Modelling a Wealth Tax Correctly (2020)
blog.nindalf.com
blog.nindalf.com
PG's only argument was that the tax compounds, and completely ignored the fact that wealth compounds much, much faster than 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 sticking it in an index fund) 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.
The rest of the article on how PG's essay involved a slight of hand was interesting, I had missed that.
I don't think anything compound without risk. Can I get a wealth refund if market get downturn? Wait I do with all the money the Fed is printing. Maybe we should stop messing with the economy instead of chasing X or Y policies.
If we are ever in a period when the stock market has been flat or negative for ten years or more, I'm sure such a wealth tax can be rescinded.
But if we are ever in such a period, the bottom four-fifths of Americans are going to be in much, much more catastrophic shape, and the small tear we shed for the super-rich that the government is still nibbling away at a fraction of their treasure during that time (presumably to spend on the massive bread lines that would exist) will be fairly irrelevant.
1. https://www.nytimes.com/2009/04/26/your-money/stocks-and-bon...
In real dollar terms, accounting for inflation, you have to wait nearly 20 years--but only 4 times in the last 140 years.
In any case, my point still stands. Whether we're talking 10, 15 or 20 years, the wealthy hold on to their wealth. And if we ever enter a long-term recession, wealth taxes could be reversed as easily as they were enacted. But why would we? The Great Depression hit the poor much harder than it did the Rockefellers.
This is why wealth tax is redundant as it's fairer to instead just increase the capital gains tax rate.
There are cases where you can own high value assets which can't be monetized. For example you might inherit a derelict house worth millions due to its historical value.
You end up with an astronomical tax bill every year even though you might have no income.
Your case of an asset that can’t be monetized is somewhat more sympathetic, though that’s more of an edge case where wealth is poorly defined, if your asset has no liquid value (or value that can be received from recurring rents I suppose) it shouldn’t be considered wealth under a tax regime. Either way, a well defined wealth tax would still address the overall issue better. You don’t have to remain the owner of this hypothetical derelict house.
This is the explicit endgame of any wealth tax. The ergodic nature of market returns ensure most people experience individual downturns that would wipe them out if they had the “drag” introduced by a wealth tax. The wealth will simply accumulate in the hands of those with the best lawyers and who can stay ahead of regulations and move wealth into protected assets.
Have there been studies on a tax ruleset that looks like this:
Everyone taxed at 50% of yearly income, no special cases. Additionally every dollar which would put individual accumulated wealth greater than (yearly minimum salary in dollars * median life expectancy in years) taxed at 100%.
We have a wealth tax; the inheritance tax. It's at 40% for the super wealthy. Just fix the loopholes and be done with it.
I reject your morality and economics.
"Modeling a wealth tax correctly is to not tax anyone. I reject your morality and economics."
The amount of waste by those empowered but unaccountable, to distribute taxes to programs of their choosing, is flabbergasting. I believe in taxes, but the abuse is unacceptable.