People love to talk about the marginal tax rates but not the average tax rates. And I think that’s right because the conversation should be focused on the wealthiest people.
I consider this fine, because proponents of a wealth tax consistently omit that it will ultimately be the middle class who pays the tax... the ultra-wealthy and wealthy can afford sophisticated strategies to render a wealth tax ineffective against them, and if that doesn't work they can just move somewhere else. Income tax was the same.
But any real wealth tax is going to have exemptions, only apply to wealth above some threshold, and for the wealthy who structure their finances so as to have little or no taxable income, well they end up paying 20% like all the rest of us do.
Having your house get ‘too expensive to live in’, in fact, is a classic issue with property taxes, and was happening in California - which is exactly why prop 13 happened. And most of those locations the maximum tax is around 1-3%!
‘Wealth’ is not the same as income, because wealth is potential money, if you can sell - and if you sell, you lose access to it.
A 20% wealth tax would mean any asset which doesn’t earning free cash flow returns of at least 20% a year, or which isn’t appreciating at least 20% a year in a risk free way would be impossible to hold for anyone except the most rich people. And even they couldn’t do it for long.
I can’t think of anything which that realistically describes.
A 20% income tax reduces actual cash in hand to 80% of what you’d otherwise have, which isn’t great. But you still get the actual 80% cash in hand right now, and can use it.
You can’t have ‘80% control/ownership for the year’ of a house in a meaningful way, and especially for people actually using/relying on the asset to live, they can’t find 20% (or in most cases even 5%!) of the value in cash for the asset every year. They’d go bankrupt.
I think there's no reason why a wealth tax can't be progressive. Just making up numbers here, it could be zero for your first 30 million, and rise to some palpable amount for your first billion.
This would protect granny from being taxed out of her house, and in fact would affect relatively few salary earners.
I'm not overlooking the possibility that such a tax structure could create an effective wealth cap at some level.
The problem in California is that it's very hard to change laws. Likewise in my state, where many aspects of the tax system are constrained by the state constitution.
The biggest personal complaint I have is why should the government be getting more tax money when all they seem to use it for is blowing up random countries in the Middle East and spying on law abiding citizens for whatever random reason.
If grandma has $50M in her house and pension, she can afford to pay a tiny tiny tiny fraction of her wealth to make sure her grandkids still have a place to live that's not falling apart.
Please read before making replies that don't make sense in context. When I refer to 20% I'm referring the PG's characterization of a 1% wealth tax as an effective 20% income tax, not a 20% wealth tax.
Thank god no one is talking about this, then. According to Graham, a 20% wealth tax is equivalent to a 400% income tax.
It is clearly the case if you try to apply the income tax rate as a wealth tax using concrete real world examples.
Even a 3% property tax makes it very difficult for many normal people to own those assets in many real world economic circumstances.
curious how they came to that number. There's probably plenty of voters willing to cast a vote for $0.5M+ and plenty ready to cast a vote for $100M+. How was the line drawn?
"The top 1%" is a popular target for these schemes because 99% of people might be convinced to support it, since it won't affect them (at least not directly).
[1] https://www.investopedia.com/financial-edge/1212/average-net...
I don't think people with savings of $15mil and above (assuming that would be the cutoff) are in danger of going bankrupt in 20 yrs from a 1% wealth tax. Assuming your 3% return, they'd be earning $450,000 a year that wouldn't be touched by the wealth tax.
Obviously people who have retired and based their entire life plan on making that work have many fewer options than those who are still working. You are arguing that nobody can plan for any kind of secure retirement, including you.
Having progressive tax rate might be a better way to discuss, instead of blaming whole points.
Not quite, because you're using the opposite extreme where someone has no assets. Meanwhile the median net worth in the US ~$200k, which would be $2000/year in tax for every 1% in wealth tax. That's certainly enough for ordinary people to notice.
On top of that, the conversion is even worse than that implies for ordinary people, because the primary reason the median is ~$200k isn't that the median person has $200k their whole lives, it's that they have ~$0 when they're 18 and ~$400k when they retire and the median person is about halfway to retirement age. If you transfer tax burden from income tax to wealth tax then that means they'll be paying more in wealth tax in the second half of their life, which means they need to be saving rather than spending the money not paid in income tax, including during the first half of their life. But that causes their net worth to go up on paper by more/sooner, because they're essentially holding extra money they'll only have to pay in tax later, which in turn causes them to pay more in tax for a tax on holding assets.
Moreover, then you can't say that Alice always benefits because she has no assets and Bob always pays more because he has $400,000 because what's actually happening is that Alice pays less when she's 20 and more when she's 60. That's going to be unpopular because the 20 year olds are generally expecting to be 60 someday but the 60 year olds never expect to be 20 again.
Moreover, your proposal doesn't actually work. If corporations don't pay the wealth tax then rich people just put their assets into corporations that they control but don't formally own (there are many ways to do this). But if they do then ordinary people with ordinary retirement savings can't be spared, since it doesn't change your finances to have the companies your retirement savings are invested in give you lower returns by the amount they pay in wealth tax than to have you pay the wealth tax out of the returns.
A wealth tax of 1% is equivalent to an income tax of 20% on capital gains.
Unless their spouse is still alive. In the US, assets' cost bases are reset when a spouse dies. That is the main way that rich people avoid capital gains taxes. I'd much prefer simply stopping that cost basis reset instead of implementing a wealth tax.
Neither of these would really work against the people you actually want it to work against.
If you don't have a basis reset then they just do a transaction that has the same effect, e.g. create a new corporation owned by the recipient and then have it repeatedly enter into slightly favorable transactions with the one owned by the donor until the new one has all the assets, or any of a hundred other things.
If you try to do a wealth tax then their assets end up in another country under whatever arrangement is necessary to give them de facto control but not formal ownership.
The best way to solve the "buy, borrow, die" thing is actually a consumption tax because then borrowing money in order to spend it doesn't avoid the tax.
Productivity comes from labor AND assets though. You need the farmer and the tractor. Why would we create a tax system that encourages people to divorce themselves from having a stake in the means of production?
This is exactly why economic models broadly show that taxing capital assets makes workers worse off in the long run. An abundance of capital means that workers will be more productive on the margin, so their wage will be higher. This extends to the capital-income taxation involved in income taxes: pure labor taxes or consumption taxes are inherently more efficient. There are countervailing effects (taxing capital income works as an effective way of indirectly taxing the unearned value of resource-like assets, or of idiosyncratic skills that happen to correlate with holding more capital-like assets) but they can only roughly justify the current income tax arrangement, not some extra tax on assets.
https://wtfhappenedin1971.com/
Oops!
You deride the weak justification for trickle down economics, then proceed to link wtfhappenedin1971.com, a site that tries to argue for the reintroduction of the gold standard through a gish-gallop of random charts?
I'm not perfectly aligned with gold bug politics. Their faith in the Kindleberger world is misplaced and their tax aversion can make them useful to my opponents, but at the same time they tend to take the Cantillon Pump and Balance of Payments mechanisms seriously while my traditional allies do not.
No, I don't mind borrowing their charts. Why? Do you have a better go-to link for The Wedge?
It's not. The (in)famous epi.org is flawed for all sorts of reasons, from excluding noproduction/supervisory workers (the highest compensated ones!), to excluding non-wage compensation (eg. benefits), to different deflators for compensation vs productivity. If you adjust for all of that, the chart is unremarkable.
https://www.piie.com/blogs/realtime-economic-issues-watch/gr...
That incidentally, is the exact problem with the site. It presents a barrage of charts, without regard to relevance or rigor, and tries to persuade through sheer volume alone. Yet, if you scrutinize any of them, it quickly falls apart. That's probably why the site doesn't even bother justifying the charts, or even state the thesis, for that matter.
As for "gish gallop," right back atcha: those billionaire-funded think tanks firehose a lot of nonsense into the economic discourse (and curricula!)
300 years of thinking has established that copyright is the best way to sustain ongoing creation of knowledge and thought, yet the same crowd seem pretty fine gutting that 300 years of understanding because of their judgement that their desired use case for today outweighs the cost to society of lost future knowledge creation, so they seem plenty happy to ignore established thought when it benefits them.
However, if your goal is to increase stakeholdership, how would a policy that explicitly disincentivizes that behavior fix anything?
In any case, taxes do not go into a black hole, no matter how much the right likes to encourage this self-serving fiction. Taxes generally get spent down the economic ladder and move people up the economic ladder, increasing their marginal propensity to save. People must have money if you want them to save money.
Even more concretely: reversing the policies which dissolved the middle class might reasonably be expected to restore the middle class, or at least slow their demise.
But the point isn't to increase stakeholdership so much as to stop privileging stakeholders with very low effective tax bills relative to mere workers, which means that there's a lot less cause for concern about those workers not owning their means of production
To whom are the selling? The buyers would be only those that can make efficient enough returns to offset this tax due to their existing systemic advantages, like economies of scale or regulatory lobbying.
> But the point isn't to increase stakeholdership so much as to stop privileging stakeholders with very low effective tax bills relative to mere workers
At this point I think there is ample evidence that policy in this country does not move forward without the consent of these so-called privileged stakeholders. If you take that as a given, why would you support handing these people an economic machine gun to point at your future self?
Even assuming this is true, then what? Do you think the average joe is going to suddenly buy alphabet or meta stocks because bill ackman or ken griffin sold their shares to buy bigger yachts?
But nothing in the article implies that these wealth taxes apply to most people. The argument is that a 1% wealth tax is equivalent to a 20% income tax because, under certain assumptions, the government gets the same amount of money.
If that is what is being targeted, then why not actually target that. Apply some percent taxation on the current value of all assets transferred because of death. And, if they want, only apply it to estates over some X threshold in size.
Performing the taxation at time of probate makes the valuation easy (unlike a 'wealth tax') because the valuation could be one of "value at time of death" or "value at time of transfer". And, if the ultra wealthy are using this angle to avoid taxes, then this taxes some of that transferred value.
Of course, just like with subscriptions, to the politicians a yearly wealth tax is far more valuable than a one time tax on the total value of the estate.
That already exists. The rate is 40% of the asset value.
[0] https://www.sciencedirect.com/science/article/abs/pii/S00472...
Are you saying that billionaires are actually realizing capital gains to afford yachts, private jets, and mansions?
"1 % of wealth-holders (above $14 million in 2022)"
1-2% of $14,000,000 is $140,000 to $280,000 a year. The median personal income is $45,140. They are benefiting to the tune of 3-6 times the median American income.
1-2% of 100 million is 1-2 million dollars a year (44x median income). That is substantial. That their wealth is growing so fast that that is fairly small to them and makes the median American income seem small doesn't sell me.
How is an economic benefit of 3-44X the median income insignificant? I would love to benefit anually by that 'insignificant' amount. By this argument why should we not then exclude all economic income below $140,000 to $2,000,000 from taxation? Since it's 'insignificant'.
If we moved to a wealth tax I'd be the first in line to pay it. So long as everyone else had to pay it too.
This is one of those “check your privilege” moments and one where it is best to look at the median and not just the average when talking about household wealth in the US. Between 57% and 67% of U.S. adults are estimated to live paycheck to paycheck. They aren’t saving it, they’re going into debt because the only local grocery store is a Dollar General and it’s just a clever name nowadays.
That can be quite a lot of people on HN, and also including FIRE people, so I can see why it's unpopular.
Illegal and legal immigrants are being completely supported by Uber right now in NYC. If you lived here you would know that this is their primary source of income for many of them.
The gate that previously blocked your ability to disseminate your ideas to a wide audience and create a living off of it has been completely torn down by the billionaires that create platforms like Tiktok. There are scores of people that have made a living off of this, which was virtually impossible before. The barrier to entry to start from grass roots and build a following and then monetize it has been erased.
It's completely banal at this point to just point at billionaires and say they are the problem just because of envy. I wish there was a plugin for it so I can erase it from my consumption.
The premise that billionaires are less efficient than the government at deploying capital to serve society is incongruent with reality, but sure, they are a convenient scapegoat if your heart is poisoned by envy and lack. That's really all it is and it needs to be called out more often because it's a mind virus that is easy to infect others with. Your life is not served by being clouded by envy and lack, and spreading it is detrimental to all consciousness.
There is objectively more paths to success than ever before. Being preoccupied with what you don't have currently and pointing the finger to blame at some boogeyman billionaire is not going to change anything for your personal life. The buck is on the person with the finger to improve their life and take advantage of the opportunities that are presented to them. Spending your time being mad that people have created something society deems worthwhile and are being rewarded for it is spending your time being envious about something that has nothing to do with your own problems.
The idea that you can distribute wealth is actually the tell for envy. You want to distribute power because you want power. It has nothing to do with billionaires and it has everything to do with people with more wealth than you having more power. That's envy. How far do you have to distribute before power is meaningless? I'd say all the way. It's not about billionaires, you want billionaires to be on the same level as everybody else. That also means you'll eventually want millionaires to be on the same level as everybody else. You can repeat this exercise all you want but the fact remains the same: if there's a wealth disparity there is a power disparity. Getting rid of billionaires changes nothing because the millionaires will have all the power. etc.
I think most are.
> The idea that the only way you can incentivize individuals to start companies is to allow them to accumulate so much wealth that they become tiny kings is patently absurd. The world has thousands of companies and founders who happily sustain their businesses without ever reaching this ungodly and idiotic level of uber wealth.
And how many of those companies and founders have given back to society at the scale that these uber wealthy people have? Entire new economies have been built up.
> ungodly and idiotic level of uber wealth.
This is still just envy. You should try to prove that you're being oppressed by the systems these billionaires have created because we don't have to go very far back to observe when these systems and economies did not exist. I'll remind you that for example, in NYC before Uber, taxi medallions were being sold for over a million dollars and people were going into debt just for the opportunity to drive a cab. If you go far back enough creating a virtual store front to sell your ideas and goods was a gate that was actually very high. Thanks to the systems that are in place now you have the opportunity to spin this up for very little risk and prove out your idea. Structural problems such as what? The idea that wealth is power? That's the same structural problem that has always existed, except that there are more players than ever before. You can launch an entire grass roots political campaign on social media for free. Does that sound like a system that oppresses or is that a system that has given you opportunity to enact change?
Even the barrier to invest in companies and participate directly in the profits and value creation has been erased or lowered. Hundreds of millions of people are directly benefitting from this everyday. It is now a few simple clicks of a button and you're in. Who lowered that barrier? It was the billionaires. And yes, because they did that they will get an asymmetrical reward because their impact and value creation for society is asymmetrical to yours.
You're not doing this, but when you try to have this conversation amongst the general population what is the response? Once you start poking holes at the concept it always reverts to "you're a bootlicker", "why are you defending billionaires, they don't care about you". These responses highlight envy, not reality or the desire to be objective.