You're cherry picking. France imposed a wealth tax and they repealed it.
"At least 10,000 wealthy people left the country to avoid paying the tax; most moved to neighboring Belgium"
https://www.bloomberg.com/opinion/articles/2019-11-14/france...
"At least 10,000 wealthy people left the country to avoid paying the tax; most moved to neighboring Belgium"
https://www.bloomberg.com/opinion/articles/2019-11-14/france...
2. France is part of the EU, there are dozens of countries that French millionaires can move to with almost zero friction.
Moving to neighboring Belgium is like moving from New York to New Jersey.
Also housing prices probably have more to do with people leaving high priced cities than taxes do.
At some point even an exit tax won't be enough. If you study the fall of the roman empire, you will find people abandon huge estates to just start over away from roman taxes.
https://www.irs.gov/individuals/international-taxpayers/expa...
This is a pretty absolute claim to make without any sources or data to back it up.
Also the "magic" of compounding gains that wealthy people understand (at least intuitively).
You think that a 1% wealth tax on wealth over $1 billion would completely destroy any incentive for an ambitious poor person to immigrate to the US?
People are still immigrating to Switzerland, Belgium, and France.
But yes, it is a powerful disincentive due to the compounding nature of wealth taxes.
Rich people are already leaving such as Eduardo Saverin. It's a growing trend and one that, as I mentioned, the US is desperate to stop by imposing an exit tax for renouncing US citizenship.
https://www.migrationpolicy.org/article/renouncing-us-citize...
But you speak in absolutes.
>If you impose a wealth tax at the national level, rich people will leave America (edit: renounce citizenship) and ambitious people will never come here to begin with. America will no longer be the land of opportunity.
>But yes, it is a powerful disincentive due to the compounding nature of wealth taxes.
This compounding nature of wealth taxes is nonsense. It's a negative feedback loop not a positive one. Compound interest is powerful because it compounds on itself--it's a positive feedback loop. Comparing compound interest to a wealth tax is just flat out wrong.
> The reason wealth taxes have such dramatic effects is that they're applied over and over to the same money. Income tax happens every year, but only to that year's income. Whereas if you live for 60 years after acquiring some asset, a wealth tax will tax that same asset 60 times. A wealth tax compounds.
Compounding is not exclusive to positive feedback cycles. It applies to negative feedback cycles as well. Have you heard the phrase "my problems are compounding?"
The one that we are talking about here is in relation to compound interest: to pay (interest) on the accrued interest as well as the principal.
I'm going to take the fact that you keep talking about the power of compound interest to mean that this is the definition you're talking about.
>Compounding is not exclusive to positive feedback cycles.
Compound interest isn't powerful because it happens every year, it's powerful because you accrue interest on the principal and the additional interest. It's only powerful explicitly because it is a positive feedback cycle.
A negative feedback cycle is self limiting. The rate of change gets slower each year.
>It applies to negative feedback cycles as well. Have you heard the phrase "my problems are compounding?"
I'm positive that you don't understand what negative feedback means based on this comment.
Yes it is. If you just got a one time payment compounding interest would not have exponential growth. I agree that payment on the principal and additional interest is another component of the exponential growth.
Obviously. There is an implied only in that sentence. It clearly doesn't make sense without it.
I am saying that it lessens your ability to grow your wealth at an exponential rate. It mitigates the miracle of compounding growth.
Think about if you create a startup and you have to sell shares to pay your wealth tax. What if Larry Page did that in 2001. He wouldn't be out the $100 of the stock price in 2001. Today he is out thousands of dollars of what it would have been if it could have grown.
It doesn't mitigate the miracle of compounding growth any more than a capital gains tax. A capital gains tax of 50% combined with inflation would completely mitigate the compounding growth of any many investments.
For some easy numbers: take an interest bearing account that pays 10% interest. A 1% wealth tax and an 11% capital gains tax are functionally equivalent.
And Elizabeth Warren's wealth taxes don't even kick in until $50 million. So the vast majority of people should prefer that to increasing the capital gains tax or setting to income tax rates.
>Think about if you create a startup and you have to sell shares to pay your wealth tax. What if Larry Page did that in 2001. He wouldn't be out the $100 of the stock price in 2001. Today he is out thousands of dollars of what it would have been if it could have grown.
That's just an absurd way to frame things. My grandparents paid $500 in income tax 70 years ago. If they had been able to invest that they would have thousands.
If he sold shares, someone else would own them, so someone else would have those thousands of dollars, it's not like the value would just disappear into the ether.
>It doesn't mitigate the miracle of compounding growth any more than a capital gains tax.
The point of the essay is that a 1% wealth tax over 60 years is equivalent to a 45% capital gains tax.
If you own a stock that doesn't pay a dividend, you don't pay capital gains taxes till you sell the stock. Are you aware of that?
Thanks for helping me to crystalize my ideas on this topic.
On a personal level, I am concerned you deceive yourself and that you have resentment of wealth and success that blinds you. I implore you to seek guidance and help.
It ignores emotions, it ignores our vast swath of cognitive biases and shortcomings, and it ignores a hugely complex capitalist system.
Off the top of my head, reasons a millionaire might not move out despite the existence of a wealth tax
1. They're too lazy to figure out how to move, including moving all their assets etc and sorting a new citizenship, finding a new job
2. They're too scared, for reasons above
3. They're a perfectly rational actor and the cost of a move doesn't outweigh the tax
4. They love their city
5. They have a huge family spread throughout the area
6. They're a fervent patriot
7. They don't want to leave their local church
8. They're the coach for the local little league team
9. Usa law is more reflective of their own value system (say, they like guns)
10. The rockies are too beautiful to leave behind
Right now you can save tremendous amounts of tax money by spending 50% of the year in Puerto Rico, but most rich people still don't bother
Medicare-for-All is a hypothetical policy change that has lots of research (data and sources) on how things would play out if implemented [1] [2] [3].
[1] https://www.peri.umass.edu/publication/item/1127-economic-an...
[2] https://www.urban.org/research/publication/sanders-single-pa...
[3] https://www.mercatus.org/publications/government-spending/co...
Has this happened in Switzerland? Would it happen in the US if we had a wealth tax of 0.001%? Obviously not. It likely would if we had a wealth tax of 100%.
An income tax should do more to dissuade ambitious people than a wealth tax. A wealth tax only kicks in once you've accumulated wealth, and income tax slows that accumulation in the first place. We already have a national income tax. That doesn't seem to slow down immigration.
> If you study the fall of the roman empire, you will find people abandon huge estates to just start over away from roman taxes.
I know that it's fashionable in some circles to compare every non libertarian move the US makes to "The fall of the Roman Empire", but honestly people can't agree on what economic lesson to take from the great depression, do you really think we are going to be able to agree on what lessons to learn from the economy of the late Western Roman Empire?
That is wrong.
I don't think you understand the power of compounding.
That is the whole point of all of this... wealth compounds. Wealth taxes compound negatively.
Read about Benjamin Franklin and his obsession with compounding interest. I learned it in school.
Paying a .1% weath tax on a billion dollars for 60 years is cheaper than paying a flat 100,000 per year for 60 years.
Any disencentive of the wealth tax comes from paying higher taxes, not from any "compounding" of the taxes.
Do you mean 1,000,000 a year? Because:
60 * 100,000 = 6,000,000
1,000,000,000 - 1,000,000,000 * 0.999^60 = 58,263,738
Also, keep in mind that if you want to actually have the money, you will pay the income taxes on top of that.
A wealth tax is simply about higher taxes for those with assets. The compounding nature of that tax reduces the taxes over time so there is nothing to complain about in terms of "compounding".
This seems way less egregious than property taxes, which don't go down, are assessed regardless of how much equity the owner has, and are directed at assets that often have far less liquidity than stocks.
And it's possible to avoid a wealth tax in easy ways.
And we've also seen a complete and utter reduction of the middle class over the last 40 years, resulting in a much richer 1% and poorer 50%
https://equitablegrowth.org/the-distribution-of-wealth-in-th...
The other aspect here is that the people with wealth have seen it increase at a fairly linear rate. They can handle a small tax on it just fine. and it's about time they start directly paying for a service that the rest of us have.
It's true. US inequality is rising as you stated, but global inequality is down. So you don't have the moral high ground. You have a false sense of entitlement and want to profit on the backs of the rest of the world instead of the people who invest their time and money into those assets.
https://ourworldindata.org/grapher/distribution-of-populatio...
I've read a lot of comments and your replies and I have noticed a disturbing amount of normal comments being greyed out while you explain to them that they don't understand compounding, because if they did understand it they would be against any form of wealth tax.
Pretty much everyone who owns stocks or invest money, which quite a lot of people do, understand the effects of compounding interest.
Do you think this guy understands compounding growth?
It would actually help his argument if replaced the word linear with exponential, which is more accurate. Compounding growth is exponential, not linear.
I was refering to the linear growth of the the 1% controlling more of the TOTAL wealth of the USA. Which is, yes, most likely a result of compound growth of assets. Which is wealth management 101.
Stop assuming I don't (or other people) know something that basic.
I am not including myself as any sort of beneficiary in this. Most likely I would be taxed more. So keep your comments about my supposed sense of entitlement to yourself.
In fact, my entire support of a wealth tax IS TO REWARD THE PEOPLE THAT DIDNT GET PAID OUT FOR SAID WEALTH GENERATION.
But sure, compound interest for people that live hand to mouth is a valid strategy. Better than trickle down economics at least.
US taxes the income of citizens living abroad, so that doesn't help. They'd have to reject their American citizenship to avoid US taxation of their income (and presumably their wealth as well).
That's certainly possible, and wealthy retirees certainly do this. But, it's not without downsides.
Personally, I don't think all millionares and billionares are willing to leave their life and family behind because of a some dollars in federal tax...
Eduard Saverin (facebook) did renounce his citizenship.
There are many immigrant founders: Elon Musk (South Africa, Canada), Sergey Brin (Russia).
Because you don't speak for rich people, as there is no evidence that they would, in fact, leave America.
https://www.migrationpolicy.org/article/renouncing-us-citize...
2) The fact that the US created an exit tax is proof that is a growing problem.
The best case for this as a prediction can be made for this idea in the book "Sovereign Individual"
Even if you don't renounce, many wealthy people have second citizenships. Jim Rogers is the first wealthy person I heard really talk about this.
Income taxes are historically raised to pay for war... The US has been on war time taxes ever since WWII.
https://en.wikipedia.org/wiki/History_of_taxation_in_the_Uni...
All governments are increasingly competing with other jurisdictions on lower taxes and better services. The reason is people have increasing options because of better communication (internet), transportation (especially shipping), job mobility, etc. Covid has accelerated this trend with wfh.
There's obviously a whole lot more involved in the decision making of wealthy people looking to start their next venture.
California is creating a huge incentive for billionaires to leave. So they are more likely to move and take their experience and move the tech ecosystem.
It's fine with me. I don't live in California. Boston lost the tech ecosystem with government regulation around non-competes... maybe California will lose it over a wealth tax or even the threat of one.
It would probably be better for the whole country if less wealth was concentrated in California and the wealthy moved to red states. Probably Texas.
I'm no fan of noncompetes, but you are vastly overstating their impact.
Bill Gates dreams of eradicating polio. Is $100M enough? No
Elon Musk dreams of colonizing Mars. Is $100M enough? Absolutely not.
I might be guessing wrong here, but I'm going out on a limb and asserting that you've never owned an international business for more than 7 years.
The decision matrix on where to establish domicile if you have the means to pick anywhere in the world is a lot larger than the unitary "how much taxes" value. The US has a lot of problems with it. No question. The US also has a relatively unique business environment that happens to intersect well with many businesses' requirements, especially those owned by individuals who want to transact business internationally.
It is unique enough that many with means to offshore their wealth voluntarily choose to domicile in the US. Yes there are many who run offshore accounts, but generally speaking, you "only" need around a consistent $1M USD in annual income before some pretty sophisticated offshore tax management structures start to become attractive. There are a heck of a lot of people like that in the US, and they aren't stampeding for many of these structures, despite the best efforts of those selling them. Roughly speaking, if you value your time, it doesn't become worth it until you can afford your own private wealth management office (say around $2-5M+ expense per year depending upon your overall directives to them).
Generally speaking, the juice isn't worth the squeeze. People in that income bracket and above carefully spend their time, and even with a modest say 0.01-0.1% wealth tax per year, that's not enough to spend a huge amount of hassle over. We're not talking about the finance nexus moving from NYC/Chicago to Dubai, for example. They'll make it sound like it means just that because money is money. There are people who do move out, or renounce citizenship, but using the demand for residency visas as a proxy, we're "pricing" the benefits of staying in the US too low and there is room for a wealth tax.
I don't unequivocally support a wealth tax, by the way. I'm pointing out that "the sky will fall, rich and innovative people will leave/never enter" line of argument against a wealth tax is not going to win with policy makers who have the facts at their staffs' beck and call. A more likely argument that will win with these policy makers however, is along the lines of "your $10K/plate donor base will evaporate if you vote for this, and you'll never offset the loss from the increase in people-who-work-for-a-living donations".
Engage the wheels of constant price deflation with increasing quality for real-estate-dirt, healthcare, insurance, finance, and education, and that will go a long ways towards addressing the ailments a wealth tax purportedly does.
Which is why taxing the rich and wealthy, as well as their companies, is something that desperately needs EU intervention.
Yes it is, the core problem the EU has is that its budget almost entirely comes out of member state contributions (plus a bit of import duties and fines for rule violators). It does not have a meaningful source of funds that is at the sole discretion of the EU parliament - imagine the US federal government with a budget that is decided by the 50 individual states.
A proper funding source for the EU as an institution would finally allow things such as a joint EU foreign policy/military at the authority of parliament, decent wealth redistribution (i.e. equalizing especially the disparities between Eastern Europe and Core Europe), or major infrastructural works such as assisting all EU railroads to get rid of buffer/chain couplers... and especially to get rid of the political bullshit that the individual member states can pull off at the moment.
The EU parliament desperately needs to be reformed so that it stands on an equal footing with the member states.
Why limit socialism to Europe? Surely it would be much better with global "wealth redistribution".
We don't need to imagine that - it's exactly how the USA worked under the Articles of Confederation.
But the only solution to that involves significant transfer of sovereignty from member states to the federal structures. And it doesn't feel like most EU member states are willing to go there.
The problem with a strong federal government is that you can't escape bad governance by moving to a neighboring state, you have to change countries. People are generally far happier with local governance than federal governance.
So this is actually where the discussion should go: What properties does the Swiss wealth tax have (particularly in the wider taxation system) that the French wealth tax did not have?
What is needed for a wealth tax to have no negative effects? What about income and capital gains tax at the same time? Etc. etc.
I am not trying to make an argument pro wealth taxes, I am trying to make an argument against shallow and non-empirical arguments.
[1] https://www.businessinsider.com/4-european-countries-wealth-...
https://www.brusselstimes.com/news/magazine/47926/belgium-ta...