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Corrected version: A wealth tax of 1% is equivalent to an income tax of 20% on capital gains.

• Glyptodon 4mo ago
  With different issues than the ones caused by deferring gains forever through shenanigans.
• outside1234 4mo ago
  It isn't, because the ultra rich have no capital gains. They get ultra low interest rate loans against assets so they never have to sell assets and trigger capital gains. Google "Buy, Borrow, Die" if you don't understand this strategy.
  • deleted 4mo ago
    [deleted]
  • Manuel_D 4mo ago
    They have to sell eventually to pay off the loans. And if they die, their estate has to sell the assets to pay off the loans, and then their heir will pay inheritance taxes on top of that. Unless their spouse is still alive. In the US, assets' cost bases are reset when a spouse dies. That is the main way that rich people avoid capital gains taxes. I'd much prefer simply stopping that cost basis reset instead of implementing a wealth tax.
    • AnthonyMouse 4mo ago
      > I'd much prefer simply stopping that cost basis reset instead of implementing a wealth tax. Neither of these would really work against the people you actually want it to work against. If you don't have a basis reset then they just do a transaction that has the same effect, e.g. create a new corporation owned by the recipient and then have it repeatedly enter into slightly favorable transactions with the one owned by the donor until the new one has all the assets, or any of a hundred other things. If you try to do a wealth tax then their assets end up in another country under whatever arrangement is necessary to give them de facto control but not formal ownership. The best way to solve the "buy, borrow, die" thing is actually a consumption tax because then borrowing money in order to spend it doesn't avoid the tax.
      • Manuel_D 4mo ago
        That scheme still wouldn't work. When that new corporation is first formed, it's near worthless. After the series of favorable deals, the value of each share in that corporation goes up. Thus it still incurs capital gains taxes. Of course people will try to cheat taxes, but they'll try to cheat any form of tax: income, capital gains, inheritance taxes, etc. People are good to try and evade taxes regardless of the tax mechanism. Consumption taxes are regressive: a sales tax is a flat tax that taxes a billion on their $10 latte the same as a poor person. Consumption also doesn't scale linearly with wealth: most billionaires don't consume 1000x as much as a millionaire.
        • AnthonyMouse 4mo ago
          > After the series of favorable deals, the value of each share in that corporation goes up. Thus it still incurs capital gains taxes. Only if you sell the shares, which they easily resolve by not doing. > People are good to try and evade taxes regardless of the tax mechanism. Which is why you should use the ones that are less susceptible to it rather than the ones that are more susceptible to it. Trying to identify the country in which "profit" is earned in an international supply chain, or value non-fungible assets not undergoing transactions, are easy to game. "You pay a given percentage when you buy something" is hard to game. > Consumption taxes are regressive: a sales tax is a flat tax that taxes a billion on their $10 latte the same as a poor person. The existing "progressive" income tax and benefits programs do worse than that: The billionaire pays less on $10 in marginal income than a poor person, because the taxes and benefits phase outs result in absurdly high marginal rates on the poor. > Consumption also doesn't scale linearly with wealth: most billionaires don't consume 1000x as much as a millionaire. Only if you're looking for it in the wrong place. A billionaire isn't going to buy a billion dollars in lattes, they're going to invest in some business ventures, which in turn are going to spend the money on equipment and vehicles and utilities and so on, i.e. consumption. You don't get a return on capital by sticking it in a mattress, you get a return by spending it to build or operate something.
          • Manuel_D 4mo ago
            > The billionaire pays less on $10 in marginal income than a poor person, because the taxes and benefits phase outs result in absurdly high marginal rates on the poor. This is just patently false. The highest marginal income tax rate is 37%. If you've read articles claiming that billionaires pay some absurdly low tax rate, those articles are counting their capital gains as income. Which is just a flat out lie, since those gains don't actually get taxed until the gains are realized, and the value of that capital can go down.
    • madaxe_again 4mo ago
      Lol nah. The assets are held by a trust. The trust, being a friendly bunch, loan you capital which it gets by liquidating assets, at a rate of 0% with “don’t worry about it” default terms. You’ll probably pay a management fee for each loan. You croak, your heirs become the beneficiaries of the trust. Rinse, repeat.
      • Manuel_D 4mo ago
        In this case, the beneficiaries of the trust pay income tax on the money they receive from the trust.
        • madaxe_again 4mo ago
          You don’t pay income tax on loans, and the trust exists in a place with no CGT.
          • Manuel_D 4mo ago
            It doesn't matter where the trust exists, what matters is that the people drawing from the trust pay income taxes on that money.
    • dh2022 4mo ago
      Debt is usually rolled over if the billionaire is still rich (banks will do that for fees). The only expenses are the interest charges- which were small 3 years ago but larger now because of how interest rate increased. Re: estate taxes - almost no ultra rich pays them, even without surviving wife. According tom Garry Cohn (former big kahuna at Goldman Sachd and former treasury something or other in the first Trump admin) only morons pay estate taxes : https://www.cnbc.com/2017/08/29/only-morons-pay-the-estate-tax-says-white-houses-gary-cohn.html https://www.cnbc.com/2017/08/29/only-morons-pay-the-estate-t...
      • Manuel_D 4mo ago
        As per your linked article, they mainly either give away their money to charity, or they set up trusts. When beneficiaries receive money from the trust, it's taxed as income.
        • frmersdog 4mo ago
          You could also just... not pay. And then lawyer-up when the IRS comes after you. (They will not come after you, because they know you've lawyered-up and aren't going to make it easy.) IIRC this is part of how they avoid taxes in general. Penalties don't hurt enough for the ones who do eventually face them.
        • dh2022 4mo ago
          You missed this part in the article: “ Estate tax planning has become so effective that wealthy families can now easily pass large portions of their estates to their heirs without paying the tax” The beneficiaries then set up their own tax avoidance schemes. With the effect only rich people with poor tax planning skills, to quote Gary Cohn again, end up pay the estate tax.
          • Manuel_D 4mo ago
            Without paying the estate tax, but when those heirs draw money from the trust it's not taxed as income.