This is a disingenuous rebuttal. The difference in wealth between someone worth $45B, and two people each worth $1 million and -$1million respectively, is identical. The millionaire is worth less than 0.01% of the first. If this were a card game, the millionaire could go piss himself.

If it were possible to put $45B into a typical savings account earning 1% interest per year, that $45B person will make more money doing nothing in 1 day than the millionaire is worth. The thing is, it's not possible to do that. It's actually difficult to make only $1 million per day off $45B in assets. You'd have to give away huge chunks of assets to avoid making $4+ million per day.

The problem is hoarding. It's no longer enough to go back to a 94% income rate for the top bracket like we used to have for ~30 years expressly to prevent this amount of hoarding.

Hoarding? Do you think rich people just stuff their money in a mattress? Even if they deposited it all in checking accounts, the banks would reinvest it all over the economy.

Yes, the problem is hoarding. Which is proportional to the delta in potential and actual productivity of the already wealthy (and their assets).

Here's a quick demonstration: imagine all US taxation (apart from excise taxes) was replaced by a 3% yearly tax on household net wealth. No income taxes. No corporate taxes. No cap gains. No weird deductions based on expected future whatever. The question now is: cui bono? The hard working, high growth individuals (wealthy or not) benefit because their income and capital gains remain untouched -- they just need to earn enough in returns to offset the 3% tax. And who loses? The hoarders engaged strictly in "wealth preservation" (https://books.google.com/ngrams/graph?content=wealth+preserv...).

You clearly have not thought though the consequences of your proposal. Here are just a few of the problems:

* What if I own a house but have no cash? Will I have to sell it and live on the street to pay the taxman?

* What if the ultra-wealthy buy property and then mark it down? I.e. they buy paintings, then "accidentally" "damage" them. Whoops, a billion dollars in artwork gone, sorry IRS. Later, it is miraculously repaired. Will the IRS have to start sending undercover agents to inspect people's art collections?

* A 3% wealth tax is still less than the growth rate of many financial assets. I.e. the stock market grows at ~7%. So the rich will still get richer. And if you increase the tax to say, 8%, congrats, you just destroyed the financial markets.

* What if I own a house but have no cash? Will I have to sell it and live on the street to pay the taxman? - You do that now. Property taxes.

* What if the ultra-wealthy buy property and then mark it down? - People lie to the IRS now, system still functions.

* A 3% wealth tax is still less than the growth rate of many financial assets. - Not necessarily. Safe stores of huge amounts of money yield very little. I don't know all the implications on interest rates, etc.. but it's an interestng idea.

I don't understand your response. The primary purpose of the proposal was to illustrate what "hoarding" is. Did it accomplish that goal? If not, why?

To address your concerns generally -- every tax policy has a variety of impacts on behavior. Multiple countries already have a wealth tax, so they are definitely workable. There are behavioral and policy methods of addressing potential negative consequences.

To respond more specifically:

> What if I own a house but have no cash? Will I have to sell it and live on the street to pay the taxman?

That's a straw man argument for a host of reasons. We already carve out exemptions for primary dwellings, and there's no reason why this wouldn't similarly apply, up to some limit. But even absent that, real assets are real assets, and there are multiple ways of extracting liquidity from them (and moreover doing so generates wealth for society). You can take on a "reverse mortgage", or rent out one of your rooms, or sell it and rent, or take out an annuity that's secured against your home, among other possibilities.

> What if the ultra-wealthy buy property and then mark it down? I.e. they buy paintings, then "accidentally" "damage" them. Whoops, a billion dollars in artwork gone, sorry IRS. Later, it is miraculously repaired. Will the IRS have to start sending undercover agents to inspect people's art collections?

That's fraud/non-compliance/tax evasion, and it's already a massive problem in the current tax system, except now it's cloaked in things like a "double dutch with an irish sandwich". In any case, this is a problem that is dealt with every day, in business, by insurance companies, and there's no reason why the same techniques couldn't be used by tax officials.

> A 3% wealth tax is still less than the growth rate of many financial assets. I.e. the stock market grows at ~7%. So the rich will still get richer. And if you increase the tax to say, 8%, congrats, you just destroyed the financial markets.

Yes, and a 95% income tax rate will destroy the labor market. So? And yes, at 7% CAGR on the S+P the wealthy continue to get wealthier (assuming all their assets are in equities, a big assumption). But note that, in the process, we've eliminated income taxes, so everyone else will be getting richer faster. A win-win.

You don't have to engage imagination, wealth tax is a concept deployed in other countries. https://en.m.wikipedia.org/wiki/Wealth_tax#Current_examples

The evidence is inconclusive - some (Norway, Switzerland) are economically strong societies, while others (Spain, India) are economic basket cases.

Side effect of introducing a wealth tax is an increase in corruption as all of a sudden subjective evaluations of illiquid property can lead to substantial increases, so there are scenarios where it's cheaper to pay off the assessor in private than be subjected to an increase. Litigation to question the assessed value is a fairly minor occurrence nowadays, but with universal wealth tax owners of illiquid property are likely to sue more often, as there's more property to assess (and hence make mistakes).

India and Italy are known for high corruption levels, and you could argue that placing low-paid government officials into high-value positions is almost corruption by design.

Excellent comment. If you have time to reply to my comment, answer any point you disagree on, that'd be much appreciated!

(my comment starts with "With this comment I'm answering both PG's post and an answer to his post that can be read here: http://cryoshon.co/2016/01/02/a-response-to-paul-grahams-art...)

Wow, first upvotes, now downvotes. And all without explanation.

Yes I do, that mattress is called stock.

If you're buying newly issued stock, that's going to be directly spent on business expenses like salaries and payments to other companies. Even buying existing stock directly supports the market for companies to raise money in that way.

If you're buying existing stock, someone on the other end is receiving your money that they will then spend or invest as they see fit. Very little money is idle, since it's in no one's interests for it to be.

What's the problem with hoarding? There's no difference between a billion dollars stuffed under the mattress, never to be spent, and a billion dollars burned up in a fire. If the rich aren't spending, they are not consuming resources or causing pollution, so it's as if their money never existed. And if they do one day decide to draw down their accounts, then it wasn't being hoarded.

>> If this were a card game, the millionaire could go piss himself.

Thankfully the economy is not in fact a card game, and no billionaire can force you to piss yourself.

Just don't say that to a billionaire. It might make for an unpleasant learning experience.

A practical problem of wealth accumulation is that it eventually becomes a moral hazard. If you have people with more $10B and a system of unlimited political contributions as in the US, they have so much power that it is difficult to maintain the democratic equilibrium. It is now known that the Koch brothers and Sheldon Adelson have more power over the republicans than the RNC, having elected hundreds of local and national politicians. In the left there is George Soros and a few others. Are we really willing as a society to give away so much political power to billionaires? I think a very practical solution is an extreme large tax on billionaires. There is no reasonable reason why a single person would like to have more than a billion dollars. This is practically an inexhaustible amount of money that should be considered as a practical limit. After that, you can happily pay 99% tax and enjoy making this country better.

Interestingly, at least according to The Atlantic, the political power of these billionaires seems to be failing. This article [1] frames the rise of Donald Trump (!) in the 2016 presidential race as an effect of the growing disconnect between billionaire donors like the Kochs and the Republican voting base.

[1] http://www.theatlantic.com/magazine/archive/2016/01/the-grea...

Donald Trump is going to save us from self-interested billionaires?

This isn't a story about how the political power of billionaires is failing, it's a story about one billionaire winning against some other billionaires. The underlying problem of wealth inequality and its effect on the political system remains.

It's more complicated than that. You need to live in a cheap part of town to afford rent but your city is un-walkable and has poor public transportation? Buy or lease a car so you can reliably get to work on time. You have a family and want to send your children to the best (or even decent) public schools? Live in a more expensive area - you have to buy access to good schools in many places, and the monthly payment on a mortgage for a house is cheaper than renting. You want a college education? Pay up. You want health care? Better have good insurance.

There are many reasons that people have debt, and it's not all exorbitant spending. At the same time SOMEONE is profiting off that debt, and they have a vested interest in keeping that debt alive. This is a good talk that discusses nonintuitive pains the middle class is experiencing: https://www.youtube.com/watch?v=akVL7QY0S8A

The problem is that these measures leave out most people's most valuable asset, their future earning potential. There's nothing wrong with having a serviceable mortgage or car payment. I think you misinterpreted me.

Yes, people do profit from that debt. Good! Because otherwise you wouldn't be able to turn some of that future earning potential into buying power today. This ancient innovation, the loan, allows us to do that. If the lender didn't stand to profit from interest, he wouldn't lend. It's a triumph of capitalism.

I did not misinterpret you, I understand fully what you are trying to say. I disagree with you. You and I are in the fortunate positions of being able to service debt and even avoid it entirely. Many people are not. Lenders have the ability to take advantage of social and financial systems that require debt, and through the application of their profits can alter those systems so that more debt is required to survive. In my mind, that is capitalism's failure. Spending your future earning potential is fine, buy a boat or a house bigger than you need if you want to, but if you need to go into debt for employment, education, or health care as many in the U.S. do now then something is very wrong. Furthermore, servicing that debt can keep people stuck in debt or poverty and reducing their spending potential, which is destructive to the economy. All of these things can be fixed fairly cheaply but the solutions are being suppressed for the profit of a few.

I don't get your logic, that it's okay to go into debt for a boat but not your education, an investment in your future earning potential.

The problem with education loans is that they're not real loans. The government gives them distortionary financing that inflates tuition. Everytime the government raises the max loan amount, tuitions rise to match it. The college bureaucracies grow to match revenue. It's the same that happens with any bureaucracy that gets unearned money.

Everyone should pay the full price of their college education, either up front or in the future. That's the best way to keep college affordable.

Free markets work, why is there this presumption against them?

I think the other commenter may be suggesting that it's wrong for life's bare essentials to require large amounts of debt, but beyond essentials a well-informed person should have debt as an option.

I've agreed with your general direction in this thread, but here you've tied yourself in a knot. If the un-"real loans" you cite weren't available, far fewer people would be willing to attend college, prices would fall, and far less would be loaned and spent on education. In other words, without the distortions introduced by lobbyists and politicians, all this wonderful education debt wouldn't exist. So we have indeed identified a case in which lenders "through the application of their profits can alter those systems so that more debt is required to survive."

Germany has fully free college education and labor fully involved in management. It is a good example of capitalism that benefits the middle class rather than the US system that increasingly feels rigged against the common man. It is great that a smart poor man can become a billionaire- but what about the rest.

It's one metric. And yes, one of its weak points is that my student loans making me less wealthy than the debt-free homeless person is (of course) not the whole story. But that's one narrow slice.

On the scale of 80 people with billions upon billions vs. half of everyone else, it's hardly a disingenuous statistic.

The only reason to use net-worth for such a statistic is to have demagogic sound bites. Most people have negative or very low self-worth because of totally normal and serviceable debt, regardless of whether they're poor or well off. Net worth, i.e. wealth, ignores future earning potential, which is most people's main asset. Repeating the statistic again doesn't change that.

On a global scale, this is nonsense. The number of people globally who have negligible net worth because they earn less than $10 per day vastly exceeds the number of people who have negligible net worth because they've only just started paying down the mortgage on their McMansion and still have student loan repayments remaining.

The purchasing power of those 80 people isn't going to start looking insignificant if you change the basis for comparison to net wealth plus imputed future income streams.

I disagree. If you take the 3 billion poorest people in the world and properly account for their future earnings, it will certainly exceed the combined expected wealth of these 80 billionaires. You couldn't have anything close to this sensationalist statistic.

Also, global poverty is not the fault of Western riches. It's not something we (Westerners) can do anything about either, except engage in mutually beneficial trade. Most of the world is being held back by bad governance, dictatorships and democracies alike. The West has the only economies of significant size that still have the broad outlines of a true free market system.

And how much of those future earnings will go right back into the pockets of the mega-wealthy through rent and interest payments and profits on goods that they buy from companies owned? Nearly all of it, I'd imagine.

Now you're not talking about wealth, but rather some other measure that is apparently more interesting to you. If you're going to count future earning, you ought at least count future spending as well, which quantity may completely swamp the other. After all wealth includes past spending as well as past earning.

My point is that wealth is not a useful metric. To your point, having surplus wealth on the day of your death is not very useful, especially if your kids don't need it. That's why some people get reverse mortgages, to turn the value of their homes into spending cash during retirement.

On average, no one needs wealth. After all, one can simply work for a wage completely spoken-for, hand-to-mouth, letting the automatic deposits feed the automatic withdrawals, a "good" "professional" corporate "citizen", pulling the traces until the heart stops and the teamster cuts loose the carcass to hitch up the next mule.

However, no human life is average in that respect. Everyone occasionally wants to fix the car, bail mother out of jail, keep the new restaurant open for another month, hire another cook, quit the job, drive to California, or whatever. Some of those variable circumstances can be addressed through insurance, but many cannot. Many of them are more along the lines of "it is my will to do this thing I had not planned on doing, right now."

That stuff, that human stuff? That requires wealth. We can paper that over with "easy" credit, but that's a leaky abstraction, and it really only helps one make the choices that consumers are allowed to make. Just ask a 90yo (hint: probably remembers a particular period of history): wealth is strictly better than credit. That's without even considering transaction costs.

ps. try getting a reverse mortgage without first owning a house...

Well on the future earning potential front, the wealthier you are...

Are we talking about net worth, or income? I thought we were talking about income initially.

I'm just talking about the statistics that GavinMcG was citing. We were talking about income inequality, but the sensationalist statistic he cited is not.