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This is simplistic to the point of absurdity, and doesn't model how any sensible wealth tax would be implemented or paid. First, any wealth tax being seriously

by patmcc 6y ago

This is simplistic to the point of absurdity, and doesn't model how any sensible wealth tax would be implemented or paid. First, any wealth tax being seriously discussed has a floor and/or has marginal rates, probably starting at 1 or 5 or 10 million (or higher). Second, taxes don't disappear into nothingness - they pay for civilization. It is clearly beneficial to everyone to live in a society where people are well cared for and have healthcare, public education, welfare, etc. There's a reason failed states and unstable/developing countries generally aren't where people are looking to startup the next big tech company. Third, any smart founder isn't going to just sell 1% of their stock every year and pay the wealth tax with that. They'll take dividends, or take out a loan against the value of the stock, or use some cash from other investments, or whatever, and maintain control of their company. Yes, over the long term they'll lose some wealth, but not necessarily control of their company, unless that's the decision they make. Fourth, this effectively ignores that wealth is a thing that grows and compounds. If your wealth is increasing at 4% a year (very attainable for the class of people a wealth tax would affect) a 1% wealth tax really doesn't have as big an impact on your long term wealth as this makes it seem. Fifth, the idea that people "will just move to another country" is very silly. If some people do leave, or start companies only in other jurisdictions, that just means there's a market opportunity for the many people who remain. Unless this supposes that no one wants to take advantage of one of the richest markets in the world because they might have to pay a small fraction of their wealth to the government. Not to mention that even very wealthy people likely want to live in a good society - we don't see many people starting companies on boats in international waters for a number of reasons (left to the reader). I suspect that Mr. Graham is wringing his hands over potentially having to cut a large (in absolute terms, but small in relative ones) cheque to the government in the future, and I certainly feel for him, but I'd much rather we have well funded schools and welfare for those who need it.

networkimprov 6y ago
A long time ago the Western world had a voluntary wealth tax of sorts, the tithe. That's 10% of your income and/or property to your church. Admittedly taxes were then much lower, but whatever else you may think of them, churches poured vast energy and resources into social services. Now that it's an elected government instead of an opaque non-profit providing social services, they've become unpopular with the wealthy. I suppose the government can't assure you a place in God's Kingdom :-) https://en.wikipedia.org/wiki/Tithe https://en.wikipedia.org/wiki/Tithe Edit: certain of these are based on land, not income; see the article.
- Zak 6y ago
  That's an income tax, not a wealth tax.
  - Cyph0n 6y ago
    The zakat in Islam is a wealth tax. It is calculated based on how much wealth you have continuously controlled over the last year.
    - abiogenesis 6y ago
      Correct. And it's not negligible either at 2.5% per annum according to some sources.
- bruckie 6y ago
  I think most people who pay a tithe base(d) it on income, not wealth, so it doesn't have the snowball effect that a wealth tax does. Islam's zakat is the only exception I know of, but IIUC even that is paid only on excess wealth.
OliverGilan 6y ago
Right so the government that already has enough money to fund all those good public services will suddenly stop funding the military to a ridiculous degree and finally use taxes for the best interest of the people?
- patmcc 6y ago
  Oh, I don't disagree at all! Government spending is currently not how I would allocate things. But somehow I expect that wherever taxes were going, rich people would be displeased with the amount of taxes they were being told to pay. And honestly, I don't blame them, it's a very natural feeling, I'd rather not pay taxes either. Here's my thinking: as a society, we should decide on what needs to be handled by the government. Defense, roads, pandemic response, scientific research, welfare, healthcare, whatever. Make your own list, we can all hash that out. Then we figure out how much that costs, then we figure out the best taxation method to pay for all of it. I think the goals of that tax system should be to encourage beneficial habits, support economic growth, lower people's standard of living as little as possible, and generally maximize utility. It seems pretty clear that in this kind of system, a progressive system that taxes the wealthy more is a clear winner.
  - edoceo 6y ago
    I'm sure you meant to RAISE the standard of living.
    - patmcc 6y ago
      I worded it badly - I mean that the paying of taxes will always lower someone's standard of living, but we should minimize that as much as possible - basically that progressive taxation is clearly the better way.
  - TheOtherHobbes 6y ago
    We should also work out the costs of not having good cheap public healthcare, education, infrastructure - and not also having public access to the best R&D talent because it's working to make billionaires even richer through clever rent-extraction strategies from the markets. And so on. All of these negatives cost money. Aside from the humanitarian considerations - not trivial - they're a huge drag on social mobility, innovation, and business opportunity. The fact that some people feel irrationally inconvenienced by the prospect of extra taxes - which in reality will not materially affect them or their opportunities in any significant way - is an unconvincing reason to ignore the staggering social, economic, and political costs of their uniquely privileged position.
lazyjones 6y ago
> Fifth, the idea that people "will just move to another country" is very silly. If some people do leave, or start companies only in other jurisdictions, that just means there's a market opportunity for the many people who remain. You're just name-calling here, it's not "silly" just because you don't like the fact. If they leave, they actually leave, period. Sweden's left-wing majority abolished the inheritance tax(!) because so many wealthy people left because of it (among them, the famous IKEA founder). It's sad that your non-arguments and whinging are being upvoted by people who "feel" the rich ought to be taxed but refuse to think about the consequences.
- ianmobbs 6y ago
  It is silly. Your example isn't even about a wealth tax, it's about an inheritance tax. Sweden has a 30% Capital Gains tax (likely the vehicle for any form of future wealth tax) and seems to be doing much better than the US.
  - defnotashton2 6y ago
    Not in terms of class mobility. Yes the floor is higher but try accumulating wealth in Sweden.
    - amiga_500 6y ago
      https://en.m.wikipedia.org/wiki/Global_Social_Mobility_Index https://en.m.wikipedia.org/wiki/Global_Social_Mobility_Index Sweden: 4th Usa: 27th
    - kybernetikos 6y ago
      Normally class mobility is not thought of as equivalent to accumulating wealth. In some ways they're almost opposites. Sweden typically ranks much higher on class mobility measures than the USA.
      - twblalock 6y ago
        > Normally class mobility is not thought of as equivalent to accumulating wealth. In some ways they're almost opposites. Accumulating wealth is the only way poor people can stop being poor. Of course it's related to class mobility.
didibus 6y ago
I agree with you, but I do think something has to be discussed about the the issue with shares. Selling shares to pay tax does seem strange, the impact of losing ownership just to pay tax is weird to me. Seems it make more sense to tax when the shares are sold, but with a percentage based not on your taxed income, but your whole asset holding. Or just to tax the companies themselves more heavily.
- patmcc 6y ago
  Right, but I'm saying no one would actually sell off their shares to pay the wealth tax (I mean, maybe some would in some years). They'd borrow against the assets, or take dividends, or whatever.
  - didibus 6y ago
    I get that, but it seems quite cumbersome and complicated to me. There's got to be a simpler solution that won't involve borrowing. That's where a simple change on income tax like I described I feel might be nicer. The end result is the wealthier do get taxed more, but the taxing still only happens at liquidation. Whereas currently this isn't the case. Since a wealthy person can cash out 10 million a year, be taxed on that to the same extent as someone else who made 10 million, yet the next year the wealthy person total wealth could have gone up, making it they can cash out 10 million year over year forever and still grow richer, all because they always get taxed the same as someone who is less wealthy but of a similar income.
stickfigure 6y ago
There's a lot of assumptions in there that the economy is rapidly proving wrong right now. Wealth doesn't grow for everyone - and an income tax is more fair because people whose wealth is going up pay more than people whose wealth is going down. We live in a world where remote work is rapidly becoming not just acceptable, but standard. Post-coronavirus geographic mobility will be high. Look, we already have a wealth tax. Instead of dinging you every year and guaranteeing plenty of billable hours for accountants, we bundle it up in a big charge at the end. Everyone dies. How about we just enforce inheritance taxes and call it done?
- handoflixue 6y ago
  > Wealth doesn't grow for everyone Yeah, but it does generally grow for people who have millions of dollars, especially over the course of the 60 year period that the original essay is discussing. In the short term, the stock market fluctuates and has recessions, but in the long term it's only ever gone up. > How about we just enforce inheritance taxes and call it done? Because having a semi-predictable tax base is good? It's a lot easier to manage the government budget if you get 2% of the value every year, versus 100% of the value in a lump sum at some unpredictable point in the future. There's only 630 billionaires in the US, so it doesn't seem like statistics helps even this out, either.
- greycol 6y ago
  The difference between an income tax and a wealth tax is that currently those with wealth are able to avoid income taxes. Approaches like negative gearing and other strategies exist. I'm on the fence on estate taxes as a general rule I'd say it definitely make sense above some threshold but if you look at the mess with Samsung there definitely needs to be some thought in how illiquid stocks are dealt with. I'd put a bit of cash on Lee Kun-hee sill being 'alive' until after my death or at least until a change in South Korean tax law.
- mdorazio 6y ago
  There are a lot of weird incongruities in what you're saying here. First, how is an income tax more fair than a wealth tax? There is no guarantee at all that "people whose wealth is going up pay more than people whose wealth is going down.", let alone that the relative amounts of those items are fair. Additionally, wealth often accumulates via tax-advantaged vehicles that lower income individuals simply don't have access to. Next, are you really implying that people will magically move to another country entirely because they can work remotely? The portion of workers who are even able to do such a thing, let alone likely to, is vanishingly small for many reasons (including, interestingly, income taxes). And to your third point... again, you seem to not be aware of how estate planning works specifically to avoid paying taxes via things like trusts and inheriting shares in companies. Fixing inheritance taxation wouldn't come even close to being as effective as a wealth tax in preventing long-term accumulation of wealth with little economic input. Here's where we're at: we have been trying income tax and the rich keep getting richer. Demonstrably and repeatedly. It isn't working, unless your definition of "working" is robber-baron era levels of economic disparity in America. If your proposed solution is variants of income taxes, well then you know the saying "define insanity". Wealth taxation is the only plan I've seen that logically prevents workarounds and actually serves to balance economic outcomes for Americans in the long term.
waterhouse 6y ago
Your first point doesn't really apply, because PG is talking about someone who starts a successful startup, which—at least for Silicon Valley levels of success—would be above the relevant floor. (And he specifies: "over the threshold at which the tax starts".) Your second point isn't really relevant for a founder who can choose between one developed country with a wealth tax and another one without. Unless you think all developed countries are going to implement the wealth tax. I don't think your third point speaks to the issue. The article didn't mention control of the startup, only finances, and I don't think the successful 28-year-old startup founder who's looking at the impact of a wealth tax 60 years in the future is primarily concerned with control of the company at age 88. Your fourth point also makes no difference. Suppose you make $1 billion, and you earn zero interest on it. The wealth tax takes away 45.3% of that over 60 years. Suppose you make $1 billion and compounded interest at 4% would increase it to $10.5 billion over the course of 60 years. The 1% wealth tax still takes away 45.3% of that over 60 years, leaving you with 54.7% of the $10.5 billion. Multiplication is commutative. To your fifth point—well, does anyone leave for tax havens, or arrange for as much as possible of a company to be officially inside a tax haven? I think they do. A wealth tax that ends up making a large difference over the long term might make a large difference in how many people leave. I don't think you've shown that PG "doesn't model how any sensible wealth tax would be implemented or paid" in any significant way.
- patmcc 6y ago
  The wealth taxes being talked about, broadly, would impact people with wealth of tens of millions of dollars and above. But PG talks about what they would "mean in practice for a startup founder." Already he's made a clever rhetorical move and conflated startup founders (a large group) with very successful startup founder (a much much smaller group), in attempting to broaden the people who look like they're impacted directly by his argument. Over the medium-long term, I think any countries that don't implement a wealth tax (or some other way of addressing wealth inequality) will not remain developed countries. PG uses 'stock' throughout the essay as opposed to 'wealth', and I believe he did so on purpose; he's appealing to emotion. Startup founders care a great deal about control and ownership, more so than wealth in the abstract. Look later as well - "And at 5% this threshold is getting asymptotically close to being an upper bound on how much of the company you get to keep." - he's directly talking about ownership/control rather than simple wealth. Yes, this is obviously true. But again, PG's phrasing here is key; he's making it seem like you'll have only 55% of what you start with, which isn't remotely true. It just means your wealth compounds at a lower rate. Much less impactful, clearly. Maybe. A wealth tax on its own doesn't solve this, you also need to sort out tax havens. And again, you need to look at the real cost of these people leaving - if a billionaire moves away (instead of paying a wealth tax) what does that cost us?
deleted 6y ago
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joe463369 6y ago
If Americans are temporarily embarrassed millionaires, then many of the good people on HN are temporarily embarrassed tech billionaires.
- bradlys 6y ago
  Silicon Valley is full of millionaires who are temporarily embarrassed tech billionaires. Thus, why they come out in threads like this so wildly. Slow day at the home office - I guess. The amount of people I know with millions in assets but think they're poor and will someday be a billionaire is astounding. ("I just bought a nice vacation home in Lake Tahoe and a rental property in Santa Clara but I'm struggling with my little home in Palo Alto, you know? I barely have any money." - real example I've encountered multiple times) They're, of course, against wealth taxes. They are all convinced they're gonna be the next billionaire and that any taxes will absolutely destroy them in their path to ... whatever their destination is. (They don't even know - they all just want recognition)
macspoofing 6y ago
>First, any wealth tax being seriously discussed has a floor and/or has marginal rates, probably starting at 1 or 5 or 10 million (or higher). Uh huh. >Second, taxes don't disappear into nothingness - they pay for civilization. But there are bad taxes. There is such a thing as too much tax. So you have to justify the wealth tax on its own merits instead of trying to pull a motte-and-bailey fallacy by pushing a wealth tax and then arguing for the necessity of taxes when challenged. Taxes are a necessary part of a functioning modern economy. Wealth tax is not. >Yes, over the long term they'll lose some wealth, but not necessarily control of their company, unless that's the decision they make. No. What are you talking about? The math is very simple. You will lose control at some point, because there's only so many ways you can rearrange the deck chairs. And no, dividends are not an option because issuing a dividend may not be in the best interest of the company. Dividends are also taxed separately. That you think taking out debt to cover wealth taxes is a solution is insanity. >Fifth, the idea that people "will just move to another country" is very silly But that's exactly what happens. We have data on this from various experiments. It doesn't bring the revenue you expect it to because there is capital flight and brain drain from the country in response - and when that is taken into account, you may end up with a net loss in tax revenue. It's also expensive to administer and enforce because net-worth is not easy to calculate. It's no coincidence that this form taxation has been falling out of favor. >I suspect that Mr. Graham is wringing his hands over potentially having to cut a large (in absolute terms, but small in relative ones) cheque to the government in the future, No. That is a strawman if I ever seen one. Could Mr. Graham not be against this tax because it's an objectively bad tax with many unintended consequences?
- graeme 6y ago
  >>Second, taxes don't disappear into nothingness - they pay for civilization. >But there are bad taxes. There is such a thing as too much tax. So you have to justify the wealth tax on its own merits instead of trying to pull a motte-and-bailey fallacy by pushing a wealth tax and then arguing for the necessity of taxes when challenged. Taxes are a necessary part of a functioning modern economy. Wealth tax is not. Indeed. The parent is arguing that the wealth tax is better than, say, a carbon tax, which is considered a fairly efficient form of taxation. > >I suspect that Mr. Graham is wringing his hands over potentially having to cut a large (in absolute terms, but small in relative ones) cheque to the government in the future, >No. That is a strawman if I ever see one. Could Mr. Graham not be against this tax because it's an objectively bad tax with many unintended consequences? To add to this, Paul Graham doesn’t live in California, and would not pay the tax. He’s opposed on principle.
codecamper 6y ago
Don't forget that Paul's stock portfolio doubled in the past 4 months on the back of a "poor tax"... what the Fed printed and gave to banks to buy stocks (via buying bonds).
quantified 6y ago
Not to mention that real estate taxes and excise taxes charged as a % of value are already understood wealth taxes already. No problem there.
cies 6y ago
> the idea that people [read: super rich] "will just move to another country" is very silly. This is a recurring theme in owners/investors: they always have some story that they will be forced to leave or close shop if some labour-proteaction-laws (like weekends, or 8h days, or banning of child labour), or taxes are implemented. It's a very old story, there's a history to it. Please note that we have weekends/8h work day/ban on child labour and also still have the super rich. They never left. They did pass law that allow them to shift production overseas. But those laws can be repelled and then we will hear the story again of how this will kill their business,or force them to leave.
- macspoofing 6y ago
  This is a great illustration that the wealth tax is not about rational policy. It's based on nothing but emotion and ideology. We're not debating here the need for taxes, or labor protections. You don't get to justify bad policies by pointing that there are places where government regulation is called for. Wealth tax is bad policy. Justify it on its own merits.
  - lemmsjid 6y ago
    Here's my own-merits justification: Holding on to wealth is an inherently risky prospect. Let's say you are very wealthy but live in an unstable country. You're like a dragon sleeping on its pile of gold. Your wealth is a target. You need to hire considerable amounts of security, stockpile weapons, etc. in order to preserve that wealth. In a stable country, your wealth is not under that risk and you do not need to pay for that risk mitigation. You accrue the benefits of the wealth without taking on the risk. In other words, the act of amassing wealth and keeping it is a direct function of the stability and prosperity of the country in which you live. Because larger amounts of wealth incur larger amounts of risk, it makes sense that a portion of that wealth should be distributed to the country at large: for example, to pay for the less wealthy people who join the military to protect your wealth. Now: what separates that from the existing notion of income tax, capital gains tax, etc? The idea that your wealth, as it is sitting there (not its growth, not what you are earning), is incurring a cost to society, and that society is taking on risk in order to keep your wealth safe. Risk you are not directly paying for. Furthermore, in a stable and modern country holding onto wealth is so safe and protected that you can safely invest your wealth in markets and accrue compound interest. That is the polar opposite of what you would do in an unstable country, where you would keep your wealth hidden away underground, in mattresses, etc. So you are gaining a tremendous wealth-growth benefit by being in a stable country. (This doesn't seem to be addressed in pg's post, which I found confusing, because at 1% taxation you'd be below average market gains and would still gain). I'm not sold on the above argument being a truly compelling and overriding one for wealth tax, it's just some foundational thinking. I do think it explains, in part, why a wealthy person might choose to live in a country with a wealth tax over a country without one, assuming wealth tax became fashionable across most stable countries.
bfieidhbrjr 6y ago
> Second, taxes don't disappear into nothingness - they pay for civilization You've never worked in government it sounds like. It's a bonfire of money.
- AnimalMuppet 6y ago
  Both are true. It's a bonfire of money. And it gives us civilization. It's horribly inefficient and wasteful, and yet very few of us want to live without it. (But more efficiency would absolutely be welcome.)
  - ghostwriter 6y ago
    Civilization is being created by the creators of wealth. Before you can distribute anything, that anything has to be created. Once it's been created, it belongs to its creator by the unalienable right of property, the right that made the Civilization that you are currently living in possible. If you believe otherwise, you should sell, let's say, 95% of your total assets immediately and distribute that wealth among memebers of your local community to make it a slightly better part of the civilization you want to live in.
    - patmcc 6y ago
      Walk me through how you have property rights without the state enforcing then.
      - ghostwriter 6y ago
        Where have you seen mine claiming that there's no role for the government as a protector of property rights? In fact, it's one of a few only valid purpouse of any state. Not welfare, not free stuff, but the protection of unalienable rights of individuals.
    - vladTheInhaler 6y ago
      I'm so tired of this boring old fairy tale where mythical "job creators" will the entirety of civilization into existence like gods raising the earth from the ocean with a touch of their spear, or Athena leaping fully formed from the head of Zeus. Frankly, the mythologizing serves to justify a level of deference to the ultra-rich that they simply have not earned. In order for the "wealth creators" to work, they need a stable legal system and a currency just to start. Those things aren't free. And if they wanted to create, as a completely random example, a company that sells and delivers books, they might find it convenient for there to already be a well-developed trans-continental transportation infrastructure (and traffic laws, vehicle safety standards, air-traffic controllers, publicly-funded universities training students in logistics and supply-chain management), ports to receive goods from overseas (and trade agreements with other countries, and a navy to protect shipping lanes, and internationally standardized shipping crate sizes), a fire department to come rescue your investment when a warehouse full of books is burning, and perhaps a revolutionary global telecommunications system to let customers buy books with the click of a button (and a government research agency to invent it). "Wealth creators" exist as a part of the system - not apart from it. Their attempts to create new and better products should be encouraged and even celebrated. But we should never forget that those opportunities only arose because of a collective investment by all of America, funded by American tax dollars. No investment - no Amazon, which is why Jeff Bezos doesn't live in the Democratic Republic of the Congo. So when "wealth creators" refuse to contribute to that investment, they are stifling the innovation and creative potential of the next generation of dreamers and inventors. And as an aside, property rights are a social fiction. They exist only as long as it serves the collective interest of society. You "own" a particular piece of land because you happened to see it first, just as much as you "own" the front seat because you called shotgun. If you believe otherwise, you should immediately return your land to the native people it was stolen from.
thorwasdfasdf 6y ago
Government already owns 40% of what everyone earns in the US (see government spend as % of GDP is about 40% now). If that's not enough to pay for stuff, nothing ever will be. And it's much much higher if you're living in a blue state where salaries and COL are much higher, not to mention their state taxes are higher. Taxing the wealthy is not an effective means of helping people. If you taxed every last billionaire in the US, 100% of all the wealth they earned over the last 50 years and gave it to every member of the US, split evenly, and divided by 50 years, you'd get a pitiful small number of about 200$ per person per head. (2.7 trillion total billionaire net worth in US / 300 million / 50 )
- throwaway2048 6y ago
  Its far less than 40% of what the extremely wealthy earn.
deleted 6y ago
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hourislate 6y ago
>First, any wealth tax being seriously discussed has a floor and/or has marginal rates, probably starting at 1 or 5 or 10 million (or higher). The floor is adjustable. As more tax money is squander, the floor will be adjusted for greater taxation. >Second, taxes don't disappear into nothingness They actually do. The return on your tax dollar in California is abysmal. >Fifth, the idea that people "will just move to another country" is very silly. They can move to another state. Schwab is moving to TX. The tax savings will build their new corporate HQ in Westlake. How many Hedge Funds have left Conn, NY, NJ, etc for Florida? I don't have a dog in this fight. Taxes are necessary but when the State is not held accountable for their spending and continues to squander tax dollars, there is no amount of money that will ever satiate them. I hope California goes through with their plan. It will be an interesting to see the outcome.
mullingitover 6y ago
> Fifth, the idea that people "will just move to another country" is very silly. Definitely. After a certain point, increasing wealth isn't about wealth, it's about power. I would wager that most of the uber-wealthy would rather have slightly less power in a place that they want to have power in, rather than have marginally more power in a place that's not their home.
CryptoPunk 6y ago
The exasperated/condescending tone of your comment is really inappropriate, given the number of specious and economically fallacious arguments contained in it. Let's go through each: >>There's a reason failed states and unstable/developing countries generally aren't where people are looking to startup the next big tech company. There's a negative correlation between government spending levels as a percentage of GDP, and economic growth rates. Your implication, that society is better off with high levels of taxation, is not supported by the science on the matter. >>Third, any smart founder isn't going to just sell 1% of their stock every year and pay the wealth tax with that. They'll take dividends, or take out a loan against the value of the stock, or use some cash from other investments, or whatever, and maintain control of their company. Yes, over the long term they'll lose some wealth, but not necessarily control of their company, unless that's the decision they make. Completely irrelevant to the point. The point is that you lose much of the wealth you would have otherwise gained, in the absence of the wealth tax. Whether that's because you have to pay out more dividends, that would otherwise have been reinvested, to transfer to the IRS, or take on loans, that have to be paid back with revenue that would have otherwise been reinvested, is incidental. >>Fourth, this effectively ignores that wealth is a thing that grows and compounds. If your wealth is increasing at 4% a year (very attainable for the class of people a wealth tax would affect) a 1% wealth tax really doesn't have as big an impact on your long term wealth as this makes it seem. Wrong. The losses also have to be compounded. That 1%, had it remained invested, would have grown at a compounding rate as well. So you lose the 1% and all compounded gains on it. >>Fifth, the idea that people "will just move to another country" is very silly. If some people do leave, or start companies only in other jurisdictions, that just means there's a market opportunity for the many people who remain. This is a misunderstanding of the factors behind an investment. Investment does not automatically emerge to fill every market opportunity. It emerges when the ROI on potential investments meets the demands of the available investable financial capital. Investment decreases when the expected ROI decreases, and when the available investable financial capital decreases. A wealth tax decreases both the expected ROI, and the available investable financial capital. Moreover, you're completley ignoring competitiveness. Firms in low tax tax jurisdictions will outcompete firms in high tax ones, ceteris paribus. Opportunities are not distributed across the world evenly, and one factor that affects opportunity is tax rates. >>I'd much rather we have well funded schools and welfare for those who need it. Government spending as a percentage of GDP has increased from 25% in the 1950s to 40% today. Social welfare spending increased by an average of 4.8%, EVERY YEAR, between 1972 and 2010. How much more do you think government spending should increase? What share of private economic output should be non-consensually redistributed for social welfare programs in your mind? Will there ever reach a stage where you think the negative effects on capital formation, from further tax hikes, will outweigh the positive effects of a greater share of economic output being available to the poor in the form of cash payments and social services?
talaketu 6y ago
> Second, taxes don't disappear into nothingness - they pay for civilization. Modern monetary theory disputes this commonly held idea that governments need to collect tax before they can spend it on public works. On the contrary, government creates money to pay for public works, which leads to money in circulation, and in turn allows tax to be paid. The purpose of tax is to redistribute wealth and lead to harmonious society.
1vuio0pswjnm7 6y ago
He tries to compare a wealth tax to an income tax. But they are not comparable. If a person's gains from capital are above a certain threshhold and exceed her gains from income, then that person can afford to pay an additonal tax, not based on income. CEO's can infamously "work" for $1/year because they do not have to rely on income (labor) to support themselves. At a certain point, "income tax" becomes a misnomer. Thanks to the value of capital, some people do not actually have to engage in labor. Through work done by well-paid advisors, it is at this point that many of them have also reduced their income tax liability to zero, more or less. Comparing a wealth tax to an income tax makes little sense. If Piketty is right, in today's world gains derived from capital always exceed gains from labor (income) over the long term. That excess just keeps accumulating. The wealthy keep getting wealthier. Quite the opposite picture from Graham's, where gains from wealth dissipate over a lifetime. I will say this, his model looks great in a text-only browser. Wide margins, a basic table; succinct. The simplicity is pleasing to the eye.
cashsterling 6y ago
100% agree with everything you wrote. Paul's modeling of the wealth tax is incredibly naive and simplistic... to the point of either being extraordinarily dumb or intentional misleading. Given how intelligent Paul Graham is, I'm gonna say the later. I don't even gross 200k USD per year and I could afford a 1-2% wealth tax, no sweat.. wouldn't even miss it. In fact my savings would continue to grow almost unabated. The wealthy want us to believe that their money is the true wealth of America... that the {insert country} would fall apart if the wealthy left. In reality, our wealth is in our natural resources (food, energy generation, fresh water) and industrious, hardworking people of this country. I say this clearly... Jeff Bezos, Elon Musk, Bill Gates (etc.) are not responsible for wealth creation in this country. There have been 10's of thousands of people who brought the technology of those respective companies to fruition, and an entire society that made it possible. The idea of the "self made millionaire/billionaire" is ridiculous in its essence. That we DO NOT have a wealth tax, and high taxes on earning above a wealth threshold, is ridiculous and (dare I say) unethical/immoral. We need to entirely re-frame the argument surrounding taxes on corporations, wealth and sky-high incomes. ... my 0.02.
- kamaal 6y ago
  His modeling could be naive and simplistic. But emotionally losing 2% on 200K and 200 billion have very different effects on human brain. It's one thing to pay 2K totally different thing to pay 4 billion. You could make an argument that for some one with 200 billion, paying 4 billion isn't that much. But they are likely thinking on the lines of some great grandchild inheriting that money.
- kajecounterhack 6y ago
  >I don't even gross 200k USD per year and I could afford a 1-2% wealth tax, no sweat.. wouldn't even miss it. In fact my savings would continue to grow almost unabated. THIS! Most Americans just don't have many sitting assets, so even if you made the wealth tax apply equally to everyone, and we all had to pay an additional 1% on our net worth each year, for most of us that's either 1% of our house value or 1% of a small amount sitting in a bank account. For a billionaire that's $10M, which is about my city's whole budget. So another framing could be: "billionaires should annually pay for a small city's municipal expenses" -- it seems more than fair. Even in the case of not-yet-wealthy-startup-folks, assuming shoddy implementation -- "my money isn't liquid -- paying 1% tax on $1M of monopoly money from a startup is going to be hard" it's actually just $10k. And marginal rates and floors can easily make it all work. I'm a spoiled tech employee, I'd pay 1% of my salary a year for the purpose of helping mitigate income and quality-of-life inequality.
controversy 6y ago
Why cut that check to the Feds? They have destroyed schools. Look at the American placement in international tests since the Feds took over in the 1970s. Downhill. Why have them control health? They've shown they are incompetent with Medicare (look at the waste, fraud, abuse, and anger by doctors due to red tape). Why not have the States set the wealth tax? Be like Switzerland. The cantons and municipals set the wealth tax. Ultimately, for me, this entire topic throws into stark relief the fact that the Federal government needs to be brought to heel. It is too large. Too incompetent. Too impossible. Look at the EU (the closest thing in the West to the US by population and economic scope). The EU doesn't set an EU wealth tax. They do not set an EU health service. They set regulatory requirements that the individual countries (from a GDP perspective equal to US States) implement.
old-gregg 6y ago
Second, taxes don't disappear into nothingness - they pay for civilization. It is clearly beneficial to everyone to live in a society where people are well cared for and have healthcare, public education, welfare, etc. Or, and that's another possibility we should consider, taxes disappear into the pockets of bureaucrats and a handful of rent seekers with very little effect on civilization. Before arguing for additional taxes, one must first show some evidence that we're getting reasonable ROI on what we're already paying, and https://transparentcalifornia.com/ https://transparentcalifornia.com/ shows exactly the opposite. I am 100% in support for public healthcare, for example, but it will continue to look like a financial absurd as long as a knee MRI is 3x of any other country. Same thing with the higher education, public housing, etc.
- taneq 6y ago
  While we're considering new possibilities, maybe there should be a wealth tax AND more accountability in allocation of government funds.
around_here 6y ago
"Founders" that the author wrings his hands about so much, owe 99% of their ability to generate wealth to the government. If you're from the US, you own most of it to global American imperialism and hegemony. You should be giving it up so that others can have the same opportunity as you did.
rsync 6y ago
"Fifth, the idea that people "will just move to another country" is very silly. If some people do leave, or start companies only in other jurisdictions, that just means there's a market opportunity for the many people who remain." I think you misunderstand this in two different ways. First, retirees on fixed incomes are acutely, almost comically attuned to state income tax rates, property taxes, etc., and many of them plan their entire retirement and residency around it. Second, although I agree with you that it is very difficult to just arbitrarily uproot and move your family, etc., because of a tax code change, it's not that difficult for wealthy people - especially those expecting a liquidity event - to buy a house on Lake Tahoe on the Nevada side and take the kids out of school for (365/2) days. "Remember that time we spent the ski season on the lake ?" Wealth advisors and family office managers, etc., speak of this casually. Further, if you live in a wealthy community in the Bay Area (Ross ? Los Gatos ?) you'll see third or fourth cars with Nevada plates. Not an accident. So, yes - I think you're right - nobody is going to stop living in California if we continue to increase the top end tax rate ... but define "living".
- sitver 6y ago
  Third, the market is (with exceptions) global. If Google moves its headquarters to Toronto, that doesn’t open up an opportunity for a new American search engine.
closeparen 6y ago
>taxes don't disappear into nothingness - they pay for civilization Paying for civilization creates the conditions for even more elites to emerge. From an inequality perspective, you probably should disappear it into nothingness.
speleding 6y ago
I live in a country with a 1.3% wealth tax (the Netherlands), but as long as you own more than 5% of a company it doesn't apply to that part (a bit more complicated than that, but effectively this is what happens). The wealth tax does apply once it's cash, so dividends you received, or proceeds from selling (part of) the company. I would imagine a wealth tax in the US could do the same thing.
beagle3 6y ago
Norway's wealth tax starts at ~$200K and has minor discounts for main residence and volatile shares, but that's about it. And, yes, it is often possible to take dividends from an established, profitable business - but it is horrible for the way the startup (and investment in distant future) economy works, which is likely pg's frame of reference - I start a company, a very promising one, but it needs 20 years and billions of capital to get there. I raise $30M, still keeping 50% of my company at this point; Oops; on paper, I'm worth $30M, and have to pay (at e.g. 1%) $300K wealth tax in the first year. I cannot get any dividend; I usually can't even sell my shares or borrow against them. And it gets worse each time the company valuation grows (whether I raise more money or not). Seems far fetched? That's Amazon. Okay, Amazon is one in a million you say - but notice that the bad parts apply to ALL founded companies, whether or not they were as successful as Amazon. So, in addition to the wealth tax, something's got to give. Either you exclude non-liquid assets (which is a huge hole that will render wealth tax moot). Or you accept wealth-tax-payment-in-kind (that is, you put 1% of your shares into government custodianship every year, and then can convert them to tax money whenever this becomes a possibility). Or, the entire investment world changes - either investors will have to get used to paying an extra 1.5% to cover the founder's tax liability; or valuations will drop an order of magnitude to let founders pay out of their own pocket. Or investment will be diverted to places that don't have this tax. Or it will just drop significantly. But the assumption that wealth tax will have minor (if any) effect is ridiculous. Somewhat comparably, Israel put a very small turnover tax on stock exchange trading (which is not wealth tax, but is close enough for practical purposes) and as a result, the Tel-Aviv Stock Exchange volumes went down by an order of magnitude.

by patmcc 6y ago

networkimprov 6y ago

A long time ago the Western world had a voluntary wealth tax of sorts, the tithe. That's 10% of your income and/or property to your church. Admittedly taxes were then much lower, but whatever else you may think of them, churches poured vast energy and resources into social services. Now that it's an elected government instead of an opaque non-profit providing social services, they've become unpopular with the wealthy. I suppose the government can't assure you a place in God's Kingdom :-) https://en.wikipedia.org/wiki/Tithe https://en.wikipedia.org/wiki/Tithe Edit: certain of these are based on land, not income; see the article.

Zak 6y ago
That's an income tax, not a wealth tax.
- Cyph0n 6y ago
  The zakat in Islam is a wealth tax. It is calculated based on how much wealth you have continuously controlled over the last year.
  - abiogenesis 6y ago
    Correct. And it's not negligible either at 2.5% per annum according to some sources.
bruckie 6y ago
I think most people who pay a tithe base(d) it on income, not wealth, so it doesn't have the snowball effect that a wealth tax does. Islam's zakat is the only exception I know of, but IIUC even that is paid only on excess wealth.

OliverGilan 6y ago

Right so the government that already has enough money to fund all those good public services will suddenly stop funding the military to a ridiculous degree and finally use taxes for the best interest of the people?

patmcc 6y ago
Oh, I don't disagree at all! Government spending is currently not how I would allocate things. But somehow I expect that wherever taxes were going, rich people would be displeased with the amount of taxes they were being told to pay. And honestly, I don't blame them, it's a very natural feeling, I'd rather not pay taxes either. Here's my thinking: as a society, we should decide on what needs to be handled by the government. Defense, roads, pandemic response, scientific research, welfare, healthcare, whatever. Make your own list, we can all hash that out. Then we figure out how much that costs, then we figure out the best taxation method to pay for all of it. I think the goals of that tax system should be to encourage beneficial habits, support economic growth, lower people's standard of living as little as possible, and generally maximize utility. It seems pretty clear that in this kind of system, a progressive system that taxes the wealthy more is a clear winner.
- edoceo 6y ago
  I'm sure you meant to RAISE the standard of living.
  - patmcc 6y ago
    I worded it badly - I mean that the paying of taxes will always lower someone's standard of living, but we should minimize that as much as possible - basically that progressive taxation is clearly the better way.
- TheOtherHobbes 6y ago
  We should also work out the costs of not having good cheap public healthcare, education, infrastructure - and not also having public access to the best R&D talent because it's working to make billionaires even richer through clever rent-extraction strategies from the markets. And so on. All of these negatives cost money. Aside from the humanitarian considerations - not trivial - they're a huge drag on social mobility, innovation, and business opportunity. The fact that some people feel irrationally inconvenienced by the prospect of extra taxes - which in reality will not materially affect them or their opportunities in any significant way - is an unconvincing reason to ignore the staggering social, economic, and political costs of their uniquely privileged position.

lazyjones 6y ago

> Fifth, the idea that people "will just move to another country" is very silly. If some people do leave, or start companies only in other jurisdictions, that just means there's a market opportunity for the many people who remain. You're just name-calling here, it's not "silly" just because you don't like the fact. If they leave, they actually leave, period. Sweden's left-wing majority abolished the inheritance tax(!) because so many wealthy people left because of it (among them, the famous IKEA founder). It's sad that your non-arguments and whinging are being upvoted by people who "feel" the rich ought to be taxed but refuse to think about the consequences.

ianmobbs 6y ago
It is silly. Your example isn't even about a wealth tax, it's about an inheritance tax. Sweden has a 30% Capital Gains tax (likely the vehicle for any form of future wealth tax) and seems to be doing much better than the US.
- defnotashton2 6y ago
  Not in terms of class mobility. Yes the floor is higher but try accumulating wealth in Sweden.
  - amiga_500 6y ago
    https://en.m.wikipedia.org/wiki/Global_Social_Mobility_Index https://en.m.wikipedia.org/wiki/Global_Social_Mobility_Index Sweden: 4th Usa: 27th
  - kybernetikos 6y ago
    Normally class mobility is not thought of as equivalent to accumulating wealth. In some ways they're almost opposites. Sweden typically ranks much higher on class mobility measures than the USA.
    - twblalock 6y ago
      > Normally class mobility is not thought of as equivalent to accumulating wealth. In some ways they're almost opposites. Accumulating wealth is the only way poor people can stop being poor. Of course it's related to class mobility.

didibus 6y ago

I agree with you, but I do think something has to be discussed about the the issue with shares. Selling shares to pay tax does seem strange, the impact of losing ownership just to pay tax is weird to me. Seems it make more sense to tax when the shares are sold, but with a percentage based not on your taxed income, but your whole asset holding. Or just to tax the companies themselves more heavily.

patmcc 6y ago
Right, but I'm saying no one would actually sell off their shares to pay the wealth tax (I mean, maybe some would in some years). They'd borrow against the assets, or take dividends, or whatever.
- didibus 6y ago
  I get that, but it seems quite cumbersome and complicated to me. There's got to be a simpler solution that won't involve borrowing. That's where a simple change on income tax like I described I feel might be nicer. The end result is the wealthier do get taxed more, but the taxing still only happens at liquidation. Whereas currently this isn't the case. Since a wealthy person can cash out 10 million a year, be taxed on that to the same extent as someone else who made 10 million, yet the next year the wealthy person total wealth could have gone up, making it they can cash out 10 million year over year forever and still grow richer, all because they always get taxed the same as someone who is less wealthy but of a similar income.

stickfigure 6y ago

There's a lot of assumptions in there that the economy is rapidly proving wrong right now. Wealth doesn't grow for everyone - and an income tax is more fair because people whose wealth is going up pay more than people whose wealth is going down. We live in a world where remote work is rapidly becoming not just acceptable, but standard. Post-coronavirus geographic mobility will be high. Look, we already have a wealth tax. Instead of dinging you every year and guaranteeing plenty of billable hours for accountants, we bundle it up in a big charge at the end. Everyone dies. How about we just enforce inheritance taxes and call it done?

handoflixue 6y ago
> Wealth doesn't grow for everyone Yeah, but it does generally grow for people who have millions of dollars, especially over the course of the 60 year period that the original essay is discussing. In the short term, the stock market fluctuates and has recessions, but in the long term it's only ever gone up. > How about we just enforce inheritance taxes and call it done? Because having a semi-predictable tax base is good? It's a lot easier to manage the government budget if you get 2% of the value every year, versus 100% of the value in a lump sum at some unpredictable point in the future. There's only 630 billionaires in the US, so it doesn't seem like statistics helps even this out, either.
greycol 6y ago
The difference between an income tax and a wealth tax is that currently those with wealth are able to avoid income taxes. Approaches like negative gearing and other strategies exist. I'm on the fence on estate taxes as a general rule I'd say it definitely make sense above some threshold but if you look at the mess with Samsung there definitely needs to be some thought in how illiquid stocks are dealt with. I'd put a bit of cash on Lee Kun-hee sill being 'alive' until after my death or at least until a change in South Korean tax law.
mdorazio 6y ago
There are a lot of weird incongruities in what you're saying here. First, how is an income tax more fair than a wealth tax? There is no guarantee at all that "people whose wealth is going up pay more than people whose wealth is going down.", let alone that the relative amounts of those items are fair. Additionally, wealth often accumulates via tax-advantaged vehicles that lower income individuals simply don't have access to. Next, are you really implying that people will magically move to another country entirely because they can work remotely? The portion of workers who are even able to do such a thing, let alone likely to, is vanishingly small for many reasons (including, interestingly, income taxes). And to your third point... again, you seem to not be aware of how estate planning works specifically to avoid paying taxes via things like trusts and inheriting shares in companies. Fixing inheritance taxation wouldn't come even close to being as effective as a wealth tax in preventing long-term accumulation of wealth with little economic input. Here's where we're at: we have been trying income tax and the rich keep getting richer. Demonstrably and repeatedly. It isn't working, unless your definition of "working" is robber-baron era levels of economic disparity in America. If your proposed solution is variants of income taxes, well then you know the saying "define insanity". Wealth taxation is the only plan I've seen that logically prevents workarounds and actually serves to balance economic outcomes for Americans in the long term.

waterhouse 6y ago

Your first point doesn't really apply, because PG is talking about someone who starts a successful startup, which—at least for Silicon Valley levels of success—would be above the relevant floor. (And he specifies: "over the threshold at which the tax starts".) Your second point isn't really relevant for a founder who can choose between one developed country with a wealth tax and another one without. Unless you think all developed countries are going to implement the wealth tax. I don't think your third point speaks to the issue. The article didn't mention control of the startup, only finances, and I don't think the successful 28-year-old startup founder who's looking at the impact of a wealth tax 60 years in the future is primarily concerned with control of the company at age 88. Your fourth point also makes no difference. Suppose you make $1 billion, and you earn zero interest on it. The wealth tax takes away 45.3% of that over 60 years. Suppose you make $1 billion and compounded interest at 4% would increase it to $10.5 billion over the course of 60 years. The 1% wealth tax still takes away 45.3% of that over 60 years, leaving you with 54.7% of the $10.5 billion. Multiplication is commutative. To your fifth point—well, does anyone leave for tax havens, or arrange for as much as possible of a company to be officially inside a tax haven? I think they do. A wealth tax that ends up making a large difference over the long term might make a large difference in how many people leave. I don't think you've shown that PG "doesn't model how any sensible wealth tax would be implemented or paid" in any significant way.

patmcc 6y ago
The wealth taxes being talked about, broadly, would impact people with wealth of tens of millions of dollars and above. But PG talks about what they would "mean in practice for a startup founder." Already he's made a clever rhetorical move and conflated startup founders (a large group) with very successful startup founder (a much much smaller group), in attempting to broaden the people who look like they're impacted directly by his argument. Over the medium-long term, I think any countries that don't implement a wealth tax (or some other way of addressing wealth inequality) will not remain developed countries. PG uses 'stock' throughout the essay as opposed to 'wealth', and I believe he did so on purpose; he's appealing to emotion. Startup founders care a great deal about control and ownership, more so than wealth in the abstract. Look later as well - "And at 5% this threshold is getting asymptotically close to being an upper bound on how much of the company you get to keep." - he's directly talking about ownership/control rather than simple wealth. Yes, this is obviously true. But again, PG's phrasing here is key; he's making it seem like you'll have only 55% of what you start with, which isn't remotely true. It just means your wealth compounds at a lower rate. Much less impactful, clearly. Maybe. A wealth tax on its own doesn't solve this, you also need to sort out tax havens. And again, you need to look at the real cost of these people leaving - if a billionaire moves away (instead of paying a wealth tax) what does that cost us?

deleted 6y ago

[deleted]

joe463369 6y ago

If Americans are temporarily embarrassed millionaires, then many of the good people on HN are temporarily embarrassed tech billionaires.

bradlys 6y ago
Silicon Valley is full of millionaires who are temporarily embarrassed tech billionaires. Thus, why they come out in threads like this so wildly. Slow day at the home office - I guess. The amount of people I know with millions in assets but think they're poor and will someday be a billionaire is astounding. ("I just bought a nice vacation home in Lake Tahoe and a rental property in Santa Clara but I'm struggling with my little home in Palo Alto, you know? I barely have any money." - real example I've encountered multiple times) They're, of course, against wealth taxes. They are all convinced they're gonna be the next billionaire and that any taxes will absolutely destroy them in their path to ... whatever their destination is. (They don't even know - they all just want recognition)

macspoofing 6y ago

>First, any wealth tax being seriously discussed has a floor and/or has marginal rates, probably starting at 1 or 5 or 10 million (or higher). Uh huh. >Second, taxes don't disappear into nothingness - they pay for civilization. But there are bad taxes. There is such a thing as too much tax. So you have to justify the wealth tax on its own merits instead of trying to pull a motte-and-bailey fallacy by pushing a wealth tax and then arguing for the necessity of taxes when challenged. Taxes are a necessary part of a functioning modern economy. Wealth tax is not. >Yes, over the long term they'll lose some wealth, but not necessarily control of their company, unless that's the decision they make. No. What are you talking about? The math is very simple. You will lose control at some point, because there's only so many ways you can rearrange the deck chairs. And no, dividends are not an option because issuing a dividend may not be in the best interest of the company. Dividends are also taxed separately. That you think taking out debt to cover wealth taxes is a solution is insanity. >Fifth, the idea that people "will just move to another country" is very silly But that's exactly what happens. We have data on this from various experiments. It doesn't bring the revenue you expect it to because there is capital flight and brain drain from the country in response - and when that is taken into account, you may end up with a net loss in tax revenue. It's also expensive to administer and enforce because net-worth is not easy to calculate. It's no coincidence that this form taxation has been falling out of favor. >I suspect that Mr. Graham is wringing his hands over potentially having to cut a large (in absolute terms, but small in relative ones) cheque to the government in the future, No. That is a strawman if I ever seen one. Could Mr. Graham not be against this tax because it's an objectively bad tax with many unintended consequences?

graeme 6y ago
>>Second, taxes don't disappear into nothingness - they pay for civilization. >But there are bad taxes. There is such a thing as too much tax. So you have to justify the wealth tax on its own merits instead of trying to pull a motte-and-bailey fallacy by pushing a wealth tax and then arguing for the necessity of taxes when challenged. Taxes are a necessary part of a functioning modern economy. Wealth tax is not. Indeed. The parent is arguing that the wealth tax is better than, say, a carbon tax, which is considered a fairly efficient form of taxation. > >I suspect that Mr. Graham is wringing his hands over potentially having to cut a large (in absolute terms, but small in relative ones) cheque to the government in the future, >No. That is a strawman if I ever see one. Could Mr. Graham not be against this tax because it's an objectively bad tax with many unintended consequences? To add to this, Paul Graham doesn’t live in California, and would not pay the tax. He’s opposed on principle.

codecamper 6y ago

Don't forget that Paul's stock portfolio doubled in the past 4 months on the back of a "poor tax"... what the Fed printed and gave to banks to buy stocks (via buying bonds).

quantified 6y ago

Not to mention that real estate taxes and excise taxes charged as a % of value are already understood wealth taxes already. No problem there.

cies 6y ago

> the idea that people [read: super rich] "will just move to another country" is very silly. This is a recurring theme in owners/investors: they always have some story that they will be forced to leave or close shop if some labour-proteaction-laws (like weekends, or 8h days, or banning of child labour), or taxes are implemented. It's a very old story, there's a history to it. Please note that we have weekends/8h work day/ban on child labour and also still have the super rich. They never left. They did pass law that allow them to shift production overseas. But those laws can be repelled and then we will hear the story again of how this will kill their business,or force them to leave.

macspoofing 6y ago
This is a great illustration that the wealth tax is not about rational policy. It's based on nothing but emotion and ideology. We're not debating here the need for taxes, or labor protections. You don't get to justify bad policies by pointing that there are places where government regulation is called for. Wealth tax is bad policy. Justify it on its own merits.
- lemmsjid 6y ago
  Here's my own-merits justification: Holding on to wealth is an inherently risky prospect. Let's say you are very wealthy but live in an unstable country. You're like a dragon sleeping on its pile of gold. Your wealth is a target. You need to hire considerable amounts of security, stockpile weapons, etc. in order to preserve that wealth. In a stable country, your wealth is not under that risk and you do not need to pay for that risk mitigation. You accrue the benefits of the wealth without taking on the risk. In other words, the act of amassing wealth and keeping it is a direct function of the stability and prosperity of the country in which you live. Because larger amounts of wealth incur larger amounts of risk, it makes sense that a portion of that wealth should be distributed to the country at large: for example, to pay for the less wealthy people who join the military to protect your wealth. Now: what separates that from the existing notion of income tax, capital gains tax, etc? The idea that your wealth, as it is sitting there (not its growth, not what you are earning), is incurring a cost to society, and that society is taking on risk in order to keep your wealth safe. Risk you are not directly paying for. Furthermore, in a stable and modern country holding onto wealth is so safe and protected that you can safely invest your wealth in markets and accrue compound interest. That is the polar opposite of what you would do in an unstable country, where you would keep your wealth hidden away underground, in mattresses, etc. So you are gaining a tremendous wealth-growth benefit by being in a stable country. (This doesn't seem to be addressed in pg's post, which I found confusing, because at 1% taxation you'd be below average market gains and would still gain). I'm not sold on the above argument being a truly compelling and overriding one for wealth tax, it's just some foundational thinking. I do think it explains, in part, why a wealthy person might choose to live in a country with a wealth tax over a country without one, assuming wealth tax became fashionable across most stable countries.

bfieidhbrjr 6y ago

> Second, taxes don't disappear into nothingness - they pay for civilization You've never worked in government it sounds like. It's a bonfire of money.

AnimalMuppet 6y ago
Both are true. It's a bonfire of money. And it gives us civilization. It's horribly inefficient and wasteful, and yet very few of us want to live without it. (But more efficiency would absolutely be welcome.)
- ghostwriter 6y ago
  Civilization is being created by the creators of wealth. Before you can distribute anything, that anything has to be created. Once it's been created, it belongs to its creator by the unalienable right of property, the right that made the Civilization that you are currently living in possible. If you believe otherwise, you should sell, let's say, 95% of your total assets immediately and distribute that wealth among memebers of your local community to make it a slightly better part of the civilization you want to live in.
  - patmcc 6y ago
    Walk me through how you have property rights without the state enforcing then.
    - ghostwriter 6y ago
      Where have you seen mine claiming that there's no role for the government as a protector of property rights? In fact, it's one of a few only valid purpouse of any state. Not welfare, not free stuff, but the protection of unalienable rights of individuals.
  - vladTheInhaler 6y ago
    I'm so tired of this boring old fairy tale where mythical "job creators" will the entirety of civilization into existence like gods raising the earth from the ocean with a touch of their spear, or Athena leaping fully formed from the head of Zeus. Frankly, the mythologizing serves to justify a level of deference to the ultra-rich that they simply have not earned. In order for the "wealth creators" to work, they need a stable legal system and a currency just to start. Those things aren't free. And if they wanted to create, as a completely random example, a company that sells and delivers books, they might find it convenient for there to already be a well-developed trans-continental transportation infrastructure (and traffic laws, vehicle safety standards, air-traffic controllers, publicly-funded universities training students in logistics and supply-chain management), ports to receive goods from overseas (and trade agreements with other countries, and a navy to protect shipping lanes, and internationally standardized shipping crate sizes), a fire department to come rescue your investment when a warehouse full of books is burning, and perhaps a revolutionary global telecommunications system to let customers buy books with the click of a button (and a government research agency to invent it). "Wealth creators" exist as a part of the system - not apart from it. Their attempts to create new and better products should be encouraged and even celebrated. But we should never forget that those opportunities only arose because of a collective investment by all of America, funded by American tax dollars. No investment - no Amazon, which is why Jeff Bezos doesn't live in the Democratic Republic of the Congo. So when "wealth creators" refuse to contribute to that investment, they are stifling the innovation and creative potential of the next generation of dreamers and inventors. And as an aside, property rights are a social fiction. They exist only as long as it serves the collective interest of society. You "own" a particular piece of land because you happened to see it first, just as much as you "own" the front seat because you called shotgun. If you believe otherwise, you should immediately return your land to the native people it was stolen from.

thorwasdfasdf 6y ago

Government already owns 40% of what everyone earns in the US (see government spend as % of GDP is about 40% now). If that's not enough to pay for stuff, nothing ever will be. And it's much much higher if you're living in a blue state where salaries and COL are much higher, not to mention their state taxes are higher. Taxing the wealthy is not an effective means of helping people. If you taxed every last billionaire in the US, 100% of all the wealth they earned over the last 50 years and gave it to every member of the US, split evenly, and divided by 50 years, you'd get a pitiful small number of about 200$ per person per head. (2.7 trillion total billionaire net worth in US / 300 million / 50 )

throwaway2048 6y ago
Its far less than 40% of what the extremely wealthy earn.

deleted 6y ago

[deleted]

hourislate 6y ago

>First, any wealth tax being seriously discussed has a floor and/or has marginal rates, probably starting at 1 or 5 or 10 million (or higher). The floor is adjustable. As more tax money is squander, the floor will be adjusted for greater taxation. >Second, taxes don't disappear into nothingness They actually do. The return on your tax dollar in California is abysmal. >Fifth, the idea that people "will just move to another country" is very silly. They can move to another state. Schwab is moving to TX. The tax savings will build their new corporate HQ in Westlake. How many Hedge Funds have left Conn, NY, NJ, etc for Florida? I don't have a dog in this fight. Taxes are necessary but when the State is not held accountable for their spending and continues to squander tax dollars, there is no amount of money that will ever satiate them. I hope California goes through with their plan. It will be an interesting to see the outcome.

mullingitover 6y ago

> Fifth, the idea that people "will just move to another country" is very silly. Definitely. After a certain point, increasing wealth isn't about wealth, it's about power. I would wager that most of the uber-wealthy would rather have slightly less power in a place that they want to have power in, rather than have marginally more power in a place that's not their home.

CryptoPunk 6y ago

The exasperated/condescending tone of your comment is really inappropriate, given the number of specious and economically fallacious arguments contained in it. Let's go through each: >>There's a reason failed states and unstable/developing countries generally aren't where people are looking to startup the next big tech company. There's a negative correlation between government spending levels as a percentage of GDP, and economic growth rates. Your implication, that society is better off with high levels of taxation, is not supported by the science on the matter. >>Third, any smart founder isn't going to just sell 1% of their stock every year and pay the wealth tax with that. They'll take dividends, or take out a loan against the value of the stock, or use some cash from other investments, or whatever, and maintain control of their company. Yes, over the long term they'll lose some wealth, but not necessarily control of their company, unless that's the decision they make. Completely irrelevant to the point. The point is that you lose much of the wealth you would have otherwise gained, in the absence of the wealth tax. Whether that's because you have to pay out more dividends, that would otherwise have been reinvested, to transfer to the IRS, or take on loans, that have to be paid back with revenue that would have otherwise been reinvested, is incidental. >>Fourth, this effectively ignores that wealth is a thing that grows and compounds. If your wealth is increasing at 4% a year (very attainable for the class of people a wealth tax would affect) a 1% wealth tax really doesn't have as big an impact on your long term wealth as this makes it seem. Wrong. The losses also have to be compounded. That 1%, had it remained invested, would have grown at a compounding rate as well. So you lose the 1% and all compounded gains on it. >>Fifth, the idea that people "will just move to another country" is very silly. If some people do leave, or start companies only in other jurisdictions, that just means there's a market opportunity for the many people who remain. This is a misunderstanding of the factors behind an investment. Investment does not automatically emerge to fill every market opportunity. It emerges when the ROI on potential investments meets the demands of the available investable financial capital. Investment decreases when the expected ROI decreases, and when the available investable financial capital decreases. A wealth tax decreases both the expected ROI, and the available investable financial capital. Moreover, you're completley ignoring competitiveness. Firms in low tax tax jurisdictions will outcompete firms in high tax ones, ceteris paribus. Opportunities are not distributed across the world evenly, and one factor that affects opportunity is tax rates. >>I'd much rather we have well funded schools and welfare for those who need it. Government spending as a percentage of GDP has increased from 25% in the 1950s to 40% today. Social welfare spending increased by an average of 4.8%, EVERY YEAR, between 1972 and 2010. How much more do you think government spending should increase? What share of private economic output should be non-consensually redistributed for social welfare programs in your mind? Will there ever reach a stage where you think the negative effects on capital formation, from further tax hikes, will outweigh the positive effects of a greater share of economic output being available to the poor in the form of cash payments and social services?

talaketu 6y ago

> Second, taxes don't disappear into nothingness - they pay for civilization. Modern monetary theory disputes this commonly held idea that governments need to collect tax before they can spend it on public works. On the contrary, government creates money to pay for public works, which leads to money in circulation, and in turn allows tax to be paid. The purpose of tax is to redistribute wealth and lead to harmonious society.

1vuio0pswjnm7 6y ago

He tries to compare a wealth tax to an income tax. But they are not comparable. If a person's gains from capital are above a certain threshhold and exceed her gains from income, then that person can afford to pay an additonal tax, not based on income. CEO's can infamously "work" for $1/year because they do not have to rely on income (labor) to support themselves. At a certain point, "income tax" becomes a misnomer. Thanks to the value of capital, some people do not actually have to engage in labor. Through work done by well-paid advisors, it is at this point that many of them have also reduced their income tax liability to zero, more or less. Comparing a wealth tax to an income tax makes little sense. If Piketty is right, in today's world gains derived from capital always exceed gains from labor (income) over the long term. That excess just keeps accumulating. The wealthy keep getting wealthier. Quite the opposite picture from Graham's, where gains from wealth dissipate over a lifetime. I will say this, his model looks great in a text-only browser. Wide margins, a basic table; succinct. The simplicity is pleasing to the eye.

cashsterling 6y ago

100% agree with everything you wrote. Paul's modeling of the wealth tax is incredibly naive and simplistic... to the point of either being extraordinarily dumb or intentional misleading. Given how intelligent Paul Graham is, I'm gonna say the later. I don't even gross 200k USD per year and I could afford a 1-2% wealth tax, no sweat.. wouldn't even miss it. In fact my savings would continue to grow almost unabated. The wealthy want us to believe that their money is the true wealth of America... that the {insert country} would fall apart if the wealthy left. In reality, our wealth is in our natural resources (food, energy generation, fresh water) and industrious, hardworking people of this country. I say this clearly... Jeff Bezos, Elon Musk, Bill Gates (etc.) are not responsible for wealth creation in this country. There have been 10's of thousands of people who brought the technology of those respective companies to fruition, and an entire society that made it possible. The idea of the "self made millionaire/billionaire" is ridiculous in its essence. That we DO NOT have a wealth tax, and high taxes on earning above a wealth threshold, is ridiculous and (dare I say) unethical/immoral. We need to entirely re-frame the argument surrounding taxes on corporations, wealth and sky-high incomes. ... my 0.02.

kamaal 6y ago
His modeling could be naive and simplistic. But emotionally losing 2% on 200K and 200 billion have very different effects on human brain. It's one thing to pay 2K totally different thing to pay 4 billion. You could make an argument that for some one with 200 billion, paying 4 billion isn't that much. But they are likely thinking on the lines of some great grandchild inheriting that money.
kajecounterhack 6y ago
>I don't even gross 200k USD per year and I could afford a 1-2% wealth tax, no sweat.. wouldn't even miss it. In fact my savings would continue to grow almost unabated. THIS! Most Americans just don't have many sitting assets, so even if you made the wealth tax apply equally to everyone, and we all had to pay an additional 1% on our net worth each year, for most of us that's either 1% of our house value or 1% of a small amount sitting in a bank account. For a billionaire that's $10M, which is about my city's whole budget. So another framing could be: "billionaires should annually pay for a small city's municipal expenses" -- it seems more than fair. Even in the case of not-yet-wealthy-startup-folks, assuming shoddy implementation -- "my money isn't liquid -- paying 1% tax on $1M of monopoly money from a startup is going to be hard" it's actually just $10k. And marginal rates and floors can easily make it all work. I'm a spoiled tech employee, I'd pay 1% of my salary a year for the purpose of helping mitigate income and quality-of-life inequality.

controversy 6y ago

Why cut that check to the Feds? They have destroyed schools. Look at the American placement in international tests since the Feds took over in the 1970s. Downhill. Why have them control health? They've shown they are incompetent with Medicare (look at the waste, fraud, abuse, and anger by doctors due to red tape). Why not have the States set the wealth tax? Be like Switzerland. The cantons and municipals set the wealth tax. Ultimately, for me, this entire topic throws into stark relief the fact that the Federal government needs to be brought to heel. It is too large. Too incompetent. Too impossible. Look at the EU (the closest thing in the West to the US by population and economic scope). The EU doesn't set an EU wealth tax. They do not set an EU health service. They set regulatory requirements that the individual countries (from a GDP perspective equal to US States) implement.

old-gregg 6y ago

Second, taxes don't disappear into nothingness - they pay for civilization. It is clearly beneficial to everyone to live in a society where people are well cared for and have healthcare, public education, welfare, etc. Or, and that's another possibility we should consider, taxes disappear into the pockets of bureaucrats and a handful of rent seekers with very little effect on civilization. Before arguing for additional taxes, one must first show some evidence that we're getting reasonable ROI on what we're already paying, and https://transparentcalifornia.com/ https://transparentcalifornia.com/ shows exactly the opposite. I am 100% in support for public healthcare, for example, but it will continue to look like a financial absurd as long as a knee MRI is 3x of any other country. Same thing with the higher education, public housing, etc.

taneq 6y ago
While we're considering new possibilities, maybe there should be a wealth tax AND more accountability in allocation of government funds.

around_here 6y ago

"Founders" that the author wrings his hands about so much, owe 99% of their ability to generate wealth to the government. If you're from the US, you own most of it to global American imperialism and hegemony. You should be giving it up so that others can have the same opportunity as you did.

rsync 6y ago

"Fifth, the idea that people "will just move to another country" is very silly. If some people do leave, or start companies only in other jurisdictions, that just means there's a market opportunity for the many people who remain." I think you misunderstand this in two different ways. First, retirees on fixed incomes are acutely, almost comically attuned to state income tax rates, property taxes, etc., and many of them plan their entire retirement and residency around it. Second, although I agree with you that it is very difficult to just arbitrarily uproot and move your family, etc., because of a tax code change, it's not that difficult for wealthy people - especially those expecting a liquidity event - to buy a house on Lake Tahoe on the Nevada side and take the kids out of school for (365/2) days. "Remember that time we spent the ski season on the lake ?" Wealth advisors and family office managers, etc., speak of this casually. Further, if you live in a wealthy community in the Bay Area (Ross ? Los Gatos ?) you'll see third or fourth cars with Nevada plates. Not an accident. So, yes - I think you're right - nobody is going to stop living in California if we continue to increase the top end tax rate ... but define "living".

sitver 6y ago
Third, the market is (with exceptions) global. If Google moves its headquarters to Toronto, that doesn’t open up an opportunity for a new American search engine.

closeparen 6y ago

>taxes don't disappear into nothingness - they pay for civilization Paying for civilization creates the conditions for even more elites to emerge. From an inequality perspective, you probably should disappear it into nothingness.

speleding 6y ago

I live in a country with a 1.3% wealth tax (the Netherlands), but as long as you own more than 5% of a company it doesn't apply to that part (a bit more complicated than that, but effectively this is what happens). The wealth tax does apply once it's cash, so dividends you received, or proceeds from selling (part of) the company. I would imagine a wealth tax in the US could do the same thing.

beagle3 6y ago

Norway's wealth tax starts at ~$200K and has minor discounts for main residence and volatile shares, but that's about it. And, yes, it is often possible to take dividends from an established, profitable business - but it is horrible for the way the startup (and investment in distant future) economy works, which is likely pg's frame of reference - I start a company, a very promising one, but it needs 20 years and billions of capital to get there. I raise $30M, still keeping 50% of my company at this point; Oops; on paper, I'm worth $30M, and have to pay (at e.g. 1%) $300K wealth tax in the first year. I cannot get any dividend; I usually can't even sell my shares or borrow against them. And it gets worse each time the company valuation grows (whether I raise more money or not). Seems far fetched? That's Amazon. Okay, Amazon is one in a million you say - but notice that the bad parts apply to ALL founded companies, whether or not they were as successful as Amazon. So, in addition to the wealth tax, something's got to give. Either you exclude non-liquid assets (which is a huge hole that will render wealth tax moot). Or you accept wealth-tax-payment-in-kind (that is, you put 1% of your shares into government custodianship every year, and then can convert them to tax money whenever this becomes a possibility). Or, the entire investment world changes - either investors will have to get used to paying an extra 1.5% to cover the founder's tax liability; or valuations will drop an order of magnitude to let founders pay out of their own pocket. Or investment will be diverted to places that don't have this tax. Or it will just drop significantly. But the assumption that wealth tax will have minor (if any) effect is ridiculous. Somewhat comparably, Israel put a very small turnover tax on stock exchange trading (which is not wealth tax, but is close enough for practical purposes) and as a result, the Tel-Aviv Stock Exchange volumes went down by an order of magnitude.