Why would a wealth tax be a bad thing?
Valuing assets is complicated; for some assets, it's impossible. Furthermore, selling assets is complicated; for some assets, it's impossible.
That is the logic behind taxing transactions. The only time we know what something is worth is at the instant it transacts. About the only time we know how liquid something is, is at the instant it transacts.
For a facile example, consider the founder of a private company. They now have to sell 2% of their position each year, every year. That's a lot of work! And it gets worse if one considers a bootstrapped business, where there aren't lots of shareholders to sell to and there isn't a 409A valuation.
If that's true now, it sure won't be true for long after you pass the tax!
It's fundamental to the problem of valuation, so probably not.
> there aren't many billionaires who actually are primarily invested in illiquid assets
Most assets are illiquid, e.g. real estate.
To be clear, as a capital-markets guy, I love the idea of forcing more of the economy into the financial system. But as an American, it's totally unnecessary. Increase the take on transactions and remove the loopholes. Taxing wealth just creates artificial transactions to be taxed.
The thing you seem to be missing about a wealth tax is that it's not about taxing $17.02 or $17.03. It's about taxing $7Bn, and if you only get £6bn this year, well you're going to get more next year. It's so aggressively redistributive that the details actually don't matter as much as you expect.
This was used in ancient Athens [1]: "By the procedure known as antidosis a person who was appointed to perform a liturgy could challenge another he considered better able to afford the expense....the challenged person either had to take over the liturgy or to accept an exchange of property with the instigator of the procedure."
It was a private system, i.e. the payer and challenger were individual Athenians. Neither party was the state. (If it's done automatically, it's easily gamed. Own a Superfund site? Value it at $1 and put it to the state. Have a buddy in government? Great! They just bought your WeWork shares at a $47bn valuation.)
Given the history of civil asset forfeiture in America, we'd want to think twice before enumerating this power to the executive branch.
[1] https://www.tandfonline.com/doi/pdf/10.1080/03585522.1992.10...
This system seems ripe for abuse in the form of the owners overvaluing their assets and having corrupt/coopted government functionaries rubber stamping their purchase (and likely getting rewarded for it in some way by the owners who just made a huge profit at the government's expense).
>The manuscript currently holds the record for the second highest sale price of any book, as it was sold to Bill Gates at Christie's auction house on 11 November 1994 in New York for US$30,802,500 (equivalent to $53,222,898.79 as of 2019)
Sale value indexed to inflation wouldn't be a bad idea.
And yet you can insure most assets against destruction and theft.
There are some proposals for the owner valuing the company or giving the government shares in the company in lieu of cash. However, if you do that, within 15 years, the government will have a controlling stake in every pretty much every private company.
Oh, that never goes wrong...
I would be astonished if those in power were unable to find a way to exempt themselves from these rules though.
So you create it. You decide to fundraise, and that capital will help you succeed. You pay yourself a salary of $100,000/year, and put everything else into the company.
You raise $4 MM in a seed round, valuing your company at $20MM.
10-months later, your company is doubling growth YoY again, has a solid SAAS model, and low churn. You decide to raise again.
This time, you raise some more money for your company, and you're now valued at 70MM.
About a year later, you're growing just as fast -- but you see a new competitor is entering the ranks. It's time to scale even faster. So you go and raise again. In a fantastic series-B round, spread across TechCrunch and HN, you raise again, at a $200 MM valuation.
As the sole founder, you now own 50% of the company -- making you worth $100MM. Your salary has remained constant at $100,000/year though.
And then the wealth tax hits.
The new wealth tax says you're responsible to pay an annual tax of 2% on all assets over $50MM. Starting this year.
Which means that you, as a private founder with no liquid assets, are now responsible for $50MM * 2% = $1MM in taxes this year.
Even though your liquid income is $100,000, and you have barely that much in your bank account -- you need to come up with $1,000,000 in liquid cash this year. And since your valuation probably won't go down, it'll be at least that much, every year, for the rest of your life, until you shutter the company.
So you go and try to liquidate your shares. But unfortunately, it's not a public company --- and it's not that easy finding private secondary-market buyers willing to buy the half of the founder's entire stake.
So what do you do now?
As far as I can tell, this is how the wealth tax would work for startup founders.
2. If you are worth $100MM you should be able to borrow 1% annually of your net worth until you can liquidate your shares.
In this scenario the banks start profiting from startups, probably more in interest than the govt will get taxes.
Meanwhile, inequality is stifling global growth and leading to protests that lead to riots that are starting to look like civil wars in several countries around the world.
But, you know, let's all pretend like we're future billionaires and only think about the future and not the present.
P.S. -- I'm sure there would be no less than 3 startups that would attempt to solve this problem if it ever materializes (which it won't because everybody in the US thinks they're a future billionaire).
I think that the side effects of a wealth tax might just end VC investing in high valuation companies altogether. I don't know if many people on HN see that as a positive.
I think most people would still be willing to keep working on stuff, and I don't see why VCs would stop investing in high-value companies altogether.
[0] Anecdotal, but that was the way to get an apartment for my parents' generation back in Soviet Union and I really don't want to see it here again.
Maybe I'm am outlier, but I doubt it; I think most people understand that the billionaire thing is a pipe-dream, and they work every day to pay their bills and if you're lucky to also work on stuff you're interested in. How exactly would that be affected by lowering the wealth-hoarding you're allowed to do?
Well clearly not everyone in the US thinks that, or this plan would have literally 0% support; I live in the US and have no delusions of becoming a billionaire in this lifetime and I also support something akin to Warren's wealth tax (and would like to think that I could continue to even if I did somehow magically become a billionaire).
I don't think it can be simply reduced to "every American thinks they're going to be rich". I think a lot of Americans have this Ayn-Randian idea that billionaires truly "earned" their money, and that wealth-hoarders are a lot smarter (or better) than they are, and as a result deserve to keep their wealth, even at the expense of everyone else.
But I have issues with lumping together Americans like that; we're a pretty diverse country, with a pretty diverse set of opinions on tax policies.
Having seen the inner workings of a number of large companies (think Intel-sized), I'm quite confident that waste is almost always more a function of organizational size than sector; there are efficient government bureaucracies, and wasteful ones. Same for anything big beyond a certain scale.
A third thing I think is lost on a lot of people is what the impacts of wealth disparity are on the citizenry, and this is stuff that doesn't always have an immediately visible line connecting the two. But, one thing off the top of my head, public health in countries with greater wealth disparity tends to be worse.
There's more, and I'll edit the comment to provide more examples later, gotta run for now.
This is patching one problem with another. The underlying economic system that is based on interest is playing a big role in this inequality. Instead of patching by adding more weird and unjust taxes, people should move away from an interest based economy.
Before repeal, European wealth taxes — with a variety of rates and bases — tended to raise only about 0.2 percent of gross domestic product in revenue, based on Organization for Economic Cooperation and Development data. That is only 1/40th as much as the U.S. federal income tax raises.
Yet for little revenue, wealth taxes are difficult to administer and enforce. They may require taxpayers to report the values of financial securities, homes, furniture, artwork, jewelry, antiques, vehicles, boats, pension rights, family businesses, farm assets, land, intellectual property, and much else. But owners do not know the market values of many assets, and values change over time, so costly wealth-tax compliance would only make accountants wealthy.
And what about wealth held abroad? There is no way the Internal Revenue Service would be able to track down and value everything U.S. residents owned on a global basis.
And here’s the kicker: Since the base of wealth taxes is net wealth, debt is deductible. That allowed wealthy Europeans to jack up their borrowing and invest in the exempted assets to shrink their tax bases. If a wealth tax were imposed in the United States, the farm lobby would most certainly get farmland excluded. Then rich people would borrow heavily and invest in farmland, thus shrinking the tax base and distorting the economy.
Yes, it sucks, but forgive me if I don't shed a tear for someone who has to find a way to pay taxes on their $50M of assets. They absolutely do have options which aren't terrible.
If a "wealth tax" did pass, then expect countless startups who specialize in handling the arbitrage of this.
Whatever you have you have already paid taxes on - why does the government need to take more?
To fund healthcare and to avoid diabetics to go bankrupt and die because they saved on insulin shot ; or all the people who have to take a second mortgage for basic cancer treatment, if they can, and finally go also bankrupt.
To fund crippling public infrastructure and investment.
To fund cultural events and promote art and diversity beside that culturaly dead hollywood movies pipeline ; scientific research ; libraries ; promote intelligent television programming not only motivated by a quick buck by pushing deep in your throat stupid ads for Coca-Cola and their fake, Mac Donald and other companies responsible for promoting detrimental products for health or envirronement ; to fund compagn to raise awareness on foundamental issues like global warming and stop the spread of misinformation by corporate chills or religious nutjobs.
The list go on and on...
All these public expense are the source of wealth redistribution.
Why are people crippled by college debts at 24?
https://www.theguardian.com/us-news/2018/sep/07/us-education...
Huh? Currently on mobile so I don’t have the CBO file to link but I will when I get to my PC.
Anyway, Healthcare spending is not actually “too much” and instead is too low. When we expanded Medicaid and implemented the ACA, estimated costs were below actual cost by hundreds of billions to one trillion dollars due to the unknown number of people accessing healthcare. Healthcare is the one area in which there is not enough money being spent on lower income brackets and Medicaid/Medicare users.
[0] https://www.aei.org/carpe-diem/chart-of-the-day-administrati...
This is one of the proposed ways to pay for things like universal health care.
Additionally, your citation (https://www.aei.org/carpe-diem/chart-of-the-day-administrati...) is about public schools, not colleges and hospitals as you suggest.
So now it's a tough spot. On once hand, if you apply the Medicare caps universally, many hospitals will go belly up. If you remove the caps and let them bill whatever they want, you will end up with a rapidly growing hole in the budget.
I would say, instead we need a solid system of rules on what you can and cannot bill, some auditing body and a way for the patients to dispute inflated bills at an affordable cost. Whether it goes out-of-pocket or from a tax-filled fund is IMHO not as important as the cost audit/dispute mechanisms.
IOW, more administration. Didn't this thread start with a complaint about administrative cost?
There are many examples of successful universal medical systems with different trade-offs that have been refined over the last 50 years. Canada, Britain, Germany, Switzerland, etc. Choose the set of trade-offs you prefer and copy it; reinventing the wheel is likely not going to end well.
[citation needed]
Granted, I can only speak for myself, but when I hear the word "infrastructure" I'm picturing a smörgåsbord of different things:
- Roads
- Bridges
- Tunnels
- Rail lines
- Canals
- Levees
- Electrical delivery (power lines, distribution boxes, etc.)
- Telecommunications delivery (data lines, radio towers, etc.)
- Fuel delivery (pipelines, refineries, storage, etc.)
- Water delivery (pipelines, aqueducts, reservoirs, wells, desalination plants, etc.)
- etc.
This is consistent with Wikipedia's definition of "hard infrastructure" (as opposed to "soft infrastructure", which focuses on institutional structures/organizations).
Education is poorly funded? We spend more per student than any country except Norway as of 2015: https://nces.ed.gov/programs/coe/indicator_cmd.asp
The education system is not poorly funded. The money is poorly and inequitably allocated, and the system is poorly run.
Every SpecialEd teacher and student would politely disagree with you. Not every aspect of education is funded differently, even when factoring i’m better budget management.
By not bankrupting them as soon as they get sick.
By giving them an opportunity to go to college and improve their economic standing without taking on six figures of debt.
By giving them access to affordable reliable public transportation so they don't have to deal with the huge expense of owning a car.
As my econ professors used to say, in America for a long while now, we're in fact a socialist country already... it just happens to be "socialism for the rich."