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Comment by nindalf | Hacker News Reader

OP mentions PG’s article arguing against a wealth tax. That article is short, simple and to the point - Modelling a Wealth Tax (http://www.paulgraham.com/wtax.html). It is so compelling, but also misleading and wrong. Its not easy to spot the sleights of hand he uses. I wrote more about it here - Modelling a Wealth Tax Correctly (https://blog.nindalf.com/posts/wealth-tax/).

And yet, I think the simplicity of PG’s arguments is going to convince a lot of people. Simplicity sells, even if it deliberately obscures the truth.

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PG's essays have an agenda, which is to defend the rich and the incumbents, disguised as revolutionaries.

Because they are young? But they are the same as the robber barons of old.

I enjoy his blog posts, primarily because they show just how your brain can turn to pudding when it's more profitable to be willfully ignorant than otherwise. No one can read his recent obtuse entry and come away thinking his conclusions are supported by the carefully selected input. It's mindless at best, a clumsy, dishonest swipe at the poor at worst.

He's just a middleman between wealthy investors and children of privilege, and like all middlemen, desperate to demonstrate some kind of value he adds to the process before the actual players catch on to the pointlessness of having middlemen in the first place. It really becomes sad when a layer of entrenched middlemen starts to actually believe in their own necessity, so I honestly hope he is at least being disingenuous. Just not sure he could be so consistently dense if it weren't genuine.

One of the best satirical articles on SV I’ve ever read[0] nailed this exact subject perfectly:

> Having figured out a font and mastered Altman’s Ratio, your next step is to find something to say. For outsiders this can seem daunting, but it’s very easy, since every one of Silicon Valley’s self-styled radicals thinks exactly the same way. In fact, when you study their output carefully, you’ll find endless variations on the same three ideas:

> Free speech is under attack.

> A wealth tax is a bad idea.

> To beat China, America must not become France.

0 - https://thebaffler.com/salvos/how-to-become-an-intellectual-...

That was a fantastic read, thanks for the link!

Yes that's very helpful.

I cannot imagine any founder being deterred to start a company because of this wealth tax. With or without it you'd be very rich under PG's assumptions

It not a matter of a founder not starting a company, it doing it somewhere else than the US.

Didn’t some study show a majority of founders are foreigners? They choose to come to the US. They can choose not to in the future.

Because of a tiny wealth tax that is already lower than in many other countries?

You think a relatively well off individual from a less wealthy country facing many systemic problems for business will pass up the opportunity to migrate to the US because they may need to pay a couple percent if they strike gold?

I mean, isn’t that exactly what Singapore did to attract talent and capital? And it worked? And didn’t one of the Facebook founders give up his US citizenship and move there? Sure it’s one case, but it’s evidence at least some are motivated by taxes.

Sure, not every founder will make that choice and not right away, but you could see a slow shift over decades to more tax friendly locations.

You may be right. A small number of startups may be founded elsewhere. But the large income from a wealth tax likely provides a greater benefit. We've had a wealth tax in the past. It worked. The only reason why it got removed was because the super rich used their vast influence. It's not something that's in the public's best interest.

> We've had a wealth tax in the past.

Who's "we"? I can't find any references to a wealth tax in US history.

You do realize that most European countries that has a wealth tax abandoned it and the recent ones never actually collected anything close to what was forecasted because it’s not that hard to move wealth around.

"facing many systemic problems for business"

Like a wealth tax?

No, I don't think that's the kind of thing that GP means.

There are problems that your business faces once it's successful, and there are problems that prevent it from becoming successful.

This has come up in a number of other areas on HN. For example, scaling your technology is a problem you'd like to have, because it implies you actually have customers causing you to scale. Regardless of whether or not a wealth tax is a bad idea, it's certainly in the "problems you'd like to have" category.

That doesn't necessarily mean it's not a problem that business owners worry about, but it's a completely different category of problem from "I can't get my business off the ground at all." It's a problem that you only run into after you've (by many measures) already won the game.

What countries currently have a wealth tax that is higher than the proposed wealth tax combined with existing property taxes?

A founder whose only agenda is to get rich and then put the proceeds into a mega-yacht and private island or worse yet, lobbyists and political contributions aimed at protecting his own privileged tax status, is one I'd prefer remained a citizen of some country other than my own.

Then go. If the price of having them here is that they get to not pay their fair share while taking advantage of our infrastructure and workforce, they can pound sand.

I keep hearing about a “fair share” which is vague. What is the exact percentage that is a “fair share” for say someone with $10M?

Maybe if we can all agree on a number then we can figure out how best to collect it.

I'm not concerned with people with that little money. If you've got $10M, you're rich, but you're not part of the problem rich. The three walmart heirs are worth $180B between them. Jeff is worth that by himself. This isn't "being good at business" it's hording. I'm concerned with Billionaires. 800 people who control $3.4T in assets. I don't want to make them poor, I am completely happy if they remain obscenely rich, but you just can't have that much of the pie.

They come to the US because it continues to be the largest free market in the world with a stable jurisdiction. That's the reason for the success of the American economy: Being the largest free-market economy with a stable jurisdiction for the past ca. 200 years. That's why entrepreneurs come to the US. Nothing to do with taxes.

In the Netherlands we already have wealth tax (capital gains tax, but doesn't care whether you gained or not). It's nothing particularly disruptive. We still have the most wealth inequality in all the world. It might be a bit pointless to tax wealth in addition to capital gains though. You could just raise the former instead.

The Netherlands really has most? I honestly don’t believe that without any supporting evidence.

A bit surprising, huh? According to this Wikipedia page: https://en.wikipedia.org/wiki/List_of_countries_by_wealth_eq... The Netherland, indeed, is the worst. It's close to having a minority own everything while everybody else has 0 (a 1.0 coefficient).

I’m really surprised. It went up a lot from 2018 and 2019 so I don’t fully trust the result but that might be bias talking.

Our friendly Australian economics man made a concise video about it a couple of months ago[1].

[1]: https://www.youtube.com/watch?v=Ot4qdCs54ZE

TL;DW Very liberal mortgage policy that encourages very low or negative wealth on the low end, and very old money that remains concentrated despite recent income equality.

The video doesn't quite explain the jump though. The amount of old money didn't jump between 2018 and 2019 and it is getting harder and rarer to be underwater on your mortgage.

Yeah, jumping from #65 to #1 in a single year is... surprising.

In that case, perhaps the issue is not the existence of a wealth tax per se, but how large that tax is. I'm also dubious about the Netherlands having "the most wealth inequality in all the world." Do you have a source for that?

> We still have the most wealth inequality in all the world.

No you don't, not even close. Where did you get that idea?

Statistics, most likely. (And yes, they do.)

see page 199 in this dataset[0] which is the dataset used for this list of countries on Wikipedia[1]. If you sort on Wealth Gini (2019), then Netherlands is ranked first.

0: https://www.credit-suisse.com/media/assets/corporate/docs/ab...

1: https://en.wikipedia.org/wiki/List_of_countries_by_wealth_eq...

I think you need to revisit your assumption about wealth inequality in The Netherlands. It’s on par with that of most of Europe, significantly lower than in the US [1].

[1] https://www.indexmundi.com/facts/indicators/SI.POV.GINI/rank...

You linked an income inequality graph, which is distinct from wealth. If you look at the list on Wikipedia [1] and sort by Wealth Gini (2019) you will find that the Netherlands are #1.

[1] https://en.wikipedia.org/wiki/List_of_countries_by_wealth_eq...

Any explanation for the jump from 2018 to 2019?

Based on the Global Wealth Book 2018 and 2019 from Credit Suisse, comparing Table 3-1 in both books, it appears that the number of adults in "under 10.000" range increased significantly in 2019. This is likely not a real change, but rather a change of methodology or data sources. As far as I can tell however, this is not detailed in the text. I have directed an email to Credit Suisse on this, as it's a rather interesting piece of data.

Quite interesting, curious what they have to say. I'd be glad if you can put me in cc (e-mail in profile).

Ah you’re right. I misread the parent comment. Thanks.

A quick look at Wikipedia (https://en.wikipedia.org/wiki/List_of_countries_by_income_eq...) shows that the Netherlands does not have the most wealth inequality in the world. What an odd assertion.

What's odd is that you've chosen to look up income inequality as opposed to the clearly stated wealth inequality as though they mean the same thing.

You looked a bit too quickly, you linked to "Income equality" there. Look here at Wealth Equality and sort by 2019 Gini: https://en.wikipedia.org/wiki/List_of_countries_by_wealth_eq...

I will add one more thing to your analysis of the possible negative outcomes: the market effects of the government selling the stocks of a company.

I suspect these two things will happen on the market:

1. You'd need to have a wealthy enough buyer for the assets - it's going to be kinda hard to convince the wealthy to buy back their own assets. 2. In the absence of sufficiently large market makers, the prices of these assets will certainly tank since these assets will have to be liquidated.

So where is the government going to find the buyers of the assets? What are the economic effects?

Well, we can look to Switzerland for that answer. It is one of the only countries that have wealth taxes, but it's on the canton level (the equivalent of the state level). It has no national wealth taxes. The difference in wealth tax rates makes a huge impact on the behavior of citizens and the wealth distribution:

"According to our baseline estimate, a 1 percentage point drop in the top wealth tax rate raises reported wealth by 43%." https://voxeu.org/article/wealth-taxation-swiss-experience

"The evaluations with both datasets lead to similar estimates: an increase in the wealth tax rate by one tenth of a percent, whether this be at the cantonal or municipal level, reduces the amount of declared wealth by around 3%. This implies that the tax elasticity of wealth is at least twice as large as that of personal income.4 In other words, wealth reacts more sensitively to taxes. Our estimates also exceed the wealth tax elasticities of other studies, which is presumably due to the higher quality of the data available to us (panel data) (Seim 2017; Zoutman 2015)." https://www.ifo.de/DocDL/dice-report-2018-2-bruelhart-schmid...

In essence, it second article highlights your point: the behavior isn't changed much in terms of productivity because wealthy people simply hire competent accountants to minimize their wealth tax burden with better accounting structures.

BTW, we do have a wealth tax in the US in terms of private property. Most states have private property taxes which are a form of wealth tax. The effect of that is that each person has to generate an income high enough to afford the tax or else they will get a lien on their assets.

If this company is growing at the rates PG says it is, then the existing investors should be happy to buy more of the stock.

But the existing investors are the ones whose wealth is being taken and being put up on the market. :)

So who is going to buy the existing investor's wealth? Are they just going to buy each other's wealth?

Most stock is held by people worth less than $50m. All of those large pension funds and institutional investors invest on behalf of the "little guy" who are worth $10k-10m. That's a massive amount of wealth. If the super rich have to sell shares to afford their taxes, then these investors will buy. For example, no single individual holds more than 0.1% of Apple stock, while 15% is held by Vanguard and Blackrock alone.

Another example is McKenzie Scott selling billions in Amazon stock. There's no shortage of buyers for that.

Thank you - Jesus Christ I don't know if people around here are being deliberately obtuse or if they just have no imagination whatsoever. I think they don't understand that wealth redistribution is in fact the entire fucking point.

> Most stock is held by people worth less than $50m. All of those large pension funds and institutional investors invest on behalf of the "little guy" who are worth $10k-10m. That's a massive amount of wealth. If the super rich have to sell shares to afford their taxes, then these investors will buy. For example, no single individual holds more than 0.1% of Apple stock, while 15% is held by Vanguard and Blackrock alone.

Why would they buy?! You're saying it as if the market-wide sale of a share of every billionaire's stocks that year would just be absorbed by the market without any negative economic consequences (at best) or without a massive economic crash.

> Another example is McKenzie Scott selling billions in Amazon stock. There's no shortage of buyers for that.

That wouldn't be the case if every "McKenzie Scott" is selling billions worth of stocks simultaneously. There would certainly be a shortage of buyers.

Where do VCs get the money to invest in follow-on rounds? Same place.

They get it from the rich people who are now expected to sell their stocks. So are those rich people going to buy their own stocks?!

> it's going to be kinda hard to convince the wealthy to buy back their own assets.

Why would that be? If an asset has a certain RoI people will want to own it.

What if the founder borrows against their stock to pay the wealth tax? Or uses a sale-and-repurchase agreement? That way, they can use the present value of the stock to pay their taxes, while hanging on to the upside.

You need to account for interest in this situation, but that should be less than the growth of the company.

PG's story doesn't even hold water in dollar terms.

Or stocks would be expected to issue dividends proportional to the wealth tax.

This is a helpful breakdown of an article that didn’t seem right to me.

Interesting article. I have difficult time grasping how the US government would every implement this with any real effect - even with their demanding reporting requirements. It looks like a colossal effort to gather that information and tax it appropriately. I don't see the IRS staffing up entire high specified units to go after and audit the super rich for wealth tax... the implementation of this would be painful and probably more money would go dark (my glass half full take).

Simple example that I use to wrap my head around: What are the implications on equities? If you hold a lot of stock in a hot market you have to pay taxs on that stock this year (?) What would happen if next year the stock went to half of that? Imagine there was a wealth tax during the dot com era. Maybe it would curb speculative markets?

I also think your point on first order and second order effects is also interesting. The ramifications of something like this, while appearing to be quite fair and simple is likely to be anything but once implemented.

Also - I don't disagree with fixing wealth inequality - but a wealth tax is a fundamental shift in how everyone thinks the government derives money from the population.

You have a glaring mistake in your very first paragraph: 2% of $60 million is $1.2 million, not $120k. The calculations on your Google sheet look correct though.

You're right. Thanks for pointing it out, I've pushed a fix for this.

Simplicity is also often an indicator of truth.

I think you completely missed another important point hidden in PG's article, besides the obvious compounding effect, and that is that unrealized gains would be taxed under a wealth tax regime.

To simplify with a ridiculous example: suppose I have $0 to my name and I inherit a family art piece from my grandmother that happens to be valued at $2 million. The next year, under a wealth tax regime of 2% above $1 million, I owe $20,000 to the tax man even though I don't have the money in my account.

That is why I think a wealth tax is a stupid idea. Why not just impose greater capital gains and dividend taxes above a certain threshold, for example? That's where wealth is realized. Until then, you're talking about taxing "imaginary" wealth. (edit: or more generally speaking, taxation should happen on transactions, not on an assumed wealth "state")

Let's say you inherited a home in the US valued at $2 million. You would pay 2% of that ($40,000) as property taxes, every year. If you can't afford to pay the tax, you would sell the house and pocket the $2 million.

Is this so terrible? Doesn't seem to have stopped people investing in property.

Uh, if that's true then yes, that seems really awful, but the market probably also makes it so the real estate prices are adjusted to that taxation regime, because buyers and sellers can take that into account before settling the transaction.

With a wealth tax, you can't escape it. You would have to liquidate (parts of) your own company or other illiquid property (which might not even be possible depending on how illiquid it really is) in order to pay a tax. That doesn't seem right to me at all.

Again, why would you do that, if there are much better alternatives possible (like I said, higher capital gains taxes as an example).

(For context: I'm not from the USA and property taxes are not calculated on a percentage of the value of your property where I live. I'm just using USD in my example because I know there are mostly Americans here.)

That's buying a new house every 50 years. That's re-building all of the wealth your family spent generations accumulating, every 50 years.

That's a direct disincentive to saving money and frugality - the more you save, the bigger your tax gets, while your income stays the same.

> re-building all of the wealth your family spent generations accumulating, every 50 years.

Correct, that's the point.

> the more you save, the bigger your tax gets, while your income stays the same.

Only if you're a completely useless investor. Most people's income increases as their wealth increases. That's part of the problem. Especially the "r > g" question: are you growing the pie or simply sitting on a larger share?

On the other hand, this can and should be irrelevant to the average family. Start the wealth tax at $1m, say.

Have you actually checked what's available in places like LA for $1m?

I hadn't, because the precise value doesn't matter, but from here it looks like that's above the median: https://www.zillow.com/los-angeles-ca/home-values/

(I was also assuming it would operate like income tax allowances, where you deduct the $1m first and then apply the percentage to the remainder; and we should also consider families, so you could co-own a $2m home without hitting that limit)

The question of which inflation measure the number should keep pace with might be more important in the long term...

> Most people's income increases as their wealth increases. That's part of the problem.

But that's already solved by taxing income.

> the more you save, the bigger your tax gets

And the more you save, the more the returns on your money are. Wealth grows much faster than the tax.

If you have over $50 million (which is the target of this tax), or even if you have $5 million, you're not putting this in a savings account. Even just sticking it in an index fund and forgetting about it generates 8%, and has done so for decades.

But as I pointed out in my other comment, those returns are already taxed. If you think those returns are excessive, the solution is to raise the tax on them, not introduce an entirely different type of tax, with plenty of collateral damage.

Exactly, that's also what I try to point out to people: there are already tax mechanisms in place. Just raise tax rates if that's the goal.

It seems to me with a wealth tax they just want to force everyone to work & spend forever, except for the ultra rich who can afford it and who have the means to hide most of their capital offshore. It would be a devastating blow to the FIRE movement, where normal people have the goal the accumulate enough resources & invest them wisely so they and their family can "retire" early.

How many members of the FIRE movement have saved away $50 million?

Remind me, is that "lean FIRE" or "fat FIRE?"

> That's re-building all of the wealth your family spent generations accumulating, every 50 years.

Only if you assume a 0% rate-of-return on your family's wealth. With a realistic assumption about rate-of-return, your wealth will never deplete because of a 2% wealth tax. It will simply grow more slowly.

You can't invest a family farm, or a painting. I will repeat myself a 3rd time - if the goal is to slow the growth of wealth, the right course of action is to raise the tax rate on the returns to that wealth. If you tax wealth itself, you're needlessly relying on the investability of said wealth, as well as on market returns.

Family farms produce income and are rarely large enough to hit the threshold for these proposed taxes.

As for case of non-income generating wealth, too bad. If you can't manage to generate the absolutely pathetically low returns (2%!) that would be needed, then you don't deserve to be rich forever.

You're making an obvious strawman argument by deliberately picking an asset that isn't fungible and doesn't increase in value like everything else. Any sensible person would, at that point, sell the art, so now we can talk in sensible terms, with real fungible and taxable assets.

Wealth compounds much, much faster than the tax burden grows. Someone who inherits $3 million (not much from the point of view of the very-wealthy) can live comfortably on the growth alone while still compounding their wealth further every year.

The only way a wealth tax would compound faster than the wealth itself is if it is larger than the growth rate of the wealth. And since the growth of wealth (e.g. by just putting it in the stock market) has averaged at ~8-10% over the past several decades, a 1% tax is not going to eat into a person's wealth over time. It's simply going to slightly slow that growth down.

Part of your article is a bit confusing to me - when you say this: "Strange. No one is proposing a tax that would apply to all your assets."

Are you saying that the wealth tax proposed does not apply to assets and only applies to actual liquid cash holdings?

That is, of course, exactly what Warren et al. are proposing.

That wouldn’t apply to all your assets, meaning the tax would be assessed only on wealth above the threshold.

PG “simplifies” this in his example by asking you to consider a tax that would have a threshold of 0.

Got it, that makes sense.

>They assume that the superrich can't just leave.

This isn't even a downside. In a savings glut this is actually a desired outcome. Of course we don't want literally everyone to leave, only those on the margin.

This is a downside if your goal is revenue generation.

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