19 ms·

How to convert between wealth and income tax

• grassfedgeek 4mo ago
  I think 1% wealth tax should be a replacement for income tax. That way only the wealthy will pay taxes.
  • k2enemy 4mo ago
    How do you propose we measure a person's wealth, when wealth is easily hidden? When it needs to be done now, it is usually a years long audit.
    • Salgat 4mo ago
      The first step we need to take is to invest in the IRS. Every dollar invested in the IRS returns between $5-9. Couple that with fines that offset the cost of auditing, and "hidden wealth" becomes a liability too expensive for people to bother with.
    • Matheus28 4mo ago
      A lot of countries require you to declare your total wealth on your tax forms. Then once someone gets audited, that gets checked. Obviously it’s possible to hide it, but that in itself is a crime, and not everyone is willing to risk going to jail over paying taxes.
      • throw0101c 4mo ago
        > A lot of countries require you to declare your total wealth on your tax forms. If you own shares of $MCD, you can get wealth taking share prices and shares owned. But if own a McDonald's franchise, how do you measure the 'wealth' of it? Annual profit? Last x years profit, averaged?
        • triceratops 4mo ago
          Comparable sales. Discounted cash flow model. There are many ways.
  • clear-octopus 4mo ago
    [dead]
  • niwtsol 4mo ago
    I think that is the glaring hole here - via an insane number of instruments from the various investments, they can reduce their tax liability (fed and state) to be very close to 0%. I believe a main idea of the wealth tax is to get around the insanely complicated tax code w/ all its loopholes.
    • tastyfreeze 4mo ago
      A national sales tax also gets around the insanely complicated tax code without government confiscation of wealth. Regardless of how it is earned money eventually gets spent. Rich people spend far more than lower incomes so they pay more taxes. If they pass their wealth on it will still eventually get spent by somebody. That fixes the stepped basis problem of inheritance. If they use equity to get loans they are still spending money so it fixes that problem too. It is also easier and less costly to collect and enforce. No special forms for specific types of income to make sure you are getting taxed enough and no army of IRS agents to check that everybody is following the tax code. The most common opposition to replacing income tax with a sales tax is saying it is regressive because "poor" people will need to spend a larger portion of their income on taxes than a wealthy person. Ok, so don't food or primary residence. A poor person isn't buying a $300,000 car or a second home. The best part is that if somebody is having a hard time getting by, every dollar they earn can be saved instead of giving Uncle Sam a short term loan until tax day.
      • grassfedgeek 4mo ago
        [flagged]
• blitzar 4mo ago
  [flagged]
  • vessenes 4mo ago
    Please make higher quality posts -- what in specific do you think pg has missed or does not understand?
    • blitzar 4mo ago
      If he can phone it in why cant I? His entire framing. Income (or revenue), what is left over freom the paycheque (profits) and net worth (market cap) - applying a simple ratio to companies of revenue to market cap doesnt work, why would applying a simple ratio of income to net worth for people who live hand to mouth and billionaires work any better.
      • vessenes 4mo ago
        I think you may have missed the background: US tax rhetoric -- he's doing what I think is pretty fair math with a fair take -- the math is supposed to break down what percent income tax you need to get the same dollars in tax revenue as a 1% wealth tax (on the wealthy). I think you could quibble with his risk free rate of return number, but most conservative planners would recommend a 4 - 5 % budget for risk free rate of return. It's not about companies - it's about showing an equivalency between a Piketty-style tax of wealth setup and what we're used to thinking about in the US, an income-style tax setup on individuals.
  • Supermancho 4mo ago
    The post goes out of it's way to mischaracterize the strategy (and purpose) of wealth taxes being proposed. > Each 1% of wealth tax is equivalent to 20% of income tax. Mathematically sound. > Politicians understand that an additional 20% income tax would be a lot. And indeed a US state that added 20% to its top income tax rate would have extraordinarily high taxes. That's the point. > In the median case, US state politicians talking about adding a "mere 1%" wealth tax are talking about causing the residents of their state to have the highest taxes in the world. That's not the sort of decision you make lightly. Not "all of the residents". Specifically the ultra wealthy that have a billion dollars. 20% at that point, is 20% of lots. You still have lots left over. Mathematical fairness isn't the point, which is one reason there isn't a flat tax rate.
• kingstoned 4mo ago
  If you want to understand why someone would even propose taking from the rich and complain about inequality, this post titled "Inequality Talk Is About Grabbing " is illuminating: https://www.overcomingbias.com/p/inequality-is-about-grabbinghtml https://www.overcomingbias.com/p/inequality-is-about-grabbin...
  • ceejayoz 4mo ago
    > People usually become billionaires via having “super-powers,” i.e., very unusual abilities, at least within some context. If you count luck, maybe. > But what if most billionaires had super-powers of the traditional comic book sort, like x-ray vision or an ability to fly, etc.? That is, what if people with physical super-powers earned billions in the labor market by selling the use of these powers? Would folks be just as eager to tax them to reduce unfair inequality? Yes, I would. > But if those few very rich folks had real physical super-powers, we would be a lot more afraid of their simple physical retaliation. They might be very effective at physically resisting our attempts to take their stuff. Yes, and this is why a lot of superhero movies involve fighting the greedy superpowered villain.
    • blanched 4mo ago
      Right, as presented, these people are closer to Lex Luthor than Superman. And I would still want to tax Superman.
    • futter9 4mo ago
      [flagged]
      • ceejayoz 4mo ago
        > What motivates this? An element of fairness. > Why can't you just leave people be? Because they're making employees piss in bottles to survive the workday? They're buying up the representatives who are supposed to represent me? They're driving services we rely on into austerity? They get bailouts when they fuck up?
• lowbloodsugar 4mo ago
  [flagged]
  • philipallstar 4mo ago
    This seems like such a poor understanding of reality. If you want to rank order people who contribute net taxes, you would put billionaires at the top, as they not only pay taxes themselves, but their businesses pay taxes, and their employees pay taxes, and their customers potentially pay taxes (VAT) as well. The bottom of the list would be anyone who works for the state, as they are a massive net tax negative, followed by benefits recipients and pensioners, followed by low income workers, followed finally by the middle classes. Are you sure you want that to be your guiding principle?
    • ceejayoz 4mo ago
      Do you think employees and "customers" of the government don't pay tax?
    • blanched 4mo ago
      In what reality does a business owner get to claim their customers’ taxes as their own contribution?
      • deleted 4mo ago
        [deleted]
      • nullc 4mo ago
        Parent poster was being a bit grandiose, but there is at least something in the idea that if your company produces a product that I make myself economical prosperous with... some credit for the taxes I pay is owed to you.
    • wat10000 4mo ago
      Get rid of the employees and the taxes no longer get paid. Get rid of the billionaire and the taxes still get paid. Why do we credit those taxes to the billionaire rather than the employees?
• vessenes 4mo ago
  There's a related calculation you can do -- what percent of your net worth is your employability? Take your salary, divide by 0.05 (or multiply by 20) -- if you had that much additional wealth earning 5%, you could replace your job's income. For most people their ability to earn is by far their largest asset. You can kind of get a feel for how difficult it is to bootstrap into generational wealth if you think about the math -- it takes time to replace that earnings portion of your own balance sheet, and even more to well replace it; a lot has to go right in the interim.
• ryandrake 4mo ago
  > To convert between wealth and income tax rates, you have to divide by the rate of return on capital. The conversion rate of 20 comes from assuming that the risk-free rate of return is 5%. This seems to only be true for people whose income entirely comes from their wealth, rather than their labor. The math doesn't math for someone on the other extreme end of the spectrum who has zero savings or investments and obtains all his income from labor: To him, a N% wealth tax = 0% income tax for all N. Those with -some- savings are somewhere in the middle. It is a very sneaky way to argue that a wealth tax should be as across-the-board unpopular as a large income tax increase. But Graham's math is only applicable to those flush with investments and with relatively small salaries from labor, so a wealth tax is only unpopular to that particular group.
  • clear-octopus 4mo ago
    [dead]
  • arh5451 4mo ago
    If you mean that a person with 0 savings pays 0 wealth tax, then sure. Most people when they earn income save some of it. Therefore it is wealth taxed.
    • amanaplanacanal 4mo ago
      It seems fairly simple to have a standard deduction so that only folks with wealth over a certain amount get taxed.
      • deleted 4mo ago
        [deleted]
    • qzw 4mo ago
      Almost all wealth tax proposal I’ve seen start at the level of 8-9 figures of wealth. Why are we now talking about it as if it’s going to apply to your average person’s savings account? If we’re just going to accept these billionaire-invented narratives around the wealth tax, then there’s really no point in discussing the actual pros and cons of these proposals.
• whatshisface 4mo ago
  A much more interesting formula would be how to convert between income and income tax - you'd think it worked according to the superficial bracket system, but in fact, it works along the lines of going to 0 at the top. P.S. a wealth tax is a property tax. They have existed in the US since before the income tax (which was originally considered unconstitutional by its opponents).
  • jeffreyrogers 4mo ago
    I think the limit it can reach without carried forward losses is 20% because that's the top long-term capital gains tax rate. The other thing I can think of is if you sell a QSBS business, then your capital gains are taxed at 0, and you wouldn't pay income tax at all on that money either. So it's in theory possible that someone could make millions tax free from selling a business, but that's a rare case and one the tax code explicitly allows for.
    • whatshisface 4mo ago
      You can get a loan from a bank against your assets and spend only the loan. I think that's how it goes to zero. >So it's in theory possible that someone could make millions tax free from selling a business, but that's a rare case and one the tax code explicitly allows for. These guys have whole offices working to figure out how their day to day expenses can be converted into stuff like "selling a business." ;-)
      • jeffreyrogers 4mo ago
        There have been a few proposals to close that loophole. The main reason it exists is because debt isn't counted as income since it has to be repaid.
        • whatshisface 4mo ago
          Yes, even if it never is. But you have to realize that these proposals to close loopholes are massive tax increases, not technicalities.
• alistairSH 4mo ago
  Paul the billionaire ignoring that billionaires often don't pay any income tax at all. Come on man, we're not stupid just because we don't own superyachts. https://www.propublica.org/article/the-secret-irs-files-trove-of-never-before-seen-records-reveal-how-the-wealthiest-avoid-income-tax https://www.propublica.org/article/the-secret-irs-files-trov...
• clear-octopus 4mo ago
  [dead]
• goyozi 4mo ago
  I don’t follow the debate and situation in the US that closely but isn’t (part of) the point of wealth tax to offset the fact that rich people are routinely avoiding paying income tax and taxes in general? Thus even if we assume the simplistic conversion here, it’s not that they’re moved from 40->60 bracket but more like <10 -> <30 ?
  • blackjack_ 4mo ago
    Yes. And that wealthy individuals are avoiding taxes via things like buy -> borrow -> die, in which high stock valuations that increase but are not sold are not ever taxed, and roll over the taxation potential upon death to their current value. Thus by borrowing against them until death, the inheritor will inherit with a tax basis at the current value upon receipt and thus all taxes are avoided. In which case the tax would go from 0% to 20% (functionally a small amount may be sold to pay interest, so really assume 1% or 2% taxes default). The horror!
    • HDThoreaun 4mo ago
      Buy borrow die as you describe still ends up with a 40% estate tax. Most uber wealthy want to avoid the estate tax so they utilize trusts, which cant die. Really the people who benefit the most from buy borrow die are those with 10-50 million. Not enough to pay serious estate tax because of the exemption. Above that everyone uses trusts which work differently. Not that the trusts dont have their own loopholes.
      • verteu 4mo ago
        Indeed, the ultra-wealthy pay far less than 40% effective estate tax. Seems closer to 15% due to creative accounting, which is further reduced to 6.8% by charitable contributions: > Specifically, for single decedents, estate taxes paid equal 6.8% of the value of Forbes wealth at death. The value of their gross estate is 39% of the Forbes estimate of their wealth. This large gap, already noted in earlier work (Raub et al., 2010), is likely to reflect the various techniques available to high-net-worth individuals to undervalue assets in the context of the estate tax. Taxable estate is then 45% of gross estate (due to deductions primarily gifts to charities) and on that base the tax rate is 39% (Balkir et al., 2025, Table 4 Panel B). https://www.nber.org/system/files/working_papers/w34170/w34170.pdf https://www.nber.org/system/files/working_papers/w34170/w341...
• tony69 4mo ago
  Wealth tax is highly impractical. Very high and inescapable death taxes is what we need. Like 80% after an initial exemption amount. https://www.yesigiveafig.com/p/the-summer-slide-part-3-the-tax-code https://www.yesigiveafig.com/p/the-summer-slide-part-3-the-t... https://m.youtube.com/watch?v=mX5U5DNUfBc https://m.youtube.com/watch?v=mX5U5DNUfBc
  • deleted 4mo ago
    [deleted]
  • jeffreyrogers 4mo ago
    There are all kinds of irrevocable trusts that exist to remove assets from your taxable estate so that they can be passed to heirs without paying estate tax. Raising the estate tax (which is already 40%) would just make planning to use these techniques more attractive.
    • BugsJustFindMe 4mo ago
      The existence of perpetual trusts is solvable in a world that has decided to fix the insanity caused by intergenerational wealth transfer instead of propping it up. "This thing we could also eliminate stops us from eliminating this other thing" is a silly platform. Just eliminate them both.
      • jeffreyrogers 4mo ago
        Perpetual trusts are different from irrevocable trusts, which have legitimate use cases. I don't really see how irrevocable trusts would be gotten rid of. In most states all trusts are irrevocable by default and there is a huge body of law dealing with trusts. Getting rid of them is essentially impossible without huge changes in the political/legal system.
        • BugsJustFindMe 4mo ago
          > Getting rid of them is essentially impossible without huge changes in the political/legal system. So is getting rid of intergenerational wealth transfer. So since we're already dreaming about a new system that seems irrelevant. > legitimate use cases Intergenerational wealth transfer also has "legitimate use cases" if one gets to define "legitimate". I'm curious what legitimate cases you have in mind.
• Havoc 4mo ago
  I think the assumption that we're looking for an equivalence here is fundamentally flawed and with it the entire post. For most people income is tied to selling their time. It doesn't scale at all. Unless the income comes from wealth. The societal problem here is a group with self-reinforcing run-away levels of wealth. And to counter that you do need something more extreme than this nonsensical equivalency of income tax
  • dheera 4mo ago
    > you do need something more extreme That's how you end up with an over-regulated country where people doing great things for the country's economy start choosing a different country to build their dreams in. It's also how you drive the currently-wealthy to other countries to spend and invest their fortunes in. The possibility of being ultra-wealthy is a huge reason to build awesome shit in the US that creates millions of jobs and brings the US economy ahead.
    • svachalek 4mo ago
      How is rent-seeking and monopolizing "doing great things for the country's economy"?
    • thrance 4mo ago
      This nefarious logic has been used for 50 years to justify ever worse austerity and tax breaks for the wealthy. And look at the situation today: pedophile oligarchs rule the world while we fight for scraps. The West has no future, unless we start aggressively redistributing wealth.
      • GS523523 4mo ago
        Hasn't a rich oligarchy been the status quo for most of humanity? It seems to me most of humanity has had quite a future to look forward to, historically speaking.
        • thrance 4mo ago
• PokedBear 4mo ago
  The bigger difference between an income tax and a wealth tax isn't the numbers. A wealth tax, for better or worse requires some realization of paper gains that very wealthy folks normally go to great lengths to avoid because their wealth is largely based on a broadly shared polite fiction. So imposing some realization of that wealth requires accountability that doesn't always pan out.
• pydry 4mo ago
  >It's clear that politicians don't get this from the way they talk about a "mere 1%" wealth tax. None of them would speak of adding a "mere 20%" to the income tax rate, even though that's mathematically the same thing. His core point seems to be that taking $20 from him is mathematically equivalent to taking $20 from a homeless girl's hat. I guess mathematically it is the same number if you dont normalize for that, which he wont.
• Matheus28 4mo ago
  You obviously can’t convert between the two directly and suggesting that is disingenuous. Income tax doesn’t affect unrealized capital gains (where the rich “hide” most of their income). A wealth tax (even without a minimum threshold) doesn’t apply to the poorest who can’t accumulate enough to even have any savings. This conversion only works for income that is entirely saved and reinvested, which the majority of people can’t afford to do.
• oytis 4mo ago
  Not everybody uses money to make more money, Paul. Most people work, get paid, and spend the money on their needs. In other words, you are in a position to care about the question, it's OK if you are taxed a bit more.
• tyleo 4mo ago
  I used to be against wealth taxes but as inequality gets out of hand I've more and more felt like they are the right move. Hell, I'll be the first in line to pay the damn tax so long as billionaires are right in line with me too.
• deathanatos 4mo ago
  > It's clear that politicians don't get this from the way they talk about a "mere 1%" wealth tax. None of them would speak of adding a "mere 20%" to the income tax rate, even though that's mathematically the same thing. Uh … sure I would? Why not? The top bracket was 70% in the 80s. So that 61% is still a fair bit short of what it was then. (And the 80s isn't the highest point, either.) IDK if it would be a good idea or not, but I'd entertain the debate, certainly. To state that this is unarguable, though, well…
• zedpm 4mo ago
  Are there serious proposals to just add a wealth tax on top of the existing income tax that would apply to the sort of people who actually pay much in income tax vs capital gains? It's an honest question; I haven't seen proposals of that sort, so I'm skeptical that the arguments are meaningful here. For an individual like Jeff Bezos, he's paying virtually no tax under the normal income tax rates referenced in the article, but rather capital gains tax, which tops out at 20%, not 37%.
  • alistairSH 4mo ago
    None that I've seen, though I'm sure somebody somewhere has introduced something. All that I've seen are wealth taxes on top of some arbitrary (but very large) wealth level. The latest proposal from Congress applied a 2% tax to wealth above $50 million with an additional 1% (3% total) on wealth over $1 billion. Plus a 40% exit tax to stop them all from fleeing to the Bahamas or Monaco.
• k2enemy 4mo ago
  Lots of confusion and misunderstanding in these comments. Not surprising, given the highly charged nature of the subject. I highly recommend Ray Madoff's book The Second Estate [1] to learn more about the topic. [1] https://press.uchicago.edu/ucp/books/book/chicago/S/bo256019296.html https://press.uchicago.edu/ucp/books/book/chicago/S/bo256019...
  • dgellow 4mo ago
    Mind sharing what commenters are getting wrong?
    • big_toast 4mo ago
      I believe some of Ray Madoff's points are that the tax code and most tax intuitions kinda differ. There's the idea that "wealth" gains tend to not be taxed for a variety of reasons. The common parlance of "Buy, Borrow, Die" category things. The "step-up in basis" category things - i.e. no capital gains tax realized on lots of inherited wealth. (The inheritance tax might trigger in some cases, but oddly the capital gains tax often might not be triggered on transferred assets because they were never sold and the new possessor will be taxed at the stepped up received value if they ever sell. So there's a chunk of appreciation that never received capital gains taxation.) Trust related things. There's the idea that 501(c)(4)s allow wealth to be transferred untaxed while retaining control over the assets (particularly because those organizations can engage in political activity, but I'd guess generally some of the organizations exert lots of influence/prestige.) So perhaps OP is suggesting that maybe there's some fungibility in income tax % and wealth tax %, but when you look at the tax code the equivalency looks pretty weak currently.
• dirteater_ 4mo ago
  Because billionaires accumulate wealth through assets and unrealized gains, many of them skip taking a traditional income and pay. If the numbers in the links below are to be believed, according to paulgraham's calculations, this might bump them into a ~fair range (when comparing to average/median earners). https://www.nber.org/papers/w34170 https://www.nber.org/papers/w34170 https://www.propublica.org/article/how-we-calculated-the-true-tax-rates-of-the-wealthiest https://www.propublica.org/article/how-we-calculated-the-tru...
• n2d4 4mo ago
  The conversion would be more accurate if it compared wealth and capital gains taxes, no? A defining feature of wealth taxes is that they only tax those that make most of their income through capital gains. This is why they're popular among much of the population. Now the question is, if we lowered capgains tax rate by 20% but instituted a 1% wealth tax, would that be better or worse? My guess would be worse because wealth taxes are nearly unenforcable, but I wonder if there are good arguments for the other position.
  • tyleo 4mo ago
    What makes them unenforceable?
• etchalon 4mo ago
  I think Paul thinks people care about the distinction, or think that a 20% marginal increase to the nation's wealthiest is something the public would find "unfair". Rich people need to stop hanging out with other rich people.
• duped 4mo ago
  > So in the median case, a state adding an additional 20% in income tax would have a total marginal tax rate of 37% + 4.75% + 20%, or 61.75% Good! It should still be higher! There's nothing more tone deaf than an uber wealthy man arguing he shouldn't pay more in taxes to the system that allows him to be uber wealthy and to be deliberately misleading at the same time.
• IshKebab 4mo ago
  Yeah this ignores at least three things: 1. Most people do not derive even a fraction of their income from interest on wealth. 2. Earning income from interest on wealth requires zero effort. That isn't true for salaries. 3. Income and wealth are totally different things. You can find a way to equate them in one contrived example but there are so many other factors involved in the real world. Billionaires gonna billionaire.
• robotresearcher 4mo ago
  This is a transparently misleading framing. The very wealthy are paying very low effective rates on their investment gains. Various billionaires have publicly described the truth of this. This is not 20% on top of 35%. They are paying a marginal rate of 35% of deliberately minimized taxable income and zero on deliberately maximized unrealized gains. Then 20% when realized, but as we all know by now there are ways to make sure it’s never realized. I don’t know what the best approach is here, but I know this framing is nonsense.
  • ipython 4mo ago
    Thank you. This is exactly the problem- pg is twisting the conversation by saying "look how painful taxes are for you, pleb!" When in reality, the taxation levels on the ultra-wealthy (whom this is targeted toward) are so much smaller not only on a %'age level, but on an impact level as well.
• fguerraz 4mo ago
  This is misleading and not the point of the wealth tax. If you’re lucky enough that you don’t need to work for your income, you should be taxed. A lot. How much? Enough to make sure you don’t become so rich that your children don’t need to work. Being rich is not fair, it’s very rarely deserved, and it needs to be taxed unfairly.
• ajjenkins 4mo ago
  This is wrong. You can’t convert between the two because it’s possible to have a lot of wealth with very little (even zero) income. Billionaires can completely avoid income taxes by paying themselves a very low salary and instead borrowing money against their assets (usually stock), which is not taxed as income. Source: The Second Estate by Ray Madoff (2025)
• Apreche 4mo ago
  His math is correct, but the conclusion is wrong. Income is money that comes from actually laboring and contributing to society. Wealth tax is tax from sitting on your ass doing nothing. Also, taxes don’t have to be a flat percentage. Like income tax, a good wealth tax would be progressive. Only wealth beyond a certain amount would be taxed, and the percentages would scale. This is why we should have income taxes that are as low as possible, but still progressively scaled. We should similarly have a progressive scaling wealth tax, but it should be much harsher than the income tax because we want people to work.
  • renticulous 4mo ago
    > Wealth tax is tax from sitting on your ass doing nothing. Related point is monetary system and monetary plumbing should be boring like electricity or water supply but because of distortions making money out of money has become the hottest thing.
• artoghrul 4mo ago
  Here is a better algorithm to edify the masses: if someone is such a massive billionaire as to have the boldness to teach the public basic 5th-grade math, their wealth tax rate should be set at 10%. From that point on, the rate goes in proportion to their level of condescension.
  • robtherobber 4mo ago
    That's so unambitious, I'd argue. > In 1940, the federal tax rate on income over $200,000 started at 66 percent. By 1944, the top tax rate on all income over $200,000 — about $3.4 million in today’s dollars — had jumped to 94 percent. https://inequality.org/article/tax-the-rich-we-did-that-once/ https://inequality.org/article/tax-the-rich-we-did-that-once...
• paol_taja 4mo ago
  [flagged]
• __turbobrew__ 4mo ago
  > In fact the conversion rate between them is about 20. A wealth tax of 1% is equivalent to an income tax of 20%. Sure, but you actually have to work for continued income. Wealth accumulates with no input once established. Wealth has the ability to increase (capital gains) without having to pay tax until it changes hands, whereas when income increases it is immediately taxed at a higher rate. Additionally, wealthy people can use securities as collateral for near zero interest lifetime loans which also bypass having to pay income tax.
  • blitzar 4mo ago
    Ironically, a wealth tax of 1% is equivalent to 20% of the risk free earnings on that wealth.
  • jppope 4mo ago
    > Wealth accumulates with no input once established. This is incorrect, historically you'll pay a ~2%-3% loss via inflation if you keep your money in cash. If you invest (making it capital) in bonds or securities then you will see accumulation, but thats actually a risk premium. > Additionally, wealthy people can use securities as collateral for near zero interest lifetime loans which also bypass having to pay income tax. This is true, its typically called "Buy, Borrow, Die" but the reality is that it is only available to a very small percent of wealthy individuals and exists because of the way inheritance is handled ("stepped-up basis"). Even reasonably (not fabulously) wealthy people will still pay retail rates on the loans making the tactic basically ineffective. Last I heard you needed something like 100M+ liquid for lenders to even consider it (presumably, because they will make more off of some other deal with you)
    • skybrian 4mo ago
      Step-up basis is important for anyone who inherits property from their parents. That can be substantial in places like California where real estate has gone up a lot. And for inherited rental property, there is another huge loophole: you can can depreciate the full market value of an asset that you got for free. That’s a substantial tax benefit for many years.
• jmcmaster 4mo ago
  So make income tax a deduction on a wealth tax, and avoid penalizing people who do indeed pay top marginal rate income tax on a large salary/bonus. Given that the ultrarich pay very little to no income tax then Paul’s argument is “don’t increase my income tax from unnoticeable to 20%”
  • Jblx2 4mo ago
    You probably mean that incomes taxes should be subtracted from wealth taxes? (I don't know that "deduction" is right technical term). That sounds like a good idea, and should probably also include subtracting out capital gains taxes as well. So if you had a $500,000 calculated income tax liability, and a $600,000 calculated wealth tax liability, you would only end up paying $600,000 in taxes (instead of $1,100,000). $tax_paid = max($income_tax_liability + $capital_gain_tax_liability, $wealth_tax_liability) ...that does seem like it would seem to alleviate PG's concerns about adding "a mere 20%" to the income tax rate.
• loteck 4mo ago
  Isn't PG's conflation of Denmark's high income tax with a proposed wealth tax a clear flaw in his math and argument re: "the highest taxes in the world"? Why wouldn't you instead compare to other countries that also have both income and wealth taxes?
  • newsoftheday 4mo ago
    As a layman, bringing up a purely income based argument with Denmark, seemed to be an odd juxtaposition.
• modeless 4mo ago
  The wealth tax that we should have is a federal property tax, in the form of a land-value tax. A property tax is more enforceable and produces much better incentives than an income tax or capital gains tax or death tax or wealth taxes in other forms. I think it's underestimated how important ease of enforcement is for taxes and laws in general. Laws that are hard to enforce require more powerful law enforcement agencies, more invasion of privacy, more punishment, more restriction of freedom. Enforcing a death tax, for example, necessarily requires limiting and tracking of all transfers of money or assets between people including personal gifts. A property tax merely requires keeping track of land ownership, which is a function governments already do, and in the worst case you can simply physically go to the land and see who is using it or seize it.
• hewasahaterboy 4mo ago
  This blog post is incredibly tasteless. Really Paul should take it down and get the butler to wipe the egg off his face
• shmolyneaux 4mo ago
  There is a bit more to the story than a 1% wealth being "equivalent" to a 20% income tax. The primary difference is that unrealized gains are taxed by a wealth tax. We need a mechanism for assets to be sold by the richest in society. If those with assets keep accruing more assets the median person will suffer. When we're talking about real assets (housing, retail shops, warehouses, land) we don't need to be concerned about capital flight. The assets are still there on the ground. Reducing the cost of those assets is exactly what we need to help a local economy. That being said, the richest are effectively _not_ paying the highest marginal tax rate considering all the tax structuring they do. Claiming that they would be paying the highest income tax in the world is misleading, for one. Secondly, the richest in the world _should be_ paying the highest income tax.
  • zozbot234 4mo ago
    When more assets are sold than are bought, that leads to the destruction of assets on a broad scale. It's the economic equivalent of eating one's seed corn. This would not be good for the median person. You can and should tax land (meaning the land value component of real estate in general) and natural resources more generally, but that's an entirely different game: it has next to nothing to do with wealth taxes as generally understood.
    • wyre 4mo ago
      > When more assets are sold than are bought How does this make sense? If Johnny sells 5 cars, that means 5 cars were bought. How can Johnny sell more cars than are being bought? Do you mean that Johnny has more cars to sell than are being bought?
      • zozbot234 4mo ago
        It's like a hot potato where people want to sell assets over buying them. Obviously at any given moment there are as many buyers as sellers, but this is exactly why trying to force people to sell at rock bottom prices brings widespread asset destruction.
• ojbyrne 4mo ago
  Why choose the median state tax? The proposed wealth tax is in California, where the top tax rate is 13%. Also relevant would be Medicare (1.45% or 2.35% depending on your employment income) and presumably for billionaires, the Net Investment Income Tax, another 3.8%. I understand why he simplifies things, but it doesn’t really jive with saying politicians don’t understand how taxes work. I think politicians have a better understanding of taxes than Paul does, and they have a better understanding of how politics work - basically as in all things political, if you convince the majority that you’re dumping on minorities (billionaires, immigrants, trans people) you’ll do well.
  • nullc 4mo ago
    > where the top tax rate is 13% 13.3% > and presumably for billionaires, the Net Investment Income Tax, NIIT kicks in at 200k, you presumably know this but I thought your comment could be misread as implying it only mattered for billionaires. :P > I think politicians have a better understanding of taxes than Paul does, and they have a better understanding of how politics work - basically as in all things political, if you convince the majority that you’re dumping on minorities (billionaires, immigrants, trans people) you’ll do well The author presumably understands this, but it's often more effective to pretend that your opposition is confused then to admit that you believe they are corrupt, unethical, dishonest, and actively trying to perpetrate evil. If nothing else, it gives them a more face saving avenue to course correct. And sometimes they really just didn't know better...
• klaff 4mo ago
  Anymore I think the question shouldn't be about some kind of economic fairness (the time value of money thing being discussed) but the idea that wealth accumulation is a disease that afflicts society. I don't think anyone should have the level of control or influence on others that having a billion dollars currently allows. If a millionaire gives $100 to a political candidate it probably doesn't require too much thought. It's impressive to note that a 10-billionaire can give $1M just as easily, and so we have a class of folks who can throw around influence, who can order a team of lawyers to do things, can employ their legion of sycophantic followers to harass people, or can threaten the employment of many people not-of-their-class because they can make decisions that threaten someone's employer's bottom line. And note that above I compared a millionaire to the 10-billionaire, but there are plenty of folks, especially around the planet, who economically live several orders of magnitude below the millionaire. As a bit of an aside, "spending more time with family" is an often-used euphemism around someone being fired, but if you have more money than you know what to do with and you aren't using it to spend more time with those you love, then what on earth is it for?
  • nearbuy 4mo ago
    I know this is tangential to your main point, but in the US, you can only give a max of $3,500 to a candidate per election cycle, for each the primaries and general election. To give more financial support, you have to do independent, uncoordinated campaigning for the candidate. So you can spend a million dollars on ads saying to vote for a candidate, but you can't give that money to the candidate's campaign and the candidate can't coordinate with you. This is what Super PACs do. I only write this because a lot of people are unclear on the rules. I'm not making an argument about billionaires.
    • klaff 4mo ago
      As one example see million dollar donations to inaugurations.
      • nearbuy 4mo ago
        I wouldn't put that in the same category as campaign donations. That money won't help the candidate get elected. The money goes to the inaugural committee to pay for the event. I'd put that in the broader category of doing something the president/politician likes in hopes of gaining favor. With this administration there are even better ways to gain influence and money by doing things the president likes than donating to inauguration ceremonies. Become a known staunch Trump advocate, and you could become the Secretary of Defense, FBI Deputy Director, or head of DOGE. No experience necessary.
• deleted 4mo ago
  [deleted]
• SandroG 4mo ago
  I think the post is correct in a one-period sense, though I’m not sure the equivalence survives once you model long-term compounding, additional capital gains taxation and liquidity constraints.
• mw1 4mo ago
  Wow, I like to actually see the numbers laid out like this. Most of the ultra-wealthy pay almost nothing on their income taxes from investments because they have found ways to avoid capital gains, and even if they were paying long term capital gains rates of 15%, pg’s assertion that the wealth tax adds another 20% doesn’t seem unreasonable at all. If anything, it makes me think 1% is not nearly enough of a wealth tax!
• w10-1 4mo ago
  True enough, but it doesn't address the motivation or the issues presented by California's proposed wealth tax. It's a big democracy red flag when a majority wants to take a lot from a tiny minority; the moral hazard of the unfairness is that it's unclear where this ends. (Saying "one-time" and "1%" are trying to limit that risk) It's a democracy red flag when an unpopular minority is vilified as the cause of society's problems. It short-circuits real policy making and distracts from real issues. The bargain of private wealth is that it's better at innovation that should spread widely -- if it's subject to competition and does not export costs. One problem is that one of the best investments is to change the law to reduce competition, increase market power, and export costs -- i.e., to weaken politics. Another is that wealth used to mostly invest locally (information and transaction costs), so locals would see some benefit. No longer. Finally, as an accelerant, enterprises are made of legions of managers and experts, who now compete more than ever; they would lose that competition by supporting less extractive policies or gentler politics. Net result is that wealth seems not productive but extractive, and there is no negative feedback to reduce that. Once the grand gambit of goodwill is lost, it cannot be recovered for at least a generation, but there's no real feedback to prevent that. The political viability of something like a wealth tax is just an early indicator.
  • atmavatar 4mo ago
    > It's a big democracy red flag when a majority wants to take a lot from a tiny minority; the moral hazard of the unfairness is that it's unclear where this ends. (Saying "one-time" and "1%" are trying to limit that risk) In the absence of any other considerations, I'd agree with you. However, the last half-century has seen that same tiny minority taking nearly all productivity gains from the rest, to the point that wealth inequality is greater now than during the first gilded age, so I have somewhat less sympathy for the tiny minority when the rest want to claw some of that back. > It's a democracy red flag when an unpopular minority is vilified as the cause of society's problems. It short-circuits real policy making and distracts from real issues. It's less of a red flag when that unpopular minority is the cause of society's problems. The ultra-wealthy have commandeered government to enrich themselves at the expense of the rest of us. We have massive consolidation of markets and media due to lobbying for deregulation and against enforcing anti-trust laws. We have further wealth concentration, the likes of which exceeds even the first gilded age at the hands of massive tax cuts and loopholes predominantly benefiting only the wealthiest, while also cutting tax enforcement personnel, making it easier to get away with tax evasion. Of course, in the face of the massive budget deficits resulting from those tax cuts, we make cuts to important social programs affecting many (and with largely positive ROI) while protecting subsidies to some of the most profitable businesses on the planet and leaping at any chance to start wars abroad whenever we need to distract from embarrassments at home. We have lax enforcement of labor laws which would allow workers to organize and demand higher wages, while at the same time passing unconstitutional laws at the state level which try to prevent organized labor in the first place. We have not only allowed the federal minimum wage to lag significantly behind inflation, but we have lobbying groups coming out of the woodwork to stop any proposed increase. When we have large economic crises caused by the malfeasance of the wealthiest of the wealthy, our corrupt Congress passes large bail-outs for the culprits while telling the majority of us to suck it up and tighten our belts. Of course, our consolidated media landscape increasingly obfuscates the real problems, presenting alternate boogeymen like immigrants so the downward spiral continues. Allowing so much wealth to concentrate in the hands of a tiny minority is itself a giant democracy red flag. The US is on the cusp of losing its democracy as a direct result, damaging global security and markets in its death throes. The mere existence of billionaires and their corrupting influence on government is the issue.
• wat10000 4mo ago
  > None of them would speak of adding a "mere 20%" to the income tax rate, even though that's mathematically the same thing. I sure would, if I was talking about someone who makes more money in a week than most of us will make in our entire lives. I think pg has forgotten that most people aren't rich.
• Hongwei 4mo ago
  I appreciate PG's writing as always. I'm skeptical that the super-rich are only generating 5% on their money. My anecdotal experience is that it's usually north of 15%. They have access to investments that main-street does not. If we plug in 15% instead of 5% in PG's reasoning, the effective income tax increase is quite a bit lower.
  • levocardia 4mo ago
    There is a footnote discussing this point; he uses 5% as the risk-free rate.
    • drivebyhooting 4mo ago
      Is 5% risk free even available to the little guys? No.
• anonymousiam 4mo ago
  Paul doesn't mention that these aren't exclusive. The California "Billionaires Tax" (which will likely soon become a "Millionaires Tax" after all the Billionaires exit the state), is levied on top of the regular state income tax.
• juancn 4mo ago
  There's a secondary side effect of wealth taxes: they redirect investments (I'm Argentinian and we have wealth taxes). Investments shift to things whose tax value updates slowly, for example property which typically adjusted more slowly than other financial assets. This tends to rise property prices and concentrate ownership. It causes other distortions in allocation depending on the tax details, but wealthy people tend to adjust more aggressively to changing conditions.
  • warkdarrior 4mo ago
    > This tends to rise property prices and concentrate ownership. We are already there in US. Real estate is already controlled by companies, and rental costs are through the roof.
  • Epa095 4mo ago
    In Norway the valuation of publicly listed stock companies is different than the valuation of non-traded companies (for publicly traded stocks it's the market value, while for the other companies it's their assets minus debt, so usually roughly 10x smaller). The effect of this is increased investment in small and medium sized companies compared to keeping the money passively in index founds.
• julianozen 4mo ago
  I think a lot of ink has been spilled on the problems with the proposed California Wealth tax, the main points being: 1- Is this in fact a 1-time tax or is that a dishonest narrative to make the proposal easier to swallow? 2- How do you prevent capital flight to other states? 3- How do those with paper money or more voting shares than equity shares cover their tax bill? That being said, I think more creative energy needs to be spent on the problem itself. What do we do about individuals with $100M+ of unrealized capital gains that through various methods will never have to realize those gains to live an extraordinary lavish lifestyle, and their children will inherit the money with a step-up in basis? For those who make all their money from W2s, they pay very high tax burdens, while those who strictly have capital gains generally pay at most around ~20% for LTCG. To those criticizing the California Wealth Tax, how do we solve this? How do we make billionaires pay more and lawyers/doctors/software engineers pay less?
• keernan 4mo ago
  Completely ignores the true distinction between wealth and income taxes. Person A has one billion dollars. Holds it in cash in a vault deep in a mountain he owns. He does not earn any wages.[1] 20% income tax: $0.00 01% wealth tax: $10,000,000.00 [1] Every billionaire controls their taxable income. Unlike wage earners, billionaires have 100% control over how much taxable income they have each year. They make choices. They can have the vault in the cave. Or they can put money into artwork that grows in value and only generates income upon sale. Or a million other ways they can choose to control taxable income.
  • robertoandred 4mo ago
    Except they already paid taxes on that one billion in cash. The receipt of that cash is taxable income.
    • keernan 4mo ago
      Every citizen should bear the same burden of paying for the cost of running a modern society. The taxes Musk pays should cause him to experience the same impact to his financial life as experienced when a worker earning $75,000 a year pays his taxes. It's a fairness and moral issue. If we changed from income taxes to wealth taxes, everyone will have the same issue. The billionaire will experience paying taxes on money that was previously taxed as income; as will the $75,000 worker who saved every dime he could spare to create life savings. What isn't ethical or moral is for the wealthy to create the rules of who bears the burden of paying for the cost of running society; only to later complain when those who got the short end of that stick want to create a fair system. Moreover, the vast majority of wealth held by billionaires has never been taxed.
    • ahaferburg 4mo ago
      Except that billionaires don't hold cash but assets. And they did not necessarily pay taxes on the value of those assets. The idea that billionaires have vaults of cash in mountains is not a sensible basis for any argument.
• jasonmp85 4mo ago
  [dead]
• jppope 4mo ago
  Just going to put this here to open up discussion: https://en.wikipedia.org/wiki/Georgism https://en.wikipedia.org/wiki/Georgism
  • AnimalMuppet 4mo ago
    Which is a tax on only one kind of wealth. Back when that was the kind that mattered most, that made sense. Today? Not so much.
    • postflopclarity 4mo ago
      it's more than that, because it's the one kind of wealth that has an (almost) completely inelastic supply
      • AnimalMuppet 4mo ago
        Same is true of gold. So why single out land?
        • postflopclarity 4mo ago
          the same is not true of gold.
    • adverbly 4mo ago
      Still, seems like table stakes. Start with georgist/pigouvian taxes, and then expand to other kinds of income/wealth afterwards. But Georgist taxes can go really far I'd imagine.
      • AnimalMuppet 4mo ago
        No, why? If we're going to do a wealth tax, then do a wealth tax. Why single out only one kind of wealth, and the kind that is not even the most important these days? (What's more important? IP. The value of Google, say, isn't in the land it owns. It's in the code, the database of web pages, and the google.com domain name.)
• gist 4mo ago
  > It's clear that politicians don't get this from the way they talk about a "mere 1%" wealth tax. None of them would speak of adding a "mere 20%" to the income tax rate, even though that's mathematically the same thing. [2] I am fully against any wealth tax but 'Don't get this'? Who says they don't get it. It doesn't serve their purpose so of course (like anyone selling) they are not going to disclose it.
• eis 4mo ago
  Here's a crucial mechanism that Paul Graham did not mention: With a wealth tax using his calculation, the higher your returns, the lower the comparable income tax would be. If your returns are 10% you'll pay $1 on $10 capital gains which is 10% and you end up with $109. Conversely someone achieving a mere 1% cap gains would be essentially taxed for 100% of his return. With income taxes it's usually the opposite: the more you earn, the higher the tax bracket you will be put into. Somebody like Paul Graham surely has higher than 10% capital gains, otherwise he'd not be exactly a great investor. Personally I'm against wealth taxes, I think capital gains taxes are a much more appropriate and fairer tool. I also think taxes in general are way too high, if you are part of the middle class and add up everything you pay in taxes, fees, insurance, duties and whatnot you can end up losing 70-90% of whatever you earn. It's extremely hard to actually accumulate wealth for the vast majority of people.
  • SoftTalker 4mo ago
    Well he does qualify this in his post, "The conversion rate of 20 comes from assuming that the risk-free rate of return is 5%."
• gist 4mo ago
  > In the median case, US state politicians talking about adding a "mere 1%" wealth tax are talking about causing the residents of their state to have the highest taxes in the world. That's not the sort of decision you make lightly. The missed point is that a 1% wealth tax 'only for a select group' can easily become later a 1% (or higher) wealth tax 'for a less select group'.
• gist 4mo ago
  > That's why I think few politicians currently understand how to convert between wealth and income taxes. You can tell from the way they talk about the subject that they don't understand the momentousness of what they're proposing. But I'm optimistic that we can teach them. The answer's not hard to understand, once you realize the question exists. What a pompous and uninformed "I am smarter than others" way to think. And very 'parental' (ie 'we can teach them'). Note that Politicians (in order to remain in their job) need to think in terms of the people they represent and getting re-elected by those people. You may not like it it may not be good for you but understand that in the position they are in why they do it.
• ipython 4mo ago
  Yet... an entire industry (financial advisors) will happily charge you a 1% "wealth tax" to manage your money. And you don't see lengthy articles from luminary venture capitalists about that. Feel free to just tell the masses to eat cake since bread is so expensive while you dine on your mega-yacht. Just like the market can stay irrational longer than you can stay solvent, you may or may not be able to outlive the eventual violent outburst from the rest of the 99%. Scott Galloway is right on that the anti-data center backlash is just a proxy for anger at wealth inequality.
  • fraserharris 4mo ago
    The entry level rate for >$10M AUM is ~0.5%
    • ipython 4mo ago
      That's a 10% tax! <gasp>
• mbgerring 4mo ago
  If you are wealthy enough, you can live off of untaxed loans from your “unrealized” gains, and never pay taxes on that money at any rate. Meanwhile, I am paying an effective tax rate of around 35%. The principle is simple: if you are spending the money, your gains are realized, and you should pay taxes.
  • jwlake 4mo ago
    Loans against unrealized gains should just be taxed directly as income. Not indirectly creating more loopholes. Same way stock buybacks should be taxed at the same rate as short term capital gains.
    • anon291 4mo ago
      Yes let's encourage more risky behavior! Absolutely braindead takes. This sort of proposal would establish a minimum 35 % return in any project. Thus halting investment entirely Let's put this in perspective. I'm currently going to collaterize a few hundred thousand in equity to take a loan to develop homes in my very housing short city of Portland. My calculated return is 40%. This is an excellent return.. It this were taxed then my initial loan would have to be 40% larger which means all my profit would go into paying that back, which means this project never gets done. You are already going to get the money once the homes are sold and the capital gains are realized. Why is everyone so greedy? You essentially want to tax twice
      • jwlake 4mo ago
        The point is you should realize your gains before you reinvest the money. Circular borrowing causes asset bubbles. You could collateralize against OTHER assets, but unrealized gains you should be paying taxes on if you are borrowing against them. It's really just closing a loophole. If the loophole is BIG enough, the you could lower the rate for everyone!
        • anon291 4mo ago
          Taxation would only worsen the bubble as people are left unable to pay. Again the tax rate sets a minimum return. These high returns encourage too much risk. Collateralizing other assets is the standard way in which capital grows. I don't see how equities and any different than homes. There is no 'circular' borrowing other than the normal creation of money through lending
• deleted 4mo ago
  [deleted]
• drcongo 4mo ago
  Is this Graham accidentally revealing his contempt for working people?
  • bayarearefugee 4mo ago
    He's a billionaire. Based on available data deep contempt for working people should be assumed until proven otherwise, even for billionaires who are 'self-made' by way of a lot of right-time-right-place luck.
• renticulous 4mo ago
  The real problem is our politicians aren't representing our people. All these other issues of wasteful spending and money printing and inflation and whatnot are downstream of that main crux of problem. People don't hate wealthy perse but when laypeople aren't provided proper means of living, they will try anything as a solution, even throwing a wrench in the system. That's how we got Trump.
• BugsJustFindMe 4mo ago
  The thing that all these asshole billionaires don't want anyone to think about is that not taxing wealth means that a person who primarily accumulates non-income capital only ever pays taxes on what they spend while the rest of us pay taxes on approximately everything we get regardless of whether we spend it.
• hashmap 4mo ago
  There are numbers in this post, but only in the technical sense. My read of this is "the discussion of taxing wealth makes me anxious. i will do a tap dance, please become mired in watching / discussing my tap dance so that we can put off the inevitable and ultimately necessary a little longer" To the "conversion rate": maybe, but who cares? The answer here is: apply the tax, see if we still have billionaires afterwards. If we do, then keep doing it.
• kommunicate 4mo ago
  This argument strikes me as massively disingenuous. The central problem of the US tax system is caused by a combination of: - high net wealth individuals essentially being indifferent to income tax. - income tax and short term capital gains are taxed at much higher rates to long term capital gains. - lower net wealth folks (ie. the general public) receiving most of their income as income. - high and ultra high net wealth individuals now making most of their money through dynastic trusts and inheritance. This combination ends up making it so that, as Warren Buffet would put it, he ends up paying a lower effective tax rate than his secretary. I effectively don't really care if it's a wealth tax or some other more targeted technical fix, but it's not sustainable to have the very wealthiest individuals taxed at a lower effective tax rate than everyone else and also able to pass on their wealth directly to heirs without significant estate taxes.
  • nullc 4mo ago
    LTCG + Corp tax rate >= income tax rate. It's an error to disregard the taxes your investments pay before they pass that wealth back to you.
• Cider9986 4mo ago
  It's not excessive to charge a 1% wealth tax when the people paying it don't pay any income tax thanks to their financial engineering.
• mayneack 4mo ago
  > It's clear that politicians don't get this from the way they talk about a "mere 1%" wealth tax. None of them would speak of adding a "mere 20%" to the income tax rate, even though that's mathematically the same thing. [2] This is the wrong way of thinking about it. It's not adding 20% to an already taxed entity, it's adding taxes where there weren't before. Adding 20% on top of the income tax would indeed be controversial. In his framing the rate of return is effectively untaxed income, so it would be more accurate to say that this is like adding income tax to a currently untaxed income stream.
• noelsusman 4mo ago
  This is simultaneously incredibly condescending and hopelessly naive. Politicians understand perfectly well that a 1% wealth tax is not a small tax on wealthy individuals. That's the whole point. They are engaging in basic political rhetoric when they say things like "a mere 1% tax".
  • tinktank 4mo ago
    It's an attempt at muddying the waters. It's what he excels at. This is the same guy who called Sam Altman "a force of nature". That is his level of judgement.
• Cider9986 4mo ago
  It's not excessive to charge a 1% wealth tax when the people paying it don't pay any income tax thanks to their financial engineering. Here is a cool website showing Wealth, shown to scale. https://wealth.ronnycoste.com https://wealth.ronnycoste.com
• annoyingnoob 4mo ago
  This treats all income like Labor income and completely ignores Investment income and long-term capital gains and losses. How I pay tax on my labor income doesn't have a lot to do with how Paul pays taxes on his investments. Paul makes his money from investment income.
• bogota 4mo ago
  Any tax on wealth i will forever and always disagree with. People don’t see its just a setup for the eventual tax your children will be paying as it becomes normalized and inflation makes 10 million the new 1 million.
• Glyptodon 4mo ago
  The argument is plausible - that you can treat wealth taxes as equivalent to income taxes if you treat wealth taxes as a tax on the ostensible income generation of the wealth. Of course there's more complexity than this, but that aspect is a plausible reductive lens. But the conclusion is silly. We all know the extremely wealthy who'd be subject to a wealth tax basically don't pay taxes and that a 20% tax is totally right around what the typical overall tax burden is for the middle class or median households. The 1% example equating to 20% is basically saying the wealth tax would be in line with a flat tax, not even with a progressive rate tax. The wealthy have turned the tax system into one that's functionally regressive for the most wealthy and then PG complains that a proposal that makes it more like a flat tax is "not understood" by lawmakers? It sounds ridiculous to me. Or maybe I'm missing something.
• blmarket 4mo ago
  So, if we go with 2% wealth tax(instead of 1%) we can cut income tax offset -20%? Go do it right now.
• jsrozner 4mo ago
  Stop thinking about taxes as a way to fund the government. Money in the long run can buy anything, including political influence. There are no regulations that can effectively preclude this. (And empirically, America over the past 40 years has seen moneyed entities successfully re-align politics and economic policy with their interests -- this was entirely predictable). An unequal society therefore cannot be a democracy. If you believe in democracy, then you necessarily must believe in wealth redistribution. (In fact, I argue that any person who believes that the American Revolution was justified, for any non-trivial reason, will likely find that those the same non-trivial reason could be invoked to reallocate wealth away from today's wealthy.) Counterarguments to this view (i.e. a different top-level value than democracy / meaningful sovereignty over the society in which one lives) might invoke utilitarianism: an unequal society potentially produces "better" outcomes if capitalism is allowed to run unrestrained. But a problem this argument encounters is who gets to decide what "better" is? All systems are economic in the long term, including political ones. A good framework for understanding is that a society in the long term is not "one person one vote" but rather "one dollar one vote." Today's preferences are dollar-weighted. Those with money decide what is better. The economy serves the average dollar's interests. And the average dollar's interest are the wealth-weighted preferences of society's members. We started with an income tax to fund the government. But today our most pressing issue is not funding the government, but not having an oligarchy. Wealth is the thing that most needs to be taxed in order to allow for any semblance of democracy. Analogies drawn to income, though interesting, are meaningless.
• superfrank 4mo ago
  I'm not an expert in this, but I thought one of the biggest arguments for why a wealth tax is needed the whole "buy, borrow, die" thing where the ultra rich can use their assets as collateral to take out a never ending series of ultra low interest loans until they die and then have most of the tax burden of selling assets to pay off those loans wiped out because the tax code is much more favorable to selling assets to pay off the debt of someone's estate. If (big if) I'm remembering that correctly, I don't get why we just go after the problem directly and do something like treat putting down collateral for these type of loans as a taxable event. I'm sure it's not as straight forward as it sounds, but I can't imagine it'd be more convoluted that needing to track the wealth of every high net worth individual. Maybe I'm in the minority on this, but I actually don't care if Jeff Bezos' net worth went up by $5 billion because Amazon had a good day in the market. If the shares are just sitting in an account doing nothing other than proving ownership it's all kind of just numbers in a computer, IMO. A painting is probably a better example than stock, but if I have a painting on my wall that was worth $1 million dollars yesterday and today it's worth $10 million that change in valuation is essentially meaningless as long as the only thing the painting is doing is hanging on my wall. What I do care about is when he's able to access the cash value of that $5 billion of Amazon stock without paying the taxes that would come along with selling the stock. If he wants to leave $5 billion in Amazon stock just sitting in his account doing nothing until the day he dies, that's totally fine, but the second he puts it up for collateral we should tax that. I think this has the added benefit of simplifying things by avoiding a lot of questions around fair valuation of assets. If I have a $10 million dollar one of a kind painting on my wall that I'm never planning on selling, it's kind of hard to put a valuation on that and it can be easily manipulated by finding the right appraiser. If I put a painting up as collateral for a $10 million loan it becomes a lot harder for the owner to argue that it's actually worthless or the IRS to argue that it's actually worth $1 billion.
  • gruez 4mo ago
    >why a wealth tax is needed the whole "buy, borrow, die" thing [...] see: https://news.ycombinator.com/item?id=48239802 https://news.ycombinator.com/item?id=48239802 Moreover if the bug is that income isn't tax at death, why not just fix that bug? Otherwise it's like arguing: "wow there are people in poverty? Better have a communist revolution to fix that!"
• fra 4mo ago
  If you follow his logic and believe that the ultra-wealthy pay too little tax (as e.g. Warren Buffett does), then a balanced approach is to set the tax rate to: "37% of income or 1.85% of wealth, whichever is higher". This would close the gap between Buffett's tax rate and that of his secretary, but would not be the "highest taxes in the world" that PG decries.
• epolanski 4mo ago
  But income from most comes from labor, whereas wealth is passive. I don't want to do math, but they aren't the same. And people aren't investing 100% of their income in risk free 5% assets.
• outside1234 4mo ago
  You need to understand the "Buy/Build, Borrow, Die" cycle that the ultra rich use to avoid basically any taxes. Explained here: https://gemini.google.com/share/e230bcecaaeb https://gemini.google.com/share/e230bcecaaeb
  • nullc 4mo ago
    That's a distraction. Were that the issue politicians and the media were actually concerned about they could implement policy which made it ineffective at avoiding taxes-- e.g. requiring appreciated assets used as collateral to throw off an implied return which you're taxed on and which gets added to the asset's cost basis. We already have analogous tax rules e.g. using options trades to nullify the risk on an asset causes it to be treated as sold for tax purposes. The reality is that the total financial effect of that sort of technique is not that considerable, but the political noise that can be made out of turning it into a perpetual problem (e.g. by only proposing to fix it with drastic non-solutions like wealth taxes) is gold to the people that profit from making us hate each other.
• mlsu 4mo ago
  I would love, LOVE to pay 20% in taxes! Goes without saying, I work for a living and have far less wealth and power compared to PG. I think there is kind of a breakdown in social order here. If society allows you to become the chief, it ought to also impose upon you a burden, an obligation, to wield your power over the tribe fairly, generously. To care for the weak, to make sure that everyone benefits, to ensure that things stay stable and safe under your leadership... The standard is higher, not lower. The sacrifice is greater, not lesser. It is absolutely bizarre and you can see exactly thew way PG, and other like him, are thinking. They all want to have this immense power (and it truly is immense, more immense than ever in modern history!) but they want none of the obligation, none of the responsibility. Even asking for 20 percent is too much, apparently. It's really sick.
• koliber 4mo ago
  You don’t need to teach anyone about this. The wealth tax should apply to extremely wealthy people, not everyone. If you accumulated a fortune, there was some skill at play. There was also considerable luck and some exploitation. The wealth tax is a way of paying back for the luck and exploitation. You will still be extremely wealthy. Paul wants to play the fairness card. Life is not fair and those who accumulated massive fortunes won the lottery. Don’t let the massively rich conflate issues. Don’t get fooled.
• voidhorse 4mo ago
  yawn hack writer issues wealth-hoarding and inequality apologia. Economics is simple. Resources are finite, and money plus markets preserve that finitude as an invariant (that's why it works as a store of value). If you sit on more money and accumulate more money a natural consequence is that someone else has less access to the finite resources available (either in actuality or in potentia), period, because you can accumulate enough to begin to dictate how much they can access (by having decision power around wages). There is no reason to assume private individual wealth-hoarders have public interest in mind, and indeed they have often proven that they don't. They want to maximize value at specific points in the system, which is the literal definition of instability and eventual collapse in chaos theory. You need to bring the system back to stability through structural intervention and regulation. Tax the rich. Cap individual accumulation. It's that simple. The world does need or benefit from kings, whether minted through politic or finance.
  • robertoandred 4mo ago
    Investments aren’t money. They’re just things you own, and their value can go up and down. They don’t affect the money supply.
    • voidhorse 4mo ago
      Many investments are considered a liquid asset precisely because they are basically money. You're missing the point on a stupid technicality. If I have more liquid and therefore more purchasing and capital power than you, I have access to more resources than you, and I am immediately in a position in which I can potentially exploit you (get you to labor to generate more resources in exchange for some of the capital I have, then retain most of all of the newly generated capital and production from your labor for myself while paying you a fraction of what's generated because you are in a position of immediate need (need access to necessities) and I wasn't).
• Galanwe 4mo ago
  Hahaha this is so bogus. Americans really struggle to understand how tax work outside of their country. First, the whole premise of income to wealth tax equivalence is non sensical, because interests are rarely literally in the form of coupons/payments, but rather left as compounding value. This is the whole point of share buybacks, reinvested ETFs, etc; and Paul Graham knows that of course. If you are rich, you don't need the cash of your investments, so you don't want to trigger taxable events, so you are effectively at 0% tax rate and just let it compound. > Currently the country with the highest marginal income tax rate is Denmark, at 60.5% This is the most BS statement ever, and would only be believable to Americans with no understanding of how foreign country do taxes. Which is at best very naive of him, or highly disingenuous. This is because "tax" in the US is essentially employee paid, whereas most other countries split the bill between employer and employee at a higher proportion. The result is the same, but the employee part only is labeled "tax", the employer part being often called "contribution". When comparing across countries, you have to look at the tax wedge (super gross to net), not the tax rate (gross to net). And if you do that, well the US has a lower tax wedge than even the most generous European countries (Ireland). In France for instance, the tax wedge is close to 70% for the higher bracket. Yes, that means if your employer pays $100, you get $30. And that's in a country with 20% VAT compared to US ~8%. Not to mention, except super rich little little business-hub countries (Hong Kong, Singapore, Ireland, Malta, Cayman Islands, etc), pretty much all _developed_ countries have some form of wealth tax, it's just common sense.
• TZubiri 4mo ago
  As others have mentioned this is wrong. Here's 3 accounts on how it is so: 1- Fundamentally, they are magnitudes of different units, one is tax/income, the other is tax/wealth/time. Not only is the denominator different, one being calculated over income, the other over wealth, but there is an additional inverse time factor. In income tax, whether the period is yearly or monthly or hourly, is an administrative matter that doesn't materially change the rate, 1%/month is the same as 12%/month, however in wealth tax, 1% wealth tax per year is not the same as 1% wealth tax per month. In many respects one might consider wealth tax to be a second order derivative of income with respect to time. Which is again very similar to a progressive income tax. Anyone that studied polynomials knows that there is no such equivalence between ax and bx^2, they are irreducible mathematical forms. 2)Trivially, in the scenario Paul proposed, Wealth tax is comparable to income tax only with respect to capital gains. That is, if he did find an equivalence between income tax and wealth tax for capital gains (which he didn't), income tax would still apply non capital gain taxes. But I will concede that there may be an argument that, if such an equivalence were found, it could be considered that there exists an Income Tax which will always yield more tax than another specific wealth tax. 3) The equivalence between wealth and income tax cannot be linear. The example given applied to 1% wealth tax and was compared to 20%, and a risk free interest of 5%. If the wealth tax were of 2%, 5% or 10%, would that be equivalent to 40%, 100%, and 200% income tax respectively? The last one is especially ridiculous.
• sokoloff 4mo ago
  > You can tell from the way they talk about the subject that they don't understand the momentousness of what they're proposing. I think that what you can tell is that they think the voting public won't understand the momentousness of what they're proposing (or that their "color" will cheer that very momentousness). Whether they themselves do or don't understand how impactful the proposal would be is much harder to guess.
• nurspouse 4mo ago
  As an aside, in Islam, people have to pay a 2.5% wealth tax annually for charity.[1] This does make retiring a tad bit complicated. Say you've saved $3M and are ready to retire. That means each year you're spending $75K just to satisfy this tax. [1] Depending on how your wealth is structured. Cash is 2.5%, but if you own, say, a business, you pay the tax on the value of the goods, not on the value of the building, hardware, etc. You don't pay Zakat on the house you live on. Agriculture is actually taxed at 10%, etc.
  • oa335 4mo ago
    Yeah, in general the principle is that zakat isn't due on fixed assets, but on any inventory or cash you hold. So its a lot less onerous than a blanket wealth tax.
  • deleted 4mo ago
    [deleted]
• SwellJoe 4mo ago
  Whenever I've seen anyone suggesting a wealth tax, it is specifically to address the very wealthy who pay an effective 0% tax rate, because they use the "buy, borrow, die" strategy. These are not wage earners, working a regular job, these are folks who own enough assets that they can borrow their way through life, living lavishly, never contributing meaningfully to the common good, the roads they are chauffeured over, the infrastructure and laws they benefit mightily from, the police who protect their assets, etc. Since a lot of billionaires pay practically nothing in taxes, relative to their wealth, a wealth tax that equates to a 20% income tax would be entirely reasonable, and they'd still pay a much smaller percentage than the taxes I pay from my wages. It closes a loophole, it doesn't punish the very rich. And, nobody is suggesting the average 401k or Robinhood portfolio should be subject to a wealth tax.
• ineptech 4mo ago
  Always a pleasure to hear capital explain to labor why taxing capital is bad, but this seems like a giant red herring. I don't want a wealth tax so I can cut my income tax, I want a wealth tax to address inequality. Our existing policies have produced a very bad bad outcome - wealth inequality exceeding that of pre-Industrial England led by a small, essentially randomly-selected group of people so wealthy that they effectively run everything who have entirely captured a corrupt government and are very close to making the situation permanent - and a wealth tax is the only policy idea I know of with any chance of changing that.
• deleted 4mo ago
  [deleted]
• throw310822 4mo ago
  Isn't this argument simply confusing income tax with capital gains tax? Because that's the tax you pay on your investment returns, and it's actually capped (in the US) at around 20%.
  • Galanwe 4mo ago
    No, he's disingenuously talking specifically about income tax, on interests. Capital gains are on realized gains. Based on the difference between purchase price and selling price. The thing is, wealthy people don't have interests bearing investments, because they don't need the cash right now. They either have unrealized gains (shares, real estate, etc), or interest bearing products wrapped in marked to market vehicules with reinvestment (ETFs, life insurance, mutual fund, etc). Unrealized gains are not taxed as long as you don't sell them. If you need cash, you can borrow against them, so problem solved. As for interest bearing investments, most companies nowadays use buybacks instead of dividends to avoid withholding taxes.
  • Jblx2 4mo ago
    https://www.fidelity.com/learning-center/trading-investing/what-is-short-term-capital-gains-tax https://www.fidelity.com/learning-center/trading-investing/w...
• stymaar 4mo ago
  It's funny, because even though he got the math right, PG got the reasoning completely wrong. > Each 1% of wealth tax is equivalent to 20% of income tax. Yes, this is the right part. Taxing wealth at 1% is equivalent to taxing income at 20-25% (depending on which return you count as baseline) > It's clear that politicians don't get this from the way they talk about a "mere 1%" wealth tax. None of them would speak of adding a "mere 20%" to the income tax rate On the opposite, they understand it right, and PG is completely wrong here: it's not about adding income tax rate to someone that already pay income taxes, it's about making wealthy people, who don't currently pay this tax rate, pay the same rate as people living from their income. > So in the median case, a state adding an additional 20% in income tax would have a total marginal tax rate of 37% + 4.75% + 20%, or 61.75%. Bezos, Musk, Zuck and the likes (or even PG himself, likely) don't pay 40% tax on their wealth growth, they currently pays 0%. In fact, to make them pay as much tax as their employees, there should be a 2% wealth tax, not 1%. Hence, a “mere 1%” is in fact a very generous proposal by leftists politicians and economists, as it would still mean the wealthy only get half the rate of working people.
  • xyzzy_plugh 4mo ago
    I really like the way you framed it. I've never really been against a wealth tax but making it equivalent to income feels fair to me. I don't think the math works out with rates where they are today, though. I guess the simplest approach is, if you're making money, it should be taxed fairly, regardless of how you're making it.
    • BrenBarn 4mo ago
      The trick is clarifying that "making money" means "increasing your wealth". Currently there are many ways of increasing wealth that don't "count" as making money.
  • ajross 4mo ago
    > it's not about adding income tax rate to someone that already pay income taxes, it's about making wealthy people, who don't currently pay this tax rate, pay the same rate as people living from their income. That's exactly it. I've been really shocked at the willful ignorance (or deceit) coming from the billionaire class on this. I mean, OBVIOUSLY the practical operation of the tax regime is unfair at the top end. If you put a billion dollars in assets somewhere, almost any asset (including e.g. stock in a company you can't sell because you need to own it), growth of that asset is (1) trivially liquid via loans[1] or deals and (2) COMPLETELY UNTAXABLE IN PRACTICE because there's never (ever!) going to be a point where it's traded or converted in such a way that it becomes a "capital gain". [1] e.g. Bezos goes to Citi or whoever and writes up a contract for a $100M loan to be collateralized with ever-appreciating AMZN shares, likely at a deeply discounted rate (low risk, plus the "keep Jeff in the rolodex" benefit to the bank) then pays it back on schedule with another loan taken out on his now-even-larger stake in AMZN. Who pays the tax here? It's not "income"!
• bo1024 4mo ago
  What's wrong with a 20% tax? We who make a living from labor instead of capital pay more than that. Paul tries to frame it as an increase of 20% in the tax rate, but in reality the increase is from 0% to 20%, and it's hard to see why that's unfair. The reason I say it's currently 0% is of course that for the wealthy most of these 5% gains are unrealized (e.g. inflation in the value of their assets) and untaxed.
  • stymaar 4mo ago
    > most of these 5% gains are unrealized (e.g. inflation in the value of their assets) and untaxed. The worst part is that even when they need to realize their profits, they have schemes that allow them to avoid taxes (guess how much taxes Musk paid for his $20B realized profits from his Tesla shares he sold to buy Twitter).
    • nullc 4mo ago
      But strangely politicians generally aren't pushing for targeted corrections to reduce those loopholes-- e.g. impugning realizing gains when you take a loan on assets beyond certain thresholds just as currently happens when you create a constructive sale with options trades. When assets are encumbered by loans or as collateral one could force the tax realization of gains at some rate which then adjusts the cost basis. The distortionary effect of this policy would be greatly diminished by the fact that everyone could just choose to not use their assets in this way. Instead, the are running straight for the full on land grab while distracting people with the details of technical loopholes of comparatively small consequence.
      • stymaar 4mo ago
        > But strangely politicians generally aren't pushing for targeted corrections to reduce those loopholes You are just not paying attention enough. They do talk about loopholes, and push to close them during the legislative process. They just don't talk about the loopholes details a lot because you don't get elected by talking about technical details in the tax code: “Force the tax realization of gains at some rate which then adjusts the cost basis when assets are encumbered by loans or as collateral” isn't a slogan that makes you win an election.
• BrenBarn 4mo ago
  Utter nonsense. You can't convert between a wealth tax and an income tax in any manner as simple as this, unless the wealth tax and the income tax were implemented in a simplistic way unlike any actual proposal. Most obviously, there is no such thing as "the" income tax rate, because different people pay different rates; those rates depend most obviously on the amount of income but also on various kinds of accounting gimmicks that allow wealthy people to pay less. Similarly, no one is proposing a flat wealth tax that would tax 1% of everyone's wealth. The "example" discussing paying income tax on your $5 of return on your capital is similar nonsense. You don't pay anything on that gain unless it's income, which it isn't unless it's realized. So (assuming the various parameters of a wealth tax meant this mythical $100 person would indeed pay a wealth tax), the comparison is between zero income tax and some nonzero amount of wealth tax. > None of them would speak of adding a "mere 20%" to the income tax rate, even though that's mathematically the same thing. Plenty of politicians (e.g., Bernie Sanders, AOC) have pointed out that the top income tax rate during the 1950s was over 90%, and have suggested raising rates back or near to that level, which would be well more than a 20% increase in the income tax rate.
• triceratops 4mo ago
  There's a way to levy a wealth tax that requires no asset liquidation whatsoever. Allow paying taxes with assets. The assets go into a sovereign wealth fund. At scale the fund effectively holds a percentage of the entire economy. Its returns should only be used to reduce income tax.
  • kansface 4mo ago
    The sovereign wealth fund would be a stakeholder in equities and estates. It would have to exercise voting privileges and be a party to lawsuits. Do you want Trump getting control of the board of eg SpaceX or Meta?
    • triceratops 4mo ago
      > It would have to exercise voting privileges There's never a requirement to vote your shares. I've never cast a single shareholder vote in my life. The fund could be legally required to not exercise any votes. > be a party to lawsuits Since when are shareholders a party to lawsuits? It's called limited liability for a reason. > Do you want Trump getting control of the board I'd normally say "legally structure it so that doesn't happen" and "follow best practices".But laws only mean anything if someone enforces them. If the government doesn't function correctly no government function can work correctly.
• dasil003 4mo ago
  Man, as a young programmer coming up I really looked up to Paul Graham, but now as a seasoned vet in the industry, it's remarkable (and disappointing) to see him publish an article based on such a false equivalency. I mean this level of missing the forest-for-the-trees is the type of thing that routinely prevents senior engineers from getting promoted to staff because they're pedantically fixated on the wrong details. And that's on top of failing to read the room as to why people are even calling for a wealth tax in the first place. The more obvious reason to not tax wealth is because it's hard to measure, and if you try to do it you will incentivize hiding it. Meanwhile, there are obvious obvious loopholes that the ultra-wealthy enjoy which could be reasonably closed. Namely, close the buy-borrow-die loophole, don't allow step-up basis for inherited wealth, and tax capital gains at least as much as income. Now people with a lot of money can afford to fund a lot of premium think tanks to come up with fancy economic reasoning why those ideas are Really Bad™, but at this point it's clear that's bullshit propaganda and the unintended consequences are exceedingly unlikely to be worse than the current unchecked consolidation of wealth and power enabled by the current loopholes.
• abcd_f 4mo ago
  > You can tell from the way they talk about the subject that they don't understand the momentousness of what they're proposing. All proposals focus on ultra-wealthy individuals. This "momentousness" wouldn't really touch the absolute vast majority of the taxpayers. But, yeah, I bet the targeted people are getting nervous.
  • rtgfhyuj 4mo ago
    the author part of them. Condescending dick
• pipes 4mo ago
  What mostly bothers me is that this is likely to start out as "tax the wealth of the rich" and it will become tax all wealth. Including my pension pot! In the UK the only people safe from that kind of nonsense will be public sector employees. Because guess what, their pension pots don't exist, they are just tax payer / debt funded liabilities. Heck, it's even started in the UK with labour killing off salary sacrifice pensions, everyone one I know was reliant on those to be able to retire, but who gives a shit, we are private sector and we have no union! I'm on a rant here, forgive me.
• masterj 4mo ago
  pg seems to think we would be scandalized by this math, when all I feel is “so?”. The language politicians use to sell to a general public does not have any correlation to their understanding of the mechanics. The people proposing this policy entirely understand the ramifications. That is the point of the policy. The average person is already subject to something like a wealth tax through property taxes, in addition to also needing to pay taxes on their income. Join the club pal.
• ecshafer 4mo ago
  Wealth and Income taxes are both wrong. What we need is to tax Land and Rents. By taxing land via a Land Value Tax system, and rent seeking monopolistic behavior, this will allow productive labor and productive capital to be exercised for economic growth.
  • zug_zug 4mo ago
    Could you explain more or link a place that explains how this prevents the runaway wealth we are seeing?
    • ecshafer 4mo ago
      The book Progress and Poverty argues this. Basically as we see wealth increase, increases in population and productivity raise the value of land (economic rent). Landowners capture this value, while wages for labor stagnate. A Land Value Tax and other taxes on rents removes that extraction, so people are able to reap its benefits. Meanwhile it also stop taxing productive things, like capital and labor, incentivizing people to work harder and invest. Runaway wealth is often parked in land other rents, but as land is taxed it, in incentivized investment: more housing, more innovation, etc to be more utilized more efficienty.
    • deleted 4mo ago
      [deleted]
  • adverbly 4mo ago
    Bingo! Yes! A tax system that incentivizes productivity! You for president! I would vote for this so f*** hard!
• fblp 4mo ago
  This grossly simplifies things. In the US the max federal tax rate is 20% on capital gains, that is the gains realized when you typically sell an asset. The max tax rate on ordinary income is 37%. Some states don't tax at capital gains at all. Others make also tax capital gains. There are a myriad of loopholes to defer and minimise capital gains ranging from QSBS (first 10mil in small businesses) to trusts to foundations to offset losses. Billionaires are incentivised to hold their assets and let them accrue rather than deploying that capital. Yes, you could argue that billionaires have earned his billions. But could you really argue that the tax system should be configured to reward them for sitting on those billions and those gains should be taxed at a rate lower than someone working every day to earn 200k in wage income? The economy has a fundamental division between those who earn income off the gains on assets, and those who earn an income on wages. Wealth taxes help level the playing field by those who already have a tax system in their favor. Trickel down economics does not work when you earn more holding on to what you have.
• lifeisstillgood 4mo ago
  Some thoughts I have been having recently 1. Wealthy more or less means able to live off the investments (passive income). Usually it means live off the interest of the interest (generally assessed as 8 million bucks nest egg) 2. It’s an obvious logical step but it is literally impossible for everyone to be independently wealthy. As in everyone cannot have a passive income. 3. So this debate just chnages when we ask “how do we make everyone wealthy” we can’t given the definition we have. 4. So we have to change the definition 5. How can we make everyone in society share fairly in the wealth that society has? 6. What if we made it much harder for wealth to Snowball into more wealth pulling it away from middle class 7. What if instead of a foolish wealth tax where we assess wealth, we stick to the “freely entered into transaction situation” 8. So Capital Gains taxes at same rates as income Also tax the “borrow till you die” idea - over a certain yearly amount, borrowing against your assets (ie Deutsche Bank lending you 100M against 1M shares of Blurb corporation should be treated as income just as if you sold the shares.) I know that get hard but in the end we need money to circulate. That’s how everyone shares
  • trollbridge 4mo ago
    I still haven't heard a solid explanation of how taxing loans as "income" is going to work. Being able to borrow against assets is a pretty essential part of the present-day economy. Almost everybody does it, from the very poorest taking out a car-title loan (however ill-advised) to middle-class people with home equity loans to medium sized businesses and farms who often have loans against their entire assets in order to buy more equipment or keep their operations going.
    • bhelkey 4mo ago
      > I still haven't heard a solid explanation of how taxing loans as "income" is going to work. The idea is that taking a secured loan out using an asset as collateral would be a taxable event for that asset. That is to say, if you buy a house for $400,000 and it appreciates to be worth $850,000 then take a home equity loan out against the house, you would owe capital gains on the $450,000 appreciation. With the current $250,000 capital gains exclusion for primary residence, this would result in ~$30,000 of capital gains tax.
• econ 4mo ago
  So 5% wealth tax would be the same as 100% income tax, 6% would de 120% AND 100% wealth tax would be the same as 2000% income tax. I think some relevant factors are missing. What is the polite way of putting it... Ah right! You are a clown!
  • kansface 4mo ago
    A 6% wealth tax indeed taxes more than the expected rate of return on the base assets. That is indeed equivalent to a higher rate than 100% in terms of an income tax. This math is in favor of PG’s argument.
    • econ 4mo ago
      Certainly, but it's about as useful as comparing the range of a radio with that of a car. We might also compare tax revenue. For the US 1% wealth tax (for the 0.1%) would generate 250ish billion while 1% income tax would also generate 250 b. Then say 50% worth of increased tax evasion. 2% wealth tax is equal to 1% income tax.
• themafia 4mo ago
  Cool, now I just need: "How to convert between silicon valley bloviating and normal human dialog." > None of them would speak of adding a "mere 20%" to the income tax rate, even though that's mathematically the same thing. Income tax is progressive. So, not really.
• breppp 4mo ago
  You are always so progressive up to the point you meet a progressive tax
• jrmg 4mo ago
  From the article: Currently the country with the highest marginal income tax rate is Denmark, at 60.5%. The top US federal tax rate is 37%, and the median state income tax rate is Oklahoma's, which is 4.75%. So in the median case, a state adding an additional 20% in income tax would have a total marginal tax rate of 37% + 4.75% + 20%, or 61.75%. [3] In the median case, US state politicians talking about adding a "mere 1%" wealth tax are talking about causing the residents of their state to have the highest taxes in the world. That's not the sort of decision you make lightly. It should be noted that the marginal tax rate for high earners in the USA was higher than 60% from the 1930s through the 1970s. Chart here: https://www.hrblock.com/tax-center/newsroom/income/the-history-of-income-tax/ https://www.hrblock.com/tax-center/newsroom/income/the-histo...
• chipotle_coyote 4mo ago
  This seems to be willfully eliding that proposed wealth taxes tend to either be taxes on wealth above a certain amount, or (such as California’s) a one-time tax on people with wealth over a certain amount. If I were a mere millionaire -- technically, I am, with a net worth of just over $1.1M, but this would be true if that were $5M or $10M or even $50M -- then under any proposal I’ve seen, my wealth tax would be $0. (Note that if someone were to have $50M, then under Graham’s risk-free rate of return of 5%, they would literally have to do nothing to pay themselves an “income” of $2.5M annually.) If I were an actual billionaire -- say, my net worth was $2B -- then my one-time tax under California’s proposal would be $100M, leaving me with a net worth of $1.9B. Under that 5% risk-free rate of return, I would recover that amount of money within one year even if my income were $0, which seems exceedingly unlikely. One can argue about the specifics of various proposals -- the Tax Foundation, for example, thinks California’s proposal has “aggressive design choices and possible drafting errors” that could lead to somewhat bonkers results, although I haven’t seen any critiques of their analysis yet -- but a wealth tax cannot be converted to income tax in a reasonable manner any more than a VAT could be converted to property tax. They’re both taxes, but they’re simply not the same kind of tax. And while I don’t mean to cap on Paul here, there’s a distinct “woe, pity the poor billionaires who will surely be driven to bankruptcy” subtext I find to be risible nonsense.
  • zozbot234 4mo ago
    The traditional name for a surprise "one time wealth tax" is a capital levy. It's got a pretty terrible reputation all around because it's the closest thing to an official declaration that your country (or state as the case may be) is now a complete fiscal and financial basket case that can't manage to fund itself by sensible means.
  • kansface 4mo ago
    No one believes or acts like this will be a one time event (on any side of the issue). The history of all new forms of taxation is that eventually it will come for you.
• odiroot 4mo ago
  In any case, pretty much everywhere in the developed world, we desperately need lower burden on people's labour (through salary income tax and related contributions). If wealth tax is a way to get there, so be it.
• zelon88 4mo ago
  Oligarch argument. Tax anything over $999m in assets, stocks, wealth at 100%. No more billionaires.
• jlhawn 4mo ago
  I was waiting for him to make some point but then it ended up being that a wealth tax is like increasing regular income taxes by 20% which makes it seem like PG is trying to confuse people about what a wealth tax is designed to target. It's not targeting your wages or salary, or even your interest or dividends. It's primarily targeting unrealized gains on financial securities. Maybe he should spend his time trying to work with these politicians to design something that is more fair? Like making it actually act as a tax on unrealized gains over $1B (so that it takes cost basis into consideration) OR make it so that if you need to sell some assets to pay the tax, you can writeoff the wealth tax you paid from your regular/capital-gains income so that you aren't taxed twice? There's a lot of actually useful stuff he could write about in this policy area instead of blogging about the financial equivalence between stocks and flows.
• silexia 4mo ago
  [flagged]
  • Jblx2 4mo ago
    Maybe tax rates should be based on government spending? So that as government spending goes up, taxes go up, giving people incentive to try and reduce government spending.
• runamok 4mo ago
  The issue at hand is the incredibly wealthy can pay close to nothing in income tax because they often borrow on their collateral vs. sell their holdings. Hence that 1% that PG equates to 20% tax is quite fair. Look at what Buffet says the percentage he pays is: https://finance.yahoo.com/news/warren-buffett-view-taxes-vs-170225522.html https://finance.yahoo.com/news/warren-buffett-view-taxes-vs-.... Furthermore afaict the state proposals usually have a floor on how much of your wealth is taxed. I'm personally against the one time wealth tax by California for several reason but it only impacts those with a net worth of >= 1 billion.
• seanhly 4mo ago
  > It's clear that politicians don't get this from the way they talk about a "mere 1%" wealth tax. None of them would speak of adding a "mere 20%" to the income tax rate, even though that's mathematically the same thing. [2] But it's not "mathematically the same thing". Taking the 100 dollars allegory Paul raises, for that allegory to be based in reality, someone would need to have 20x their annual salary in wealth. The median salary in the US is 59K per annum. For the 100 dollars allegory to work out to a 20% income tax equivalence, people would need to have just over a million dollars sitting in their bank account. The average American net worth is more like 48K (being generous), which is under a year's salary, with a tonne of people also just living permanently in debt (negative wealth). Interestingly, would a wealth tax mean negative tax (free money) for those many in America living in debt?
  • munch117 4mo ago
    The fatal flaw in PG's argument is that is doesn't mention spending at all. If you're spending your entire income on things like food and rent, then a 1% wealth tax corresponds to 0% income tax. If you're spending your entire income on investment, then there's a calculation like PG's to be made to compute an equivalent income tax rate. But then we're talking about someone who doesn't need the money. This isn't even about rich vs. poor - you can have a high income and spend it all as you make it, like if you throw a huge party every week, or make a yearly trip into space. But if not, then it's just an ever growing number on your bank statement, and the only reason you care about it being 20% higher is because you're comparing it to other people's bank statements.
• bellowsgulch 4mo ago
  you know that one guy, Ross Scott, who thought he wasn't going to get anywhere with stop killing games, but he thought, why not, let me ask people on YouTube whether or not people want to get together to stop video game publishers from killing service-based games i think about that mentality all the time one person just said, I don't think I'm going to be able to change the world, but well, why don't I try anyway because I don't see anyone else doing it, and instead thinking that a politician is responsible for my future instead of me and you such a great mentality, I really do think about it all the time
• scotty79 4mo ago
  I have a weird take on income tax. In my opinion it's not a tax on the employee but on the employer and one of very few solid methods of actually taxing the rich (for as long as the rich need labor to get richer). Your income tax money never reaches your pocket so it's never a part of your actual income and if employer didn't pay your income tax, they are (not you) on the hook for that. And if income tax rate was lowered to zero, the employer wouldn't automatically start paying you that much more. There would be a renegotiation and most of that money would stay with the employer, because you already agreed and demonstrate that you can work for as little as you do. Of course in specific cases that the position of the employee in the market is very strong, some companies might choose to use the money they don't have to pay as your income tax to compete for employers by offering higher salaries. But that's definitely not given. Company getting richer rarely automatically translates to higher salaries. So employee, if the economy is strong, should advocate for as high income taxes as possible, because that one of the very few ways that the money in the economy flows from the rich to the poor (with a detour through governments, which are poor nowadays anyway, perpetually indebted to the rich).
• adrianwaj 4mo ago
  Perhaps all taxes should be abolished and then a new one introduced: a transaction tax. The question then remains, does the sender add a bit more before sending to move any given amount, or do they pay a given amount with the recipient getting less? The system certainly scales well for net-worth and one's economic activity. The question then remains - who/what is considered an "outside" party for a tax to operate in financial flows? It could work well in an agentic economy if agents are considered as a single entity with flows not taxed between them.
  • Hnrobert42 4mo ago
    Transaction taxes are considered regressive. That is, they disproportionately affect the poor. The idea is that everyone must spend a certain amount of money to live. For the poor, that amount is a greater proportion of their total income and wealth. Basically, a wealthy person can choose to pay the same taxes as a poor person by only spending as much as a poor person. Maybe that's fair. Maybe it's not. But it is a criticism of sales/transaction taxes.
    • adrianwaj 4mo ago
      That's true, the only thing I can think of is an "amplification curve" being set on whatever is paid, and that can be paid by everyone after any given period based on all the flows a person was involved in during that time. So if a frugal rich person can be paying a similar amount to a poor person in overall tax looking at living expenses alone, one can also look at all the extra income the rich person gets from assets. So this inequality/imbalance can be lessened through an amplification factor: by looking at the overall position of a person's flows. The governments can decide how much to "squash down" down the inequality in society. Would this address the issue raised? The other thing interesting about a transaction tax is that individuals don't necessarily even need to be identified - only flows. That would suit the privacy-side of crypto. But I'm not sure how the final setup would look. And that could appeal to the super-rich who want to remain anonymous. Maybe what I'm getting at is a blockchain tax: a proportion of transaction fees gets automatically routed to government coffers. Alternatively, add a staking tax as well. This will all make more sense when more real-world assets go on-chain.
• newtonianrules 4mo ago
  We get it Paul. You’re rich and don’t want to give any of it away. We don’t expect you to. We know you and your ilk have bought all the politicians off and all this wealth tax nonsense is just theater. No need feigning their ignorance.
• adverbly 4mo ago
  I'll have some of whatever PG is smoking here! This might be one point of view, but if you imagine an economy where everyone is poor/living paycheck-to-paycheck, then this looks super wrong: Everyone has $100, earns $100/month, and spends $100/month. at 1% wealth tax, they pay $1/year. at 20% income tax, they pay $240/year. Those are obviously not interchangeable taxes from a government revenue perspective!
• Garlef 4mo ago
  Yeah... Most people just don't have the income to meaningfully invest. And this seems to be an intentional category error. The idea is to redistribute from the ultra wealthy to everyone else. Why would you then pretend that these methods should be convertable? Just keep the conversation simple: - Everyone with more than 10m in assets pays wealth tax on the value above 10m.
• Digit-Al 4mo ago
  Taking advice from Paul Graham on why you should not impose a wealth tax is like taking advice from the neighbours cat on why you should allow him to crap on your lawn. His argument is incredibly disingenuous; the sort of people who will be affected by a wealth tax are the sort of people who find ways of avoiding paying income tax, or indeed any tax at all if possible. It makes me very angry when these billionaires who build up enormous wealth, partaially by avoiding paying the taxes that fund the infrastructure that help them build their wealth, get upset at people who suggest that maybe they should pay something back to society. Paul Graham should, maybe, stick to blogging about tech, because when he gets into politics he really shows his true colours... and it ain't pretty.
• bfkwlfkjf 4mo ago
  > It's clear that politicians don't get this from the way they talk about a "mere 1%" wealth tax. None of them would speak of adding a "mere 20%" to the income tax rate, even though that's mathematically the same thing. Classic PG dishonesty. It's not mathematically the same, because it affects different people. "What is the income tax equivalent" isnt a relevant question unless your either stupid or desingenuous.
• xiaodai 4mo ago
  should this article be renamed "How to count your chickens before the eggs even hatch?"
• mmarq 4mo ago
  Do people pay income tax on capital gains in the US? Why summing this fantasy rate with income tax otherwise?
• up2isomorphism 4mo ago
  Without free market and fair level of competition, no matter how much or how you tax, the richest portion will always end up paying little. Because there are hundreds of ways to make the tax law favor these people, and every time you change, it is the working class who pays them.
• snapplebobapple 4mo ago
  So you guys can figure this out but you can't figure out that a wealth tax today is just a destruction of future income tax? You trade the government wasting the money tomorrow for the government wasting the money today and if you think the investment growth will be higher than the government discount rate (which is pretty much gauranteed), then you are paying a potentially large premium to waste it today.
• rtgfhyuj 4mo ago
  paul g so out of touch
• ahaferburg 4mo ago
  The point of a tax is to steer society, not to compute some sort of equivalence. Billionaire wealth has increased by way more than the 5 % mentioned over the last couple of years. This oxfam article [1] says 81 percent in 6 years. Wealth for the middle class means safety and stability. Wealth for the richest of the rich means power, and that threatens any democracy. The goal should be to prevent extreme inequality. It's supposed to be one person=one vote, not one dollar=one vote. The example mentioning $100 is just tasteless. Wealth taxes are relevant only to people for which $100 means absolutely nothing whatsoever. The article carefully avoids clear words. What's your conclusion here, dear Paul? Why are you intentionally staying vague? Nobody asked how to convert between wealth and income tax. So exactly why are you educating the public about this topic? [1] https://www.oxfam.org/en/press-releases/billionaire-wealth-jumps-three-times-faster-2025-highest-peak-ever-sparking https://www.oxfam.org/en/press-releases/billionaire-wealth-j...
• crypto_floor 4mo ago
  taxation is theft