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If there is a 25% tax on the unrealized gain, the owner loses 12.5% of the company every year compounding which means before ten years they no longer control th

If there is a 25% tax on the unrealized gain, the owner loses 12.5% of the company every year compounding which means before ten years they no longer control the company. Therefore every large company ends up being controlled by Wall St. or foreign investors. That seems like a bad outcome. Yes, if you pick silly numbers any policy can be made to look silly. A wealth tax would never use a 25% rate because that would eliminate most of the wealth in a few years. Wealth taxes are always very low rates, i.e., 0.15% in Belgium, 0.5% to 1.5% in France (note: France did see a temporary outflow of billionaires when they first introduced this tax, but as the tax is on global worth, only complete expatriation would eliminate the liability); Italy has a wealth tax on non-Italian wealth of about 0.75%. Corporate ownership moves from domestic individual founders to corporate investment firms and foreign nationals. No, the opposite is true, since wealth taxes would penalize ownership through holding companies (greater wealth), and a wealth tax would also apply to foreign nationals owning U.S. assets. The most likely implementation of a wealth tax would be progressive (like it is in France), which would harm greater accumulations of wealth, i.e., corporate holding companies. The people making tax laws mostly understand this, which is why proposals like that haven't gone anywhere and hopefully won't. America already has wealth taxes. In many U.S. states (and especially a number of so-called "business friendly" red states), businesses already pay the equivalent of a wealth tax on top of their property taxes (the name varies from state to state; in some states they are called franchise taxes, in others "business privilege taxes", some call them "fees"). The rates are all far below 1%.

AnthonyMouse 2y ago
> A wealth tax would never use a 25% rate because that would eliminate most of the wealth in a few years. But we're talking about a tax on unrealized capital gains. A wealth tax has entirely different problems. To begin with, there are major asset categories with no objective way to value them, so how do you even calculate it in the absence of a sale, or prevent those assets from being used as a tax shelter? Then you're creating a large economic distortion because the tax isn't accounting for risk. A low-risk investment might have had an inflation-adjusted return of 0.1%, but now it's -0.4% and an institution that needs to maintain stability and avoid value loss is forced into riskier investments. A low rate is also self-defeating. If you use 0.5% against typical assets with a 10% annual return, it's equivalent to an income tax rate of only 5%, but you're still incurring all of the administrative complexity and still have non-trivial perverse incentives. But if you raise the rate to the level that "pay their fair share" normally implies, the perverse incentives become exponentially worse. > No, the opposite is true, since wealth taxes would penalize ownership through holding companies, and a wealth tax would also apply to foreign nationals owning U.S. assets. So now you're back to applying the tax to everyone's retirement account and not just "billionaires" and have given domestic businesses a competitive disadvantage in attracting foreign investment. You want foreign investors to give you their money because otherwise they invest in competing companies in other jurisdictions. What you don't want is for them to get a controlling interest in your companies at a discount. > In many U.S. states (and especially a number of so-called "business friendly" red states), businesses already pay the equivalent of a wealth tax on top of their property taxes. And those taxes cause existing problems for them, e.g. companies then avoid setting up capital-intensive businesses in those jurisdictions. See also Land Value Tax debate.
- gamblor956 2y ago
  But we're talking about a tax on unrealized capital gains. This isn't new ground that nobody has thought of before. A number of countries already have wealth taxes. Unrealized capital gains are wealth, not income. They would be subject to a wealth tax until realized, and only subject to a capital gains tax when realized. This is why wealth tax rates are so low. there are major asset categories with no objective way to value them, so how do you even calculate it in the absence of a sale, or prevent those assets from being used as a tax shelter? Your paragraph assumes something that isn't true. The problem of how to value assets for taxation is older than electronic computers, and decades ago tax authorities set forth rules/guidelines for valuing difficult-to-value assets. In a nutshell: there are a variety of ways to value such assets, and as long as the valuation of an asset is reasonable within the rules of the governing jurisdiction, the tax authority will accept it (or be forced to accept the valuation by a court). If you use 0.5% against typical assets with a 10% annual return, it's equivalent to an income tax rate of only 5%, but you're still incurring all of the administrative complexity and still have non-trivial perverse incentives. But if you raise the rate to the level that "pay their fare share" normally implies, the perverse incentives become exponentially worse. This also isn't true. Again...wealth taxes already exist, and they're administratively easier to implement then income taxes. They're also not intended to replace income taxes; they're intended to supplement income taxes by taxing the people who are wealthy enough that they don't need to earn income. applying the tax to everyone's retirement account and not just "billionaires" and have given domestic businesses a competitive disadvantage in attracting foreign investment. Yes, if you choose to implement a wealth tax on everything that would be true. It's a good thing that policymakers in the countries where wealth taxes already exist used their brains and decided to have minimum wealth thresholds for their wealth taxes.
  - AnthonyMouse 2y ago
    > Unrealized capital gains are wealth, not income. There have been proposals to tax unrealized capital gains as income. Those proposals are what the comment you replied to is arguing against. > The problem of how to value assets for taxation is older than electronic computers, and decades ago tax authorities set forth rules/guidelines for valuing difficult-to-value assets. "The places that attempt this have rules" is not actually a solution. The typical solution is to only apply such taxes to asset classes that are relatively easy to value, like real estate. But that in itself creates a lot of nasty distortions, like exacerbating the housing crisis. Local government gets tax revenue from real estate, so they get more if real estate is expensive, so they're on board with raising the cost of construction to drive up scarcity. The higher taxes reduce investment (i.e. construction) until rents increase to cover the new higher construction costs in addition to the taxes, and now people are homeless and unable to afford housing. Meanwhile capital moves from local real estate construction and other local businesses that would have to pay the higher real estate costs into global capital markets, reducing local jobs. And it still doesn't answer the question. How do you value a closely held startup that may grow or fail? How do you value bespoke art? How do you value a contract to pay $100,000 from a foreign company at risk of default? If it's subjective then it's a tax shelter. "Have the courts decide" doesn't explain how you expect them to make their decision. > wealth taxes already exist, and they're administratively easier to implement then income taxes. That's not saying much, income taxes are some of the most administratively expensive taxes to implement, and your argument is to use them in addition to rather than instead of income taxes, so the costs are cumulative. > It's a good thing that policymakers in the countries where wealth taxes already exist used their brains and decided to have minimum wealth thresholds for their wealth taxes. Your claim was that it would be paid by investment funds. Investment funds easily have enough assets to meet any plausible threshold, but they're owned by middle income people, so are you taxing them or not? How is "progressive wealth tax" supposed to work for corporate entities? If a massive foreign conglomerate owns a minority of the shares of a tiny foreign company which owns shares of a domestic company, is the tiny entity subject to the tax? What if the foreign country doesn't make ownership structures public? What if the conglomerate doesn't own any part the tiny entity or the entity is a human but the conglomerate has a long-term options contract to buy the shares for a fixed price? "There are rules for what to do" isn't an explanation. If the rules create tax shelters, you have problems. If the rules create perverse incentives in order to prevent tax shelters, you have different problems. There doesn't appear to be a sensible implementation.

AnthonyMouse 2y ago

> A wealth tax would never use a 25% rate because that would eliminate most of the wealth in a few years. But we're talking about a tax on unrealized capital gains. A wealth tax has entirely different problems. To begin with, there are major asset categories with no objective way to value them, so how do you even calculate it in the absence of a sale, or prevent those assets from being used as a tax shelter? Then you're creating a large economic distortion because the tax isn't accounting for risk. A low-risk investment might have had an inflation-adjusted return of 0.1%, but now it's -0.4% and an institution that needs to maintain stability and avoid value loss is forced into riskier investments. A low rate is also self-defeating. If you use 0.5% against typical assets with a 10% annual return, it's equivalent to an income tax rate of only 5%, but you're still incurring all of the administrative complexity and still have non-trivial perverse incentives. But if you raise the rate to the level that "pay their fair share" normally implies, the perverse incentives become exponentially worse. > No, the opposite is true, since wealth taxes would penalize ownership through holding companies, and a wealth tax would also apply to foreign nationals owning U.S. assets. So now you're back to applying the tax to everyone's retirement account and not just "billionaires" and have given domestic businesses a competitive disadvantage in attracting foreign investment. You want foreign investors to give you their money because otherwise they invest in competing companies in other jurisdictions. What you don't want is for them to get a controlling interest in your companies at a discount. > In many U.S. states (and especially a number of so-called "business friendly" red states), businesses already pay the equivalent of a wealth tax on top of their property taxes. And those taxes cause existing problems for them, e.g. companies then avoid setting up capital-intensive businesses in those jurisdictions. See also Land Value Tax debate.

gamblor956 2y ago
But we're talking about a tax on unrealized capital gains. This isn't new ground that nobody has thought of before. A number of countries already have wealth taxes. Unrealized capital gains are wealth, not income. They would be subject to a wealth tax until realized, and only subject to a capital gains tax when realized. This is why wealth tax rates are so low. there are major asset categories with no objective way to value them, so how do you even calculate it in the absence of a sale, or prevent those assets from being used as a tax shelter? Your paragraph assumes something that isn't true. The problem of how to value assets for taxation is older than electronic computers, and decades ago tax authorities set forth rules/guidelines for valuing difficult-to-value assets. In a nutshell: there are a variety of ways to value such assets, and as long as the valuation of an asset is reasonable within the rules of the governing jurisdiction, the tax authority will accept it (or be forced to accept the valuation by a court). If you use 0.5% against typical assets with a 10% annual return, it's equivalent to an income tax rate of only 5%, but you're still incurring all of the administrative complexity and still have non-trivial perverse incentives. But if you raise the rate to the level that "pay their fare share" normally implies, the perverse incentives become exponentially worse. This also isn't true. Again...wealth taxes already exist, and they're administratively easier to implement then income taxes. They're also not intended to replace income taxes; they're intended to supplement income taxes by taxing the people who are wealthy enough that they don't need to earn income. applying the tax to everyone's retirement account and not just "billionaires" and have given domestic businesses a competitive disadvantage in attracting foreign investment. Yes, if you choose to implement a wealth tax on everything that would be true. It's a good thing that policymakers in the countries where wealth taxes already exist used their brains and decided to have minimum wealth thresholds for their wealth taxes.
- AnthonyMouse 2y ago
  > Unrealized capital gains are wealth, not income. There have been proposals to tax unrealized capital gains as income. Those proposals are what the comment you replied to is arguing against. > The problem of how to value assets for taxation is older than electronic computers, and decades ago tax authorities set forth rules/guidelines for valuing difficult-to-value assets. "The places that attempt this have rules" is not actually a solution. The typical solution is to only apply such taxes to asset classes that are relatively easy to value, like real estate. But that in itself creates a lot of nasty distortions, like exacerbating the housing crisis. Local government gets tax revenue from real estate, so they get more if real estate is expensive, so they're on board with raising the cost of construction to drive up scarcity. The higher taxes reduce investment (i.e. construction) until rents increase to cover the new higher construction costs in addition to the taxes, and now people are homeless and unable to afford housing. Meanwhile capital moves from local real estate construction and other local businesses that would have to pay the higher real estate costs into global capital markets, reducing local jobs. And it still doesn't answer the question. How do you value a closely held startup that may grow or fail? How do you value bespoke art? How do you value a contract to pay $100,000 from a foreign company at risk of default? If it's subjective then it's a tax shelter. "Have the courts decide" doesn't explain how you expect them to make their decision. > wealth taxes already exist, and they're administratively easier to implement then income taxes. That's not saying much, income taxes are some of the most administratively expensive taxes to implement, and your argument is to use them in addition to rather than instead of income taxes, so the costs are cumulative. > It's a good thing that policymakers in the countries where wealth taxes already exist used their brains and decided to have minimum wealth thresholds for their wealth taxes. Your claim was that it would be paid by investment funds. Investment funds easily have enough assets to meet any plausible threshold, but they're owned by middle income people, so are you taxing them or not? How is "progressive wealth tax" supposed to work for corporate entities? If a massive foreign conglomerate owns a minority of the shares of a tiny foreign company which owns shares of a domestic company, is the tiny entity subject to the tax? What if the foreign country doesn't make ownership structures public? What if the conglomerate doesn't own any part the tiny entity or the entity is a human but the conglomerate has a long-term options contract to buy the shares for a fixed price? "There are rules for what to do" isn't an explanation. If the rules create tax shelters, you have problems. If the rules create perverse incentives in order to prevent tax shelters, you have different problems. There doesn't appear to be a sensible implementation.