3 ms·

> Some places do have a capital gains tax of zero. Switzerland is one of them, and Switzerland is economically more successful than the rest of Europe. Tax Swi

> Some places do have a capital gains tax of zero. Switzerland is one of them, and Switzerland is economically more successful than the rest of Europe. Tax Switzerland is a bad example because they tax capital more directly. In the form of a wealth tax. https://en.wikipedia.org/wiki/Taxation_in_Switzerland#Wealth_tax https://en.wikipedia.org/wiki/Taxation_in_Switzerland#Wealth... GP said setting taxes on capital to zero was a bad idea. Switzerland has only set capital gains taxes to zero. It still taxes capital.

mike_hearn 11mo ago
I live in Switzerland. It's an excellent example of a place without a capital gains tax, because it doesn't have one. I didn't say it doesn't have other taxes! The type of tax matters a lot. The reason capital gains taxes are bad is that they discourage investment, but investment is how you create wealth. "Creating wealth" is ultimately a synonym for creating material progress. Voters like progress, and so this is a very simple and direct argument, which is why most countries that have capital gains tax it at a lower rate than income. Wealth taxes have different incidence and change incentives in different ways. Basically, they discourage having wealth rather than creating it. It can create its own problems. Switzerland has had big problems in the past with the wealth tax discouraging the creation of tech startups. The reason is that if you create a company then sell some equity in it to investors, that creates a valuation of your company which is then considered wealth, even though it's theoretical wealth and not liquid. In other words, doing a big VC raise can land the company founders with an unpayably massive tax bill: they literally don't have the money to send the government because it's only paper wealth. To fix that the Swiss tax authorities had to introduce a new rule that says if you have ownership of a startup, this doesn't count towards the wealth tax. What exactly is a "startup" and what differentiates it from other kinds of business? Whether it is "innovative". What counts as innovative? The taxman decides. That means creating a startup in Switzerland is quite risky as if some random bureaucrat decides your product isn't truly innovative and you do a big VC raise you could be personally bankrupted (or you have to use some of the investors money to pay yourself out each year, which is then taxed as income too pushing you into a much higher tax bracket, etc). There are lots of other practical problems with the wealth tax. Tax incidence is complicated! In practice the Swiss approach works because: - The wealth tax is quite low - This "innovative startup" hack seems to work out in practice even if it's concerning in theory (tech startups aren't the only way to create a lot of wealth) - Wealth taxes discourage all kinds of wealth equally, so the effects are diffuse and they don't specifically discourage e.g. getting promoted over company formation over inheritances, which is a distortion a lot of other approaches do create.
- triceratops 11mo ago
  Let's summarize: airstrike: zero taxes on capital are a bad idea mike_hearn: Switzerland has no capital gains taxes and it's great. triceratops: Ok but it still taxes capital. mike_hearn: I live in Switzerland. No capital gains taxes are great and everywhere other than Switzerland has a lower tax rate for them than income because we want more capital gains. Also wealth taxes can cause startup founders to be taxed heavily. There's a bit of a disconnect here. You're arguing against multiple strawmen IMO. Outside Switzerland the current situation is: regular people pay high income taxes while they work, then somewhat lower capital gains taxes in retirement. Ultrawealthy people pay far less of both because they have ways to avoid them (keep employment income low, borrow against wealth instead of selling it). In Switzerland, since the wealth is straight up taxed, even if at a lower rate (I ran the Swiss wealth tax numbers myself a while ago and you're right it really is a very small amount. I pay way more in capital gains taxes) there are fewer games. Everyone pays taxes on what they make or own. The startup wealth tax problem has another solution: allow payment in non-voting startup shares, instead of liquid cash. The shares go into a sovereign wealth fund. The government either reaps a windfall eventually alongside the founder, or it misses out on tax revenue it shouldn't have collected anyway (if you look at it from the fairness point of view).
  - mike_hearn 11mo ago
    You're right, the origin of this thread was making an argument about all taxes on capital, not just capital gains. I missed that, I guess because nobody mentioned wealth taxes specifically and it's fairly rare for taxes on capital to mean anything other than capital gains tax. Mea culpa. > The startup wealth tax problem has another solution: allow payment in non-voting startup shares, instead of liquid cash This is an excellent idea! Did you come up with this yourself or have you heard of others proposing it?
    - triceratops 11mo ago
      I came up with it myself. It's possible there's prior art but nothing that I've read personally. I don't think it's a particularly revolutionary idea because sovereign wealth funds already exist. Improving productivity means using less labor which means lower income tax revenues as time goes on (and that's what you want - higher productivity, fewer labor inputs). And yet, the government needs revenue. What's growing? Wealth. Liquidating wealth to pay taxes is problematic. Hence the sovereign wealth fund. You can apply this to most forms of wealth - even publicly traded stock, real estate, crypto, and artwork. I've proposed it on this site several times in the past.

mike_hearn 11mo ago

I live in Switzerland. It's an excellent example of a place without a capital gains tax, because it doesn't have one. I didn't say it doesn't have other taxes! The type of tax matters a lot. The reason capital gains taxes are bad is that they discourage investment, but investment is how you create wealth. "Creating wealth" is ultimately a synonym for creating material progress. Voters like progress, and so this is a very simple and direct argument, which is why most countries that have capital gains tax it at a lower rate than income. Wealth taxes have different incidence and change incentives in different ways. Basically, they discourage having wealth rather than creating it. It can create its own problems. Switzerland has had big problems in the past with the wealth tax discouraging the creation of tech startups. The reason is that if you create a company then sell some equity in it to investors, that creates a valuation of your company which is then considered wealth, even though it's theoretical wealth and not liquid. In other words, doing a big VC raise can land the company founders with an unpayably massive tax bill: they literally don't have the money to send the government because it's only paper wealth. To fix that the Swiss tax authorities had to introduce a new rule that says if you have ownership of a startup, this doesn't count towards the wealth tax. What exactly is a "startup" and what differentiates it from other kinds of business? Whether it is "innovative". What counts as innovative? The taxman decides. That means creating a startup in Switzerland is quite risky as if some random bureaucrat decides your product isn't truly innovative and you do a big VC raise you could be personally bankrupted (or you have to use some of the investors money to pay yourself out each year, which is then taxed as income too pushing you into a much higher tax bracket, etc). There are lots of other practical problems with the wealth tax. Tax incidence is complicated! In practice the Swiss approach works because: - The wealth tax is quite low - This "innovative startup" hack seems to work out in practice even if it's concerning in theory (tech startups aren't the only way to create a lot of wealth) - Wealth taxes discourage all kinds of wealth equally, so the effects are diffuse and they don't specifically discourage e.g. getting promoted over company formation over inheritances, which is a distortion a lot of other approaches do create.

triceratops 11mo ago
Let's summarize: airstrike: zero taxes on capital are a bad idea mike_hearn: Switzerland has no capital gains taxes and it's great. triceratops: Ok but it still taxes capital. mike_hearn: I live in Switzerland. No capital gains taxes are great and everywhere other than Switzerland has a lower tax rate for them than income because we want more capital gains. Also wealth taxes can cause startup founders to be taxed heavily. There's a bit of a disconnect here. You're arguing against multiple strawmen IMO. Outside Switzerland the current situation is: regular people pay high income taxes while they work, then somewhat lower capital gains taxes in retirement. Ultrawealthy people pay far less of both because they have ways to avoid them (keep employment income low, borrow against wealth instead of selling it). In Switzerland, since the wealth is straight up taxed, even if at a lower rate (I ran the Swiss wealth tax numbers myself a while ago and you're right it really is a very small amount. I pay way more in capital gains taxes) there are fewer games. Everyone pays taxes on what they make or own. The startup wealth tax problem has another solution: allow payment in non-voting startup shares, instead of liquid cash. The shares go into a sovereign wealth fund. The government either reaps a windfall eventually alongside the founder, or it misses out on tax revenue it shouldn't have collected anyway (if you look at it from the fairness point of view).
- mike_hearn 11mo ago
  You're right, the origin of this thread was making an argument about all taxes on capital, not just capital gains. I missed that, I guess because nobody mentioned wealth taxes specifically and it's fairly rare for taxes on capital to mean anything other than capital gains tax. Mea culpa. > The startup wealth tax problem has another solution: allow payment in non-voting startup shares, instead of liquid cash This is an excellent idea! Did you come up with this yourself or have you heard of others proposing it?
  - triceratops 11mo ago
    I came up with it myself. It's possible there's prior art but nothing that I've read personally. I don't think it's a particularly revolutionary idea because sovereign wealth funds already exist. Improving productivity means using less labor which means lower income tax revenues as time goes on (and that's what you want - higher productivity, fewer labor inputs). And yet, the government needs revenue. What's growing? Wealth. Liquidating wealth to pay taxes is problematic. Hence the sovereign wealth fund. You can apply this to most forms of wealth - even publicly traded stock, real estate, crypto, and artwork. I've proposed it on this site several times in the past.