Hacker News Reader

Comment by bitcurious | Hacker News Reader

I'm highly skeptical of the claim that such tax would discourage startup founders.

Wealth tax proposals I've seen don't kick in until $50 million or $100 million. This means that there is a floor on how "poor" the government can make you via a wealth tax.

This has two implications:

1. Most "successful" startup founders don't break that threshold of personal wealth.

2. For most startup founders, the startup is the only way to get to $50 million. The practical lifestyle difference between $50 million and $1 million is a lot larger than the difference between $50 million and the unicorn-founder $ billion.

Furthermore, as noted by glutamate: money earns money. A conservative drawdown of 3% pay the most commonly proposed wealth tax while still leaving you wealthier at the end of the year.

View on HN

Exactly — I've always thought that what drives multi-millionaires and billionaires isn't really the monetary value of the extra money that they make. To the extent they care about money at all anymore, surely it's only as a relative measure of success?

I can't see many people that have already accrued personal wealth of $50M but choose to keep working suddenly being turned off because of a wealth tax.

> I can't see many people that have already accrued personal wealth of $50M but choose to keep working suddenly being turned off because of a wealth tax.

That's not the argument. If you accrue a wealth of $50M because you own half of your $100M company (or 100% of your $50M company), then a wealth tax will — over time — force you to give up ownership in your own company.

An income tax or a capital gains tax on the other hand, has the effect that you describe: if you already have $50M, then any tax on more money than could possibly have close to 0 negative impact on productivity.

> If you accrue a wealth of $50M because you own half of your $100M company (or 100% of your $50M company), then a wealth tax will — over time — force you to give up ownership in your own company over time.

Why? There's a floor that below $50M you don't need to pay a wealth tax. In a worst case scenario where your entire wealth is tied up in stocks of a single company you own and you have 0 cash to pay your wealth tax, your ownership gradually approaches $50M.

They're are very few people who end up controlling 50+% of a $50M+ company at 20 and keep their 50+% stake for the 60 years pg references. Anyone who did that didn't take VC money.

Even when they do still control the company over the long run, assuming it becomes a public company, they will be selling stock on a regular basis to cover regular expenses.

IIRC Bezos sells over $1B in Amazon stock per year to fund other things, but there is no outcry about how un-american it is that he has to "sell off his stake in his own company" to pay for his hobbies/lifestyle.

> IIRC Bezos sells over $1B in Amazon stock per year to fund other things, but there is no outcry about how un-american it is that he has to "sell off his stake in his own company" to pay for his hobbies/lifestyle.

Sure, but that's voluntary. It's fine for me to sell my house if I have other plans. It's less fine for me to be forced to sell my own house even if I want to continue to own it / live in it.

We already have the equivalent for houses--property tax. Every year you have to pay x% of the value of your house to the government.

Property tax is really funny in the context of this conversation. You are paying a percentage of the _value of the house_, which you (have most likely) taken a loan to pay for.

A given average person in the US (excluding high earners) will likely be paying a property tax rate based on a value that is _actually higher than their net worth_, which makes property-tax-as-a-wealth-tax for average American homeowners actually greater than the 1.69% average property tax rate.

Imagine if this was applied as a "wealth tax" on a brokerage account, but considered that you could borrow 5x your balance on margin, and then were taxed on your margin holdings.

The scale of property value and wealth value isn't remotely comparable. For the most part, property values are pretty low, and hence the tax that you might pay on property is also fairly low. The US State with the highest property tax is New Jersey (2.47%), and the median home value is about $330,000. The annual tax on the median home there is around $8,100 — definitely steep, but still well within reach for most families, especially those that are fortunate enough to own homes.

In contrast, if you were to take an individual worth $10 billion, whose entire net worth is derived from the ownership of their stock, and were to tax them 2% of their wealth annually, they would have to somehow come up with $200 million every year to pay the tax. This is a different proposition altogether, since none of these billionaires have that much money sitting around in cash (or any other asset for that matter). They're just wealthy on paper. The only way to pay that tax would be to either liquidate their holdings, or for their corporations to pay enough in dividends to cover the tax, which is an odd (IMO bad) incentive to create for corporations in general. Even the owner of a $300 million business who owns (say) 30% of their company at a $100 million net worth would have to come up with $2 million in cash every year. Very few CEOs have that kind of cash coming in on a yearly basis, and you're essentially just creating an incentive for corporations to inflate the compensation to their founder CEOs just so that they can maintain ownership in their own company.

A big reason for this disparity between the top 1% value of corporation vs the top 1% value of property is that, unlike land (which is fixed), corporate wealth is NOT zero-sum, it's created. This is a very important distinction, because a lot of the rhetoric around wealth is sometimes based around the idea that there's some fixed amount of wealth in the world, and the rich have just been stealing all of it — no the aggregate wealth has been created at historic levels.

Also Federal property taxes are unconstitutional, which is why it's applied entirely at the state / local level.

You're the one who came up with a house analogy.

>In contrast, if you were to take an individual worth $10 billion, whose entire net worth is derived from the ownership of their stock, and were to tax them 2% of their wealth annually, they would have to somehow come up with $200 million every year to pay the tax

If your $10 billion dollar asset isn't returning you much more than 2% per year, it has a terrible ROI, and you need to divest.

>corporate wealth is NOT zero-sum, it's created.

Not absolutely, but the power represented by the percentage of the world's wealth one controls is finite. At the limit if I own 99% of a countries current wealth, I think it's perfectly reasonable for the rest of the citizens of that country to decide that I have amassed too much power and to rectify that by taxation and redistribution.

> If your $10 billion dollar asset isn't returning you much more than 2% per year, it has a terrible ROI, and you need to divest.

That's not how corporate ownership works. It's not about the ROI, it's about ownership in the company you founded / are running.

If your goal is just ROI, then you will willingly divest from your own company, at which point your wealth is taxed as a capital gain.

For most people they start a company to make money, so ultimately it's about the ROI. They think they'll make more by controlling the company than the alternative

When we are talking mutli billionaires like Bezos who may be driven by more grandiose incentives like amassing power, I think it's perfectly reasonable for the rest of us to effectively remove some of their control.

That's a pretty broad generalization, and you've basically taken what's in reality a spectrum, and characterized it by the two extremes.

In reality, there are loads of people in between: founders of medium size businesses.

The wealth tax is imposed on everyone in this spectrum. The capital gains tax is only imposed on those that amass the most amount of power.

Even the most aggressive wealth tax that is proposed is for a tax on wealth of over $50 million. So the founder of businesses valued up to around $100 million dollars would reasonably be able to maintain control without paying any wealth tax.

So I'm perfectly OK saying you can't single-handedly control a business larger than $100 million without paying the rest of society extra compensation for maintaining that kind of power.

Seems perfectly fair to me. Power is finite in the same way land is. If controlling a company is valuable to you in some other way other than just amassing power, say you are really behind the mission of going to space, you can reorganize into a non profit.

People with $50M won't be selling their primary houses to cover a wealth tax. If they're selling their vacant 3rd vacation homes, then that's all part of the idea to gradually reduce the amount of assets that the extremely wealthy are able to hold. The idea is that wealth concentration actually reduces competition.

Of course it's a slippery slope, but most things in life could be categorized that way.

I think there's a fundamental misunderstanding of where this wealth is sitting. For most of the super-rich, the wealth isn't sitting in diverse assets that can simply be liquidated (Elon Musk doesn't have a 3rd home).

If you were to impose a wealth tax on Elon Musk, he would have to gradually give up his ownership in SpaceX and Tesla.

> The idea is that wealth concentration actually reduces competition.

But that's just not been the case. Wealth is not zero-sum. Just because Bezos is a 100 billionaire on paper, doesn't mean that I can't go and raise venture capital for my startup and succeed.

> he would have to gradually give up his ownership in SpaceX and Tesla.

That's sort of the point. Unless he's creating additional value as a CEO such that the board keeps awarding him stock or money so he can maintain his holdings, he's going to lose his ownership stake. Sounds like a tax like this would motivate him to work more not less.

> Sounds like a tax like this would motivate him to work more not less.

You frame this as though this is somehow beneficial to shareholders, but if that's the case, they can work out this arrangement themselves.

Also the idea that SpaceX or Tesla would continue to be valued as highly as they are if he continuously relinquishes his ownership stake is also dubious.

> You frame this as though this is somehow beneficial to shareholders, but if that's the case, they can work out this arrangement themselves.

I was showing how a wealth tax need not necessarily discourage endeavor and industry, as is commonly alleged.

> Also the idea that SpaceX or Tesla would continue to be valued as highly as they are if he continuously relinquishes his ownership stake is also dubious.

Why? I thought they were valued highly because of Musk's leadership, not ownership. Is that not the case? Even without his ownership stake, he can continue to be the CEO as long as the companies do well.

> I thought they were valued highly because of Musk's leadership, not ownership. Is that not the case? Even without his ownership stake, he can continue to be the CEO as long as the companies do well.

That's not how publicly traded companies work. If a sufficiently motivated activist investor accumulates a large enough ownership, they can decide to fire Elon Musk — and there are enough people that would like to see this happen on account of his crazy tweets.

That's the crux of the argument, that no matter how badly activists may want to remove Elon Musk as CEO, he's safe as long as he maintains his stake. A forced divestiture of that threatens his ability to maintain his leadership in those companies, and that's arguably not in the best interests of many existing shareholders today.

> If a sufficiently motivated activist investor accumulates a large enough ownership, they can decide to fire Elon Musk

If Musk is a value-add, they'd be tanking the value of their own holdings. If he's not, then why should he keep his job?

Again, at the risk of explaining the basics of how publicly traded companies work...activist investors may disagree with other shareholders as to whether “Musk is a value add”. It’s not some objective truth, it entirely depends on what the majority shareholder thinks. Today, that happens to be Musk himself. Under a wealth tax, that’s no longer true.

I'm aware of how publicly traded companies work. Activist investors don't take a majority stake, just one large enough to get a board seat or two (5% is considered the minimum in the US) and make some noise. Shareholders vote on whether to add newly-nominated board members, so if they think an activist investor intending to fire the CEO is not acting in their interest, they can vote against adding said investor to the board.

If an "activist" investor actually bought 51% of the company (aka an "acquisition" or "takeover"), they would also own 51% of the downside of any CEO changes. At that point they have every right to decide what's in the company's interest. The company's shareholders can also vote on whether to accept the acquisition offer, which means dissenters who lose the vote can sell and get out if they disagree with the new owner's direction.

For that matter, Elon Musk only owns 21% of Tesla right now[1], so if 51% of the board think he's a net-negative, he could go immediately. They clearly do not.

1. https://www.investopedia.com/articles/insights/052616/top-4-...

> Activist investors don't take a majority stake, just one large enough to get a board seat or two (5% is considered the minimum in the US) and make some noise.

Per-investor, yes — but multiple institutional investors can get involved with little intervention unless the founder holds at least a plurality. This is exactly why we're starting to see companies like Facebook and Uber issue class A shares. Travis Kalanick was, in theory, untouchable — he just didn't have the energy in him to fight the board after a personal tragedy.

> For that matter, Elon Musk only owns 21% of Tesla right now[1], so if 51% of the board think he's a net-negative, he could go immediately. They clearly do not.

Yes, and if he is forced to liquidate any more of his holding, he ceases to be a plurality. That's the point.

And my point is his "plurality" means fuck-all if a majority of shareholders or board members want a different CEO. Musk may have gotten the job originally because of his status as founder. He keeps his job because in the view of the shareholders and board he's doing a good job. And they could even choose to award him additional stock so he maintains his %.

Now yes, because he owns 21%, there are fewer other shareholder votes to oust him than there would be if he owned 10% (still a plurality). But they could do so in theory.

Also, I'll be upfront. I don't think a wealth tax is a good idea because it'll inevitably lead to people dodging taxes by putting the money into stuff like artwork or IP. And to counter that, the government will need to know every single item of value every person owns and have to create a large, intrusive bureaucracy to track all that. It sounds horrific.

But I don't think a wealth tax discourages entrepreneurship or working hard, and PG's blog post is disingenuous in saying so.

But there is external effects. Wealth translates into political power, how about people ending up disenfranchised by the excessive wealth of a small part of the people? They did not voluntarily give up their right to political participation.

> Wealth translates into political power

This is debatable: https://fivethirtyeight.com/features/money-and-elections-a-c...

Consider that the representative from Bezos' own district in Washington is a socialist.

At the end of the day, the greatest check on wealth's effect on political power is the fact that legislators can only win office if they can win a democratic election.

There is this paper from Princeton that makes a convincing case for the US being an oligarchy because the superrich control what gets on the ballot: https://scholar.princeton.edu/sites/default/files/mgilens/fi...

At the end of the day, the greatest check on wealth's effect on political power is the fact that legislators can only win office if they can win a democratic election.

It doesn't work like that. You donate to both sides of the aisle so you always have someone in your pockets. The famous cartoon from John Herzfeld about the "Millions behind Hitler" (this one: https://en.wikipedia.org/wiki/John_Heartfield#/media/File:He...) is bullshit. German industrialists did give substantial support to Hitler, but not for ideological reason, they'd have given to anyone in power. The cash did amplify Hitler's ability to implement his ideology, though, and the non-donors didn't choose that.

There's a difference between personal and private property.

A profitable company can pay dividends which would easily cover a wealth tax. Owning 50M worth of stock in an unprofitable company with zero other income sources or investments is a significant sign you should diversify anyway.

A startup founder can end up owning 50M worth of stock in an unprofitable company. What happens then if the company is worth 1M by the time it's time to pay the tax?

In my country, there are people who's had to declare personal bankruptcy from this situation.

That’s always going to be country specific. Generally, anyone that’s failed to diversify their investment so a 98% drop in some asset doesn’t result in them losing 90+% of their fortune has already failed.

Also, be cautious about how early investments may artificially inflate the value of the company. Convertible debt is one way around that issue.

Dividends themselves are taxed. So why make it a wealth tax, which erodes your accumulated wealth, instead of taxing the income directly?

Tax avoidance has become an art form. Companies have minimized dividends so wealth can compound without being taxed, but that has negative economic effects as they accumulate effectively pointless cash hordes. Further, several things like inheritance let you change the tax basis. Selling stock and donating the proceeds is worse for you than donating the stock directly etc.

In other words tax income and the game is to hide income, tax wealth and you increase economic efficiency. Wealth taxes only erode wealth if you fail to make positive returns.

It's probably personally advantageous to diversify in that situation. But if you get recruited by a $100m startup that's not yet profitable, and you hear that the founder sold half her stock last year, is there any chance you're working there?

Great point.

However, Amazon (as an example) does not pay dividends.

And also, this creates an incentive to pay dividends to shareholders, as opposed to re-investing profits in R&D, which is an odd (IMO bad) incentive.

I wonder if that is a more natural (and long-term) structure though.

The current tech formula seems to be "build the biggest moat possible - worry about profitability later"

While that is driving some of the fastest growth in history, one has to wonder what the landscape will look like once these moats are built. Will these companies have full power to price however they please?

If a company is incentivized to be profitable as they grow, would it lead to a more stable future where we have multiple competitors in each industry?

what the landscape will look like once these moats are built

You see this now with the cloud vendor lock-in bullshit. Too much productivity wasted through too much unnecessary friction.

How do you diversify restricted common stock in a non public company?

no, that's an intentional misdirection by pg, that you'd lose control of your company over time because you'd have to sell shares to pay the tax. what would more likely happen is that loan products and other financial instruments and techniques would pop up so you could pay the taxes in a whole host of ways without actually losing the underlying shares that are used as collateral. it already happens in a more limited, and sometimes private, context today.

That's not an "intentional misdirection", it's undeniably true.

> what would more likely happen is that loan products and other financial instruments and techniques would pop up so you could pay the taxes in a whole host of ways without actually losing the underlying shares that are used as collateral.

In order to pay back a loan, you have to realize some gain somewhere. That money isn't free. Even to simply pay back the interest, you would have to liquidate some of your own stock (which is taxed). Eventually when the principal needs to be paid back, the only way to do it is to liquidate the equivalent value in your own company.

Your company can pay dividends and you can use that to pay the tax. It essentially becomes an operating tax on the company based not on its profit, but its value. What's interesting about that is it would work for companies like Amazon that intentionally engineer zero profits so as to avoid taxes.

> What's interesting about that is it would work for companies like Amazon that intentionally engineer zero profits so as to avoid taxes.

They "engineer" zero profits by re-investing their surplus back into R&D — a behavior explicitly encouraged by the government and the tax code. In 2010, Amazon had about 100,000 employees. Today they have almost 1 MILLION. That's what "reinvesting profits into R&D" looks like, in practice.

> Your company can pay dividends and you can use that to pay the tax.

You're essentially talking about adding a countering incentive away from investing in R&D, and toward paying shareholder dividends, which...why? There are way more intelligent and non-distortionary ways to raise funds for a government (eg increasing the capital gains tax).

> You're essentially talking about adding a countering incentive away from investing in R&D, and toward paying shareholder dividends, which...why?

So shareholders can choose where to allocate those dollars? What's bad about that?

There's nothing wrong with shareholder dividends, but to add an extra incentive to pay dividends is distortionary and doesn't make much economic sense. On the contrary, society appears to want to minimize shareholder dividends because that's money that's not going to worker salaries and R&D.

It also ignores the fact that if Amazon had been forced to pay dividends 10 years ago, the stock would be worth significantly less today on account of their inability to re-invest into R&D and enter new business lines and grow from 100,000 -> 1 million employees. Even if we aim to strictly maximize shareholder-value (to the extent that's even desirable), it's penny wise but pound foolish.

I'm not sold on the idea, merely answering the parent comment that paying the tax would require selling shares. That's not necessarily true.

There's a lot to be said for property taxes. Taxes on income and wealth are disincentives for things you wnt more of. Property tax is one of the least destructive of taxes.

I'm also of a mind that carbon and pollution taxes would be good as well, since the disincentive would be a plus in that case.

> There's a lot to be said for property taxes. Taxes on income and wealth are disincentives for things you wnt more of. Property tax is one of the least destructive of taxes.

Yeah but a wealth tax is not the same as a property tax, because unlike land, wealth is not zero-sum, it's created. In fact, the most economically efficient property tax is the Georgist Land Value Tax which typically deducts the appraised value of improvements before applying the tax, because we don't want to tax productive improvement of land.

Taxing wealth OTOH has the effect of taxing the productive creation of wealth. It's like an inverse Land Value Tax, where you allow one to deduct the value of the underlying land, but simply levy a tax on the appraised value of improvements, just because one might be improving the land "too much".

Also, property taxes are unconstitutional at the Federal level. This is why there is no such thing as a Federal property tax, today. If we wanted a Federal wealth tax, we would have to amend the Constitution.

I know a lot of HNWI and they all complain about tax burden regularly and never mention anything even resembling 'relative position'. IMO the relative status thing is a myth perpetuated by people with a political axe to grind. Most people who keep working past a high level of net worth just like working... don't forget there's a lot of moral value and personal inspiration in building a second or third company that 'changes the world'.

I'm shocked people think a wealth tax on startup founders is OK. Let's think of a scenario for instance:

ACME startup raises Series C @500M. Founder equity is worth 100M on paper. Founder needs to borrow money every year to pay 'wealth' tax. After 10 years of struggles, company sells for $100M, VCs get money back, founder makes no money. But now founder is millions in debt for past 'wealth' tax payments. Founders will be declaring bankruptcy in those cases. And interest rates for wealth tax loans will skyrocket as a result, making effective wealth tax rate much higher.

Problem is startup founder 'millionaires' and 'billionaires' are only that on paper. Any asset that is volatile (like startups) will become impossible to own long term even with a small wealth tax.

Won't startups just go public sooner? Or maybe private company valuations will become less ridiculous since the value of your shares would actually matter for something besides ego now? I do think that taxing paper wealth is a problem, but if you are creating billions of dollars in economic value, there is usually a solution (e.g. as part of raising that $500M, a portion of that goes towards paying wealth taxes). Anything that incentivizes people to do away with this trend of a decade plus before exiting sounds fine to me.

People want to exit but in most cases can't because the company is not doing well. Everyone who has tried fundraising with bad results knows it's super hard. Despite popular stories in the press, that's the fate of most startups.

Having a struggling company is super stressful, adding the government asking you to come up with money to pay personally, because you are 'wealthy' on a paper would take it to a different level.

This is ignoring the fact that wealth taxes don't effect you until you are extremely rich - even the most aggressive proposals don't start until you are at $32M-$50M in net worth - there are definitely some startups that are struggling while the founders have this much in equity, but the vast majority of struggling startups never hit the $100M+ valuation that would be required.

Not to be a dick, but I don't see why anyone thinks this is valid justification to block a wealth tax - maybe you could argue that the cap should be higher. Income inequality has gotten ridiculous and is only going to get worse as AI technologies mature. There needs to be a way to reallocate wealth from the super-rich to the 40% of Americans who would be unable to pay for a $400 emergency and I haven't heard a better proposal.

The point is that it creates direct and indirect obstacles to starting/investing/running/owning a company. Which is one of the big job/wealth creators of our society.

IMO you should do the opposite - remove all obstacles to start/invest/run a company and tax the outcome - or, even better, consumption. If you feel those taxes are too low, then raise them.

> tax the outcome

That is exactly what a wealth tax proposes to do since there is no other realistic way to impose a tax on a successful companies. Corporate taxes haven't worked very effectively. When someone sits on $1B+ in stock, there is no way other than a wealth tax to redistribute that wealth.

First of all, this has literally zero impact on the vast majority of entrepreneurs and small business owners who will most likely never hit $30M+ in net worth. And those are the real job and wealth creators.

Secondly, global corporations have the effect of taking wealth from the many and centralizing it into the hands of the few. And this will continue to get worse as AI advances. These corporations are not good for the long-term health of America and I don't think many Americans will care if it becomes a little bit hard to make $100M.

Why do you assume the wealth tax has to be paid each year in dollars?

Maybe you could pay it in shares, so no borrowing required.

Or maybe for illiquid assets including non-public stock it could be warrants that you only have to settle at a liquidity event.

It's a strawman to assume a wealth tax will be set up in a broken way when non-broken ways are possible.

I would think it's valid to make that assumption given taxes must currently be paid in dollars and I don't know of any places that allow it to be paid in equity. I would also think out debt obligations to the world bank must be paid in currency.

So the government takes a board seat (or two or three) eventually in the company?

There are a lot of rights and some obligations that come with equity ownership in a company beyond financial return.

This makes me think of China, where the government forces board seats in many companies.

That seems like another strawman; e.g. I said it could be warrants for this reason.

There's lots of examples of financial ownership without the holder of the return running the business. Whether it's a state or an ex-spouse.

In Germany unions have board seats by law. Doesn't seem to be stopping the executives at Siemens and Krupp from their corporate aspirations.

This is a problem for startup employees, too, and should be solved in both cases by allowing you to defer the taxes on your paper gains until you can actually realize them (yeah, there would be issues here, but the issues are solvable).

That's exactly what capital gains taxes are tho?

Exercising your options is a taxable event even if the shares you're buying are illiquid.

I thought capital gains were when you do realize them, not when you can realize them.

It's like this in some European countries and the situation you describe with founders having to declare bankruptcy has happened some times. It doesn't make it impossible to own volatile assets, but it increases the risk.

Some places the rules have changed a bit to avoid some of these cases where people owe more tax that they can pay, but it can still happen.

> Wealth tax proposals I've seen don't kick in until $50 million or $100 million. This means that there is a floor on how "poor" the government can make you via a wealth tax.

That’s just the starting point. Once people begin to figure out how to avoid it or have been tapped then the qualifier will be lowered to 40m. And then eventually 30m and do on until anyone above average is paying it. And then anyone above median.

The state will, as always, become reliant on it and find ways to expand it to wield more power and pay debts that were taken on to “collect/spend in advance” as they’ve done countless times.

This is why people that will likely never meet today’s threshold are against these schemes. These things always get a wider, and wider net until anyone just starting to get ahead is caught in it.

>The state will, as always, become reliant on it and find ways to expand it to wield more power and pay debts that were taken on to “collect/spend in advance” as they’ve done countless times.

This hasn't been true for the income tax [0], nor the capital gains tax [1], nor (at least in Silicon Valley) for real estate taxes[2], which are closest to a wealth tax. It's a reasonable thing to consider, but given the evidence we have, should not be a driving consideration.

[0] https://bradfordtaxinstitute.com/Free_Resources/Federal-Inco...

[1] https://en.wikipedia.org/wiki/File:Federal_Capital_Gains_Tax...

[2] https://www.boe.ca.gov/proptaxes/decline-in-value/

edit: I was misinformed re: income tax, tracking only the top rate.

> This hasn't been true for the income tax

Well that's false, the income tax in the United States originally was promised only to ever apply to the ultra-rich. Now every tax payer pays it.

> Now every tax payer pays it.

Well that's false. In 2018 44% paid no federal income tax.

https://www.marketwatch.com/story/81-million-americans-wont-...

> Well that's false. In 2018 44% paid no federal income tax.

Source kinda sucks bec its looking at all americans not income earners which is what we're talking about.

But even so as others have said the point stands, originally income tax was only for the uber rich and now a large majority of workers pay it.

Also every single worker pays payroll tax regardless of income level, that's something the article doesn't address.

Every tax payer pays at a minimum their time and stress to file the paperwork, many don't realize that best effort is probably good enough for them, those who are fortunate can spend $150 to a leech of a lying, scheming company to reduce that burden.

The notion that the time and stress involved with the paperwork is onerous enough to merit being considered payment seems tenuous to me. The gov't has been pushing (as hard as it can) free file services for all of the years that I've been doing taxes. Using those free file options, I--a standard W-2 worker who doesn't make much--complete my taxes in about 15 minutes these days. The companies that convince people to pay them to do that tiny amount for paperwork are also working to hide how ridiculously quick and stress-free it is for one of those 44% to do their taxes.

That's a bit of an over generalization. It gets more tedious for people with multiple jobs, investments, a business, etc. Not to mention, many places also require state and local tax paperwork. The companies that charge money, including TurboTax, lobby to keep the tax codes complex so they can keep charging people money.

I don't stress out over my taxes anymore, but just about everyone else I know does. Of say the 100 closes people you know, how many of them file on the last day, how many people ask for extensions, how many people give up and hire someone to do it for them? That alone should speak volumes.

That's because of corrupt American politicians and lobbying by Intuit, not something inherent to an income tax. Many countries have a simpler income tax process.

The IRS allows many people to file taxes electronically for free (https://www.irs.gov/filing/free-file-do-your-federal-taxes-f...) as do some private companies.

Sure, it's not fun, but it's not an overwhelming burden for those with a simple 1040.

Just reading the instructions, noting all the exceptions, and assembling the forms takes hours.

finding that information isn't easy.

Google "free tax file". It's the top hit. I think it's also on your W2's your employer gives you. I'm not sure if it could be made easier, but open to suggestions.

Used to be hidden and had disclaimers that it couldn't be used if income was over 50k or something ridiculous, making it unusable in CA.

It's still about 1000x more complicated than filing in New Zealand, which is comparable to filing on the California site. Basically a 15 minute wizard on a web page.

Still got social security and medicare though which contribute to the tax wedge on income and employers pay those for 100% of employees.

Not everyone is salaried, especially at these levels where you're not earning enough to pay any income tax.

Hourly employees pay it too and because it is a withholding tax, you pay for it even if you are below the standard deduction and don't file a tax return because it is automatically taken out of your paycheck by your employer when you get paid. Self employed people also have to pay both sides of it and they have to file if their income is above $400 a year so the only way your really getting out of it is if your employer is paying you under the table or you are self employed and made less than $400.

It still shows the point clearly enough, as 56% isn't the ultra rich. People who fear a wealth tax doing the same already have precedent.

Now, maybe if the wealth tax was combined with a significant reduction in income tax, say 0 tax for the first $100,000 a year people make, then people might be a bit more willing to support the notion. But just a new tax, with the promise it won't impact you? Can't blame people for lacking any trust.

It's ironic how now everyone is bringing out the slippery slope arguments, after years and years of tax cuts for the rich reduced social services and increasing wealth inequality, all based on the promise that cutting taxes for the rich would benefit the average person. Well that was a lie, after several decades of increasing efficiency and economic growth the middle class can look back at essentially at no increase in wealth and the only reason that household disposible income has somwhat increased is because now both adults in the family are working (+plus often high school and college kids are working large proportions as well).

If there was ever a slippery slope it was the slippery slope of cutting more and more taxes for the rich.

Well given those taxes are passed on to the middle class, and the fear is that a new tax will also be passed on to a middle class, I don't see any irony.

I even suggested that lowering taxes on the middle class and below while introducing a new tax on the rich would be the a method to prevent people from being concerned with the tax eventually impacting them. With all the 'tax the rich' rhetoric, why not include a 'and not the poor' as well?

I suppose everyone's definition of ultra-rich is different. There are many people who feel that earning $60k/year is unattainable in their lifetime. For them, the income tax rates (and proposed wealth tax rates) probably seem too low.

I agree that it's easy to tax people wealthier than you. When it might affect you, there's less support.

Do you have a reference for this "promise"?

In the 50s through 70s, there was a much higher income tax on the upper income brackets: the tax was much more progressive. Ronald Reagan dramatically lowered the income taxes on the high income people and kicked off the dramatic increase in economic inequality that we've seen over the past 50 years. The GOP destroyed much of the promise of the American Dream in this case. Is this what you mean?

It was supposed to be a temporary tax to fund the Civil War, but like most/all taxes, the "temporary" became permanent. (1)

From Wikipedia - In 1913, the top tax rate was 7% on incomes above $500,000 (equivalent to $12.9 million in 2019 dollars) and a total of $28.3 million was collected.

1 - https://www.mwattorneys.com/blog/first-income-tax-was-suppos...

I don't know what was promised, or by who, but the first federal income tax after passage of the 16th amendment applied to only the richest 3% of the population.

https://en.wikipedia.org/wiki/Revenue_Act_of_1913

Only 3% of the nation had any income above $3K, and they only paid a 1% (!) tax on the income above that threshold. That's how it was sold to the public.

Compare that to the general income tax today, and who it applies to: the floor now includes ~60% of people with any income at all, and the lowest possible income tax rate is 10%, e.g. 10x higher.

And literally everyone pays income tax in the form of Social Security and Medicare. (For whatever reason, if an income tax is pre-allocated to particular government spending, it's no longer an "income tax" in some people's eyes. The tax effect is identical and you need the 16th Amendment to allow it, so IMO it should be lumped in with the other income taxes we pay.)

This is not true. Only about 60%ish of Americans pay income tax. While those who do aren’t just the ultra wealthy, certainly not all Americans do.

Others have already pointed this out, but you're ignoring Social Security and Medicare which are both income taxes, just pre-allocated to specific government spending programs. 100% of tax payers pay these income taxes, including the self-employed.

Your graphic only goes to 2009. Note that long-term capital gains moved up from ~15% to ~24% under Obama, and Biden has another plan to increase it[0].

[0]https://taxfoundation.org/joe-biden-tax-plan-2020/

Here is an article that directly contradicts your assert. It discusses how congress promised to only tax the really rich and then through drift and power grab we’re all paying taxes. https://soundmindinvesting.com/articles/view/promises-made-p...

Not that you're necessarily wrong, but I find it fascinating that the state of social trust is so low in the united states that the most powerful and resonant arguments against potential laws are even if the law is good, a future law in the same vein might go too far and thus even the good law should be shot down.

You can see this on a variety of topics. Gun control legislation, immigration reform, healthcare reform, etc. Reasonable laws are perpetually overshadowed by the boogeyman on the horizon.

It depends on what one sees as reasonable (also see the difference between reasonable and rational). Take the gun control that you referenced as an example. It's likely that there is a vast difference in knowledge of the technical as well as legal aspects of firearms between gun owners and non-gun owners. So the law could be rational, but the two groups could differ on the reasonablenes. I see the slippery slope argument less today than I did in years past.

In my opinion, most proposals by either side on a variety of topics are not good options. They have become hard-line battle cries for their respective party in order to motivate hardcore supporters to come out to vote, particularly in the primaries in which the radicals comprise a larger share than in general elections.

What you find "fascinating" is a culture that is over 200yr old. What you are complaining about has been a constant part of our culture since the 1770s and ingrained in Federal law in 1789.

> Reasonable laws are perpetually overshadowed by the boogeyman on the horizon.

Because that’s exactly what’s happened in the past. We don’t just get ONE piece of gun legislation and that’s the end of it, every so many years we keep on getting pushes for more. For immigration reform, we didn’t just get ONE amnesty of illegal immigrants and then strict immigration control which was promised back during the Reagan administration, we got complete acceptance of continued illegal immigration and renewed calls for amnesty.

The smart money is always on not trusting the government.

It's like when we deign policy we never have KPI's, OKR's, or any other metrics associated with it to define what we agree what success is. Everything is an ideological battle to claim a new trench and push the opposition back a trench.

I think we'd get along better if we first proposed and found agreement upon which metrics we want to achieve (gun deaths at x%, or a decline of x% by such and such date, etc) and then implement policy that get there. And then correct as needed.

There was a time when universities had a very disproportionate amount of males VS females. So we passed policy that was designed to make a university degree more achievable for females. And it has worked, which is great! However, we never really implemented an end condition to this policy. And the entrenched apparatus that makes it's living or achieves ideological goals continue the policy, as-is, in a never ending battle.

If we would have said "we want 50% of college students to be female by x-date" (or better, we want to maintain a balance of 50/50) then we could have either stopped the policies that were used to correct the initial condition or modify them to hold it steady at 50%. But we haven't and now 56% are females and it's growing and any suggestion that we either need to hold off on these policies now that we achieved the goal or even correct it to get more males into universities is immediately labeled sexist, etc.

I think it's easier to get a diverse group of people to work towards a common goal when you define the end condition (put a man on the moon) rather than using vague descriptions of what would be a better world. At the very least it stops skeptics from just flat out saying "no, as it will never end".

States like the US can just spend in advance without taxing, there’s no necessary relation. We’re not on the gold standard anymore. The point of a tax isn’t to pay for things, it’s to attempt to control inflation and the money supply, and to combat inequality. The idea that a state (read nation, for US states things are different) would become reliant on such a tax to pay for things doesn’t hold water. It may become ‘reliant’ on it as a means to reduce inequality but that’s another matter.

The avoidance issue is a big one and the mechanism of making sure people pay is at least as important as where one sets the floor. Cross border capital flows can be pernicious.

Piketty gets into how different rates of capital accumulation create huge rifts between people who own appreciating assets like land and equities and people who don’t who primarily earn wages. The idea behind the wealth tax is to try and narrow the rift.

>The point of a tax isn’t to pay for things, it’s to attempt to control inflation and the money supply, and to combat inequality.

A significant proportion of Americans would disagree with you that it's the government's business to "combat inequality". Most people agree with taxes to help the needy and fund infrastructure, but it's a harder sell that the government should punish people just for being too successful.

>Piketty gets into how different rates of capital accumulation create huge rifts between people who own appreciating assets like land and equities and people who don’t who primarily earn wages. The idea behind the wealth tax is to try and narrow the rift.

But he doesn't outline clearly what the problem with this rift is. To quote the criticisms section of the Wiki page on his book (https://en.wikipedia.org/wiki/Capital_in_the_Twenty-First_Ce...):

"One strand of critique faults Piketty for placing inequality at the center of analysis without any reflection on why it matters.

According to Financial Times columnist Martin Wolf, he merely assumes that inequality matters, but never explains why. He only demonstrates that it exists and how it worsens.[36] Or as his colleague Clive Crook put it: "Aside from its other flaws, Capital in the 21st Century invites readers to believe not just that inequality is important, but that nothing else matters. This book wants you to worry about low growth in the coming decades not because that would mean a slower rise in living standards, but because it might ... worsen inequality."[35] "

Inequality by itself is not bad, in fact if you have an extreme society with no inequality you've essentially produced perfect socialism and a society where everyone is equally poor and there is no innovation, no difference in outcomes.

Extreme inequality tends to destabilize society. At some point all the multitude of have nots get sick of their lot and rise up and take from the haves by force.

So I would say inequality is good, in manageable doses. The question is are we headed to a managable place?

Yes, inequality is about morality. I'll push back on any current thought that requires abandoning morality.

I disagree -- I think unfairness is about morality, and in many of these conversations people often conflate inequality with unfairness.

A perfectly equal society can also exhibit a great deal of unfairness, and a perfectly fair society would most likely be unequal.

"Fairness" should be the metric under discussion, not inequality.

Definitely morality, but also the stability of a society. The provision of the good life to the people, etc.

I don't understand why you think the slippery slope argument works for the rate and threshold, but not for the existence.

The problem with wealth taxes is not slippery slope, but rather that wealth can be obfuscated and moved around much more easily. Transactions are easy to tax; wealth worth taxing is about what you control, rather than stuff you have.

There's good reasons the most successful wealth taxes are land taxes. You can't easily move land.

Just for some historical context: US income tax rates started at 1% and ended at 6%, and applied to an extremely small amount of the population.

What does "ended at 6%" mean here? As far as I can tell, all income earners in the US pay at least 15.3% income tax in the form of Social Security and Medicare taxes.

This is exactly what happened with the US federal income tax. It was originally only a small amount, and only on the wealthy. Now it's gradually been expanded to everyone.

> It was originally only a small amount, and only on the wealthy.

This is a bit misleading. The first income tax of 1861 was on incomes over $800, which inflation-adjusted is about $23000. The next year the threshold was lowered to $600 or about $17,000 in today's dollars. Currently the standard deduction is $12,200. Certainly some creep, but it doesn't quite fit the described jump from only the wealthy to everyone, except perhaps to the degree that nearly everyone in the US today is wealthy compared to the average citizen in the 1860s.

Rates have certainly gone up since then (originally a 3% rate), but top rates today are quite low by modern standards - they were higher than today from the 1930s through the late 80s. Typical average rates have been on a slow downward trend since WWII.

I think you are also being a bit misleading, you do mention how much richer people are today but this really can't be overstated. In 1861, only 3% of the population earned more than $800 per year. So the original income tax only applied to the very rich.

And wasn't it also supposed to be temporary to pay for the war?

Yep, there was no income tax till 1913.

https://en.wikipedia.org/wiki/History_of_taxation_in_the_Uni...

Slippery slope is a logical fallacy [0], which you likely already knew. Of course, that doesn't make your argument wrong, just fallible.

I think it's arguable that taxes only ever go up. Income taxes on the rich used to be near 90% in the top bracket, so it's not a one way ratchet. That said, I agree government tends to expand and needs to fund that growth somehow. But I think it's much more likely that need manifests as an increase in the wealth tax rate rather than a lowering of the wealth threshold. The billionaires have so much more money than everyone else (and so much more than they need) that it will be much more politically popular to raise the wealth tax on them than it would to expand the pool. Not to mention, there are more of us.

I'm not advocating a wealth tax, and I think it's problematic for other reasons, but I don't think the slippery slope argument is much more than fearmongering in this case.

[0] https://en.m.wikipedia.org/wiki/Slippery_slope

Ahh the classic HN logician that spots someone mentioning slippery slopes and reflexively calls it a logical fallacy.

The history of taxes in the US (and especially California--remember the "temporary" 13.3% highest marginal rate?) has more slippery slopes than 6 flags fiesta Texas. It's not fear mongering, its a very solid argument against new taxes.

Nonsense. The top marginal tax rates in the US used to be much, much higher than they are today.

It was not reflexive. Perhaps you misread my post.

My reading of the way the slope slips is that rates go up, not that the minimum threshold is lowered. This reflects historical tax law changes, political sensibilities, and basic economic theory. This was all in my original post as well, so I'm not sure it'll land this time, but I'm a bit offended that you have mischaracterized my post as reflexive, implying thoughtlessness, when I believe it was anything but.

My opinion restated, billionaires have more to fear from this than any of the rest of us do.

I have seen many instances of "slippery slope" fallacies actually happening. While I don't want to name specific examples, due to it getting into unnecessary politics, I am able to recall at least 3 BIG instances of it happening.

A logical fallacy doesn't mean the claim is wrong, just that it doesn't logically follow. I think it's still worth pointing out when the claim is presented as fact.

Oh, I completely agree with that. Bad wording on my part. Usually when I talk about such things I add something to denote it as my opinion/fear.

Sadly it is legitimate to some extent IMO.

> Slippery slope is a logical fallacy [0], which you likely already knew.

Falsely asserting a slippery slope—that A must lead to B which must lead to C when none of these things are inevitable—is a logical fallacy. It is not a fallacy to point out that the grass is wet and the hill is steep and suggest that perhaps we should put up a sign advising people to stay away from the edge. The argument is simply that this is a dangerous situation which we would do best to avoid, not that anyone who goes near the edge will inevitably lose their footing.

> The billionaires have so much more money than everyone else …

Do they really? It seems to me that what they mainly have is not money but rather illiquid assets, i.e. capital. That includes stocks, which can be sold—at the expense of giving up control of the company—but also stock options which can't be exercised immediately and tons of actual capital equipment, inventory, buildings, and so forth which can't readily be put to other use.

> Income taxes on the rich used to be near 90% in the top bracket, so it's not a one way ratchet.

Keep in mind that they never actually collected anywhere near that much. Those 90% brackets were purely theoretical.

I've responded to the logical nature of the fallacy in other comments, so won't rehash. I thought I was clear in the original post, but apparently not.

There are many millionaires for whom what you describe is a problem. I assure you that billionaires do not have a problem with liquidity unless they want to.

Sure, nearly every opinion or argument is fallible. I'm not explicitly trying to create a slippery slope or fear monger. A slippery slope tends to lead to unintended consequences. I don't think expanding the net is unintended - I believe it's the deliberate goal. Our history suggests this w/r/t income taxes, etc.

I don't think the net will be widened, I think when more tax funds are needed, the gauge of the net will be adjusted to catch more fish from the same people. i.e. They'll increase the rate from 3% to 5%, not expose lower wealth individuals to the new tax.

You're partially correct. They'll increase the rate from 3% to 5% and then a new rate of 1% for the 30m-50m bracket and make it progressive.

This is not what actually happened in several European countries that had wealth taxes. In fact, they found the taxes ineffective at collecting revenue, and abandoned them. This isn't exactly a recommendation of wealth taxes (which I'm skeptical of), however it is evidence that your assumptions about what would happen are not inevitable.

> These things always get a wider, and wider net until anyone just starting to get ahead is caught in it.

No, they don't. You only have to go back a couple years in the US for an example where tax rates for the wealthy were massively cut.

But that doesn't answer the complaint. The original idea of income tax was also that only the wealthy would pay, not the middle class. Yet here we are.

Tax rates for the wealthy were cut? That's great, for them. Were tax rates cut for the middle class? Did any of the lower class no longer have to pay income tax? That's what would be a response to nemo44x. (What would be a response to me would be for there to be no income tax for anyone in the lower 90% of income. That would be back to the original intent, and would reverse all the years of scope creep.)

Yes, here were are because it turns out that modern societies with their amenities depend on taxation. What's the problem with that? If it were such a humongous deal you'd have more people voting for tax cuts.

OK, but it may well turn out that future versions of "modern society" depend on the revenue from wealth taxation, not just for those with wealth above $50 million, but with wealth above, say, $50 thousand.

Remember what the argument in the local thread is. nemo44x stated that "these things" (things like the wealth tax) always expand to cover more people than they did at the beginning. rurp said that the income tax cuts a couple of years ago disproved that. I said that the expanding scope of income tax over the last 107 years supported nemo44x, not rurp.

Your arguing that that's OK, because we want the society that results. That may be. But that's a different claim than "this won't expand to hit everybody".

The only promise the government will keep is what's in the Constitution. I find it unreasonable that a government should keep promises from times when I wasn't even alive.

I wish you had made this as a top level comment. This should be at the top, not the pro wealth tax comment. Like you said, the net always gets wider and wider.

exactly. Also money printing will mean that 50 mil in 10 years is more like 10 mil now.

Personally, this and income tax increases make me seriously consider moving out of CA (where I’ve been a resident for a very long time)

You shouldn't even need to consider those two points - just leave that miserable state.

> money earns money. A conservative drawdown of 3% pay the most commonly proposed wealth tax while still leaving you wealthier at the end of the year.

That is only true if your wealth is in diversified ETFs or funds. That is not where most of the wealth of super-rich founders is. If 90+% of your wealth is in a single company (I.e. the one you founded), then there's no guarantee that this wealth will necessarily appreciate on its own (esp relative to inflation).

no, in a similar vein to my other comment, any founder who's reached millions in personal gain from their single, undiversified startup, will begin to employ financial strategies to diversify some of that gain into other instruments to reduce risk. there's a whole industry eager to help the rich and the getting rich do so.

> any founder who's reached millions in personal gain from their single, undiversified startup, will begin to employ financial strategies to diversify some of that gain into other instruments to reduce risk

This is literally not true for the wealthiest founders. The vast majority of billionaires (and even high $100M) only enjoy that net worth because the vast majority of their wealth is in a single stock: their own company. Even if 10% of their wealth is in diversified portfolios, that isn't nearly enough to offset the tax required to pay off the remaining 90% of their wealth.

Second of all, even for those that have decided that they no longer care about maintaining a majority of their net worth in their own company, they have to liquidate their existing holdings in order to buy into diversified portfolios, at which point the wealth is taxed. And then any appreciation within their new portfolio is ultimately taxed when any capital gains are realized.

In the US, we do not tax wealth, we tax income, dividends, and capital gains, because wealth is not money.

And yet these founders with paper wealth regularly find money for the things they want or need. Because wealth can be easily turned into money. The idea that billionaires can find money for multiple million dollar homes, but it's impossible for them to pay taxes is ridiculous.

Yes, and when they do turn their wealth into money for whatever needs arise, they pay taxes on it. The tax rate they pay on it (20% federally, up to 37% depending on the state) is roughly equivalent to paying a compounding wealth tax after N number of years.

> The idea that billionaires can find money for multiple million dollar homes, but it's impossible for them to pay taxes is ridiculous.

It's not ridiculous at all, it's literally in the math. It's one thing to occasionally voluntarily liquidate tiny fractions of your holdings for one-off purchases (like a home or a yacht or to make an annual living), and another thing entirely to impose a yearly "cost to maintain ownership of your company" resulting in involuntary liquidation.

> In the US, we do not tax wealth, we tax income, because wealth is not money.

There is also the reason that income is easier to manipulate, and the rich-of-the-rich do not, for the most part, have "income".

The top marginal income tax rate is 37%. The top capital gains (income for wealthy people) tax rate is 20%.

Why does someone actively working for an income pay a higher tax rate than that paid on someone's passive income?

Agree! IMO the solution isn't a wealth tax, it's to just tie the capital gains tax to the income tax bracket.

That, or adding a top marginal capital gains bracket for any gain above (say) $100 million.

This also has the built-in advantage of not requiring a Constitutional amendment.

The combined long-term capital gains rate in places like California is >37%. The 20% is just the base federal rate, it can almost double when other investment taxes are accounted for.

You missed a major reason long-term capital gains rates are lower than income tax rates: they are not indexed for inflation in the US and inflation on income is negligible. As a matter of tax policy, it is much simpler to reduce the rate than to compute a very large inflation deduction, but you can find countries that go both ways.

I will give you the point about a lack of inflation indexing.

I stuck entirely with federal numbers when comparing capital-gains to income taxes to make it a more apples-to-apples comparison. It looks like you took that in order to compare california-specific state+federal capital gains tax, and compared it to federal-only income tax?

The other issue of high-cost states being more often included in high-rate brackets (due to federal tax brackets not being adjusted for cost-of-living) is a different, and also complex, issue.

> You missed a major reason long-term capital gains rates are lower than income tax rates: they are not indexed for inflation in the US and inflation on income is negligible. As a matter of tax policy, it is much simpler to reduce the rate than to compute a very large inflation deduction, but you can find countries that go both ways.

Very interesting point.

To encourage investment. In order to incur capital gains, you have to invest, which is entirely voluntary.

no, only the most obstinate would not diversify their holdings once they reach tens of millions, let alone billions.

Owning shares isn't only about wealth, it's also about control. The kinds of people that create successful startups aren't likely, as a rule, to give them up without a fight. By the time you've divested 50% of your shares in the company you founded it's no longer your company, and yet with 50% in one company you're still nowhere near sufficiently diversified to be able to count on those average market returns.

no, you don't divest and lose control, because you can pay taxes and diversify without selling shares (incidentally, this is similar in shape to a credit default swap). even so, you don't need 50% of the shares to control a company. in both of these instances, there are many more ways than one to skin a cat.

> no, only the most obstinate would not diversify their holdings once they reach tens of millions, let alone billions.

Just do the math, you need to divest a significant percentage of your own holdings in order to re-invest it into diversified portfolios sufficient to pay a wealth tax. The vast majority of founder paper-billionaires haven't come remotely close to doing this.

The money ears money thing is key. A wealth tax that equals the money you can earn from having money would prevent runaway inequality due to the "rich getting richer" effect.

S&P 500 has a long term annualized return of 10%. If you have a 5% wealth tax on stock you have in S&P 500 then you are still earning 5% returns (well above long term average inflation) without actually lifting a finger.

But none of the people you are trying to target with the wealth tax have their holdings in the S&P500. Instead they have close to 100% of their holdings in a single asset represented by the more diversified S&P500.

There is no guarantee that the single individual super-wealthy founder whose wealth derives from the ownership of their own company will appreciate at an annualized rate of 10%.

The two most pervasive myths about wealth among the super-rich appear to be:

1. They are sitting entirely on liquid cash

2. They are sitting entirely on highly diversified funds that enjoy 5+% annualized appreciation.

So what? That just means that you get ahead if the company you own grows ahead of the broader economy and that you lose out if you fall behind.

No, it means that if you fall behind the broader economy, you lose control of your own company. It deprives the business owner of the ability to turn their own company around. All to raise a minuscule percentage of the Federal budget. That's a terrible system.

Honestly, a better system (but still bad, and with lots of issues) would be to just give the US government a percentage of your ownership as your receive it. Ex: Elon Musk would have to give the US government 1% of the shares he receives ownership of. The government would then be the recipient of any dividends earned or liquidity event from these shares.

What you described sounds like a sovereign wealth fund, and that’s IMO a great idea.

They can, and do, borrow against their shares.

Yeah but borrowed money needs to be eventually paid back, so you're (at best) just deferring the problem.

Even if a wealthy founder took out a collateralized loan, in order to pay back the loan, they have to realize some gain somewhere (which is already taxed). That money isn't free. Even to simply pay back the interest, they would have to liquidate some of their stock (which is already taxed). Eventually when the principal needs to be paid back, the only way to do it is to liquidate (and divest) the equivalent value in their company (which is already taxed).

If you can borrow against shares to buy a big house, mega-yacht, etc you can do so to pay your taxes.

No, your argument would be like saying "if you can borrow against shares to buy a big house, mega-yacht every single year, you can do so to pay your taxes".

PG's essay shows that the wealth tax compounds every year. That just doesn't happen with consumption. Bezos doesn't have 20 homes and 20 yachts.

>> Instead they have close to 100% of their holdings in a single asset represented by the more diversified S&P500

What do you mean by that? Can you give examples of that single asset?

The company that they own.

I guess I interpreted your statement as: "That single asset they own is more diversified than the S&P500", which I don't think is what you meant right?

I meant the opposite of that. The single asset that they own is less diversified and riskier than the S&P500, and therefore you can't take the annualized return of the S&P500 and then conclude that "money makes money" on a founder paper-billionaire's wealth.

The S&P500 is a portfolio that puts together all of these companies and diversifies them. In other words, Bezos is one part of the S&P500.

A company that they own?

They aren’t diversified?!

Super-wealthy founders are not sufficiently diversified, no.

So this wouldn't be helpful as an incentive to get them diversified?

That's an arbitrary incentive that's not particularly useful. And in any case, it forces one to relinquish a significant partial ownership in their own company just to be able to afford to continue owning the rest...all so that we get them to diversify their portfolio?

This sounds like the exact opposite of what the US as a whole wants to occur.

Would Elon be interested in selling his stakes and diversify? Would he be lose control over his company to retain his wealth?

This comment was flagged for some reason, but it's entirely valid.

If Elon Musk's goal was ROI maximization, he has no business maintaining ownership in SpaceX and Tesla — he ought to just dump his billions in high yield ETFs.

Fortunately, that is not his primary goal, and (at least in the US), he is able to continue to pursue success by maintaining ownership in his companies.

Yeah, that sounds weird. I either need a source or some proof of knowledge/authority on the topic.

Sure, if you get recruited by a $100m startup, and you hear that the founder sold half of their stock "to diversify", there's almost not chance you're working there.

Diversification is a solid strategy for most people, but founders that own highly valuable companies are not "most people"..

The S&P has a long-term annualized return of only 7.41% since the end of the Bretton Woods system (beginning of the modern financial system). And that ignores investment costs such as trading and mutual fund fees; actual annualized returns will be lower for real investors.

A) history shows these things eventually apply to everyone. E.g. FATCA was originally relevant to a few hundred people, no it applies to almost all Americans living outside the US (hundreds of thousands). It’s just a reporting requirement, but one that can potentially cost you 3%-50% of your net worth per year if not filed or improperly filed.

B) I know people who were bankrupted by existing tax laws - had shares in internet companies during the dot com boom; company IPOd making them paper millionaires, thus owing millions in taxes, but had 6 months lockup. By the time the lockup expired, company went bust, nothing to sell to cover the tax bill. Any law that takes valuations into account (as a wealth tax law is bound to) is likely to wrong some people in a similar way, especially entrepreneurs and early employees.

Agreed, I've always thought these sorts of "Atlas Shrugged" arguments were ironic coming from free-market thinkers. In a free market, if one person refuses to work for less than $100 million, there's always someone right behind them willing to work for $99M. It would take a pretty extraordinary tax to have any effect on motivation in the economy at large.

It's not quite so black-and-white; wealth taxes change the incentive structure, so that the returns to creating increasingly valuable companies is non-linear. Wealth taxes (especially those with 'floors') discourage risky, high potential ventures, thereby skewing entrepreneurship towards smaller, less risky projects.

I personally think there are too few of the big, risky ventures these days, and too many low value-at-risk software-only startups (aiming to be bought up by a FAANG), but that is just an opinion.

> discourage risky, high potential ventures, thereby skewing entrepreneurship towards smaller, less risky projects.

That's a good thing, and I disagree completely with your assertion that "there are too few of the big, risky ventures". My impression is just the opposite: there are too many stable companies with modest success that are being killed by VCs who insist they have to adopt go chasing mega-growth that has no chance of actually materializing. Dropbox, Kickstarter, and Patreon are a few prominent examples of this trend: they achieved success in the marketplace and could've been happy with that, but their backers would rather take a 1% shot at meteoric mega-growth, and so now the products increasingly suck while the companies hopelessly go after initiatives way outside their core competency until their loyal customers get sick of it and leave, the company crashes and burns, and the VCs write it off as just another failure.

> I'm highly skeptical of the claim that such tax would discourage startup founders.

Discourage starting a company at all? Probably not, but the article does not suggest that. Do you think it might influence where they start it? Looks reasonable to me, at least qualitatively.

>Do you think it might influence where they start it?

This has always been the argument, and I've never bought it.

Now, more than ever, is the time to start a company remotely, thanks to Mr./Mrs. Covid. Have we seen a massive move away from SV and other tech centers? Have we seen a massive wave of startups in 'flyover' country?

It’s been 6 months and the whole world is mad. Check in 2 years and you’ll probably see a yes to at least the first question.

I don't think we'd know yet if there were one.

Covid identifies as asexual.

Yes, but other factors likely influence it more. Are you going to start it in Barcelona or SF, just because of the tax rate? Surely there is something to be said for startup experience, investor networks, founder communities, etc...

When the tax rate is something like _half of your stock_ over 60 years, that starts to be a bit more... impactful.

> I'm highly skeptical of the claim that such tax would discourage startup founders.

It'd discourage the people who pay the bills (VCs, wealthy, etc.) from living in those states. Founders would simply follow the money to other states as they have done in the past.

Startup founder wealth comes from VCs. The reason people found startups in California is because that's where the VCs are. If you drive away the VCs, you will drive away the founders as well.

I am a multimillionaire on paper due to restricted founder stock from a previous startup. I have left that job and don’t expect to ever see that money as the guys in charge now are unlikely to ever realize an exit. I’m now back to earning just a regular software dev salary at a big corporation. I never got to see a return on any of my founder shares and not wealthy by any means.

Nevertheless, I’m now at risk of having a six figure tax bill every year for paper wealth that is 100% illiquid.

If this passes I would be leaving the state and guarantee you I would NEVER found a startup in California again.

> Wealth tax proposals I've seen don't kick in until $50 million or $100 million.

The very first U.S. income tax, imposed during the Civil War (the nation's bloodiest conflict), was 3% on income over $12,720, rising all the way to 5% on income over $159,000 (in 2020 dollars). This was unconstitutional at the time, and was eventually repealed.

The first income tax imposed after the ratification of the 16th Amendment was 1% on income over $78,510, with an additional 6% on income over $26,170,000 (2020 dollars).

The current U.S. income tax ranges from 10% to 37%, with a standard deduction of at least $12,200. There are also payroll taxes under FICA, which are even more.

I recount all this riveting history as evidence for my contention that there is absolutely no way that a wealth tax would remain at 1% for anything above $50 million. I guarantee that within a few years to decades most citizens would be required to pay wealth taxes, and that they would amount to a considerable amount even before taking into account their compounding nature.

> This means that there is a floor on how "poor" the government can make you via a wealth tax.

The only floor is zero: a government can, if it chooses, take everything from its subjects — or just from some of them.

The fact that the government taxes normal people at a rate much higher than they deserve seems to be an argument for a wealth tax and not against it

If it taxes the income of normal people at a higher rate than they deserve, why do you think it would refrain from taxing the wealth of normal people higher than they deserve?

I guess I was assuming that if they were to put in a wealth tax, the point would be to tax the very rich more (and thus everyone else less / provide healthcare / some sort of ubi). It could certainly be done in a regressive way, but I don't see that as innevitable or any worse than the status quo, since income taxes can be raised just as easily.

Either way - I think we fundamtally agree that there needs to be more tax on the rich, be it investments, wealth tax, inheritance, or that sort of thing.

> It could certainly be done in a regressive way, but I don't see that as innevitable or any worse than the status quo, since income taxes can be raised just as easily.

I am not (here) worried about it being regressive: I am worried about it being yet another mechanism for the state to take a larger fraction of GDP (about 2½% in 1900; almost 20% at the height of the Second World War; about 17% now, according to Wikipedia).

> Either way - I think we fundamtally agree that there needs to be more tax on the rich, be it investments, wealth tax, inheritance, or that sort of thing.

I certainly don't! I agree that we need a government; I agree that we need taxes to fund the government (I disagree with those who think that we can fund the government on a voluntary basis); I agree that taxes need to be fair in some sense.

I suspect that fairer taxes would be higher for the middle classes, to be honest. Certainly the countries with effective welfare states seem to have more taxes on the middle than the U.S. does.

Reply on news.ycombinator.com