Companies should compete for individual walletshare by merit, and it really should be apolitical. It won't always be, of course, but I think we're better off if we try and limit it. Conflating the two weakens both imo.
AOC's power will vanish the moment she breaks with the interests of her constituency. Bezos' wealth does not represent a continuing endorsement of his actions.
How would Bezos continue to have power if people stopped using Amazon? Most of his wealth is in Amazon stock. Sure, he'd have a few billion left over, but his real political power comes from his companies, not his money.
"A few billion" places his wealth in the top .0001%. It's telling that even in this far-fetched scenario where Amazon and Bezos' "real political power" are destroyed, he's still much more powerful than the vast majority of US citizens.
You seem to be equating wealth and power. Wealth and power are certainly related, but probably on a logarithmic scale. Someone worth $20,000 isn't twice as powerful as someone worth $10,000.
The primary source of political power Jeff Bezos has is his control of a very large employer. Employing lots of people gives you some power over local politics in the areas where you employ those people, and it gives you some level of influence with politicians who might be interested in ensuring you continue to employ lots of people, because it's good for the economy.
Your run of the mill billionaire heir/heiress that doesn't really do any useful economic activity doesn't have a huge amount of political power, in general. They probably have more than you or I do, but not a ton more. Certainly not more in (linear* proportion to the wealth difference.
Once you realize that the relationship between wealth and power is logarithmic, it's not really a super concerning relationship. There are other sources of power that are much more important, and much less transparent.
I would guess that most of Bezos' wealth is stilled tied to the stock price of Amazon, and thus actually represents an endorsement of his actions at least a bit more than if it were all in cash.
His monetary wealth shouldn't give him power over anyone but his own company, nor should it allow him to exercise his right to speech that are denied others for reasons directly related to wealth.
It does in both instances. They're not orthogonal.
Actually your example of newspaper and TV stations exactly examplifies why billionaires have such a vast political power which is unhealthy for society. No single TV station, newspaper by itself would ever yield so much power as to be able to shape public opinion in one direction. However take the media empire of the Murdochs which yields a disproportionate amount of power in several countries, very directly pushing the ideology of it's owners.
I can't believe that we are seriously discussing that using some online retailer is somewhat a voting process equivalent to democratic elections. This really shakes my faith in humanity and the HN community.
I think you have some very distorted concept of democracy. I don't know any definition which includes voting by where you shop.
Also I note that the strategy to paint the political class (as opposed to e.g. the business class or some "new" political class) as all corrupt is a common strategy by totalitarians to undermine democratic processes.
A capitalist-ish economy is designed to create winners. If it wasn't Bezos, it would be someone else. What matters about Bezos' wealth (in this context) is not that this specific person controls it, but that we live in a society/economy where there will always be people who accrue this level of power and wealth. The problem isn't that Jeff Bezos is this rich, it's that we live in a society designed to concentrate money in this way.
ps. I was the 2nd employee at amazon, and worked closely with Bezos for 14 months.
Buying from Amazon does not imply endorsement of Jeff Bezo's politics and economic interests. Your equivalence between that and AOC's grassroots support is completely nonsensical.
Democratic support of a vocal minority and remember her power is predicated on violence, where bezos's power is based on voluntary interaction -- a big difference.
Bezos's power is entirely predicated on violence, as the ownership of any assets he holds are marked as belonging to him through the backing of violent institutions. This is arguably moreso than AOC as she has no executive authority.
She, as most politicians, compete in a primary - that is where the real election is. Her district was going to vote for the Democrat candidate no matter who was selected in the primary. Lastly 57% may seem like a lot or whatever, but it's ~16,000 votes out of a potential ~700,000 for the district. Hell, 16k out of ~100,000 that voted last time isn't a huge amount.
AOC does not have more political power than Jeff Bezos and to suggest otherwise is tremendously foolish. Political power is far more than just the ability to change federal statutes, it includes things like being able to get faster approval for the zoning of your particular projects or getting your company tax breaks.
Bezos has vastly more power than AOC. His decisions affect the lives of 840,000 direct employees and at least as many again - I'm not sure the figures even exist - "freelance" content suppliers, small businesses, and casual workers.
His tax avoidance policies have a significant impact on the budgets of the larger Western countries.
AOC has a media profile, but - so far - almost no influence at all on US policy. That may change in the future, but given that the Dem Establishment seem to consider her a dangerous extremist, it's possible she'll be sidelined into becoming her generation's powerless token left-leaning icon.
I said that different sorts of power were fungible. I did not say that a specific sum can be used to acquire a highly specific office by any particular individual. It's entirely possible to use vast wealth inefficiently and fail to acquire political power or influence.
It's possible to use the same wealth efficiently to pay individuals to study the problem of which individuals to contribute to in order to acquire increasing and undue influence.
Your argument is that you shot at someone five times and failed to injure them thus guns doing kill people.
He didn't, but with his donations to the DNC and the creation of Hawkfish, he'll have an inordinate amount of power in the direction of the party for years to come regardless because of his money.
Certainly in some ways. But AOC (with others) arguably shifted an entire mainstream party's platform. I think that the "hard power" that Bezos has is larger, but the "soft power" wielded by political and cultural elites is massive and easy to underestimate.
I would like to introduce you to a family which is called the Murdochs. This family alone has probably yielded more political power than most elected officials in many western democracies combined. You don't even need to look at Fox news, but only look at Australien politics, where Rupert Murdoch (who isn't even an Australien citizen or taxpayer anymore) has had the most intimate access to politicians. I encourage you to look at the repeal of the NBN (which was very popular) and the role of Murdoch newspapers in getting the labor government voted out.
AOC has to actually work for her political power. Billionaires can sic 1000 lawyers and lobbyists at whatever initiative they want, without lifting a finger.
And that's just an example :-)
Activists do it as their day job, for billionaires it's just one of the many side effects of their wealth.
I'm not sure how this is apparently a controversial point. There's vast and obvious evidence that this is the case. More Dunning-Krugerism from the tech industry.
"Political power" is an unavoidable side effect of having power, simply – this almost reads like a tautology, but it's worth keeping in mind that the former is effectively an extension of the latter.
I argue money is power in a free market society. I'm not sure there is a way to fix the first part of that sentence without completely modifying the latter.
Actually there is significant research that successful people significantly overestimate their skills/contributions even if they rely largely on luck or advantageous starting conditions. There is also significant research that shows that even in a relatively "fair" trading scenario wealth distribution very quickly becomes completely unequal, just based on luck in the first couple of trades [1]
It was actually gifted to him by his parents, in the form of a $300,000 loan. How is it so difficult to accept that the vast majority of the wealthy were helped by having wealthy parents rather than pulling themselves up their bootstraps?
How many people with $300k go on to build Amazon? Nobody is saying he didn't have any help, and that's frankly not the bar we want to measure people by.
Statistically, people with wealthy parents are far more likely to be wealthy than those of poor parents. Bezos would have been far less likely to create Amazon did he not get that loan. Do you dispute this?
Maybe. So what? No one is an individual. “He” is also a product of his parents’ DNA mixing to produce an intellectually healthy and superior brain. His parents also stuffed copious amounts of useful information into that brain. As did people around him growing up. And his parents used savings, likely derived from many generations of people passing on their wealth/culture/knowledge, to aid in the continuation of their DNA’s importance to humanity.
I don't exactly give a shit, I googled Bezos current net worth. I'm savvy enough to know it's not liquid cash, if you're trying to make a snarky remark. Or you could just say what you mean.
You say clearly, but it isn't clear. I would argue the existence of billionaires is a symptom and not the root of the problem. This country was founded with all people created equal under the law, but the system of kickbacks and corruption allows the wealthy to commit all manner of civil, financial, antitrust, and even criminal acts without any repercussions. How many people were charged in the financial crisis that wiped out half the wealth of Main St? 1 person? Google is larger than all of it's search competitors combined and yet Congress rolls over when Pichai says it isn't not a monopoly? Give me a break. It will only get worse, whether UBI and Universal Healthcare are implemented or not. There's a reason Big Tech CEOs are all card carrying Democrats. Modern Communism won't see the seizure of the means of production by the State. Instead it will consolidate the working class under a smaller and smaller group of larger and larger corporations that work in concert with politicians. Progressive regulation and taxation schemes support this. We even have on-campus housing for employees now so you can dedicate your whole life to a company. All that's missing is childhood education and you can be birthed into Amazon employment, get educated and trained, and live your life inside the bubble.
Every person has the same political power, though. One vote is one vote, one voice is one voice. Why do politicians pander to the wealthy and influential? Well, precisely because they are influential and connected to many of the people in society.
You contradict yourself. You literally just said that everyone has equal political power, but rich people have more political power. Rich people aren't influential because they have a lot of friends. Rich people are influential because they have a lot of money.
Isn't it because the wealthy and influential can donate/raise huge sums of money for politician's superpac and help them win elections term after term and stay in power for decades?
To get rid of that incentive you need to advocate for separating government from economy, in the same manner and for the same reason why state is supposed to be separated from church in a modern secular society. No lobbying from economic players and no government intervention into economics.
If government is responsible for running common infrastructure, just by their choice of which infra to grow or let decay, they are affecting economy.
If government is responsible for social welfare (for the poor), they are affecting economy.
If government is collecting taxes, by their choice of what to tax how much etc, they are affecting economy.
If you take economic affections away from the government, what remains with the government?
With gerrymandering of districts votes are diluted or concentrated specifically to create imbalance of each vote being equal.
They pander to wealthy and influential because they will receive donations in unlimited amounts for such pandering. If they don't, they'll be primaried out by that spending being directed toward another candidate willing to pander.
> The existence of billionaires clearly undermines the core principles of democracy which is that all people have essentially the same political power.
I'm very pro-democracy; but that isn't a principle that has ever shown to have massive success at scale. There are a lot of fools out there.
Notably, some of the most successful experiments in democracy (British, American & Indian traditions) all have pretty clear principles of not having people with equal political power. Eg, a judge simply has more political power than an ordinary person. Britain and India have appointed members of their upper houses and the US has several safeguards to stop power defaulting to a majority.
Democracy hasn't achieved success due to some rosy concept of equality, it achieves success because the insufferable can't hold power and it provides an excellent method for different interest groups to negotiate and play mock-battle to work out who is stronger. There is plenty of evidence that dictatorship would be a better model if there were some magic method of keeping the dictator focused on good results - and indeed the US political system has tendencies in that direction. The creation of billionaires as replaceable aristocracy is a potential strength.
Plus most of the top US billionaires are self-created. It isn't really comparable to aristocracy either.
> Plus most of the top US billionaires are self-created. It isn't really comparable to aristocracy either.
That's just a function of accretion. The pearl has just begun to be produced. Do you think that the kids of the current top billionaires will not be at least middling billionaires? The US has lower social mobility than most European countries. Considering the fact that Europe is part of the "Old World", that's a worrying fact in my opinion.
Broke aristocrats are a trope. Broke billionaires are an oxymoron.
Just looking at https://en.wikipedia.org/wiki/List_of_Americans_by_net_worth I don't see a lot of hereditary names. There is the Mars family I suppose. I don't see names like Getty, Bruce, Mellon, Carnegie, Rockefeller or Vanderblit. There is a Hunt.
The wealth doesn't look like it accretes faster than family growth divides it at that level.
Leaving aside George Spencer-Churchill, Marquess of Blandford, and a few other aristocrats, the latest-born of the descendants of Cornelius Vanderbilt is James Vanderbilt (https://en.wikipedia.org/wiki/James_Vanderbilt), currently worth by somebody's estimate $20M. The family also includes Anderson Cooper, a fair stock of earls and such, and a number of artists.
All but 5 of those families have less wealth than MacKenzie Scott; whose claim to fame is marrying the son of a bike shop owner.
The odds of breaking in to that list are something like 1 / 300,000,000 but evidence is anyone can do it. MacKenzie is also my subtle counterargument to "Look at the Waltons". Breaking up the wealth ain't always voluntary.
*grandson of one of the first nuclear engineers and nephew of one of the most successful musicians of the 20th century, whose parents had nearly a million (2020) dollars to spare to help him get in on the dotcom boom. But anyway.
Those are about the same odds as breaking in to the House of Lords.
Would the explanation that "while it is statistically impossible, it is strictly speaking plausible for an extremely devoted and lucky regular person to join the club" be a good enough excuse for re-introducing a landed aristocracy to American government, in your estimation?
I just remember when I was school in the 60's there were a lot of games played where one person out of 30 would 'win'. Very much like professional sports. Talked to my dad whose much older. He said they didn't do that when he was a kid. I think schools don't do that shit as much because they realize that one kid has a very temporary positive experience and 29 kids have a negative one.
Seems to me where the system is fair is unimportant, first we know it's not. Second is it designed to create disparities and a negative experience for most people. From a societal point of view that probably bad. And as I like say, the needs and wants of a couple of super wealthy people shouldn't be anything society cares about.
Yes and what happened every time in between? Significant civil unrest or wars. The first and second world wars actually acted as great equalizers (as did the civil war, the French revolution etc.) everytime after a new "aristocracy" develops and tries to keep keep the wealth to themselves. So I guess we need another upheaval, is that the argument?
> The pearl has just begun to be produced. Do you think that the kids of the current top billionaires will not be at least middling billionaires? ... The US has lower social mobility than most European countries. Considering the fact that Europe is part of the "Old World", that's a worrying fact in my opinion.
I'm not sure that this is actually true, wrt. "old" wealth. Mostly, because Europe's high income taxes and broadly business-hostile environment makes it very hard for new wealth to compete with old wealth, and especially unattractive for "old" wealth to get involved in riskier, more innovative ventures of their own as opposed to just kicking the can down the generational road.
Money is a poor form of meritocracy because once you have it you can tilt the board towards you and yours forever regardless of future merit.
Worse the portion of wealth from true merit is cover for just how much is graft, rent, and corruption.
The end point of any system whereby power gives one the ability to further consolidate power needs to be balanced with redistribution else all power naturally concentrates in a shrinking few.
No man is self made. Billionaires are generally the children of lesser wealth.
Professional meritocracies where groups of professionals judge the efficacy of fellow practitioners? Licensing boards. Colleges, testing, professional memberships, peer review.
We can also acknowledge that we are incapable of making such systems optimal and take from all to give to all in terms of public works, education, health.
This insures that even if capitalism doesn't properly reward all participants aptly for their contributions to society all get a chance to live and contribute. If you look at true believers in capitalism one would suppose that the market is the only guide to worth and how we should allocate capital. Neither is true.
And there are multiple members of the Rockefeller family that have net worths in the billions. There is substantial swaths of land in this country that have been held by the same families since the 1700s.
> The question if billionaires are bad for society is pretty much the same question as asking if the aristocracy was bad for previous societies
I think the main difference is that aristocracy was zero sum and rent seeking where billionaires aren’t necessarily (and with recent tech ones not) zero sum. Bezos having a billion dollars doesn’t limit anyone else from having a billion dollars.
Only the king was allowed to hunt in the king’s forest. Aristocracy owning 50% of land (or whatever) means no else could own it and more land wasn’t (usually) created.
If someone is king, then that means no one else can be.
There’s some similarities with aristocracy, especially with generation after generation. But theoretically we have estate taxes and laws against perpetuity that help some and could be prevented.
Perhaps half of billionaires are “self made” [0]. I don’t like that term, but I wish we had “how many billionaires weren’t born to millionaires?”
But Bill Gates being born to a middle class lawyer and making billions is very different from Bill Gates being born to the Earl of Orkney and selling all the potatoes in Ireland to make billions.
Bill Gates was not born middle class. His Father Bill Sr. was a partner in a very prestigious law firm and his Mother Mary was on the board of Regents at the University of Washington.
Despite his wealth, Bill's father reportedly ran the slide projector for Bill's talk in the early days of Comdex. In those pre-powerpoint days a draftsman created a paper version of the "viewgraphs" which were photographed and then displayed with a slide projector or on a overhead projector. The overhead projector used a "burned" transparency created by putting a special type of transparency film instead of paper in a xerox machine and copying the draftman's original.
It doesn't matter if he was the son of Warren Buffet. He flipping made Microsoft let him keep his billions he earned them. I guarantee, if 99% of the population were born under the same circumstances, they could not produce a Microsoft.
You forget how instrumental his lawyer father was in creating the first software license agreements and how his family financed the mainframe computing time he was given before any teenager had ever had access to these machines.
His biography is quite clear on how lucky he was and how much his parents contributed to his success. Denying it is perpetuating a myth of a self made billionaire that simply isn't true.
Being self made is irrelevant, all that matters is society benefited from the value that Microsoft produced, and he was enriched accordingly. It's not complicated. Who cares if he had a leg up. Should we think any less of SpaceX because Elon had rich parents. Progress is hard, we need to welcome it how ever it comes, and reward those who produce.
His parents weren’t billionaires. There’s a big difference between being born poor lowering risk of success and 99.999% being born non-aristocracy preventing success.
I have no doubt that he earned some of what he has. But I have doubt that his work added enough value to the world that he should be so extraordinarily wealthy. The scientists who discovered, and started producing Insulin probably added more net value - yet I don't think any of them became a billionaire as a result.
Bill Gates's mother was on the board of IBM, which helped lead to IBM making a deal with Microsoft. This isn't very different from landed aristocracy marrying only other aristos to maintain power and wealth within their networks.
The same kind of deal making happens in the VC/PE world? Isn't it true that you not only get money investments from VC/PE firms but also get connections and deal-making with their portfolio companies. In that way it is quite similar. Either you are in the club or you are not.
> aristocracy was zero sum and rent seeking where billionaires aren’t necessarily
How can you look at companies like Google, Apple and Facebook and conclude they aren't rent-seeking? Google's entire business is essentially renting space on the most valuable real estate in the world. Apple routinely shuts down or replaces apps that compete with theirs. All of these companies seek to just barely toe the line of not being subject to anti-trust laws. Of course these are companies rather than individuals, but the nature of capitalism is such that rent-seeking happens via corporations controlled by the wealthy.
> But Bill Gates being born to a middle class lawyer and making billions
Other people can litigate the specifics of Bill Gates or others, but the US has poor income mobility compared to other wealthy countries, largely due to the capture of our political system by the billionaire class.
Only the billionaire is allowed to walk on the billionaire's private beach (often in violaton of nominal law).
> If someone is king, then that means no one else can be.
Obiously not true. Each king is only king on the king's property. Much like Ellison and Gates and Walton have their own property.
> Theoretically we have estate taxes and laws against perpetuity that help some and could be prevented.
And maybe if they were practical and not purely theoretical, the democratic populace would be mollified.
> But Bill Gates being born to a middle class lawyer
Bill Gates was born to a multi-millionaire.
> different from Bill Gates being born to the Earl of Orkney and selling all the potatoes in Ireland to make billions.
Bill Gates signed deals with IBM and Dell to sell almost all the OSes in the US, to make billions. Even people who installed other OSes had to pay Bill Gates first.
Typical viewpoint on HN is that a $600k a year is average for someone in their early 30s, therefore there's nothing non-average about a multi-millionaire parent.
Billionaires are not bad for society. However they are a magnate for those who seek to mold society in a particular direction and as such they have to either be exploited or expunged from consideration.
Billionaires are in effect about the only means to challenge the political machine that runs each country. They only occur in countries that protected property rights to the point people could amass sufficient wealth so as not be subject to all the pettiness of the political class.
Their power is their mobility but only if they have staged their wealth in such a way it cannot merely be confiscated with a single action. Billionaires who come into effect outside of those created by the armed forces of countries being used to enrich their leadership are signs of wildly successful economies that others want to be part of. Yes there is disparity between them and the bottom rungs of the society they are part of but those bottom rungs are usually as far apart from those in nations with no respect for property rights.
America isn't suffering from a lack of tax on the wealthy, their wealth or income. America is suffering from misuse of the money taken from all sources used to prop up two political parties so that they are immune to their own actions.
When we talk wealth we need to understand how the political class is fleecing America. All this talk of fair wages, $15 an hour, while they lavish pensions on their public employee buddies to the tune of a 100k or more per year, while they gain seats on various commissions and committees paying them 200k a year for part time work all on our dime.
The real money issue is the theft by the political class. However they have the best marketing and are adept at playing people against each other.
I find this attitude odd. Billionaires are accountable to no one at all, yet have enormous power over all of us. To you this is a good thing? Our political system is obviously a total disaster, but at least we have the power to change it if we want to. In fact, there are popular movements on both the right and the left that are working to make this change happen.
Many of the problems with democratic government are in fact caused by the power of the billionaire class to shape society to their whims. I remember reading a paper that compared people's policy preferences to actual implemented policy. They found no correlation. Instead what they found is that the policy preferences of the wealthy were quite well represented.
> America is suffering from misuse of the money taken from all sources used to prop up two political parties so that they are immune to their own actions.
This makes no sense. Both political parties are in fact propped up by their wealthy and corporate donors. If you look at the establishment of both parties, you will find that they are indeed quite cozy with your beloved billionaire class. Paul Graham has given hundreds of thousands for example: https://www.opensecrets.org/donor-lookup/results?name=paul+g..., and he is a fairly mild example.
> All this talk of fair wages, $15 an hour, while they lavish pensions on their public employee buddies to the tune of a 100k or more per year, while they gain seats on various commissions and committees paying them 200k a year for part time work all on our dime.
Why shouldn't ordinary workers have retirement benefits? It used to be part of the deal: you devote your life to the company, and get to have a decent, comfortable retirement. In the private sector, unions are so weak/nonexistent that these benefits are gone, but why is that a good thing to you? Similarly, if you refuse to pay politicians a good salary, then only the wealthy will become politicians. I guess to you, that would be a good thing, but most of us would prefer having more ordinary people in power, not fewer.
> Billionaires are accountable to no one at all, yet have enormous power over all of us.
it's not an enormous power, it's economical power to create new things. It's a productive force, unless there's a bad incentive to influence politics. No billionare is capable of dictating you how you should live your life. Politicians are. Separate government from economics and make lobbying and interference into economics illegal and punishable, and you will never see these two groups of people seeking favours from each other.
> it's not an enormous power, it's economical power to create new things. It's a productive force, unless there's a bad incentive to influence politics.
Like how the waltons use their great creative power to extract taxpayer money in the form of underpaid workers on assistance? (1) Like how bezos' amazon exploits the generation forced out of retirement by the 2008 crash as an underclass of temporary seasonal workers (2)
Billionaires got there by exploiting loopholes and viscous cycles that drain money from many people, to consolidate it in the hands of a few. There is an inherent problem with any society that allows the existence of billionaires, while some of their citizens starve as a result.
> Like how the waltons use their great creative power to extract taxpayer money in the form of underpaid workers on assistance?
That's mostly returning, not extracting, taxpayer money, since employment by WalMart reduces those workers’ eligibility for means-tested, and where it doesn't (e.g., moving up EITC eligibility) the recipient of additional taxpayer money is the worker, not WalMart. Calling this extracting taxpayer money by WalMart, the Walton family, etc., is ludicrous in the extreme.
Are the Waltons’ under taxed, sure. But if they were taxed more to provide broader aid, that would increase the share of their employers receiving some kind of public benefits. Which is a good thing, not a problem.
no need to tax them more to solve THAT one, just make them pay a living wage. Nobody working full time should be below the poverty line, nobody working half-time should require food stamps - otherwise it is exploitation not employment.
> no need to tax them more to solve THAT one, just make them pay a living wage.
Thereby reducing the scope of jobs for which they can hire to ones that return sufficient value for that, sure.
Of course, that will add to the public welfare burden, not reduce it, since it will reduce employment.
There's a very good argument for some minimum wage in the absence of better of minimum support policies like UBI (that is, while it may not be the ideal minimum support mechanism, there's plenty of evidencie that, to a point, minimum wage is a net gain compared to not having it.)
There's also probable a decent argument for “living wage” (sufficient for independent support) as a floor for certain kinds of labor in government contracting, etc.
There's not really a good argument for living wage as the minimum wage floor; making everyone whose most valuable labor is not sufficient valuable to support them independently unemployable rather than employable at a level from which they can gain experience and advance is good for neither the unskilled nor the broader society.
> to solve THAT one, just make them pay a living wage. Nobody working full time should be below the poverty line, nobody working half-time should require food stamps - otherwise it is exploitation not employment.
This argument is equivalent to: “No one whose full time labor returns less value to the employer than would merit pay above the poverty line should be employed at all; nor should anyone whose half-time pay would leave them eligible for food stamps.”
Making the relatively unskilled completely unemployable isn't helping anyone. (Also, food stamp eligibility limit is generally 130% of the poverty line, so aside from the general outline being bad, the specific details you've chosen would set a minimum hourly wage for half-time work at 2.6× the minimum for full-time work.)
It's much better to tax capital income and increase the minimum support floor independent of employment than place increasing demands on employers, which just promotes automation and reduction in employment. You want to improve conditions for workers, especially at the low end? Tax capital income equal to labor income—both the basic income tax and the payroll/self-employment tax employed to labor income (this also includes uncapping the social security portion of payroll taxes.) Use the added income tax equivalent revenue to fund broad, unconditional minimum support (it won't be anywhere close to a mature UBI initially, but that's okay.) Use the added payroll tax equivalent revenue to (1) provide SS and Medicare eligiblity based on qualifying income that isn't labor based, but with (for SS) additional high income “bend points” beyond those in the current formula so that the marginal additional benefit for additional income continues to drop with income, (2) provide additional security for payroll tax funded programs, (3) beyond what is actuarially needed for long-term program security, transfer the excess to fund additional broad, unconditional minimum support. After indexing minimum wages to inflation, reduce the by $0.01/hr for every $40/yr of the minimum unconditional support (that is, full-time minimum wage would be reduced by half the unconditional benefit.)
Workers are, in net, better off. Those unable to find work are better off because of the unconditional benefit. Taxes paid are fair, income is income. There's less incentive to reduce employment, and indeed more people can be employed.
> Thereby reducing the scope of jobs for which they can hire to ones that return sufficient value for that, sure.
The fact that they are BILLIONAIRES seems to indicate there is a decent amount of headroom to their business model.
> This argument is equivalent to: “No one whose full time labor returns less value to the employer than would merit pay above the poverty line should be employed at all; nor should anyone whose half-time pay would leave them eligible for food stamps.”
No. My argument is: if your business model can't sustain people at a living wage, then YOUR BUSINESS SHOULD NOT EXIST. Remember that walmart put a lot of small shops out of businesses - many of those shops paid their employees enough to live without needing food stamps. They sucked up all the air, if they can't sustain their workers, they need to stop sucking up the air and make room for businesses that can.
edit: for details. the article I linked suggested that walmart employees receive $6.2 billion in gov assistance (2014) - wikipedia suggests that walmart made $14.8 billion (2020). Seems like they DEFINITELY have the headroom to pay their employees that difference. Why are we even arguing about this? Walmart would have made $8.6 billion and government would have at least 6.2 billion more for schools, PPE, covid relief, etc. nobody needs to lose their job, NOBODY EVEN NEEDS TO STOP BEING A BILLIONAIRE to at LEAST get people off food stamps.
> The fact that they are BILLIONAIRES seems to indicate there is a decent amount of headroom to their business model.
Does it? If you multiply a small per-labor-hour surplus by 1000+ hours per worker per year and lots of workers, you can accumulate lots of money per year and become a billionaire, but that doesn't mean you have lots of headroom, just lots of scale.
> No. My argument is: if your business model can't sustain people at a living wage, then YOUR BUSINESS SHOULD NOT EXIST.
Sure, and when you kill all the businesses that can't pay every entry level employee enough for a comfortable independent life, who is going to pay the additional public benefit costs to give even minimum poverty support to the much wider pool of unemployed and unemployable? Your plan is lose (for the people who would be employed but now won't)-lose (for the people unemployed in either case for whom there is now less revenue to provide support)-lose (for the capital owners who are now prohibited from employing people whom they otherwise could, mutually profitably). Taxing capital gains fairly and using the proceeds to provide better universal support while reducing employment friction is win-win-mixed for the same groups.
> the article I linked suggested that walmart employees receive $6.2 billion in gov assistance (2014) - wikipedia suggests that walmart made $14.8 billion (2020). Seems like they DEFINITELY have the headroom to pay their employees that difference.
Their 2020 net income was more than double their 2019 net income, of $6.67 billion. Tax net capital income more, and you don't ever switch a profitable business into a losing one by your policy, increase employment costs and you make profitable decisions to employ people into unprofitable ones.
You’ve cherry picked the one bad yearwalmart has had in recent memory: 2019. From 2006 to 2020 they have made over 10 billion per year except for 2018 (9ish billion) and 2019 (6ish). They CAN afford to pay their staff a living wage.
Again, by describing the choice as bad job (walmart) or no job, you are ignoring the fact that walmart did not CREATE jobs - they merely consolidated jobs from many small businesses.
It’s not a choice between walmart or nothing. It’s a choice between an exploitive business model, or non-exploitive business models.
> Again, by describing the choice as bad job (walmart) or no job, you are ignoring the fact that walmart did not CREATE jobs - they merely consolidated jobs from many small businesses.
Driving up the minimum cost of labor isn’t going to bring back smaller, less-efficient businesses, it will make them less viable, too. Higher minimum wage actually reinforces the advantages of scale, since smaller acheivable average returns means the importance of being able to internally diversify (e.g., against regional problems) becomes more important to survival.
> It’s a choice between an exploitive business model, or non-exploitive business models.
It's a choice between a government model that chooses to actively harm the employed, the unemployed, and employers irrespective of business model to express moral outrage at certain business models and one that wants to use the power of taxation and spending to reduce the power of business models to be oppressive.
I think what you are really upset about is that politicians in the US need private funding to get elected. This is usually not the case in European countries where they just ban political ads on television and provide tax-funded funding for parties that gain significant representation.
Retirement benefits were always a terrible deal; no one should be putting all of their eggs in one basket. We should enable people to simply and easily save for their own retirement, without banking on totally-unrealistic rates of return that are never going to materialize.
> We should enable people to simply and easily save for their own retirement
Perhaps that would be reasonable if everyone were paid enough income to handle all their expenses and save for retirement. Of course, that's not the case for probably 30-40% of the population. As things stand now, it's just cruel to lecture those people that they "should have done a better job of saving" (and I hear that a lot these days).
> The question if billionaires are bad for society is pretty much the same question as asking if the aristocracy was bad for previous societies.
Not at all. The aristocracy was a legally special class of people based on your ancestors. The end of aristocracy, especially in America, meant for a long list of rags-to-riches stories, and lots of politicians who came from very poor beginnings. The end of aristocracy also meant the end of officers being drawn solely from the aristocracy, which made for a far more effective military, as talent was not related to your parents.
Economic mobility is more or less the lowest in the US of all OECD countries. This means that it is extremely likely that whatever quartile/quintile/percentile you are born into in the US, you will also die in the same economic bracket.
Yes, you can cite whatever exceptions you like - the statistics are clear.
Most billionaires are born to other billionaires (or at least extraordinarily wealthy people compared to median wealth). As such, they represent an ancestral inheritance just nearly as much as the aristocracy.
There is almost no evidence of de novo great wealth being correlated to great talent. It may (or may not) be a necessary component, but it certainly is not necessary, even if it was possible to quantify precisely what is meant by "great talent".
In a capitalist-ish society, there are always going to be great winners in the competitive economy. Pointing them out as if they are special is absurd: the system is designed to generate such cases.
Back in the 90's, the Seattle Times reported that there were over 10,000 millionaires (excluding home equity) in Seattle as a result of working at Microsoft and getting stock options.
A million bucks is nothing to sneeze at, it's upper middle class. And that's the cutoff - many are in 8 figures.
Without Amazon and Microsoft and their billionaires, Seattle wouldn't be the wealthy city that it is. Not even close, and that wealth has filtered out all over the area. For example, there are all Paul Allen's initiatives and developments in the area, and that's only a tiny bit of what has happened.
Be careful what you wish for in getting rid of billionaires. A lot of very nice things we all have will go away with them.
> I'm not for Paul Allen deciding what's nice or what we get.
The thing is, Allen didn't take anything from you to give those things. He didn't raise your taxes. He didn't impose any levies. They were gifts you could ignore if you chose.
Me, I liked his flying WW2 aircraft museum very much. It's a little thing in the grand scheme of things, but I've enjoyed it a lot. If you read his autobiography "Idea Man" you're sure to find a number of things that have benefited you - without costing you anything.
Musk has given us a space program. Carnegie gave us public libraries. Gates has saved millions of lives through his foundation.
BTW, you don't get to decide what nice things government does for you, either. A vote is not the same thing as a choice. I've lobbied my Congressmen. Did they do what I wished? Absolutely not!
Apaprently you're not aware of the gigantic shift in the proportion of GDP that ends up in the hands of labor vs. capital.
A significant chunk Paul Allen's share of the GDP would have been in the hands of workers had he been economically active during the period 1949-1978.
That's what he "took" from people to be as wealthy as he is.
I am flabbergasted that you feel that the "lack of choice" over what your government does is the same thing as the "lack of choice" over what rich people do with their money. In fact, I feel sorry for you in that you live in a country fundamentally built on formalizing this difference and creating a nation based on a belief in government "of the people". You don't believe that - you're not alone. But I still feel pity for you that you've been forced to give up the dream that this country was built on after just a couple hundred years.
Allen's wealth was neither given to him nor taken by him. He created it.
As for me, I prefer having a choice on what's for dinner than a vote on that. The US was founded on the principle of individual rights and liberty, not communal purpose.
No need to pity me, we are living in a golden age in the US. I have little doubt future historians will see it that way. I have no fear of billionaires. I don't buy that money buys elections. Hillary outspent Trump 2:1 and still lost, Bernie outspent Biden by some huge amount, and lost. Bloomberg flooded money into his campaign, and was completely eviscerated. I confess I daydream sometimes about what I'd do with a billion dollars that I'll never have, but that doesn't translate into any desire to tear down existing billionaires.
I missed several forks in the road in my life that could have led to billionaire status, but my taking the wrong fork each time was entirely my fault. I simply didn't see what in hindsight was obvious.
I'm missing something right now that could make me a billion dollars, and in five years I'll be able to tell you what it was :-)
billionaires definitely can be good for society. they do things that are in the public interest but governments can't attempt because they are inherently risk adverse because politicians want to get re-elected.
Bill Gates does high risk speculative, investments for causes such as eradicating diseases.
Elon Musk is attempting to colonize Mars. Because Presidential administrations are a maximum of 8 years and it takes longer to achieve a big goal in space, such as moon or mars colonization, Nasa has had a hard time sticking to a long term goal for space.
Inflation changes this detail daily. A billion is just a number of units of an arbitrary currency.
The real issue goes beyond the number and is more about generative assets vs liability / depreciating ones.
IMO the real problem is money in politics. Fix that and many of these issues with billionaires will sort themselves out as the system corrects itself.
EDIT: By "money in politics" I mean big money that overwhelms small distributed money. (ie money that does not look democratic) . Obviously it's always going to _take_ money to run campaigns
The problem with trying to separate money and politics is that accumulating money equates to accumulating leverage/power, and that's what gets politics done.
Almost the only thing that could get money out of politics is to make holding money the most shameful thing imaginable, and even that would just force the flow of capital/power underground, not actually curtail anything.
As I get older, I realize more and more that the thirst for power will never go away, and these cycles of accumulation and overthrow will be the overall flavor of human existence for the foreseeable future.
Unless we figure out how to shame people out of wanting power, maybe?
There's nothing to repeal. The aberration is not Citizens United, which has always been the law in the US. The aberration is the McCain-Feingold Campaign Reform Act, which Citizens United overturned. The relevant law is the First Amendment to the US Constitution. McCain-Feingold is the thing which tried to limit this, and was tossed out by the Supreme Court in Citizens United.
Most countries do not have strong protections on speech. The US does. There's no way to distinguish Fox News Media, a for-profit news organization with a distinct partisan slant, from One America News, a money-losing, overtly partisan news organization, from Citizens United, a political action committee trying to air a political documentary critical of Hillary Clinton on Pay-per-View.
You can't donate unlimited sums to candidates, but you can spend as much as you want on political media, including advertising. I'd love to hear how we can overturn Citizens United, but maintain things like Fahrenheit 9/11, a different political documentary critical of George W. Bush, and released right at the height of the 2004 election campaign.
Lawrence Lessig has a proposal to offer political donation vouchers to each and every private citizen. I think this is a great take on public financing that would help to level the playing field, while maintaining this country's strong protections on speech.
Citizens United very much has not "always been the law". Before Citizens United, there was precedent going back about a century. The first amendment does not mean and never has meant that free speech wins in all cases when balanced against other interests. The government can (and still does!) regulate campaign speech. McCain-Feingold was not out of line with that. But the conservative majority flipped the table on that precedent because they wanted to. Citizens United didn't even ask them to overturn the law. They briefed the case on narrower grounds, and then the court asked them to come back and argue to overturn the law.
The facts of the case were this: Citizens United wanted to run ads for its documentary . But it was within the window of time set for increased restrictions on political ads. Citizens United crucially was not a political action committee, but just a non-profit corporation. As such, it could only run the ads by either making a PAC or using money from a segregated fund (you've seen this if you've ever signed up for a union) collected specifically for political activity. Note that the lawsuit was over the ads, not the documentary itself.
Before the ruling, Citizens United was allowed to spend money on political activity. They were allowed to spend money on political activity close to an election. They were allowed to spend money, close to an election, to broadcast issue-based political advertisement (e.g., for or against a ballot initiative) on TV. They were allowed to spend money distributing their documentary in any way other than broadcasting it on TV. They could show it in theaters. They could put it on the internet. They could print DVDs and mail them out. They could distribute it to PACs and campaigns for them to spend their own money distributing it, including broadcasting by on TV. They could pay money, close to an election, from a segregated fund, to broadcast their documentary on TV. All they weren't allowed to do was spend money, close to an election, on broadcasting something expressing views for or against a political candidate, on television or radio, to an audience of at least 50,000.
The courts argument hinged on the unacceptability of "identity-based" restrictions on speech. But there are such restrictions elsewhere. See you, for example, prisoners, or executive branch employees.they just invented a first amendment principle out of thin air and selectively applied it to corporations.
To reach their decision, The court rejected numerous opportunities to rule on narrower grounds. They did no factfinding to determine whether or to what extent the restrictions chilled free speech, substituting congress's research for their own opinions. They gave no opportunity for the government to do their own fact-finding. And they would have if Citizens United hadn't dropped their attempt to overturn the law (until Scotus revived it) while the case was still at the District court. Scotus could have kicked it back down to do that fact-finding, but they had already made up their minds.
Technically... you can in all but one circumstance: modern US constitutional law.
I don't think any country has the same laisezz-faire approach to buying politicians... certainly not in the name of free speech. I don't think the argument has even been made.
That said, even in the US there isn't a real constitutional barrier to doing something about money in politics. You could make candidates wear sponsorships on their jerseys, like racecar drivers. No free impediment. That's a joke example, but you see my point. That particular ruling is not an actual barrier, the barrier is a legislative majority.
The US is what I was talking about re: "money === speech," e.g. Citizens United.
I'll less interested in sound byte-like fixes like "wear sponsorships on their jerseys" and more with what you can realistically change without overturning Supreme Court precedent or ignoring the Constitution entirely.
I think the joke/soundbite example demonstrates a point: The Jersey Rule would be ok constitutionally. Even with that ruling standing, there is plenty of room for legislators to fix "money in politics" practically, without contradicting the SC. Laurence Lessig has some of the best known proposals.
The problem, as I see it, is status quo bias within any congress/parliament. Actually removing money from politics crashes their industry, puts all their friends out of work, and challenges their power. Every unsuccessful candidate, campaign manager, staffer, and such makes their living this way. Every successful candidate was successful at this way of doing politics.
It's a similar problem to legislation (or even customs) that would enable 3rd parties to succeed. It's against the interests of the Republican and Democratic parties, so it won't happen.
Citizens United was not about buying politicians: it was about a group of citizens wishing to show a movie critical of a politician. How is that not legitimately-protected speech?
You can't get money out of politics. Money is power intrinsically it's like getting the stripes out of the zebra. The fix is redistribution of wealth to reduce inequality to a tolerable level.
> EDIT: By "money in politics" I mean big money that overwhelms small distributed money. (ie money that does not look democratic) . Obviously it's always going to _take_ money to run campaigns
in the UK political donations over £500 have to be registered and be by someone on the electoral role.
the Brexit Party was funded by millions of donations of £499 from Russia and US sources via paypal.
the reason why money is in politics is because policy can effect money. You have to address the root cause, or else you are just playing whack-a-mole (thought exercise: if PACs were banned, is there a difference between Bezos buying $500M in paid media vs. buying the washington post?)
America needs to go through a revolution of thought, like the one that lead to the 'Separation of Church and State' principle. For many of the same reasons, we need a 'Separation of of Economy and State' movement. Only then will you get money out of politics.
> IMO the real problem is money in politics. Fix that
You can't. Economic and political power are the exact same thing: the ability to direct other people to do your bidding.
The idea that you can separate them has always been a fiction, and it's a fiction that is perpetuated for exactly one purpose, to support oligarchic capitalism by keeping people distracted by their engagement in the hunt for the “one weird trick” to make politically egalitarian democracy work without dismantling the radical economic inequality of capitalism.
And yet, it is the very potential of radical economic inequality that drive the creation of new inventions and innovations that make the modern world possible. Killing that potential is killing the goose that lays all the golden eggs - that's Graham's point: even small confiscatory wealth taxes will act as a significant deterrent to people who would otherwise start great companies that improve some aspect of the world, including by providing a livelihood to their employees.
I've been CTO for a dozen startups, and this sort of thing would almost certainly deter me from exerting the effort required to go through the always-grueling startup process. It's hard enough not getting screwed over as a founder without wealth taxes!
Assuming that you are incredibly successful, you may need to contribute a bunch of money (mostly from interest, not principal) back to the common good.
I really don't see Mark Zuckerberg (as an example) deciding not to create Facebook because if he was incredibly successful he'd have to pay a wealth tax. It just doesn't strike me as likely at all.
This is (sadly) Paul Graham taking a valid argument and turning it into a reductio-ad-absurdam.
Billionaires are a necessary consequence of having a scale-free market structure in a wealthy society, which is itself necessary for efficient resource allocation in the absence of (hypothetical well-implemented) dictatorial central planning.
> necessary for efficient resource allocation in the absence of (hypothetical well-implemented) dictatorial central planning
Replacing a singular dictator with multiple agents that concentrate power is not necessarily more efficient. The biggest inefficiency with disproportionate wealth/resource accumulation is that the incentives/competence of the wealthy doesn’t match up with the money they sit on. Note that I am not talking about only billionaires, rich corporations that employ the smartest of humanity is equally culpable. Although venture capital tries to cure this problem, it is only a small percentage of the outbound money of the wealthy.
Think it this way, Apple sits on billions and only innovation we get year after year is slightly thinner devices. Google has tons of billions and machine learning PhDs that work on classifying your cat’s pictures. Elon Musk’s puer aeternus dreams fixate on getting out of the planet instead of fixing it.
For all the power they hold, the innovation and improvements in society we get is abysmal. This is not that different that dictatorial central planning, in which a narcissistic entity thinks they can have the wisdom and competence to manage our collective resources and potential as humanity. (Yes, that is exactly what money is, it is being owed other people’s goods and service should you choose to transact it)
Why do we have to be capped by the best these people can think of? Accumulating wealth and using it wisely turns out to be very different skills, just like getting elected and governing wisely has been.
So billionaires are a source of inefficiency and a part of the market, not a consequence of it because they don’t get out of the market once they are rich. If anything, the more rich they get the larger their participation gets, with all its downsides.
That is completely irrelevant, unless you are claiming they are doing absolutely the best that can be done. They are not, and we have a huge headroom. My argument is against singular control points, so I am not suggesting myself or any single person or instuition as a better replacement, I am suggesting not having that concentration of power in the hands of a few in the first place. Kind of like Frodo and co. destroying the ring instead of thinking they can use it for good wisely. In this case nothing is destroyed because money, which expresses goods and services one is owed to, is merely not allowed to concentrate above a certain point. Why does a major chunk of humanity’s goods and services, produced by humanity, is owed to Jeff Bezos etc? It is absurd to assume one person can wield that power properly.
Having billions of dollars is not a magical measure of how much societal good one did or can do. If anything, I would trust anyone who could make billions much less than the average person to use it for good and wise causes.
Indeed. Now imagine how much more of that we could get if he didn’t also obsess about escaping to Mars. His money and attention is a constant sum, anything foolish is going to be replacing something wise.
> The question if billionaires are bad for society is pretty much the same question as asking if the aristocracy was bad for previous societies.
Are you comparing billionaires of today, with dictatorships and monarchies of yesterday? Where people can be killed, jailed, sent to work camps, etc. at will? Are people today working for "the man" essentially indentured servants?
> The existence of billionaires clearly undermines the core principles of democracy which is that all people have essentially the same political power.
I don't think this is a core principal. Every person should have the same voting power, and the laws should apply to everyone equally. But the president and representatives clearly have much more political power than any average citizen.
> Essentially strong wealth imbalance leads to unstable societies.
This is a big claim, and would have to show some sort of evidence to support it.
I’m sorry, what? Wage growth has stagnated for most Americans in the lat few decades. The idea that billionaires are a necessity for the existence of jobs is absurd.
Ask yourself this: if they are paying their employees so well, where are they getting all that money?
The cause for wage growth stagnation isn't immigration. Immigration is a net positive for society. Emigration is the real harm. That much is settled in Economics.
The cause for wage growth is, perhaps, the offshoring of labor to cheaper economies. Better for Nike to pay minimum wage in China than in the US.
Meanwhile, capital gains remain domestic as business owners don't relocate
> I'm not sure why you think having more people to fill a role wouldn't drive the price down.
Immigration indeed lowers wages for competing workers, but it also increases wages for complementary workers and generates surplus to owners of capital – which in the long-term constitute a net gain to all of society, but at a minimum does constitute a net loss to workers at large.
Research suggests negative wage effects are concentrated among low-skilled workers.
Immigration can indeed have disruptive effects, but it can be managed, and its net gains for the whole of society are fairly well established.
I'm curious what you mean by complementary workers.
In the example of immigrants doing hard manual labor, especially agricultural work, who are the complementary workers? I'd infer it's workers like the people who transport crops around or operate the machinery to plant / grow the crops, etc.
Protections for labor have been stripped await as Capitalism has become more and more hegemonic over the last 50 years. Profit seeking corporations have always looked for ways to cut their wages. Combine this with the fact that we have become an increasingly globalized world, where labor standards are much lower in third world countries, and you have many factors that play into wage stagnation.
It is ultimately a race to the bottom when you have a globalized economy, but do not have standardized worker protections across said economy.
Immigration has plenty of benefits on society, and we should not use wage stagnation relative to productivity growth (which can be stopped) justify isolationism and protectionism. Whether we like it or not, we live in an increasingly globalized economy and we should fight to have broader labor protections and give more power to workers to be able to protect themselves and fight for fairer wages. The alternative is, as I previously stated, a race to the bottom.
Do billionaires exist in a vacuum, creating their wealth away from society? What does it mean to be a billionaire? Physically, it means they’ve affected a large amount of the population. For the better, or worse? Take away the companies the billionaires created and imagine life.
You seem to assume that billionaires would throw a hissy fit and go off grid to Galt's Gulch if they faced a wealth tax. But maybe they are motivated by more than the concrete purchasing power of their wealth.
If they are motivated by the desire to build, they would still build. If they are motivated by the desire to beat their peers in a game of "Who Has The Most Money," they would still compete. The winning number would just have fewer digits. If they are motivated by the power money buys, well, maybe the rest of us are better off not playing that game.
To curtail and equalize the political power of the rich with the rest of world, their wealth have to be reduced to such an extent that they also don't have the leisure to engage in deep politics. Let's say, if 75% of the voting population has < $x and if even 1% has 3x of that, then they basically have 2x leisure buffer over everyone else to be more politically engaged and influence the small number representative politicians, to manipulate the narrative for the rest of the 75% etc.
Marx wrote something almost to that effect in the Communist Manifesto. About half the first chapter is intense praise for the advances brought by capitalism.
We may not literally need billionaires for jobs to exist, but we need savings and investment for highly productive jobs. A wealth tax is borne over time by assets that are saved and invested; it obviously isn't by the portion that's consumed. If you tax Bezos' and other billionaires' wealth, Amazon and other firms will face sharply higher costs of capital, which can indeed be seen as a partial "dissolution".
You don't fix this by penalizing people that are successful. You fix this by preventing companies from buying all their competitors, or unfairly running them out of business. If we actually enforced existing anti-trust laws, with an eye toward NEVER allowing any company grow to be too big to fail via acquisition, we wouldn't be in this mess. (Note that companies that actually grow organically (Amazon/AWS is a good example) aren't hindered by this. Their success attracts other competitors (Azure, GCP, even IBM and Oracle), and competition is what should be encouraged for the good of society.)
Interesting, so billionaires directly affect the majority of jobs, and the rest of the jobs may be indirectly affected by billionaires and their job prowess as well. GDP growth is roughly 2% a year. Everyone here ok with GDP contraction for our future? How do we fund all the social experiments that many people want?
> The existence of billionaires clearly undermines the core principles of democracy which is that all people have essentially the same political power.
Why is this axiomatically good, though? We should not be maximizing adherence to some theoretical democracy, but to a more abstract idea of how to best organize a successful society.
Billionaires are good for society. elon musk and jeff bezos are leading the way into space and that is huge for humanity. If you tax them you will literally stop humanity from becoming multi-planetary.
The comparison to aristocracy is absurd. The US was founded abolishing the class system because the wanted equal opportunity, not equal outcome.
>Billionaires are good for society. elon musk and jeff bezos are leading the way into space and that is huge for humanity.
Enough with the blanket statements, Sure bill gates is ok but just yesterday the front page had a story of the Sackler family and how they amassed billions by pumping the united states with opiates. They literally killed thousands and ruined the lives of millions, while destroying American society. Billionaries are people, some evil some good.
Also, the point of a government is to provide for it's citizens (with taxes) not to hope that in a 100years we can settle on other planets. And btw, in that scenario we would not be the ones who end up on Elysium. As much as SV programmers like to think they can be part the billionaire class you are not and will never be an oligarch.
I thought it was Doctors who pumped the United States full of opiates.
I also thought the demand was a result of political policies that didn’t provide support for communities who were impoverished by the globalization of manufacturing and other industries.
Yes, the Sackler’s profited, and were irredeemably bad actors in this, but they are just one part of the story.
> the point of a government is to provide for it's citizens (with taxes)
Isn't this a sort of oxymoron? The taxes come from other citizens. The ones who are paying a majority of the taxes are not provided for by the government. Government should seek to provide everyone equal protection of their rights.
> Billionaires are good for society. elon musk and jeff bezos are leading the way into space and that is huge for humanity. If you tax them you will literally stop humanity from becoming multi-planetary.
This argument really doesn't hold water.
For a start it implies that becoming a multi-planet species would be impossible without Musk or Bezos holding vast personal wealth. There is no reason to believe that.[1]
It also implies that Bezos couldn't possibly fund Blue Origin if he was worth (say) a paltry $100 billion, instead of his current $190 billion.
[1] You could, for example, use some of the money from a "billionaire tax" to fund NASA.
>For a start it implies that becoming a multi-planet species would be impossible without Musk or Bezos holding vast personal wealth. There is no reason to believe that
There is 50+ years of evidence that we will not become multi-planetary without private funding. The only reason NASA was funded enough to get to the moon in the first place was because of the cold war. Very unlikely it would have happened otherwise.
The soviet union was the first one to go into space and had far more of the outer space firsts than the US. They also had no market incentives to begin such projects.
It's ridiculous you could even bring up the cold war without acknowledging the major scientific and engineering breakthroughs done by communist societies.
Both the US and Soviet Union basically stole rocket tech and rocket scientists from Germany after WW2. The only reason the US and soviet governments supported and funded those rocketry efforts was due to the military and intelligence benefits.
> For a start it implies that becoming a multi-planet species would be impossible without Musk or Bezos holding vast personal wealth. There is no reason to believe that.[1]
I'd say there's significant argument that it is indeed impossible. Democratic governments as a rule do optimize for cost where currency is created by fiat. Private capital generally does in order to stay in business and not go bankrupt. There's tons of recent evidence showing that existing space business is incredibly inefficient in cost.
> You could, for example, use some of the money from a "billionaire tax" to fund NASA.
Alternatively, you could allow billionaires to donate some of their billions, untaxed, into non-profits which they control and which have humanity-benefiting goals like space colonisation or clean energy or medical programs.
There could be problems, however, with these non-profits hoarding vast amounts of resources long after the billionaire dies, at which point a wealth tax on the non-profit's unused assets might make sense.
To state it more accurately, a wealth tax will lower the odds that elon musk will colonize mars. even with his wealth... i think it's safe to say the odds are agains musk colonizing mars.
he doesn't pay income tax cuz he usually have income, no salary. he just has stock, and he lives off debt against the stock. he will be forced to sell stock to pay a wealth tax. he will have less control over his companies.
It's true, it's possible a nation-state could colonize mars. But there is a problem for the US.
Presidents come to office, scrap the previous adminstration's space goals, create their own new goals and then their's are scrapped by the next admin before they come to fruition. It takes more than 8 years (the max a president can serve) to really follow through on an ambitious vision for space.
Yeh, that true. It's just hard to create a sustainable program. STS was retired. ISS will be probably be retired in 2025.
George HW Bush wanted to go Mars then scrapped it when he got the price tag.
In 04, George W Bush wanted to go to the moon by 2020.
Obama scrapped the moon 2020 plan and planned to go to Mars by 2030.
Trump is sending them back to the moon then Mars.
read "the case for mars" to get the story on the dysfunction at nasa and the presidents changing every 8 years. It's from the 90s and talks about how bush wanted to go to mars but the space station won out for the funding.
And in the ensuing time, those with money and influence built up the class distinctions in the legal and tax codes. The comparison isn't an exact match, but the class distinction IS.
Bezos may be contributing to the privatization of space, but he's doing it by exploiting the ones who keep the merchandise flowing through the cash cow. 19th century robber barons honed some of that machinery, Amazon has capitalized on and honed to a fine sharpness that blade.
> The US was founded with an extreme class system -- slavery, and aristocratic-only male-only voting.
The US is the story of a country that is constantly struggling to live up to its founding ideology. Slavery was widespread globally at that time, and ended up fighting its most deadly war to end it. Over time its flaws were sought out and eradicated to give way to the most prosperous and free country in human history, all within a couple hundred years.
The founders were not perfect (no one is), but did realize the evils of slavery and some did end up releasing their slaves.
Think about how hard Founders work to efficiently divide up the equity pool of their company in order to entice and retain top talent. Consider that the State and Federal government is already a silent partner to the tune of ~20% of the company profits, and then again ~20% on capital gains. Every little bit more carved out for the government is just reducing the portion left which has to justify the risk/return proposition.
There's another problem which I'm surprised PG didn't address. Liquidity. A wealth tax means valuing property before it's even perhaps practical to sell it, and while the government might take your last 409a valuation as the means to valuing your net worth, they aren't accepting your shares as payment, only cold hard cash.
If you have a large private holding, now you are forced to find ways to throw off cash against that notional value, e.g. by arranging loans against your holdings to pay the tax man. Shares that ultimately never sell could end up being taxed for more then they are ever even worth.
> and while the government might take your last 409a valuation as the means to valuing your net worth, they aren't accepting your shares as payment, only cold hard cash.
There aren't any wealth taxes of this nature on the books in the US, so assuming that they will only take cash and not shares is premature.
But I think you raise a good point that payment in shares is far more tenable, and likely probably, for highly illiquid economic assets.
Ooof that sounds like a big loophole. What would prevent me from establishing a new entity (I the inheritor, control), having it buy assets from the old one for pennies on the dollar and then sell the old entity for a nominal amount?
IMO, the honest way to think of a wealth tax is as am implied income tax. That is, a tax on the implied income from wealth. Instead of calculating CGT, which doesn't work very well in practice, just tax the wealth.
This avoids all the problem incentive structure, and even worse tax code structure dealing with the fact that some years you make a return and in other years you make a loss.
Liquidity is solvable, if we're actually talking about a super wealthy tax with a floor of $50m and above. At that point, you are dealing with people individually.
In terms of "reducing the portion left which has to justify the risk/return proposition..." I don't think this applies. You have $1bn. You owe $10m in taxes. You owe that tax regardless of what you invest in, conservatively or otherwise.
It even solves some of that problem, if it replaces CGT. A CGT without loopholes (doesn't exist, and won't) disincentivizes risk. If you win big, you pay big. But of you lose, the IRS doesn't pay you. That incentivizes playing it safe.
IRL tax credits exist, and those more than compensate big CGT payers. In some famous example (eg Trump) derivative policies are big money generators. IE, invest for tax credit, not market gains.
The implied income from wealth is zero, because e.g. $10 being spent ten years from now is less valuable than $10 being spent today, in a way that - in expectation - accounts precisely for the apparent "income" yielded by $10 (as 'wealth') over ten years.
Sure, but that seemingly-extra "revenue" or "growth" is not free - it comes with offsetting risks. Should people be taxed merely because they made a risky bet that happened to pay off for them?
Nothing in this world is risk-free, because the world is inherently uncertain. Holding cash is also risky. We can calculate a risk free rate of return however, and we can also look at historical returns and rates wealth growth to estimate what a "fair" rate might be.
But since this is really a "should" question (aka about values), theres not really a right answer. We can mostly just talk about fairness, of which there are many different conceptions.
My take: Society has to work hard to preserve the billionaire's wealth. You can't be king without an army, and billionaires exist because of laws, police and a social fabric that lets them keep owning so much stuff. You would otherwise have to be a warlord to keep your hands on so much, and that has its own costs and risks.
Perhaps we could look at it as a fee or compensation for the aggregate social guard labour required to preserve the social order that ensures the safety of the billionaire's assets.
What happens when some of those billionaires band together and decide that they are better at defending what they have? It'll result in governments being overthrown or the billionaires leaving for somewhere else.
Billionaires are still people. If they become too unsatisfied with their treatment, then they will do something about it. Just like everyone else.
So what I'm suggesting is sort of "user pays" for property rights. Since billionaires have way more property (and associated rights) it's only fair they should pay more for that.
Since I assume you're not literally suggesting that billionaires will arm themselves and I dunno, patrol their golf courses and beaches with rocket launchers, I suppose you are suggesting they buy some island and hire private forces, and I dunno, next they have to move their factories or offices there, and presumably hire workers and provide healthcare and education and retirement...
I guess if billionaire island seems like a really good deal, workers might move there. Without knowing more about (and assuming it doesn't just get annexed) it kinda sounds like Dubai.
Or sure they could try their luck in some other country if they feel safer there. Maybe somewhere that's happy to provide "inequality services" / free guard labour for them.
Re: billionaires taking over government so it works in their interests, this has basically already happened and these kinds of wealth tax proposals are a way to balance billionaires existing with the effort needed to sustain them.
And seriously when you look at the alternatives 0.5% (say) doesn't seem like such a bad deal.
The most sensible arrangement is to have a consumption tax (the user pays when they take their wealth out of the system) and/or a tax on incomes and rents, but not affecting the pure yield of capital (the user pays when they put wealth into the system).
This. The California wealth tax would kill the startup ecosystem in California, simply because every founder dreams of being a unicorn, but being a unicorn puts you in an untenable position of owing a six or seven figure tax bill every year while you have no liquid assets.
Sounds like the bubble would naturally dry up and the "burn the cash, take the payout and run" culture would start to heal.
Having startups that grow profitable, useful things at a healthy pace and that give back a small slice of their overall growth sounds like a pretty stable business model.
> One point that PG does address which is often skipped over is that a wealth tax is a "deplete billionaires" policy
It has long been my impression that eliminating or reducing billionaires is the primary goal of wealth tax advocates other than those whose advocacy primarily consists of sharing memes on social media. Raising revenue is largely a red herring.
It's the primary goal of a wealth tax. To reduce the concentration of wealth in a small minority of the population.
Let's say that there was a 1% wealth tax on all wealth over $1b. So Bezos would have to liquidate say $1b each year for that tax.
Yes, he'd have to sell Amazon stock. That would feed into the stock price of Amazon in terms of increased liquidity of the stock, but it has zero effect on the operations or growth or income of Amazon itself.
Arguably it would have little or no impact on Bezos' activities. He would still be running Amazon, he would still be working to make it grow etc.
What would change is that over time, the wealth would be distributed via the items funded by that tax.
“The wealth would be distributed by the items funded by that tax”
This is highly questionable - the idea that a dollar of tax is equivalent to a dollar of wealth distributed rests on the assumption that elected officials can deploy the money efficiently.
I’m not claiming that government can never do this - clearly nation building has been done before.
> Let's say that there was a 1% wealth tax on all wealth over $1b.
This is what the article disingenuously(?) leaves out.
If a society wanted to deplete billionaires, it could put a wealth tax on just the dollars above and including the billionth dollar that an individual nominally owned.
The idea is that anyone who isn't a billionaire wouldn't be affected. Making this tax rate be 1% has the added advantage that you can call it "the 1% tax", because it would only apply to (a small subset of) the top 1% of richest people.
I don't know how many Americans became multi-billionaires by founding companies in their twenties, but here is a list of billionaire founders of internet companies:
A tax on the top 1% of net worth households would start much lower than a billion dollars. A quick google search says it's around $10 million. That's more on the order of a medium-large car dealership or similar local business than a significant share in a megacorporation.
Reducing billionaire wealth, or limiting its growth is st stated aim. Piketty and like minded economists argued for it directly. The political proposals (eg Warren's) were also straightforward.
It is a red herring, but money always is when it comes to politics. They all have stuff they want to fund.
By Picketty's math, 2%-2.5% is roughly break-even. That is, average billionaire wealth will grow in proportion to the economy & wages. Less, they will grow more slowly relative to the economy. Above 2.5%, millionaire wealth will decrease, relative to the size of the economy.
> The most important nuance being that you control most of this wealth for most of this time and will be paying your taxes out of interest.
Then a wealth tax boils down to a punitive tax on interest income. Which means billionaires will be incented to save or invest a lot less, and consume a lot more of their wealth since they're going to lose it either way. (See, e.g. Larry Ellison's yachts as an especially obvious example of billionaires' consumption.) That's an "economic policy tool", alright. It's not as clear that it's a sensible one.
> Which means billionaires will be incented to save or invest a lot less, and consume a lot more of their wealth since they're going to lose it either way.
That's the goal. The idea is that society doesn't need billionaires, so you force them to get rid of their wealth. Either through taxation, or by spending it on things that benefit others.
Interesting question there - do Larry Ellison's yachts "benefit others"? (And i mean beyond the immediate effect of "spending money". We should always keep in mind that opportunity cost is a thing, and that investment involves plenty of "spending" and economic activity of its own.)
They do. He's paying sales tax to buy them, he's paying for the wages for people that built then. Consumption is when the money starts to trickle down. I think I'd be ok with forcing super-rich to spend their money or taxing then above some level. Let's make the limit somewhere around GDP of a smaller European country (Slovakia - ~105bn, Ukraine - ~140bn) & tax above that.
> do Larry Ellison's yachts "benefit others"? (And i mean beyond the immediate effect of "spending money".
I don't think that's a useful question, though the answer is generally no. Yachts, or more generally pleasure craft, are a form of entertainment. The owner spends large and ever-growing amounts of money, funding other people's lives, in exchange for some kind of fun for themselves and their immediate circle.
Larry Ellison could certainly make them benefit others by, say, using them to provide housing for the homeless, but that's not a part of the primary equation.
> We should always keep in mind that opportunity cost is a thing, and that investment involves plenty of "spending" and economic activity of its own.)
The economic activity of moving around vast sums of money benefits very few people, and those are generally not the people working multiple jobs just to make ends meet. That's the reason people want a wealth tax: concentrating wealth to such an extent benefits almost nobody.
"funding other people's lives" is not enough? When the shipbuilder fires people, and the engine maker fires people and Larry fires the maintenance people who will fund them?
I do think it's enough. My point was that excluding money from the question is not useful, because buying a yacht is explicitly an exchange of money for entertainment.
"The idea is that society doesn't need billionaires"
so when was the vote to declare that the line in the sand? what about millionaires? Let me guess, there are enough millionaires now that it's too big of a group to make an enemy out of. You can't say society doesn't need millionaires because there's enough that maybe someone's friend or family is a millionaire and will think "..wait a minute, that doesn't seem right".
Flip it around and give the 0.01% poorest people the same treatment, society certainly doesn't need the poorest of the poor either. It makes about as much sense.
> Flip it around and give the 0.01% poorest people the same treatment, society certainly doesn't need the poorest of the poor either. It makes about as much sense.
Again, that's the goal.
There was no vote to declare a line at 1 billion, because nobody cares about the exact number. The goal of measures like this is to reduce inequality.
Definitely. There's a conversation to be had about which billionaires do we want. Most Americans have a favorable opinion of Bill Gates [0], but not Jeff Bezos [1]. And there's good arguments for having large-scale philanthropic efforts be semi-privatized.
A "punitive tax on interest income" is popular with the left because it is, on paper, very progressive and avoids taxing the poor. But in truth, I don't think people actually want fewer billionaires, they just don't want aristocratic billionaires.
It also doesn't help that it's so unclear what the money would be spent on.
A mildly-punitive tax on high levels of personal consumption (including imputed consumption. such as business owners using business assets for private use, etc.) would seem to be a lot less distortionary and more socially-beneficial than a punitive tax on wealth, and just as politically sensible. What it doesn't have, unfortunately, is the raw appeal of soundbites like "soak the rich!" and "you didn't build that!".
There's a cool related video of Greg Mankiw [0]. He talked about two "redistribution" schemes:
1. $1000 per month to those with zero income, phased out at 20c / dollar extra income, financed by 20% tax on all income above $60k
2. Transfer of $1000 per month to everyone, financed by 20% flat tax on income
Apparently a group of Harvard students he asked were strongly in favor of the former, without realizing that the two plans are equivalent. It's all about framing.
This is trickier than it might seem. A yacht is actually an asset! (Albeit one that depreciates quickly and has enormous running costs).
Practically everything a billionaire could spend money on "at scale" is just another asset. Although again, "yacht" is a terrible asset class.
To actually get rid of enormous wealth you have to either waste it (throw a huge party? own assets that depreciate a lot? shoot it into space?) or give it away somehow.
I think one common criticism of wealth taxes is that assessing these asset values can be gamed. When I'm donating my yacht to charity it's worth way more than when the government is assessing it for taxes
But there's other stupid crap you can waste money on that doesn't count as assets. Spaceship rides, political donations... Maybe you can sell your yacht to some yacht company and lease it back from them?
I was just using the bruhaha to demonstrate a point. A millionaire tax and a billionaire tax are totally different in practice, both operationally and socially.
Oh no! France lost Gerard Depardieu! Whatever will they do! /s
In seriousness, I did have a number of French clients fleeing to California after France proposed a wealth tax. One of them famously said (of California): "I love it here! Your taxes are so low!"
The downside of a wealth tax compared to other taxes is that it drains a corpus every year. It creates "financial anxiety" in the people it would target, similar to range anxiety in EVs. Even if the target could afford to pay the wealth tax and live comfortably for the rest of their lives of their children's lives, they are suddenly terrified that they will be taxed into the poorhouse if they misspend their money, and that anxiety drives them toward places without a wealth tax.
Switzerland isn't a good example of why a wealth tax would work, since it's openly acknowledged that nobody actually pays the correct tax on their wealth; it is the same reason that Swiss banks were the financial institutions of choice for criminals and dictators for decades. (If I was being too subtle: the Swiss are notorious for under-reporting financial assets, and their banks are even more notorious for hiding the assets of account holders.)
One argument I would make is that it's a LOT easier to just move to another european country and you are still very close to your home country.
Capital flight in the US is logistically much more difficult than in europe I would imagine.
>"are billionaires bad for the rest of us?" That is the premise of a wealth tax, at least the currently popular one.
I don't think that's very accurate.. the wealth tax is saying "billionaires have so much excess money that they should be contributing on another layer than the rest of the population". While you can ALSO say "there should be no billionaires / they are bad", that is not what the wealth tax does.
> But, to be nuanced we also need to address the core question: "are billionaires bad for the rest of us?" That is the premise of a wealth tax, at least the currently popular one.
Suppose we impose such a tax. How will that affect wealth formation and accumulation by not-yet-billionaires, and how will it affect existing billionaires? As you say, Bezos and Buffet would continue being billionaires, but if new billionaires became an impossibility, then such a tax will essentially be creating barriers to competition with existing billionaires! That would be a billionaire protectionist measure disguised as a populist measure!!
If we see existing billionaires support such a measure, then we'll know they likely don't see it hurting them. Kinda like when Buffet advocated for higher income taxes knowing full well he has no taxable income (all his "income" as most people imagine it is just unrealized -and therefore untaxed- capital gains).
Also, the biggest problem with any new tax is that without a hard cap on rates it's difficult to predict what it will be in the future. When the income tax was proposed in the U.S. it was said it would never rise above 5%, but marginal income tax rates in the U.S. have been north of 90% (yet, of course, these never reach the super rich as explained earlier). A wealth tax might come with "it will never be higher than 0.2%!" claims, then rise to 5% anyways. If it comes with such a claim, that limit needs to be baked into the Constitution.
Besides the intended political and economic effects of a tax, its unintended economic impact, there's the question of how much revenue it will raise and what that shall be used for. Leviathan never shrinks, so a decision to enlarge it should not be made lightly.
Interestingly, the US is perhaps the only major country that makes capital flight like that in France quite difficult: upon renouncing citizenship, there is essentially an immediate wealth tax imposed.
The US is also the only major country to demand citizens file US income taxes even though they may never visit or earn in the US for the entire year.
In the case of billionaires like Musk, Bezos, Gates... It's unrealistic to think that the government would make better use of that capital. It'll absolutely be wasted in comparison.
Taking ever more capital from the most effective/productive allocators and giving it to one of the least effective doesn't strike me as a good strategy.
A case like the Walton heirs is another story. I suspect we'd be better off taxing most of that wealth.
So Elon, relying on NASA contracts to bootstrap Space X and government mandates to bootstrap Tesla may have to sell shares in those companies to other people to generate the cash to pay his wealth tax.
That doesn't affect the capital that either Space X or Tesla have to invest. It also doesn't affect whether or not Musk is still in charge of those companies.
I imagine there could be more spent on improving the condition of the roads, public housing and health provisions, school budgets could be larger, any number of things.
I don't imagine tax take would double, however many billionaires got fleeced, but the premise that the government would necessarily be worse at disbursing the funds than private individuals is laughable.
Musk, Bezos, and Gates would have access to all of the funding in the world for any future ventures. What the government could do is lower taxes on everyone else.
I have not seen a single wealth tax proposal suggest the funds be used to lower taxes for others, and it's incredibly disingenuous to suggest any wealth tax proponents want to do that. These types of tax proposals are always to fund other services.
How's it disingenuous to propose that the government could do something with a wealth tax besides spending it on social programs? If we're talking about what leftist politicians would want to do with the money, then we shouldn't be talking about a wealth tax at all, because it's likely never going to ever pass a national scale.
It's disingenuous to propose it as a viable option when every proposal involves spending the money on something. These things do not happen in a vacuum.
Who are these proposals coming from and what kind of traction do they have with voters? My answer to that is they are coming from politicians rallying their base for primary elections, knowing full well that the proposals are extremely unlikely to come into fruition.
I am suggesting something that might actually get the middle class, or those aspiring to join the middle class, to support and vote for the idea. I think it's pointless to talk about more radical concepts like a wealth tax or UBI without considering how such a thing could be made appealing to a majority of voters.
Sure and if you impose a tax a national level instead of a state (or EU member country) the diminishing returns for increased taxation occur at a higher rate because it's much harder to move to a new country than it is to move to a new state.
Also housing prices probably have more to do with people leaving high priced cities than taxes do.
If you impose a wealth tax at the national level, rich people will leave America (edit: renounce citizenship) and ambitious people will never come here to begin with. America will no longer be the land of opportunity. The US has already passed an exit tax to try to prevent the wealthy from renouncing their citizenship.
At some point even an exit tax won't be enough. If you study the fall of the roman empire, you will find people abandon huge estates to just start over away from roman taxes.
If the presence of wealth in a nation was the sole factor in growing entrepreneurship then the gulf kingdoms would have dethroned silicon valley decades ago.
There's obviously a whole lot more involved in the decision making of wealthy people looking to start their next venture.
I never said wealth is the sole factor for a tech hub/ecosystem.
California is creating a huge incentive for billionaires to leave. So they are more likely to move and take their experience and move the tech ecosystem.
It's fine with me. I don't live in California. Boston lost the tech ecosystem with government regulation around non-competes... maybe California will lose it over a wealth tax or even the threat of one.
It would probably be better for the whole country if less wealth was concentrated in California and the wealthy moved to red states. Probably Texas.
What kind of revisionist history is this? Boston “lost” the tech ecosystem because its main players were too entrenched in the mainframe/minicomputer business to pivot quickly enough to compete with the Silicon Valley microcomputer revolution.
Silicon Valley is a start-up culture which can only thrive where non-competes are illegal. 'Main players' rarely pivot and create new business divisions that can compete with all the start-ups. I'm not saying the main players were not too entrenched, but that there is a reason that the Silicon Valley microcomputer revolution happened there. Fairchild's children and all that came after.
This is wild stuff. SV had its origins in Fred Terman, the halo effect of Stanford, and that Shockley happened to have been born there and decided to move back. By the time the computer club was around it already had enormous momentum.
I'm no fan of noncompetes, but you are vastly overstating their impact.
Freedom to create corporate spinoffs (which, contrary to GP, is itself government regulation —- one freedom that would be surrendered upon moving to Texas) is one aspect of SV’s success, but it’s far from the only factor and by no means essential. How do you think Massachusetts (and Texas) grew to be tech hubs in the first place? (A: university spinoffs and government funding and luck, just like SV.)
I think you’re right. Most people dream of becoming rich, not “filthy” rich. So taxing >100 million should not impact things, and there are plenty of other reasons to move to the US
I don't think in absolutes. It won't "destroy any incentive"
But yes, it is a powerful disincentive due to the compounding nature of wealth taxes.
Rich people are already leaving such as Eduardo Saverin. It's a growing trend and one that, as I mentioned, the US is desperate to stop by imposing an exit tax for renouncing US citizenship.
An example of a guy who left nearly a decade ago to avoid paying taxes on wealth he did virtually nothing to earn is not data of an impending mass exodus of the ultra wealthy. Yes, there are handful number of people who have done such things, their existence is proof of nothing but absolute human greed and disloyalty to this great nation.
I like America. I don't plan to leave but yes... many wealthy people already have secondary citizenship. Jim Rogers says you should think of it like insurance. Hopefully you don't need it but for a variety of reasons it's a good idea to have a backup plan.
Secondary citizenship is not the same thing as denouncing your citizenship and fleeing taxes. US citizens are taxed worldwide, irrespective of location or other citizenship status. Your point is taken, it's just not relevant.
>If you impose a wealth tax at the national level, rich people will leave America (edit: renounce citizenship) and ambitious people will never come here to begin with. America will no longer be the land of opportunity.
>But yes, it is a powerful disincentive due to the compounding nature of wealth taxes.
This compounding nature of wealth taxes is nonsense. It's a negative feedback loop not a positive one. Compound interest is powerful because it compounds on itself--it's a positive feedback loop. Comparing compound interest to a wealth tax is just flat out wrong.
The whole point of the pg essay is that wealth tax losses compound.
> The reason wealth taxes have such dramatic effects is that they're applied over and over to the same money. Income tax happens every year, but only to that year's income. Whereas if you live for 60 years after acquiring some asset, a wealth tax will tax that same asset 60 times. A wealth tax compounds.
Compounding is not exclusive to positive feedback cycles. It applies to negative feedback cycles as well. Have you heard the phrase "my problems are compounding?"
The one that we are talking about here is in relation to compound interest: to pay (interest) on the accrued interest as well as the principal.
I'm going to take the fact that you keep talking about the power of compound interest to mean that this is the definition you're talking about.
>Compounding is not exclusive to positive feedback cycles.
Compound interest isn't powerful because it happens every year, it's powerful because you accrue interest on the principal and the additional interest. It's only powerful explicitly because it is a positive feedback cycle.
A negative feedback cycle is self limiting. The rate of change gets slower each year.
>It applies to negative feedback cycles as well. Have you heard the phrase "my problems are compounding?"
I'm positive that you don't understand what negative feedback means based on this comment.
To be clear, I understand that the rate of gets lower every year in negative feedback cycle. I am not saying a wealth tax takes your money at an exponentially increasing rate.
I am saying that it lessens your ability to grow your wealth at an exponential rate. It mitigates the miracle of compounding growth.
Think about if you create a startup and you have to sell shares to pay your wealth tax. What if Larry Page did that in 2001. He wouldn't be out the $100 of the stock price in 2001. Today he is out thousands of dollars of what it would have been if it could have grown.
>I am saying that it lessens your ability to grow your wealth at an exponential rate. It mitigates the miracle of compounding growth.
It doesn't mitigate the miracle of compounding growth any more than a capital gains tax. A capital gains tax of 50% combined with inflation would completely mitigate the compounding growth of any many investments.
For some easy numbers: take an interest bearing account that pays 10% interest. A 1% wealth tax and an 11% capital gains tax are functionally equivalent.
And Elizabeth Warren's wealth taxes don't even kick in until $50 million. So the vast majority of people should prefer that to increasing the capital gains tax or setting to income tax rates.
>Think about if you create a startup and you have to sell shares to pay your wealth tax. What if Larry Page did that in 2001. He wouldn't be out the $100 of the stock price in 2001. Today he is out thousands of dollars of what it would have been if it could have grown.
That's just an absurd way to frame things. My grandparents paid $500 in income tax 70 years ago. If they had been able to invest that they would have thousands.
If he sold shares, someone else would own them, so someone else would have those thousands of dollars, it's not like the value would just disappear into the ether.
I am not talking about compounding interest. I am talking about exponential growth and loss. The startups that make many founders wealthy experience exponential growth. The wealth tax is exponential (look at the formula in the essay and note the exponent). Compound interest is an unrelated example of exponential growth. income tax and capital gains taxes are not exponential. You don't use an exponent when calculating income tax.
>It doesn't mitigate the miracle of compounding growth any more than a capital gains tax.
The point of the essay is that a 1% wealth tax over 60 years is equivalent to a 45% capital gains tax.
If you own a stock that doesn't pay a dividend, you don't pay capital gains taxes till you sell the stock. Are you aware of that?
Thanks for helping me to crystalize my ideas on this topic.
On a personal level, I am concerned you deceive yourself and that you have resentment of wealth and success that blinds you. I implore you to seek guidance and help.
> Compound interest isn't powerful because it happens every year
Yes it is. If you just got a one time payment compounding interest would not have exponential growth. I agree that payment on the principal and additional interest is another component of the exponential growth.
It's obviously impossible to provide a source for what people will do in the future based on some hypothetical policy change, on either side of the argument. Stop it.
I don't buy this argument at all. This is exactly the type of thing experts write policy papers and perform economic research to answer. If your claim were true, we could never debate policy proposals because they all rely on what people will do in the future based on a policy change.
Medicare-for-All is a hypothetical policy change that has lots of research (data and sources) on how things would play out if implemented [1] [2] [3].
I actually know someone who does this. Real weirdo, but then what other kind of person is there who’s so afraid of not having enough millions they feel the need to uproot their life every 6 months.
If you impose a wealth tax at the national level, rich people will leave America
US taxes the income of citizens living abroad, so that doesn't help. They'd have to reject their American citizenship to avoid US taxation of their income (and presumably their wealth as well).
That's certainly possible, and wealthy retirees certainly do this. But, it's not without downsides.
If I understand you correctly, you mean that wealthy americans who have built their fortune and life in america will choose to not only leave but also revoke their citizenship and leave the US? All because they have to pay more money than before in taxes?
Personally, I don't think all millionares and billionares are willing to leave their life and family behind because of a some dollars in federal tax...
I think a more accurate way of phrasing your original statement is "if a wealth tax was implemented and I myself were wealthy to the point where it applied to me, I would renounce my citizenship".
Because you don't speak for rich people, as there is no evidence that they would, in fact, leave America.
The effective tax rate has been on a downward trend for the past 50 years, so if renouncing US citizenship is a growing trend, that doesn't make a good argument for a strong positive correlation between the two.
All governments are increasingly competing with other jurisdictions on lower taxes and better services. The reason is people have increasing options because of better communication (internet), transportation (especially shipping), job mobility, etc. Covid has accelerated this trend with wfh.
Well the only trend that we can look at quantitatively, tax rate vs US citizenship renunciations shows the exact opposite correlation to what you've been arguing.
Idk. It's about time rich people got to pay for the wealth they enjoy on the back of the USA. It's not free to send multiple carrier groups into the south china sea/SE asia region when we're forcing TikTok to sell itself to us you know?
And we've also seen a complete and utter reduction of the middle class over the last 40 years, resulting in a much richer 1% and poorer 50%
The other aspect here is that the people with wealth have seen it increase at a fairly linear rate. They can handle a small tax on it just fine. and it's about time they start directly paying for a service that the rest of us have.
The irony is poor people will never be wealthy till that start investing in assets and understand the compounding nature of wealth. It's that same lack of understand of compounding that contributes to the argument for a wealth tax.
It's true. US inequality is rising as you stated, but global inequality is down. So you don't have the moral high ground. You have a false sense of entitlement and want to profit on the backs of the rest of the world instead of the people who invest their time and money into those assets.
Would you mind stop telling everyone that they don't understand compounding interest?
I've read a lot of comments and your replies and I have noticed a disturbing amount of normal comments being greyed out while you explain to them that they don't understand compounding, because if they did understand it they would be against any form of wealth tax.
Pretty much everyone who owns stocks or invest money, which quite a lot of people do, understand the effects of compounding interest.
> The other aspect here is that the people with wealth have seen it increase at a fairly linear rate.
Do you think this guy understands compounding growth?
It would actually help his argument if replaced the word linear with exponential, which is more accurate. Compounding growth is exponential, not linear.
If you read what I posted you would understand that I know what compounding growth is instead of making ad-hominem attacks at me without reading anything I posted.
I was refering to the linear growth of the the 1% controlling more of the TOTAL wealth of the USA. Which is, yes, most likely a result of compound growth of assets. Which is wealth management 101.
Stop assuming I don't (or other people) know something that basic.
I expect people to pay for services they utilize to get wealthier.
I am not including myself as any sort of beneficiary in this. Most likely I would be taxed more. So keep your comments about my supposed sense of entitlement to yourself.
In fact, my entire support of a wealth tax IS TO REWARD THE PEOPLE THAT DIDNT GET PAID OUT FOR SAID WEALTH GENERATION.
But sure, compound interest for people that live hand to mouth is a valid strategy. Better than trickle down economics at least.
>If you impose a wealth tax at the national level, rich people will leave America and ambitious people will never come here to begin with. America will no longer be the land of opportunity.
Has this happened in Switzerland? Would it happen in the US if we had a wealth tax of 0.001%? Obviously not. It likely would if we had a wealth tax of 100%.
An income tax should do more to dissuade ambitious people than a wealth tax. A wealth tax only kicks in once you've accumulated wealth, and income tax slows that accumulation in the first place. We already have a national income tax. That doesn't seem to slow down immigration.
> If you study the fall of the roman empire, you will find people abandon huge estates to just start over away from roman taxes.
I know that it's fashionable in some circles to compare every non libertarian move the US makes to "The fall of the Roman Empire", but honestly people can't agree on what economic lesson to take from the great depression, do you really think we are going to be able to agree on what lessons to learn from the economy of the late Western Roman Empire?
I missed a zero, but you missed the point completely.
A wealth tax is simply about higher taxes for those with assets. The compounding nature of that tax reduces the taxes over time so there is nothing to complain about in terms of "compounding".
This seems way less egregious than property taxes, which don't go down, are assessed regardless of how much equity the owner has, and are directed at assets that often have far less liquidity than stocks.
US is known to tax Americans abroad. IMO, rich people seeking to avoid taxation will have to loose US citizenship. And even after that, it's not clear whether US will let them off the hook.
> If you impose a wealth tax at the national level, rich people will leave America (edit: renounce citizenship) and ambitious people will never come here to begin with.
I might be guessing wrong here, but I'm going out on a limb and asserting that you've never owned an international business for more than 7 years.
The decision matrix on where to establish domicile if you have the means to pick anywhere in the world is a lot larger than the unitary "how much taxes" value. The US has a lot of problems with it. No question. The US also has a relatively unique business environment that happens to intersect well with many businesses' requirements, especially those owned by individuals who want to transact business internationally.
It is unique enough that many with means to offshore their wealth voluntarily choose to domicile in the US. Yes there are many who run offshore accounts, but generally speaking, you "only" need around a consistent $1M USD in annual income before some pretty sophisticated offshore tax management structures start to become attractive. There are a heck of a lot of people like that in the US, and they aren't stampeding for many of these structures, despite the best efforts of those selling them. Roughly speaking, if you value your time, it doesn't become worth it until you can afford your own private wealth management office (say around $2-5M+ expense per year depending upon your overall directives to them).
Generally speaking, the juice isn't worth the squeeze. People in that income bracket and above carefully spend their time, and even with a modest say 0.01-0.1% wealth tax per year, that's not enough to spend a huge amount of hassle over. We're not talking about the finance nexus moving from NYC/Chicago to Dubai, for example. They'll make it sound like it means just that because money is money. There are people who do move out, or renounce citizenship, but using the demand for residency visas as a proxy, we're "pricing" the benefits of staying in the US too low and there is room for a wealth tax.
I don't unequivocally support a wealth tax, by the way. I'm pointing out that "the sky will fall, rich and innovative people will leave/never enter" line of argument against a wealth tax is not going to win with policy makers who have the facts at their staffs' beck and call. A more likely argument that will win with these policy makers however, is along the lines of "your $10K/plate donor base will evaporate if you vote for this, and you'll never offset the loss from the increase in people-who-work-for-a-living donations".
Engage the wheels of constant price deflation with increasing quality for real-estate-dirt, healthcare, insurance, finance, and education, and that will go a long ways towards addressing the ailments a wealth tax purportedly does.
> Is the EU hurting for tax revenues, or something?
Yes it is, the core problem the EU has is that its budget almost entirely comes out of member state contributions (plus a bit of import duties and fines for rule violators). It does not have a meaningful source of funds that is at the sole discretion of the EU parliament - imagine the US federal government with a budget that is decided by the 50 individual states.
A proper funding source for the EU as an institution would finally allow things such as a joint EU foreign policy/military at the authority of parliament, decent wealth redistribution (i.e. equalizing especially the disparities between Eastern Europe and Core Europe), or major infrastructural works such as assisting all EU railroads to get rid of buffer/chain couplers... and especially to get rid of the political bullshit that the individual member states can pull off at the moment.
The EU parliament desperately needs to be reformed so that it stands on an equal footing with the member states.
> It does not have a meaningful source of funds that is at the sole discretion of the EU parliament - imagine the US federal government with a budget that is decided by the 50 individual states.
We don't need to imagine that - it's exactly how the USA worked under the Articles of Confederation.
But the only solution to that involves significant transfer of sovereignty from member states to the federal structures. And it doesn't feel like most EU member states are willing to go there.
Yeah, look at the disaster that has happened in federal governance in the US. We used to have a government of enumerated powers, now there is very little that the government can't do.
The problem with a strong federal government is that you can't escape bad governance by moving to a neighboring state, you have to change countries. People are generally far happier with local governance than federal governance.
s/cherry picking/showing an example with interesting properties that is different from France/g
So this is actually where the discussion should go: What properties does the Swiss wealth tax have (particularly in the wider taxation system) that the French wealth tax did not have?
What is needed for a wealth tax to have no negative effects? What about income and capital gains tax at the same time? Etc. etc.
I am not trying to make an argument pro wealth taxes, I am trying to make an argument against shallow and non-empirical arguments.
You're cherry picking as well. There are other European countries with a wealth tax [1] — notably Belgium, to which these wealthy people allegedly fled to avoid wealth taxation.
Belgium has very high income tax but very low capital gains tax. For already rich people is pretty much a tax haven, for salaried workers is almost confiscatory.
> Not to derail the topic but “taxing the rich” was one of the bullet points that was supposed to answer where the money for a UBI system would come from.
Obviously this could as easily refer to any form of taxation that comes disproportionately from the rich. Which, because of what a UBI itself does to the effective rate curve, is actually pretty much all of them. You could use VAT and VAT+UBI is still a progressive tax system, because everyone at the lower income levels is still receiving disproportionately more than they're paying. It actually solves the biggest drawback of a flat tax and allows you to use one while still having the money come disproportionately from people making more of it.
> This is exactly how globalization will impact UBI as well, because at the end of the day the manufacturing firms, big corporations and everyone else who is vested in making money will uproot and go elsewhere, where they won’t be taxed so harshly.
If you're funding it with VAT or some other consumption tax then it isn't the companies manufacturing there who pay it, it's the ones who sell there. Which they can't avoid by moving their operations somewhere else, because the customers are where they are.
Don't most of these individuals hold bulk of their wealth in corporations? They are probably not sleeping on a few billion dollars :)
When they have to pay this tax, they will have to dilute the company which in turn affects their control and hold, possibly even the direction of the company over time. So yes - corporations will eventually feel the heat.
The first thing to notice about a wealth tax is how little it fundamentally differs from an income tax on investment income. If you have a billion dollars and you get a 2% return and pay 15% capital gains tax, you paid 0.3% of your wealth in tax. So then what's the difference?
For one, it pushes people towards riskier investments. At a 1% annual return, a 0.3% wealth tax is equivalent to a 30% income tax. At a 5% annual return, it's equivalent to a 6% income tax. This has various consequences, but a big one of note is that it makes it much less desirable to own government debt, which has a low rate of return, which means the government could end up having to pay significantly higher interest on the debt. It could also incentivize excessive risk taking.
Another concern is that it requires investments to be liquidated in order to pay the tax. Generally we defer taxes on investment income until the investment is sold in order to avoid this, because it can be quite problematic, e.g. you own 51% of your company but over time you're forced to become a minority shareholder just in order to pay the tax, or you owned 100% of it and are required to take on external investment over time just to stay in business. This also costs the government money because the government pays lower interest on borrowing than average investment returns, so paying 0.7% to borrow money in the interim while the investor is earning 5% returns on the money you'd have collected as tax means that when the tax is ultimately paid, the government ends up with more additional revenue than they paid in interest in the meantime.
It also increases foreign ownership of domestic resources, because domestic owners are forced to liquidate in order to pay the tax and domestic buyers are in the same boat so the liquidated securities go primarily to foreign buyers.
Another problem is that a lot of forms of wealth are hard to value. If you had a wealth tax and someone owned a piece of art, or some intellectual property, or shares in a privately held company, what are they worth? It's inherently subjective and estimates can very wildly. But then you're creating an opportunity for accountants to do their thing and avoid the tax. Waiting until the property is sold and then taxing the gain solves this neatly because then you have the sale price to go on.
It seems like, if you wanted to help stop the wealthy from ducking paying taxes, one should just stop providing a special long term capitol gains tax and tax capitol gains the same as income. It simplifies the tax code, stops punishing workers who receive a wage over those who earn investment income, and doesn't require a bunch of new accounting to implement. My cynicism hat tells me the reason it isn't the policy goal is that it could actually pass in the US, the wealth tax likely never will.
The reason why long term capital gains tax is taxed at a lower rate is to index for inflation. Inflation on short term income is negligible. As a matter of tax policy, it is much simpler to reduce the rate than to compute a very large inflation deduction.
> the wealth tax likely never will.
It also requires a Constitutional amendment, because the Constitution only allows the Federal government to levy taxes on realized income (16th Amendment).
> you own 51% of your company but over time you're forced to become a minority shareholder just in order to pay the tax, or you owned 100% of it and are required to take on external investment over time just to stay in business
Doesn't this assume the owner receives no other income? I assume owners either receive a salary from the company, or are paid a dividend with which they could use to pay the monetary-valued tax.
Or especially in the case of 100% owned company, the owner pays themselves a "bonus" equal to the tax. The company now is worth less, reduced by the amount of that bonus, so the owner's wealth has decrease and the tax has been paid.
> Doesn't this assume the owner receives no other income? I assume owners either receive a salary from the company, or are paid a dividend with which they could use to pay the monetary-valued tax.
Not always. To use the extremely adversarial example, Bezos' annual salary is (famously) $82,000, and Amazon pays no dividends because our tax code incentivizes re-investing surplus into R&D rather than enriching shareholders.
The wealth tax, as a result, adds the incentive to increase shareholder dividends and/or inflate executive compensation just for them to be able to maintain ownership in their own companies.
That's not true. In some cantons, the very rich get extra deals, called Lump-sum tax, independently of their revenues. E.g. the Ikea founder only paid around 165000$ in total taxes in 2014 on a fortune of 46.5 billion US $ and all his revenues which he had.
The lump sum tax is only possible for non-citizens, who do not have direct W2 income from Switzerland. Local governments (if the state allows it) can use it as a shortcut to estimate the tax amount. Nevertheless wealthy Swiss citizen don’t leave Switzerland either. Probably also because there is no capital gains tax which offsets the wealth tax easily.
"the Silicon Valley crowd is strangely avoidant of examining evidence or explaining their opposition with real-world data. It's all 101ism and polemics."
It’s often not even self interest; fairly often it’s obvious that some participants in these discussions are searching for arguments to validate pre-held beliefs and policy positions.
Although sometimes self interest is also a factor.
The big thing to understand is that we lie about these things to ourselves, so we can easier lie about them to others. Unconscious parts of your brain lies to the conscious part!!
Stating that "some participants are searching for arguments to validate pre-held beliefs and policy positions" is roughly akin to saying "some participants eat food and breathe air".
Confirmation bias is part of the human condition, and should be expected by default.
Majoritarianism usually justifies itself via populist arguments that some particular minority is too powerful and needs to be cut down. This is the basis of nearly every conspiracy theory about the Jews, for instance.
In the case of a wealth tax, the target not simply a "particular minority", but capital, which is very literally power itself. And it's increasingly clear that it really is too concentrated.
Except that you can provide evidence for why the wealthy minority is too powerful whereas jews are just attacked for... being jewish. You know, the nazis for example were a minority, that doesn't mean attacking them was bad... populism isn't inherently bad...
Could you please stop creating accounts for every few comments you post? We ban accounts that do that. This is in the site guidelines: https://news.ycombinator.com/newsguidelines.html. You needn't use your real name, of course, but for HN to be a community, users need some identity for other users to relate to. Otherwise we may as well have no usernames and no community, and that would be a different kind of forum. https://hn.algolia.com/?sort=byDate&dateRange=all&type=comme...
Also, please don't post in the flamewar style to HN. That's very much against the rules also.
What you're saying is that critical thinking is required to determine morality. That is indeed true.
To oppose a wealth tax on majoritarian grounds you need to demonstrate that the wealthy are oppressed in some way. Simply saying "but majoritarianism" is not sufficient, and appealing to Jewish oppression is plain whataboutism.
I'm not advocating for guillotines or whatever. Simply that a small percentage of individual wealth over a certain amount (say $10MM) be redistributed to the rest of society. The end result of this is that individuals are still going to be able to hold $10MM even if the wealth tax redistributed 100% of the rest of their wealth. They will still be incredibly rich and not have any meaningful financial constraints on their lives.
> To oppose a wealth tax on majoritarian grounds you need to demonstrate that the wealthy are oppressed in some way.
There are multiple ways in which this is wrong.
Firstly, the term “oppression” is overly charged here. I prefer a more general term, so I’ll use “injustice”.
Secondly, you are making a circular argument. In my opinion, confiscating people’s wealth on the basis that they have too much of it is unjust. You are pointing out that the wealthy aren’t, as a whole, subjected to any kind of injustice as it stands; but you’re doing that in the context of proposing to commit injustice against them.
The point that you’re missing is that the primary human motivation for injustice is to perceive a successful group of people as fortunate and privileged, and to resent them for it. So your test for majoritarianism actually fails almost every time that it is tested because, in the perceptions of most majoritarians themselves, they would pass your test.
What's strange is that the same cohort that doesn't deeply discuss higher tax rates on tens of millions in wealth, love to get out tomes of research to support the social cause du jour.
Came here to say this. If I have the time stamps right it looks like rabois even replied before this HN post even existed, which makes the comment a little dubious. I'm sure it was a mistake, but rabois only took 5hrs to reply. Please give someone an appropriate amount of time to reply and check before posting on other social media calling them out.
Not strictly contradicting what you said, but I take the implication of your statement to be "the wealth tax actually doesn't change people's behavior", but it seems to in some cases.
Agreed. I doubt a very wealthy man's short blog post against taxing very wealthy people would make it to the front page of HN if it wasn't for the identity of the very wealthy man.
Is the blog post "against taxing very wealthy people"?
Literally, it is a demonstration by mathematics of the effect of a tax on capital.
Polemically, it is an argument by induction that a higher level of such a tax will discourage junior entrepreneurs from attempting to create start-ups in a jurisdiction.
What's clever about the polemic strategy is how it appeals to the hopes and fears of young entrepreneurs who have not yet accumulated great wealth, to recruit them to support the interests of older entrepreneurs who may have done so in the absence of the tax.
"Suppose you start a successful startup in your twenties" gets you hooked. You readily identify and strap yourself in for the ride.
"if you live for 60 years after acquiring some asset" appeals to your fears by tapping in to your understanding that once you are older, you will not have boundless energy, and unbridled understanding of the zeitgeist. You'll need protection then.
The young entrepreneur, with little wealth accumulated, consults the table, reads linearly down from the top to the lower right, building understanding, until bang 95%! At this point, he or she viscerally feels the pain of losing 95% of his or her capital, which, at this point, still being meagre, is unbuttressed by the psychological accoutrements that great wealth affords its owners.
The conclusion is genius.
"Even a .5% wealth tax would start to keep founders away from a state or country that imposed it. That's more than a quarter of your stock." Ouch! The budding entrepreneur must now pack up and move to have any chance at a decent life. The tax must be resisted!
I never understood..what’s the fascination in turning one county into another? We have Switzerland, France, Belgium, Germany. Why force America to become one of these? Those countries already exist. Turning one country into another doesn’t make sense and isn’t what makes America unique.
Imagine I moved to Germany and kept stating “Germany should be more like America because X Y and Z.” Can you imagine how offensive that would be?
It's not about turning the US into a European country, it's about decreasing wealth inequality. The US is doing a lot worse than the countries you mention--Gini of 41 for the US, vs 27-32 for Switzerland, France, Belgium, Germany. The poverty rate and poverty gaps are also a lot higher in the US.
https://data.oecd.org/inequality/poverty-gap.htm
Perceived wealth inequality. The US has less wealth inequality because most of it is already wealthy. The shrinking middle class is shrinking because most of them are moving to the upper middle class.
It is definitely a confounding variable in the context of the question at hand (posed by the GP commenter): why inequality is a bad thing, and whether it is directly responsible for the "shrinking middle class" going to the "lower class" instead of the "upper class".
Historically, the middle class has been shrinking because the upper class has been rising. Insofar as that hasn't been the case since 2000, it's not because of the mere existence of billionaires, it's because of a specific type of financial instrument (in one case), and a one-in-a-century global pandemic (in another case). The mere existence of Bill Gates et al did not cause either the credit default swap crisis or COVID-19.
Sure, but the root cause of that is pretty well known to be the proliferation of credit default swaps that led to a housing bubble that burst in 2008, and not the mere existence of billionaires writ large.
> The analyses presented here confirm the broadly accepted picture of rising income inequality and slowing income growth for middle-class Americans. But a few additional points are worth drawing out. First, while the benefits of economic growth have not accrued equally, they have not gone solely to the top 1%. The upper middle class has grown. Second, the main reason for the shrinking of the middle class (defined in absolute terms) is the increase in the number of people with higher incomes.
This is laughably wrong. Social mobility in the USA is the lowest among developed nations. Indeed, most social mobility in america is downward, not upward.
i'm reading piketty right now and have to say, some overwhelmingly clear and rigorously collected data in this one book alone convincingly contradict this ill-informed statement
First of all, the observation that US's shrinking middle class is attributable to an increasing upper-middle class is objectively true, it's not that controversial [4].
Second of all, Piketty's argument is more that capital's share of growth will necessarily outpace labor's share of growth (r > g).
Third of all, Piketty isn't gospel. There have been a number of rebuttals published since his findings that make fairly strong refutations.
The IMF studied empirical evidence to see if it matches up with Piketty/Saez/Zucman's theoretical models, and was unable to validate their finding[1].
Further studies showed that r > g almost entirely goes away when you exclude land/housing appreciation, mostly attributable to restrictive zoning regulations [2].
Auten & Splinter found that Piketty failed to account for existing taxes and transfers. When you do that, the perceived growth in inequality goes away almost entirely[3][5].
If you offer compelling arguments for changing certain aspects of a country to be more similar to another country that handles things better (in your opinion), then I don't see the problem. Sure, some people will always be offended if you propose to change amything about their country, but many more people are open to suggestions for specific changes. Very few people, on the other hand, are actually proposing change just for the sake of "turning one country into another". If that were the case, then I would think it a very weird fascination too.
I believe it's because the people most affected in these situations are also the people who are unable to simply move to a country that benefits them more.
To most of the country, yes it’s a bit offensive. If people feel very strongly, they should move to the respective country they strongly believe about. My parents did it, twice.
You might like 8/10 things about a country, there is nothing wrong in asking changes on the remaining 2 things. Moving to Germany might not give the remaining 8 things easily.
Homosexuals were 'a bit offensive' less than a few decades ago.
Should they have moved somewhere else too?
Every place is going to have a combination of things you agree and disagree with. There isn't a utopia for each person to relocate to, I hope that's obvious.
Regarding what's offensive to 'most of the country' - feel free to link me to the polls you looked at to arrive at this conclusion.
> That's a good thing. Taxing wealth more, and income less, helps equalize wealth disparities over time.
It also slows economic growth over time, because most of the tax money is redistributed by the government, not invested, while the wealthy generally invest their wealth.
This is wrong. The redistributed tax money doesn't magically disappear. Almost 100% goes back into the economy because the people receiving it actually need the money for various things.
It is much more likely that the wealthy will use the same money instead to buy another yacht or private jet, which while also providing some jobs is ultimately a net waste for society.
Not that yachts should be banned, but economic policy should never encourage such spending.
The US introduced a "luxury tax" on yachts in 1991. It was a disaster and basically killed the domestic boat industry (many jobs lost) because wealthy buyers just went offshore. A general wealth tax may be fine, but targeting particular industries like yachts is a terrible idea.
Which is why a wealth tax is a better approach than "penalty" taxes on yachts or jets.
Would the high end suppliers of luxury items see a reduction in the very small numbers of people able to buy their top end products? Yes. Is that a bad thing? Probably no in the scheme of the entire economy or even the luxury industry affected.
People downgrading from their $100m yacht to a modest $95m yacht isn't going to destroy the yacht industry.
Are you going to bemoan the job loss of pyramid builders if/when some rich schmuck decides to spend half his net worth on building a pyramid too? (A yacht is a modern pyramid)
Jobs are not magic resource humans can't do without.
Jobs are a temporary, unpleasant condition of having to do shit you'd rather not do, because some idiot schmucks decided wage slavery is a natural progression from outright slavery and serfdom.
Why do I or anyone need to do unpleasant work unless it fulfills irrefutably necessary needs of my community, such as agriculture, medicine, construction of shelter, raising children etc.
Building yachts, pyramids and I'd argue the majority of the 'work' being done in cities world-wide is not fulfilling communal necessities and should therefore be abandoned.
This is not some pipe dream, it is an inevitable conclusion - humans don't like living in a system where their natural desires are constantly suppressed or left unfulfilled. There'll come a 'prophet' of sorts that will explain the human condition plainly and simply, explain where humans have gone wrong for thousands of years and propose viable alternatives enabled by science and technology that will seem obvious in hindsight. It will involve humans getting to be their animal selves and live simpler, happier lives, enabled by advanced science and technology that serve human needs, not individual needs of idiot schmucks with an inferiority complex.
There are a lot of caveats to this observation. The tax was levied during a recession, at a time when yacht sales had already declined sharply (from 16,000 in 1987 to 9,100 in 1990 for $100k+ boats).
Not really disagreeing, but you seem to be implying that the non-wealthly would use money on needs as opposed to wants and also that the money would not be used for societal waste. I think part of that's true to an extent - eg how many ovens or microwaves can one billionaire need. There are plenty of normal people who waste money on things that do not improve society, such as TVs, expensive vacations, fancy new cars, and so on instead of using that money for education, healthcare, etc or using that time for productive activities like volunteering, growing a vegetable garden, etc.
I was mostly responding to the part about money not entering the economy again, I was then lazy and introduced another topic into the discussion without comparing both sides.
> Not that yachts should be banned, but economic policy should never encourage such spending.
Yachts and private jets are obvious symbols of unequal wealth, but they are also objects that require huge amounts of ongoing spending that goes into the pockets of middle class workers.
Making sure a yacht or jet is ready to go when and where it is wanted requires a few full-time jobs. As strange as it may sound, I don't think economic policy should discourage such spending. Perhaps just be neutral on it?
It doesn't magically disappear in the same way that an incandescent lamp is 100% efficient if your goal is to heat your house as well as light it. The distinction isn't really meaningful unless you're trying to sell incandescent bulbs.
Most people would consider money directed at things that don't benefit the citizens (graft, boondoggles, arguably a bunch of things on the defense budget) more than the money would have had it stayed in the hands of whoever had it in the first place. Obviously graft and pork trickles down but does it really trickle down more than a chunk of money in a bank account but does it really trickle down more than if it had been spent on a yacht? Is hand-waving away efficiency (relative to whatever goal you're spending toward) losses as some sort of under-handed welfare really something we want to accept?
This is a strawman argument, but the logic actually does hold: If the original premise is true, "taxing the poor to give to the rich" would accelerate economic growth.
The problem is of diminishing returns - it would have a disproportionate negative effect on the poor and a minimal impact on accelerating growth, so it would be considered one of the most inefficient ways to achieve the latter.
> most of the tax money is redistributed by the government, not invested, while the wealthy generally invest their wealth
If the money redistributed by government is given to poorer people, what do they do with it? Are you suggesting they save it somewhere it cannot be invested in the economy?
All of the tax money is redistributed by the government. What else can it do with it? If it pays off debt, it is redistributing it, if it invests in infrastructure, it is redistributing it, if it sends cash to the population, they'll spend it and it has been redistributed.
Poor people spend money faster than wealthy people. Taxing wealth (up to some unknown limit) and redistributing it increases the income velocity of money--speeding economic growth.
But if the government redistributes the wealth to its citizens, wouldn't that boost consumer demand and thereby boost economic growth on the demand side?
Consumption is an important part of the process, without which production has no purpose, but you don't become wealthier just by increasing your spending. Consumer demand is an accelerant, not a fuel source. Boosting it gives you short-term growth at the expense of a long-term decline as you consume the capital that makes efficient production possible in the first place.
Capital depreciates at varying rates. I assume by "consume the capital" the parent means allow the total amount of capital in the economy decreases over time because the savings/consumption ratio is not high enough to compensate for the depreciation that occurs.
Yes, exactly. "Capital consumption" is a standard term in economics[1]. A common (if somewhat outmoded) example would be farmers eating their seed corn rather than saving it to plant the next year. In practice it usually looks more like what you described: Productive durable goods like machines or buildings simply wear out and aren't properly maintained or replaced. The total amount of capital investment thus decreases over time.
Capital consumption just refers to capital depreciation. Reduced capital investment, and more specifically reduced efficient in capital investment doesn't necessarily follow from increased consumer demand. Just stating that it does isn't an argument.
> Reduced capital investment, and more specifically reduced efficient in capital investment doesn't necessarily follow from increased consumer demand.
Of course not. However, the original question was about the government redistributing resources from capital ("the wealthy") to consumers, which would have the direct effect of shifting the balance from capital investment to consumption.
The vast majority of consumer spending will go directly to companies who can invest the extra profit in whatever they want (and going down the chain, their suppliers can invest their extra profit).
The percentage of savings to consumption can go down without the absolute value going down.
It's redistributed to people who spend it, fueling consumption. Switzerland has a higher GDP per capita than the US. The country has a wealth tax, but no tax on capital gains though.
One problem with a wealth tax is rich people who are not in publicly traded corporations are not extremely liquid. Often times this means having to sell off assets which is hard to do if their assets are largely in private corporations.
I always wonder how the farmer would deal with a wealth tax. Farmland, for example, is worth an incredible amount of money (where I live, at least), but cashflow is marginal, and net incomes are often negative.
That would mean that the farmers would often have to sell off their land to cover a wealth tax on the land. Severing farmland is rarely permitted, so it would have to be entire parcels.
It seems like soon you'll find yourself without any land on which to farm. Which means that we'll start to carve out exemptions, like we already do with existing wealth taxes, and then the race to find loopholes begins.
If done properly, the tax would never be more than the annual net return of the farming activities. In theory, if the net gain is low, then the value of the land should also be low. If the land is worth an incredible amount, but not as a farm, well, that is a different problem worth solving. It will always be a never ending races to cover up new loopholes and create proper incentives.
> the tax would never be more than the annual net return of the farming activities.
Doesn't that end up being nothing more than an income tax? Presumably the intent of a wealth tax is to capture from the benefits people have from holding things that do not normally return an income, such as housing. In fact, housing property is already taxed in many jurisdictions for that reason, so maybe not the best example of where a new wealth tax would benefit, but you get the idea.
You are right that the discourse is not nuanced, but it highlights a very basic problem with taxing an asset again and again, especially on unrealized gains.
We gladly support this idea, because it affects "the billionaires" but not when it comes to everyone else and for good reason. Repeated taxation on an asset can erode your wealth really quickly. Here in California, your house gets taxed on the purchase price, but not the current valuation. Therefore you have people sitting on more than one multi million dollar houses that they bought for low 6 figures 3 decades ago. (Ironically this is one of the main contributor to sky high real estate prices and housing crisis) But we don't tax people on those unrealized gains, that too again and again, because if we do, most people would lose all their wealth in a matter of couple of years.
> it highlights a very basic problem with taxing an asset again and again, especially on unrealized gains.
Why is it so hard to understand the concept of a floor? If we only tax wealth above $10m or $100m, it will literally never result in "all of your wealth" disappearing.
> We gladly support this idea, because it affects "the billionaires" but not when it comes to everyone else and for good reason.
> Ironically this is one of the main contributor to sky high real estate prices and housing crisis
Right. We support it, but we don't do anything about it, even though it causes one of the most obvious policy problems in the state.
> if we do, most people would lose all their wealth in a matter of couple of years.
Like literally every other state? I'm sorry, no. This comment is internally logically inconsistent, ignores obvious examples to the contrary, and asserts itself as its own proof.
Economists actually love recurring land value taxes because they're non-distortionary, but almost all land value tax proposals exclude primary residences under a certain value, for the reasons you've described.
Another question I would like to see discussed w.r.t. Switzerland is whether they are, in crude terms, dependent on other countries not being stable.
An example would be the South African originated company Compagnie Financière Richemont SA. Apart from economy of scale reasons, the reason why they moved to Switzerland is absolutely the stability of that country. South African citizens, many pensioners, now pay tax in Switzerland on dividends. (Yes, you have a DT treaty that allows you to go from 35% dividends tax to 15%, but still paid in Switzerland. And yes, probably they spend tax money much better than the SA government.)
LVMH by contrast doesn't have to move around, but in theory could have moved to Switzerland if it were the only stable country around.
So, to be Devil's advocate, is Switzerland a well performing country when considered critically or do they get a lot of money that in practical terms is or was historically generated in other geographic areas?
Conversely, if you don't have any stable countries at all, and you're left only with an option like South Africa, then there are countless examples of companies that simply could not survive. By the way, South Africa's taxes are getting quite high and there is absolutely no correlation between tax rates and service delivery. My personal opinion is somewhat more focused on practical terms. My first question about a country is not about taxes, but about the poverty line and buying power; and then about environmental issues. South African's don't have much hope for governments making any kind of sensible decisions.
Wealth taxes are one solution. But in my opinion the only way to get extremely wealthy is to own a company that goes public. Personally I'm starting to think that when a company goes public there should be limits on what percentage of that company an individual can hold. Bezos being able to control 11.1% of Amazon given it's size seems a little ridiculous. The entire point of the stock market or "going public" was to allow public ownership and benefit of these massive behemouths (whether they should even grow that large in the first place is another discussion).
But when one person owns such a large percentage it really tips the scales.
I don't know how you'd solve this. Forced pay out to the owners when a stock goes public? There are probably negatives I am not thinking of. But it just seems like public markets let companies grow to levels so large that having an individual have such a large share doesn't make sense anymore.
There are plenty of companies that are private that have large ownership shares. The point of going public is to raise capital buy relinquishing some ownership. Owners don't want to give their shares unless they have to. If there were mandates to sell out of a company that you started and at a stage before you realized the gains on the capital you raised, it would incentivize companies to stay private and find their funding through private channels.
I agree with what you are saying. But by relinquishing ownership they are gaining the ability to receive far more capital than they would without the public market from what I understand. If this is reinvested in the business it allows said company to grow to levels that would not be possible as a privately owned company. Even the largest privately owned company, Cargill, is making interesting restructuring moves that point to it possibly going public.
I'm actually fine with companies staying private because I fundamentally believe this seriously restricts their growth. I do not think a company like Amazon, Facebook, Microsoft, or Google (20% of the S&P 500) would be able to reach the size they did without access to going public.
Of course I fully admit I could be wrong and would love to hear interesting arguments why.
I think the growth part can be the case in some instances, but not all. I don't think it's a fundamental restriction, but maybe more common in the private world.
The voting rights don't necessarily come with every share, nor are they evenly distributed. So you could raise capital through non-voting shares and retain the ownership.
Another thing to point out is that the size of the company based on the market cap and share of S&P500 doesn't really have an influence on the capital they raised by issuing shares. You have companies that have 100s of billion in market cap that only raised one or two billion through stock offerings. Private companies are also able to raise that sort of money too, like SpaceX recently did. With this in mind, how does staying private restrict growth?
Even if you required a buyout of the majority or minority (10%+) owners, you still wouldn't solve the problem. In fact, you could create a bigger funding issue because you aren't using the capital raised for expanding the business but for paying out. For example, you might want to raise $100M, but if the buyout requires the owners to sell a substantial postion, then you might need to raise $400M.
I don't necessarily disagree with what you said. This is because I don't know what you're arguing for.
Wealth taxes are one solution for what? For the anger people feel when they realize billionaires exist, absolutely. To improve the lot of the very poor, maybe (but an argument needs to be made here).
These discussions assume too much about the end goal of society.
Sorry if my point was unclear. I'm arguing that not only does the stock market allow companies to grow too large (stifling innovation and competition), but also allowing large ownership to become too wealthy at the expense of society in general.
If a company goes public I think there should be some consequences to that since it allows for this insane growth. Such as a more even diversification of ownership among the general public (aka investors on the public stock market). This spreads the wealth so to speak in a much more straightforward fashion than taxing the rich which leads to all the money flowing into the government.
Someone not replying to you isn’t an argument when an answer is trivially found. That too me ten seconds to find. (Finding the report would take longer but should be doable)
No offense, but I personally hate it when someone online mentions the existence of scientific research supporting their position, and then doesn't post a link to said research.
I'm personally interested in reading the papers you mentioned, could I get the link(s)?
@thomasdullien Re: "Other features of the tax system more than offset the 0.3% wealth tax.". Yes, but the problem is the other countries contemplating implementing a wealth tax want to have their cake and eat it. They want to implement a wealth tax whilst not making any tweaks elsewhere. All take and no give does not make for an attractive environment, especially in this globalised world where resettlement of people and businesses elsewhere is not as difficult or time consuming as it might have once been.
There should be some ROI for the individual paying the wealth tax. How good is their infrastructure? how well do they handle social problems like homelessness?
Though the parts of Switzerland where the billionaire class settles have lower wealth taxes - they don't have their main residence in Geneva or Basel, but in canton Zug, ore even Obwalden/Nidwalden where the maximum wealth tax rate is 0.13% (and capital gains taxes are laughably low too).
The top wealth tax rate is definitely higher than 0.3% in Switzerland. In Zurich it's up to 0.7%.
There is no capital gains tax for private long-term investments in Switzerland (with the exception of real estate). However, dividends are normally taxed the same as income from employment.
Here in India Switzerland is mainly famous for their bank accounts where all the corrupt politicians store their ill gained wealth. Everyone here knows the phrase "swiss bank".
2) The Swiss wealth tax is only charged on Swiss tax residents, so corrupt politicians who stash their money there won't be paying it unless they are Swiss resident (which is pretty unlikely).
I'd also like to point out that we already have a wealth tax for everyone who would otherwise put their income taxes into savings. The lower the savings rate, the higher the effective wealth tax rate on the middle class.
Assuming an absurdly high 25% savings rate on your pre-tax income and a 25% tax rate on that income, boom, there's your 50% wealth tax. So the 45% wealth loss over 60 years in PG's toy example that ignores asset growth sounds totally fair to me in this light.
And with this "absurd" wealth tax on the middle class, why do we still have educated people from all over the world pounding at the door to get into the US? I would posit that it's for the same reasons that a wealth tax wouldn't suppress startups in this country.
On the other hand, the wealth tax is not the same across the country and definitely there is evidence of wealthy people choosing their residence accordingly.
If you reside (183 days per year is the rule of thumb) somewhere they’ll usually want to tax you. That may be an issue even within a country. Swiss cantons and US states often go to court regarding where some particular person should pay taxes.
Which is a good reason to only tax natural resource wealth, rather than all assets. You can't move a private beach or a n oil reserve from one country to another. It also is a fairer way to tax, since natural resources are not wealth created.
>Switzerland has a wealth tax (of up to 0.3%), and there is zero evidence that this has any deterrent effect on wealthy people settling in Switzerland
The model in PG's post appears to predict around a 12% "lifetime" (60-year) rate from an 0.3% wealth tax and thus suggests (at least to me) that this would be at most a minor concern for most wealthy people. So this does not seem like contrary evidence.
>there is zero evidence that this has any deterrent effect on wealthy people settling in Switzerland or startups being created in Switzerland
Got a peer-reviewed citation that there is zero evidence? Or is that your opinion?
Here's some evidence on Swiss rich mobility [1]: ".. tax records of two cantons with quasi-randomly assigned differential tax reforms suggest that 24% of the effect arise from taxpayer mobility .." [4]
Taxpayer mobility.... means rich people moving for tax reasons, correct?
Many countries had a wealth tax; almost all of them dropped it because it did cause capital flight and didn't generate much revenue compared to the costs. Switzerland was late to that party, and will likely drop theirs for the same reasons.
Here's but one paper on the actual effects of the Switzerland wealth tax:
[1] "We estimate that a 0.1 percentage-point rise in wealth
taxation lowers reported wealth by 3.5% in aggregate. Expressed relative to taxable capital income flows, this implies a net-of-tax elasticity of roughly 1.2, which is large compared to the elasticities typically estimated in the income literature. The elasticity of tax revenues with respect to tax rates is only -0.2"
So you see it's already pushing wealth out of the tax base.
As to where wealthy people settle, look for the papers on wealthy moving between Swiss cantons to get the best tax advantage (the tax rates are by canton). So there is absolutely evidence of rich moving to take better tax advantage.
>Wealth taxes and their effect have been studied quite a bit in economics literature, and there are various peer-reviewed papers that attempt to measure the effects, but the Silicon Valley crowd is strangely avoidant of examining evidence or explaining their opposition with real-world data
Yes, there is ample economic evidence. It's odd that those pushing for one in the US ignore the past case evidence.
For example, [2] shows that a wealth tax does lower entrepreneurship, in [3] Stiglitz shows that a wealth tax does have a negative effect on investment and increased risk-aversion.....
Google scholar has lots of papers on what happened to countries that implemented such taxes, and why those taxes got dropped.
It's honestly embarrassing that PG would even post this. The post strikes me as particularly lazy and dismissive because it doesn't engage with any of the arguments for a wealth tax or the motivations behind one. As other comments have pointed out, the example is not even close to a good "model" of a real-world wealth tax. It's a straw man. I would expect an overconfident high school student who just finished The Fountainhead to make this kind argument but not a successful and supposedly smart venture capitalist.
I've seen this pattern from PG and other people in tech over and over. They assume their expertise in one domain translates into other fields in which they have no special knowledge. Underlying a post like this is the arrogant assumption that nobody smart has ever thought of calculating .99^60, and that PG knows what's best.
“ and there is zero evidence that this has any deterrent effect on wealthy people settling in Switzerland or startups being created in Switzerland.”
- I can’t name any startup out of Switzerland, but can name at least one for pretty much any european country.
I'm highly skeptical of the claim that such tax would discourage startup founders.
Wealth tax proposals I've seen don't kick in until $50 million or $100 million. This means that there is a floor on how "poor" the government can make you via a wealth tax.
This has two implications:
1. Most "successful" startup founders don't break that threshold of personal wealth.
2. For most startup founders, the startup is the only way to get to $50 million. The practical lifestyle difference between $50 million and $1 million is a lot larger than the difference between $50 million and the unicorn-founder $ billion.
Furthermore, as noted by glutamate: money earns money. A conservative drawdown of 3% pay the most commonly proposed wealth tax while still leaving you wealthier at the end of the year.
Exactly — I've always thought that what drives multi-millionaires and billionaires isn't really the monetary value of the extra money that they make. To the extent they care about money at all anymore, surely it's only as a relative measure of success?
I can't see many people that have already accrued personal wealth of $50M but choose to keep working suddenly being turned off because of a wealth tax.
> I can't see many people that have already accrued personal wealth of $50M but choose to keep working suddenly being turned off because of a wealth tax.
That's not the argument. If you accrue a wealth of $50M because you own half of your $100M company (or 100% of your $50M company), then a wealth tax will — over time — force you to give up ownership in your own company.
An income tax or a capital gains tax on the other hand, has the effect that you describe: if you already have $50M, then any tax on more money than could possibly have close to 0 negative impact on productivity.
> If you accrue a wealth of $50M because you own half of your $100M company (or 100% of your $50M company), then a wealth tax will — over time — force you to give up ownership in your own company over time.
Why? There's a floor that below $50M you don't need to pay a wealth tax. In a worst case scenario where your entire wealth is tied up in stocks of a single company you own and you have 0 cash to pay your wealth tax, your ownership gradually approaches $50M.
They're are very few people who end up controlling 50+% of a $50M+ company at 20 and keep their 50+% stake for the 60 years pg references. Anyone who did that didn't take VC money.
Even when they do still control the company over the long run, assuming it becomes a public company, they will be selling stock on a regular basis to cover regular expenses.
IIRC Bezos sells over $1B in Amazon stock per year to fund other things, but there is no outcry about how un-american it is that he has to "sell off his stake in his own company" to pay for his hobbies/lifestyle.
> IIRC Bezos sells over $1B in Amazon stock per year to fund other things, but there is no outcry about how un-american it is that he has to "sell off his stake in his own company" to pay for his hobbies/lifestyle.
Sure, but that's voluntary. It's fine for me to sell my house if I have other plans. It's less fine for me to be forced to sell my own house even if I want to continue to own it / live in it.
Property tax is really funny in the context of this conversation. You are paying a percentage of the _value of the house_, which you (have most likely) taken a loan to pay for.
A given average person in the US (excluding high earners) will likely be paying a property tax rate based on a value that is _actually higher than their net worth_, which makes property-tax-as-a-wealth-tax for average American homeowners actually greater than the 1.69% average property tax rate.
Imagine if this was applied as a "wealth tax" on a brokerage account, but considered that you could borrow 5x your balance on margin, and then were taxed on your margin holdings.
The scale of property value and wealth value isn't remotely comparable. For the most part, property values are pretty low, and hence the tax that you might pay on property is also fairly low. The US State with the highest property tax is New Jersey (2.47%), and the median home value is about $330,000. The annual tax on the median home there is around $8,100 — definitely steep, but still well within reach for most families, especially those that are fortunate enough to own homes.
In contrast, if you were to take an individual worth $10 billion, whose entire net worth is derived from the ownership of their stock, and were to tax them 2% of their wealth annually, they would have to somehow come up with $200 million every year to pay the tax. This is a different proposition altogether, since none of these billionaires have that much money sitting around in cash (or any other asset for that matter). They're just wealthy on paper. The only way to pay that tax would be to either liquidate their holdings, or for their corporations to pay enough in dividends to cover the tax, which is an odd (IMO bad) incentive to create for corporations in general. Even the owner of a $300 million business who owns (say) 30% of their company at a $100 million net worth would have to come up with $2 million in cash every year. Very few CEOs have that kind of cash coming in on a yearly basis, and you're essentially just creating an incentive for corporations to inflate the compensation to their founder CEOs just so that they can maintain ownership in their own company.
A big reason for this disparity between the top 1% value of corporation vs the top 1% value of property is that, unlike land (which is fixed), corporate wealth is NOT zero-sum, it's created. This is a very important distinction, because a lot of the rhetoric around wealth is sometimes based around the idea that there's some fixed amount of wealth in the world, and the rich have just been stealing all of it — no the aggregate wealth has been created at historic levels.
Also Federal property taxes are unconstitutional, which is why it's applied entirely at the state / local level.
>In contrast, if you were to take an individual worth $10 billion, whose entire net worth is derived from the ownership of their stock, and were to tax them 2% of their wealth annually, they would have to somehow come up with $200 million every year to pay the tax
If your $10 billion dollar asset isn't returning you much more than 2% per year, it has a terrible ROI, and you need to divest.
>corporate wealth is NOT zero-sum, it's created.
Not absolutely, but the power represented by the percentage of the world's wealth one controls is finite. At the limit if I own 99% of a countries current wealth, I think it's perfectly reasonable for the rest of the citizens of that country to decide that I have amassed too much power and to rectify that by taxation and redistribution.
For most people they start a company to make money, so ultimately it's about the ROI. They think they'll make more by controlling the company than the alternative
When we are talking mutli billionaires like Bezos who may be driven by more grandiose incentives like amassing power, I think it's perfectly reasonable for the rest of us to effectively remove some of their control.
Even the most aggressive wealth tax that is proposed is for a tax on wealth of over $50 million. So the founder of businesses valued up to around $100 million dollars would reasonably be able to maintain control without paying any wealth tax.
So I'm perfectly OK saying you can't single-handedly control a business larger than $100 million without paying the rest of society extra compensation for maintaining that kind of power.
Seems perfectly fair to me. Power is finite in the same way land is. If controlling a company is valuable to you in some other way other than just amassing power, say you are really behind the mission of going to space, you can reorganize into a non profit.
People with $50M won't be selling their primary houses to cover a wealth tax. If they're selling their vacant 3rd vacation homes, then that's all part of the idea to gradually reduce the amount of assets that the extremely wealthy are able to hold. The idea is that wealth concentration actually reduces competition.
Of course it's a slippery slope, but most things in life could be categorized that way.
I think there's a fundamental misunderstanding of where this wealth is sitting. For most of the super-rich, the wealth isn't sitting in diverse assets that can simply be liquidated (Elon Musk doesn't have a 3rd home).
If you were to impose a wealth tax on Elon Musk, he would have to gradually give up his ownership in SpaceX and Tesla.
> The idea is that wealth concentration actually reduces competition.
But that's just not been the case. Wealth is not zero-sum. Just because Bezos is a 100 billionaire on paper, doesn't mean that I can't go and raise venture capital for my startup and succeed.
> he would have to gradually give up his ownership in SpaceX and Tesla.
That's sort of the point. Unless he's creating additional value as a CEO such that the board keeps awarding him stock or money so he can maintain his holdings, he's going to lose his ownership stake. Sounds like a tax like this would motivate him to work more not less.
> Sounds like a tax like this would motivate him to work more not less.
You frame this as though this is somehow beneficial to shareholders, but if that's the case, they can work out this arrangement themselves.
Also the idea that SpaceX or Tesla would continue to be valued as highly as they are if he continuously relinquishes his ownership stake is also dubious.
> You frame this as though this is somehow beneficial to shareholders, but if that's the case, they can work out this arrangement themselves.
I was showing how a wealth tax need not necessarily discourage endeavor and industry, as is commonly alleged.
> Also the idea that SpaceX or Tesla would continue to be valued as highly as they are if he continuously relinquishes his ownership stake is also dubious.
Why? I thought they were valued highly because of Musk's leadership, not ownership. Is that not the case? Even without his ownership stake, he can continue to be the CEO as long as the companies do well.
> I thought they were valued highly because of Musk's leadership, not ownership. Is that not the case? Even without his ownership stake, he can continue to be the CEO as long as the companies do well.
That's not how publicly traded companies work. If a sufficiently motivated activist investor accumulates a large enough ownership, they can decide to fire Elon Musk — and there are enough people that would like to see this happen on account of his crazy tweets.
That's the crux of the argument, that no matter how badly activists may want to remove Elon Musk as CEO, he's safe as long as he maintains his stake. A forced divestiture of that threatens his ability to maintain his leadership in those companies, and that's arguably not in the best interests of many existing shareholders today.
Again, at the risk of explaining the basics of how publicly traded companies work...activist investors may disagree with other shareholders as to whether “Musk is a value add”. It’s not some objective truth, it entirely depends on what the majority shareholder thinks. Today, that happens to be Musk himself. Under a wealth tax, that’s no longer true.
I'm aware of how publicly traded companies work. Activist investors don't take a majority stake, just one large enough to get a board seat or two (5% is considered the minimum in the US) and make some noise. Shareholders vote on whether to add newly-nominated board members, so if they think an activist investor intending to fire the CEO is not acting in their interest, they can vote against adding said investor to the board.
If an "activist" investor actually bought 51% of the company (aka an "acquisition" or "takeover"), they would also own 51% of the downside of any CEO changes. At that point they have every right to decide what's in the company's interest. The company's shareholders can also vote on whether to accept the acquisition offer, which means dissenters who lose the vote can sell and get out if they disagree with the new owner's direction.
For that matter, Elon Musk only owns 21% of Tesla right now[1], so if 51% of the board think he's a net-negative, he could go immediately. They clearly do not.
> Activist investors don't take a majority stake, just one large enough to get a board seat or two (5% is considered the minimum in the US) and make some noise.
Per-investor, yes — but multiple institutional investors can get involved with little intervention unless the founder holds at least a plurality. This is exactly why we're starting to see companies like Facebook and Uber issue class A shares. Travis Kalanick was, in theory, untouchable — he just didn't have the energy in him to fight the board after a personal tragedy.
> For that matter, Elon Musk only owns 21% of Tesla right now[1], so if 51% of the board think he's a net-negative, he could go immediately. They clearly do not.
Yes, and if he is forced to liquidate any more of his holding, he ceases to be a plurality. That's the point.
And my point is his "plurality" means fuck-all if a majority of shareholders or board members want a different CEO. Musk may have gotten the job originally because of his status as founder. He keeps his job because in the view of the shareholders and board he's doing a good job. And they could even choose to award him additional stock so he maintains his %.
Now yes, because he owns 21%, there are fewer other shareholder votes to oust him than there would be if he owned 10% (still a plurality). But they could do so in theory.
Also, I'll be upfront. I don't think a wealth tax is a good idea because it'll inevitably lead to people dodging taxes by putting the money into stuff like artwork or IP. And to counter that, the government will need to know every single item of value every person owns and have to create a large, intrusive bureaucracy to track all that. It sounds horrific.
But I don't think a wealth tax discourages entrepreneurship or working hard, and PG's blog post is disingenuous in saying so.
But there is external effects. Wealth translates into political power, how about people ending up disenfranchised by the excessive wealth of a small part of the people? They did not voluntarily give up their right to political participation.
Consider that the representative from Bezos' own district in Washington is a socialist.
At the end of the day, the greatest check on wealth's effect on political power is the fact that legislators can only win office if they can win a democratic election.
At the end of the day, the greatest check on wealth's effect on political power is the fact that legislators can only win office if they can win a democratic election.
It doesn't work like that. You donate to both sides of the aisle so you always have someone in your pockets. The famous cartoon from John Herzfeld about the "Millions behind Hitler" (this one: https://en.wikipedia.org/wiki/John_Heartfield#/media/File:He...) is bullshit. German industrialists did give substantial support to Hitler, but not for ideological reason, they'd have given to anyone in power. The cash did amplify Hitler's ability to implement his ideology, though, and the non-donors didn't choose that.
A profitable company can pay dividends which would easily cover a wealth tax. Owning 50M worth of stock in an unprofitable company with zero other income sources or investments is a significant sign you should diversify anyway.
A startup founder can end up owning 50M worth of stock in an unprofitable company. What happens then if the company is worth 1M by the time it's time to pay the tax?
In my country, there are people who's had to declare personal bankruptcy from this situation.
That’s always going to be country specific. Generally, anyone that’s failed to diversify their investment so a 98% drop in some asset doesn’t result in them losing 90+% of their fortune has already failed.
Also, be cautious about how early investments may artificially inflate the value of the company. Convertible debt is one way around that issue.
Tax avoidance has become an art form. Companies have minimized dividends so wealth can compound without being taxed, but that has negative economic effects as they accumulate effectively pointless cash hordes. Further, several things like inheritance let you change the tax basis. Selling stock and donating the proceeds is worse for you than donating the stock directly etc.
In other words tax income and the game is to hide income, tax wealth and you increase economic efficiency. Wealth taxes only erode wealth if you fail to make positive returns.
It's probably personally advantageous to diversify in that situation. But if you get recruited by a $100m startup that's not yet profitable, and you hear that the founder sold half her stock last year, is there any chance you're working there?
I wonder if that is a more natural (and long-term) structure though.
The current tech formula seems to be "build the biggest moat possible - worry about profitability later"
While that is driving some of the fastest growth in history, one has to wonder what the landscape will look like once these moats are built. Will these companies have full power to price however they please?
If a company is incentivized to be profitable as they grow, would it lead to a more stable future where we have multiple competitors in each industry?
no, that's an intentional misdirection by pg, that you'd lose control of your company over time because you'd have to sell shares to pay the tax. what would more likely happen is that loan products and other financial instruments and techniques would pop up so you could pay the taxes in a whole host of ways without actually losing the underlying shares that are used as collateral. it already happens in a more limited, and sometimes private, context today.
That's not an "intentional misdirection", it's undeniably true.
> what would more likely happen is that loan products and other financial instruments and techniques would pop up so you could pay the taxes in a whole host of ways without actually losing the underlying shares that are used as collateral.
In order to pay back a loan, you have to realize some gain somewhere. That money isn't free. Even to simply pay back the interest, you would have to liquidate some of your own stock (which is taxed). Eventually when the principal needs to be paid back, the only way to do it is to liquidate the equivalent value in your own company.
Your company can pay dividends and you can use that to pay the tax. It essentially becomes an operating tax on the company based not on its profit, but its value. What's interesting about that is it would work for companies like Amazon that intentionally engineer zero profits so as to avoid taxes.
> What's interesting about that is it would work for companies like Amazon that intentionally engineer zero profits so as to avoid taxes.
They "engineer" zero profits by re-investing their surplus back into R&D — a behavior explicitly encouraged by the government and the tax code. In 2010, Amazon had about 100,000 employees. Today they have almost 1 MILLION. That's what "reinvesting profits into R&D" looks like, in practice.
> Your company can pay dividends and you can use that to pay the tax.
You're essentially talking about adding a countering incentive away from investing in R&D, and toward paying shareholder dividends, which...why? There are way more intelligent and non-distortionary ways to raise funds for a government (eg increasing the capital gains tax).
There's nothing wrong with shareholder dividends, but to add an extra incentive to pay dividends is distortionary and doesn't make much economic sense. On the contrary, society appears to want to minimize shareholder dividends because that's money that's not going to worker salaries and R&D.
It also ignores the fact that if Amazon had been forced to pay dividends 10 years ago, the stock would be worth significantly less today on account of their inability to re-invest into R&D and enter new business lines and grow from 100,000 -> 1 million employees. Even if we aim to strictly maximize shareholder-value (to the extent that's even desirable), it's penny wise but pound foolish.
I'm not sold on the idea, merely answering the parent comment that paying the tax would require selling shares. That's not necessarily true.
There's a lot to be said for property taxes. Taxes on income and wealth are disincentives for things you wnt more of. Property tax is one of the least destructive of taxes.
I'm also of a mind that carbon and pollution taxes would be good as well, since the disincentive would be a plus in that case.
> There's a lot to be said for property taxes. Taxes on income and wealth are disincentives for things you wnt more of. Property tax is one of the least destructive of taxes.
Yeah but a wealth tax is not the same as a property tax, because unlike land, wealth is not zero-sum, it's created. In fact, the most economically efficient property tax is the Georgist Land Value Tax which typically deducts the appraised value of improvements before applying the tax, because we don't want to tax productive improvement of land.
Taxing wealth OTOH has the effect of taxing the productive creation of wealth. It's like an inverse Land Value Tax, where you allow one to deduct the value of the underlying land, but simply levy a tax on the appraised value of improvements, just because one might be improving the land "too much".
Also, property taxes are unconstitutional at the Federal level. This is why there is no such thing as a Federal property tax, today. If we wanted a Federal wealth tax, we would have to amend the Constitution.
I know a lot of HNWI and they all complain about tax burden regularly and never mention anything even resembling 'relative position'. IMO the relative status thing is a myth perpetuated by people with a political axe to grind. Most people who keep working past a high level of net worth just like working... don't forget there's a lot of moral value and personal inspiration in building a second or third company that 'changes the world'.
I'm shocked people think a wealth tax on startup founders is OK. Let's think of a scenario for instance:
ACME startup raises Series C @500M. Founder equity is worth 100M on paper. Founder needs to borrow money every year to pay 'wealth' tax. After 10 years of struggles, company sells for $100M, VCs get money back, founder makes no money. But now founder is millions in debt for past 'wealth' tax payments. Founders will be declaring bankruptcy in those cases. And interest rates for wealth tax loans will skyrocket as a result, making effective wealth tax rate much higher.
Problem is startup founder 'millionaires' and 'billionaires' are only that on paper. Any asset that is volatile (like startups) will become impossible to own long term even with a small wealth tax.
Won't startups just go public sooner? Or maybe private company valuations will become less ridiculous since the value of your shares would actually matter for something besides ego now? I do think that taxing paper wealth is a problem, but if you are creating billions of dollars in economic value, there is usually a solution (e.g. as part of raising that $500M, a portion of that goes towards paying wealth taxes). Anything that incentivizes people to do away with this trend of a decade plus before exiting sounds fine to me.
People want to exit but in most cases can't because the company is not doing well. Everyone who has tried fundraising with bad results knows it's super hard. Despite popular stories in the press, that's the fate of most startups.
Having a struggling company is super stressful, adding the government asking you to come up with money to pay personally, because you are 'wealthy' on a paper would take it to a different level.
This is ignoring the fact that wealth taxes don't effect you until you are extremely rich - even the most aggressive proposals don't start until you are at $32M-$50M in net worth - there are definitely some startups that are struggling while the founders have this much in equity, but the vast majority of struggling startups never hit the $100M+ valuation that would be required.
Not to be a dick, but I don't see why anyone thinks this is valid justification to block a wealth tax - maybe you could argue that the cap should be higher. Income inequality has gotten ridiculous and is only going to get worse as AI technologies mature. There needs to be a way to reallocate wealth from the super-rich to the 40% of Americans who would be unable to pay for a $400 emergency and I haven't heard a better proposal.
The point is that it creates direct and indirect obstacles to starting/investing/running/owning a company. Which is one of the big job/wealth creators of our society.
IMO you should do the opposite - remove all obstacles to start/invest/run a company and tax the outcome - or, even better, consumption. If you feel those taxes are too low, then raise them.
That is exactly what a wealth tax proposes to do since there is no other realistic way to impose a tax on a successful companies. Corporate taxes haven't worked very effectively. When someone sits on $1B+ in stock, there is no way other than a wealth tax to redistribute that wealth.
First of all, this has literally zero impact on the vast majority of entrepreneurs and small business owners who will most likely never hit $30M+ in net worth. And those are the real job and wealth creators.
Secondly, global corporations have the effect of taking wealth from the many and centralizing it into the hands of the few. And this will continue to get worse as AI advances. These corporations are not good for the long-term health of America and I don't think many Americans will care if it becomes a little bit hard to make $100M.
I would think it's valid to make that assumption given taxes must currently be paid in dollars and I don't know of any places that allow it to be paid in equity. I would also think out debt obligations to the world bank must be paid in currency.
This is a problem for startup employees, too, and should be solved in both cases by allowing you to defer the taxes on your paper gains until you can actually realize them (yeah, there would be issues here, but the issues are solvable).
It's like this in some European countries and the situation you describe with founders having to declare bankruptcy has happened some times. It doesn't make it impossible to own volatile assets, but it increases the risk.
Some places the rules have changed a bit to avoid some of these cases where people owe more tax that they can pay, but it can still happen.
> Wealth tax proposals I've seen don't kick in until $50 million or $100 million. This means that there is a floor on how "poor" the government can make you via a wealth tax.
That’s just the starting point. Once people begin to figure out how to avoid it or have been tapped then the qualifier will be lowered to 40m. And then eventually 30m and do on until anyone above average is paying it. And then anyone above median.
The state will, as always, become reliant on it and find ways to expand it to wield more power and pay debts that were taken on to “collect/spend in advance” as they’ve done countless times.
This is why people that will likely never meet today’s threshold are against these schemes. These things always get a wider, and wider net until anyone just starting to get ahead is caught in it.
>The state will, as always, become reliant on it and find ways to expand it to wield more power and pay debts that were taken on to “collect/spend in advance” as they’ve done countless times.
This hasn't been true for the income tax [0], nor the capital gains tax [1], nor (at least in Silicon Valley) for real estate taxes[2], which are closest to a wealth tax. It's a reasonable thing to consider, but given the evidence we have, should not be a driving consideration.
Every tax payer pays at a minimum their time and stress to file the paperwork, many don't realize that best effort is probably good enough for them, those who are fortunate can spend $150 to a leech of a lying, scheming company to reduce that burden.
The notion that the time and stress involved with the paperwork is onerous enough to merit being considered payment seems tenuous to me. The gov't has been pushing (as hard as it can) free file services for all of the years that I've been doing taxes. Using those free file options, I--a standard W-2 worker who doesn't make much--complete my taxes in about 15 minutes these days. The companies that convince people to pay them to do that tiny amount for paperwork are also working to hide how ridiculously quick and stress-free it is for one of those 44% to do their taxes.
That's a bit of an over generalization. It gets more tedious for people with multiple jobs, investments, a business, etc. Not to mention, many places also require state and local tax paperwork. The companies that charge money, including TurboTax, lobby to keep the tax codes complex so they can keep charging people money.
I don't stress out over my taxes anymore, but just about everyone else I know does. Of say the 100 closes people you know, how many of them file on the last day, how many people ask for extensions, how many people give up and hire someone to do it for them? That alone should speak volumes.
That's because of corrupt American politicians and lobbying by Intuit, not something inherent to an income tax. Many countries have a simpler income tax process.
Google "free tax file". It's the top hit. I think it's also on your W2's your employer gives you. I'm not sure if it could be made easier, but open to suggestions.
Used to be hidden and had disclaimers that it couldn't be used if income was over 50k or something ridiculous, making it unusable in CA.
It's still about 1000x more complicated than filing in New Zealand, which is comparable to filing on the California site. Basically a 15 minute wizard on a web page.
Hourly employees pay it too and because it is a withholding tax, you pay for it even if you are below the standard deduction and don't file a tax return because it is automatically taken out of your paycheck by your employer when you get paid. Self employed people also have to pay both sides of it and they have to file if their income is above $400 a year so the only way your really getting out of it is if your employer is paying you under the table or you are self employed and made less than $400.
It still shows the point clearly enough, as 56% isn't the ultra rich. People who fear a wealth tax doing the same already have precedent.
Now, maybe if the wealth tax was combined with a significant reduction in income tax, say 0 tax for the first $100,000 a year people make, then people might be a bit more willing to support the notion. But just a new tax, with the promise it won't impact you? Can't blame people for lacking any trust.
It's ironic how now everyone is bringing out the slippery slope arguments, after years and years of tax cuts for the rich reduced social services and increasing wealth inequality, all based on the promise that cutting taxes for the rich would benefit the average person. Well that was a lie, after several decades of increasing efficiency and economic growth the middle class can look back at essentially at no increase in wealth and the only reason that household disposible income has somwhat increased is because now both adults in the family are working (+plus often high school and college kids are working large proportions as well).
If there was ever a slippery slope it was the slippery slope of cutting more and more taxes for the rich.
Well given those taxes are passed on to the middle class, and the fear is that a new tax will also be passed on to a middle class, I don't see any irony.
I even suggested that lowering taxes on the middle class and below while introducing a new tax on the rich would be the a method to prevent people from being concerned with the tax eventually impacting them. With all the 'tax the rich' rhetoric, why not include a 'and not the poor' as well?
I suppose everyone's definition of ultra-rich is different. There are many people who feel that earning $60k/year is unattainable in their lifetime. For them, the income tax rates (and proposed wealth tax rates) probably seem too low.
I agree that it's easy to tax people wealthier than you. When it might affect you, there's less support.
In the 50s through 70s, there was a much higher income tax on the upper income brackets: the tax was much more progressive. Ronald Reagan dramatically lowered the income taxes on the high income people and kicked off the dramatic increase in economic inequality that we've seen over the past 50 years. The GOP destroyed much of the promise of the American Dream in this case. Is this what you mean?
It was supposed to be a temporary tax to fund the Civil War, but like most/all taxes, the "temporary" became permanent. (1)
From Wikipedia - In 1913, the top tax rate was 7% on incomes above $500,000 (equivalent to $12.9 million in 2019 dollars) and a total of $28.3 million was collected.
I don't know what was promised, or by who, but the first federal income tax after passage of the 16th amendment applied to only the richest 3% of the population.
Only 3% of the nation had any income above $3K, and they only paid a 1% (!) tax on the income above that threshold. That's how it was sold to the public.
Compare that to the general income tax today, and who it applies to: the floor now includes ~60% of people with any income at all, and the lowest possible income tax rate is 10%, e.g. 10x higher.
And literally everyone pays income tax in the form of Social Security and Medicare. (For whatever reason, if an income tax is pre-allocated to particular government spending, it's no longer an "income tax" in some people's eyes. The tax effect is identical and you need the 16th Amendment to allow it, so IMO it should be lumped in with the other income taxes we pay.)
Others have already pointed this out, but you're ignoring Social Security and Medicare which are both income taxes, just pre-allocated to specific government spending programs. 100% of tax payers pay these income taxes, including the self-employed.
Your graphic only goes to 2009. Note that long-term capital gains moved up from ~15% to ~24% under Obama, and Biden has another plan to increase it[0].
Not that you're necessarily wrong, but I find it fascinating that the state of social trust is so low in the united states that the most powerful and resonant arguments against potential laws are even if the law is good, a future law in the same vein might go too far and thus even the good law should be shot down.
You can see this on a variety of topics. Gun control legislation, immigration reform, healthcare reform, etc. Reasonable laws are perpetually overshadowed by the boogeyman on the horizon.
It depends on what one sees as reasonable (also see the difference between reasonable and rational). Take the gun control that you referenced as an example. It's likely that there is a vast difference in knowledge of the technical as well as legal aspects of firearms between gun owners and non-gun owners. So the law could be rational, but the two groups could differ on the reasonablenes. I see the slippery slope argument less today than I did in years past.
In my opinion, most proposals by either side on a variety of topics are not good options. They have become hard-line battle cries for their respective party in order to motivate hardcore supporters to come out to vote, particularly in the primaries in which the radicals comprise a larger share than in general elections.
What you find "fascinating" is a culture that is over 200yr old. What you are complaining about has been a constant part of our culture since the 1770s and ingrained in Federal law in 1789.
> Reasonable laws are perpetually overshadowed by the boogeyman on the horizon.
Because that’s exactly what’s happened in the past. We don’t just get ONE piece of gun legislation and that’s the end of it, every so many years we keep on getting pushes for more. For immigration reform, we didn’t just get ONE amnesty of illegal immigrants and then strict immigration control which was promised back during the Reagan administration, we got complete acceptance of continued illegal immigration and renewed calls for amnesty.
The smart money is always on not trusting the government.
It's like when we deign policy we never have KPI's, OKR's, or any other metrics associated with it to define what we agree what success is. Everything is an ideological battle to claim a new trench and push the opposition back a trench.
I think we'd get along better if we first proposed and found agreement upon which metrics we want to achieve (gun deaths at x%, or a decline of x% by such and such date, etc) and then implement policy that get there. And then correct as needed.
There was a time when universities had a very disproportionate amount of males VS females. So we passed policy that was designed to make a university degree more achievable for females. And it has worked, which is great! However, we never really implemented an end condition to this policy. And the entrenched apparatus that makes it's living or achieves ideological goals continue the policy, as-is, in a never ending battle.
If we would have said "we want 50% of college students to be female by x-date" (or better, we want to maintain a balance of 50/50) then we could have either stopped the policies that were used to correct the initial condition or modify them to hold it steady at 50%. But we haven't and now 56% are females and it's growing and any suggestion that we either need to hold off on these policies now that we achieved the goal or even correct it to get more males into universities is immediately labeled sexist, etc.
I think it's easier to get a diverse group of people to work towards a common goal when you define the end condition (put a man on the moon) rather than using vague descriptions of what would be a better world. At the very least it stops skeptics from just flat out saying "no, as it will never end".
States like the US can just spend in advance without taxing, there’s no necessary relation. We’re not on the gold standard anymore. The point of a tax isn’t to pay for things, it’s to attempt to control inflation and the money supply, and to combat inequality. The idea that a state (read nation, for US states things are different) would become reliant on such a tax to pay for things doesn’t hold water. It may become ‘reliant’ on it as a means to reduce inequality but that’s another matter.
The avoidance issue is a big one and the mechanism of making sure people pay is at least as important as where one sets the floor. Cross border capital flows can be pernicious.
Piketty gets into how different rates of capital accumulation create huge rifts between people who own appreciating assets like land and equities and people who don’t who primarily earn wages. The idea behind the wealth tax is to try and narrow the rift.
>The point of a tax isn’t to pay for things, it’s to attempt to control inflation and the money supply, and to combat inequality.
A significant proportion of Americans would disagree with you that it's the government's business to "combat inequality". Most people agree with taxes to help the needy and fund infrastructure, but it's a harder sell that the government should punish people just for being too successful.
>Piketty gets into how different rates of capital accumulation create huge rifts between people who own appreciating assets like land and equities and people who don’t who primarily earn wages. The idea behind the wealth tax is to try and narrow the rift.
"One strand of critique faults Piketty for placing inequality at the center of analysis without any reflection on why it matters.
According to Financial Times columnist Martin Wolf, he merely assumes that inequality matters, but never explains why. He only demonstrates that it exists and how it worsens.[36] Or as his colleague Clive Crook put it: "Aside from its other flaws, Capital in the 21st Century invites readers to believe not just that inequality is important, but that nothing else matters. This book wants you to worry about low growth in the coming decades not because that would mean a slower rise in living standards, but because it might ... worsen inequality."[35] "
Inequality by itself is not bad, in fact if you have an extreme society with no inequality you've essentially produced perfect socialism and a society where everyone is equally poor and there is no innovation, no difference in outcomes.
Extreme inequality tends to destabilize society. At some point all the multitude of have nots get sick of their lot and rise up and take from the haves by force.
So I would say inequality is good, in manageable doses. The question is are we headed to a managable place?
I don't understand why you think the slippery slope argument works for the rate and threshold, but not for the existence.
The problem with wealth taxes is not slippery slope, but rather that wealth can be obfuscated and moved around much more easily. Transactions are easy to tax; wealth worth taxing is about what you control, rather than stuff you have.
There's good reasons the most successful wealth taxes are land taxes. You can't easily move land.
What does "ended at 6%" mean here? As far as I can tell, all income earners in the US pay at least 15.3% income tax in the form of Social Security and Medicare taxes.
This is exactly what happened with the US federal income tax. It was originally only a small amount, and only on the wealthy. Now it's gradually been expanded to everyone.
> It was originally only a small amount, and only on the wealthy.
This is a bit misleading. The first income tax of 1861 was on incomes over $800, which inflation-adjusted is about $23000. The next year the threshold was lowered to $600 or about $17,000 in today's dollars. Currently the standard deduction is $12,200. Certainly some creep, but it doesn't quite fit the described jump from only the wealthy to everyone, except perhaps to the degree that nearly everyone in the US today is wealthy compared to the average citizen in the 1860s.
Rates have certainly gone up since then (originally a 3% rate), but top rates today are quite low by modern standards - they were higher than today from the 1930s through the late 80s. Typical average rates have been on a slow downward trend since WWII.
I think you are also being a bit misleading, you do mention how much richer people are today but this really can't be overstated. In 1861, only 3% of the population earned more than $800 per year. So the original income tax only applied to the very rich.
Slippery slope is a logical fallacy [0], which you likely already knew. Of course, that doesn't make your argument wrong, just fallible.
I think it's arguable that taxes only ever go up. Income taxes on the rich used to be near 90% in the top bracket, so it's not a one way ratchet. That said, I agree government tends to expand and needs to fund that growth somehow. But I think it's much more likely that need manifests as an increase in the wealth tax rate rather than a lowering of the wealth threshold. The billionaires have so much more money than everyone else (and so much more than they need) that it will be much more politically popular to raise the wealth tax on them than it would to expand the pool. Not to mention, there are more of us.
I'm not advocating a wealth tax, and I think it's problematic for other reasons, but I don't think the slippery slope argument is much more than fearmongering in this case.
Ahh the classic HN logician that spots someone mentioning slippery slopes and reflexively calls it a logical fallacy.
The history of taxes in the US (and especially California--remember the "temporary" 13.3% highest marginal rate?) has more slippery slopes than 6 flags fiesta Texas. It's not fear mongering, its a very solid argument against new taxes.
It was not reflexive. Perhaps you misread my post.
My reading of the way the slope slips is that rates go up, not that the minimum threshold is lowered. This reflects historical tax law changes, political sensibilities, and basic economic theory. This was all in my original post as well, so I'm not sure it'll land this time, but I'm a bit offended that you have mischaracterized my post as reflexive, implying thoughtlessness, when I believe it was anything but.
My opinion restated, billionaires have more to fear from this than any of the rest of us do.
I have seen many instances of "slippery slope" fallacies actually happening. While I don't want to name specific examples, due to it getting into unnecessary politics, I am able to recall at least 3 BIG instances of it happening.
A logical fallacy doesn't mean the claim is wrong, just that it doesn't logically follow. I think it's still worth pointing out when the claim is presented as fact.
> Slippery slope is a logical fallacy [0], which you likely already knew.
Falsely asserting a slippery slope—that A must lead to B which must lead to C when none of these things are inevitable—is a logical fallacy. It is not a fallacy to point out that the grass is wet and the hill is steep and suggest that perhaps we should put up a sign advising people to stay away from the edge. The argument is simply that this is a dangerous situation which we would do best to avoid, not that anyone who goes near the edge will inevitably lose their footing.
> The billionaires have so much more money than everyone else …
Do they really? It seems to me that what they mainly have is not money but rather illiquid assets, i.e. capital. That includes stocks, which can be sold—at the expense of giving up control of the company—but also stock options which can't be exercised immediately and tons of actual capital equipment, inventory, buildings, and so forth which can't readily be put to other use.
> Income taxes on the rich used to be near 90% in the top bracket, so it's not a one way ratchet.
Keep in mind that they never actually collected anywhere near that much. Those 90% brackets were purely theoretical.
I've responded to the logical nature of the fallacy in other comments, so won't rehash. I thought I was clear in the original post, but apparently not.
There are many millionaires for whom what you describe is a problem. I assure you that billionaires do not have a problem with liquidity unless they want to.
Sure, nearly every opinion or argument is fallible. I'm not explicitly trying to create a slippery slope or fear monger. A slippery slope tends to lead to unintended consequences. I don't think expanding the net is unintended - I believe it's the deliberate goal. Our history suggests this w/r/t income taxes, etc.
I don't think the net will be widened, I think when more tax funds are needed, the gauge of the net will be adjusted to catch more fish from the same people. i.e. They'll increase the rate from 3% to 5%, not expose lower wealth individuals to the new tax.
This is not what actually happened in several European countries that had wealth taxes. In fact, they found the taxes ineffective at collecting revenue, and abandoned them. This isn't exactly a recommendation of wealth taxes (which I'm skeptical of), however it is evidence that your assumptions about what would happen are not inevitable.
But that doesn't answer the complaint. The original idea of income tax was also that only the wealthy would pay, not the middle class. Yet here we are.
Tax rates for the wealthy were cut? That's great, for them. Were tax rates cut for the middle class? Did any of the lower class no longer have to pay income tax? That's what would be a response to nemo44x. (What would be a response to me would be for there to be no income tax for anyone in the lower 90% of income. That would be back to the original intent, and would reverse all the years of scope creep.)
Yes, here were are because it turns out that modern societies with their amenities depend on taxation. What's the problem with that? If it were such a humongous deal you'd have more people voting for tax cuts.
OK, but it may well turn out that future versions of "modern society" depend on the revenue from wealth taxation, not just for those with wealth above $50 million, but with wealth above, say, $50 thousand.
Remember what the argument in the local thread is. nemo44x stated that "these things" (things like the wealth tax) always expand to cover more people than they did at the beginning. rurp said that the income tax cuts a couple of years ago disproved that. I said that the expanding scope of income tax over the last 107 years supported nemo44x, not rurp.
Your arguing that that's OK, because we want the society that results. That may be. But that's a different claim than "this won't expand to hit everybody".
The only promise the government will keep is what's in the Constitution. I find it unreasonable that a government should keep promises from times when I wasn't even alive.
I wish you had made this as a top level comment. This should be at the top, not the pro wealth tax comment. Like you said, the net always gets wider and wider.
You can't do that on HN, regardless of how wrong someone else is or you feel they are. Perhaps you don't owe "dude" better, but you owe this community better if you're posting here.
I'm dismayed to see that you've been making a habit of posting like this, as well as unsubstantive comments generally. If you keep doing that we're going to have to ban you, so would you please review https://news.ycombinator.com/newsguidelines.html and take the spirit of this site more to heart?
> money earns money. A conservative drawdown of 3% pay the most commonly proposed wealth tax while still leaving you wealthier at the end of the year.
That is only true if your wealth is in diversified ETFs or funds. That is not where most of the wealth of super-rich founders is. If 90+% of your wealth is in a single company (I.e. the one you founded), then there's no guarantee that this wealth will necessarily appreciate on its own (esp relative to inflation).
no, in a similar vein to my other comment, any founder who's reached millions in personal gain from their single, undiversified startup, will begin to employ financial strategies to diversify some of that gain into other instruments to reduce risk. there's a whole industry eager to help the rich and the getting rich do so.
> any founder who's reached millions in personal gain from their single, undiversified startup, will begin to employ financial strategies to diversify some of that gain into other instruments to reduce risk
This is literally not true for the wealthiest founders. The vast majority of billionaires (and even high $100M) only enjoy that net worth because the vast majority of their wealth is in a single stock: their own company. Even if 10% of their wealth is in diversified portfolios, that isn't nearly enough to offset the tax required to pay off the remaining 90% of their wealth.
Second of all, even for those that have decided that they no longer care about maintaining a majority of their net worth in their own company, they have to liquidate their existing holdings in order to buy into diversified portfolios, at which point the wealth is taxed. And then any appreciation within their new portfolio is ultimately taxed when any capital gains are realized.
In the US, we do not tax wealth, we tax income, dividends, and capital gains, because wealth is not money.
And yet these founders with paper wealth regularly find money for the things they want or need. Because wealth can be easily turned into money. The idea that billionaires can find money for multiple million dollar homes, but it's impossible for them to pay taxes is ridiculous.
Yes, and when they do turn their wealth into money for whatever needs arise, they pay taxes on it. The tax rate they pay on it (20% federally, up to 37% depending on the state) is roughly equivalent to paying a compounding wealth tax after N number of years.
> The idea that billionaires can find money for multiple million dollar homes, but it's impossible for them to pay taxes is ridiculous.
It's not ridiculous at all, it's literally in the math. It's one thing to occasionally voluntarily liquidate tiny fractions of your holdings for one-off purchases (like a home or a yacht or to make an annual living), and another thing entirely to impose a yearly "cost to maintain ownership of your company" resulting in involuntary liquidation.
The combined long-term capital gains rate in places like California is >37%. The 20% is just the base federal rate, it can almost double when other investment taxes are accounted for.
You missed a major reason long-term capital gains rates are lower than income tax rates: they are not indexed for inflation in the US and inflation on income is negligible. As a matter of tax policy, it is much simpler to reduce the rate than to compute a very large inflation deduction, but you can find countries that go both ways.
I will give you the point about a lack of inflation indexing.
I stuck entirely with federal numbers when comparing capital-gains to income taxes to make it a more apples-to-apples comparison. It looks like you took that in order to compare california-specific state+federal capital gains tax, and compared it to federal-only income tax?
The other issue of high-cost states being more often included in high-rate brackets (due to federal tax brackets not being adjusted for cost-of-living) is a different, and also complex, issue.
> You missed a major reason long-term capital gains rates are lower than income tax rates: they are not indexed for inflation in the US and inflation on income is negligible. As a matter of tax policy, it is much simpler to reduce the rate than to compute a very large inflation deduction, but you can find countries that go both ways.
Owning shares isn't only about wealth, it's also about control. The kinds of people that create successful startups aren't likely, as a rule, to give them up without a fight. By the time you've divested 50% of your shares in the company you founded it's no longer your company, and yet with 50% in one company you're still nowhere near sufficiently diversified to be able to count on those average market returns.
no, you don't divest and lose control, because you can pay taxes and diversify without selling shares (incidentally, this is similar in shape to a credit default swap). even so, you don't need 50% of the shares to control a company. in both of these instances, there are many more ways than one to skin a cat.
> no, only the most obstinate would not diversify their holdings once they reach tens of millions, let alone billions.
Just do the math, you need to divest a significant percentage of your own holdings in order to re-invest it into diversified portfolios sufficient to pay a wealth tax. The vast majority of founder paper-billionaires haven't come remotely close to doing this.
The money ears money thing is key. A wealth tax that equals the money you can earn from having money would prevent runaway inequality due to the "rich getting richer" effect.
S&P 500 has a long term annualized return of 10%. If you have a 5% wealth tax on stock you have in S&P 500 then you are still earning 5% returns (well above long term average inflation) without actually lifting a finger.
But none of the people you are trying to target with the wealth tax have their holdings in the S&P500. Instead they have close to 100% of their holdings in a single asset represented by the more diversified S&P500.
There is no guarantee that the single individual super-wealthy founder whose wealth derives from the ownership of their own company will appreciate at an annualized rate of 10%.
The two most pervasive myths about wealth among the super-rich appear to be:
1. They are sitting entirely on liquid cash
2. They are sitting entirely on highly diversified funds that enjoy 5+% annualized appreciation.
No, it means that if you fall behind the broader economy, you lose control of your own company. It deprives the business owner of the ability to turn their own company around. All to raise a minuscule percentage of the Federal budget. That's a terrible system.
Honestly, a better system (but still bad, and with lots of issues) would be to just give the US government a percentage of your ownership as your receive it. Ex: Elon Musk would have to give the US government 1% of the shares he receives ownership of. The government would then be the recipient of any dividends earned or liquidity event from these shares.
Yeah but borrowed money needs to be eventually paid back, so you're (at best) just deferring the problem.
Even if a wealthy founder took out a collateralized loan, in order to pay back the loan, they have to realize some gain somewhere (which is already taxed). That money isn't free. Even to simply pay back the interest, they would have to liquidate some of their stock (which is already taxed). Eventually when the principal needs to be paid back, the only way to do it is to liquidate (and divest) the equivalent value in their company (which is already taxed).
No, your argument would be like saying "if you can borrow against shares to buy a big house, mega-yacht every single year, you can do so to pay your taxes".
PG's essay shows that the wealth tax compounds every year. That just doesn't happen with consumption. Bezos doesn't have 20 homes and 20 yachts.
I guess I interpreted your statement as: "That single asset they own is more diversified than the S&P500", which I don't think is what you meant right?
I meant the opposite of that. The single asset that they own is less diversified and riskier than the S&P500, and therefore you can't take the annualized return of the S&P500 and then conclude that "money makes money" on a founder paper-billionaire's wealth.
The S&P500 is a portfolio that puts together all of these companies and diversifies them. In other words, Bezos is one part of the S&P500.
That's an arbitrary incentive that's not particularly useful. And in any case, it forces one to relinquish a significant partial ownership in their own company just to be able to afford to continue owning the rest...all so that we get them to diversify their portfolio?
This comment was flagged for some reason, but it's entirely valid.
If Elon Musk's goal was ROI maximization, he has no business maintaining ownership in SpaceX and Tesla — he ought to just dump his billions in high yield ETFs.
Fortunately, that is not his primary goal, and (at least in the US), he is able to continue to pursue success by maintaining ownership in his companies.
Sure, if you get recruited by a $100m startup, and you hear that the founder sold half of their stock "to diversify", there's almost not chance you're working there.
Diversification is a solid strategy for most people, but founders that own highly valuable companies are not "most people"..
The S&P has a long-term annualized return of only 7.41% since the end of the Bretton Woods system (beginning of the modern financial system). And that ignores investment costs such as trading and mutual fund fees; actual annualized returns will be lower for real investors.
That might be your preferred ideology. There is, however, no evidence that democratic goverments that control more of a societies spending do worse for their countries.
On the contrary there are plenty of areas where we know governments are vastly more efficient than markets.
A) history shows these things eventually apply to everyone. E.g. FATCA was originally relevant to a few hundred people, no it applies to almost all Americans living outside the US (hundreds of thousands). It’s just a reporting requirement, but one that can potentially cost you 3%-50% of your net worth per year if not filed or improperly filed.
B) I know people who were bankrupted by existing tax laws - had shares in internet companies during the dot com boom; company IPOd making them paper millionaires, thus owing millions in taxes, but had 6 months lockup. By the time the lockup expired, company went bust, nothing to sell to cover the tax bill. Any law that takes valuations into account (as a wealth tax law is bound to) is likely to wrong some people in a similar way, especially entrepreneurs and early employees.
Agreed, I've always thought these sorts of "Atlas Shrugged" arguments were ironic coming from free-market thinkers. In a free market, if one person refuses to work for less than $100 million, there's always someone right behind them willing to work for $99M. It would take a pretty extraordinary tax to have any effect on motivation in the economy at large.
It's not quite so black-and-white; wealth taxes change the incentive structure, so that the returns to creating increasingly valuable companies is non-linear. Wealth taxes (especially those with 'floors') discourage risky, high potential ventures, thereby skewing entrepreneurship towards smaller, less risky projects.
I personally think there are too few of the big, risky ventures these days, and too many low value-at-risk software-only startups (aiming to be bought up by a FAANG), but that is just an opinion.
> discourage risky, high potential ventures, thereby skewing entrepreneurship towards smaller, less risky projects.
That's a good thing, and I disagree completely with your assertion that "there are too few of the big, risky ventures". My impression is just the opposite: there are too many stable companies with modest success that are being killed by VCs who insist they have to adopt go chasing mega-growth that has no chance of actually materializing. Dropbox, Kickstarter, and Patreon are a few prominent examples of this trend: they achieved success in the marketplace and could've been happy with that, but their backers would rather take a 1% shot at meteoric mega-growth, and so now the products increasingly suck while the companies hopelessly go after initiatives way outside their core competency until their loyal customers get sick of it and leave, the company crashes and burns, and the VCs write it off as just another failure.
> I'm highly skeptical of the claim that such tax would discourage startup founders.
Discourage starting a company at all? Probably not, but the article does not suggest that. Do you think it might influence where they start it? Looks reasonable to me, at least qualitatively.
>Do you think it might influence where they start it?
This has always been the argument, and I've never bought it.
Now, more than ever, is the time to start a company remotely, thanks to Mr./Mrs. Covid. Have we seen a massive move away from SV and other tech centers? Have we seen a massive wave of startups in 'flyover' country?
Yes, but other factors likely influence it more. Are you going to start it in Barcelona or SF, just because of the tax rate? Surely there is something to be said for startup experience, investor networks, founder communities, etc...
> I'm highly skeptical of the claim that such tax would discourage startup founders.
It'd discourage the people who pay the bills (VCs, wealthy, etc.) from living in those states. Founders would simply follow the money to other states as they have done in the past.
Startup founder wealth comes from VCs. The reason people found startups in California is because that's where the VCs are. If you drive away the VCs, you will drive away the founders as well.
I am a multimillionaire on paper due to restricted founder stock from a previous startup. I have left that job and don’t expect to ever see that money as the guys in charge now are unlikely to ever realize an exit. I’m now back to earning just a regular software dev salary at a big corporation. I never got to see a return on any of my founder shares and not wealthy by any means.
Nevertheless, I’m now at risk of having a six figure tax bill every year for paper wealth that is 100% illiquid.
If this passes I would be leaving the state and guarantee you I would NEVER found a startup in California again.
> Wealth tax proposals I've seen don't kick in until $50 million or $100 million.
The very first U.S. income tax, imposed during the Civil War (the nation's bloodiest conflict), was 3% on income over $12,720, rising all the way to 5% on income over $159,000 (in 2020 dollars). This was unconstitutional at the time, and was eventually repealed.
The first income tax imposed after the ratification of the 16th Amendment was 1% on income over $78,510, with an additional 6% on income over $26,170,000 (2020 dollars).
The current U.S. income tax ranges from 10% to 37%, with a standard deduction of at least $12,200. There are also payroll taxes under FICA, which are even more.
I recount all this riveting history as evidence for my contention that there is absolutely no way that a wealth tax would remain at 1% for anything above $50 million. I guarantee that within a few years to decades most citizens would be required to pay wealth taxes, and that they would amount to a considerable amount even before taking into account their compounding nature.
> This means that there is a floor on how "poor" the government can make you via a wealth tax.
The only floor is zero: a government can, if it chooses, take everything from its subjects — or just from some of them.
If it taxes the income of normal people at a higher rate than they deserve, why do you think it would refrain from taxing the wealth of normal people higher than they deserve?
I guess I was assuming that if they were to put in a wealth tax, the point would be to tax the very rich more (and thus everyone else less / provide healthcare / some sort of ubi). It could certainly be done in a regressive way, but I don't see that as innevitable or any worse than the status quo, since income taxes can be raised just as easily.
Either way - I think we fundamtally agree that there needs to be more tax on the rich, be it investments, wealth tax, inheritance, or that sort of thing.
> It could certainly be done in a regressive way, but I don't see that as innevitable or any worse than the status quo, since income taxes can be raised just as easily.
I am not (here) worried about it being regressive: I am worried about it being yet another mechanism for the state to take a larger fraction of GDP (about 2½% in 1900; almost 20% at the height of the Second World War; about 17% now, according to Wikipedia).
> Either way - I think we fundamtally agree that there needs to be more tax on the rich, be it investments, wealth tax, inheritance, or that sort of thing.
I certainly don't! I agree that we need a government; I agree that we need taxes to fund the government (I disagree with those who think that we can fund the government on a voluntary basis); I agree that taxes need to be fair in some sense.
I suspect that fairer taxes would be higher for the middle classes, to be honest. Certainly the countries with effective welfare states seem to have more taxes on the middle than the U.S. does.
This is pg's privilege to be able to write such a shallow article and get this much attention. There has been so many studies on this topic. There are places with Wealth Tax. France experimented with it and kind of failed. Switzerland has Wealth Tax. None of that was mentioned. Just a 4th grader math and a basic HTML table. God damn it I wish I was VC. Anything I say would be gold. This is pure @VCBrags material
> I actually worry a lot that as I get "popular" I'll be able to get away with saying stupider stuff than I would have dared say before. This sort of thing happens to a lot of people, and I would really like to avoid it
Paul Graham, as quoted in Maciej Cegłowski's blog post "Dabblers and blowhards"
This ignores the fact that everywhere (including countries where wealth taxes are implemented today), there is a floor below which the tax does not kick in.
Very much. The numbers politicians have thrown around have had floors from 100 million to a billion. If Graham is speaking to the interests of future 100 millionaires I think most of them should be far more concerned about the country they live in when they almost assuredly never get anywhere close to that ceiling. For the few who do, who can shed tears when someone with 100s of millions is thwarted by government policy from reaching levels already so far beyond that which would compromise the happiness of an extremely privileged person. Nobody realistically suggesting something that is going to blunt startup Johnny's adventure to make enough money to buy a huge condo in SF, a Rolls Royce, a yaht, and a private waitstaff, if that is what Graham is raising alarms over. Johnny can keep dreaming.
This. What all of these taxes accomplish is preventing people from becoming wealthy. In this way it benefits the people that are already wealthy by making it that much harder to climb the wealth ladder. Many of the tax increases on the "rich" really just tax the upper middle class and do nothing to tax people that are actually wealthy.
If you want to tax the wealthy, then simplify the tax code and remove loopholes and deductions. Leave rates alone.
No, but they also wouldn't be that effective at taxing wealthy people that would structure their wealth to avoid the tax. That's the issue. You either lower the limit to the point where you capture the upper middle class, or you don't get any revenue because wealthy people can avoid the tax entirely.
Yeah, exactly: The floor is not going to be "100 million" for very long before they have to drop it to "100 thousand" because the people with "100 million" can change the way they structure their wealth faster than the regulators, because of regulatory capture and they'll need that money from somewhere. The upper-middle class carries almost the entire tax burden of the U.S. It's hard to boo-hoo about when you've got 2 cars, a single family home, etc. but it has an enormous negative impact on the economy to punish one tier of the economic ladder so hard.
All breakpoints in tax systems contribute to market inefficiency, because they incentivize manipulating your finances to stay below breakpoints instead of maximizing efficiency. It would be better to apply a flat wealth tax and correct for the regressive effect of decreasing marginal utility of money with UBI.
That doesn't make sense. Once you hit a threshold, usually the amount of money below the threshold is taxed at 0% or a lower percentage, then anything earned on top is taxed at a higher rate. You still earn more money by earning above the threshold.
That's still a discontinuity in the marginal value of income. You don't need the slope of the post-tax income:pre-tax income graph to go negative for there to be inefficiency. Any sharp change in the curve is enough.
Where's the incentive to fiddle your taxes? Yes you can donate your money to bring yourself into a lower tax band but you will still never have more in your bank account by doing so. e.g if there is a system where tax is 10% then it goes up to 20% at a $100 income. If I earn 99 then my take home is 89.1 (99 * 0.9) if I earn 101 then my take home is 90.8 (100 * 0.9 + 1 * 0.8). Yes, the effective tax rate is higher but I can never take home more by deliberately earning less money.
Note: I am note defending any previous arguments, just trying to make a fact clearer.
Your calculations was right in that idealistic tax system, but the real world is really messy with lots of exceptions, Tax credits, Benefits, and such.
Building on your example, I will add a little Child Benefit to make a slightly less ideal idealistic-scenario.
I chose this example because I remember vividly a story about a family in the UK that avoided getting promoted because their take-home would decrease. Of course it have to be a very small promotion in order to not be worth it. I don't know if cases like this is rare in the US, but it is generally a thing.
You're forgetting benefit cliffs which are a large chunk of the discontinuity problems. Any benefit that does not have a gradual phase-out (like subsidized health care plans) will lead to these discontinuity problems.
if you make $100,000,001 under a 100 million wealth tax at 1%, you pay $.01, not $1,000,000.01 so there is no point trying to stay under 100 million.
Further, a flat wealth tax has immense inefficiency in that it forces people with $100s or $1000s of dollars to their name to calculate their wealth for a $1-$100 payout to the government rather than do something productive with their time.
I would much prefer a 'cash on hand' tax that would tax yearly the cash on hand that exceeds $1B. That private companies can just sit on all this capital rather than putting it to work in the economy is a real problem. It harms GDP and it harms working class people.
By some estimates its $325B[1]. If we forced companies to invest that cash in new ventures rather than sit on it, it would be a win.
Are you sure it's really a bad thing for a company to keep cash on hand? The airlines this year were bailed out because they chose not to keep cash on hand, and then they suddenly lost most of their revenue. So maybe it's actually a good thing for companies to keep some savings available, so inefficient bailouts aren't necessary.
No it isn't a bad thing to set aside cash for future risk. I'm saying that a limit could be established on how much is too much. And then tax just the too much part.
> That amount is different for every kind of business.
Yes it is, but we could define it algorithmically. Perhaps 5x the median of the last 5 years of operational expense? That would essentally say "you can run with no revenue for 5 years on this pile of cash, that's enough of a rainy day fund."
> Furthermore, putting cash into the market by force is basically just inflation isn't it?
No, you are perhaps thinking about "printing" money. Which is that money is injected into the economy instead of having it being generated by the economy.
> Yes it is, but we could define it algorithmically. Perhaps 5x the median of the last 5 years of operational expense? That would essentially say "you can run with no revenue for 5 years on this pile of cash, that's enough of a rainy day fund."
This is completely inadequate, and directly hurts the productivity of business (if for no other reason than forcing companies to account for it).
> No, you are perhaps thinking about "printing" money. Which is that money is injected into the economy instead of having it being generated by the economy.
Stagnant cash deflates the currency directly, like bitcoin on hard drives in the dump, or sunken pirate gold.
> No, you are perhaps thinking about "printing" money. Which is that money is injected into the economy instead of having it being generated by the economy.
Technically the Government prints currency, money is created by banks. It is a subtle distinction that is often irrelevant in microeconomics but it is an important distinction in macroeconomics.
If you have idle time when you can listen to lectures on audio, I highly recommend "Economnics" by The Great Courses[1] (which is currently on sale for $70 bucks for the DVD edition) Chapter 29 covers just this topic and it's fascinating.
They got bailed out due to lack of savings, but it doesn't mean the savings needed to be in cash. The issue took months to resolve - enough to take money out of various investments.
You can deduce that cash on hand harms nobody by doing a thought experiment.
If there were a company sitting on $100 trillion in cash - enough to make everyone else's money just a small fraction of the total - how would that hurt anybody?
It wouldn't. Idle cash harms no one. You could make the argument that the cash has the potential to be spent in large influential harmful ways, like on elections or something, but that's a very different topic.
Taking this money and spending it on things doesn't increase anybody's quality of life. It just moves resources from the natural flowing economy to the people who take the money and spend it first (like newly printed money/inflation).
Taking $100 trillion and spending it doesn't create $100 trillion worth of goods if the physical mechanics of the economy are not established to create those goods. It just makes the existing physical capital 100x more expensive in dollar terms, and shifts their distribution to where the politicians want it.
You can't increase quality of life by wider availability of goods through the economy by playing money games. Money isn't anything, it's just a matter of accounting.
The only thing that actually creates more is the removal of barriers from creating more.
> You can deduce that cash on hand harms nobody by doing a thought experiment.
This is incorrect. We know from history we know the before, during, and after states of company finances and the economy as a whole.
When companies are not confident in the future they tend to sit on cash reserves versus making their own direct investments. Historically, these direct investments have a benefit for the productive capabilities of the firm.
The sin that OP is probably targeting, but I didn't see described, is stock buybacks. If companies are sitting on cash that's one thing, but they can negatively impact their liquidity by buying back stocks with no upside for stakeholders in the long term.
> Taking this money and spending it on things doesn't increase anybody's quality of life.
This would seem a general argument against the entire economy, or at least the concept of taxation. Why is spending this cash any different from spending any other cash? Why can't we spend this money creating a ton of new jobs, that will then create new goods?
We have tons of spare stuff just sitting in warehouses right now. There is plenty of slack in the system. Investing cash in to more jobs means pulling some of that stuff out of warehouses and temporarily reducing our slack, yes, but that also motivates people to go do whatever productive thing you're paying them to do - such as creating even more stuff to sit in warehouses.
First of all, if a person or company were sitting on $100 trillion in cash it benefits the hoarder of this cash because they now wield inexorable control over the economy. In a nation like the US this is counter-democratic.
> You could make the argument that the cash has the potential to be spent in large influential harmful ways, like on elections or something, but that's a very different topic.
It's totally not a different topic. You can't talk about the dimensions of money like they aren't interrelated. A wielder of $100T has the potential to harm. Whether it's because there's already too much liquidity in the economy and movement of that $100T would cause massive inflation, or because there's too little money to make the economic engine hum the $100T would be much better off in the hands of those who would send it flowing through the veins of the system. There's other less straightforward ways it could work -- the economy could start tilting to service the needs of the entity holding $100T (e.g build $1T rocketships to mars rather than planting food for everyone else). In general lack of economic diversity is going to cause issues.
> You can deduce that cash on hand harms nobody by doing a thought experiment.
If you have $100T it's going to grow or fall, and the process of getting there meant taking liquidity out of the system. Liquidity is super important, after all, economic demand is not "I want X," it's "I want X and am willing and able to pay for X." Can't vote with dollars if you haven't got dollars. The latter part of this is what fails as cash pools into certain economic outlets (read: billionaires).
The fed, appointed by our elected government, uses monetary policy to try to avoid this outcome, but if a small group of unaccountable private individuals who have a lot of money end up wielding this same power, it gets bad -- the effect that billionaires have is that they attenuate signal from the economy about what goods/services would most benefit humans in aggregate. The efficiency of capitalism dies when all the decisionmaking is left to a few parties. The beauty of capitalism is most apparent when there is a diversity of demand. This is why many are calling for fiscal policy with the goal of rebalancing the "dollar vote."
At a minimum cash that isn't moving isn't being useful in the economic system, and that can be hurting folks who need that money to be put in their hands to drive demand. I don't think you can say today's system is in any way near perfect, since folks still die for want of food and medicine because cash has not been mustered to direct the economy in a direction that spreads the wealth.
The new hotness is the idea that if you put money in the hands of the people (e.g UBI but also smaller ways like making transportation, mail, schools, healthcare more affordable) you steer the economy in a direction that produces goods and services that lift everyone's quality of life, not just the quality of life for a few. The rich may pay, but they get the money back because they have capital assets and the economy doing well increases those assets. A wealth tax is one way to help us head in that direction -- the direction of rebalancing economic control to make things more sustainable and good for most humans.
Oversimplifying of course because this is in response to a thought experiment. Sadly we are also failing at dealing with capitalist externalities like climate change and decimation of our natural resources.
I appreciate where you are coming from, but I expect we have very different ideas on what "capital" is versus "money."
You have focused on the "money" aspect, as a thought experiment on how money isn't a good way to think about it, consider a decision one day to devalue the US dollar a trillion to 1. Now everyone who had at least one dollar has a trillion dollars! We are all trillionaires!
But it doesn't help anyone because McDonalds now sells the trillion dollar "value" meal menu.
Capital on the other hand, is the fuel for gross domestic product or GDP. GDP is a measure of the economic "work" done by an economy.
The only way to inject capital into an economy is to buy goods and services. The buying of goods and services leads to the production of new goods and new services which leads to more buying of more goods and more services.
Let's use a concrete example. Let's say you are sitting on $2 million dollars in your cash and cash equivalents fund. That $2 million is either sitting their getting maybe a 2% return by "investing" it in safe instruments that can be immediately turned back into cash on short notice if needed. There a relatively small number of financial options that meet that standard, typically depository accounts, US treasury bills (bonds), and other low risk bonds with high liquidity (aka easy to sell on a moments notice).
Now lets say I tell you, "invest it or I'll take it in taxes." So you take your $2 million, and you lease a corner lot on some business district and you build on it a convenience store and a gas station. You hire a manager and maybe an assistant manager for the store and a couple of cashiers. You buy stock for the store from a local distributor, you buy gas from a nearby refinery.
Your $2 million is still earning a return, you've created a business that has annual sales and generates income. At the same time you have created 4 jobs (2 part time and 2 full time), you've added "stops" for gas delivery and products delivery so you're supporting some fraction of that delivery person's job, you are moving products through the market so you have helped pay for some refinery worker jobs and those who are packaging up products, you might have milk and eggs in your store so a farm somewhere is selling more product than it was before, and you are generating sales tax revenue which is going into the local municipalities funds for the services they provide. Double win if you build your station on what had previously been an empty lot.
So "holding" that $2 million in your cash or cash equivalents fund prevents that capital from contributing to the GDP of your local economic zone.
Is it harder to get your $2 million back on short notice? Sure. Is it possible that through a series of unfortunate events that $2 million could become worth less, possibly much less, than $2 million? Yup, that is a risk too. But did it help the economy and thus the country? Yes it did.
I'm not against companies holding money for a rainy day, hence my suggestion that it start at holdings over a billion dollars. A billion dollars can get you out of a lot of scrapes. And it isn't like the tax would be huge and drain you of those excess holdings overnight. Look at Paul's essay to see that over 30 - 60 years you would see significant impact, over a year or two? Hardly a blip.
What it does is it encourages companies, especially tech companies that generate huge amounts of cash, to keep that cash circulating in the economy rather than sit on it. You could even throw in a bone and say "no taxes on any money you want to bring back into the country from over seas because we're going to tax it no matter where it is stored."
Indeed. On most balance sheets it's "cash and cash equivalents". Apple owns treasuries and other "highly liquid assets" that are regarded as cash equivalents.
Apple had $12B in true cash at the end of Q3'19.[1] But the "cost of revenue" was $163B. So they had ~7% of expenses available as cash, which makes sense since you don't want to be selling short-term investments to make payroll. You'd need to keep cash on hand to pay expenses.
They still don't have any cash. None. Cash on deposit isn't cash, either. It is not in the bank, it is loaned out. That's how banks make money, and why they pay you to deposit cash in the bank. They're not a charity, they want your cash so they can loan it out 9x to other people.
> selling short-term investments to make payroll
Payroll is usually met by establishing a "line of credit" with the local bank, because a business's revenue is not on the same schedule as its payroll obligations. Selling short-term investments to make payroll is inefficient (as you imply) but also quite unnecessary.
Sort of and sort of not. Companies do sit on cash. Their cash equivalent accounts are designed so that they can be reliably liquidated in under 30, 60, and 90 days and have no chance of a reduction in principal amount.
The kinds of "investments" that allows for are thus quite limited to things such as treasury bonds, certificates of deposit, and some very special case derivative instruments.
Those are not the sort of investments that build houses or get loaned out to businesses.
Cash equivalent accounts are NOT cash. The cash has been loaned out.
If you deposit $100 in the bank, you do NOT have cash in the bank. The bank loans it out 9 times over, that's right, your $100 turns into $900 of loans handed out to people and businesses who spend/invest it.
It's the magic of fractional reserve banking.
A massive clue that it is not idle cash is when interest is paid on the balance. That can only happen if the cash is "put to work", i.e. it is NOT cash.
That's true, but $100 in a series-E savings bond is just sitting around waiting for tax dollars to pay its coupon rate. Not really helping anyone and certainly not participating in the fractional reserve system (to the extent that the federal government runs such a system to its own advantage :-)).
When I helped set up one of these accounts for the startup I was in, we set it up to hold the $10 to $20 million that came in from investors. We bought t-bills through Goldman Sachs. They are very liquid, they pay a marginal return, and they are intrinsically insured. At most we kept $100K in our "regular" bank account[1] to pay salaries and taxes. Paying vendors consisted of simultaneously selling some t-bills, wiring the money to the vendor, and putting the fractional remain into the checking account.
[1] This was the FDIC insurance limit so we didn't hold more than that in a depository account.
How would you overcome loopholes like the $1 Trillion+ that Apple stores in the Channel islands after funneling it through Ireland and the Netherlands?
In my very limited, layperson understanding, all of these fancy multi-country tax schemes involve separate corporate entities in each country which then engage in some set of fictitious transactions (e.g. IP licensing fees) to move money between countries.
Also in my pedestrian understanding, around taxes on the value of some hard-to-valuate asset, one mechanism for encouraging owners to be honest in their valuations, rather than under-valuing everything, is that some party (perhaps the government) should have the option to purchase some property at the value claimed by the owner. "You say this trove of old master artwork is only worth $100k? I'll take it!"
Is there a reasonable form of this for the colluding branches of multi-nationals? "You've claimed your subsidiary in our country has had $0 net revenue every year for the past 10 years b/c it spends absolutely every available dollar on IP owned by the sister company across the pond? Then since we agree your subsidiary is really clearly struggling, I will buy it for the value of its local real-estate portfolio, plus a small markup."
That probably creates another loophole. Even if they (big cash rich companies) hoard cash, it isn't really sitting as cash. I could claim everything except my bank's liquid cash of reserve of 10% is "invested" somewhere
It's important to note that leaving the United States to avoid future taxation is not an option for even upper middle class without serious penalty.
The US is the only country in the world that taxes their citizens who are residing in other countries. Even if you move to another county, you still pay US taxes every year.
If you'd like to renounce your citizenship to avoid that, the US has that covered. There is also an expatriation tax for people making above 120k a year or have a net worth over 2 million dollars. 30 percent of your wealth is much more than any of this being discussed.
The US is in a position to enforce this, too, because all banking in the world reports to the US on their citizens' holdings. This is unique to only US citizens. As such, it's hard to even get a foreign bank to accept you as an American holder knowing the amount paperwork that causes them.
Taken together, it's not a possibility for the rich to just leave if they don't like the way they are being taxed. Americans are financial prisoners of their country.
This is somewhat misleading, especially the "30% of your wealth bit". What the expatriation tax does is tax you as if you had sold all your property for cash on the day you renounce your citizenship, though it does apply a $600k+ exclusion to the proceeds of the "sale".
Put another way, it's the US saying "you don't get to accumulate wealth in the US and then leave without paying taxes on it." It's not great (I'm an expat, so if I ever considered relinquishing my citizenship, it might affect me), but it's certainly not as terrible as you made it sound.
That said, it is pretty annoying that the US taxes you on worldwide income, independent of residence. And a lot of people who give up their citizenship do so because that plus the enforcement regimes imposed by the US on foreign banks mean that it's very hard to actually live abroad as a US citizen.
You're right that it is more complicated. I had to refresh my understanding.
Apparently, the income requirement rises with inflation and the last number the IRS states is 160k. The 2 million net worth does not appear to rise with inflation. Leaving the US with these amounts creates the assumption of expatriation being for tax avoidance in the US.
With respect to your comment, though, all holdings are deemed as sold for the purpose of taxation at a market value so you do have to pay a very large lump sum on the date of expatriation if I understand correctly. This would be a pretty significant tax though you're right that what I stated above about expatriation was not complete.
I've also been an expatriate for a number of years. Owning a company in another country without being double taxed is nearly impossible as an American citizen with new rules pertaining to foreign-owned businesses. It ended up being a lot less hassle for my finances to simply move back to the US so here I am trying to plan my permanent escape. All the information is clear as mud.
It's also my understanding that getting a visa to come back to the US to visit family after renouncing your citizenship is difficult. It's like being excommunicated from a fanatical religious organization.
Luckily, a wealth tax isn't constitutional so the socialist can stomp their feet as much as they like they are going to need to gain a lot more power than currently feasible to make it a reality.
Oh my, more state money would mean probably a more equal society - more money for roads, schools, teachers, research labs, health care, infrastructure and much more.
All things by the way any entrepreneur is happy to "take" or accept as given.
Forgive me, but watching extremely privileged people's viewpoint, that they are so genius is so much missing the point (of luck, and of course a society that nourishes and carries these individuals).
Yeah I love how he starts the essay with "assume you start a successful startup in your 20s, so successful you never have to work another day in your life." It's just appealing to 20-somethings with a bad faith argument about a tax that would likely be linearly correlated with age.
The more corrupt your environment, the more corrupt you will want to be. From the outside, the US looks like a state, where big money is running the show, will benefit from every crisis, etc. What do you expect, when all the elite cares about is their turf?
I'm not advocating paternalism, but what you have in the US is capitalism without much "control" and does it lead to prosperity for all? Does not look like it.
Why would you assume that a richer more powerful state would mean those things? Look around the world and you will see that is not necessarily the case. Look at California, and specifically SF right here in the US for a counterexample.
PG is talking about investing in companies, not general funds.
For a founder to invest (eg., $1m) in starting a company, there is of them losing their total investment. The expected ROI needs to be fairly high to offset that.
The only people who /could/ make money under such a scenario are super-rich investors making many bets that average out risk. And they wouldnt, given -- as you say -- general equity would perform better.
Any policy implemented in this way, over trivial amounts (eg., over 0.5%), would destroy investment & the business opportunities of a generation.
Perhaps there's a different policy behind "wealth tax".
> For a founder to invest (eg., $1m) in starting a company
Do you mean founder, or investor? I don't know any founders who invest that much into their startup.
Startups are high-risk, high-return investments. If a wealth tax was introduced, wealthy people would need higher returns (as others have pointed out) to cover their tax obligations and so would invest in riskier investments. Like startups. So startup investment would increase.
> to cover their tax obligations and so would invest in riskier investments.
Just because the investment is riskier, doesn't mean the returns are automatically better. It only goes one way - higher returns are automatically more risky.
If wealth tax is implemented, then an investment automatically becomes lower return (since the wealth generated is also going to be taxed indefinitely). So an equivalent startup that would've returned 10x with no wealth tax will _need_ to return 11x (or something higher) to make the investment worth the same risk as before the wealth tax. i.e., there will be fewer investment opportunities that are suitable, given the higher bar it must reach under a wealth tax.
It's been shown time and time again, that a tax on something will discourage it (in the aggregate). I don't think a wealth tax is any different - it will discourage wealth creation.
Those figures include reinvested dividend income with respect to equity and reinvested rental income with respect to housing. In fact the return attributable to capital gains is only about 40% of of your 7% (page 25). Income is already taxed, at a significantly higher rate than any of the propsed wealth taxes.
That’s on average, yes. But for those owners of business where equity value is either flat, or moderately decreases, a wealth tax is essentially a forced divestiture scheme.
Exactly. And people with wealth typically do not stop after their initial fortune they are continue increasing it. Problems are hundred years old family fortunes which are currently not successfully managed.
Every proposal I have seen kicks in after $100m. That's a level of wealth where even paying a 5% tax is likely to result in an annual net increase in wealth, as when you have that amount of money to invest achieving 5%+ returns is not unusual. The net result is that wealth would still increase, just at a slower rate.
Additionally, even amongst the general population, let alone startup founders, the number of people with wealth in excess of $100m is tiny. Numbers are hard to come by but I've seen estimates of 5,000 people in the US. What this means is that people arguing against a wealth tax are happy to disadvantage 330m people to protect the wealth of a low number of thousands.
>What this means is that people arguing against a wealth tax are happy to disadvantage 330m people to protect the wealth of a low number of thousands.
By not giving 1% of your wealth to Africa you're disadvantaging a billion people to protect the wealth of one. It's not a disadvantage to someone that they're not getting a part of somebody else's wealth; we're not born with some divine right to other people's money.
The ability to have 100 million dollars is entirely due to the enforcement of laws that we all agree on. I think we should re-frame the wealth tax as guillotine insurance.
Enforcing those laws doesn't take a lot of money: see countries like Singapore (or America 100 years ago). In the US most tax money goes into welfare, and warfare (and I think it's hard to argue that America's current military expenditure is the minimum necessary to protect its citizens' property).
The talk of guillotines is completely out of place by the way: the French revolution was not a bunch of peasants guillotining the rich out of envy; they were guillotining the royal family, for taxing them too much!
>The talk of guillotines is completely out of place by the way: the French revolution was not a bunch of peasants guillotining the rich out of envy; they were guillotining the royal family, for taxing them too much!
That is rather reductionist. At the time, the landed gentry, nobility and the church were the rich people in France. The middle class guillotined the rich because they were the ones paying all the taxes while the actual wealthy were not paying any taxes at all. I'm sure you can see the overlap with the present day sentiment.
The real reason America has such high military expenditure is more about ensuring the hegemony of the U.S. dollar by backing Saudi interests in the Middle East (and thereby ensuring that the dollar is the main currency denominating oil transactions, which ensures its global reserve status). Which gives the U.S. an upper hand on the world stage because of its currency being the reserve.
I know it's cliche, but these arguments always seem to boil down to the - Americans don't view themselves as poor, merely temporarily embarrassed millionaires. Though, I would make that 'billionaires' in today's world.
This seems to me to be a very weird and overly simplistic modelling.
Where I live has a wealth tax, and it's in exchange for a capital gains tax, dividend tax, withholding tax, that sort of thing.
The way it works here is that it's a tax based on fictitious returns from you having invested your money, i.e. based on your wealth, a certain return is assumed and you're taxed on that. The first €30k is ineligible for tax, then there are a few bands: €0-€72k, €72k-€99k, €99k+ (numbers rounded.) The effective tax for these bands ends up being 0.58%, 1.34%, and 1.68%. These are last year's numbers, I'm not sure if they're different this year.
The idea is that if you have more than €30k sitting in a savings account, you ought to be doing something with it to get a return on investment. The issue I have with it is that it's not very responsive to changing markets, like at the moment where savings interest rates are near enough to zero and the stock market is complicated, it doesn't account for that sort of thing well compared to a regular withholding tax.
There are also exemptions, I think the value of your primary residence isn't counted for example, though I haven't yet had to deal with it, so I'm not totally sure.
This post completely ignores that even safe investments are going to earn a return over 1% on wealth. So even a founder who liquidated all her stock and parked it in a prime money market fund would have earned 1.3% over the past year — and that’s at a time of near record low interest rates.
A founder with any sizable wealth and a long time horizon (>15yrs) would earn much better than 1%. Even conservative retirement calculators given such a horizon will steer you toward a real return of 3%, or 5-6% after inflation. That’s an estimated return in stock heavy index funds. Someone with most of their net worth in a successful startup — precisely the person Paul frets about — will do much much better than that for at least several years earning startup returns. (Those not so successful won’t have much wealth to tax.)
Basically I think it’s a little silly to wring hands over the compound impact of a wealth tax and at the same time give no acknowledgment to the compound returns available to the average long term investor to say nothing of the very wealthy. A wealth tax has a real impact but it’s more about dragging down returns on wealth than eroding wealth per se.
Inflation has a very similar compound impact on any given sum.
Further, Paul does not acknowledge the benefits to a person AND a tech company of being based in the US over other countries, or past crucial investments by our people in basic research enabling many if not all YC and other Valley startups.
I'm not necessarily in favor of a wealth tax, but this essay is deeply flawed for the many reasons identified in other comments.
What struck me is that I showed it to my partner who has no formal finance training and she quickly identified the major flaw that seems to have escaped Paul Graham: a wealth tax is a percentage of the dollar value of wealth, not a percentage of the number of shares of stock you own. The dollar value of shares tend to increase over time, a basic fact not reflected in this model.
> The dollar value of shares tend to increase over time, a basic fact not reflected in this model.
This is not reflected in the model because the price of the shares cancels out: a higher price means a higher tax in absolute dollars, and a lower price means a lower dollar amount in tax. For a given tax rate you end up with the same fraction of the shares regardless of any appreciation or depreciation in their value.
A 1% wealth tax means that you cannot remain a majority owner of your own startup for longer than 70 years, at least not without sacrificing other assets above and beyond their own share of the wealth tax. At that point the government has claimed over 50% of the startup's value, regardless of any change in the share price.
A 2% wealth tax means you will lose your majority ownership within 35 years.
At a 5% wealth tax we're down to 14 years of owning your own startup.
You have to pay back the loan eventually, with interest. This doesn't change the fundamentals. It just means you're paying a bit more overall to defer selling the shares.
It does bring up an interesting point, however. Is this tax applied to net wealth? Can you subtract money that you owe to someone else? What if the lender is outside the country and thus not subject to the wealth tax? And what happens if your net wealth is negative—do you get a refund?
It does change the calculation however. You can still end up owning your whole equity, with some debt that's potentially much less than the growth in the wealth (provided by keeping the equity that'd otherwise be sold).
Recent history has shown us that financing equity positions with debt (i.e. leverage) can be... risky. In any event, I consider leverage to be outside the scope of the parent comment's observation.
well for wealth tax, you don't need more than a percent or two. It wouldn't be a problem at all.
You may not consider leverage, but it's fairly known & well used practice to take loan out of equity. People do it with their stocks as FANG employees. Founders with the wealth could have access to even cheaper loans.
The answer is: it depends on the fair market value of the shares of stock I own. If the shares are publicly traded, there's an easy answer.
If they're not publicly traded, it depends on how FMV is determined, but it would not surprise me if the wealth tax allowed the 409A valuation to be used for this purpose.
You have x shares of stock, each worth $a. Your net worth is $ax.
The government wants p% of your wealth, so it takes p * (ax) dollars from you. I hope we can agree that this is the same as a * (px). In other words, they've taken p% of your shares.
Why does any of this depend on mumbo jumbo about FMV and 409A valuations?
$a is arbitrary. It doesn't matter how you arrived at it. As long as you provide a reasonable assessment to the IRS,
pg's original point (which you objected to) is completely correct: an f% wealth tax is an f% seizure of your shares.
And if you object that you can just lowball that assessment; well yes, and by the way you've just conceded nearly every point made by opponents of the wealth tax.
> "Even a .5% wealth tax would start to keep founders away from a state or country that imposed it."
This sounds absolutely absurd. The last twenty years of entrepreneurs not fleeing the "tax" of Bay Area salaries seems like proof that they are a lot more interested in maximizing the chance of their start-up's success than maximizing the equity they keep if it does succeed.
Isn't this model is ignoring the fact that the proposed wealth tax plans are _marginal_ rates?
Take Sanders' plan [1] for instance:
* 1% annual tax on net worth above $32M
* 2% above $50M
* 3% above $250M
* 4% above $500M
* 5% above $1B
Also note that based on those numbers this tax would impact the wealthiest 180,000 households in the US (out of 129M, which is roughly the top 0.1%).
Warren's plan [2] is less aggressive:
* 2% above $50M
* 4% above $1B
I'm not actually a fan of the wealth tax (more for logistical reasons) and I don't have the time right now to work out the math for a more accurate model, but I'm pretty sure 0.99^60 is not it.
EDIT: If my quick math is right then your wealth needs to be roughly $100M before you're paying 1% ($1M) in wealth tax, but that number would shrink as your net wealth does.
EDIT 2: Taking Bernie's plan, and assuming a net worth of $100M that's stuffed in your mattress (hence earning nothing from investment or interest), after 60 years you'd be left with $59,279,504, having paid a total of $41,086,086 in wealth tax (roughly 41% of the original $100M) over 60 years. (Note that this still leaves you with much more wealth than 99.9% of American households.)
Of course, if you can get a 1% return on your initial $100M then your net worth is still $100M after 60 years.
You’re forgetting inflation and income taxes! If I had a $1b I would have to earn 5% + 2-3% a year just to break even - but if some portion of that 7-8% was income/capital gains than I would have to earn even more... and that’s before I put fuel in my jet or feed my thoroughbreds...
No, I'm "modelling" the wealth tax with the exact same assumptions as pg, save that I'm using a plan that was actually proposed as opposed to a "take 1% of everyone's wealth every year" strawman.
Also, this statement:
> I would have to earn 5% + 2-3% a year just to break even
only applies to your wealth in excess of $1,000,000,000.
How does a rich person being rich harm my chances of becoming rich myself? Until someone can answer this, I'll continue to believe a wealth tax is nothing more than legalized robbery.
If it's a company using anti-competitive behaviors, attack that.
If it's unfair laws due to lobbyist, fix it.
If it's underpaid employees, figure out how to increase their pay.
If housing/healthcare/education is too expensive, figure out how to fix the system to decrease the price.
Government's shouldn't be allowed to pick favorites like this--especially from individuals.
The real solution to a shrinking middle class won't be solved by taking money from the wealthy and putting it into the governments hands. Governments do a poor job with the money they're given already. Why? because there's no competition in government. There's no one holding governments accountable for how they actually use the funds.
"Probability of becoming rich" is a weird thing to optimize for. If a rich person being rich costs you a fixed and relatively small amount - say $1,000 - every year, that wouldn't materially affect your chances of becoming rich, but it would still be reasonable to be unhappy about it.
Lots of government spending creates value in proportion to wealth. The military is a good example of this - if the US had no military, Americans would likely buy insurance against acts of war, and the premium for that insurance would be proportional to wealth (or, more precisely, to the value of real assets owned directly plus real assets supporting the value of directly owned financial assets). So the financial value that the military creates is allocated roughly in proportion to wealth - but it's mostly paid for by taxes on income, so the net effect is to create a transfer from labor to capital.
1. Rich people historically take wealth out of a country via offshore tax heavens. If money is spent on giga-companies instead of local businesses, it drains wealth from communities and creates inequality.
2. Taxation is not robbery at all. Rich people have used all public services at one point or another, it‘s only fair to pay back. They don‘t most of the time, so these services wither.
3. The „free“ market has shown time and time again that branches of business will steer to monopolies if you give them time. Look at amazon for example. You _cannot_ create an amazon competitor. Many have tried. All have failed.
4. Giga-Companies and Rich people have shown many times that they will just copy a good idea and steal your customers by using their giant existing consumer base.
Things like these don‘t make it impossible to „get rich“, but they make it very hard.
2. They use the public services, but so does everyone else. Should a gallon of water cost me $1 but the wealthy $10? That seems fair/right to you?
3. What's walmart? Regardless, don't punish them (Amazon) for being successful, punish the anti-competitive behaviors.
4. This is true, and unfortunate. Though a wealth tax doesn't solve this.
Minorities have rights. In regards to this topic, the wealthy are the minority.
I'd argue our education system should be teaching people how to build businesses, not just be an employee at them. Most wealth is built by owning a business (no source here, just personal observation). It can then be passed down generation to generation if it's big enough. But let's focus on making it easier for people to obtain wealth instead of trying to take wealth from those who've earned it.
It's funny, Rob Bonta keeps saying that they're "asking" the wealthy to help and that it's the right thing to do. I couldn't agree more, asking is the right thing to do. If you're in a position to give, then giving is the right thing to do. Taking prevents asking and giving from occurring.
What we need is inheritance tax. If you've made money, you can keep it. But you can't live for free just because some guy 100 years ago made money and you won the genetic lottery.
That's rarely the case as it is. The majority of wealthy families lose their money in just a few generations if they aren't actively working to maintain it.
Right now, they piss that money away on fast cars and lose <insert partner preference>. So we could divert that money to pay for infrastructure or cut income taxes or whatever, and aside from fast car dealerships, everyone should be happier.
interesting idea, but I think I would decline. I don't plan on having children, but I would like the primary beneficiaries of my excess productivity to be my friends and family. plus, I think it sets up a weird incentive to spend as much of your money as possible before you die, which causes a big problem if you live longer than you planned.
I actually think the current US estate tax rules (minus the loopholes) are pretty reasonable. you get to pass on $10mm or so to your beneficiaries untaxed, but any wealth past that is subject to a steep tax. if you remove the basis step-up for assets and somehow prevent super-wealthy people from avoiding the tax altogether, I think it would be a pretty good system. enormous estates would decay quickly through the generations, but ordinary to upper-middle class folks could still leave their life's excess productivity to people they care about.
If you're working for a firm that isn't actively tanking, then the primary beneficiaries of your excess productivity are always your employers. As many other people here have said the floor of any wealth tax is far higher than anything you could ever accumulate on a salary income.
note that I am replying to a comment asking whether I would accept an unconditional 100% inheritance tax in exchange for paying no other taxes while I'm alive.
regarding the wealth tax in general, I see no reason to prefer it over a capital gains tax. if it's not possible to eliminate the loopholes that allow very rich people to avoid paying capital gains, I don't see why the same wouldn't be true for a wealth tax. with the possible exception of LVT, I would greatly prefer to see the existing tax structures get fixed than to add an entirely new tax into the mix.
Fair point, I misread that. But even so, the inheritance tax is still a delayed wealth tax and a 100% tax would generally be easily avoided with gifts -- still taxable, but presumably not at 100%.
(Edit: if we had a combination of capital gains + personal income tax that effectively achieved the same goal as a wealth tax, wouldn't that be basically a maximum wage? Seems even harder to sell. It seems to me the main difference would be that a capital gains tax still encourages holding on to assets and a wealth tax encourages spending.)
Isnt there a loophole that you transfer all the money to a foundation and then your children control the foundation effectively getting the money but on the books they did not inherit the money.
As I see it, those just penalize people with moderate amounts of money (ie: trying to build generational wealth) while the truly rich simply find loopholes.
Create a non-profit foundation that pays them, store assets outside the country/state, legally reside 51% of the time in a different state/country at their 5th house, etc. That's just random thoughts, I'm sure the truly rich have dozens more that their high priced accountants and lawyers dreamed up.
It's the same way Warren Buffett pays less taxes, percentage wise, than his secretary. When you've got millions to spend on lawyers and tactics amazing things are possible.
edit: Also trust funds and setting up a family corporation to manage assets.
Then they'll find other loopholes as they have for centuries is my point. And the government has a vested interest in keeping those loopholes open for the truly wealthy since they're all friends and political donation buddies.
I think a wealth tax sounds good, but the implementation scares me.
What I worry about most with a wealth tax is calculating your wealth. Income tax is already hard enough. Now start adding up the value of your stock, your real estate, your personal property, etc.
And are you committing tax fraud because you have a million dollar painting that was hanging on your parents wall for decades that you inherited and never realized was valuable? Are you committing tax fraud if you have some crypto currency that you forgot about that has skyrocketed in value? If not, then these things can be used as tax dodges by the wealthy. If so, then it just makes everybody a potential criminal.
How about: you're committing fraud if you bury a jar of gold coins in your back yard. What business is it of anyone elses' what you do in your own home? This idea of 'you have something; give it to us!!!' is very disturbing at some level.
Its different from other taxes, that tax an interchange with another person or entity. That is supported by society and its mechanisms, for which government (e.g. all of us) have some responsibility.
But just to start taking what I have simply because I have it, is upsetting at a very fundamental level.
Interestingly, what you see as completely normal (other taxes) was once as disturbing as capital tax seems to be:
> Window tax was a property tax based on the number of windows in a house.
> At that time, many people in Britain opposed income tax, on principle, because the disclosure of personal income represented an unacceptable governmental intrusion into private matters, and a potential threat to personal liberty. In fact the first permanent British income tax was not introduced until 1842 [note by me: not until 1914 in France!], and the issue remained intensely controversial well into the 20th century.
> Its different from other taxes, that tax an interchange with another person or entity.
yes, taxing transactions between entities makes sense, because transactions is where wealth (or value) is generated.
Taxing accumulated wealth does not make for a good policy, since this erodes stored wealth. Unless it's somehow paired with a reduction in other taxes (and thus defeat the point of the wealth tax in the first place as a way to levy more revenue to the gov't).
This is why a consumption tax is, in my opinion, the best kind of tax.
> What I worry about most with a wealth tax is calculating your wealth.
This is an issue that the vast majority of people will never have to deal with. And the people who do have to deal with it won’t have to waste time worrying about it either because they will outsource their worry to an army of lobbyists followed by an army of CPAs.
Thomas Piketty's Capital in the Twenty-First Century advocates for a wealth tax of up to 2%. This is the only remedy to combat the structural rising inequality in capitalism.
He also admits the tax would be difficult to implement. He should know. France wealth tax has existed for more than 30 years. It was not a success, in part because the wealthy found ways to avoid it. It was as simple as moving residence to Belgium. The tax has now been turned into a property tax.
His newest book goes much further, if you read Capital in the XXI Century you should give it a try.
My takeaway from this blog post and his book is that:
1. we should have way more transparency on who owns what: currently information about who owns what stock is in the hands of private companies and it's not disclosed to the public. One of the effects of having an income tax is that we have very detailed information about income. I would argue that measuring inequality is a good thing for a society.
2. we really really need to stop fiscal dumping and fiscal competition among countries. There are a number of ways to do that: stronger transnational organizations, more transparency and collaboration among countries (like what the US imposed to Switzerland), exit taxes (proposed by the US)
Overall pg's post ignores the fact that 1950-1980 saw the largest growth and the highest income and succession taxes in the US (also in Western Europe, but one might argue that reconstruction might have played a role in this)
Did piketty explore unifying capital gains with a progressive income tax? Inflation is already a tax on wealth, but the wealthy beat it by the large return on investment. If you reduce the return on investments to below the rise of wages, then doesn't that solve the problem he describes in his book?
The reason for rising inequality in the States is very clear: offshoring and automation. Historically, the rest of the world had much lower wages while it was difficult to move US jobs to other countries for political and logistical reasons. Once that was solved, manufacturing jobs were gone. US population shifted from manufacturing to service. Now the service jobs are being outsourced and automated in turn. The real picture is a bit more complex of course but it does not change the logic.
The right approach to taxation would be to tax the exact cause of the problem: offshoring and automation. It can be done as a progressive per-employee Value Added Tax. The normal VAT is a fixed percentage on the difference between revenue and non-labor expenses. The new P-VAT would grow with the added value per US employee. For instance, if a pizzeria has added value of $50k per employee per year, the P-VAT could be zero. For the likes of Google and Apple with millions of dollars of added value per employee it could be 50% or more.
It would create an incentive to keep the jobs in the US. Also, it would be very hard to avoid if a company wants access to US market.
> It makes it seem really bad when you say "Government takes".
Sure, but it's also perfectly accurate.
> … you're contributing back …
You contribute back by running the business successfully and providing things that people value. Any taxes you pay are above and beyond that. Society creates government, not the other way around, though the government loves to blur the line between itself and society and thus claim credit for what people have created on their own. The best way that the government can contribute to the success of any business, short of directly harming one party to enrich another, is simply to stay out of their way and let them get on with actually running the business.
"Society creates government, not the other way around..."
And government supports and enriches society. It's symbiotic, not parasitic.
"claim credit for what people have created on their own"
Nobody creates anything on their own. Full stop. Every single citizen is supported by countless public infrastructure initiatives, from transportation to safety to education to etc etc, without which no significant achievement would be possible.
>Nobody creates anything on their own. Full stop. Every single citizen is supported by countless public infrastructure initiatives, from transportation to safety to education to etc etc, without which no significant achievement would be possible.
America's fastest growth rate was in the 1800s, when public spending was extremely small compared to today, so clearly the current level of spending isn't necessary for achievement. Especially given most of the US budget is spent on military and welfare.
> Every single citizen is supported by countless public infrastructure initiatives, from transportation to safety to education to etc etc, without which no significant achievement would be possible.
And who do you think is paying for all those initiatives? The government doesn't create, it only redistributes. Transportation, education, etc. would exist perfectly well without the government getting involved. Their "contribution" consists solely in taking the money that would have gone to those things—or other things that people considered even more valuable—and channeling it through their own programs. There is no value-add, just concentration of power, curtailment of viable alternatives, and a much increased scope for corruption and general inefficiency.
> And government supports and enriches society. It's symbiotic, not parasitic.
It's not a pure parasite, true, but even if a symbiote happens to perform some necessary function for the host as a side-effect that doesn't imply that the host wouldn't be better off fulfilling that need some other way. This is not a healthy relationship. The point is to maximize the value to the host. The needs of the "symbiote" are irrelevant, yet it actively discourages competition and violently resists being removed or replaced.
So many assertions, so little evidence. Surely there is value added by basic research funded by the government, technology created for space or military purposes, and providing the enforcement of laws necessary for people to want to start businesses in the first place!
Incentives are powerful, and typically get the result they are incentivizing in the end. All taxes are a form of incentive, we should always be careful of taxing things that we want more of.
If you favor a wealth tax, you are implicitly arguing in favor of incentives to create less wealth. If you tax investment, there will be less investment. If you tax the rewards from great risk taking, there will be less great risk taking. So every tax is a trade-off: are we better off with less of the thing we're taxing and more in the hands of whomever is collecting the tax?
A related point would be that wealth can be created from nothing. It is not zero sum. My sense is that many people advocating for a wealth tax do not understand this conceptually.
An important point here would the magnitude of those effects: how much a 1% wealth tax would reduce wealth creation? Whether it is by .0000001% or by 99%, it would be "incentives to create less wealth" but in the former case it is all but negligible and in the latter case it is a catastrophe.
Capital tax opponents seem to always use the elasticity of wealth creation with respect to the wealth tax rate is extremely high, but I do not remember seeing any evidence on this.
> My sense is that many people advocating for a wealth tax do not understand this conceptually.
or they do, and yet still advocate for it because they know they will never be affected by this tax, but the tax will benefit them (indirectly via more social welfare funded by said tax).
I disagree with a wealth tax, but for a completely different reason[1]: it's very hard to value assets and any attempt to do so will lead to weird distortions of the market.
Let's say I'm a billionaire looking to avoid paying higher taxes. Well, first thing I'll do is avoid having my money in public stocks, because those are inherently easy to value. So I'll try to keep my money in private investments and then hire plenty of accountants and lawyers to argue that those private investments are worth as little as possible.
If I really want to get crafty, I go out and buy hard-to-value assets like paintings and Romanian forest land. Valuing a company with cash flow is hard enough, but certainly my team of experts can find a way to say that I vastly overpaid on my new picasso and that it's now worth much much less (even if that's not true). And in any case, are we really gonna have tax assessors enter people's homes to evaluate their art collections? And if not, what's to stop me from claiming that the painting got damaged and isn't worth much anymore?
To take another example, let's use WeWork as an example. At it's height, WeWork was "valued" at $47 billion. That means that Adam Neumann, as 30% owner, was "worth" ~$16 billion. With a 1% wealth tax, he'd owe $160M in taxes on a valuation that was probably 10x higher than reality. Of course, in a world with wealth taxes, you'd always find a way to structure a deal so that you can effectively claim that it's worth less, but the point is that any wealth tax is inevitably going to be unfairly applied because of the shenanigans some people will go to to pretend that their wealth is worth much less.
[1] I'm not inherently against higher taxes on the wealthy, particularly estate/inheritance taxes, but I do want to see them applied reasonably.
If you do some amazing thing, you should get rich.
But if you then rest on your laurels, you should get diminishing returns from your amazing thing over time.
Currently, with startups etc, you get accelerating returns, since other people who join your company propel it forward, but you get most of their reward (unless it's a co-op), just because you sowed the initial seed.
These comments and the article show a remarkable misunderstanding of a wealth tax.
I'll focus on just the article. If, as wealthy person, you can't make about 5% each year to cover that top tier of tax, I think it's totally fair to tax that wealth. That money is sitting in an account doing nothing and that person's additional contributions to society are near zero. Having that money invested in an index fund basically covers that 5% in the long run.
It's unbelievable how selfish you would need to be to be upset about paying a wealth tax. If you had hundreds of millions of dollars... What exactly is left that you can't afford to buy? As the article implies, all the wealth comes at once up front - so you deserve to keep all that wealth for some best case one time remarkable burst of effort and genius or worst case accidental lucky windfall while the rest of your peers and community work tirelessly to earn a living wage?
We already have extensive experience in the U.S. with a particular type of wealth tax -- called property taxes. I've been paying them in California for 23 years, and they haven't ruined me yet. (The nominal rate on those tends to be about 1%, too.)
Many people with personal wealth of $50m+ start steering significant money into foundations of their own devising. There's a good debate to be had about whether society is better off with the richest people creating their own philanthropy and social-reform strategies, or having them hand over the $$ to the government for its version.
I'd rather see individual strategies proliferate, on the belief that the government doesn't always know best. But the idea that a 1% tax will bring ruin on successful entrepreneurs grossly underestimates the way that fortunes keep growing.
I'd rather see individual strategies proliferate, on the belief that the government doesn't always know best.
I don't understand this argument because you get the opportunity to vote in government representatives who do know best every couple of years. They are accountable to you. You can even run yourself if it's really that important to you. This is a huge feature of government.
A problem that is usually not noticed with a wealth tax is that you have to pay the wealth tax from money which already has been taxed with some sort of income tax.
Means a 2% wealth tax combined with a 50% income tax, dividend tax, capital gains tax or whatever ends up being a 4% wealth tax effectively.
Example: You own stock worth $1,000,000 and the government wants 2% wealth tax from you which means $20,000. But to get that $20,000 you have to sell $40,000 worth of stock and pay 50% income tax for that sale and the government ends up taking 40,000$ effectively.
Properly managed capital gains are taxed at ~15% or less. One should hope that by the time you accrue $50 million your capital gains are properly managed.
How do you get to your 15%? Long term capital gains in the US are taxed at 20% + 3.8% net income tax + state tax. In a city like New York, you're talking close to 40% depending on your tax bracket.
That was just an example to make the point clear which varies from jurisdiction to jurisdiction. But even in your 15% example the long term effects are very significant.
Your point has been noticed time and time again. It's called "a nice problem to have." A man who is living paycheck to paycheck would love to be able to just dip into his investments and toss away $20K without at all affecting his lifestyle.
Money is power. I can't request a sit-down meeting with my own senator or local representative and expect my request fulfilled. Paul Graham can, and so can everyone in his wealth class. This is a problem, because Graham is not a constituent of either of them.
(If you're planning to wink at the bank, pay nothing, and let them keep the stock, that's the kind of thing that won't work if it becomes common. At that point, people will point out that you sold stock to the bank and didn't pay the income tax.)
Interest rates are so low that your income from your job at the startup is probably enough, right? Granted it won't work if rates go back up, and the current environment is a bit special.
Plus you might have some dividends on the whole amount.
You're paying interest on top of the loan amount, which you still also have to pay. You may not get the income to pay the loan by selling stock, but you have to get it somehow, and you'll pay income taxes on it.
The point is by borrowing the money you avoid paying the same amount of tax, because the income tax on whatever you're servicing the loan with is not the same amount as what you'd pay if you sold the shares?
In a general debt-vs-immediate-payment question that could work, I guess, because you can e.g. pay the debt off over such a long period that the total income you need divided by the number of years you take falls into a lower tax bracket than otherwise.
I have trouble seeing how it would work in the example under discussion, where we know that the person is extremely wealthy -- and thus should hit the maximum income tax bracket no matter what -- and that capital gains taxes are likely to be the least heavily taxed income source available, so that it would be difficult to beat selling stock.
Depends a lot on what country we mean. Also, the debt never had to be repaid. You can keep rolling it as an interest-only loan, so long as the collateral is enough to satisfy the lender.
The 50% tax that pg dislikes for startup founders is basically what I experienced during our startup’s liquidity event. I imagine that a fairly large number liquidity events are the same.
The acquirer paid us out in cash, which meant we were taxed at the highest marginal federal income tax rate of 37%. California taxed 10%, making the total 47%.
I only kept a little more than half of the upside, but it was still life changing.
I had to pay the taxes immediately. In pg’s example, the wealth tax would require payment over 6 decades, which is easier.
It's not a replacement, it's in addition to all of the other taxes you already owe.
And if it's anything like the income tax in the United States, the percentage owed will increase dramatically over time and the floor will be lowered dramatically over time. The goal right now is just to establish the principle.
This gets really sticky in a few areas:
1. Il-liquid assets and their values + the expense of constant appraisals
2. See #1 When they don’t produce cash - sure your stock ‘s “worth” $30m but doesn’t pay a dividend and you can’t sell it... so you have to borrow agains your extremely risky asset to pay your tax bill?
3. Has the potential to create real downward pressure on asset prices (which may or may not be a good thing) given the huge negative annuity associated with some non-cash producing assets
This is an incredibly stupid and mendacious line of reasoning. This is just the action of an incredibly rich guy afraid to give up a small sliver of his enormous wealth, and grasping at straws to do so.
A simple way to see how silly this argument is - replace "0.5% wealth tax" with "2% VC fund management fee", and see how that changes the conclusion!
Note that the US already effectively has a wealth tax, because of how long-term capital gains tax is computed.
Let's say you had $100M from a successful startup in the first dotcom bubble (2000-08-14). You sell all your stock (unrealistic, but ok), put it in VTSMX (33 -> 83), and you're up to $250M twenty years later. Then you sell it all. Nominally that's a 4.7% annual return, but there was also inflation: your $250M today would have been worth $167M in 2000, not $100M. That's about a 2% inflation rate, and your real return was 2.7%.
Another way to think of this is, you had 100M DOLLAR_2000s, which is equivalent to 150M DOLLAR_2020s. Your real gain was from 150M DOLLAR_2020s to 250M DOLLAR_2020s. The IRS ignores inflation, however, and charges you capital gains on the whole nominal gain. Instead of taxing you on a gain of 100M DOLLAR_2020s they tax you on 150M DOLLAR_2020s.
This is nearly equivalent to:
* Tax people only on their real gains, after inflation.
* Charge a 0.4% wealth tax (2% inflation * 20% long-term capital gains)
Which makes me think that "even a .5% wealth tax would start to keep founders away from a state or country that imposed it" is probably overstating the claim, since the US is very popular for startup founding and has an effective wealth tax nearly that high.
Turning your argument upside down: What stops the govt from printing money to bring inflation to 2%, hence financing the budget by indirectly taking from everyone's savings?
This is something that some governments do, printing money to finance the government through seigniorage, but it tends to be the last resort of dictators and destroy the economy. Not an option anyone takes if they have anything better.
Not sure if others have opinions, but I remember when Andrew Yang was campaigning he talked about going after individual's wealth as the incorrect strategy since their wealth lies in their companies e.g. Amazon... and that a better strategy would be to implement a 20% VAT tax so we're gaining value from every transaction of their businesses that's hard to game and quite effective.
A VAT has the advantage of being simple to administer, and it's capturing the gains made via automation at every step of the chain.
Sounds good if true, and I believe most other countries have figured this out and implemented one. We don't talk about it here though.
I usually like how in-depth PG gets into topics he discusses. I felt like he barely scratched the surface here. For example, any proposed wealth tax only applies to the wealthy. The number proposed by Senator Warren ("just two cents!") is wealth above $50 million [1]. PG says that startup founders would lose a majority of their wealth meaning there wouldn't be much point to starting up. But they'd have $50 million at least, and would lose up to half of wealth above that.
Is this really such a terrible outcome that people would avoid working on their startup? Are there founders out there who think "if I'm going to have less than $100 million when I'm 60, it's not worth it. I'll go elsewhere to start my business."
PG is actually in a great place to tell us how many startup founders leave their startup with greater than $50 million of wealth. If I had to guess I'd say not many, but it would have been nice to get hard data.
I see no reason to be alarmed. It’s highly unlikely the government would be taking from your stock directly. Requiring shareholders to pay cash equivalent to a percentage of their shares is reasonable, although with hyper-growth companies that don’t pay dividends, this could get tricky. Maybe it would incentivize more investment in dividend-paying companies?
Also, FWIW, I think it would be better to impose a wealth tax in place of income tax, as much as possible, rather than add the wealth tax on top. Income taxes are fundamentally unfair to people with high healthcare expenses, children in college, etc.
A common objection to wealth taxes is the difficulty of tracing assets. But in the Muslim world, for example, a 2.5% tax on wealth was collected more than a thousand years ago, and I would imagine most rational, even moderately wealthy people today keep most of their money with financial institutions, making the government’s job much easier than it was in the past. And the danger of people hiding their wealth in diamonds, paintings, yachts, etc. could easily be avoided with a tax on luxury goods.
> It’s highly unlikely the government would be taking from your stock directly.
It makes no difference whatsoever whether they take the stock directly or force you to sell the stock in order to pay the tax in cash. The end result is the same—your stock is reduced by the amount of the tax.
That is a valid concern which I acknowledged in my comment. It would probably result in investors seeking investments with an expected return that offsets the wealth tax by a decent margin, while also paying dividends. I am by no means an investment expert, but maybe those are the kinds of investments we should be encouraging people to invest in anyway? Hyper-growth, overvalued companies are often great investments, until they’re not.
Edit: if we don’t want the government picking winners and losers, another option could be deferred taxation; when you sell, you pay taxes for however many years you held the stock.
My point is that many entrepreneurs have the majority of their wealth tied up in their business, and many people that may be worth 30m might have 10m of that in personal real estate - all of which is hard to value precisely without trying to sell it.
Perhaps a different way of thinking about it is control. For a founder in their 20s whose wealth is entirely in the stock of the successful company they created, assuming one vote per share, a wealth tax greater than 1% will force them to lose control of the company they created within their expected lifetime, even if they bootstrapped and never raised any money from outside investors.
"Suppose you start a successful startup in your twenties..."
Suppose you are a spherical cow of uniform density...
"...and then live for another 60 years."
...having converted your stock to greenback dollars and never making another dime...
Suppose you exit your startup with $10,000,000 in stock, that it (or your portfolio containing it) grows by 5%/year, and that you pay 1%/year wealth tax. After 60 years, your value will be about $100,000,000 and you will have paid about $25,000,000. If I'm doing the math right, you could have ended with $190,000,000, meaning a 1% wealth tax would have theoretically cost you $90,000,000.
initial_value = 10000000
growth_rate = 0.05
tax_rate = 0.01
value = initial_value
total_growth = 0.0
total_tax = 0.0
for y in range(0, 60):
growth = value * growth_rate
total_growth += growth
value = value + growth
tax = value * tax_rate
total_tax += tax
value = value - tax
print(y, value, growth, tax)
print(value, total_growth, total_tax)
What a laughably incomplete model. I don't care whose post this is. It's the epitome of short-sighted.
So the government just takes the money and that's the end of it? Not by a long shot. Every major proponent of a wealth tax in the US has proposed it as a means to fund public programs. Whether that means Medicare for All, Green New Deal style initiatives, tackling affordable housing, support services for the homeless, better child care, and/or increasing the accessibility of higher education, founders and their employees are sure to benefit a great deal. A model that doesn't even attempt to account for those benefits is not useful, and merely serves to shut down the conversation before it can even begin in earnest.
And let's get the government efficiency (i.e. lack thereof) argument out of the way too. Sure, a good portion of these funds will be "wasted" on bureaucracy and plain old corruption. If that's your main argument, try voting and participating in local government instead of being a NIMBY toward progressive ideas. And if you think for a second that these taxed funds would go farther if they remain in the hands of the wealthy, well, look around you and notice all of the socioeconomic issues that go unaddressed every single day.
Of course, the short-term thinking isn't surprising. Today's leaders heavily prioritize short-term benefit over long-term prosperity. It's why our stock market is so disconnected from the actual economy. It's why the nation can't figure out how to escape this pandemic of stupidity. It's why we can't get any real commitment to address climate change which has already reached a level that threatens our very existence as a species.
As a nation, and perhaps a planet, we need to start thinking beyond just the next office term or the next fiscal year, and more toward the scale of the next generation.
Otherwise, we aren't going to have one.
I am actually in the process of moving because of a wealth tax so I wanted to chime in :)
Spain
Spain has a wealth tax that is very frustrating. It was designed when savings accounts were paying 5% interest and has not been updated since then. What does this mean in reality?
My family would pay ~75% of our income to live here. Not only because of the wealth tax but also because of the dividend/income taxes on top of it. Part of this is because I am American and America forces dividend payments where as Spain does not on stock ETFs (long story). Due to a loop hole we can stay for a few years, but we plan to leave in 6 months to Portugal.
It is also frustrating as if you do any angel investing you have to pay taxes on the assumed value of that investment (from talking to lawyers/accountants). So if I have a 0.5% stake in startup that is valued at $500k, I pay wealth taxes on that every year, but if it fails I don't get anything back or anything to write off against future capital gains.
It is def impacting investment in Spain.
All the rich people in Spain live in Madrid, as the city zeros out the wealth tax. But it is hampering entrepreneurship in all the other regions. And, because of some of the loopholes in the design of it, it boosts property ownership and lowers returns there because you can stash money in real estate to avoid it.
*And, because of this Madrid has huge concentrations of wealth.
Switzerland.
I also wanted to move to Switzerland so my wife could get her PHD. Had to skip it as it was going to cost ~$250k USD to be there for that period. In that time I would have started a company in Switzerland and so they lost that and taxes from the eventual exit on that.
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I do not like wealth taxes. I think they are supremely flawed and hard to pull off right. A few countries have. I understand the tax challenge, but I think you are better off taxing dividends progressively and taxing inheritance heavily.
What I want is a tax on wealth gain, even unmaterialized, with a floor based on what you've previously paid. Essentially a capital gains tax as it is implemented in most developed countries but applied to unrealized gains as well.
So if your wealth goes from $60m to $100m I want the tax to apply to the $40m delta. If the next year you lose $20m, then make it back the following year, no tax applied. I also want it to be progressive and to mirror the top marginal tax rate for people earning over $1m a year.
It's not perfect, since companies like Space X aren't publicly traded, so the financial sector would need to create new instruments to allow someone that is cash poor to afford this tax, but the present situation is insane. Buffet and Bezos should not be paying less in tax than a doctor or lawyer.
Taxing unrealized capital gains is incredibly harsh. Basically cuts your yearly returns in half, and that completely destroys your returns over long periods of time (30 years). Out of all the proposals, this seems the most insidious.
Taxing unrealized capital gains (provided you also allow deduction of unrealized losses) is equivalent to taxing net realized gains except in effect on the power people holding large unrealized gains can exercise over society. It doesn't have any effect on net, after taxes returns.
I'm not sure I follow. Let's assume 10% growth of your assets every year, with 50% tax on gains. You start with $1k. After 30 years you liquidate all assets.
If taxing unrealized gains, you end up with $1k * (1.05)^30 = 4,321
If not taxing unrealized gains, you end up with $1k * 1.1^30 = $17,449 and then pay 50% tax on $16,449 when you liquidate, so you end up with $9,224.
so it will also apply to unrealized losses too then? Or is it a one way street where paper gains are taxed as tho it is realized, but paper losses can't be offset?
I once did a bit of napkin math for a progressive friend of mine and have used it more widely since. Most people end up shocked and unwilling to accept this, which amuses me.
I ask: "Suppose the government took 100% of corporate profits every year and distributed them evenly to the people, how much will everybody make?" I do this for Canada and if you take the average of corporate profits over the last 10 years and divide by the population it's $7,500/a.
People don't like this, they're convinced there's way more money "out there" than there actually is. There isn't, we're all poor, and the existence of inequality doesn't change that.
$7,500 per person per year is actually higher than I expected. I 10000% agree with the general point that people seem to think the rich and/or corporations have wildly more than they really do.
Paul is surely trolling, no? This isn't even close to realistic modeling. Most startups will spend many, many years worth very little. Well under the wealth cap floor. This means that if you don't own a unicorn then you'll likely pay 0 taxes. And because most wealth tax proposals scale up the percentage, the time that a startup isn't making someone a billionaire amounts to time where the tax rate is pretty low.
The net effect from these scaling wealth taxes would be a soft cap on long term net worth, likely somewhere around 1bn to 10bn. The fact that this soft cap wasn't a key output of his modeling is pretty embarrassing...
Isn't this model naively assuming that you just put the money in the bank (or under your mattress) and don't do anything with it? I'm struggling to see how this model is a useful contribution to the discussion. Is there some unspoken assumption here such as "startup founder gets wealth-taxed before their stock is liquid"? The "over the next 60 years" part seems to suggest that's not what he's going for here, and you'd expect some special treatment like an 83(b) to cover this case in the illiquid window anyway.
Here's how I would model this: the S&P has returned 7% / year (inflation-adjusted) and if you have millions you can invest in higher-yield instruments like hedge funds and startups, so I'd expect a billionaire to be yielding north of that. This more than covers any realistic value of a wealth tax for even the biggest whales like Zuckerberg.
For context Warren's plan [1] was 2%/year for wealth above $50m but below $1b, and 6%/year on wealth above $1b, so perhaps worst-case this wealth tax would prevent billionaires from accumulating more wealth through unsophisticated passive income. Founders with "only" $100m would net 5%/year instead of 7%/year of passive income from investing in the S&P. Ok, say you put half in T-bills and dilute your return, even then you're still netting 2.5%/year.
Honestly I don't think that's a terrible impact; if billionaires have to beat the market and/or invest their wealth above $1b in more risky assets in order to net a return, that means they will be driving lots of startups and other economic activity. (And remember, you can still invest the sub-$1b portion of your portfolio more conservatively in treasury bonds and whatnot, it's just the wealth above $1b that is taxed aggressively.)
I'm fine with a social contract that says "if you happen to win the lottery and earn $1b, you don't get to re-invest that money to make more money and build a dynasty".
I am not opposed to a wealth tax, but I wish we understood what it is we are undoing here. The Federal Reserve is now printing trillions of dollars. Some of this is going to Congress to attempt to distribute fairly. However, most goes towards buying financial assets that are overwhelmingly owned by the wealthy.
This printing, which has been going on in extreme for a decade since the housing crisis, is one of the main drivers of the current wealth gap leading to populism and necessitating a wealth tax. To me it makes more sense to figure out how to stop this process or fundamentally alter it then to keep it going and then tax it.
No wealth tax proposal is flat like this. It's well known that flat taxes are regressive and disproportionately hurt lower-income (or in this case, lower-wealth) people. It is suspiciously disingenuous to strawman wealth taxes like this, while couching the revenue in terms of "your stock". Honestly expected better from pg.
The Constitution is irrelevant as long as you can get five justices on your side. Most gun laws, the expansive interpretation of the commerce clause, etc., are blatantly unConstitutional, but you can't get five for overturning, so they stand.
This is such a straw man argument. No one is proposing something like that - most wealth tax proposals have a floor of like $100m, and a 1% tax seems extremely reasonable when most people can get 4-10% returns just from parking their money in a index fund.
I'm of the opinion that no one should have north of $100M. The difference in lifestyle between $100M and $1B isn't going to magically halt entrepreneurship or innovation, and it's immoral to have that much when most people living paycheck-to-paycheck in this country are miserable.
The problem isn't the wealth tax but about creating a taxation system and monetary policy that actually helps people.
There is this false assumption that a wealth tax will somehow eliminate wealth inequality.
If you have an already broken economic system you will end up with more money in a broken system and it won't yield better results for the average person.
But this is about marketing and "winning" not about progress.
If you want to actually help people you should start with property taxes.
Increase them to 10% on a sliding scale as property values move further away from the median price of a home sold in a state or city.
This would discourage multiple home ownership, it would drive tax revenue that stays inside of the local community (state level) rather than creating a larger budget for the military. You could use those taxes to improve education and local infrastructure. Impose a system where those collected taxes are then redistributed on an economic basis where the poorer neighborhoods receive a larger percentage of those local taxes.
If you buy a $2M house in just 10 years you would have paid $2M in taxes. By increasing the carrying cost of property you will also reduce property prices as this is no longer an asset that you carry with zero cost.
To further improve the cost of housing make sure that there is a 100-200% tax on foreign buyers buying property in US markets. This will again drive down prices and help people afford houses.
Unlike paying into a large federal tax system where the effects are harder to observe you would see improvements on the local area immediately. Property prices would decrease, poorer neighborhoods would be helped which would lead to a reduction in crime and poverty levels, and your infrastructure that has been classically underinvested will receive more funding.
Low property taxes also lead to higher costs of tuition. By also removing the inability for people to get out of student debt through bankruptcy you would also decrease the price of education. And if we used the additional tax revenue from property taxes to create additional "vocational" schools for the new economy such as computer programming programs you can help people get ahead.
If you want people to be civicly minded you have to show them how their taxes have an impact and that starts at the local level first.
Property taxes are a wealth tax, specifically a tax on real estate wealth. It's hard to see why taxing this form of wealth is so great, but other forms of wealth is so bad.
As for the argument that the US should be more decentralized - less money goes to the federal government, more to the states - this may or may not be true, but this applies equally to all taxes, not wealth taxes in particular.
Property taxes allow people to see the direct benefit immediately. As an individual you get control over taxes to an extent through purchases. And because the federal government misspends half of the taxes it collects so instead of giving them more give them less but pay more in taxes directly to the states.
land is one of the few things that is truly scarce and every human needs access to. the value of a particular piece of land is determined much more by public and private investments in the locale than anything the property owner does themselves.
I remember in law school my income tax professor recommended a book for those of us who wanted a more tax nerd approach. I can't seem to find my copy right now, so I may be getting some details wrong as the following is from 30 year old memories.
Anyway, there was some discussion in the book of what would be the ideal tax in terms of fairness, effectiveness, minimizing market distortion, and assorted other you want in a good tax if we did not have the constraint of it actually being practical to implement.
I think that the conclusion was that a tax on changes to net wealth was the best. Each tax period, subtract your net wealth at the start from your net wealth at the end, and that difference is what you are taxes on. (Whether it should be a flat rate or depend on on the size of the difference is a separate question). If that's positive, you owe tax. If that's negative, you get a refund.
Unfortunately, it is not practical because wealth (1) is often heard to determine, and (2) is often in forms that can be efficiently converted to cash or cash equivalents to actually pay taxes with.
Income taxes kind of approximate this for the large number of people that do not have a significant amount of money in real estate or in personal property (other than investments such as mutual funds). For them, most of additions to wealth come from income, and the standard deduction kind of approximates subtractions from wealth, leaving taxable include roughly matching net change in wealth.
The Upton Sinclair quote has seldom been more apt.
Assuming it could be effectively and efficiently administered, replacing all income taxes with a wealth tax (and VAT) would massively simplify the tax code while making it significantly more fair and heavily rewarding those actively generating the greatest returns.
Under such a scenario, the only people significantly negatively impacted would be those who hoard wealth or invest it poorly, and as a consequence are unable to overcome the periodic tax.
As to its fairness: when the wealthiest pool their resources in order to protect their assets’ value, as is the case in e.g. a hedge fund, we see them happily sign up to a 2% yearly levy.
A more elaborate metaphor makes situation more vivid still: imagine the scenario in which America’s wealthiest were to all move to a “Galt’s Island”, except in doing so they left the American security blanket and became entirely responsible for the defense of their assets. In such a scenario, the idea that the merely wealthy would pay the same as the hyperwealthy immediately stops making sense, as it’s the hyperwealthy who are both benefitting most from the security afforded, and the ones who are most responsible for Galt’s Island being so tempting a target.
America is Galt’s Island, except we have seen a systematic shifting of the burdens of its upkeep from those who can most easily afford it to those who can afford it least.
Whatever people think about this tax, I think it is basically immoral. This is why:
- people say it is good because it brings more money for the government to spend and wealthy people have money, so they are the easy target to get money from. That makes them just an obvious victim, not the right thing to do. It's a thug mentality to pick the old lady as a victim because it's the easy thing to do.
- it is discriminating. To the extreme, if the country has X needs divided by Y people, each person should pay X/Y to cover it. One man, one vote, égalité, fraternité, whatever slogan you want to use means equal rights but equal responsibilities too.
- it comes with the justification that the (US or Cali, I am in Europe so I am out of it) government needs more money. That is the rapist argument, someone's needs does not imply someone else's obligation to fulfill the needs.
- it comes with the justification that it can be done legally by voting. That is the group rapist's argument, no matter how many people vote it does not make it automatically morally right.
- it justifies that the result will be better services. Well, if money is what is needed for better services then why not put a direct payment for the services? Some people would not afford it, so going for someone else to pay for it will make it possible ... not morally right.
- the argument that a filthy rich person can pay and still be filthy rich. That is very true, but it is still morally wrong to take someone's money (or wealth or whatever) just because they can afford the loss or they have plenty. My neighbor have several bicycles, does it means it is fine if I take one?
PG is assuming the stock doesn't grow at all in this article (in 60 years!). Let's say it grows at 8% a year, which is pretty conservative. If you started at $1 million, with a 1% wealth tax, at the end of 60 years you would have $55 million.
Warren's plan was a 2% wealth tax over $50 million. Let's say you start at $50 million, and that grows 8% a year, and you get taxed 2%. At the end of 60 years, that's grown to 1.5 BILLION.
I don't think pg actually doesn't understand the notion of inflation, asset value increases, dividends, etc.
I mean our entire pension system is built on top of the assumption that equity holders will see an average of 6-7% returns annually over a long stretch of time (TBD if this holds true).
If you're going to argue against a wealth tax and this is what you've got then you're really just saying you have nothing.
If you do the above every year until today you have $528,254.27. With 0% wealth tax you'd have $592,361.08. So you basically payed an overall rate of ~11% without ever selling and paying capital gains tax. If the value of your investment is not going up by at least 1% every year then it's time to get rid of it, AAPL did have some bad negative years though. In any case, if such a tax gives us healthcare, education, housing, guarantees no one goes hungry, and a UBI for everyone then I'm all for it.
The Chamley-Judd finding of a 0% optimal capital tax is a very sticky result in optimal taxation theory. One way to think about is you want your tax system to walk as softly as possible while getting from point A to point B. Don’t distort intertemporal decisions if you don’t have to. Don’t tax elastic things when you could tax inelastic things - impose taxes on things where the optimal allocations don’t change much with the new disincentive. A wealth tax takes this result and compounds it. I should really consume my wealth instead of saving it. So you’re rewarding the spendthrift and hurting the saver (the investor). Investment and growth (and overall welfare) suffer. The caveat to all this is that a wealth tax that’s a one-time unexpected confiscation of wealth shouldn’t distort incentives, which is kind of approximated by the estate tax (poorly approximated since its still expected). But the wealth tax is really not about optimal tax theory. It’s about saying the quiet part out loud - taking from the wealthy because there’s a belief that it improves democracy. This belief is unfounded but has high political ROI.
> In contrast to Chamley-Judd, the optimal tax on capital is positive in our model because we have finite long run elasticities of inheritance to tax rate
Why "wealth tax"? Why not "income boost" by taking some % (20%? 50%? 80%?) of the dividends and dividing it equally to the people who work there as well as pay their salary.
The company does well - you get a bonus!
The company does not so well - no bonus, you better work smarter/harder/different.
1. Motivation directly tied to productivity.
2. Team/community feel when you "win".
3. CEO really IS working for you!
4. Less money for the rentiers. But they still get money.
5. More money for "the workers".
6. Still get your salary to distinguish between high value and less value jobs.
7. Still can buy shares in whichever company floats your boat, including your own.
Clearly, the job market and the share market would change significantly in how they value things and new ways to abuse things would emerge (people working many "full time" jobs at once?) but I can't see how it would be worse.
Ultimately, take some money from the "rentiers". People who make money because "they own something" not because "they do something". Rentiers are non-productive leeches on society.
I'm not a fan of this proposal but I think this line of argument is pretty flimsy and pretty specious.
In the Bay Area you're already subject to a form of wealth tax called property tax. And it's substantial. If you live in San Francisco you'll get charged 1.1801% every year [1] on the value of your wealth (property). If I bought a house in SF and live for another 60 years I would be taxed 60 times on that same asset. Does that mean the government will over the course of my life take 33.6% of my house?
It's not as if property tax has kept a damper on Bay Area house price inflation.
> In the Bay Area you're already subject to a form of wealth tax called property tax. And it's substantial.
No, it's not
> If you live in San Francisco you'll get charged 1.1801% every year [1] on the value of your wealth (property).
That might be the average amount of taxes on real property, but it's not the rate of property tax. That's capped at 1% of the tax basis value, which grows at a capped rate excluding sales and certain other qualifying events. There are also Mello-Roos assessments, but those are per-parcel not as-share-of-value taxes.
> If I bought a house in SF and live for another 60 years I would be taxed 60 times on that same asset.
At a declining rate, because property value tends to increase much faster, on average, than California allows tax assessment value to increase.
> It's not as if property tax has kept a damper on Bay Area house price inflation.
Property tax assessment increase limits have accelerated it because they discourage sale of property.
General wealth taxes are bad because they punish creators of productive assets. However, we can address one major negative cause/consequence of inequality - rents eating all personal income - by instituting a land value tax. Land is one type of wealth which does not exist due to anyone's effort and needs no incentive to create. Furthermore, it will not flee the country if taxed at a 100% rate. The proceeds to land value belong to the community, and a LVT could drastically help ameliorate the expense of shelter as most rents go towards paying a premium for location.
Technologists are well suited to advocate for a land value tax because unlike other industrialists, land and natural resources are only a cost to us, and we possess capital in abundance.
You are right of course, but since we are talking in the context of successful founders, I figured the relatively small exemption wasn't that important.
Also, do we ignore the compounding effects of investing that money at any reasonable return over the same period of time? Even at 2% return, you're talking about reducing the return to 1% with a 1% tax. This is such a bizarrely basic and self-serving analysis.
We provide a wealth safety net to insure against large loss of capital, think TARP, so then some portion of benefits from large increases should also be shared.
It is unfair to ask a country to socialize your losses, but not benefit from your wins.
Not that I support a wealth tax – I don't – but the article doesn't seem to appreciate that this kind of gradual redistribution of idle wealth is not an alarming side-effect of such a tax, it's exactly the point.
Isn't his claim kinda... laughable? Most of us live in countries were overall income taxation is over the 26% that in his calculation correspond to the mystical 0.5% wealth tax that over 60 years would scare founders away.
Yeah, if you don't work or even invest and do nothing for your whole entire life, while sitting on a pile of cash larger than you could ever use (and note: we specify you are NOT USING IT) you could end up dying (in a presumably stable society that hasn't itself killed you) sitting on a pile of cash only half larger than you could ever use (and we specify that you are NOT USING IT).
So persuasive. Gee, I'm really convinced. Certainly worth destroying societies over and risking violent revolution and the destruction of all those assets.
To me the sad thing about the wealth tax is that it distracts attention from the value-added tax, land-value tax and carbon tax, which, while not as progressive as the wealth tax, are much better as potential revenue sources and can easily be paired with better welfare programs (e.g. universal tax dividend née "basic income") to be similarly redistributionary in practice. The wealth tax satisfies a combative urge in our politics to stick it to the rich, but if there's one thing consistent about wealth taxes, it's that the actual receipts are not so high. France's much-ballyhooed wealth tax brought in a measly ~5B euros (about 7B USD) per annum:
France's annual government revenue is easily above 100B euro, so the wealth tax -- which, as 'thomasdullien appears to have argued, was too high -- brought in around 2% of government revenue.
Maybe the antisocial effects of billionaires nonetheless justify a wealth tax -- maybe their ability to buy all of the best land and city governments justifies a tax that serves mostly to prevent their untoward influence on society -- but when considered as a way for the government to make money, I have yet to find an example of a wealth tax that works.
He is not modeling the threshold below which wealth is not taxed. The wealth tax being proposed in California is 0.4% on amounts over $30MM, so the lifetime percentage taken by the government on a $30MM stock cash-out via the proposed wealth tax would be 0%.
So the proposal boils down to $30MM tax free, and then 21.4% on the amount over that. But you're also likely to invest that money making, say, 7%. So your return each year on the first $30MM is 7.0% and is 6.6% on the rest after paying this tax.
Would a wealth tax benefit society? It would seem that if an individual was creating wealth, other individuals would be wise and say: "you keep going!" How would it profit society to interfere with the genius who was creating lots of wealth?
Perhaps a better way to add richness to society would be to examine the use of an inheritance tax. When a genius wealth producer dies wouldn't it be in society's best interest to find a way to funnel that wealth so that other individuals with good potential can use it to create economic activity which could benefit everybody.
Right now so much money can be funneled to descendents, perhaps some of whom never knew the economic genius it created the wealth. These descendents then don't need to apply themselves in life, but instead can lead a life of leisure which often is not beneficial to them or society. Witness what happened to Max Factor's grandson, who I believe is still in prison.
It would seem funneling the wealth from a deceased economic genius into capital for individuals with great potential to realize their ideas would enrich all of us. Right now there are probably many individuals who could create amazing things if they had access to the right education and capital.
It's more important to look at why the rich might be a problem than why their money might be useful to us. I know a lot of non-billionaires spend their lives defending them, but there is a case to be made for why their industries and disproportionate social power have been hurting society and a wealth tax is a small way of balancing out wealth inequality which, yes, is a bad thing, and you can do a thorough read of wikipedia if you don't think it is a bad thing.
There's a lot of confusion about taxes and wealth in this thread.
Suppose that I'm paying someone $100/week to get my iguanas polished. If my taxes go up by $100/week, the obvious place for me to make it up is to stop paying to have said iguanas polished.
Is society better off? It depends. That said, the person who got that $100 from the govt is happier, but the iguana polisher is less happy.
As far as wealth taxes go, there's a similar effect.
Suppose that I have my wealth in a bank. I owe $100 in wealth tax so I withdraw it and pay the govt, which then spends it. Someone is happy because they got that $100.
But, what about that $100 I withdrew? That's at least $100 that the bank can't loan. The person who doesn't get that loan is less well off.
Okay. So we don't tax bank deposits. We'll tax stock.
Okay, so I sell $100 worth of stock to pay my stock wealth tax. In other words, someone gives me $100 for said stock and I give $100 to the govt.
Where did that $100 come from? Yup, someone decided to buy stock instead of paying her iguana polisher. Again, the iguana polisher is worse off.
You may think that no one should have shiny iguanas. My point is that taxes don't create wealth. They merely change where it is spent.
Lets go through an analysis of this looking at a real word scenario, but ignoring Federal Income Tax since that wouldn't change the situation.
Assume you sell your company and earn $10M.
In CA, you're taxed at 13% right away, and so have $8.7M. Lets say you earn 3% returns each year. Modest but not great. You're taxed another 13% on that 3% by California, meaning you actually earn 2.61% returns. After 60 years, if you leave the money untouched and tax laws don't change, you'll have just under $41M.
If there was a state that had no income tax (say, Texas or Florida) and charged a .5% wealth tax, it would go like this. You'd have $9.95M after paying taxes when selling your business. After a year of investing at 3% returns, you'd have $10.248M, on which you'd be taxed .5%. After taxes, you'd have $10.197M. Do that for 60 years, and you'd end up with more than $43M
While PG says that "Even a .5% wealth tax would start to keep founders away from a state or country that imposed it", it hasn't. California state income tax is higher, and that is where Zuck, PG, Larry Paige, Brian Chesky and a bunch of other people live.
At what point can we all stop and say the federal government is 'big 'enough'? We can always find more for it to do, but I think most people here will agree the market is better, for most things, than bureaucracy. I'm all for trying different tax strategies to be more fair and efficient, but I think we need a line in the sand we won't cross before we add another potential slope to slide down.
Most people here not in the US will tell you that there are two things that are incredibly expensive in the US because they are controlled by the market instead of by the government like they are in almost every other country (healthcare and higher ed).
Healthcare is controlled by the government because it enforces licensure artificially limiting the number of doctors. Prior to the AMA's lobbying for such restrictions in the early 1900s, medical care was cheap and plentiful; people even had doctors go to their houses.
Education is also artificially influenced by the government because it gives out special loans and makes it illegal to declare bankruptcy on them, allowing colleges to keep raising prices because they know students will always be able to pay via student loans.
Those issues are still the result of the market responding to the government's actions/policies; remove the market (make both single payer) and the government will have much more incentive to fix the problems.
The market has a response to literally everything. You can't 'remove the market' from a given industry. Single Payer would still have to pay market prices.
No I don’t think most people would agree with you. Outside of the USA, the idea of leaving healthcare and education and environmental sustainability up to the market is laughable, and scary.
Even ignoring the several flaws in this toy model (which other comments have discussed), it strikes me that this model doesn't show that a wealth tax is "bad" in some sense.
The main takeaway is that the overall impact on wealth is larger than perhaps intuitively expected initially. This is not a problem with the wealth tax itself, it just means the correct tax level should arguably be <0.5%.
Let's look at what a 1% US wealth tax would mean for Jeff Bezos.
He founded Amazon 26 years ago.
A 1% wealth tax means he keeps 99% of Amazon stock each year.
.99^26 = .77 = 77%
So he'd currently be worth $145B instead of $188B.
PG is saying Bezos would have left the US because of that?
Edit after twitter conversation with PG:
He doesn't believe Bezos would have not started Amazon in the US if there was a wealth tax. He thinks a US wealth tax might marginally reduce the number of founders that choose to come to the US to start a company.
I still disagree.
I think great founders will start companies in the place that maximizes the chance they create an Amazon-level success, not in the place with the lowest taxes.
At some point taxes may be too aggressive but a low single digit wealth tax isn't that.
> He doesn't believe Bezos would have not started Amazon in the US if there was a wealth tax.
Did he elaborate? That seems like such a joke to me. Denying yourself access to the world's biggest market because, if you make it big, you'll only have $145 billion instead of $188 billion...
Although it is interesting of course that Amazon was founded/located right from the start in part on a tax optimisation. I can imagine say a French entrepreneur may choose to incorporate in Germany to launch his EU startup (though even here, extremely skeptical) based on a (hypothetically) better personal tax system. But skipping the US? Highly improbable.
I think a 1% wealth tax is enough to encourage billionaires to move out or CA, but probably not out or US. I doubt most startup founders would consider it when founding the company.
> So he'd currently be worth $145B instead of $188B.
> PG is saying Bezos would have left the US because of that?
I think most human beings would do most things for $43,000,000,000. Whether they morally ought to or not is beside the point: almost anyone would do almost anything for 43 billion dollars.
> When you already have another 145 billion? More than you could possibly spend in your lifetime?
Allstate's market cap is currently $30 billion. Maybe Mr. Bezos would want to buy it, and still have the rest of the money he currently has. Maybe he wants to do something else with that money.
Regardless, the fact that you or I might not be able to imagine spending that much money has no bearing on whether or not he could. To be honest, I bet you & I could figure out how to spend that much, too.
I still feel like the micro-tax[0] to replace every single form of tax would be better and simpler. Just 0.1% any and every single transaction is pretty simple to understand. Thus, the more money moves around, the more it will be taxed.
The example on the website was for Switzerland which does a lot of transfers due to their reliance thereon, but it wouldn't surprise me if it worked for America too. Wealthy Americans do invest in stock and move their money around way more than the average American.
Or, if wealthy Americans are such upstanding patriots, they'd be for a return to income taxes as in the 40s to 60s (80-95% for the highest tax bracket). [1][2] Then all of this "wealth tax" talk would be over.
And if people really wanted to have a more level playing field, they'd vote to get rid of inheritance altogether aka raise the inheritance tax to 100%. With the tax income from that, working out a scheme to create equal learning and living environments for kids nationwide could be discussed. Longer maternal and paternal leaves and monthly payments from the government for supporting children from birth until graduation wouldn't be farfetched.
This is true, but the implications are contextual... imo.
First, the goal of a wealth tax (for many) is to diminish large pools of wealth... or curb their growth. Wealth taxes started gaining attention again in relation to Picketty, The 99% & such. PG isn't being disingenuous. This is goal of a wealth tax.
Second, a wealth tax has a floor. Most american proposals have been for a very high floor, and/or tax rate progression. If you have $100m and the floor is $50m, the wealth tax can only take half.
Third... there is money going in and out besides the wealth tax. Interest is the big one.
The table is correct either way, but the implication of a 2% wealth tax over 60 years, assuming a 6% average rate of return is that your $100m will become $1bn instead of $3.3bn. That's the 70%.
Maybe 6% is unfair. For the currently very wealthy (Zuck, Bezos, Buffet) they earned more in recent decades. Maybe 4% would be fairer. Maybe 8%. IDK.
Also, consumption is relevant... at least below a certain level of wealth. Consumption rounds to zero for Gates/Buffet/Bezos levels of wealth.
A point to note (for proponents) is that a wealth tax will not produce very much tax. It is much smaller than a VAT, income tax or such. Whether you are for it or against it, think of it more like tariffs. It's an economic policy. The tax itself is a side effect.
I do think it's over-the-top to represent these only as 60-year effects. The conclusion that a 0.5% tax represents 25% of your stock is... that seems wrong. Over 10 years that is just 4.5% and the founder will be paying taxes out of interest/revenue.
If it affects founders' country/regime selection, it would make sense to move after you make the money. Most of the tax is in the future.
This isn't the correct way to model wealth tax's effect on founder equity. Paul's model doesn't account for the changing value of equity over time.
When a startup was at the seed stage and worth say $5mm, a founder with a 50% stake would be paying $25,000 / year with a 1% tax. If the company grew and received a b-round of investment valuing it at $150mm, with the founder diluted to 20% ownership, the wealth tax on the $30mm in equity would be $300,000. As you can see the tax rate changes over time significantly.
There would likely be some unexpected consequences. Founders would re-consider sky-high valuations during funding rounds because of the effect on their tax rate. Startups may consider generating real cash-flow earlier on in order to issue dividends to their shareholders to cover the wealth tax instead of selling shares. If equity holders did sell shares to cover the tax, there would be a more liquid secondary market, which could make "house-of-cards" startup more apparent early on.
Something I haven’t quite wrapped my head around. Many reasonable critiques here say “wealth appreciates about 6% per year, so nobody will lose money with a 1% tax. You gain 5% per year”
But Graham’s post talks bout stock. See this:
> And at 5% this threshold is getting asymptotically close to being an upper bound on how much of the company you get to keep.
We actually have a real life example of such a founder. Warren Buffett owns about 18% of of Berkshire Hatheway. He took control of Bwrkahire Hatheway 58 years ago. So had there been a 1% wealth tax, Buffett would only have about 9% of Berkshire.
You get a larger effect the larger the tax. The result is gradual loss of control of the company shares.
People have been focussing on the performance of a mixed stock portfolio. But from the perspective of a startup founder who wants to maintain active control over a company for a long period, Graham seems to have raised a central point. Other than massive debt, there would be no way to keep the same stock share if a wealth tax took part of it year on year.
I believe that is angle Graham was coming from. At a certain point you wouldn't be able to afford to control your own company. You would HAVE to sell your shares to cover the costs of the tax.
> The reason wealth taxes have such dramatic effects is that they're applied over and over to the same money.
This seems in bad faith. A wealth tax is just an idea that wealth should be taxed. Paul is implying some concrete implementation of it that would have such behavior. But there could be many such schemes.
For example, you could deduct what you previously paid, and then it wouldn't double tax the same. Like if this year your wealth was 1 million and got taxed 1% at 10000$. Next year if your wealth was 2 million taxed at 1% thus 20000$ but with a 10k deduction from all prior paid wealth tax, thus you'd again just be taxed 10000$ on the difference.
Another scheme could be to deduct prior worth. So in this example it be the same outcome, but it's applied differently, in second year your wealth is 2 million, but last year it was 1 million, thus 2m - 1m = 1m and you are this year taxed 1% on that remaining 1 million.
And that's just what I came up with on the spot. I'm sure there's many other possible schemes.
> The reason wealth taxes have such dramatic effects is that they're applied over and over to the same money. Income tax happens every year, but only to that year's income.
Ah, but that is not even true. Because you spend some of your income during the year. When you spend your income, it becomes someone else's income. Then they also spend during the year.
If we could put a trace on a given specific dollar, we would find that it changes hands a few times in a given year, and is counted as income more than once for the purposes of taxation.
That dollar could pass through the same hands, even. I pay you to fix my plumbing. Then you buy from my grocery store. From the bartering point of view, we broke even. From the government point of view, we both have income to declare, even though my "income" is just getting back the money I gave you for the plumbing job.
The idea that income tax is "just that year's income" is dangerously misleading. It's that year's income, N times over again.
We have a similar system in Islam: the Zakat. It's a 2.5% wealth tax that is only paid after a reaching a certain threshold (around 15k). The zakat is mainly distributed to the less fortunate. The idea is that in the long run (over generations) the wealth is redistributed from the rich to the poor, keeping the society more just, and lessening social unrest.
In ancient Judaism there was the concept of "jubilee" in which all debts were forgiven. Zakat seems like a better version, as jubilee seems like it could be easily gamed and would dis-incentivize borrowing around the time of its action. I find it troublesome that modern nations can't see what much smaller nations or tribes found self-evident long ago: regular corrective actions keep the interests of a peoples aligned, as empathy is a weaker force than self-interest; downturns, poor future betting and wealth loss among the oligarch class, and natural disaster will Balkanize and disunite peoples unless losses are shared and create civilization-destroying or civilization-uniting opportunities for change. In a market guided by self-interest, eventually someone or some group will win the game, and when that happens people lose the incentive to cooperate and trade and a type of rot will take hold, the taxes of the State will pale in comparison to the hidden oligarch tithe enacted on all who made the grievous mistake of relying upon the beast to survive.
obviously I'm in the UK, and therefore my views are unlikely to be shared by those in the US. However I pay a good 35-45[1]% of my total income in taxes. I don't mind so long as we have a system that supports my fellow man.
So it smacks to me of pearl clutching. I don't see why a multimillionaire who has the option to hide their wealth should be exempt from paying a reasonable amount of tax. Man up and pay your fair share, its not like its ever going to be as higher percentage as what someone on $70-170k is.
[1] do the math of total loss of income on that....
>Watch how the ultra-wealthy in America gradually raised the taxes of the poor and eventually bent the curve downward until they paid the lowest tax rate of all
Billionaires would still be doing just fine if they were cut in half over 60 years. The point is that right now they are freezing the economy by hiding most of it's energy in their private storehouses. Imagine what we could accomplish if those glaciers of personal wealth were melted down and distributed throughout the rest of the economy.
The life concept here is so different from the recent post about the MIT media lab.
"I watched two brilliant students organize two massive hackathons to improve the breast pump, challenging assumptions about who gets to invent the future and what problems are worth solving. Another student launched a remarkably successful movement against facial recognition technologies by demonstrating that they often embed significant racial biases. ...And late one night, I saw a young woman walk past my door wearing a massive pair of delicate, filigreed copper angel wings"
http://www.ethanzuckerman.com/blog/2020/08/15/to-the-future-...
I would like to raise a different point from the many valid points already raised in this thread.
I understand this might depend on the definition of “wealth tax”, but if the founder uses the money they make in their 20s to, for example, buy a home; buy cars and other assets; invest in another company; give the money to charity... then the money remains largely intact. It is only by hoarding the wealth for 60 years that a founder would lose ~45%.
This doesn’t seem unreasonable, as people respond to incentives and will try to avoid the bad outcome by being proactive. This is akin to saying “if I have less than $1000 in my bank account, the bank will charge me a $5 fee each month. Then after just 16 years, all the money will be gone.” This is technically true, but no rational actor would actually just keep their money in the bank under these circumstances.
if the money was used to purchase assets, then those assets will end up being counted as part of your wealth even tho it's not liquid. So you'd either have to be forced to sell some of those assets to cover the wealth tax, or make up for it by using income (from said assets, or some other source of income).
Or you consume all your wealth asap, and leave no residual wealth remaining for investment. This , however, is not a good outcome, since residual wealth is where investment money comes from.
To everyone who is saying "this doesn't take into account asset growth": please simulate this for yourself to understand that it does.
If you have shares of a company and, assuming that you have to liquidate stock to pay the wealth tax, then it doesn't matter what the growth in the value of the company is.
i.e. if the growth rate is 10% p/a, then after 40 years the value of the original stock is about $4500. A 1% wealth tax will have taken about 33% of the stock away from you at this point.
If the growth rate is 50% p/a, then the value of the original stock is over $1bn. That 1% wealth tax will still have taken about 33% of that stock away from you.
Obviously, with the higher growth rate, you'll be wealthier, but the proportion of your wealth that the government will have taken is the same.
Off topic, but I always feel PG is both philosophical and dare I say: snake-oily sometimes.
Things like 'A successful startup do X/Y/Z', 'A good founder normally X/Y/Z', and usually X/Y/Z is not that an obvious trait people think that contributes to the success.
He might be right to make the conclusion since he has worked with so many startups and thus has a better classifier than most people, but I can't stop feeling these assertions miss the point and nuances, and is mainly something counter intuitive that he witnesses working as VC. It might be an overfitting issue.
His essays though are usually a good read, lots of times calling out an idea that people sort of experience internally but fail to concretize. He is very good at writing digestible essays.
Like others have said, this ignores reinvesting wealth and returns to invested wealth. Here is a table like PG's for each wealth tax %, but calculating wealth after 60 years with 4% annually compounding interest (i.e. 60 years later after annual taxes and 4% annual returns):
Sure, with a 0.5% annual wealth tax and no returns, the government would have taken 26% of a founder's initial wealth over 60 years. But if a founder reinvested and got a reasonable rate of return (4%), they'd have 788% of their initial wealth after that annual tax. Just like "small tax rates produce such dramatic effects", compounding interest produces dramatic effects that more than offset such taxes.
Wealth tax already exists in several forms. There is tax on property, income, employee wages, sales tax, etc. All are "wealth" taxes. Someone without wealth cannot be taxed!
Do the wealthy have more power in government than the average person? Yes and no. They have money to buy and make their voice loud, but so do other wealthy people that disagree. It is individual responsibility to vote and hold government accountable which it will always be. Taxing good behavior or morals does not work. A wealth tax on top of what already exists is bullshit. Not to mention if the wealthy control the government a wealth tax isn't going to change that. It will just allow the wealthiest access to more people's money that wasn't theirs to begin with.
Taking money from billionaires might feel good to some, but its going to the government, not to you directly. Its worth asking how well will the government spend it?
See the outdated and poorly maintained infrastructure in the US (or San Francisco as a particular example), ridiculous healthcare costs, the $5T they just borrowed from taxpayers for COVID bailouts or the insane amount of military spending.
I don't think its a coincidence that CA is introducing this tax just as govt. took on a ton of debt to pay for COVID relief and people started fleeing SF. California has squandered whatever money they made over the entire tech boom with no real improvement to public infra to show for it, so where did it all go? Do we want to send more money down that black hole?
We should think about the amount of equity a founder gives to investors to get their company started. UBI changes the dynamic a fair amount.
Twenty-somethings with dreams often have one thing between themselves and bringing their products to market. That is, how to feed themselves and stay in a decent living situation until they get some basic revenue?
Well, right now founders can solve this by raising seed capital. Instead of having guaranteed housing and healthcare from the government, founders today can trade pieces of their company to investors in installments, until they have revenue and a better negotiating position.
UBI could actually end this investing model. Seed investing might not happen as much in a UBI country because there would simply be no need for it.
As many have pointed out, this is a pretty shallow critique of a straw man wealth tax that nobody has actually proposed.
If you want a little more depth on taxation proposals, I’d recommend the Saez and Zucman book [1] that underpinned most of the candidates’ policies: The Triumph of Injustice. All tax policy, including wealth taxes (like property taxes in the US), involves decisions about redistribution. Optimal tax theory is about trying to maximize revenue which includes considering the impact on capital / income “giving up”.
I think it sounds crazy the gov wants to tax people when earned but also tax their savings 1% yearly. There's debates that it's unconstitutional so that's why it hasn't happened due to the uncertainty.
I think if a single state like New York did it instead of nationwide, then they'll drive just people away to states like Texas, Florida and Tennessee. Some finical companies have already left New York or downsides. Some guy who owned a hedge fund relocated to Miami and then Goldman Sachs relocated some positions to Salt Lake City. Many other examples too. Sounds like they'd want to try to attract new businesses, startups, investors but instead they are driving away their best and brightest.
Any interest or dividends get taxed. Quite significantly in fact and historically, over 1% of the real value of your portfolio.
This is only somewhat different than taxing wealth in effect. Right now we have a world, where lower interest rates = lower inflation produce a reduced "wealth tax"
What is not mentioned is that the Fed's printing of money IS a tax that is applied to every single dollar. The resulting cash horde was then used to purchase bonds, thereby "injecting liquidity" into the financial system.
Aka banks suddenly had cash to buy stocks, so they bought a lot of stocks.
End result is the Fed's everybody tax wound up actually taxing poor people. A "poor" tax. The wealthy wound up with this money in scads.
So... what Paul fails to mention is that his stock portfolio likely nearly doubled over the past 3 months. Using his math it will take 60 years to return to where it was 4 months ago.
This is why we need a wealth tax. Admittedly it's a bit like swallowing the cat to catch the bird...
One problem with that analysis is the idea that the wealth isn't going to go up in value. At 5% wealth tax I could see this being a problem. But you should be able to increase the value of a billion dollars pretty easily to offset a 1% tax.
Genuine question: If there was no wealth tax and your 100M remained as 100M till the end of your life (no money was spent either) - that is zero growth, wouldn't you say you have been a failure as a VC, Investor, or Startup founder?
I think the wealth tax and the wealth ceiling should be a function of population, water & groundwater health and safety, food price, real estate price, transportation cost, communications cost, and air quality. I think we should heavily dis-incentivize wealth accumulation through human predation, mooching, and looting. I think that we should set this function to gracefully break down in catastrophe so as not to run contrary to survival and means itself, and so that the cost of real catastrophe is clear and apparent to all, while simultaneously destroying the incentives to harm future and potential interests.
For a guy who's always railing about the value of honest, rational discourse, he's unbelievably misleading and political in this post. He ignores asset growth and the fact that all the wealth tax proposals have a very high floor for the tax.
Saying the government will take 45% of your wealth above $100M is very different than saying the government will take 45% of your wealth.
The time-value of money is basic. 1% wealth tax, 3% inflation and 5% annual growth leads to more money in the future, not less. (Those percents are conservative.) Is it possible that PG doesn't understand this? Or is it shallow politics; lying and using his platform spread FUD. For shame.
So 1% wealth tax is equivalent to 50% tax on the return of the asset, every year.
Say what you want, but this makes holding the asset or investing a lot less attractive. It will affect people's decisions and willingness to invest. Maybe we're OK with less investment but we shouldn't assume there is no impact.
In addition what if this is a volatile asset (read: startup) whose value goes up and down? Will the gov't give you a refund if it loses 20% of its value 10 years in?
What if the asset is illiquid (again:startup)? Who will lend to an otherwise not-wealthy startup founder 1% of their company's paper value every year to pay the tax? Because if the startup fails most founders will have to declare bankruptcy (having paid years of paper wealth taxes with no positive outcome in the end).
> Say what you want, but this makes holding the asset or investing a lot less attractive.
Not really. Where else is that money going to go? It's not enough to just say there is a disincentive, you have to show that the disincentive is so great that it makes other opportunities more attractive. But those other opportunities don't exist, because it is a wealth tax, it doesn't matter what instrument you use, the tax will still hit you.
Also, those numbers are pretty much non-sense in today's economy, with inflation consistently below 2% and nominal capital asset growth being closer to 10%, a 1% wealth tax represents a tax rate of ~12.5%.
I'm not losing sleep over a startup founder who owns so much of a company to be worth over $100MM on paper or otherwise. Startup founders have the ability to sell a part of their shares in liquidity events. If they choose to hold onto their shares above all else, it's on them to figure out how to pay the tax. It might even create a whole new financial instrument or class of investments.
> It might even create a whole new financial instrument or class of investments.
Absolutely. There will be a layer of, essentially, financial parasites taking value away from value creators to make this 'work'. Not sure what's great about that.
Capital can move globally, but if you remain a citizen, you still owe on the wealth tax, because again, no instrument is restricted. If you want to renounce your citizenship to the US and pay the exit tax instead, be my guest, I'm sure we could tighten up any loopholes and remove access to American capital markets for those that want to flee.
I also love how creating liquidity is now considered being a financial parasite. The US is nothing without the financial innovations that we have developed and embraced over the last 150 years.
Think about it, it will be cheaper/better for $1M of US capital to be invested in UK vs the US.
In the US both you and the founder/management team/other investors all pay tax if company is successful; in UK, only you (as US citizen) pay tax. You and the founders/management can split the difference and will be better off.
These things may sound small but play out significantly at scale (like interest rates etc)
> Think about it, it will be cheaper/better for $1M of US capital to be invested in UK vs the US.
That is a vast oversimplification of the problem that ignores all of the reasons to start and do business and business operations in the US, because there are already tons of places that you could start your company at that would result in lower taxes, yet very few if any choose to do so. You are making a huge logical leap that businesses will be as successful running out of the UK with its laws, regulations, and taxes as the US.
The world is not as simple and clean as whatever economic model you can cook up in your head. If it was, companies wouldn't pay developers in the US $300k/yr.
I agree, but you can make the same argument about people borrowing less if the fed increases interest rates by 0.1%. There are a ton of factors that go into someone getting financing and moving interest rate by 0.1% should be a non-issue. But on average these things do change people's behavior.
My principle is we should remove all obstacles for starting/running/investing in companies, which are the engine of the economy and create both wealth and jobs, and we should tax outcomes and consumption. Also, we should keep things simple to avoid both overhead and tax avoidance that comes with complexity.
He also seems to be assuming that business owners earn 100% of their wealth at the beginning of their careers and that the government will be chiseling away at their lump sum earnings for their entire working life...
Why does asset growth matter if you're taking n% no matter what?
Edit: After reading the responses, I think people are confusing themselves with dollar amounts. If I have 100 units of X. The government takes 1 unit in the first year, 0.99 units the next, and so on. Over time my total number of units decreases. The notional value of those units can fluctuate but the absolute number of units owed to the government remains the same.
My original question, which I suppose has been answered, centered on this concept that the notional value claimed by the government is the only thing of value being lost. A unit of wealth is lost and wealth compounds over time.
Disclaimer, I'm not advocating for or against a wealth tax. Just trying to understand an argument and now apparently teaching it.
Without asset growth, after 1 year you have $990.
If you include let's say 5% asset growth, after 1 year you have $1,000 * 1.05 * 0.99 = $1,039.
Then after another year, without growth you have $980.1
With %5 growth you have $1,040 * 1.05 * 0.99 = $1,080.
So the article claims that with 1% wealth tax you'll lose 45% of your assets over time. With any growth above 1% every year, you will actually at least break even.
That's one way to look at it. Another way is to say that if wealth tax offsets growth exactly, then the government has taken the difference of what your wealth would have been after 60 years. For example,
1 - 1000*(1-.01+.01)^60 / [1000*(1+.01)^60] ~= 45% taken from the government
Which is the same as the author of the article found.
Except the article implies that you might be nearly destitute. The article seems to imply that you'd have very little wealth left, even though that's not the case.
I just read the article again, and I don't see any language in it to support the idea that it's implying you'd have any less wealth than it calculates that you would.
I'm not saying his math is not correct, I'm saying it is misleading that he does not even mention growth at all. He presents carefully selected numbers, ignores tons of stuff around (growth, but also the fact that wealth would be marginal tax) and then makes a bold claim that people will believe in.
except the wealth tax is not at anything other that the most ridiculously wealthy people in society. the wealth tax is proposed for precisely the reason that it slows down the growth of the ultra elite ruling class type society in favor of a more equitable one that is, you know, a society. bezoar shouldn’t have billions of dollars and influence society like he does... it’s obscene.
You don't think billionaires have political power? What about the tax breaks states use to entice Amazon to build a new HQ? What about Elon Musk trying to shape public opinion against rail transit?
The US literally just elected a billionaire with no prior political experience to the Presidency four years ago!
>bezoar shouldn’t have billions of dollars and influence society like he does... it’s obscene.
Why not? People voluntarily gave him and his company this money, voluntarily invested in Amazon. What gives you the right to try and take it from him? "Envy makes right" is not the basis for a very good moral system.
What gives society the right to have a progressive tax system that expects those with more to contribute more to the common good? Because there is a general belief that everyone is dependent on the community in which they live and should contribute to it.
Currently, extremely wealthy people get tax breaks for contributing to "charity". The majority do so by creating a Foundation of their own to invest in the charitable causes that they prefer.
However, taxation goes to where the community has decided is needed, hopefully through a form of representative government.
We should not have to rely on Bill Gates deciding to invest in vaccine research to ensure that it occurs. Some of his wealth, now accumulated, should be returning to the common-wealth via taxation.
This ensures that wealth does not accumulate within very small groups of people to the extent that the rest of society does not also share that wealth.
A). The parent doesn't claim morality as the foundation.
B). Thriving in a capitalist system is also not a foundation for morality.
C). There are no underlying structures that dictate/require the sum total of individual actions have to correspond to societal good (not that i'm aware of). This would be akin to claiming that drug dealers have moral superiority.
What we have here is a version of the tragedy of the commons (https://en.wikipedia.org/wiki/Tragedy_of_the_commons#:~:text...). Something that benefits the individual on the short term while negatively impacting large swaths of connected infrastructure. In a society where money == votes I can't seen how that's a valid and functioning path forward.
The word "obscene" used that comment literally means "offensive to the prevailing standards of morality", so I think you'll find it does claim morality as its basis.
But asset isn't guaranteed to grow at 5%, it only grows that much on average.
What you say makes sense if the wealth tax is applied on ETF/index fund holdings, but for most founders, the wealth is concentrated in holdings in their own company. On average, across all founders, the asset growth might be 5%, but for each individual there is significant variance. For nearly half of founders, wealth tax would take 1% on either a flat or a depreciating asset..
If your company, or your ownership value in said company, is valued at over the wealth tax floor ($50M?), and is "flat or depreciating" every year over the (according to PG) 60 years you control the asset, then you have much bigger worries than a 0.5% wealth tax.
Yes, you do. So why add yet another worry (a 0.5% wealth tax).
Keep in mind that "flat or depreciating" companies are way more common than you think. Not every company enjoys the annualized returns of the S&P500. Almost any non-tech or non-tech-adjacent company has remained either flat or depreciated, in the last 10 years.
That's the entire reason why lay people invest in the index, because it's relatively safe from depreciation. Most of the super-wealthy don't achieve that wealth on the back of the S&P500, they achieve that on the back of owning a single zero-to-one stock. It's one thing for the company to grow from 0 to {insert equilibrium valuation}, and another thing entirely for the company to continue to grow at a rate that outpaces inflation.
The argument you'll get back though is that that 0.5% wealth tax will no longer impact you _at all_ if your asset value drops below $50M.
A 0.5% wealth tax is not going to make you poor. It could, _at absolute worst_, make you worth "only $50M". If you still manage to go from $50M -> $20M, a wealth tax had absolutely nothing to do with that.
As well, although it's not explicitly mentioned, I would expect any floor-value (such as $50M) to be set to keep pace with inflation.
Okay, $50M was just the number for the sake of the argument, but the core argument still applies for those individuals worth $100M in the same circumstance, or $500M, etc etc etc.
Your argument doesn't refute my central argument, it refutes an unimportant implementation detail.
> Most of the super-wealthy don't achieve that wealth on the back of the S&P500
Are you saying that most of the super-wealthy do not (at least to a certain point) diversify their investements? Or is your point that most super-wealthy individuals acquired their wealth themselves by investing (or founding) a single corporation themselves?
Most of the super-wealthy derive their wealth from owning significant ownership in extremely valuable corporations. Outside of hedge fund managers and Warren Buffett, most of the super-wealthy do not have sufficiently diverse investments whose annualized returns may cover the annual wealth tax bill.
I agree there will be huge variance. I'm only suggesting that if you model growth of assets as well as a wealth tax then your numbers will look different.
Most assets do not 'grow in value'. Take a building any building. Sell it today. Sit on the cash for 50 years. How much building can you buy in 50 years? Not nearly as much.
The only reason we are even talking about wealth tax is because of the crazy unable to be funded programs some people are proposing. These programs sound nice on paper until you do the math on them. Then they realize they can not pay for it at all.
I would posit that most assets are in relation to other real assets worth about the same. If I sell that building and buy the one that is say about the same right next to it am I going to 'pay more'? Cash wise most certainly. Utility wise not so much. Do not confuse cash with value. It is easy to get them mixed up.
> The Congress shall have Power To lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defence and general Welfare of the United States
No, the federal government does not have that power; Art. I, Sec. 2, Cl. 3: “Representatives and direct taxes shall be apportioned among the several states which may be included within this union, according to their respective numbers”. A wealth tax (or other real or personal property tax) is a direct taxes not apportioned as Constitutionally required.
State governments may or may not have that power, according to their own Constitutions (most, I would imagine, do.)
Cash, specifically, doesn’t grow in value — but most ultra-millionaires aren’t sitting on tens or hundreds of millions of dollars in cash. If you’d held onto the building for 50 years, it’d probably be a very different story.
My parents have owned their home for about 50 years now. If they sold it today and turned around and bought another house they pretty much could get about the same sized house. The about 20k they paid for it 50 years ago in some places would not even get you a down payment.
Wealth is not the same as cash value. It is easy to miss the distinction. We may be agreeing? We also already have a 'wealth tax' on many items already. We call it property tax.
Yeah but if your wealth has compounded 400% over 40 years, and they took 40% compounded, then that paints a different picture. He’s playing games around the idea that 100% is the cap because that’s how most people would think about money.
My guess is that you're the one misunderstanding the math here.
At a 1% wealth tax, you will end up being 45% less wealthy in 40 years than you would be without the wealth tax.
There is a 100% cap on what the government can take from you. And, with a 1% wealth tax, they are taking 45% of it (spread over 40 years).
Put another way, the 1% wealth tax is similar to a 45% capital gains tax (where the cap is also 100%). Capital gains is just more front-loaded (paid upon liquidation) whereas wealth tax is paid over time.
And every dollar that I pay in income taxes makes me less wealthy in 40 years since I am at the point that every marginal dollar I make is invested. We all need to pay taxes and need to do so in proportion with our ability to do so, whether that is income, sales, property, excise, import, impact, sin, payroll, wealth, estate, or otherwise. We are running $1,000,000,000,000+ deficits every year in this country because people think they are taxed too much despite having the lowest tax rates in modern history, what utter hogwash.
I’m not misunderstanding anything, but that’s a cool way to blaze into a convo lol. Most/borderline all of these plans kick in above income thresholds, ie you dip down below 50M and you’re not paying the tax. So that’s one way you’re not getting 45%. The other way is that asset growth will play a huge role in how this tax effects you. The only way to get the 45% number is to say your assets didnt grow in 60 years, which is not realistic. In fact if your assets are growing even around average rates over 60 years you could pay in huge excess of the original principal, while also making a killing.
> The only way to get the 45% number is to say your assets didnt grow in 60 years, which is not realistic.
This is the misunderstanding I'm pointing out. You will end up being 45% less wealthy regardless of whether your assets grow or not. If your assets grow YoY, you will still end up being 45% less wealthy bc your YoY gains are also taxed by the 1% wealth tax.
I get it (and don’t know why i went down this road on a whim). My (original) point was that at something like 8% avg return you’re up 5900% over 60 years instead of being 10900% up.
Only if your wealth is so far above say $50m that a few tens of millions is completely inconsequential. If it's closer to $50m, then it will be a whole lot less than 45% and possibly nothing.
45% of wealth OVER 50 million. How do you not see the difference? The idea is that you wont discourage anyone from doing anything because they're already a multi millionaire. Who is going to be bitter about being a multi millionaire?
Eh? Pg’s twitter account is one of the most interesting. I follow over a thousand, and pg is hardly a blip when it comes to pontification. (That word is surprisingly hard to spell out.)
> Even a .5% wealth tax would start to keep founders away from a state or country that imposed it.
In the US, health care is tied to employment for most people. Many people are stuck in jobs they aren't particularly excited about because they need, or can't risk losing, their health care.
If a new tax structure allowed us to finally implement universal health care, how much innovation would that inspire? We have this notion that the freedom to acquire great wealth is the only driver of innovation. But covering people's basic needs is a great driver of creativity and innovation as well, possibly even greater.
Well, of course my take on this is that having the provisioning of capital in private, unaccountable hands is absurd, you wouldn’t have the army be unaccountable to the people, why the stewardship of capital? Capital ought to be under worker control and management via democratic means.
Local capital should be under local control; also some capital should be under the control of nationwide democratic structures. That capital would have to be removed from the capitalist aristocracy that currently holds it- so what I’m saying is, forget 1%, let’s start talking about 100%.
I'd like to see a one time wealth tax followed by a restructuring of the capital gains tax to promote capital investment with the middle class while more heavily taxing the capital gains of the wealthy. The current system allows a runaway effect at the higher levels due to such a low tax rate on substantial sums of money. Even earning 5% in an index fund is huge for someone with $100M, yet due to the capital available they also have access to investment opportunities (private equity) that have a good chance to return much more.
I am probably not understanding something in the various wealth tax proposals:
- How is wealth determined? The current billion numbers have a inverse relationship with liquidation: The remaining stocks will lose value as more get sold. (Putting aside the capital gain aspect).
- How is wealth loss captured? If my wealth was 1 Billion last year and it is 1 Million this year due to market crash, What happens?
- How do we handle situation where the average through the period is lopsided? Say period is a year: What if my stocks were worth $1B in jan and $1MM in December?
I'm all for wealth taxes. Its better at redistributing and over time ending inequities. In particular it'll organically redistribute generational wealth ('old money').
PG's analysis seems a bit pessimistic since it presumes the wealth wouldn't grow otherwise (with the stock market, real estate, or other investments).
There are practical problems though: how do you determine the value of privately held assets, and how would you deal with paying cash when taxing illiquid assets that may not be producing a cash profit?
Any practical system would probably be progressive. This would give a "soft" ceiling to wealth, and maybe actually favor small startups versus large well-established companies.
Wealth (standing still, unused) doesn't have an impact on anyone. The money doesn't go anywhere, influence anything. It's when money moves that affects people.
So why should people worry about taking wealth? Why not simply continue taxing the movement of money? When money is generated or transferred -- isn't that enough scope to achieve the desired outcomes of a wealth tax (which would otherwise be very difficult to implement)?
The issue with such taxes is that they treat stuff like liquid assests which are subject to rapid change, like stocks, as the same as physical cash.
It also brings along the idea that the goverment taxes you when you: make the money, use the money, or even just keep the money. It's just another way to get more moeny even if it's not doing anything.
And with all taxes, it starts only effecting the top, but then they need more money and soon everyone but the poorest of the poor is paying more every month.
Property tax is already 1-2%, and it doesn't even depreciate! Yes, that means you don't get to keep your propery forever. That's the point. Use it or lose it.
> The reason wealth taxes have such dramatic effects is that they're applied over and over to the same money. Income tax happens every year, but only to that year's income. Whereas if you live for 60 years after acquiring some asset, a wealth tax will tax that same asset 60 times. A wealth tax compounds.
That's really a bit inane in the sense that income tax on disposable income (earned and especially passive) compounds the same way that a wealth tax does.
"The reason wealth taxes have such dramatic effects is that they're applied over and over to the same money. Income tax happens every year, but only to that year's income. Whereas if you live for 60 years after acquiring some asset, a wealth tax will tax that same asset 60 times. A wealth tax compounds."
This dramatically incentivizes short-term profit seeking and early exists (for founders and investors), over long-term tech/value development.
Why is progressive wealth tax not being considered? The wealth tax steadily increases as your possessions increase. I think that will result in a much fairer system.
> The reason wealth taxes have such dramatic effects is that they're applied over and over to the same money. Income tax happens every year, but only to that year's income. Whereas if you live for 60 years after acquiring some asset, a wealth tax will tax that same asset 60 times. A wealth tax compounds.
But so does wealth. Being wealthy gives you lots of advantages; one is that it makes it easier to gain more wealth.
"[T]he government will over the course of your life take 45% of your stock" seems a bit misleading? You can either retain ownership and increase your compensation (which is more expensive) or sell your shares to someone else and pay the government with the proceeds. Makes it sound less like the government wants to take over private companies and instead incentivize dilution of stock ownership.
Stuff like this only works if done universally, otherwise people will just go where the taxes aren’t.
At one point the US was looking to curtail oil speculation, I think the idea was you would have to accept delivery of what you traded, but they backed off because the Dubai exchange took the opposite position and all the major US financial firms were gearing up to move their oil commodities trading to UAE.
I personally favor using an assumed income on wealth and taxiing that as income. I would favor treating all income as ordinary income and adjusting tax rates to accommodate changes in revenue. Income is income regardless of source. Simplicity can be helpful. Remove all tax credits and deduction except a standard deduction. There is no sense in taxing the poor it's just kind of cruel.
Meanwhile, capital gains tax is lower than normal income tax because that $10k of savings you used as seed capital to start your company was "already taxed" before it became $10b. The problem is that there currently exists a way to acquire wealth without paying income taxes. If the wealthy would like to avoid a wealth tax, I'm sure they happily compromise by closing the loopholes after making a one time contribution of 50% of their wealth to public coffers.
As an aside: I'm a startup founder in Denmark, which has a notion of a holding company. My holding company (which I seeded with 10k of savings) owns my shares in the startup. If the startup sells for 100x, my holding company will not be taxed on the on the capital gains. I can reinvest the money in a new venture without paying any capital gains. But the moment I buy a (hypothetical) Aston Martin, I pay normal income tax on the money I transfer out of the holding company. (income tax will be about 56%, cars have an extra 160% excise. A $1m fancy pants car will require $5.91m from the holding company. Ouch)
This system works well, windfalls can be reinvested easily, but there's no loophole to avoid paying income tax. There is one stupid side, which is that the barrier between private and commercial uses of money needs to be excessively rigid (try setting up a non-profit makerspace where people can work on startups. pain). Additionally, 1/200th of the Danish workforce is directly employed by the tax office, which is ridiculous.
This would only be true if you allow your money to rot and don't do anything with it for 60 years. Inflation would eat into that a lot more in that scenario. Average inflation is roughly 3%.
As others pointed out, equity returns are 5-6% so if you do something with your money this won't be the case and you'll actually increase your wealth a lot.
Assuming 5% return, this is an 18x return over 60 years.
> This would only be true if you allow your money to rot and don't do anything with it for 60 years. Inflation would eat into that a lot more in that scenario. Average inflation is roughly 3%.
I'm pretty sure Paul Graham is not mathematically stupid. the alternative is that he is being extremely disingenuous here.
He himself mentioned in the article a threshold of wealth at which the wealth tax kicks in.
However his calculations then completely ignore that threshold. no wealth tax is going to take away 95% of anybody's startup company unless their startup company is infinitely valuable.
Having familiarity only with Switzerland’s wealth tax, I know that it is instead applied only over a given bound, and then very progressively so the impact at even somewhat large sums is lower than what is quoted here.
Sure it goes up when we’re talking about billions, but shouldn’t it? Isn’t the idea to make the wealth of huge excess fund something more of our society?
> Isn’t the idea to make the wealth of huge excess fund something more of our society?
You think the US government is going to make better use of that money than someone like Musk or Bezos? The vast majority of the budget is spent on warfare and welfare: https://www.cbo.gov/publication/56324.
I find the analysis and conclusion flawed. A moderate wealth tax (2-5%) will only have small effects on existing fortunes. Additionally he fails to mention that only the super rich will be affected by it.
What would be the implications for a lifestyle businesses that does not intend to scale?
It seems that a rapidly growing startup would be constantly investing its wealth, but a successful lifestyle business makes relatively close to the same income every year with little growth. Would the lifestyle business' wealth then be chipped away at year after year?
I don't support the wealth tax, but this is too simplistic coming from paul (probably meant to be, to hide the facts).
The real picture is incorporating stock growth and probably calculating a $ amount. If you are a founder that made it, and your stock is growing and growing, you can easily take a loan and pay it without having to sacrifice the equity.
Also let's not forget 83B is a thing, and let's you opt in to practically having LTCG on grant price instead of vest price. If you have a vest schedule for founders, with this calculation, income tax is worse than the wealth tax, probably, under STCG.
The goal of the current startup system - YC especially - is to do productive work young, and make money off investment later. There's no reason you can't do productive work in your thirties - I am, and plan to continue for a couple decades. As a life plan, however, it's incompatible with the plans that YC is selling.
I think there should first be a disclaimer that Paul is actually quite wealthy and would be personally affected by a wealth tax.
I don’t see how a wealth tax would have prevented ViaWeb or YC from coming into existence. Unless the incentives to do these things are purely financial which I’m sure is not what his previous essays have indicated.
If you compare this to how many people on this site talk about music ("You shouldn't expect to live off of your recorded music forever, you need to tour and sell merchandise, etc."), I don't understand the problem. Why should you be able to live for 60 years off of a company you founded in your 20s?
This is foolish on its face: Does PG think a wealth tax means giving up ownership in a company? What documentation or policy proposal is he reading where he would not sell some amount of stock on the market to pay for that tax? Or, that he doesn't have cash on hand to pay for his wealth tax?
So what _is_ Paul's suggestion for addressing the insane amount of wealth inequality in 2020? Nothing better shows how rigged the game is than the S&P500 about to hit another all-time high while we're in a recession, with unemployment also hitting an all-time high just a few months ago.
Improvements in our standard of living come from the free market and innovation.
I live in San Francisco and my taxes are higher than anywhere I've ever lived in my life. Interestingly, the government is run much worse than the small suburban town in Ohio where I am from. Every year in San Francisco, my standard of living goes down and local poverty increases. If there is a model the rest of the country should emulate it is not the California Government model.
California could take every penny from the rich, PG, Benioff, Jack Dorsey etc and they would still be bankrupt. Why?
Wealth is not money. Wealth is production. It is the flow of money. Wealth is efficiency. Wealth is production not consumption.
"Looters believe it safe to rob defenseless men, once they've passed a law to disarm them. But their loot becomes the magnet for other looters, who get it from them as they got it. Then the race goes, not to the ablest at production, but to those most ruthless at brutality. When force is the standard, the murderer wins over the pickpocket. And then that society vanishes, in a spread of ruins and slaughter."
- Francisco D'Anconia
Yup, this model is the point. It is necessary to counter act the ability of wealth to accumulate. The alternative is allowing inequality to get to the point where nobody has any money, old money is deemed worthless and we start again.
Wealth holders actually have a vested interest in money being usable.
How about a wealth tax that causes mandatory share dilution giving shares to citizens? Like not even state ownership.
The shares can become their own currency as not all people would sell them for fiat, and the company and largest shareholders wouldnt have to sell to pay the tax
It only considers the fraction of shares, not the value. If you make the (reasonable) assumption that the value is going up (and going up more per year then the tax) your net worth still grows quite well, and you will be very wealthy.
>Inequality is à at stupid levels in the US currently and infrastructure is crumbling ?
The US government spends a tiny fraction of its budget on infrastructure (https://www.cbo.gov/publication/56324). Increasing its income more is unlikely to have much effect on this.
This kind of naive wealth tax has all kinds of unwanted sideffects and bureaucracy monsters that come with it. Especially if you imagine holding non public stock and estate, this quickly becomes absurd. To reach the original goals of a wealth tax it makes much more sense to:
- Prevent inheritance to an agreed maximum (the dead does not care and the children basically should not complain to get a capped inheritance. 1 million or 10 or whatever society agrees to be max is still not equal opportunity but closer, family owned paintings and jewlery etc. Can be lended and bought back from the state
- tax luxury purchases by 50% to 100%, this is really what we want: a buddhist billionaire who spends nothing is not bothered by the tax office until after death and an asshole who buys a yacht, gulfstream and rolex is forced to give back to society in significant amounts
- make luxury tax apply for moving whealth outside of the country imediately
The math on this is incorrect. This is not how a marginal tax works. I have not seen any proposals for wealth taxes that are not marginal after a certain (usually very high) level of wealth.
For example, the Warren wealth tax only kicked in after $50 million.
For some that has a day job meddling investments this is a surprisingly shallow model. The proposed wealth taxes start at 50m and 1b - there will not be many modern startup founders that achieve those numbers is the first year.
I’m open to just about any kind of tax system as long as it’s fair (not necessarily equitable)
and most importantly it’s simple. Complicated tax systems benefit only the very wealthy. Simple tax systems are much harder to game.
There are a host of reasons both, practical and philosophical, to oppose a wealth tax. The impact on founders and startups is at best a second or third order one and ultimately is a distraction more than anything.
A Wealth Tax adds a seemingly arbitrary additional rule that is based on less than liquid assets; It also adds significant complexity to the system.
Versus, a progressive income tax is less arbitrary and less "complex" (though many people do not comprehend the concept.)
To take the simplicity further; we should eliminate capital gains and qualified dividends special tax rates coordinated with the corporate tax rate to 0%; This structure already exists in the REIT tax code.
In addition, while there is an argument that Social Security is tied to an individual, the base level and Medicare/Medicaid are not; so instead of being "flat taxes" should be moved to be paid for by the progressive income tax. (Similarly, if universal healthcare were to become policy, this is much better as a progressive tax)
My point is that there's nothing inherently impossible about a tax based on illiquid, difficult-to-value assets. A tax on wealth > $50M will obviously not be a regressive tax.
I can't fathom another tax in the USA. 30% of _MY_ income is removed forcefully. If I refuse, someone would show up with a gun eventually to force me to pay.
We have an enormous budget already. We need to tighten ship first.
That's ridiculous. This calculation only makes sense if you assume that the wealth generates no additional wealth. I'd just set the wealth tax at half of what is generated by investing that wealth.
Another way of looking at it is: what proportion of your wealth would you give to be wealthy for e.g. 60 years. This tax doesn't transform wealthy a wealthy person into a non wealthy person over time.
If people aren’t motivated by owning over billion dollars of assets then what’s the point of brutalizing your workers? You’d be better off trying to earn esteem by making the world a better place.
The only purpose of a wealth tax is so that the wealthy have less money. That's it. It serves no other purpose.
Because as we know from Modern Money Theory, taxes are about releasing real resources. Government has no need of taxes financially. You need taxes in a society in the same way you need garbage collection in a program. So you can release real stuff to maintain the virtual abstraction.
Billionaires tend not to have a hoard of nurses in their garages. It's usually Bugattis.
If there is any unemployment then we are overtaxed for the size of government we have.
Look after the unemployment via a Job Guarantee, auto stabilising the price of labour in the economy, and market competition will then sort out the billionaires automatically.
In the economy a bottom up design beats a top down.
All we "know" from Modern Monetary Theory is that Modern Monetary Theory says certain things. Whether it corresponds to reality is not something that we know. Saying "MMT says" as if that proves something is useless.
"Whether it corresponds to reality is not something that we know."
Given the operational stuctures have been followed through, it does correspond to the real world. The work done shows that very clearly - and the corona virus pandemic plus 30 years of Japan is corroborating evidence.
Remember a theory is a hypothesis with supporting evidence. Hence the theory of evolution.
Of course you'll be able to counter that scientific research if you know better.
If our government doesn't operate on a balanced budget, and we seem more than happy to fund out current existence with endless debt why should a wealth tax be seen as anything but punitive?
This doesn't take into account how much one would earn from investments. And come one, let's be honest, who can't live off of 1/2 billion instead of 1 billion for 60 years?
For all the whining from the rich about how they'll found their next Google in the Cayman Islands or whatever there still seem to be an awful lot of them left in California and New York.
I have seen no proposal for a wealth tax that is not a marginal wealth tax, in which case the math in this essay is wrong. The Warren wealth tax, for example, is for wealth over $50 million.
The tax should really be tied to the risk free rate - the real issue is sitting on a ton of unproductive cash not necessarily forcing the wealthy to shy away from riskier investments.
Good thing about wealth taxes is they don’t penalize changing your asset allocation. Capital gains is weird because you don’t get taxed for owning things, only for reallocating them.
If the argument is "but rich people will move"... Make it impossible.
Tax wealth accumulated in the US regardless of where you move to. Rich people can't just up and disappear entire industries. They will act like they can, but they cannot.
Having said that... Wealth tax can also be progressive. Depending on how much wealth you have. Taxing those with $20MM could be at 0.1%. Taxing those at > $1B could be at 1%. I assure you, even if we tax Jeff Bezos 95% of all his earned wealth, he'll still be a billionaire. Or close to.
Being a billionaire _should_ be impossible. That comes with extreme power. That power should be reserved for an elected government, not the whim of individual kings or lords.
Just more reason to move out of California. California will tax away its elite economic status and force innovation to move to places where it is rewarded. This is basic economics.
What percentage of founders experience a liquidity event netting them enough to be impacted by a wealth tax (90% of startups fail [1])? This is arguing against taxing a lottery ticket, while not addressing the issue of existing wealth inequality.
“Socialism never took root in America because the poor see themselves not as an exploited proletariat but as temporarily embarrassed millionaires.” ― Ronald Wright
EDIT: @Applejinx: Wealth exponentially is exactly what I refer to by wealth inequality. Excellent points.
I think the point is that if you think you have a chance of accumulating wealth (either through founding a start up, or from stock grants from an established tech company), and you have an option of living in a place with a wealth tax or one without a wealth tax, you will very likely choose to live in a place without a wealth tax. Your right, it is a lottery ticket, but if you are going to buy a really expensive lottery ticket, most people won't want to give up a large chunk of the value of that lottery ticket, so they'll start businesses elsewhere.
Whereas some people think the government should tax wealth, this shows that governments are likely to have less tax revenue as people move out of that state/country. Given the recent shift to more remote working, this means that people are less tied to living in a particular place in order to have a certain job.
I suggest tariffs and other cross border financial capture mechanisms to counteract people vacating the jurisdiction while still attempting to capture value from an economy they choose to not pay taxes in. Speaking as a citizen, I don't want my nation to participate to a race to a bottom or not capture the taxes they should because of a vocal minority (startup ecosystem participants). I think this is reasonable, and more important than startup dynamism considering the societal damage excessive wealth inequality causes (which eventually resets with violence or revolution, historically speaking).
Also, wealth inequality isn't really the issue: few people are going for literal equality here, and it's misleading and disconcerting to people.
The problem is wealth EXPONENTIALITY. Pretty much any billionaire or trillionaire, as a person, produced more effectively when they were a millionaire, or even less wealthy than that. There is NO benefit to having individuals directly control wealth on the scale of small (or large) countries, and very little benefit to having collective entities like corporations controlling wealth which is that out of scale with other entities in their environment.
Wealth exponentiality is the problem. Equality isn't at all necessary.
> Or, rather, how the lack of reward fails to motivate.
One example that comes to mind is the entire open source community, the provides enormous amounts of productivity with little to no compensation, would rebut this argument. Another example would be Watsi, a YC startup, with enormous impact but no profit motive (there are many top notch YC non profits, I pick this one because it is my favorite).
Taxes are higher in most of the developed world. People still start businesses, people still go to work. We don't have to shy away from policies that make the wealthy nervous. I do not buy the argument that innovation will die because of higher taxes.
>Taxes are higher in most of the developed world. People still start businesses, people still go to work.
They still start businesses, but they start far fewer per capita: compare for instance the number of new Fortune 500 entrants over the past couple decades from the US vs from Europe.
This really does not drive the conversation forwards. This isn't an intellectually honest look at wealth taxes as people like Warren are putting forth.
Wealth should be taken into account when income tax is calculated.
It's not fair that someone who earns 100k with no assets pays as much tax as someone who earns 100k but also inherited a 1mn house and has a whole load of cash reserves from not paying rent/mortgages for years. It's doubly not fair when the wealthier individual can divert most of their salary into a pension and not pay tax on it, because they can afford to do it now.
Someone's wealth should not be eroded by tax, but their earning power should be adjusted based on marginal dollar value.
Why not? They are paying for something. Should someone's wealth not be eroded by rent? The cost of food?
Absolutely someone's wealth should be eroded by tax. If they're so damn clever they'll make more. If they're not, the erosion will quickly diminish along with the wealth, making their future efforts much more significant.
Lazy shiftless wealth absolutely should be eroded. Erosion is the nice way: you can also try for the nasty way if you like.
I think it’s hard to get people to vote for a tax that will take money they have already acquired away from them. Reducing their potential for future earnings seems a lot more realistic to me.
This has been downvoted, can someone add a counter-argument for this? I.e. why should someone with higher wealth be able to pay less tax (in absolute and relative figures) than someone with lower wealth?
No you misunderstand- they only pay tax on income, but the % is based on their total wealth.
Eg if I have a total net worth of 2mn, my income tax might be 50%, and if I have a total net worth of 0, my income tax could be just 10%.
This would encourage people to earn more who have little now, and encourage people who have a lot to spend/scale back their earnings. Ideally it would lower the gap between lower and middle class people.
I don't understand why someone should be punished for being successful... It's scary how willing some are to give a government even more of their money. Governments aren't infallible, nine times out of ten they're corrupt and waste hundreds of billions each year. Why would any logical human being advocate giving them more money? We should be reducing the amount of money governments get from us.
I’m still not sure why the debate has converged around a wealth tax rather than just making the income tax rate on every dollar above $1 billion 100% (or close to 100%).
That way, on the day that the super rich decide to liquidate their assets, they only get taxed on the capital gain, and for billionaires that means they only keep some small portion of it in liquid cash. You also wouldn’t have to amend the Constitution to do this.
But even if they take out a collateralized loan, they need to be realize some gain somewhere to pay back that loan. Wherever that happens, it is taxed either as income or capital gain.
Nobody is going to loan Bezos billions and expect not to be eventually paid back, and that repayment can only happen if the wealth is realized as income, and then taxed.
> using relatively small asset sales
Those "small asset sales" are ultimately taxed. We can even talk about increasing this tax.
Someone like Bezos could probably take out a 100 million dollar loan at 2% interest and just pay $2 million/year in interest in perpetuity, right (via realized capital gains)? Then they'd be well under any plausible 100% tax window.
Depending on the proposal, a 1% annual wealth tax on Bezos would amount to $2 billion per year. If he borrowed that at 2% interest, that's $40 million/year in interest in perpetuity.
Even at a more modest 0.1%, Bezos does not have $2 million / year in cash, his book income is $82,000/year, and Amazon doesn't pay dividends.
Also, this is just for Bezos — depending on how volatile the paper-wealthy founder's company is, the interest would be higher, and the long run ability to pay off just the interest would be lower.
This is just bad (bad == misleading) math. Where's the appreciation of the assets? Where's the real examples from other countries that have tried wealth taxes? I don't know what he's _trying_ to do, but the effect of his rhetoric certainly seems to me that "If you won the lottery, you this would be bad for you! [but if you don't, it'd be great for you, and really only bad for ultra-rich people like me]"
I'd love to see some real numbers on "how much paul graham would pay" vs "how much your average startup founder who fails a couple times and has a moderate success or two" would pay.
Also we're talking about "over 60 years" - this isn't "government swoops in and steals half of your dragon's hoard of gold" this is "you pay taxes to support the society that allows you to safely hoard gold in the first place, and oh by the way you're still richer than anyone else and certainly wealthy enough to live a stupidly comfortable lifestyle even if 95% of your $100M assets got repo'd and you somehow managed to never appreciate your assets at all"
If it wasn't obvious, I'm clearly pro wealth redistribution, and I get that many people are fundamentally against that. It seems dumb to me to think that modest wealth redistribution is unjust or bad unless you are currently a member of the ultra rich. (and just to be clear, I feel that even a 5% wealth tax should be described as "modest")
The appreciation of assets doesn't really change anything to the equation. You are still left with approximately the same % vs what you would own without wealth tax, whatever the growth rate you assume. Because the appreciation is taxed too.
The problem is that a wealth tax of just 1% doesn't actually raise that much money, a proposed wealth tax of 2-3% (Warren) would be the highest in the world.
If you have that kind of money, why would you not just take it elsewhere? Think about it, if that capital is actually creating returns to make up for the depreciation, it must be working capital. Removing it from the economy would be damaging.
What if the money is in government bonds? Those return below 1% right now, so you just dump them, putting more pressure on the Fed to keep stable rates.
Which brings us to the next topic: Dollar depreciation. You already need ~2% returns just even out the CPI inflation rate, but asset inflation is way higher than that.
So you're basically begging rich people to dump dollars, dump US bonds and move working capital to safer countries. Good Luck with that.
> If you have that kind of money, why would you not just take it elsewhere?
Take it where? Lots of Europe has wealth taxes already. Commonwealth countries like AUS and CAN are likely to follow suit with a wealth tax -- capital flight to the US would be a big factor for them implementing it now but an American wealth tax opens the door.
And never mind that you're also asking people to give up their US citizenship to dodge these taxes -- the risk of which is probably as lot higher than just paying.
> Take it where? Lots of Europe has wealth taxes already.
All European countries either don't have wealth taxes anymore, or they're fractions of a percent, not 2-3%. The German supreme court even ruled the wealth tax unconstitutional.
> Commonwealth countries like AUS and CAN are likely to follow suit with a wealth tax -- capital flight to the US would be a big factor for them implementing it now but an American wealth tax opens the door.
Of course not, they would prefer the inflow of capital over the meager revenue from a wealth tax.
> And never mind that you're also asking people to give up their US citizenship to dodge these taxes -- the risk of which is probably as lot higher than just paying.
If you have a lot of money to lose, it's probably riskier to entrust a lifetime of tax obligations to a bankrupt state than to give up its citizenship. Rich people tend to be welcome abroad everywhere.
If you inductionally apply the argument that you shouldn't increase taxes because someplace else offers a lower tax burden, no place can raise it's taxes. There are other factors in choosing your country of residence (and nationality) than taxes.
Sure, there are other factors. Taxes are like prices, states and countries are competing on them. If you can make up for high taxes, that's fine, but at some point it becomes a shitty deal, so people won't show up anymore. If you are rich, you can just retire in any country and preserve your wealth for yourself and your children.
A wealth tax of 2-3% would enormous. Combined with an average capital gains tax, the incentive to get the capital out of the US becomes huge. Yet, even 2-3% doesn't bring in that much money relative to deficit spending and stimulus bills, so who is to say it's going to stop there? If you're clueless enough to go with a 2-3% wealth tax, you're clueless enough to go with 5% and more (Warren).
They'll have to renounce their US citizenship. And the wealth will get reinvested in wherever it produces the highest returns, like it already is right now.
So what? US citizenship has the unique disadvantage of making you a subject to the IRS globally.
If the US imposed a wealth tax to the tune of 2-3%, you bet that many nice countries will be welcoming to all that capital in exchange for citizenship. Also consider that most Americans have some sort of heritage abroad.
> And the wealth will get reinvested in wherever it produces the highest returns, like it already is right now.
Sure, you can still invest into the US market after leaving the sinking ship. On the other hand, a little bit of traveling brings perspective, if you're now a citizen of some other country, why not also invest and build there?
Philosophically I love the idea of a wealth tax in a capitalist economy. The wealth tax is your cost of entry to the economy. The government takes that cut and corrects externalities and provides basic services.
Things like keeping your citizens alive with the military and healthcare. Educating them and building roads and basic infrastructure, etc. Providing basic income.
Whatever capital you hold (your wealth) is some part of the US economy that you are controlling and someone else isn't. If you can't add more than 1% per year in value then your money should be redistributed to others who can.
In my mind this kind of system turns us all into capitalists. It's much easier to bootstrap yourself with a McDonald's job because you'll almost certainly have no wealth. Everything you earn you keep. From there modest amounts of wealth are more than enough to beat the tax rate.
The case made in this article doesn't make a lot of sense to me. If you did something in your 20s why should you get to live off that 60 years later without doing something to maintain the value? You get a huge opportunity up front, continue with that contribution and you'll still be ahead.
How do these numbers compare to the 1/3 of my income I pay in taxes every year?
The whole premise boils down to "are billionaires bad for us? i.e those who make most of their money from capital gains and pay lower % tax compared to the average job who works a job?".
Obviously capitalism is this ruthless engine that incentivizes monopolization and winner take all due to global trade. They played the game by the rules.
Even a wealth tax of 0.1% means Bezos, Gates, Zuckerberg will still keep on getting rich, just not at the same rate. That 0.1% could fund a lot of things for the greater public, even letting them amass even greater wealth with the new infrastructure.
The other big question is "Are governments better at spending money or billionaires through donations?"
The answer is most people only donate when it benefits them or as a feel good measure. Some problems can't be solved via feel good measures.
That much wealth brings, a ton of influence and power (Bezos is Seattle's emperor in disguise). Google/Facebook can shape elections and public opinions.
How much power are the top allowed to amass and invoke?
This only models a very foolish version of a wealth tax (i.e. with no lower bound) on very foolish wealthy people (i.e. who don't invest.) Really disappointed by the quality there. It's a straw man of what anyone's suggesting and what anyone's doing.
this assumes the weakest possible form of a wealth tax.
a progressive wealth tax would tax the increase of wealth on the margin rather than just "wealth". experience equity gains of $1M? you owe an extra $10k in liquid cash at the end of the year. if your equity doesn't grow, you don't get taxed.
in any event, the floor for these kinds of laws would likely be above the ceiling of most people's lifetime wealth accumulation.
Geez, the article reads like an amazing success story for wealth taxes. Each year only an insignificant portion of your wealth is taken, but over the course of your career a substantial portion of your acquired wealth goes back to the community that helped make you wealthy.
And then in the last paragraph he dismisses the idea with a lazy argument that the profit motive is singularly important to the economy.
I know capitalism is pretty universal, but it has cult-like properties sometimes.
I've always had a crazy idea that a wealth based income tax would be the way to go.
ie. the more wealth you have, the harder it is to get more. This sounds like the capitalist's nightmare; but it encourages spending, and encourages innovation.
The problem with wealth based tax is how to accurately assess an individual's wealth. If someone has a resource for how that would work, I'd be interested.
Middle class Texan here. I pay more to the government each year in wealth tax than I do in all other taxes combined including income tax. A lot of Americans do. It’s called a property tax, but since a lot of my wealth is in my home it’s actually a wealth tax.
So although I’m a libertarian, this makes it hard for me to get too worked up over Jeff Bezos or Musk getting taxed the same way.
This is the same kind of naive calculation that people used to say Donald Trump would have made more money investing in index funds - start with 100% of the principal and do nothing else with it. A big understated problem with a gradual wealth tax is billionaires will fund an overthrow of the government if it compounds aggressively enough.
The simplicity of this post notwithstanding, I think wealth taxes are the wrong tool for reducing inequality (the main reasoning behind its support): 1) it is difficult to implement, and 2) it disincentivizes economic activity.
The right taxation tool for tackling inequality is Land Value Taxation [0].
Some observations of our current situation:
1. The income gap between capital and labor that has been growing since the 1970s (as observed by, e.g. Piketty) is largely due to housing [1]
2. Economic growth and opportunity is increasingly concentrated in the the urban areas (and even within cities, a handful of them are responsible for most of the growth), however, zoning laws makes it very difficult to build new housing there and thus for rural labor to join the economic party. Thus, as we concentrate economic activity we explicitly exclude huge swaths of the population from participating in it.
3. With finite land, concentrated opportunities (i.e. no viable alternatives [2]), and overt house building restrictions, workers who do have the opportunity to work in urban areas are "willing" to pay the absurdly high rents that landowners ask. You can clearly see this in the Bay Area where, prior to COVID-19, the rents would just track the income level of tech employees. The current landowners are the main winners of the success of the urban areas.
4. On top of that (and specific to the USA), if a landowner decides to sell a property, the sale will be taxed as a capital gain which has a lower tax rate than the labor rate. We are literally incentivizing rent-seeking.
A Land Value Tax (LVT) taxes the value of the land (rather than that of the property). This has the following benefits:
1. It incentivizes more efficient usage of the land (a single family house and a high-rise pay the same tax if the have the same footprint and are next to each other).
2. Land is finite, so it can't "disincentivize" land production.
3. When land appreciates, it is rarely if ever because the owner invested in it, rather because the economy around it makes it more valuable. This tax captures that value and returns it to the community (rather than privatizing it and giving it to the landowner).
4. It is a progressive tax.
Instead of arguing whether and how to implement a wealth tax, we should pursue a national LVT.
The real problem with wealth taxes is that they really can't raise very much revenue. In the US, even an extremely aggressive wealth tax, like, say, Elizabeth Warren's proposal of 2% over $50M and 3% over $1B, would only increase federal revenue by around $250B/year, or around 6%. It wouldn't even come to covering the federal deficit, let alone big social programs like free healthcare or college. And this is assuming zero capital flight and new tax avoidance, which is impossible.
The mistakes pro/con proponents of "wealth taxes" make is:
Proponents of wealth taxes argue that by institutionalizing theft to a broader degree, everyone will live in a utopia, the man at the margin will prosper. In essence: "The farmer keeps a hoard of seeds in his silo! The seeds collect dust year round until he decides to plant. There is great want and famine in the world! If we go and take the seeds, we can end hunger, the laborer can eat better!" Which is to ignore that once you consume capital, it's gone -- in our example, no more food gets produced because all the seeds were eaten. This is precisely why political systems that institutionalize theft appear to be prospering temporarily, their consumption is being subsidized by capital consumption before their unavoidable demise. Often people get confused or abuse the methods of how economies account for these factors (capital, allocation, prices) but the brass-tacks reality is unavoidable.
"Ah ha!" says the taxation wonk, "We will be smart about how much we take. We will only take just enough so that the farmer will have just enough seeds to keep farming. We will call it 'normal profits' or 'reasonable profits'" And what happens when the farmer has a few bad harvests (or say a global pandemic disrupts the taxation-wonk's plan)? The farmer (and country) stop producing food because 'normal profits' or 'reasonable prices' don't exist in the real world. Mandating charity (welfare taxation), savings rates (interest rate manipulation), or service allocation (defense spending, roads etc) always blow up.
The opponents of wealth taxes argue that 100% of their purchasing power is due to their own work/negotiation which ignores that much of asset-price inflation is due to government-monies being perpetually diluted to appease in-groups. You choosing to pay to go to a Beyonce concert and increasing her 1/2 billion net worth isn't the action causing the musician down the street to starve (it's the fact that no one is willing to trade his music services for what he wants). Some amount of Jeff Bezos's wealth is warrantied. If someone wants to trade a money for a certificate of stock, no one has been robbed. But if individuals are forced into buying certificate of stock to escape the dilution of purchasing power by money dilution, that is an undue benefit to Bezos's portfolio. It's also an undue benefit to allow the money issuers to control who gets access to lending/credit -- rather than the worker who decides to lend out their past labor in money form (creditor) and debt holder.
The reason why people are starving isn't because the farmer refrains from consuming or planting seeds -- it's because the price of labor rendered in the past is stolen from workers by the money they've been paid being diluted by money printing.[1] By taking from the farmer who consumes the least seeds and produces the most food (the most profitable) to give to the farmer who consumes the most seeds and produces the least food (less profitable) is a method of subsidizing consumption.
This isn't to say that economic collaboration/unions/co-ops cannot be profitable nor that they will be profitable. If the union renders certain offerings and charges listed prices, individuals can choose to join that union (say "sign up for a box of farm produce for X price) if it's profitable for them to do so -- Which is an economic calculation only an individual can make not a central planner decided if a group should join such a union, as profits are local.
But to bastardize collaboration/co-operation and insist that everyone will be better off if they are force through compulsion (often through violence, sometimes social isolation) to pay into the union and take out of the union and force the union the accept members which are unprofitable for it to serve, is to ensure that those who take the most and contribute the least to the union will eventually subsume the membership from those who take the least and contribute the most.
Wow, this ignores both the "floor" below which you would not be subject to the wealth tax (in the US, most recently by Elizabeth Warren, this has been discussed as $50M+), and ALSO fails to take into account that you would be growing your principal at ~3-8% a year through investment, etc.
Sure, I guess with no floor on the tax and with your money just literally sitting in a pile, the government would eventually take a lot of it.
The problem is that as you get older you need to reduce risk in your investments in order to rely on them more. As you de-risk your rate of return goes down. The lowest risk accounts are fdic insured, and at that point you’re losing money every year. Sure if there’s a floor on it I’d support it. But with no floor I’d be watching my savings dwindle year over year.
If we accept that price inflation is driven by inflation of the money supply, and that Cantillon effects send most of this new money to the financial markets, then we may conclude that this process drives asset inflation in the financial markets in which the wealthy participate.
That is to say that inflation doesn't harm the wealthy. They benefit from it. Inflation will cause the floor to creep up to everyone else.
Some politicians are proposing not to have wealth taxes, but only income taxes. Let's try modeling the effects of zero wealth tax to see what they would mean in practice for a wealthy individual and for a startup founder.
Suppose you inherit a large amount of money or found a startup in your twenties and then live for another 60 years. What will be the impact of a small or zero wealth tax on your holdings?
Suppose the wealth tax is 1%, the long-term capital gains tax rate for large incomes is 20%, and the annual growth of stock value is 8.25%[1]. That means that each year the wealthy individual experiences an 8.25% growth split into 1.65% growth paid in taxes and 6.6% gain, of which 1% goes to pay wealth taxes, for an annual gain of 5.6%. Which means after 60 years the net worth of the wealthy individual will have grown by 1.056^60 or over 26x growth. By comparison, a 0% tax rate would result in a net worth growth of 46x.
It may at first seem surprising that lowering wealth taxes to 1% or even 0% would produce such dramatic effects. The reason lack of wealth taxes have such dramatic effects is that the growth is applied over and over to the same money. Income tax happens every year, but only to that year's income -- having a higher after-tax income can make someone rich, but more in proportion to their income. Whereas if you live for 60 years after acquiring some asset, the growth in value of that asset will compound 60 times. Ownership of assets compounds.
It is also worth considering that the startup founder who never diversified their holdings, never accepted funding or joined y-combinator, and also never spent their salary buying additional stock, but simply retained ownership of the company other than paying wealth taxes, the percent ownership of the company would drop from 100% to 0.55% at a 1% wealth tax or remain flat at 100% with a 0% wealth tax.
Of course, with modern financial tools no startup founder need experience this: they can simply create different classes of stock, including some founders stock that has enormously overweighed voting power and then sell off only their regular shares to pay for the wealth tax. We already see this with major world companies like Google, Amazon, and Facebook that remain entirely under the control of their founders.
Surely a tax rate as low as 1% (or even, shockingly, 0%) would lead to rampant wealth inequality and an out-of-control Gini coefficient.
[1] The assumption of a return that is consistent across different stocks or even consistent from year to year is highly inaccurate. But if we remove this assumption then all calculations become irrelevant and the only conclusion we can draw is "some people get lucky, others don't". That isn't useful, so we'll assume it is consistent. For the source of the 8.25% figure, see https://advisor.visualcapitalist.com/historical-stock-market...
Income taxes are a very bad model. Other societies have a superior tax model that is both less strenuous on the citizens, as well as providing more benefits overall: https://en.wikipedia.org/wiki/Zakat
I would be in favor of implementing that system and removing income tax.
No one with significant wealth will ever pay a wealth tax. As soon as you define the "wealth" that is taxed, the weslthy will find a way to get around it.
Plus, we already have a wealth tax that works perfectly and is inescapable, inflation.
Are there any forums like HN that aren't backed/funded by a VC firm/incubator/whatever? I forget why everyone migrated from /., as a lot of memes and dumbspeak from there appeared on here over the years.
This piece is barely a page long. I've been so disappointed with Paul's work recently, he's just been getting lazier and lazier with his essays and I think his political worries and biases are starting to show.
There is nothing generic about it. It is the truth. If it were generic we would not still be slaves today. Plus Graham would not have to explain to people how they get robbed.
By generic I just mean that it's a grand abstraction that people repeat a lot. Such discussions are repetitive because there are only so many things to say about anything that grand and general, especially on the internet. This leads to discussions that are predictable and quickly become nasty, and we don't want those kinds of discussion here.
"Taxation is theft" is not just an example of this, it's probably the most classic example, at least on the right. (The left has its, too.)
As a rate - but not as what matters - actual money. I would expect wealthy to pay a smaller percentage. As an example - 1% of $1B = $10M. 30% of $40k = $12k.
They still pay more in actual dollars. Dollars are what people are after here.
The link you gave says that about 50% of Americans pay zero federal income tax. Are you trying to imply that the only tax in the US is the federal income tax?
Federal income tax brings about 2000 billions USD, US GDP is about 21000 billions USD, and all taxes/GDP is about 25% or about 5250 billions.
Or, in other words, you're overlooking about 2/3 of all taxes.
As stated, that is completely and unequivocally false.
Near 50% of Americans pay no "Federal income tax" where "Federal income tax" is arbitrarily defined to not include payroll taxes despite them being a Federal tax on income. They still pay payroll taxes, state income tax, sales tax, etc.
The extreme case of this is France, where the "income tax" (90B€/year, progressive) is not the largest income tax. Rather, it is the "generalized social contribution" (124B€/year, flat rate). Of course, public discourse is focused on the income tax (50% of households don't pay any tax whatsoever!), not the main tax on income.
This is just a political distorted stats view of the reality. It doesn’t help encourage discussion. You very well know that the wealthy pay a larger share because they own the larger share of the wealth. The 50% pay zero as you claim because those poor suckers don’t even own enough to qualify for the tax bracket.
It is not a political view of reality - it is an argument against the current reality. I'm suggesting subtly that we tax the person, not the wealth. That is only accomplished in one of two ways: Tax everyone the same, a high amount due to a costly government. Or lower the overhead cost of government and services until everyone can pay equally - as I believe it should be.
Also 3 people own more the those 50% of Americans[0]. I find it hard to believe 1 person is responsible for as much as 50 million people, and these 3 richest people leveraged other peoples labor to create this wealth. With Bezos as an example would he have anything at all with out the internet (created by DARPA) or the transportation infrastructure maintained by our tax dollars?
What you are calling stealing is simply paying for services that made wealth creation possible.
I'm not surprised by it, why would you? A few people in a generation have the spectacular combination of luck + 'wind behind their back' to accomplish more than millions of people I would suggest. How many people go through life accomplishing relatively little - holding themselves to subpar standards?
A thought example is Einstein, Feynman, Bohr compared to 'common folks' - same thing, different domain.
In a Communist dictatorship like Albania (where I grew up) it was sound government policy to raid the wealthy in times of financial need. We are a long way from that, but some leftist politicians are leaning hard in that direction.
Sorry but a wealth tax is simply morally unacceptable. I don’t think it is appropriate at all to have worked hard, made choices, committed time/stress/etc, earned wealth, paid all taxes along the way, only to have it confiscated after the fact, in effect as an undisclosed but retroactive penalty. What does ownership and private property mean in such a system? Wealth taxes more closely resemble theft than a typical tax, and it erodes fundamental rights in our society.
Silicon Valley was founded in a spirit of freedom and flexibility but that spirit is clearly and dangerously on the wane insofar as the political environment surrounding the Valley is concerned.
By the 1970s, American enterprise was in decline, a victim of the "big government/big business/big labor" trends glamorized by establishment types of that day. What this did was take away choice and flexibility.
Tech changed all that and it did so from the heart of Silicon Valley. Tech arose from a spirit of freedom and flexibility. Founders would get an idea and would have countless ways of experimenting with what they could do with it with the aim of building a venture. Many of the most wildly successful ventures came out of nowhere. No central committee could have planned for them. No overlords of big business could have had the imagination or risk-taking fortitude to push them at the expense of their established cash cows of that day. No union could comfortably impose rigid work rules onto such amorphous ventures (the first thing Intel workers did even after the company succeeded was to reject unionization). No minimum wage or overtime rules applied. Benefits packages of the type widely deployed in the analog-based large businesses of that day were unheard of.
Regulators and taxers of that era continually tried to realize their vision of locking people into situations by which they would have guaranteed security, ossifying the mature businesses over which they had control, but tech simply outran them through innovation. And, in time, upended them by disrupting their industries through innovation and risk-taking.
Today, the spirit of Silicon Valley has changed and is yielding to a belief system by which the overlords of politics believe they can dictate outcomes that will give people locked-in security forever. Want to do something as an independent to earn a livelihood? Sorry, AB5 forbids that and will penalize the hell out of any venture that seeks to use fleelancing and flexibility as a foundation for innovation and growth. Your choice to act an an independent is frozen out by dictates that, if you act at all to make a living, you must do it within rigid systems that guarantee minimum compensation, regulate overtime, prescribe minimum guaranteed benefits, and the like. If this kills opportunities, no problem: there will be other rules that guarantee basic income, limit the rent you have to pay, and otherwise regulate society such that people are guaranteed a risk-free existence courtesy of decrees enacted by political proclamation.
This new mindset is precisely the one of the 1970s-era leaders who managed to choke off innovation and growth in old-line businesses and gave a massive opening to tech innovators, particularly those in Silicon Valley.
pg's modeling of the effects of a wealth tax is spot on. And it confirms that such a tax is an innovation-killing idea that would destroy the spirit of Silicon Valley. Of course, tech innovation will not cease. It will just move elsewhere to escape the tax. Europe in the 1990s had a couple of dozen or more countries that imposed wealth taxes. Today it has three, if I recall. There is a reason for that. It is a highly pernicious tax that kills enterprise and that veers from a capitalist (even progressive) philosophy into one that is directly of a Marxist/communist variety that has left so many nations in rubble once fully implemented. Smart, innovative people are not going to stick around for the con game. They will leave.
I have watched Silicon Valley grow and flourish for decades now and have been directly involved in working with thousands of entrepreneurs who have been a part of it. There have been a lot of political changes over those decades but one thing remained constant: the foundational thinking in California always assumed a capitalistic structure. Once that is abandoned, Silicon Valley will be no more.
I know that the vast majority of HN'ers are progressive in their thinking and we all can have our own ideas about what makes for a good and just society. I am not commenting on that here.
There is a line that cannot be crossed, however, without killing the Valley itself and all that it stands for. The wealth tax clearly crosses that line and, if things are allowed to go that way, the consequences may not be what you expect them to be. It doesn't take much to switch from a tax of .4% on assets over $30M (bad as that is in itself) to a tax of a much higher rate on a much lower threshold of assets. Once that monster is unleased, who knows where it will go. It will be fundamental transformation of the Valley, and not a good one.
As I said, just my two cents.