A capital gains tax, on the other hand, strictly targets those whose assets have appreciated in value.
Wealth is always eventually taxed when it’s liquidated. And if it is never liquidated, then it arguably doesn’t really matter.
It can also matter for other resources which are finite, but land is one of the most crucial one in our current times, and why we are seeing such ridiculously large gains in housing costs in the past few decades after a century of housing costs remaining fairly constant.
I started mentioning land, as it's the most clear problem of idle wealth. But hugely unequal distribution of wealth also results in slower economic growth and overall less economic activity than if there is more equal access to capital and resources. Capital strikes can be just as effective as labor strikes, and though they don't get much attention they can cause great harm.
But wealth != capital. Wealth only becomes capital when it is realized/liquidated, at which point it is taxed. Before that happens, one person's wealth doesn't preclude someone else from investing or being productive because unlike land, wealth is not zero-sum.
And yes, there are other options for solving problems like that beyond just a wealth tax, but maybe a wealth tax is part of the solution.
But...it's not? The only person who has concentrated an unimaginable amount of wealth for which this might be true is Jeff Bezos's Amazon, except Amazon workers all earn a $15 minimum wage, 401k matching, and are part of the same group health insurance plan as the engineers and product managers. They happen to enjoy some of the best health insurance available to an entry level job that requires no college education.
Outside of Bezos, the vast majority of the wealthy pay their workers handsomely (Bloomberg, Bill Gates, Tim Cook, Page/Brin/Pichai).
And even if this was somehow a pervasive truth, the solution to that is a basic income, not a wealth tax. A wealth tax wouldn't even come remotely close to funding a basic income. If you were to seize 100% of all wealth of the top Forbes 500, you would get enough money to run the current Federal government for 8 months. Not 8 months per year, 8 months ONE TIME.
Capitalism is a fantastic means for directing economic forces as long as everybody has enough capital to do the voting, as it were. If only a few people hold all the capital, then only a few people make decisions and will often engage in capital strikes rather than risk the chance that their position may be threatened.
I just read Progress and Poverty by Henry George and he makes this point very clearly. I highly recommend giving this book a read if you haven't yet.
This feels like a fallacy
Correct, they grow out of having a middle class with purchasing power, who can buy products and services, thus creating jobs for those who provide those things. But the middle class's effective purchasing has been going down for decades, while the wealth at the top has been increasing. So something needs to be done to balance these flows of capital - the current situation is not sustainable.
If the problem is middle class purchasing power, then the solution should be to directly improve middle class purchasing power (via a UBI).
And no, a wealth tax will not come remotely close to funding a UBI.
Totally agreed that wealth is not zero-sum, and I thank you for bringing it up, because zero-sum-thinking is all too common, and the reason for so much misery when it comes to thinking about these things. (But even as a non-zero-sum, availability of capital is highly influenced by the degree of idleness of wealth hoards.)
But if wealth is never liquidated, then how is it anything more than just a life high score? It's inconsequential to the outside world.
But I do agree that since wealth is not zero sum, it is completely consequential. Where it really matters is when the wealth distribution becomes more unequal, resulting in less ability to initiate new economic ventures. Extreme wealth inequality results in only a very few people controlling the economy, and in those cases wealth hoarding becomes an end in itself to concentrate economic powers away from others, and an end in itself.
That makes no sense. Just because the fair market value of Elon Musk's holdings in SpaceX and Tesla is some collectively decided amount, doesn't mean that Elon Musk actually possesses that money and can do anything meaningful with it.
If he wants to do anything meaningful at all with that theoretical value, he will have to liquidate some of it and turn it into non-theoretical money, and that is taxed already. If he just lets it wither away, then it's of no use to anyone else.
> Where it really matters is when the wealth distribution becomes more unequal, resulting in less ability to initiate new economic ventures
But this just hasn't been true at all. Just because Bezos is a 100 billionaire on paper, doesn't mean that I will have a harder time raising venture capital for my startup. Wealth isn't zero-sum. And the paper value of one's wealth isn't backed by liquid money, I.e. Bezos's 100+ billion in wealth doesn't actually lock 100 billion dollars in cash from other investments.
If you're making the argument that it's difficult to initiate a new economic venture in the same space as Amazon, that's just because Amazon is a strong company — there is nothing wrong with that.
Regarding going to a VC to get capital: think about how this process works in one very tiny slice of the economy. You build trust with a small set of people that are the arbiters of capital and who gets the resources to start a new venture. If there was only one VC firm in the valley, it would be disastrous because they would hold all the power. It is only through the agglomeration of many potential sources of capital that really makes the system run well.
In the rest of the economy, there are few VCs, and for a lot of profitable, but smaller businesses, capital is super hard to come by. A person who sees a future in, for example, electrification retrofits of homes and has several good ideas about how to make it cheaper and more economically efficient, is going to have a really hard tome getting going. However, if their own community knew about this person's ability to scale a small business, and knew of the intelligence and grit of a person through their own personal relationship, and if that community had small amounts of capital to throw in to get the newcomer off the ground, overall wealth is increased as the new venture starts serving the needs of people.
But this requires more equal distribution of capital, and to change the arbiters of capital from a few hundred people to everybody.
I don't really hear many people talking about friends, family, and fools rounds these days because the game has changed. However if we had more people that could use their knowledge of the local lay of the land to invest more wisely, we'd have far greater wealth generation.
IMHO, the problem with inequality isn't the person with $100B, the problem is all the talented and skilled people whose ideas go to waste because they can't get the attention of the very few people that have been entrusted with the ability to allocate capital.
The more inequality there is, the closer we get to central planning, and erasure of the talents of so many people.
If this was true, then why is nobody talking about imposing a tax on the market capitalization of corporations? Think about how much revenue you can raise by levying a 1% tax on Microsoft's market cap. But this is absurd, because the market cap doesn't represent actual money, it represents the theoretical value on all shares outstanding.
> In the rest of the economy, there are few VCs, and for a lot of profitable, but smaller businesses, capital is super hard to come by.
This is manifestly untrue. In the last 10 years of near-negative interest rates and quantitative easing, capital has been almost too easy to come by. Everyone and their mother is lending money.
> A person who sees a future in, for example, electrification retrofits of homes and has several good ideas about how to make it cheaper and more economically efficient, is going to have a really hard tome getting going.
Not true at all. Most banks and credit unions would extend dirt cheap loans. We are arguably over-leveraged on these kinds of loans.
> I don't really hear many people talking about friends, family, and fools rounds these days because the game has changed. However if we had more people that could use their knowledge of the local lay of the land to invest more wisely, we'd have far greater wealth generation.
The reason for this has everything to do with globalization and 21st century communications technology. It is no longer sufficient to be the best electrician in your neighborhood, you now need to be the best electrician in the country or perhaps even the world, given how easy it is to reach consumers today.
To give you a sense for how the scale of globalization has made it difficult to compete locally, consider how easy it is for a new business to reach every American today. There are 330 million people in America. You just need to provide $3 of value ONE TIME to every American, and you become a billionaire. Likewise, on a global scale, there are 7.8 billion people in the world. If you can get 1% of them to pay you a penny once a year, you're making $780k/year.
"Inequality" is inevitable in this world, but again the wealth isn't zero-sum. We're not remotely close to "central planning", because the wealthiest person on the planet (on paper) only represents ~0.5% of the annual GDP of the US alone. And that's not even an apples-to-apples comparison because the paper wealth is accumulated over years, whereas the GDP occurs every year. The accumulation of Bezos' wealth over the last 20 years is about 0.05% of the accumulated gross-product of the US, alone.
The coalescing and hoarding of wealth results in the deterioration of the average value of a human life. This is bad for a western liberal society because it demonstrates that the values upon which the society operates do not yield positive outcomes for enough people to be satisfied and hopeful. If capitalism is to remain the dominant economic system, it either has to enslave the masses and oppress them into submission (which they are currently resisting), or it has to work to continually operate in a way such that the perception of wealth is maximally shared.
I agree inequality is inevitable. Everyone has different priorities, abilities, etc. But human rights must be preserved (globally) and access to opportunity and capital, hope, must be universally available. This is the only way to justify the inequality of outcomes.
To tax wealth is really to say that socially we don't want institutions to remain in comfortable positions of perceived power without continually demonstrating utility. You build up a large estate? Great. But you must continually demonstrate its utility by actively working to distribute the wealth, not just generate goods and services. Or, have it done for you.
It doesn't seem to me that it's a problem, per say, that wealth is not tangible. Money isn't really either. Cash is simply a tool that a capitalist society uses to encourage the exchange of goods and across markets where it wouldn't otherwise be obvious how to make an exchange. Having a lot of cash does not make one wealthy, and having wealth does not imply liquidity. At any moment one can become the other or simply evaporate altogether.
It seems that the point is really about how to mitigate the tendency for institutions that have extracted much wealth from society to deploy it in efforts of self preservation. In the current state, you need a revolution to tear down entrenched institutions. In this forum and generally in the valley where we have essentially arbitrary access to capital, we prefer (or have been trained) to be a little bit disruptive all the time rather than massively disruptive a little bit of the time. We've demonstrated that this model works. And fundamental to the model is essentially arbitrary access to capital.
So I guess my question is if as you suggest access to capital is more available than it's ever been, why isn't it being deployed? Perhaps globalization has driven the bastions of wealth to build such high walls that they find themselves among the clouds?
This is not true at all. If Bill Gates walks into a bar, the wealth distribution changes dramatically, but the absolute standard of living of the existing people doesn't change at all. In fact, you could even argue that the absolute standard of living increases, since almost nobody is super-wealthy in a vacuum; they enjoy their wealth because they provide value to others via goods & services. That's the whole point behind the argument that "wealth is not zero-sum".
> access to opportunity and capital, hope, must be universally available
Again, it's not clear at all how one's theoretical net worth negatively impacts someone else's access to opportunity / capital. When my rent goes up, it's not because I'm in a bidding war with Jeff Bezos. An MRI doesn't become unaffordable because Jeff Bezos exists.
> Money isn't really either. Cash is simply a tool that a capitalist society uses to encourage the exchange of goods and across markets where it wouldn't otherwise be obvious how to make an exchange.
Money is arguably zero-sum, because there's a finite amount of it. When someone else hoards billions in cash, it means that there is a significant portion of the total money supply that is out of circulation. That's what's bad for society. When wealth turns into money, we already tax it..
> It seems that the point is really about how to mitigate the tendency for institutions that have extracted much wealth from society
Wealth isn't "extracted from society", because it isn't zero-sum. It's not like there's some finite amount of wealth, and the super-rich have taken it from everyone else.
> So I guess my question is if as you suggest access to capital is more available than it's ever been, why isn't it being deployed?
I'm not sure the premise is correct. There is more capital deployed today, per capita, than at any time in human history, even after adjusting for inflation.
I'd be interested to read more about this. Any names I can research?
PPP Converted GDP Per Capita, derived from growth rates of Consumption, Government Consumption, Investment -> https://fred.stlouisfed.org/series/RGDPLPUSA625NUPN
Inflation Adjusted Gross Private Domestic Investment -> https://fred.stlouisfed.org/series/GPDIC1
Inflation Adjusted Government Investment -> https://fred.stlouisfed.org/series/GCEC1
Inflation Adjusted Federal Government Revenue -> https://www.taxpolicycenter.org/statistics/federal-receipt-a...
Our World In Data
Global trade -> https://ourworldindata.org/trade-and-globalization
Total world GDP -> https://ourworldindata.org/grapher/world-gdp-over-the-last-t...
Global economic growth -> https://ourworldindata.org/economic-growth
Other Misc statistics
Inflation adjusted per pupil education investment -> https://nces.ed.gov/programs/digest/d19/tables/dt19_236.55.a...
People got wealthy invested into funds or started funds and are now committing capital back.
Having a hard time raising money is an issue but that’s because 90% of companies fail. As such that is too risky for a bank to lend into so you need to go to other segments.
If we were being restricted by land availability, we could fix that easily by putting more housing on the same amount of land. That problem was solved long ago.
As somebody who has been watching the process for this for years, let me tell you that it is the exact opposite of easy, and nearly impossible.
And it's nearly impossible because current wealth holders are able to stop it from being built. And in most areas where there are housing shortages, locals and local governments consider the current land "built out" meaning that the zoning does not permit more housing or more height than is already built, an the notion of changing these arbitrary restrictions is so inconceivable that it almost never happens.
This is what has really changed over the past yes decades to make housing prices soar: refusal to allow more housing to be built on existing land.
Zoning restrictions have been used as a means to massively inflate home values in the US in high demand areas, and that program really came to fruition in the 80s and 90s as areas became "built out" according to allowed zoning. Which then fueled the massive inflation in housing costs.
This restriction on allowed uses has differing effects depending on whether it's applies in small areas or large areas: downzone a single lot or single neighborhood in a city and it may prevent those parcels from becoming too valuable because they have limited use. Downzone an entire city and it causes housing values to soar because it has created a housing shortage.
In the Bay Area we have a massive shortage of land that allows more housing to be built on it, and even land for which we can build offices.
Building more housing on sites when they change hands, though normal, unforced moves, when a person retires and moves to a new location, or when a person gets a new job and moves for it will provide ample land to build more housing. As long as people are allowed to.
Property taxes forcing people out of homes is a common scare tactic, but it's simple to provide homestead protections that would prevent any forced moves, and also allow the homeowner to capture the fantastic gains in wealth that accompany any land market where there is a shortage of housing. Property taxes only shift the non-resident real estate investor to make sure that they are providing what people need, rather than using idle wealth to keep people out of an area where lots of people want to live.
Source: https://www.federalreserve.gov/releases/z1/dataviz/dfa/distr...
For large segments of wealth (real estate) this is untrue.
Inherited property receives a step-up in cost basis to the current "fair market value", such that the capital gains liability is removed.
You might argue that this is realm of the "Estate Tax", but that is a different topic.
https://www.investopedia.com/terms/s/stepupinbasis.asp
> if it is never liquidated, then it arguably doesn’t really matter.
This is also not true. It does matter. It is not difficult to take extremely large "loans" (loans are not taxed) against assets that you own, in order to avoid actually selling the asset. This is a not-rocket-science way to reap the benefits of an absolutely massive fortune without any of it ever being "liquidated".
What? Why? This is pretty squarely in the realm of how to taxa transfer of wealth. The wealth tax is a really ham-fisted way to solve this problem.
> It is not difficult to take extremely large "loans" (loans are not taxed) against assets that you own, in order to avoid actually selling the asset.
Even if one were to take a collateralized loan, it would need to eventually be repaid, and for this to happen, some gain would have to be realized somewhere. That money isn't free. No matter what, that wealth is eventually taxed.
1) I agree with you, taxing asset holdings is strange logistically.
I think it be best to tax income. The only change I'd make is currently, income is taxed at a percentage based on your total income in the year. What could change is to tax income at a percentage that is a function of the current estimated value of your wealth instead. So if you cashed out 1 million and that's all you have, you'd pay less tax on it than if someone cashed out 1 million but still had another 10 million worth.
2) Maybe it's a bad idea to allow anyone to own too much of anything of great value to society.
In that regard, it could make sense to force wealthy people to sell some of it, to whatever treshold we believe is too much for one person to own.
That's where I think a wealth tax could come in as a vehicle to force people who own too much to sell some of it. So that we have a more evenly distributed wealth ownership accross the board.
The only thing here is I'm not sure if a wealth tax is the best scheme for this. I think the income tax that I described in #1 would be good when it comes to taxes (money that goes to the government). For wealth, I'd be more inclined with something like where people have to sell a percentage, but taxes don't necessarily need to be involved (beyond the income tax as described from the sell). The idea here is just that no one should own too much, so at some point, you need to sell so that ownership is better distributed. Not necessarily that this should go towards taxes.
Nobody who's sitting on $50M of assets is a loser.
First of all, we're not talking about "$50M of assets", we're talking about $50M ownership in your company. That is un-diversified.
Second of all, a wealth tax necessarily means that you will have to relinquish ownership of your own company unless you're "a winner".
> and it seems to me applicable to a very narrow case
The floor of the wealth tax doesn't really refute the central argument, because it just means that it impacts anyone who owns a business worth over $50 million. This is a LOT of businesses in the US!
> and even in that case doesn't have drastic consequences.
That level of liquidation and lost ownership will have potentially disastrous ripple effects on the economy, because for a lot of companies, the theoretical market value — upon which one's theoretical net worth ("wealth") is calculated — is based in large part on that individual maintaining ownership and control of the company. Once a founder starts liquidating large portions of their wealth and divesting their ownership, it's difficult to predict what that could do to the value of the company, and consequently the value of pension funds and portfolios that rely on the stability of the corporate value, and ultimately impacts the employees of those very corporations.
- ownership percentage (0-100%)
- company value (50M - $2T)
The Cartesian product of all ownership * value that work out to > $50M is substantial enough that it's 1) probably not fair to individual business owners to force them to divest to raise a minuscule percentage of the Federal budget, and 2) probably not worth the potentially disastrous 2nd-order effects on pension funds and investment funds that are largely predicated on stable/competent corporate ownership.
In any case, it sounds like you've conceded that there is a forced divestiture, and now the argument boils down to: "is that justified?"
We can actually look at the Fed's Survey of Consumer Finances and get a reasonable number here. Household's with >$50m are top 0.07% percentile and there are approximately 84k of them out of around 130 million households....
[1] https://cdn.dqydj.com/wp-content/uploads/2017/09/millionaire...
But there is an inherent right to the ownership of property (enshrined in the US Constitution).
A Federal wealth tax is currently unconstitutional for the same reason that you don’t have Federal property taxes: the Constitution explicitly prohibits the Federal government from levying direct taxes except for income (via the 16th Amendment). Wealth is not income.