
California wealth tax could become first of its kind in the U.S. - waldohatesyou
https://www.sfchronicle.com/business/networth/article/California-lawmakers-propose-a-15482011.php
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future_unclear
Introduce income tax. Use the tax money to build infrastructure that allows
for concentrated mega growth which kills off traditional economies and
destroys thousands of years of crafting knowledge, and then introduce
increasingly severe policies in order to manage the unexpected side-effects.
The new policies create more side-effects and lead to more policies. Repeat
Until you have so many laws and taxes are so high that the majority of people
can’t compete in the economy because they can’t afford lawyers to navigate the
law in the way the entrenched can, so they either start living off the
government, or if their mental state didn’t survive the humiliating
degradation of the whole process, they live on the street. New policies are
introduced etc... The situation can’t continue. How does it end?

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BaronSamedi
This is an excellent comment. Thinking about laws or policies as dynamic
processes with various feedback loops and side-effects offers a better model
than the usual static approach. Side-effects are critical, so critical that
they often often work against the intended goal. Yet side-effects are almost
never mentioned when people advocate for a certain policy.

How does it end? Probably with brittle systems that are unable to survive
exogenous shocks.

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aeternum
I think this concept could lend to a pretty interesting and unique game. The
engine would be a city simulation, the more realistic and complex the better.
However rather than build directly, the player would enact policies (laws +
regulations) for the city and see how things evolve.

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BaronSamedi
I would play that. Your comment makes me wonder why policy simulators don't
already exist, or maybe they do and I am unaware of them. Such a simulator
would have to be able to handle the "cobra effect" which could be quite a
challenge.

The Cobra effect, by the way, is a great illustration of the problem with
static thinking. Problem: too many cobras, Solution: pay a bounty for them,
Unintended side-effect: people raise cobras for the bounty so now there are
even more cobras.

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bawolff
How are they proposing to account for someone's networth, vs say things in
family member's name that they really own, or things in trusts that the person
controls, etc?

I dont know how high end finance works, maybe its an already solved problem,
but it seems a lot easier to define incoming income (which is already
challenging) than it is to define net worth.

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gorgoiler
The state takes a cut of growth already either as income tax or capital gains
tax.

They take another cut when you spend it, in the form of sales tax.

Now they want another cut even if you’ve already been taxed on making money
and prior to you then spending it.

New taxes are a scourge on democracy. They implement yet another confusopoly
designed to hide details and trick voters. Just add a new, higher income tax
and CGT bracket already.

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ac29
> The state takes a cut of growth already either as income tax or capital
> gains tax.

This is true, but capital gains tax is only assessed when assets are sold. So,
asset-rich individuals can acquire massive wealth, and instead of selling it,
just borrow against it and sidestep any capital gains taxes. A direct tax on
wealth is an attempt to change this in a way that income taxes and capital
gains taxes can not, no matter the rate.

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naveen99
How does borrowing sidestep taxes ? You still have to service the debt... so
now you owe interest and taxes on interest.

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RestlessMind
Your cost of borrowing can be much lower than the cost of taxes you incur when
you sell your assets to finance your needs. As an example, Zuckerberg secured
a 1% mortgage for his house[0]. Assuming his house was worth 15M, to procure
that much cash by selling his FB stocks, he'd have to pay 20% capital gains
tax (and state taxes on top). A nice explanation here[1].

[0] [https://www.cnbc.com/id/48220824](https://www.cnbc.com/id/48220824)

[1] [https://themortgagereports.com/21788/why-mark-zuckerberg-
has...](https://themortgagereports.com/21788/why-mark-zuckerberg-has-a-
mortgage)

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naveen99
Taxes are 1 time, mortgage interest is annual. You still have to pay off the
principal + interest... at some point you will have to sell shares and pay
capital gains anyway... leverage comes with its own risk. That’s why you don’t
gamble with borrowed money.

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RestlessMind
But you can invest those one-time taxes and generate far more returns than the
interest costs. Historical S&P500 returns are 6% per year, where as we are
looking at only 1% mortgage rates for a billionaire.

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naveen99
Suppose there were no taxes. When would you stop taking on additional leverage
with a 1% loan given historical returns of 6% ? I guess kelly criteria puts it
around 2.5x. Now suppose you are already there, but now you add back taxes. Do
you pay taxes or lever up ?

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PacketPaul
It is easy for a high net worth person to change primary residence. This is
going to backfire and cause a reduction of revenue.

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ec109685
People making over 5M a year, are going to move in order to pocket 3% more?

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joemazerino
3% of 5M is $150,000. Not shabby.

One percenters often have multiple houses to move to so this isn't some major
obstacle.

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iszomer
I heard a rumor that governor Cuomo wants the 1% back but mayor De Blasio told
them to fuck off. _scratches head_

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garmaine
> People subject to the wealth tax would report it to the Franchise Tax Board
> along with their income taxes. They would have to report all assets
> including stock in publicly and privately traded corporations...

Does this mean that if you have paper wealth in the form of illiquid founder
shares in a startup, you'd be subject to the wealth tax? There's a nontrivial
number of people that have more than "$30M" in stock in their name, but that
wealth only exists on paper.

If you are a co-founder with 20% ownership of a $500M company, that's an extra
$280k a year of personal taxes even if your company doesn't make it to an
exit.

This could kill the startup industry.

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jdashg
Give the state the requisite number of shares in-kind. Or pay cash, since you
own 10% of a unicorn, and if you can't extract enough cash from that, you
might as well burn your shares.

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garmaine
In many cases you can’t extract cash from non-public common stock shares with
sale restrictions.

I am, on paper, a multimillionaire from my last company because of the
restricted common stock I hold. However I cannot sell those shares, and the
current CEO seems determined to run the company into the ground. My actual
liquid assets are just enough to cover rent for a few months and I still work
for a living. A wealth tax would kill me (although thankfully my paper wealth
is below the $30m threshold).

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Akronymus
> The tax rate would be 0.4% of net worth

Rich people have most of their net worth in assets afaik.

So, even "just" 0.4% of the net worth would be quite severe. Add to that, that
the stocks of certain companies are inflated atm due to corona, they would
have way more "net worth" than usual. So if they have to pay taxes on the
inflated price and then the price falls they are gonna lose quite a bit of
money.

If they can't cover it with liquid assets they would have to sell other assets
at a, probably, below market rate.

This is gonna backfire so very hard.

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anaisbetts
America has had a form of wealth tax for a very long time now, but oddly only
applied to real estate (property tax), this isn't as Weird as it sounds, nor
is it a novel idea - many countries have a wealth tax.

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ashtonkem
I agree that property taxes are wealth taxes, but they’re particularly
pernicious ones.

The big issue is that schools are primarily funded by property taxes, which
creates a system by which the children of rich Americans get better educations
than poor children, reinforcing existing economic positions.

That being said, a state level wealth tax would go a long way to smooth these
things out compared to property taxes.

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wahern
> The big issue is that schools are primarily funded by property taxes, which
> creates a system by which the children of rich Americans get better
> educations than poor children, reinforcing existing economic positions.

This funding disparity isn't the case in California, yet it sees similar
outcomes in terms of educational achievement.

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jesselawson
I love this state but man, it is so hard to start a company when you're poor.
The FTB alone will gut you, and god forbid you're just a tiny Etsy shop trying
to grow. You really can't afford to try to make more money on the side when
you're poor unless it's slaving away in the gig economy.

I wish there was a threshold of ARR that you can stay under and not have to
pay the FTB fees. That would really help tiny businesses.

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gorgoiler
Dreamt up by the same people that retroactively increased income tax in 2012?

Every time CA’s pension funds look shaky, why not just go back to 2012 and
bump the rate again for that year, but only if your income is over $99M and
your surname is Zuckerberg.

I don’t condone the practice at all. I think it’s shameful behavior from the
state — I remember at the time it felt pretty scurrilous that CA were
targeting Zuckerberg et al, albeit quite passively.

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vondur
I see more dark times ahead for California. If more of the tech industry
allows permanent remote work, I have a feeling many of those highly paid jobs
will go elsewhere. California gets a large chunk of its budget from income
tax.

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solveit
Of course it exempts real estate...

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Junk_Collector
Real estate is exempted because it is already taxed by value at a higher rate.

