Being within this tax bracket myself, I do not deny that I am biased, but I do hope this bullshit gets called out hard whenever someone brings up yet another underhanded measure to milk us (typical SFBay SWE) above and beyond the ~40% levels we're already facing...
And this doesn't just affect the ultra rich but people like SWE too. How much is the stock you have in the non-public company you work at really worth? SWE are probably one of the groups most likely to be "paper millionaires" and hence screwed by such a system.
That means rich people can accumulate generational wealth without ever even paying capital gains taxes. And during one's lifetime, one can get liquidity out of assets by borrowing against them without selling them.
The rule also seems strange from an outside perspective. Either the book value of assets should be kept the same when inheriting (I believe Germany does this), or the book value should be changed to current market value but the difference be taxed as gains (I believe Canada does this).
It's too easy for the ultra-rich to find loopholes in any rules. If there is a tax on homeownership, they will simply not own any home but will own some corporate entity that own the asset. See ? No secondary residence. Just an investment in a corporation that happens to home a bunch of houses.
Second homes being misclassified as non-residential property might be trickier to deal with, but a lot of jurisdictions already have laws around what is and isn't residential...
* in many countries, I don't know about the USA.
When railroad and heavy industry did this exact thing in the 19th century we called them robber barons and broke up their obscenely powerful and corrupt monopolies via antitrust legislation.
Another day older and deeper in debt
St. Peter don'cha call me, 'cause I can't go
I owe my soul to the company store
- Merle Travis, "Sixteen Tons"
The TL;DR of why this is bad is that when employees are paying, or are indebted to, their employers, even in a roundabout way, it's really easy for that relationship to become very abusive.
The company towns also often payed in scrip, which was basically credit at the company store, and, gee, wouldn't you know it, the company owns all the land to the horizon, so there are no other stores in reasonable travel distance! And if you need a little credit because your pay's terrible after your rent (to the company) comes out, and the prices at the store are marked way up, why, they'll be happy to extend some....
That's the extreme version, but it's bad enough that even inching that direction is something worthy of concern. One ought be wary any time money's flowing from an employee to an employer.
The robber-baron version is basically the thing you see in capitalist-dystopia sci fi like The Outer Worlds, but it actually happened.
Also a significant portion of the country seems to be actively attempting to let it happen again. High school made them read The Great Gatsby and they all imagine themselves as Gatsby and the other obscenely wealthy people instead of the 99% of awful and perpetually dying lives most people experienced.
Even then, because we typically lack experience with a variety of ownership models, it will be difficult to dis-entangle the familiarity bias from our conceptualizations.
With government public housing you can lose it if you break the law (hope you never smoke weed) or if the populace elects a racist government and you’re a minority.
Commodifying housing helped black people in the South because they could actually buy prefab houses from Sears.
But what's the point? If they can't get money out then it doesn't matter. The only reason houses are worth holding as an asset is public bodies stopping the creation of more housing, driving the price up. You fix that with less state interference, not more.
In the world the state builds and owns a lot public housing and this depresses rents and property values.
Countries stop doing this when policy is captured by neoliberal dogma. The UK is a perfect example. Housing was relatively affordable before a disastrous "right to buy" policy in the 70s, with extra enforced restrictions on state house building, destroyed the national housing market.
Now most housing is unfeasibly expensive. And hundreds of thousands of properties stand empty because they're owned solely as investments.
This is excellent for private landlords, property speculators, and older home-owners. It's an utter disaster for everyone under the age of forty because rents are unaffordable and ownerships is unimaginable.
The problem was not building more housing to cope with increased demand. That would've happened regardless of whether the Right to Buyers were renting off the council or had bought their property.
> In the world the state builds and owns a lot public housing and this depresses rents and property values.
Public housing, but not housing. The state controls what can be built where, which can drive up demand enough that property becomes a valuable enough asset to let it stand empty. Giving the state more power on top of that to correct that incompetent use of power seems worth questioning.
It's society enforcing these restrictions, and we absolutely do not want to let go of them. Compromising at all on any of them is considered evil ...
As an analogy, we catch more dumb criminals than smart criminals - but overall it's still worth having police, even if a few bad guys get away.
Or prevent companies from holding real estate as an investment vehicle?
I'm not naive enough to argue that this is a definitively easy thing, but especially when it comes to housing, the poor and middle class are getting completely fucked right now; it's gotten to the point in the crisis where we absolutely need to do something urgently.
This has the added benefit of injecting a ton of extra transparency and sunlight into corporate dealings.
When you're a billionaire all of life's basics are effectively free. And there are only so many houses, private jets, and super yachts you can buy.
In any case your first, second, third, and fourth home will be owned by a corporation based in the Cayman Islands and buried under an opaque list of shell companies, all of which you also own via cut-outs, one or two of which may be actual registered and regulated banks, which mortgage the properties back to you so you can play games with interest rate arbitrage.
And all of this will be handled by a small personal mini-corporation employing tens of tax experts, lawyers, creative accountants, and investment managers, so you probably aren't even interested in the details.
I think we should add very steep taxes on second+ homes and "investment properties", but that's to address the housing problem, not to address the massive wealth disparity.
The real problem is their ability to buy things like "lawyers" and "newspaper coverage" and "senators", and it's much harder to effectively tax that sort of thing.
Also corporate ownership of single-family residential property in the US should be forbidden.
On to the core question: how much is the stock in the non-public company you work at really worth? I don't know, sell it and we'll find out. A SWE with illiquid stock probably actually has a much shorter timeframe of when they want a liquidity event than the US government has.
The truth is that the reason it's difficult to tax rich people is because the first thing anyone does in this conversation is talk about how hard it would be, without thinking for a second if it actually would be hard. Let's lay aside any talk of real wealth taxes, and just stick to our current tax system, Elon Musk borrowing against his Tesla stock is not a taxable event. Let's change that today. It's specific, easy, would immediately drive revenue, and doesn't require any innovation around true wealth taxes. But... we won't, because it's not difficult, the government just doesn't want to do it. What does that mean? The burden of tax is primarily put on income not wealth, meaning your SWE with non-public stock is already getting absolutely pounded with taxes on their income instead.
If an independent third party has deemed your stock sufficiently valuable (and stable) to lend money against, then you should be taxed on that loan. You can get a credit when you repay the loan (to offset tax on the income you used to repay).
2) Likewise, paying a 2022 debt in 2027 dollars makes their effective tax rate even lower.
3) I don’t get to defer my income tax payments until a favourable year of my choosing, neither should the rich
4) that’s what the credit is for.
At some point, you need to sell and get your local currency in exchange. That can be considered income, and taxed at that value. It doesn't matter whether you had 1M which melted to 1000 or if you bought it for peanuts and got lucky.
But ultra rich people actually don’t. They can just incur debts using their wealth and use that instead.
Also, where I live options on shares are taxed at 10%. The government does not have to wait until they are exercised to take a cut.
> debt costs will adjust accordingly and pass on to wealthy still
Let’s think about some the factors that may influence this imaginary debt cost:
- whether asset is an appreciating asset - risk management strategy of the bank - whether account manager wants to have competitive terms so that the wealthy customer won’t find a better deal And so on.
How is this not a mystery cost? Sure the bank in some distant future might some tax when it decides to liquidate it. But by that time, the assets would have been in pools for such a long time that we’d never know exactly how much “tax” was paid.
I’m not going to say I know the solution to this problem because I honestly don’t think there is a way to fix this. Tax avoidance will always be there.
They do not have to be. For instance, it is common to never completely pay off the mortgage in Switzerland to avoid one-off taxation. Instead, the eventual taxes are included in the cost of the debt.
This isn't exactly true. For things like bread, yes it _is_ true, nobody will let you take out an asset backed loan. For someone with significant assets, large purchases can be funded by asset backed loan. These are available from high street banks, e.g. [0].
> That can be considered income
No, here's where you're wrong. It's considered capital gains and you're taxed on the difference between what you liquated the asset for, and the value of the asset when you were given it. Here in the UK, capital gains rates are tied to your income level, so if you make under £50,000/year you will pay 10% capital gains, or 20% if you make more. In the US the bands are similar (0, 15, 20%), but I'm not sure how they're calculated sorry.
If we ignore the lowest band of income tax for comparison purposes, someone who makes 1 million in salary here in the UK will pay 45% roughly of that in tax. Someone who makes it all in capital gains will pay 10%
[0] https://www.wellsfargo.com/cib/institutional-investing/asset...
So changes can be made, they just did it the wrong way.
Step 1. The country creates a law forbidding any financial interactions with "offshore" countries (list is populated manually by lawmakers) and also with companies working with such offshore companies (shell intermediaries) in "good" countries.
Step 2. Country forbids its citizens from owning any assets or be incorporated in the same "offshore" countries.
Step 3. Blanket ban of cryptotokens.
Step 4. Huge inheritance taxes.
Step 5. Incremental tax hikes for second and more houses/apartments owned. Restrictions for corporations owning a lot of residential properties and huge taxation.
Step 6. Ban or restrictions of airbnb-like activities to discourage parking money in the housing market.
Basically look where rich hide money go for that. When they switch tactics you follow.
Step 0. Big independent financial auditor structure, independent from law and judicial branched both (or almost independent). From experience - you can dismantle a lot billionaires even with existing laws, if only someone looked close enough and punished them. This is a huge problem in eastern europe for example.
For offshore restrictions - you as a country lose all existing assets already there. A lot of people will move their business to a better countries, providing less restrictions and eventually taxes for them. Probably election loss and further dismantling of all these laws by disgrunted businessmen using their pocket political forces. If will hugely depend on the collective size of economies doing the ban.
For housing - its tourists plus rent seekers vs. regular citizens. You hurt one group and you benefit another and vice versa. There is no win win scenario here, balance must be found. I personally vote for regular citizens, even if tourism industry will be hurt a little bit.
For inheritance taxes - no downsides.
For token ban - no downsides.
Ultimately, people as a whole like to work. They dislike working under poor conditions or doing jobs that don't feel rewarding. A law like this would generate a lot of change, but I just don't see that change being disasterous given sufficient adjustment time.
Some people have legitiment business interests in tax-haven type countries that are not about avoiding taxes. No country is just purely a tax haven with no other ecconomic activity after all.
In theory a blanket ban on crypto could harm innovation. This was much easier to believe at the beggining of the hype cycle when it seemed like someone might actually do something useful with blockchain tech. Kind of hard to believe at this stage.
I feel like inheritence tax is kind of pointless by itself. Most people dont just suddenly die and have time to distribute their assets pre-death.
Limiting housing investment might make cost of living go up. Its not like houses just appear out of nowhere. lots of people cant afford to just buy/build a house. Rich people buying houses and renting them out helps fill that gap. It doesn't always work out as ideally at that, but the other extreme of severely restricting real estate ownership would probably screw over poor people too who do not have sufficient resources to get a mortgage. They still need somewhere to live.
I dont really know what independent auditors means precisely. IRS/CRA/etc are already pretty independent. They could be better funded though.
> forbidding any financial interactions with "offshore" countries
And what do you think "offshore" means? This is TikTok levels of financial naivety
If I were planning such effort, I would propose do bans in waves, with multiyear intervals. E.g. ban of top10 worst offender countries - Cayman islands, British Virgin islands, Seychelles, etc. Then make a list of 10 next and warn them that they have 2-3 years to adjust or be banned too. Rinse and repeat.
Since you apparently never heard of FATCA and OECD CRS I'll leave it at that
Oh yeah and several US States don't require financial/personal information in a lot of cases (including real estate transactions).
Switzerland has a wealth tax, yet it also has some very rich residents (wealth tax is applied to your worldwide assets/cash, and it includes companies you own, so you have no way to avoid it.)
If it were the only way to address societal inequalities, is it more heartless than letting those continue?
Sure you can do all that, and that would close some tax loopholes (albeit at a cost), but has nothing to do with taxing wealth instead of income.
They should probably add in an increased capital gains tax as well
Bad for families building generational wealth who don't have it yet though, and boy do I hate the idea as a result.
It's the temporarily embarrassed millionaire syndrome. Sorry but it just doesn't happen for most people due to the way the system works
Not only do we do that which dis-proportionally hurts the less wealthy more, but property taxes are assessed upon assessed valuations of which the homeowner who does not sell or gets loans upon that valuation obtains zero benefit from. So the insurance company (which also uses the valuation) and the property tax jurisdiction(s) obtain yield from the valuations that year, and do not endure a clawback when the valuations ever decline.
LVT is a much better related tax.
Anyway, wealth taxes are probably bad because taxes are supposed to be deflationary, but wealth taxes are inflationary if you collect them in USD, since taxpayers have to sell assets first. Unless the IRS is willing to take a % interest in a collectible painting as the tax.
Yes they're not the super rich.
But still among the top X %.
Switzerland does it and it seems to work pretty well.
* except for household and personal common usage goods
Anyone can declare assets anywhere but if they're not taxed, or taxed very little, then inequality grows. So does Switzerland do this better or fairer than other countries?
It differs between cantons (states, kinda) and has progressive banding. Someone with 100k in wealth will pay maybe 100-200 or so. If you have 100 million CHF, in Geneva you would pay around 1 million per year in taxes on that wealth.
As the OP stated, it is global assets and wealth, so foreign/offshored investments still attract the tax. Plenty of people choose to be resident in Switzerland even with these taxes.
My understanding is that it's not very effective, because any foreign-held asset is pretty much hidden from Switzerland, unless there's an agreement with the country for this kind of information.
Financial institutions report your wealth (to some extent), and the development of wealth is checked against your income, making tax evasion non-trivial. You could hide the money in a shoebox but you'll lose more in opportunity cost (missed investment gains) than you'll save on tax.
The other side of the coin though is that capital gains generally aren't taxed.
Mainly, I don't agree that "it is very difficult to tax wealth". It's basically a box "your wealth: <enter number here>" on the tax declaration, with an extra spreadsheet/list to fill out showing what the wealth consists of, plus proof (e.g. bank/stock account statements).
China has seen how Capitalists have overrun government and have moved to quickly re-educate anyone that steps out of line.
I'm not advocating this, I'm just saying...
Corporations and the wealthy play games and have more resources than our tax departments, and so have found strategies to win that are not available to people who earn an income and work for a living.
It's hard for me to give an argument like "this is difficult" credence when we already have a capital gains tax that's lower than most income taxes. I will buy this is difficult when you raise that number to 50% and we still have the same issues.
I agree that taxing realized capital gains is relatively easy.
At least in the world of stocks, dark pools help solve exactly this sort of problem.
Once you have enough assets there are many tricks available that are simply inaccessible and unusable by regular salaried employees.
Many of the tricks employed by the wealthiest forcefully remove transparency by a combination of legal and practical methods (e.g., Canada and Delaware share a lot in common).
Disallow opaqueness first, then the solutions will emerge.
There is lots of ways to improve taxes on income and capital gains, but that is really different from a general wealth tax.
Rather, to continue the spirit of the top level comment, what is also now missing is the estate tax, which is/was around 40% (it's graduated too, but it tops out quickly). IIUC, the federal threshold used to be around $1M a few decades ago, and is now $10M - this was the anti "death tax" political issue you might vaguely recall. Furthermore, due to wider use of trusts, it's been basically eliminated unless your family is extremely unlucky.
Fundamentally, I'd rather just tamp down the amount of money given away to the rich - stop the government giving trillions of dollars to the financial industry to prop up the fictitious asset bubble pyramid scheme, and either let natural technological deflation happen or at least spend the money deliberately ala MMT.
But either way, something is required - the system we have right now has the government continually giving away gobs of money to asset holders, while doing very little to collect it back. This is exactly why these personal wealth bubbles continue to grow.
I think you'd be surprised. When the majority of people own nothing, it won't take much for the ruling class to convince them that taking everybody else's wealth for the greater good is the right and moral thing to do.
Short term stock holdings - pay on the net gain of the sale.
Long term stock holdings - pay on the net value at that point in time. Non public companies are charged based on the last valuation round. Companies without funding aren't charged because the intrinsic value is zero.
Dividends - pay on the dividend amount received
All payments above are in cash, at 2.5% for all.
There are downsides to inflation of course, lower economic growth is a big one. But we are entering a higher inflation, higher interest rate environment whether we like it or not, and that will result in lower wealth inequality. Money will have less direct purchasing power, and assets like housing or company equity will decline in value due to higher borrowing costs.
There are many people who will retort that 'inflation hurts the poor'. Yes, it hurts everyone, but it disproportionately hurts the rich. It is no coincidence that wealth inequality increased dramatically during the low inflation, low interest rate period we have experienced over the last two decades.
It would be trivially easy as well to track and tax the wealth of people hold public equities.
Those two things there are an enormous bulk (majority?) of wealth.
It only gets a bit more complicated with privately held equities this I will grant.
If you start to get into the nitty gritty of assessing assets like ming vases and such it gets complex as well and likely diminishing returns, but at this point, with this stuff, you might as well not even bother because few are going to hold their wealth in ming vases.
Is it worth it, just to live in a shockingly civilized society under a highly functional government?
LOL, no thanks!
I always laugh at dying European societies that consider themselves "civilized" vis-a-vis the rest of the world and can't help but lecture everyone else about how to structure their society. It reminds of Borrell's "Europe is a garden, the rest of the world is a jungle" remarks, which went live before his recent bribery scandal.
Tbh even the super-rich feel poor. If you own 10 million, you might have a social network in which there is a guy who owns 100. If you own 100 million, you might know a billionaire. And the billionaire might have met someone like Bezos or Musk. Usually the richer you get, the higher is the wealth differential you are exposed to. You might be proud of your 3 supercar collection, but a guy you know has a hangar full with 200 supercars.
Don't get mad at average americans trying to make the world a better and more fair place, get mad at google and facebook that make several million dollars off the code that you write and kick back a pittance of a salary, and coordinate with each other to keep your compensation low. Even at $400k a year, you are literally being underpaid.
Did a 70% top-tax bracket force any of the uber-high earners to stop earning money because they didn't want to give 70% to Uncle Sam? No, the super rich will always want more money/property/dividends/etc no matter how burdensome the tax bracket they fall in might be.
"If your income is 30% above the average income for this area or the national average (whichever is lower), that >30% is taxed at this rate..."
So then you can't have rich folks disappearing to less-taxed areas. It could make rich people communities where they all stick together.
looking forward to the future where currency is time (the movie In Time), and we can tax rich people to death.
Lots of income may not make you wealthy but it lets you live a rich lifestyle. Move somewhere cheaper if you aren’t meeting your savings goals.
How do you tax someone buying a Congressperson?
How do you tax someone using their wealth as a threat, as a shield, so that they don't have to participate in the same kind of society as the rest of us, and can enjoy "privilege" (lit. "private law")?
Wealth at rest is not immaterial, and taxing profits or consumption will never work to reduce wealth inequality or the disproportionate power the wealthy have over the rest of us.
If you make $400k a year, you are rich/wealthy. If you don't feel it, re-examine your lifestyle and whether you are actually spending your money well, maybe you're buying too much avocado toast /s
1. TC numbers (hypothetically ~$400k as you quoted, which generally agrees with levels.fyi) are not real income. We know what happened to (tech) equity this year --- this (unfavorable) gap between grant price/share and vesting price/share has deflated a lot of the TC, much more so if the grant date happens to be right before the onslaught. (Personally I landed almost square in this territory due to a somewhat forced job switch but that's another can of worms I'm not opening today).
2. Whatever is left from that TC number, tax man takes ~40% of it period. Deductions are for most cases a rounding error.
3. TL;DR housing costs scales with salary over here too. Long version: The kind of housing that (transplanted) SWEs and their families would reasonably consider in SFBay has generally been priced (by "the market") right up to the limit of their income-derived affordability, most of which is calculated (by the underwriters) straight from SWE base salary, which we know is constrained by BigTech paybands (which propagates to startups too).
4. Okay, now an inevitable personal finances bullet point: Educated responsible adults as we are, a significant savings (incl. investments) rate surely sounds prudent eh? Say (temporary) goodbye to another xx% of whatever's left at this point.
5. Adding insult to injury, avocado toasts are now about 1.5x to 2x their price compared to early 2020. I feel compelled to add that this agrees with the larger trend of any kind of prepared food.
6. Elephant in the room: Kids.
-----
I can go on and on, but hopefully I am getting the point across. The "salary man" of today has not only his theoretically big TC "pie" shrink over time, but an increasingly larger slice of it becomes marked as non-disposable. Assuming reasonable (not necessarily optimal) personal finances management and maintaining a reasonably high QotL (nothing excessive), I don't see me or my similarly positioned peers feeling rich / upper-middle-class-y any time soon.
Basically, I'm fine with paying more taxes, but only if those wealthier than me pay more still.
Additionally they wealth already taxed in a previous era, and is currently taxed in this era any time they spend it via sales tax.
If of course you are spending all your money on personal groceries as a billionaire, then I’m 100% fine with not taxing you.
Let's say life is a computer game, and once you max out at $1bn in earned wealth (presumably this includes liquid and illiquid assets such as properties, cars etc), you cannot accumulate more wealth.
How does a government enforce this stance? You cannot stop say Bill Gates shorting Tesla and earning millions from the trade, can you?
Can you stop a landlord renting out their properties to block further income from them?
What about interest generated from bonds or savings accounts?
Do you simply tax the shit out of people if they have over £1bn in wealth?
The big challenge I see for all of this is that rich people have the best (and most expensive) accountants/lawyers money can buy. If you try to tax the shit out of them, their accountants and lawyers will find a way around it.
Also, if one government is too heavy handed, they'll just move assets to another more lenient government.
With regard to the first part, the normal examples I give of this are road traffic offences (which if fully enforced would mean the only people allowed to drive would be those who didn't); and drug laws — ignore weed for now, nobody defends heroin, full enforcement of UK heroin laws would treble the UK prison population all by itself, while enforcing the laws on cocaine would more than double the US prison population and increase the British one by a factor of 20.
With regard to the second, look at how confused people get about copyright, trademarks, how they work, what the penalties are for violating them, what counts as "fair use", and so on.
Seems like the obvious answer, though you're probably right in that people will move assets around and do elaborate things to avoid the tax but they already do that now.
Make a hard cap wealth cap at $1B. Oh you made a great investment that made you $400M dollars? oops looks like you're $200M over the cap. You now owe the government $200M. But good news you hit the $1B cap. You "win" capitalism. Have a nice medal maybe.
Seems reasonable to me.
I suppose the argument against it is that you'd be dissuading near billionaires from investing their money in things (eg. starting new companies) though I'm not entirely sure if money is a real motivator for people who have ~$900M. Is it? I don't know any 900 millionaires to ask.
OK, but does that include Rowling's Harry Potter sales, or Persson selling Minecraft to Microsoft?
> There's no conceivable reason
How about "someone is offering me a billion to take over the company I founded regardless of if I actually agree to sell"? Or worse, "someone wants to offer me a million for 0.1% of my shares, but if I sold all my shares the market price would crash by 95%, therefore I get all the blame for being rich with only a handful of the benefits"?
I appreciate there are other economic systems besides one-dollar-one-vote, and we may wish to make mega corporations more democratic and less plutocratic-authoritarian, but that kind of change deserves a book rather than a single comment.
Please look up "rent", "dividend" and "capital gains".