If you have $2bn worth of the same listed stock and go sell half of those, now you have a net worth of $1400m because your gargantuan order drained the order depth, tanked the stock value and triggered a panicked selloff at the stock market which further drove down that stock's price.
You can't take net worth away because it's just an estimate of what someone is worth. It may eventually be possible to turned into dollars and cents without losing too much in the process, but almost universally it can't immediately be exchanged in such a fashion.
Even more so when we're talking shares in a company that is not yet public, e.g. a founder's shares. At that point the valuation is complete speculation, based on what the company may be worth in some hypothetical future IPO. There's no actual price discovery since there's no public trading of such shares.
as I said, if it were unreal you wouldn't mind losing it.
if it is illiquid, you clearly do.
economic illiteracy is not the best foundation for arguing against taxing the wealthy. by pretending the wealth "doesnt really exist" and "isnt there" to tax it highlights the underlying greed motivating the argument.
if you dont agree, perhaps elucidate on a more legitimate reason you might have had for confusing unreal with illiquid?
The lack of reality is mostly from how much net wealth is a guessestimate. The actual realizable wealth is largely unknowable. There isn't enough price information to give a certain answer.
But sure, how do you propose to pay taxes with assets that can't be liquidated and may not even be possible to valuate?
Even if you somehow pay taxes in assets that can't be liquidated, now the government has the same problem instead. What is the government gonna do, pay its employees in unlisted stocks, yachts and famous paintings? How will it even know how much taxes it's gathered?
If the tax isn't isn't just satisfying some sense of petty envy, and the tax is intended to cover some budget deficit, I don't see how this would help.
there is no lack of reality. you confused liquidity and wealth. a third time.
there are plenty of ways to handle the problem of taxing illiquid wealth but I dont think there is much value in discussing it with somebody pretending that means it is "not real".
it would be like discussing the science behind vaccines with somebody who persisted in calling them "poisons".
Net worth is usually not fully realizable unless it is in the form of cash. The larger the net worth, the smaller the realizable fraction usually is. In some cases, including some highly visible billionaires, the realizable fraction is likely tiny.
most people have very little illiquid wealth, and its generally in the form of a house.
billionaires are a tiny propertion of people, and their situation is as atypical as it comes. theres no reason to make super special accomodations for them, when theyre responsible for making their own dumb situation where they have too many assets to make them liquid on a hurry
There is a lot of literature on this. In the US, 2/3 of wealth is non-liquid so any attempt to price it is fiction. Of the 1/3 that is liquid, most is not realizable. Tax policy is effectively restricted to the liquid, realizable fraction, which is such a small percentage of the total that even modest-sounding percentages are a large percentage of what is practically taxable. Governments know this.
An overlooked issue in popular discourse is that notional asset values are tightly coupled to who owns them — it isn’t transferable. Concepts like “dead equity” have been in the finance literature for a very long time. Elon Musk’s equity only has the value it does because he owns it. He couldn’t convert it into cash even if he wanted to.
>Tax policy is effectively restricted to the liquid, realizable fraction
no it isnt. illiquid doesnt mean unpriceable and illiquid doesnt mean can't be liquidated. people liquidate their illiquid assets all the time to pay their tax bills.
it being "complex to collect" is a criticism of many taxes which are already being paid. sales tax and VAT are horrendously complicated (far more so than a wealth tax) to collect but we still do it.
>An overlooked issue in popular discourse is that notional asset values are tightly coupled to who owns them — it isn’t transferable. Concepts like “dead equity” have been in the finance literature for a very long time. Elon Musk’s equity only has the value it does because he owns it
even if it were true, it's not a good reason not to tax him.
in fact, it might even help bring some sanity to the capital markets if he and every other billionaire were forced to price their illiquid assets for tax purposes.
theres no efficiency or impossibility argument that prevents this. the only argument boils down to stamping one's feet declaring that it's not fair (that I would have to value my illiquid assets and might be forced to sell them if I underpriced them).
> He couldn’t convert it into cash even if he wanted to.
Elon musk has been converting his assets into cash recently and he has had no problem doing it.
Bill Gates similarly liquidated his assets to fund his charity and didnt have a problem doing that.
Why is liquidating their shareholdings suddenly a problem only when they need to pay taxes?
> Why is liquidating their shareholdings suddenly a problem only when they need to pay taxes?
It's not, and I don't think anyone said it was.
The problem is in the calculation of "net worth". And, more importantly, the difference is that people choosing to put their money into something is not the same as enabling it to be taken by force.
Yeah you did. You wrote "he couldnt turn it [his illiquid assets] into cash even if he wanted to".
>The problem is in the calculation of "net worth".
That is not a problem.
Let them value their own assets. If they value their ming vase at $10k then the government reserves the right to buy it for...$10k. They might get away with avoiding paying taxes. Or the government might get a bargain. The incentive, though, is to be scrupulously honest and accurate.
Some people obviously wouldn't like being put in such a position.
> And, more importantly, the difference is that people choosing to put their money into something is not the same as enabling it to be taken by force.
Im not 100% sure but I think this falls under the category of just saying "wealth taxes not fair!"
You wont mind if we tax it then will you?
You do, of course.
p.s. liquidity != wealth. try not to confuse them.