It's the same with work. If hard work is less likely to pay off, or if you'll have to work harder, or both, you'll be less likely to work harder. Some people will work harder anyways, and many will be discouraged.

Marginal effects matter. This is why dynamic analysis is important.

What does your world look like where you'd be too taxed to bother wanting to be financially independent?

That phrase means different things to different people. In some parts of the world, $50k could consider you to be financially independent. $500k in others, and in some parts, you'd need $5m - $50m.

What if I told you it cost $5/day to rent a luxury hotel room with cleaning, full board, and high speed broadband provided as standard?

What if I told you it cost $1500/month for a small studio apartment with no furnishings or anything else?

Both are true, both are real, both require different amounts of money in order to achieve financial independence.

I realise now that I haven't actually answered your question:

> What does your world look like where you'd be too taxed to bother wanting to be financially independent?

Rewriting that to be "What does your world look like where you'd be too taxed to bother generating more wealth?"

There comes a point of diminishing returns. If you work a 40 hour week already and make a decent living at 40-50%, and now get told that anything above that will get taxed at 75%, unless you're going to somehow generate more than double, you're going to spend that time doing more productive things (like spending it with your family).

Arguably, that's a net-positive for society as a whole, but may be a net-negative for the economy/GDP of the country you reside in.

Hold up -

1. Why is this about working more hours, instead of working harder / more effectively? There are 168 hours in a week; even if you don't sleep, you cannot maximize your income beyond about 4x just by working more. I am currently making about 15x the lowest hourly rate I ever worked for, and I'm still fairly early in my career and feel like there's a lot of room for my salary to increase as I become more skilled.

2. I'm reading the discussion was about a tax on wealth, not a tax on income (dwealth/dt). If you're making a decent living and want to make more money so you can spend it on things that are not investments (consumer goods like video games, services like vacation travel/hotels, charity, raising more children, sending them to college), a tax on wealth will not affect you, because your wealth stays right where it is. And doing all that is net-positive for the economy.

'majormajor is clearly talking about wealth in the sense of static assets, not change in assets over time: I'm worried about having a single medical emergency, not having one every year. Make enough for your (static) safety net, then stop making more money.

Because they are tightly linked for most people.

I've managed to increase my income ~5x from what it was when I started but to do that I have had to put in 2 hours/day of side study.

The 99th percentile ("top 1%") of wealth by household seems to have been be $8.4M in 2007, according to https://economix.blogs.nytimes.com/2012/01/17/measuring-the-..., the most recent calculation I could find from a quick Google before heading to work - I'd love to see these calculations done with the raw data at https://www.federalreserve.gov/econres/scfindex.htm . From the summary on that page, they surveyed some 116 million households in 2007.

Suppose you tax all holdings at the top 1% of wealth by 1%/year, which is significant but not enough to wipe you out - after 50 years that leaves you with 60% of your original savings, assuming you weren't investing it.

That yields as a minimum $97T in tax revenue per year ($8.4M * 1.16M * 1%), and almost certainly significantly more because there-s a short tail of people with much more than $8.4M net worth. But if you split even this much among the 5% of households with "very low food security", that's $16,800/year. That's a lot of food.

(An actual scheme would have some sort of progressive tax, also, not a discontinuity at a certain dollar value)

Total US GDP for 2016 was ~$18T.

It seems a bit unrealistic to me to think we can get 5x GDP in tax revenue each year.

So what is the catch?

I'm still interested in doing or seeing an analysis with the full Fed dataset.

The biggest potential cost of someone in the US, with employer-tied healthcare, seems like medical. You could hit the unlucky jackpot and have a seven-figure+ medical bill over the course of a few years or life. So let's set "able to handle that for yourself and your family" as the baseline for being considered independent, since that's probably bigger risk than, say, "owning but then losing a multimillion-dollar-home to a flood" or somesuch.

But I also don't think this term is generally understood as poorly as you suggest.

--------

Responding to context complaints aside, you're still talking income tax, not wealth tax. My question was what this hypothetical negative-use wealth tax looks like, since the further-upthread post had suggested taxing wealth instead of using income as one of (several) proxies.

But also, my hours have not increased with my compensation in the manner you suggest. I know that every additional dollar loses 40% or whatever of it, I still would rather have it than not have it. 5%, probably wouldn't care, but would I still want more autonomy and responsibility at work for the sake of more feeling in control? Maybe. Maybe not. There are both financial and non-financial sides there, but if income was the sole basis for choosing our roles, we'd be in a very different-looking world.

So that's why I'm skeptical that a wealth tax would make me give up having big dreams—the personal safety net and toys are still incredibly appealing.

Meanwhile, you're getting taxed on the estate you're trying to build as you build it.

Twice.

Every year.

As someone who's currently attempting to build his own personal empire, I'm incredibly glad I don't have a wealth tax to contend with. It's hard enough as it is, without knowing that if I start to draw close, it'll get harder and harder as I go. I might not have started trying if it didn't seem possible in the first place. Then again, I might have done it anyway. Where's a quantum theorist when you need one?

Over the course of your life, the government will get more of your wealth that you (or those you designate) will. (At 5% CAGR, the government is ahead by year 54. At 3% CAGR, they're ahead at year 56. At 8%, year 52.)

Example: Say I'm worth 1M credits today and my wealth tax is 10K (1%), that means my income gets another 10K added to it. Real income is 50K, + 10K so I pay tax as if I earned 60K. 40% of that works out to 24K worth of taxes.

In a bad year I'd earn maybe 10K, add that 10K (I'm still worth that 1M), and that year would pay 40% of 20K, which works out to about 8K.

Progressive tax scales can further improve the situation in years with low income.

The markets don't have much to do with this, it's a fictive income, not what you actually made.

My only other quibble is that I haven't seen healthcare costs or insurance premiums scale to that 10x factor like housing prices do rural-vs-urban, otherwise I'd personally be perfectly happy with moving and retiring early. Get the right cancer or nasty chronic condition and you're gonna be out some serious bucks.

Always always consider the young.

Europe's fertility rates are a disaster (and post-2008 American fertility rates too were disastrous). In particular they are a disaster because so much of their economies depend on the tax base growing, which means that productivity growth has to be even higher than it would have to have been with a higher fertility rate. The causes of this surely include making the burdens unbearable on the young who might want to start families. Beating up the young because they have good health, is an unspeakable insanity.

Now to answer your question, consider say, a prospective engineering student. They could go to school and come out with $150k or more in debt. But if their post-tax income potential goes down (especially initially), thus their ability to pay off that debt goes down, thus making it more crushing than it already would be, why on Earth would they even consider bothering to go to school then?! Of course a lot of potential students would find something else to do! It's utterly obvious. Painfully obvious. So right there you'll have a decrease in the number of people pursuing certain careers -- hard work being avoided.

Even beyond the economic effect on students, there is just a basic personal calculus as well. You might choose to live with a lower income and more free time to enjoy as you wish (if with fewer luxuries than you might like) than work harder and harder for less and less reward. You only have so many prime years for enjoying the one life you have. Everything is a trade-off. You might work harder now if it means you'll be better able to enjoy some free time later, but if working harder will make little difference to your ability to enjoy free time in the future, why work harder?

And beyond that, we know what low incentives did to would-be hard workers' desire to work hard in the U.S.S.R. and such places. Spoilers: they certainly didn't work harder when they didn't have guns to their heads incentivizing them.

By the way, the same sorts who say that increasing income taxes (or otherwise putting a ceiling on incomes) wouldn't have an effect on how hard people work... also tend to argue that higher tobacco taxes will reduce tobacco use. We all know about the prodigious powers of doublethink in some quarters, but don't think for a minute that everyone accepts doublethink, let alone masters it. And sure, you yourself didn't just make that argument, but I bet you do when it comes to topics where that argument is convenient. I, on the other hand, accept that punitive/confiscatory taxes only serve to reduce the amount of activity being taxed regardless of whether it is an activity I appreciate. If you ever find yourself making that argument, please recognize it and choose consistency.

Has this effect been shown in the real world? That implies more interest in the odds than their target market demonstrates any interest in (hence the term, "for the math-impaired").

Some people will work harder, by moving to a different country, where the tax laws are saner and don't punish hard working prime movers for the very value they provide.

(I mean, I think this is obviously silly, but it seems to hold up by exactly the same argument.)

I don't think it has disincentivated anybody from becoming less wealthy and/or working less. It just incentivizes tax evasion, but even that is not significant.

On the other hand, a large number of social programs have been built around this new tax. Anybody in the country could get cancer and would get free decent healthcare.

If we're talking about how people feel about their tax system, I think we need to talk about how a huge portion of the US misunderstands "tax brackets", and seems to think that paying more taxes when they're "bumped to a higher tax bracket" is a thing, and that there's some strategy in avoiding getting paid marginally more than some threshold. (Since tax brackets apply to marginal income, this is incorrect; you're still taxed at the lower rate for your income up to the threshold.)

This is almost certainly causing people to behave in ways that are economically irrational for themselves far more than any tax on large wealth (let's say, for the purpose of argument, $100M or more) would be. Yet there is no campaign to fix people's understanding of tax brackets so that more people feel incentivized to make more money.

If we're talking about an actual rational response to the tax system, I would much rather have $102M in the bank and get taxed on half my savings over $100M than have $99M in the bank and get taxed on half my savings over $100M.

> and thereby causes fewer GDP-building things to happen!

Why does a tax on wealth cause fewer GDP-building things to happen? The rational thing to do given a tax on wealth is to spend your extra wealth on services you're interested in, donate it to charities you support, etc., all of which seems like it increases GDP more than investing it for yourself would: it produces additional revenue for organizations, which produces jobs, which grows the economy.

I'd believe this argument for a tax on income, since it disincentivizes people from making more money, which means they're not spending that money because they didn't make it, and also they're voluntarily refusing to do profitable work they otherwise would have done. (I don't think I agree with the argument, but at least I understand how it works.)

This is the best distillation of how marginal tax rates works I have ever read.

There still are taxes that don't work like this (usually in the form of benefits that cut off at a certain income range) so unfortunately we still have messed up stuff. The feeling isn't completely unfounded

Another rational thing to do is to create vehicles that store but temporarily impair the market value of that wealth as computed for wealth tax purposes. Put it into a private company and offer minority, non-controlling stakes in that private company to all comers and act surprised when only family members take you up on the offer. It's a minority stake without control rights; it's going to be worth less than the net asset value. Store the wealth there until you're ready to use it, then have the company directors make a distribution, or leave the transfer in place to your heirs, who will receive a controlling interest when their shares (that maybe they bought) are reunited with the shares that you will them upon death. Or invest in something illiquid and very hard to accurately value.

Technically, all of those things create GDP activity for lawyers and accountants as well, but it's hardly good public policy, IMO. (I'm not opposed to a reasonable wealth tax, say 0.25% annually on sums 10M-50M USD and 0.5% annually on sums above that. I don't think it's a tax without lossy consequences though.)

I know engineers that are guilty of the misunderstanding you describe. How does anyone graduate from a university in the United States without at some point having been exposed to the idea of marginal taxation?

I think this is false in practice, especially with a progressive wealth tax.

Most people don't want money, they want the things money can buy... long, healthy, and generally happier lives. People that keep striving past that point are people that seek to change the world, folks like Gates or Musk. A progressive wealth tax starting at $10M wouldn't really change the incentives at play.

Citation? I know it feels correct, but is it actually correct in practice? Is there any evidence that the rare person who generates enormous wealth was motivated substantially by wealth (and not a drive to build something substantial or change the world)?

At least in the case of Gates, I suspect he would have built Microsoft even with slightly more onerous (to the wealthy) tax policy.

Also land is hard to hide, and relatively easy to value. So it's really hard to evade the tax. If you are going to tax wealth, and want that to include assets like equity in private companies, you are going to have to value those assets.

But he starts from a different angle: he's interested in economic efficiency. So he wants a system that moves economic goods into the hands of people who value it most (and compensate the previous owner fairly at market prices).

He proposes a system where people declare the value of their various possessions with two incentives for accuracy:

- You have to sell to any comer at the declared price. Thus guarding against overvaluation. - You have to pay a small percentage of the declared annual price as an annual fee, thus guarding against undervaluation.

That concern about economically efficient allocation is mostly interesting for monopoly goods and rights, because anything else we can just produce more off.

In Georgism it's customary to name these after their most typical representative Land (sometimes with the capital L to emphasis the generalisation). It's not much of a stretch to include eg things like licences for magnetic spectrum.

I'd be wary about mixing things like insurance against theft in here. (It might be possible to give a unified system, but I am not sure it is. Look at http://www.daviddfriedman.com/Academic/Course_Pages/legal_sy... for some source of interesting ideas about legal systems.) My wariness comes mostly from the fact that insurance that pays the declared value encourages people to overdeclare. Better let the market sort that out. (However paying the taxes for a specific declared value for years on end is a pretty good argument to convincing any court or insurance arbiter that you really valued something at that price.)

In the system I sketched above, Hanson described some scenarios were some entrepreneurs might be on the lookout for undervalued properties, buy them, and then just try to resell them to the original owner (or someone else).

As a special case, that scheme is especially lucrative if you are looking to buy a eg a house in a specific area anyway and don't care too much about which one; then the risk of not being able to sell the property you just bought on is not a problem: you just keep it.

I'd be more wary of using such a system of wealth taxation for eg cash. If you have a working central bank with an inflation or nominal GDP target, an individual holding cash even under their mattress is essentially free for society: the central bank just prints more money to make up for the portion you are holding out of circulation. And once you bring it back into circulation, they just print less money for a while. So for society it's great if people are holding cash: they did something for the rest of society to get their hands on the cash, but didn't get anything in return (yet). Very nice of them.

(Even better would be a free banking system, where essentially the same nominal gdp stabilization happens automatically because of market forces. George Selgin has some good stuff on that, see eg https://www.alt-m.org/2017/09/14/did-free-banking-stabilize-... or https://mises.org/library/less-zero-case-falling-price-level... )

The 'you have to sell at the declared value' requirement is somewhat similar to your idea: if you don't declare eg your house, it means you implicitly declare it to be worth 0. Someone stealing something worth 0 from you, will get a slap on the wrist at most in any sane system---or they can even just force-buy it at that price from you!

The other thing to keep in mind is something called 'tax incidence'. It's the study of who actually has to bear the burden of a tax. That's often different from who has to fork over the money. See https://en.wikipedia.org/wiki/Tax_incidence . The other thing is deadweight losses (https://en.wikipedia.org/wiki/Deadweight_loss).

But yeah, I like the basic idea of using a monopoly rent tax to fund a basic income. https://medium.com/basic-income/why-land-value-tax-and-unive... has a similar idea, and some worked numbers. (The author has at least one article for the UK and one for the US.)

Multiple incentives to be wealthy -- or worse, feedback loops to ensure the children of the wealthy maintain their advantage -- are just redundant.

Why? As a total layman, wouldn't it be incredibly inefficient? If we tax the wealth of, say, the top 100 richest Americans, wouldn't that cause some pretty terrible downsides? If we force them to sell their holdings, wouldn't that ripple through the economy?

Take Jeff Bezos--if you forced him to sell a significant portion of his stock, wouldn't that depress the Amazon stock price, which affects a significant number of other individuals and businesses?

If you are not aware of what happens in situations like this, I would like to take you to pre-1990s India. Some of the most brightest, brilliant, hard working and industrious people used to leave the country and never to return the moment they attained working age.

The people and money from whom you can take the wealth to fund your socialist schemes shrinks every year. To a point you will have a country full of entitled people, who think they were born with rights to free stuff. And will always be angry at people capable of working who don't spend away their life to make it happen for them.

Quote (by probably Winston Churchill )- Any man who is not a socialist at age 20 has no heart. Any man who is still a socialist at age 30 has no brain.

Please upvote.

(And I can understand the temptation of sarcasm, but it seldom feels as good to the reader as it did to the writer.)

Georgism would be great. I hope Singapore would show the world how to do it.

It's not taxing wealth so much as taxing the mechanisms that create undue inequality that would work: yes, I'm talking about taxing rental income. The number one driver preventing people from building savings is draining their income through rent.

The solution is sort of obvious, but hated by people who love the AirBnB model: https://news.ycombinator.com/item?id=14493769

Income is already taxable, including rental income. On top of that there are various taxes for owning/occupying a property. It varies with what state/country you live in.

Generally speaking, a property is a poor investment if you already have the money, they have poor returns and they don't grow in value outside of a few bubbles.

That being said, I agree that the pressure of rent is unbearable and growing for most of the population. The rebalance historically happened with wars. Properties ain't worth much when people die and buildings are bombed.

Real estate is a great investment for the risk averse (probably the best one too). Housing usually grows at the same rate as inflation if not a bit more and people will always need it. It doesnt drop 10% overnight unlike stocks. What other investments did you have in mind that you would recommend over real estate? (in the same risk spectrum)

You can tell that to the people in Houston who lost their home overnight. Home ownership is not risk free. ;)

I am not familiar with the entirety of the US territory. If you look at properties outside of the major cities, they should be relatively stable, renters have no jobs to sustain ever increasing rent. In the far country side, properties should be deflating because de industrialization.

Agreed that it is great for a diversified portfolio. Especially the primary home, it's self sustaining because you'd have to pay rent anyway. A second home is safe, it can host your child now or yourself after retirement, then it's lower returns.

There are a lot of index funds with various risk profiles. There is no general strategy. It depends on your personal situation, how much there is, where your live, and you family.

Now, that might sound stupid. If you own your home and have some savings, you can basically retire. There aren't much expenses outside of the rent.

And yet how many Houston like situations have happened overnight? Or over the years?

Real estate is easily one of the best savings vehicles you can have.

I don't know what you do for a living, but I have two graduate degrees in accounting and economics, as well a decade and a half researching and studying this very problem. The solution I outline would work... if the goal is to empower people with "equity" as Sam's article suggests he wants to.

However, what could happen is that the rental income after tax is lower and not enough anymore to cover the mortgage or the maintenance costs, then the property has to be sold.

More supply of rental property? Rents go down so that landlords aren't stuck with vacancies. More demand for rental property? Rents go up so landlords can maximize their profits.

FYI: Selling a property doesn't take it off the market. It's just owned by a new owner, who's gonna either live in or rent it just like before.

There may be an offsetting overall reduction in the value of all real property, but it seems like reducing or eliminating these deductions[0] would be harmful to renters, not helpful.

[0] - Deductions like this, by the way, are available to all sorts of other profit seeking businesses for the equipment and supplies they use in the conduct of their business and I see no reason why a house should be different from a factory machine or laptop computer or airliner nor a minor repair to a house be different from a pad of paper or other consumable with regards to whether ordinary and necessary business expenses ought to be deductible against gross revenue when computing profit.