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Exactly — I've always thought that what drives multi-millionaires and billionaires isn't really the monetary value of the extra money that they make. To the ext

Exactly — I've always thought that what drives multi-millionaires and billionaires isn't really the monetary value of the extra money that they make. To the extent they care about money at all anymore, surely it's only as a relative measure of success? I can't see many people that have already accrued personal wealth of $50M but choose to keep working suddenly being turned off because of a wealth tax.

bhupy 6y ago
> I can't see many people that have already accrued personal wealth of $50M but choose to keep working suddenly being turned off because of a wealth tax. That's not the argument. If you accrue a wealth of $50M because you own half of your $100M company (or 100% of your $50M company), then a wealth tax will — over time — force you to give up ownership in your own company. An income tax or a capital gains tax on the other hand, has the effect that you describe: if you already have $50M, then any tax on more money than could possibly have close to 0 negative impact on productivity.
- clairity 6y ago
  no, that's an intentional misdirection by pg, that you'd lose control of your company over time because you'd have to sell shares to pay the tax. what would more likely happen is that loan products and other financial instruments and techniques would pop up so you could pay the taxes in a whole host of ways without actually losing the underlying shares that are used as collateral. it already happens in a more limited, and sometimes private, context today.
  - bhupy 6y ago
    That's not an "intentional misdirection", it's undeniably true. > what would more likely happen is that loan products and other financial instruments and techniques would pop up so you could pay the taxes in a whole host of ways without actually losing the underlying shares that are used as collateral. In order to pay back a loan, you have to realize some gain somewhere. That money isn't free. Even to simply pay back the interest, you would have to liquidate some of your own stock (which is taxed). Eventually when the principal needs to be paid back, the only way to do it is to liquidate the equivalent value in your own company.
    - clairity 6y ago
      your response seems to lack the creativity and imagination of a financial industry that brought us cdo's, cds's, mbs's, and a global financial crisis or three. greed and money will find a way. edit: it seems folks don't like being reminded that the point of capitalism is to redirect greed toward productive use.
      - bhupy 6y ago
        This is as hand-wavy and un-falsifiable as the argument "the invisible hand will solve all our problems".
    - eloff 6y ago
      Your company can pay dividends and you can use that to pay the tax. It essentially becomes an operating tax on the company based not on its profit, but its value. What's interesting about that is it would work for companies like Amazon that intentionally engineer zero profits so as to avoid taxes.
      - bhupy 6y ago
        > What's interesting about that is it would work for companies like Amazon that intentionally engineer zero profits so as to avoid taxes. They "engineer" zero profits by re-investing their surplus back into R&D — a behavior explicitly encouraged by the government and the tax code. In 2010, Amazon had about 100,000 employees. Today they have almost 1 MILLION. That's what "reinvesting profits into R&D" looks like, in practice. > Your company can pay dividends and you can use that to pay the tax. You're essentially talking about adding a countering incentive away from investing in R&D, and toward paying shareholder dividends, which...why? There are way more intelligent and non-distortionary ways to raise funds for a government (eg increasing the capital gains tax).
        eloff 6y ago
        I'm not sold on the idea, merely answering the parent comment that paying the tax would require selling shares. That's not necessarily true. There's a lot to be said for property taxes. Taxes on income and wealth are disincentives for things you wnt more of. Property tax is one of the least destructive of taxes. I'm also of a mind that carbon and pollution taxes would be good as well, since the disincentive would be a plus in that case.
- Retric 6y ago
  A profitable company can pay dividends which would easily cover a wealth tax. Owning 50M worth of stock in an unprofitable company with zero other income sources or investments is a significant sign you should diversify anyway.
  - bhupy 6y ago
    Great point. However, Amazon (as an example) does not pay dividends. And also, this creates an incentive to pay dividends to shareholders, as opposed to re-investing profits in R&D, which is an odd (IMO bad) incentive.
    - room500 6y ago
      I wonder if that is a more natural (and long-term) structure though. The current tech formula seems to be "build the biggest moat possible - worry about profitability later" While that is driving some of the fastest growth in history, one has to wonder what the landscape will look like once these moats are built. Will these companies have full power to price however they please? If a company is incentivized to be profitable as they grow, would it lead to a more stable future where we have multiple competitors in each industry?
      - HarryHirsch 6y ago
        what the landscape will look like once these moats are built You see this now with the cloud vendor lock-in bullshit. Too much productivity wasted through too much unnecessary friction.
  - SpicyLemonZest 6y ago
    It's probably personally advantageous to diversify in that situation. But if you get recruited by a $100m startup that's not yet profitable, and you hear that the founder sold half her stock last year, is there any chance you're working there?
  - chii 6y ago
    Dividends themselves are taxed. So why make it a wealth tax, which erodes your accumulated wealth, instead of taxing the income directly?
- awb 6y ago
  > If you accrue a wealth of $50M because you own half of your $100M company (or 100% of your $50M company), then a wealth tax will — over time — force you to give up ownership in your own company over time. Why? There's a floor that below $50M you don't need to pay a wealth tax. In a worst case scenario where your entire wealth is tied up in stocks of a single company you own and you have 0 cash to pay your wealth tax, your ownership gradually approaches $50M. They're are very few people who end up controlling 50+% of a $50M+ company at 20 and keep their 50+% stake for the 60 years pg references. Anyone who did that didn't take VC money.
  - nrmitchi 6y ago
    Even when they do still control the company over the long run, assuming it becomes a public company, they will be selling stock on a regular basis to cover regular expenses. IIRC Bezos sells over $1B in Amazon stock per year to fund other things, but there is no outcry about how un-american it is that he has to "sell off his stake in his own company" to pay for his hobbies/lifestyle.
    - bhupy 6y ago
      > IIRC Bezos sells over $1B in Amazon stock per year to fund other things, but there is no outcry about how un-american it is that he has to "sell off his stake in his own company" to pay for his hobbies/lifestyle. Sure, but that's voluntary. It's fine for me to sell my house if I have other plans. It's less fine for me to be forced to sell my own house even if I want to continue to own it / live in it.
      - learc83 6y ago
        We already have the equivalent for houses--property tax. Every year you have to pay x% of the value of your house to the government.
        bhupy 6y ago
        The scale of property value and wealth value isn't remotely comparable. For the most part, property values are pretty low, and hence the tax that you might pay on property is also fairly low. The US State with the highest property tax is New Jersey (2.47%), and the median home value is about $330,000. The annual tax on the median home there is around $8,100 — definitely steep, but still well within reach for most families, especially those that are fortunate enough to own homes. In contrast, if you were to take an individual worth $10 billion, whose entire net worth is derived from the ownership of their stock, and were to tax them 2% of their wealth annually, they would have to somehow come up with $200 million every year to pay the tax. This is a different proposition altogether, since none of these billionaires have that much money sitting around in cash (or any other asset for that matter). They're just wealthy on paper. The only way to pay that tax would be to either liquidate their holdings, or for their corporations to pay enough in dividends to cover the tax, which is an odd (IMO bad) incentive to create for corporations in general. Even the owner of a $300 million business who owns (say) 30% of their company at a $100 million net worth would have to come up with $2 million in cash every year. Very few CEOs have that kind of cash coming in on a yearly basis, and you're essentially just creating an incentive for corporations to inflate the compensation to their founder CEOs just so that they can maintain ownership in their own company. A big reason for this disparity between the top 1% value of corporation vs the top 1% value of property is that, unlike land (which is fixed), corporate wealth is NOT zero-sum, it's created. This is a very important distinction, because a lot of the rhetoric around wealth is sometimes based around the idea that there's some fixed amount of wealth in the world, and the rich have just been stealing all of it — no the aggregate wealth has been created at historic levels. Also Federal property taxes are unconstitutional, which is why it's applied entirely at the state / local level.
cjlars 6y ago
I know a lot of HNWI and they all complain about tax burden regularly and never mention anything even resembling 'relative position'. IMO the relative status thing is a myth perpetuated by people with a political axe to grind. Most people who keep working past a high level of net worth just like working... don't forget there's a lot of moral value and personal inspiration in building a second or third company that 'changes the world'.

bhupy 6y ago

> I can't see many people that have already accrued personal wealth of $50M but choose to keep working suddenly being turned off because of a wealth tax. That's not the argument. If you accrue a wealth of $50M because you own half of your $100M company (or 100% of your $50M company), then a wealth tax will — over time — force you to give up ownership in your own company. An income tax or a capital gains tax on the other hand, has the effect that you describe: if you already have $50M, then any tax on more money than could possibly have close to 0 negative impact on productivity.

clairity 6y ago
no, that's an intentional misdirection by pg, that you'd lose control of your company over time because you'd have to sell shares to pay the tax. what would more likely happen is that loan products and other financial instruments and techniques would pop up so you could pay the taxes in a whole host of ways without actually losing the underlying shares that are used as collateral. it already happens in a more limited, and sometimes private, context today.
- bhupy 6y ago
  That's not an "intentional misdirection", it's undeniably true. > what would more likely happen is that loan products and other financial instruments and techniques would pop up so you could pay the taxes in a whole host of ways without actually losing the underlying shares that are used as collateral. In order to pay back a loan, you have to realize some gain somewhere. That money isn't free. Even to simply pay back the interest, you would have to liquidate some of your own stock (which is taxed). Eventually when the principal needs to be paid back, the only way to do it is to liquidate the equivalent value in your own company.
  - clairity 6y ago
    your response seems to lack the creativity and imagination of a financial industry that brought us cdo's, cds's, mbs's, and a global financial crisis or three. greed and money will find a way. edit: it seems folks don't like being reminded that the point of capitalism is to redirect greed toward productive use.
    - bhupy 6y ago
      This is as hand-wavy and un-falsifiable as the argument "the invisible hand will solve all our problems".
  - eloff 6y ago
    Your company can pay dividends and you can use that to pay the tax. It essentially becomes an operating tax on the company based not on its profit, but its value. What's interesting about that is it would work for companies like Amazon that intentionally engineer zero profits so as to avoid taxes.
    - bhupy 6y ago
      > What's interesting about that is it would work for companies like Amazon that intentionally engineer zero profits so as to avoid taxes. They "engineer" zero profits by re-investing their surplus back into R&D — a behavior explicitly encouraged by the government and the tax code. In 2010, Amazon had about 100,000 employees. Today they have almost 1 MILLION. That's what "reinvesting profits into R&D" looks like, in practice. > Your company can pay dividends and you can use that to pay the tax. You're essentially talking about adding a countering incentive away from investing in R&D, and toward paying shareholder dividends, which...why? There are way more intelligent and non-distortionary ways to raise funds for a government (eg increasing the capital gains tax).
      - eloff 6y ago
        I'm not sold on the idea, merely answering the parent comment that paying the tax would require selling shares. That's not necessarily true. There's a lot to be said for property taxes. Taxes on income and wealth are disincentives for things you wnt more of. Property tax is one of the least destructive of taxes. I'm also of a mind that carbon and pollution taxes would be good as well, since the disincentive would be a plus in that case.
Retric 6y ago
A profitable company can pay dividends which would easily cover a wealth tax. Owning 50M worth of stock in an unprofitable company with zero other income sources or investments is a significant sign you should diversify anyway.
- bhupy 6y ago
  Great point. However, Amazon (as an example) does not pay dividends. And also, this creates an incentive to pay dividends to shareholders, as opposed to re-investing profits in R&D, which is an odd (IMO bad) incentive.
  - room500 6y ago
    I wonder if that is a more natural (and long-term) structure though. The current tech formula seems to be "build the biggest moat possible - worry about profitability later" While that is driving some of the fastest growth in history, one has to wonder what the landscape will look like once these moats are built. Will these companies have full power to price however they please? If a company is incentivized to be profitable as they grow, would it lead to a more stable future where we have multiple competitors in each industry?
    - HarryHirsch 6y ago
      what the landscape will look like once these moats are built You see this now with the cloud vendor lock-in bullshit. Too much productivity wasted through too much unnecessary friction.
- SpicyLemonZest 6y ago
  It's probably personally advantageous to diversify in that situation. But if you get recruited by a $100m startup that's not yet profitable, and you hear that the founder sold half her stock last year, is there any chance you're working there?
- chii 6y ago
  Dividends themselves are taxed. So why make it a wealth tax, which erodes your accumulated wealth, instead of taxing the income directly?
awb 6y ago
> If you accrue a wealth of $50M because you own half of your $100M company (or 100% of your $50M company), then a wealth tax will — over time — force you to give up ownership in your own company over time. Why? There's a floor that below $50M you don't need to pay a wealth tax. In a worst case scenario where your entire wealth is tied up in stocks of a single company you own and you have 0 cash to pay your wealth tax, your ownership gradually approaches $50M. They're are very few people who end up controlling 50+% of a $50M+ company at 20 and keep their 50+% stake for the 60 years pg references. Anyone who did that didn't take VC money.
- nrmitchi 6y ago
  Even when they do still control the company over the long run, assuming it becomes a public company, they will be selling stock on a regular basis to cover regular expenses. IIRC Bezos sells over $1B in Amazon stock per year to fund other things, but there is no outcry about how un-american it is that he has to "sell off his stake in his own company" to pay for his hobbies/lifestyle.
  - bhupy 6y ago
    > IIRC Bezos sells over $1B in Amazon stock per year to fund other things, but there is no outcry about how un-american it is that he has to "sell off his stake in his own company" to pay for his hobbies/lifestyle. Sure, but that's voluntary. It's fine for me to sell my house if I have other plans. It's less fine for me to be forced to sell my own house even if I want to continue to own it / live in it.
    - learc83 6y ago
      We already have the equivalent for houses--property tax. Every year you have to pay x% of the value of your house to the government.
      - bhupy 6y ago
        The scale of property value and wealth value isn't remotely comparable. For the most part, property values are pretty low, and hence the tax that you might pay on property is also fairly low. The US State with the highest property tax is New Jersey (2.47%), and the median home value is about $330,000. The annual tax on the median home there is around $8,100 — definitely steep, but still well within reach for most families, especially those that are fortunate enough to own homes. In contrast, if you were to take an individual worth $10 billion, whose entire net worth is derived from the ownership of their stock, and were to tax them 2% of their wealth annually, they would have to somehow come up with $200 million every year to pay the tax. This is a different proposition altogether, since none of these billionaires have that much money sitting around in cash (or any other asset for that matter). They're just wealthy on paper. The only way to pay that tax would be to either liquidate their holdings, or for their corporations to pay enough in dividends to cover the tax, which is an odd (IMO bad) incentive to create for corporations in general. Even the owner of a $300 million business who owns (say) 30% of their company at a $100 million net worth would have to come up with $2 million in cash every year. Very few CEOs have that kind of cash coming in on a yearly basis, and you're essentially just creating an incentive for corporations to inflate the compensation to their founder CEOs just so that they can maintain ownership in their own company. A big reason for this disparity between the top 1% value of corporation vs the top 1% value of property is that, unlike land (which is fixed), corporate wealth is NOT zero-sum, it's created. This is a very important distinction, because a lot of the rhetoric around wealth is sometimes based around the idea that there's some fixed amount of wealth in the world, and the rich have just been stealing all of it — no the aggregate wealth has been created at historic levels. Also Federal property taxes are unconstitutional, which is why it's applied entirely at the state / local level.

cjlars 6y ago

I know a lot of HNWI and they all complain about tax burden regularly and never mention anything even resembling 'relative position'. IMO the relative status thing is a myth perpetuated by people with a political axe to grind. Most people who keep working past a high level of net worth just like working... don't forget there's a lot of moral value and personal inspiration in building a second or third company that 'changes the world'.