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The money ears money thing is key. A wealth tax that equals the money you can earn from having money would prevent runaway inequality due to the "rich getting r
by Certhas 6y ago
The money ears money thing is key. A wealth tax that equals the money you can earn from having money would prevent runaway inequality due to the "rich getting richer" effect.
S&P 500 has a long term annualized return of 10%. If you have a 5% wealth tax on stock you have in S&P 500 then you are still earning 5% returns (well above long term average inflation) without actually lifting a finger.
- bhupy 6y agoBut none of the people you are trying to target with the wealth tax have their holdings in the S&P500. Instead they have close to 100% of their holdings in a single asset represented by the more diversified S&P500. There is no guarantee that the single individual super-wealthy founder whose wealth derives from the ownership of their own company will appreciate at an annualized rate of 10%. The two most pervasive myths about wealth among the super-rich appear to be: 1. They are sitting entirely on liquid cash 2. They are sitting entirely on highly diversified funds that enjoy 5+% annualized appreciation.
- TheCondor 6y agoThey aren’t diversified?!
- bhupy 6y agoSuper-wealthy founders are not sufficiently diversified, no.
- mindstreamer 6y agoSo this wouldn't be helpful as an incentive to get them diversified?
- bhupy 6y agoThat's an arbitrary incentive that's not particularly useful. And in any case, it forces one to relinquish a significant partial ownership in their own company just to be able to afford to continue owning the rest...all so that we get them to diversify their portfolio?
- elongatedMusku 6y agoWould Elon be interested in selling his stakes and diversify? Would he be lose control over his company to retain his wealth?
- bhupy 6y agoThis comment was flagged for some reason, but it's entirely valid. If Elon Musk's goal was ROI maximization, he has no business maintaining ownership in SpaceX and Tesla — he ought to just dump his billions in high yield ETFs. Fortunately, that is not his primary goal, and (at least in the US), he is able to continue to pursue success by maintaining ownership in his companies.
- xur17 6y agoThis sounds like the exact opposite of what the US as a whole wants to occur.
- O_H_E 6y agoYeah, that sounds weird. I either need a source or some proof of knowledge/authority on the topic.
- bhupy 6y agoSure, if you get recruited by a $100m startup, and you hear that the founder sold half of their stock "to diversify", there's almost not chance you're working there. Diversification is a solid strategy for most people, but founders that own highly valuable companies are not "most people"..
- Naac 6y ago>> Instead they have close to 100% of their holdings in a single asset represented by the more diversified S&P500 What do you mean by that? Can you give examples of that single asset?
- Akronymus 6y agoA company that they own?
- bhupy 6y agoThe company that they own.
- Naac 6y agoI guess I interpreted your statement as: "That single asset they own is more diversified than the S&P500", which I don't think is what you meant right?
- bhupy 6y agoI meant the opposite of that. The single asset that they own is less diversified and riskier than the S&P500, and therefore you can't take the annualized return of the S&P500 and then conclude that "money makes money" on a founder paper-billionaire's wealth. The S&P500 is a portfolio that puts together all of these companies and diversifies them. In other words, Bezos is one part of the S&P500.
- Certhas 6y agoSo what? That just means that you get ahead if the company you own grows ahead of the broader economy and that you lose out if you fall behind.
- bhupy 6y agoNo, it means that if you fall behind the broader economy, you lose control of your own company. It deprives the business owner of the ability to turn their own company around. All to raise a minuscule percentage of the Federal budget. That's a terrible system.
- lokar 6y agoThey can, and do, borrow against their shares.
- bhupy 6y agoYeah but borrowed money needs to be eventually paid back, so you're (at best) just deferring the problem. Even if a wealthy founder took out a collateralized loan, in order to pay back the loan, they have to realize some gain somewhere (which is already taxed). That money isn't free. Even to simply pay back the interest, they would have to liquidate some of their stock (which is already taxed). Eventually when the principal needs to be paid back, the only way to do it is to liquidate (and divest) the equivalent value in their company (which is already taxed).
- lokar 6y agoIf you can borrow against shares to buy a big house, mega-yacht, etc you can do so to pay your taxes.
- bhupy 6y agoNo, your argument would be like saying "if you can borrow against shares to buy a big house, mega-yacht every single year, you can do so to pay your taxes". PG's essay shows that the wealth tax compounds every year. That just doesn't happen with consumption. Bezos doesn't have 20 homes and 20 yachts.
- dfilppi 6y agoYeah but it causes the much worse 'government getting richer' effect.
- Certhas 6y agoThat might be your preferred ideology. There is, however, no evidence that democratic goverments that control more of a societies spending do worse for their countries. On the contrary there are plenty of areas where we know governments are vastly more efficient than markets.
- nradov 6y agoThe S&P has a long-term annualized return of only 7.41% since the end of the Bretton Woods system (beginning of the modern financial system). And that ignores investment costs such as trading and mutual fund fees; actual annualized returns will be lower for real investors.