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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://

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

oaiey 6y ago
Exactly. And people with wealth typically do not stop after their initial fortune they are continue increasing it. Problems are hundred years old family fortunes which are currently not successfully managed.
dmichulke 6y ago
I.e., the government should be smart and take it's money from treasury auctions (interest ~ 0%) and invest in the stock market or housing? And if you think that's a bad idea, why should individuals do it in order to stay above the wealth tax?
- deleted 6y ago
  [deleted]
bhupy 6y ago
That’s on average, yes. But for those owners of business where equity value is either flat, or moderately decreases, a wealth tax is essentially a forced divestiture scheme.
mjburgess 6y ago
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 6y ago
  > 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 6y ago
    I know two startup founders who have both done that.
    - marcus_holmes 6y ago
      Are they actually founders, or are they rich kids making a lifestyle decision?
  - chii 6y ago
    > to cover their tax obligations and so would invest in riskier investments. Just because the investment is riskier, doesn't mean the returns are automatically better. It only goes one way - higher returns are automatically more risky. If wealth tax is implemented, then an investment automatically becomes lower return (since the wealth generated is also going to be taxed indefinitely). So an equivalent startup that would've returned 10x with no wealth tax will _need_ to return 11x (or something higher) to make the investment worth the same risk as before the wealth tax. i.e., there will be fewer investment opportunities that are suitable, given the higher bar it must reach under a wealth tax. It's been shown time and time again, that a tax on something will discourage it (in the aggregate). I don't think a wealth tax is any different - it will discourage wealth creation.
JackFr 6y ago
Those figures include reinvested dividend income with respect to equity and reinvested rental income with respect to housing. In fact the return attributable to capital gains is only about 40% of of your 7% (page 25). Income is already taxed, at a significantly higher rate than any of the propsed wealth taxes.

oaiey 6y ago

Exactly. And people with wealth typically do not stop after their initial fortune they are continue increasing it. Problems are hundred years old family fortunes which are currently not successfully managed.

dmichulke 6y ago

I.e., the government should be smart and take it's money from treasury auctions (interest ~ 0%) and invest in the stock market or housing? And if you think that's a bad idea, why should individuals do it in order to stay above the wealth tax?

deleted 6y ago
[deleted]

bhupy 6y ago

That’s on average, yes. But for those owners of business where equity value is either flat, or moderately decreases, a wealth tax is essentially a forced divestiture scheme.

mjburgess 6y ago

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 6y ago
> 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 6y ago
  I know two startup founders who have both done that.
  - marcus_holmes 6y ago
    Are they actually founders, or are they rich kids making a lifestyle decision?
- chii 6y ago
  > to cover their tax obligations and so would invest in riskier investments. Just because the investment is riskier, doesn't mean the returns are automatically better. It only goes one way - higher returns are automatically more risky. If wealth tax is implemented, then an investment automatically becomes lower return (since the wealth generated is also going to be taxed indefinitely). So an equivalent startup that would've returned 10x with no wealth tax will _need_ to return 11x (or something higher) to make the investment worth the same risk as before the wealth tax. i.e., there will be fewer investment opportunities that are suitable, given the higher bar it must reach under a wealth tax. It's been shown time and time again, that a tax on something will discourage it (in the aggregate). I don't think a wealth tax is any different - it will discourage wealth creation.

JackFr 6y ago

Those figures include reinvested dividend income with respect to equity and reinvested rental income with respect to housing. In fact the return attributable to capital gains is only about 40% of of your 7% (page 25). Income is already taxed, at a significantly higher rate than any of the propsed wealth taxes.