Saying the government will take 45% of your wealth above $100M is very different than saying the government will take 45% of your wealth.
So 1% wealth tax is equivalent to 50% tax on the return of the asset, every year.
Say what you want, but this makes holding the asset or investing a lot less attractive. It will affect people's decisions and willingness to invest. Maybe we're OK with less investment but we shouldn't assume there is no impact.
In addition what if this is a volatile asset (read: startup) whose value goes up and down? Will the gov't give you a refund if it loses 20% of its value 10 years in?
What if the asset is illiquid (again:startup)? Who will lend to an otherwise not-wealthy startup founder 1% of their company's paper value every year to pay the tax? Because if the startup fails most founders will have to declare bankruptcy (having paid years of paper wealth taxes with no positive outcome in the end).
Not really. Where else is that money going to go? It's not enough to just say there is a disincentive, you have to show that the disincentive is so great that it makes other opportunities more attractive. But those other opportunities don't exist, because it is a wealth tax, it doesn't matter what instrument you use, the tax will still hit you.
Also, those numbers are pretty much non-sense in today's economy, with inflation consistently below 2% and nominal capital asset growth being closer to 10%, a 1% wealth tax represents a tax rate of ~12.5%.
I'm not losing sleep over a startup founder who owns so much of a company to be worth over $100MM on paper or otherwise. Startup founders have the ability to sell a part of their shares in liquidity events. If they choose to hold onto their shares above all else, it's on them to figure out how to pay the tax. It might even create a whole new financial instrument or class of investments.
Other countries, for one. Capital is global.
> It might even create a whole new financial instrument or class of investments.
Absolutely. There will be a layer of, essentially, financial parasites taking value away from value creators to make this 'work'. Not sure what's great about that.
I also love how creating liquidity is now considered being a financial parasite. The US is nothing without the financial innovations that we have developed and embraced over the last 150 years.
In the US both you and the founder/management team/other investors all pay tax if company is successful; in UK, only you (as US citizen) pay tax. You and the founders/management can split the difference and will be better off.
These things may sound small but play out significantly at scale (like interest rates etc)
That is a vast oversimplification of the problem that ignores all of the reasons to start and do business and business operations in the US, because there are already tons of places that you could start your company at that would result in lower taxes, yet very few if any choose to do so. You are making a huge logical leap that businesses will be as successful running out of the UK with its laws, regulations, and taxes as the US.
The world is not as simple and clean as whatever economic model you can cook up in your head. If it was, companies wouldn't pay developers in the US $300k/yr.
My principle is we should remove all obstacles for starting/running/investing in companies, which are the engine of the economy and create both wealth and jobs, and we should tax outcomes and consumption. Also, we should keep things simple to avoid both overhead and tax avoidance that comes with complexity.
I think it's safe to call this propaganda.
Edit: After reading the responses, I think people are confusing themselves with dollar amounts. If I have 100 units of X. The government takes 1 unit in the first year, 0.99 units the next, and so on. Over time my total number of units decreases. The notional value of those units can fluctuate but the absolute number of units owed to the government remains the same.
My original question, which I suppose has been answered, centered on this concept that the notional value claimed by the government is the only thing of value being lost. A unit of wealth is lost and wealth compounds over time.
Disclaimer, I'm not advocating for or against a wealth tax. Just trying to understand an argument and now apparently teaching it.
What you say makes sense if the wealth tax is applied on ETF/index fund holdings, but for most founders, the wealth is concentrated in holdings in their own company. On average, across all founders, the asset growth might be 5%, but for each individual there is significant variance. For nearly half of founders, wealth tax would take 1% on either a flat or a depreciating asset..
Keep in mind that "flat or depreciating" companies are way more common than you think. Not every company enjoys the annualized returns of the S&P500. Almost any non-tech or non-tech-adjacent company has remained either flat or depreciated, in the last 10 years.
That's the entire reason why lay people invest in the index, because it's relatively safe from depreciation. Most of the super-wealthy don't achieve that wealth on the back of the S&P500, they achieve that on the back of owning a single zero-to-one stock. It's one thing for the company to grow from 0 to {insert equilibrium valuation}, and another thing entirely for the company to continue to grow at a rate that outpaces inflation.
A 0.5% wealth tax is not going to make you poor. It could, _at absolute worst_, make you worth "only $50M". If you still manage to go from $50M -> $20M, a wealth tax had absolutely nothing to do with that.
As well, although it's not explicitly mentioned, I would expect any floor-value (such as $50M) to be set to keep pace with inflation.
Your argument doesn't refute my central argument, it refutes an unimportant implementation detail.
Are you saying that most of the super-wealthy do not (at least to a certain point) diversify their investements? Or is your point that most super-wealthy individuals acquired their wealth themselves by investing (or founding) a single corporation themselves?
The only reason we are even talking about wealth tax is because of the crazy unable to be funded programs some people are proposing. These programs sound nice on paper until you do the math on them. Then they realize they can not pay for it at all.
Remember wealth != cash value.
Wealth is not the same as cash value. It is easy to miss the distinction. We may be agreeing? We also already have a 'wealth tax' on many items already. We call it property tax.
"Being concerned with inequality" doesn't give people the right to go and arbitrarily expropriate other people's assets.
We absolutely do have that right in the US.
State governments may or may not have that power, according to their own Constitutions (most, I would imagine, do.)
Take a building, any building. Sit on the building for 50 years. How much is building worth? Probably way more.
The article does not model asset growth in any way, and if you do model asset growth you would get significantly different numbers.
Without asset growth, after 1 year you have $990. If you include let's say 5% asset growth, after 1 year you have $1,000 * 1.05 * 0.99 = $1,039.
Then after another year, without growth you have $980.1 With %5 growth you have $1,040 * 1.05 * 0.99 = $1,080.
So the article claims that with 1% wealth tax you'll lose 45% of your assets over time. With any growth above 1% every year, you will actually at least break even.
Why not? People voluntarily gave him and his company this money, voluntarily invested in Amazon. What gives you the right to try and take it from him? "Envy makes right" is not the basis for a very good moral system.
A). The parent doesn't claim morality as the foundation. B). Thriving in a capitalist system is also not a foundation for morality. C). There are no underlying structures that dictate/require the sum total of individual actions have to correspond to societal good (not that i'm aware of). This would be akin to claiming that drug dealers have moral superiority.
What we have here is a version of the tragedy of the commons (https://en.wikipedia.org/wiki/Tragedy_of_the_commons#:~:text...). Something that benefits the individual on the short term while negatively impacting large swaths of connected infrastructure. In a society where money == votes I can't seen how that's a valid and functioning path forward.
Currently, extremely wealthy people get tax breaks for contributing to "charity". The majority do so by creating a Foundation of their own to invest in the charitable causes that they prefer.
However, taxation goes to where the community has decided is needed, hopefully through a form of representative government.
We should not have to rely on Bill Gates deciding to invest in vaccine research to ensure that it occurs. Some of his wealth, now accumulated, should be returning to the common-wealth via taxation.
This ensures that wealth does not accumulate within very small groups of people to the extent that the rest of society does not also share that wealth.
In short, Ayn Rand was wrong.
To me, the ruling class is the Ivy League graduate class. They run and rule this country to their benefit.
The Billionaires have fabulous lives, sure, but I don't think they have much political power at all.
If anything, I see them as one of the few counterweights to the real political power.
The US literally just elected a billionaire with no prior political experience to the Presidency four years ago!
Of course they have some political power.
1 - 1000*(1-.01+.01)^60 / [1000*(1+.01)^60] ~= 45% taken from the government
At a 1% wealth tax, you will end up being 45% less wealthy in 40 years than you would be without the wealth tax.
There is a 100% cap on what the government can take from you. And, with a 1% wealth tax, they are taking 45% of it (spread over 40 years).
Put another way, the 1% wealth tax is similar to a 45% capital gains tax (where the cap is also 100%). Capital gains is just more front-loaded (paid upon liquidation) whereas wealth tax is paid over time.
This is the misunderstanding I'm pointing out. You will end up being 45% less wealthy regardless of whether your assets grow or not. If your assets grow YoY, you will still end up being 45% less wealthy bc your YoY gains are also taxed by the 1% wealth tax.
Where does pg rail about honest rational discourse? If you follow him on twitter for the last couple of years it's been nothing but pontification.
Not sure why people are discussing this as if it's not exactly that. PG is right in what he's saying, but wrong on the impact.
Assuming his figures are correct, then I would expect to own 45% of something much bigger than what I owned 100% of 60 years before.
>"Even a .5% wealth tax would start to keep founders away from a state or country that imposed it. That's more than a quarter of your stock."
That 26% is over 60 years, ignores the fact that the stock will appreciate over time, ignores the fact that all wealth taxes have high floors, etc.
Not ever founder thinks it’s either unicorn or broke . Most normal founders want build something good and make a good amount of money.
And where else I am going to go? There are few places where it is possible to make 100M from scratch and without being corrupt .