
Modeling a Wealth Tax - tosh
http://paulgraham.com/wtax.html
======
grellas
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.

As I said, just my two cents.

~~~
mazspork
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.

My €0.05

~~~
ggreer
> 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.

~~~
hanniabu
> If a company does pay back investors, that almost always means that it has
> contributed to society on net.

It sounds like you're saying that profit is all that matters and you can't
contribute to society without making a profit.

~~~
ghostwriter
> 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.

------
paulhart
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.

~~~
bhupy
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.

~~~
epistasis
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.

~~~
bhupy
Agreed. As you said, the solution to that is either a Georgist Land Value Tax
or a Land Appreciation Tax, not a blanket wealth tax.

~~~
epistasis
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.

~~~
bhupy
> 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.

~~~
jmcgough
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.

~~~
logicchains
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.

~~~
stainforth
> otherwise they wouldn't be doing it

This feels like a fallacy

~~~
epistasis
Well one could always starve more quickly, or stop paying rent. "There are
always options," as they say.

------
coryfklein
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

~~~
marakv2
This.

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.

~~~
prawn
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.

------
throwaway936482
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.

~~~
abecedarius
"Congress re-adopted the [first modern] income tax in 1913, levying a 1% tax
on net personal incomes above $3,000, with a 6% surtax on incomes above
$500,000."
[https://en.wikipedia.org/wiki/History_of_taxation_in_the_Uni...](https://en.wikipedia.org/wiki/History_of_taxation_in_the_United_States#Development_of_the_modern_income_tax)

(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](https://libraryguides.missouri.edu/pricesandwages/1910-1919).
A person making $3k was loaded.)

~~~
sharkmerry
What are you trying to imply here?

This is about income tax. 6% on someone making 13mill (2020$'s) a year seems
fine

~~~
abecedarius
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.)

------
arthurofbabylon
This is so simplistic. Favorably simplistic.

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.

~~~
misun78
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?

~~~
arthurofbabylon
You won't. Sorry, but people shouldn't be able to just fire their entire
society as they would a wealth manager.

On second thought, I suppose you could vote or otherwise participate in
politics.

~~~
daseiner1
But let me guess, it’d be immoral for parent commenter to use their wealth to
participate in politics?

------
patmcc
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.

~~~
macspoofing
>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?

~~~
patmcc
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.

~~~
TazeTSchnitzel
> Many places currently have property taxes (a type of wealth tax) and they
> tend to work well.

Don't forget inheritance tax/estate tax! It's a wealth tax, just applied after
(or near to) death.

~~~
patmcc
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.

~~~
tekknik
How does an estate tax place undue complications on widows but a wealth tax
doesn’t place undue complications on individuals?

~~~
patmcc
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.

~~~
tekknik
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.

------
thomasdullien
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.

See also
[https://twitter.com/halvarflake/status/1295283922117566464?s...](https://twitter.com/halvarflake/status/1295283922117566464?s=20)
\- I tried to ask @rabois for the source of a claim, and got crickets in
return.

I'd like to see a more nuanced and thorough discussion, to be honest. Perhaps
that's a bit much to ask.

~~~
dalbasal
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.

~~~
cycomanic
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.

~~~
maerF0x0
> question if billionaires are bad for society

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

~~~
zentiggr
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?

~~~
maerF0x0
Repealing citizens united, donations limits, and low limit matching on
individual donations would probably go a long way to improving it.

~~~
jlmorton
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.

~~~
hypersoar
_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.

------
bitcurious
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.

~~~
nemo44x
> 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.

~~~
bitcurious
>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.

[0] [https://bradfordtaxinstitute.com/Free_Resources/Federal-
Inco...](https://bradfordtaxinstitute.com/Free_Resources/Federal-Income-Tax-
Rates.aspx)

[1]
[https://en.wikipedia.org/wiki/File:Federal_Capital_Gains_Tax...](https://en.wikipedia.org/wiki/File:Federal_Capital_Gains_Tax_Collections_1954-2009_history_chart.pdf)

[2] [https://www.boe.ca.gov/proptaxes/decline-in-
value/](https://www.boe.ca.gov/proptaxes/decline-in-value/)

edit: I was misinformed re: income tax, tracking only the top rate.

~~~
erichocean
> _This hasn 't been true for the income tax_

Well that's false, the income tax in the United States originally was promised
only to ever apply to the ultra-rich. Now every tax payer pays it.

~~~
awb
> Now every tax payer pays it.

Well that's false. In 2018 44% paid no federal income tax.

[https://www.marketwatch.com/story/81-million-americans-
wont-...](https://www.marketwatch.com/story/81-million-americans-wont-pay-any-
federal-income-taxes-this-year-heres-why-2018-04-16)

~~~
dnautics
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.

~~~
narraturgy
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.

~~~
giantg2
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.

------
msoad
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

~~~
doukdouk
> 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"

\-
[https://idlewords.com/2005/04/dabblers_and_blowhards.htm](https://idlewords.com/2005/04/dabblers_and_blowhards.htm)

~~~
O_H_E
Ouch, that hurt. I hope he can see himself in a mirror soon.

------
Lavery
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.

~~~
mrob
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.

~~~
robjan
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.

~~~
mrob
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.

~~~
robjan
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.

~~~
O_H_E
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.

Assume If earning < 100: child_credit = 3

Assume 1 Child

If earning 99: take_home = (99 * 0.9) + 3 = 92.1

If earning 100: take_home = (100 * 0.9 + 1 * 0.8) = 90.8

\-----

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.

------
ChuckMcM
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.

[1] [https://www.investors.com/etfs-and-
funds/sectors/sp500-compa...](https://www.investors.com/etfs-and-
funds/sectors/sp500-companies-stockpile-325-billion-cash-financial-mayhem-
cornavirus-stock-market-crash/)

~~~
beaner
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.

~~~
zerkten
> 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.

------
throwaway13337
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.

~~~
afthonos
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.

~~~
throwaway13337
I appreciate the details here.

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.

[https://www.irs.gov/individuals/international-
taxpayers/expa...](https://www.irs.gov/individuals/international-
taxpayers/expatriation-tax)

[https://www.law.cornell.edu/uscode/text/26/877A](https://www.law.cornell.edu/uscode/text/26/877A)

~~~
novaRom
I saw some stories on r/IWantOut similar to what you said about a visa to come
back, but about other countries. So it's not US only.

------
throwaway7281
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).

~~~
smilekzs
> more state money would mean probably

more corrupt goverment officials and more money spent on buying heroine for
drugsters and repeat offenders on e.g. SF and Seattle streets.

~~~
throwaway7281
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.

------
AussieCoder
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.

~~~
logicchains
>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.

~~~
selectodude
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.

~~~
logicchains
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!

~~~
selectodude
>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.

------
glutamate
Equity returns are on average 6% above inflation, so with a wealth tax of
below 6% your wealth can still grow year on year indefinitely.

EDIT: Source: [https://www.frbsf.org/economic-
research/files/wp2017-25.pdf](https://www.frbsf.org/economic-
research/files/wp2017-25.pdf). The precise number is real returns of 6.89% on
equity, 7.05% on housing

~~~
mjburgess
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".

~~~
marcus_holmes
> 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.

~~~
erichocean
I know two startup founders who have both done that.

~~~
marcus_holmes
Are they actually founders, or are they rich kids making a lifestyle decision?

------
eythian
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.

------
nabla9
Wealth tax proposals would apply to very few founders

The wealthiest top 0.1 percent is fewer than 200,000 families. source:

> Warren would put a 2 percent tax on every dollar of net worth above $50
> million and a 3 percent tax on every dollar of net worth above $1 billion.

[https://www.wealthypersons.com/paul-graham-net-
worth-2020-20...](https://www.wealthypersons.com/paul-graham-net-
worth-2020-2021/)
[https://www.politifact.com/factchecks/2019/jan/31/elizabeth-...](https://www.politifact.com/factchecks/2019/jan/31/elizabeth-
warren/warren-top-01-own-about-much-bottom-90/)

IMHO wealth tax is not optimal way to distribute wealth, but it's not as pad
as PG tries to make it.

------
mapgrep
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.

------
hkhanna
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.

~~~
cltby
> a wealth tax is a percentage of the dollar value of wealth, not a percentage
> of the number of shares of stock you own.

If I expropriate 5% of your wealth, and ~100% of your wealth is in shares of
stock, what percent of your shares have I taken?

~~~
tehlike
If the stock is public, none. Take a loan, and let the equity grow

~~~
cltby
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.

~~~
tehlike
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.

~~~
cltby
You need a percent or two every year. Depending on ROE assumptions, after
several decades you may find you've taken on a turn or two of leverage.

~~~
tehlike
sure. instead of selling the stock and realizing capital gains, this seems
like a much saner option.

------
mundo
> "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.

------
rodw
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.

[1] [https://berniesanders.com/issues/tax-extreme-
wealth/](https://berniesanders.com/issues/tax-extreme-wealth/)

[2] [https://elizabethwarren.com/plans/ultra-millionaire-
tax](https://elizabethwarren.com/plans/ultra-millionaire-tax)

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.

~~~
cascom
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...

~~~
rodw
> You’re forgetting inflation and income taxes!

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.

------
LatteLazy
The table PG uses, but with growth added in at 6% (average) and 4%
(conservative estimate):

Tax_____|_Gov_Take__|_You_Keep_(6%)___|_You_keep_(4%)

.1%_____|__6%_____|__3117%_________|__993%

.5%_____|_26%_____|__2484%_________|__788%

1%______|_45%_____|__1868%________|__589%

2%______|_70%_____|__1052%________|__328%

3%______|_84%_____|___589%________|__182%

4%______|_91%_____|___328%________|__100%

5%______|_95%_____|___182%________|___55%

(forgive the underscores, I can't make tables otherwise...)

------
camhart
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.

I think [http://paulgraham.com/wealth.html](http://paulgraham.com/wealth.html)
is a good supplement to this.

Hello down votes.

~~~
j-krieger
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.

~~~
camhart
1\. Wouldn't that dodge the wealth tax too?

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.

------
LatteLazy
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.

~~~
mrfusion
I’d gladly pay 100% inheritance tax on exchange for zero taxes during life.

Would anyone else go for a deal like that?

~~~
leetcrew
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.

~~~
joelhoffman
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.

~~~
leetcrew
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.

~~~
joelhoffman
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.)

------
drewg123
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.

~~~
JoeAltmaier
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.

~~~
doukdouk
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.

[https://en.wikipedia.org/wiki/Window_tax](https://en.wikipedia.org/wiki/Window_tax)

~~~
defnotashton2
I don't think it's normal, and the bits were right, it is a direct threat to
liberty.

------
gabaix
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.

~~~
carlob
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)

~~~
defnotashton2
Exit taxes decrease competition among state entities themselves, who have the
largest monopolies of anyone.

~~~
carlob
I was trying to make a point about decreasing fiscal competition. So, yeah,
good!

------
elchupanebre
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.

------
mpolichette
It makes it seem really bad when you say "Government takes".

The truth is, you're contributing back to people and the system which let you
make and run a business that makes millions starting in your 20s.

~~~
nybble41
> 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.

~~~
54mf
"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.

~~~
logicchains
>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.

~~~
54mf
Do you mean the Industrial Revolution? I think there were other factors at
play besides the amount of public spending.

------
karl11
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.

~~~
doukdouk
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.

~~~
karl11
Of course. As I stated, it is a trade-off. I think the most important thing is
that everyone is honest about this fact - nothing is free.

------
chadash
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.

------
jacknews
Isn't this just about what we want?

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.

~~~
chii
> you should get diminishing returns from your amazing thing over time

why should this always be the case? If you made wealth, why, after you stopped
working (to enjoy said wealth), should it be taxed continuously?

------
cosmotic
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?

------
GCA10
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.

~~~
dfxm12
_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.

The same can't really be said about individual-owned foundations with no
accountability by design:
[https://en.wikipedia.org/wiki/Donald_J._Trump_Foundation#Leg...](https://en.wikipedia.org/wiki/Donald_J._Trump_Foundation#Legal_and_ethical_controversies)

------
tnr23
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.

~~~
bitcurious
>tax combined with a 50% income tax

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.

~~~
thrasibule
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.

~~~
bitcurious
.

------
arconis987
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.

The wealth tax seems fine to me.

~~~
erichocean
> _The wealth tax seems fine to me._

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.

------
cascom
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

------
ajtulloch
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!

------
jefftk
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.

~~~
gniv
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?

~~~
jefftk
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.

------
oweqruiowe
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.

------
nindalf
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.

[1] - [https://elizabethwarren.com/plans/ultra-millionaire-
tax](https://elizabethwarren.com/plans/ultra-millionaire-tax)

------
ralmidani
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.

~~~
nybble41
> 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.

~~~
ralmidani
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.

------
mcguire
" _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)

------
matmann2001
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.

------
raiyu
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.

~~~
doukdouk
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.

~~~
raiyu
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.

------
anon451
Anonymous account...

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.

\----

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.

------
3pt14159
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.

~~~
pampersluxer
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.

~~~
dragonwriter
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.

~~~
pampersluxer
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.

------
eastdakota
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.

------
martythemaniak
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.

~~~
6gvONxR4sf7o
$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.

------
adverbly
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...

------
jbellis
So many people here missing that PG is modeling "how much stock would you have
to sell" not "how much would your remaining stock be worth."

Yes, your stock will on average be worth more over time but that is not what
he is calculating.

------
theptip
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".

[1]: [https://elizabethwarren.com/plans/ultra-millionaire-
tax](https://elizabethwarren.com/plans/ultra-millionaire-tax)

------
gregwebs
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.

------
camgunz
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.

------
koolba
Barring a constitutional amendment, which is highly unlikely, this will never
happen in the USA.

What is more likely, as it’s actually constitutionally legal, is forced
realizations of gains to allow for regular income taxation.

~~~
AlgorithmicTime
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.

------
jmcgough
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.

------
tzs
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.

------
leot
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.

------
AdrianB1
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?

------
egonschiele
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.

------
sabujp
He assumes the value of your shares don't increase :

[https://dqydj.com/stock-return-calculator/](https://dqydj.com/stock-return-
calculator/)

Let's assume you have $10k of AAPL shares and assume a 1% yearly tax on the
value of your assets and go with this for a few years:

    
    
        start     end       value_after_tax  tax_payed
        20090120            10000            0
        20090120  20100120  25842.79         258
        20100120  20110120  39605.17         396
        20110120  20120120  48493.94         489
        20120120  20130120  59707.69         603
        20130120  20140120  75046.31         758.04
    

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.

------
tempsy
This is such a strange and bad faith argument.

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.

------
bobbyd2323
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.

~~~
doukdouk
Is it?

> 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

[https://www.nber.org/papers/w17989.pdf](https://www.nber.org/papers/w17989.pdf)

------
CarbyAu
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.

------
Molpot
>Even a .5% wealth tax would start to keep founders away from a state or
country that imposed it.

Yeah, that's why nobody ever started a company in France, which had a wealth
tax from 1981 to 2018:
[https://en.wikipedia.org/wiki/Solidarity_tax_on_wealth](https://en.wikipedia.org/wiki/Solidarity_tax_on_wealth)
.

~~~
influx
What are the most successful French companies founded in that time?

------
shuckles
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.

------
tjpd
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.

[1] [https://sftreasurer.org/property/understanding-property-
tax](https://sftreasurer.org/property/understanding-property-tax)

~~~
dragonwriter
> 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.

------
cvaidya1986
Are there counter example countries who impose a high wealth tax that have a
great startup ecosystem?

~~~
himlion
The Netherlands maybe? Our "BOX 3" is effectively a 1.2% wealth tax (30% tax
on a 4% assumed return).

The startup ecosystem is pretty good I'd say.

~~~
yread
Over 75k (equity so savings - debts). Example calculation here (993 eur tax
from 125k savings)

[https://www.belastingdienst.nl/wps/wcm/connect/bldcontentnl/...](https://www.belastingdienst.nl/wps/wcm/connect/bldcontentnl/belastingdienst/prive/vermogen_en_aanmerkelijk_belang/vermogen/belasting_betalen_over_uw_vermogen/grondslag_sparen_en_beleggen/berekenen_belasting_over_uw_inkomsten_uit_vermogen_vanaf_2017/voorbeeld-
alleenstaande-met-125000-euro-spaargeld/alleenstaande_met_spaargeld)

and 17k tax from 1.25M equity.

~~~
himlion
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.

------
sonamor
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.

------
namesbc
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.

------
bww
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.

------
cafxx
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.

------
Applejinx
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.

~~~
bhupy
But most people aren’t actually sitting on “cash”. That’s the whole problem.

You might be suggesting a tax on liquid cash, which would target way fewer
people.

------
scythe
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:

[https://en.wikipedia.org/wiki/Solidarity_tax_on_wealth#Reven...](https://en.wikipedia.org/wiki/Solidarity_tax_on_wealth#Revenue)

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.

------
haroldl
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.

------
ibigb
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.

~~~
dodnest
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.

------
anamax
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.

------
HLSalumin2
This just isn't true.

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.

------
BobbyJo
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.

~~~
anoonmoose
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).

~~~
logicchains
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.

~~~
anoonmoose
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.

~~~
BobbyJo
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.

------
maest
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%.

------
thoughtstheseus
Another issue of wealth taxes is effectiveness. You can do a lot to reduce the
value of assets by making them illiquid or create marketing costs.

------
sethbannon
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.

~~~
zeveb
> 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.

~~~
theplague42
When you already have another 145 billion? More than you could possibly spend
in your lifetime?

~~~
zeveb
> 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.

------
LockAndLol
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.

0: [https://mikrosteuer.ch/en/the-
initiative/concept/](https://mikrosteuer.ch/en/the-initiative/concept/)

1: [https://talkmarkets.com/content/us-markets/tuesday-
turmoil--...](https://talkmarkets.com/content/us-markets/tuesday-turmoil--
brexit-uncertainty-trumps-trump-uncertainty?post=119764&page=2)

2: [https://www.irs.gov/statistics/soi-tax-stats-historical-
tabl...](https://www.irs.gov/statistics/soi-tax-stats-historical-table-23)

------
dalbasal
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.

------
graeme
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.

Or am I missing something?

~~~
lacerta
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.

------
mattsoldo
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.

------
didibus
> 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.

------
kazinator
> _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.

------
resiros
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.

~~~
WealthVsSurvive
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.

------
KaiserPro
_most_ people pay a wealth tax, its just they normally pay it to their pension
provider.

Management fees are all over the place. In the UK pensions are capped at .75%
(it used to be be as high as 2%)

in the US, 401k mangement fees are ~1%
([https://www.investopedia.com/articles/personal-
finance/06191...](https://www.investopedia.com/articles/personal-
finance/061913/hidden-fees-401ks.asp))

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....

------
toddwprice
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.

------
NPMaxwell
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-...](http://www.ethanzuckerman.com/blog/2020/08/15/to-the-future-
occupants-of-my-office-at-the-mit-media-lab/)

------
SoylentOrange
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.

~~~
chii
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.

------
throwaway423342
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.

------
NovemberWhiskey
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.

------
ineptwriter
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):

0.1% 993% 0.5% 788% 1.0% 589% 2.0% 328% 3.0% 182% 4.0% 100% 5.0% 55%

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.

------
robertofmoria
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.

------
zaptheimpaler
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?

------
odyssey7
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.

------
boulos
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”.

[1] [https://www.goodreads.com/book/show/45894166-the-triumph-
of-...](https://www.goodreads.com/book/show/45894166-the-triumph-of-injustice)

------
Keverw
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.

~~~
usaar333
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"

------
codecamper
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...

------
sharemywin
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.

------
PaulHoule
Note the "25% of the stock" is not too different from a typical person who
might easily pay 25% of their income in income tax, sales, VAT taxes.

A more fundamental problem w/ wealth tax is administration. How do you tax
unrealized capital gains?

~~~
thoughtstheseus
If you set the bar very high, say $100 million. It’s usually doable to
monetize assets (get cash out without selling). At low levels it’s unworkable

------
harikb
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?

------
WealthVsSurvive
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.

------
barretts
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.

~~~
foogazi
Asset growth does not matter here since the wealth tax is setup as a
percentage - the government will still take 45% over time

~~~
awinder
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.

~~~
smallgovt
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.

~~~
awinder
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.

~~~
smallgovt
> 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.

~~~
awinder
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.

------
japhyr
> 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.

------
fallingfrog
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%.

------
giantg2
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.

------
SubuSS
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?

------
zhyder
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?

------
technoryt
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.

------
supernova87a
One question I have never heard a good answer to:

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)?

------
aussir
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.

------
gowld
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.

------
jgalt212
> 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.

------
sharkmerry
Assume 0.1% wealth tax applied after 1 billion in wealth.

Sell your startup for 1billion.

Put it into market returning 7% for 60 years.

You'll pay 779 Million in taxes.

Your money will earn nearly $50 billion in that time.

That is 1.51904% of your wealth.

------
mercurialshark
"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.

------
nafey
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.

------
dafty4
Hey, here in the author's home state lawmakers have just proposed a 0.4%
wealth tax, just beneath the author's capital-flight-threat threshold!

[https://www.forbes.com/sites/robertwood/2020/08/17/californi...](https://www.forbes.com/sites/robertwood/2020/08/17/california-
proposes-168-income-tax-rate-plus-4-wealth-tax/amp/)

------
amelius
> 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.

------
jcfrei
"[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.

------
odyssey7
There's a disconnected in

"Suppose you start a successful startup in your twenties, and then live for
another 60 years."

Framed as a striking-it-rich event that happens over a 10-ish-year period.

to

"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."

Framed as the wealth being stuck under that country's tax laws with no means
of getting it out for 60 years after.

------
zxcvbn4038
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.

------
fires10
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.

------
0xfaded
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.

------
brianolson
Here's a google sheet recreating the model, and some columns about what
happens if you add in 5% growth to that wealth being taxed
[https://docs.google.com/spreadsheets/d/1RUOyxXLZ-
J_Nb_aPIhiF...](https://docs.google.com/spreadsheets/d/1RUOyxXLZ-
J_Nb_aPIhiFCFlpBgv0owkGI-rpNuBFnxU/edit?usp=sharing)

------
Simon321
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.

~~~
usefulcat
> 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%.

This statement assumes that 'wealth' == money.

------
stevemadere
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.

------
lvs
Good. What's the complaint? It seems like the tax compounds exactly as
designed. I don't see why this is even being pointed out.

------
amai
So relevant:
[https://www.youtube.com/watch?v=r5LtFnmPruU](https://www.youtube.com/watch?v=r5LtFnmPruU)

Tax avoidance by the rich is the big elephant in the room!

Billionaire: "Name me one country where a top marginal tax rate of 70%
actually worked?"

Historian: "The United States in the 1950s. .. The top marginal tax rate was
91% ."

------
apta
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](https://en.wikipedia.org/wiki/Zakat)

I would be in favor of implementing that system and removing income tax.

------
alex_young
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?

~~~
logicchains
> 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](https://www.cbo.gov/publication/56324).

------
h4kor
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.

[https://blog.libove.org/posts/wealth-
tax/](https://blog.libove.org/posts/wealth-tax/)

------
simondanisch
This seems pretty relevant:

>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

[https://twitter.com/nick_kapur/status/1260645957651185665](https://twitter.com/nick_kapur/status/1260645957651185665)

------
arikrak
Instead of a wealth tax, maybe just increase the capital gains tax rate for
the ultra-wealthy? Seems a lot more straightforward.

------
droobles
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?

------
tehlike
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.

~~~
tehlike
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.

------
awkward
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.

------
thewarrior
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.

------
AlexandrB
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?

------
rcpt
You can do a similar calculation with prop 13:

[https://www.hjta.org/about-hjta/estimate-your-
prop-13-saving...](https://www.hjta.org/about-hjta/estimate-your-
prop-13-savings/)

The effect? Those tax savings get priced into the housing market and further
drive up costs for new buyers.

------
unethical_ban
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?

This is incomprehensible.

------
sjm
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.

------
justinzollars
I do not support a wealth tax.

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

~~~
doukdouk
> Wealth is not money. Wealth is production. It is the flow of money. Wealth
> is efficiency. Wealth is production not consumption.

A flow of money is income, which is different from wealth. See "What are
income and wealth?" by the OECD for instance

\- [https://www.oecd-
ilibrary.org/docserver/9789264246010-3-en.p...](https://www.oecd-
ilibrary.org/docserver/9789264246010-3-en.pdf?expires=1597764165&id=id&accname=guest&checksum=309A32022C5AED9480F62A6D41815B16)

------
anamax
As to whether rich people will move, [https://nypost.com/2020/08/05/cuomo-
wealthy-residents-should...](https://nypost.com/2020/08/05/cuomo-wealthy-
residents-should-leave-hamptons-return-to-nyc/) .

------
scoot_718
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.

------
vmception
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

The market would just keep lapping it up

------
lokar
This seems like a fairly dishonest presentation.

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.

------
thatfrenchguy
This means the government only takes the money of non growing companies. It’s
encouraging the new to replace the old, which is a good thing.

Inequality is à at stupid levels in the US currently and infrastructure is
crumbling ? Don’t we want the rich to participate in society ?

~~~
logicchains
>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](https://www.cbo.gov/publication/56324)).
Increasing its income more is unlikely to have much effect on this.

------
IanDrake
Paul is modeling the wrong thing.

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.

------
jFriedensreich
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

------
saikat
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.

------
ed25519FUUU
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.

------
ddpg
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.

------
tehjoker
PG is noting that a wealth tax works as designed to slowly make society more
equal.

------
spamizbad
Just out of curiosity, why isn't property tax considered a form of wealth tax?

------
JackFr
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.

------
smileysteve
I agree with Paul here;

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)

~~~
wycy
There's nothing wrong with a tax on non-liquid assets. We already have taxes
like that: property tax.

~~~
nybble41
Property taxes are _routinely_ pointed out as examples of highly regressive
taxes which cause numerous issues for those who can least afford them.

~~~
wycy
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.

------
exabrial
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.

------
ouroboros1
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.

------
auggierose
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.

------
tboyd47
Counterpoint from another well-known Silicon Valley-ite:
[http://www.cosmicweenie.com/wealth_tax.pdf](http://www.cosmicweenie.com/wealth_tax.pdf)

------
2OEH8eoCRo0
I view the US tax system as unsustainable and they say so themselves if you
read the long term outlook that the treasury puts out.

There needs to be a cycle out of large concentrations or it's an unstable
system.

------
viburnum
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.

------
neilwilson
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.

~~~
AnimalMuppet
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.

~~~
neilwilson
"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.

------
ponker
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.

------
tengbretson
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?

------
known
Does Wealth Tax promote [https://en.wikipedia.org/wiki/Self-
actualization](https://en.wikipedia.org/wiki/Self-actualization)

------
MikeTaylor
Stewart Lee nailed it in this 90-second video.
[https://www.youtube.com/watch?v=eyGND49CBYk](https://www.youtube.com/watch?v=eyGND49CBYk)

------
JustSomeNobody
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?

------
saikat
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.

------
tempsy
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.

------
viburnum
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.

------
Justsignedup
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.

------
dafty4
"Even a .5% wealth tax would start to keep founders away from a state or
country that imposed it."

Is the author speaking for himself, or making a generalization about all
wealthy people?

------
pyrrhotech
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.

------
tlogan
The joke about paying taxes: put one more column with name ‘Romanovs’ and do
calculations again.

When I came to US, my colleagues and friends did understand the joke. Now some
of them they do.

------
toomuchtodo
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.

[1] [https://www.failory.com/blog/startup-failure-
rate](https://www.failory.com/blog/startup-failure-rate)

~~~
jkingsbery
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.

~~~
toomuchtodo
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).

------
jgalt212
I know it's Paul's thing, but he breaks down all broad sweeping policy
proposals he doesn't like to their effects upon a very small sliver of
society.

------
X6S1x6Okd1st
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.

------
MaysonL
Totally ignores the likelihood that wealth tax will almost certainly be
progressive: likely with a limit ignoring all wealth less than a few million.

------
ojbyrne
Nobody ever seems to model what I think would be the best way to fix the US
government - what would happen if we reduced military spending by 90%?

------
crispyporkbites
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.

~~~
crispyporkbites
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?

~~~
dahdum
Possibly because your example penalizes frugal savers, or that your concern is
focused on people making $100k+/yr.

~~~
crispyporkbites
Frugal savers don’t really help the economy though. If we all were frugal
nothing really moves.

And this would apply to people earning 10k as much as people earning 100k

~~~
erichocean
> _Frugal savers don’t really help the economy though._

"Greater love hath no man than this, that a man really help the economy"

------
notthemessiah
A 2% wealth tax taking 70% of your income pretty modest compared to how, in an
era of economic prosperity, the US had a 70% marginal income tax.

------
billiam
This "model" is so stilted and devoid of common sense that I wonder if this
guy wrote it late at night on his phone after a few.

------
sidcool
I know there is a basic incorrectness in the statement. I can't quite point my
finger on it. Any economists here that could help?

------
Toine
How can someone as smart and interesting as PG publish such a short, one-
sided, dumbified, unsourced and narrow-minded blog post ?

------
triyambakam
> Which means after 60 years the proportion of stock you'll have left will be
> .99^60, or .547

What is this formula called? I.e. .99^60

------
glenda
I would be proud as a founder to know that I am able to contribute to provide
services and infrastructure for my country.

------
robbiemitchell
Do the proposals include taking stock shares? Wouldn't you just get taxed on
the capital gains when you sell them?

------
outside1234
Most wealth taxes being proposed kick in at a very high level ($100M+) so this
"analysis" is incorrect.

------
hotz
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.

------
bhupy
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.

~~~
defen
They would just take out loans against their assets and pay the interest using
relatively small asset sales.

~~~
bhupy
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.

~~~
defen
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.

~~~
bhupy
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.

------
hospadar
Boooooooo

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")

~~~
gridlockd
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.

~~~
streb-lo
> 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.

~~~
gridlockd
> 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.

------
wangarific
In investing, this is why expense ratios and fees are so important to pay
attention to. They're this.

------
mulmen
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?

------
newforms
"Modelling one example of a wealth tax"; Other wealth tax implementations
available.

------
kneel
Paul Graham should model living on a static minimum wage while cost of living
goes up.

------
blobbers
Perhaps it just needs to be graded. A wealth tax that only applies to the top
0.5%.

------
jeffe
Can't wait until he hears about that time we had a marginal tax of over 90%.

------
anotheryou
So that means a below 1% still brings a lot of money and could be fair. Deal!

------
nojvek
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?

------
guerrilla
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.

------
chrisbrandow
This isn't modeling. It may be correct, but it's not modeling.

------
fermienrico
Wouldn't this lead to people moving (after starting up a successful $100M
company) to live in places where there is little tax?

If NYC has a wealth tax, well...people are moving to the Hamptons. If they
institute a wealth tax, they'll go to Canada.

How can this be avoided?

------
kchoudhu
Who wants to tell Paul about investing money once you have it.

------
082349872349872
In which PG doesn't look at jurisdictions which actually have wealth taxes and
note they are per-mille, not percent, impositions.

There is a world beyond Mount Diablo.

 _goes out to imitate Johnson 's Argumentum ad lapidem in my driveway_

------
cryoshon
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.

~~~
sumedh
> experience equity gains of $1M?

There is already a capital gains tax.

------
RIMR
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.

------
kag0
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.

------
reddog
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.

------
peacefulhat
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.

------
huevosabio
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.

[0]
[https://en.wikipedia.org/wiki/Land_value_tax](https://en.wikipedia.org/wiki/Land_value_tax)
[1] [https://www.brookings.edu/bpea-articles/deciphering-the-
fall...](https://www.brookings.edu/bpea-articles/deciphering-the-fall-and-
rise-in-the-net-capital-share/) [2] Technically, you can choose from a set of
successful cities, but they all follow similar patterns.

------
gok
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.

------
DINKDINK
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.

Read more about the Cantillon effect here: [1]
[https://www.austriancenter.com/cantillon-effect-
populism/](https://www.austriancenter.com/cantillon-effect-populism/)

------
bengotow
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.

~~~
qznc
Also, inflation currently does the modeled loss at 1-2% already without a
floor. Wealthy people are still fine.

~~~
aww_dang
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.

------
sanj
tl;dr: compound interest works both ways

This is a shallow analysis. It doesn't anticipate any sort of growth in the
value of the stock.

If you can't find a way to grow $50M at even 1% per year, I fear for your
fiscal health.

------
mcherm
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...](https://advisor.visualcapitalist.com/historical-stock-market-
returns/)

------
pinkfoot
If the purpose of the wealth tax is to lower equality then the correct
solution is to tax machines.

------
dodnest
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.

------
loeg
Software guy performs extremely simplistic model of a field outside of
software and makes simplistic conclusions, news at 11.

Wealth taxes can be graduated and have a wide 0% bracket. They are graduated
on a dollar basis, not a share-count basis.

Yes, 1-2% is about the upper practical limit of the highest bracket rate. 3-5%
is absurd and wouldn't work.

------
revel
Haha, come on. If you're going to model compound losses you should at least
try and address compound growth. Wealth taxes are desirable _because_ they
erode dynastic wealth. That's a feature, not a bug. This is the same kind of
dubious, selective accounting that I expect to see in a face-gram meme from a
grandparent.

------
troughway
Oh boy. HN eats pg alive.

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.

~~~
mattbee
I am _happier_ to chip into HN while it shows so little reverence for its
senescent founder.

It's one of the reasons HN stays relevant & influential (the other 95% is
@dang).

------
eruci
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.

------
black6
The time has come for a real wealth tax.
[http://www.cosmicweenie.com/wealth_tax.pdf](http://www.cosmicweenie.com/wealth_tax.pdf)

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throwawaysea
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.

