I can't see many people that have already accrued personal wealth of $50M but choose to keep working suddenly being turned off because of a wealth tax.

That's not the argument. If you accrue a wealth of $50M because you own half of your $100M company (or 100% of your $50M company), then a wealth tax will — over time — force you to give up ownership in your own company.

An income tax or a capital gains tax on the other hand, has the effect that you describe: if you already have $50M, then any tax on more money than could possibly have close to 0 negative impact on productivity.

Why? There's a floor that below $50M you don't need to pay a wealth tax. In a worst case scenario where your entire wealth is tied up in stocks of a single company you own and you have 0 cash to pay your wealth tax, your ownership gradually approaches $50M.

They're are very few people who end up controlling 50+% of a $50M+ company at 20 and keep their 50+% stake for the 60 years pg references. Anyone who did that didn't take VC money.

IIRC Bezos sells over $1B in Amazon stock per year to fund other things, but there is no outcry about how un-american it is that he has to "sell off his stake in his own company" to pay for his hobbies/lifestyle.

Sure, but that's voluntary. It's fine for me to sell my house if I have other plans. It's less fine for me to be forced to sell my own house even if I want to continue to own it / live in it.

A given average person in the US (excluding high earners) will likely be paying a property tax rate based on a value that is _actually higher than their net worth_, which makes property-tax-as-a-wealth-tax for average American homeowners actually greater than the 1.69% average property tax rate.

Imagine if this was applied as a "wealth tax" on a brokerage account, but considered that you could borrow 5x your balance on margin, and then were taxed on your margin holdings.

In contrast, if you were to take an individual worth $10 billion, whose entire net worth is derived from the ownership of their stock, and were to tax them 2% of their wealth annually, they would have to somehow come up with $200 million every year to pay the tax. This is a different proposition altogether, since none of these billionaires have that much money sitting around in cash (or any other asset for that matter). They're just wealthy on paper. The only way to pay that tax would be to either liquidate their holdings, or for their corporations to pay enough in dividends to cover the tax, which is an odd (IMO bad) incentive to create for corporations in general. Even the owner of a $300 million business who owns (say) 30% of their company at a $100 million net worth would have to come up with $2 million in cash every year. Very few CEOs have that kind of cash coming in on a yearly basis, and you're essentially just creating an incentive for corporations to inflate the compensation to their founder CEOs just so that they can maintain ownership in their own company.

A big reason for this disparity between the top 1% value of corporation vs the top 1% value of property is that, unlike land (which is fixed), corporate wealth is NOT zero-sum, it's created. This is a very important distinction, because a lot of the rhetoric around wealth is sometimes based around the idea that there's some fixed amount of wealth in the world, and the rich have just been stealing all of it — no the aggregate wealth has been created at historic levels.

Also Federal property taxes are unconstitutional, which is why it's applied entirely at the state / local level.

>In contrast, if you were to take an individual worth $10 billion, whose entire net worth is derived from the ownership of their stock, and were to tax them 2% of their wealth annually, they would have to somehow come up with $200 million every year to pay the tax

If your $10 billion dollar asset isn't returning you much more than 2% per year, it has a terrible ROI, and you need to divest.

>corporate wealth is NOT zero-sum, it's created.

Not absolutely, but the power represented by the percentage of the world's wealth one controls is finite. At the limit if I own 99% of a countries current wealth, I think it's perfectly reasonable for the rest of the citizens of that country to decide that I have amassed too much power and to rectify that by taxation and redistribution.

That's not how corporate ownership works. It's not about the ROI, it's about ownership in the company you founded / are running.

If your goal is just ROI, then you will willingly divest from your own company, at which point your wealth is taxed as a capital gain.

When we are talking mutli billionaires like Bezos who may be driven by more grandiose incentives like amassing power, I think it's perfectly reasonable for the rest of us to effectively remove some of their control.

In reality, there are loads of people in between: founders of medium size businesses.

The wealth tax is imposed on everyone in this spectrum. The capital gains tax is only imposed on those that amass the most amount of power.

So I'm perfectly OK saying you can't single-handedly control a business larger than $100 million without paying the rest of society extra compensation for maintaining that kind of power.

Seems perfectly fair to me. Power is finite in the same way land is. If controlling a company is valuable to you in some other way other than just amassing power, say you are really behind the mission of going to space, you can reorganize into a non profit.

Of course it's a slippery slope, but most things in life could be categorized that way.

If you were to impose a wealth tax on Elon Musk, he would have to gradually give up his ownership in SpaceX and Tesla.

> The idea is that wealth concentration actually reduces competition.

But that's just not been the case. Wealth is not zero-sum. Just because Bezos is a 100 billionaire on paper, doesn't mean that I can't go and raise venture capital for my startup and succeed.

That's sort of the point. Unless he's creating additional value as a CEO such that the board keeps awarding him stock or money so he can maintain his holdings, he's going to lose his ownership stake. Sounds like a tax like this would motivate him to work more not less.

You frame this as though this is somehow beneficial to shareholders, but if that's the case, they can work out this arrangement themselves.

Also the idea that SpaceX or Tesla would continue to be valued as highly as they are if he continuously relinquishes his ownership stake is also dubious.

I was showing how a wealth tax need not necessarily discourage endeavor and industry, as is commonly alleged.

> Also the idea that SpaceX or Tesla would continue to be valued as highly as they are if he continuously relinquishes his ownership stake is also dubious.

Why? I thought they were valued highly because of Musk's leadership, not ownership. Is that not the case? Even without his ownership stake, he can continue to be the CEO as long as the companies do well.

That's not how publicly traded companies work. If a sufficiently motivated activist investor accumulates a large enough ownership, they can decide to fire Elon Musk — and there are enough people that would like to see this happen on account of his crazy tweets.

That's the crux of the argument, that no matter how badly activists may want to remove Elon Musk as CEO, he's safe as long as he maintains his stake. A forced divestiture of that threatens his ability to maintain his leadership in those companies, and that's arguably not in the best interests of many existing shareholders today.

If Musk is a value-add, they'd be tanking the value of their own holdings. If he's not, then why should he keep his job?

If an "activist" investor actually bought 51% of the company (aka an "acquisition" or "takeover"), they would also own 51% of the downside of any CEO changes. At that point they have every right to decide what's in the company's interest. The company's shareholders can also vote on whether to accept the acquisition offer, which means dissenters who lose the vote can sell and get out if they disagree with the new owner's direction.

For that matter, Elon Musk only owns 21% of Tesla right now[1], so if 51% of the board think he's a net-negative, he could go immediately. They clearly do not.

1. https://www.investopedia.com/articles/insights/052616/top-4-...

Per-investor, yes — but multiple institutional investors can get involved with little intervention unless the founder holds at least a plurality. This is exactly why we're starting to see companies like Facebook and Uber issue class A shares. Travis Kalanick was, in theory, untouchable — he just didn't have the energy in him to fight the board after a personal tragedy.

> For that matter, Elon Musk only owns 21% of Tesla right now[1], so if 51% of the board think he's a net-negative, he could go immediately. They clearly do not.

Yes, and if he is forced to liquidate any more of his holding, he ceases to be a plurality. That's the point.

Now yes, because he owns 21%, there are fewer other shareholder votes to oust him than there would be if he owned 10% (still a plurality). But they could do so in theory.

Also, I'll be upfront. I don't think a wealth tax is a good idea because it'll inevitably lead to people dodging taxes by putting the money into stuff like artwork or IP. And to counter that, the government will need to know every single item of value every person owns and have to create a large, intrusive bureaucracy to track all that. It sounds horrific.

But I don't think a wealth tax discourages entrepreneurship or working hard, and PG's blog post is disingenuous in saying so.

This is debatable: https://fivethirtyeight.com/features/money-and-elections-a-c...

Consider that the representative from Bezos' own district in Washington is a socialist.

At the end of the day, the greatest check on wealth's effect on political power is the fact that legislators can only win office if they can win a democratic election.

At the end of the day, the greatest check on wealth's effect on political power is the fact that legislators can only win office if they can win a democratic election.

It doesn't work like that. You donate to both sides of the aisle so you always have someone in your pockets. The famous cartoon from John Herzfeld about the "Millions behind Hitler" (this one: https://en.wikipedia.org/wiki/John_Heartfield#/media/File:He...) is bullshit. German industrialists did give substantial support to Hitler, but not for ideological reason, they'd have given to anyone in power. The cash did amplify Hitler's ability to implement his ideology, though, and the non-donors didn't choose that.

In my country, there are people who's had to declare personal bankruptcy from this situation.

Also, be cautious about how early investments may artificially inflate the value of the company. Convertible debt is one way around that issue.

In other words tax income and the game is to hide income, tax wealth and you increase economic efficiency. Wealth taxes only erode wealth if you fail to make positive returns.

However, Amazon (as an example) does not pay dividends.

And also, this creates an incentive to pay dividends to shareholders, as opposed to re-investing profits in R&D, which is an odd (IMO bad) incentive.

The current tech formula seems to be "build the biggest moat possible - worry about profitability later"

While that is driving some of the fastest growth in history, one has to wonder what the landscape will look like once these moats are built. Will these companies have full power to price however they please?

If a company is incentivized to be profitable as they grow, would it lead to a more stable future where we have multiple competitors in each industry?

You see this now with the cloud vendor lock-in bullshit. Too much productivity wasted through too much unnecessary friction.

> what would more likely happen is that loan products and other financial instruments and techniques would pop up so you could pay the taxes in a whole host of ways without actually losing the underlying shares that are used as collateral.

In order to pay back a loan, you have to realize some gain somewhere. That money isn't free. Even to simply pay back the interest, you would have to liquidate some of your own stock (which is taxed). Eventually when the principal needs to be paid back, the only way to do it is to liquidate the equivalent value in your own company.

They "engineer" zero profits by re-investing their surplus back into R&D — a behavior explicitly encouraged by the government and the tax code. In 2010, Amazon had about 100,000 employees. Today they have almost 1 MILLION. That's what "reinvesting profits into R&D" looks like, in practice.

> Your company can pay dividends and you can use that to pay the tax.

You're essentially talking about adding a countering incentive away from investing in R&D, and toward paying shareholder dividends, which...why? There are way more intelligent and non-distortionary ways to raise funds for a government (eg increasing the capital gains tax).

So shareholders can choose where to allocate those dollars? What's bad about that?

It also ignores the fact that if Amazon had been forced to pay dividends 10 years ago, the stock would be worth significantly less today on account of their inability to re-invest into R&D and enter new business lines and grow from 100,000 -> 1 million employees. Even if we aim to strictly maximize shareholder-value (to the extent that's even desirable), it's penny wise but pound foolish.

There's a lot to be said for property taxes. Taxes on income and wealth are disincentives for things you wnt more of. Property tax is one of the least destructive of taxes.

I'm also of a mind that carbon and pollution taxes would be good as well, since the disincentive would be a plus in that case.

Yeah but a wealth tax is not the same as a property tax, because unlike land, wealth is not zero-sum, it's created. In fact, the most economically efficient property tax is the Georgist Land Value Tax which typically deducts the appraised value of improvements before applying the tax, because we don't want to tax productive improvement of land.

Taxing wealth OTOH has the effect of taxing the productive creation of wealth. It's like an inverse Land Value Tax, where you allow one to deduct the value of the underlying land, but simply levy a tax on the appraised value of improvements, just because one might be improving the land "too much".

Also, property taxes are unconstitutional at the Federal level. This is why there is no such thing as a Federal property tax, today. If we wanted a Federal wealth tax, we would have to amend the Constitution.

ACME startup raises Series C @500M. Founder equity is worth 100M on paper. Founder needs to borrow money every year to pay 'wealth' tax. After 10 years of struggles, company sells for $100M, VCs get money back, founder makes no money. But now founder is millions in debt for past 'wealth' tax payments. Founders will be declaring bankruptcy in those cases. And interest rates for wealth tax loans will skyrocket as a result, making effective wealth tax rate much higher.

Problem is startup founder 'millionaires' and 'billionaires' are only that on paper. Any asset that is volatile (like startups) will become impossible to own long term even with a small wealth tax.

Having a struggling company is super stressful, adding the government asking you to come up with money to pay personally, because you are 'wealthy' on a paper would take it to a different level.

Not to be a dick, but I don't see why anyone thinks this is valid justification to block a wealth tax - maybe you could argue that the cap should be higher. Income inequality has gotten ridiculous and is only going to get worse as AI technologies mature. There needs to be a way to reallocate wealth from the super-rich to the 40% of Americans who would be unable to pay for a $400 emergency and I haven't heard a better proposal.

IMO you should do the opposite - remove all obstacles to start/invest/run a company and tax the outcome - or, even better, consumption. If you feel those taxes are too low, then raise them.

That is exactly what a wealth tax proposes to do since there is no other realistic way to impose a tax on a successful companies. Corporate taxes haven't worked very effectively. When someone sits on $1B+ in stock, there is no way other than a wealth tax to redistribute that wealth.

First of all, this has literally zero impact on the vast majority of entrepreneurs and small business owners who will most likely never hit $30M+ in net worth. And those are the real job and wealth creators.

Secondly, global corporations have the effect of taking wealth from the many and centralizing it into the hands of the few. And this will continue to get worse as AI advances. These corporations are not good for the long-term health of America and I don't think many Americans will care if it becomes a little bit hard to make $100M.

Maybe you could pay it in shares, so no borrowing required.

Or maybe for illiquid assets including non-public stock it could be warrants that you only have to settle at a liquidity event.

It's a strawman to assume a wealth tax will be set up in a broken way when non-broken ways are possible.

There are a lot of rights and some obligations that come with equity ownership in a company beyond financial return.

There's lots of examples of financial ownership without the holder of the return running the business. Whether it's a state or an ex-spouse.

Some places the rules have changed a bit to avoid some of these cases where people owe more tax that they can pay, but it can still happen.

That’s just the starting point. Once people begin to figure out how to avoid it or have been tapped then the qualifier will be lowered to 40m. And then eventually 30m and do on until anyone above average is paying it. And then anyone above median.

The state will, as always, become reliant on it and find ways to expand it to wield more power and pay debts that were taken on to “collect/spend in advance” as they’ve done countless times.

This is why people that will likely never meet today’s threshold are against these schemes. These things always get a wider, and wider net until anyone just starting to get ahead is caught in it.

This hasn't been true for the income tax [0], nor the capital gains tax [1], nor (at least in Silicon Valley) for real estate taxes[2], which are closest to a wealth tax. It's a reasonable thing to consider, but given the evidence we have, should not be a driving consideration.

[0] https://bradfordtaxinstitute.com/Free_Resources/Federal-Inco...

[1] https://en.wikipedia.org/wiki/File:Federal_Capital_Gains_Tax...

[2] https://www.boe.ca.gov/proptaxes/decline-in-value/

edit: I was misinformed re: income tax, tracking only the top rate.

Well that's false, the income tax in the United States originally was promised only to ever apply to the ultra-rich. Now every tax payer pays it.

Well that's false. In 2018 44% paid no federal income tax.

https://www.marketwatch.com/story/81-million-americans-wont-...

Source kinda sucks bec its looking at all americans not income earners which is what we're talking about.

But even so as others have said the point stands, originally income tax was only for the uber rich and now a large majority of workers pay it.

Also every single worker pays payroll tax regardless of income level, that's something the article doesn't address.

Sure, it's not fun, but it's not an overwhelming burden for those with a simple 1040.

It's still about 1000x more complicated than filing in New Zealand, which is comparable to filing on the California site. Basically a 15 minute wizard on a web page.

Now, maybe if the wealth tax was combined with a significant reduction in income tax, say 0 tax for the first $100,000 a year people make, then people might be a bit more willing to support the notion. But just a new tax, with the promise it won't impact you? Can't blame people for lacking any trust.

If there was ever a slippery slope it was the slippery slope of cutting more and more taxes for the rich.

I even suggested that lowering taxes on the middle class and below while introducing a new tax on the rich would be the a method to prevent people from being concerned with the tax eventually impacting them. With all the 'tax the rich' rhetoric, why not include a 'and not the poor' as well?

I agree that it's easy to tax people wealthier than you. When it might affect you, there's less support.

In the 50s through 70s, there was a much higher income tax on the upper income brackets: the tax was much more progressive. Ronald Reagan dramatically lowered the income taxes on the high income people and kicked off the dramatic increase in economic inequality that we've seen over the past 50 years. The GOP destroyed much of the promise of the American Dream in this case. Is this what you mean?

From Wikipedia - In 1913, the top tax rate was 7% on incomes above $500,000 (equivalent to $12.9 million in 2019 dollars) and a total of $28.3 million was collected.

1 - https://www.mwattorneys.com/blog/first-income-tax-was-suppos...

https://en.wikipedia.org/wiki/Revenue_Act_of_1913

Compare that to the general income tax today, and who it applies to: the floor now includes ~60% of people with any income at all, and the lowest possible income tax rate is 10%, e.g. 10x higher.

And literally everyone pays income tax in the form of Social Security and Medicare. (For whatever reason, if an income tax is pre-allocated to particular government spending, it's no longer an "income tax" in some people's eyes. The tax effect is identical and you need the 16th Amendment to allow it, so IMO it should be lumped in with the other income taxes we pay.)

[0]https://taxfoundation.org/joe-biden-tax-plan-2020/

You can see this on a variety of topics. Gun control legislation, immigration reform, healthcare reform, etc. Reasonable laws are perpetually overshadowed by the boogeyman on the horizon.

In my opinion, most proposals by either side on a variety of topics are not good options. They have become hard-line battle cries for their respective party in order to motivate hardcore supporters to come out to vote, particularly in the primaries in which the radicals comprise a larger share than in general elections.

Because that’s exactly what’s happened in the past. We don’t just get ONE piece of gun legislation and that’s the end of it, every so many years we keep on getting pushes for more. For immigration reform, we didn’t just get ONE amnesty of illegal immigrants and then strict immigration control which was promised back during the Reagan administration, we got complete acceptance of continued illegal immigration and renewed calls for amnesty.

The smart money is always on not trusting the government.

I think we'd get along better if we first proposed and found agreement upon which metrics we want to achieve (gun deaths at x%, or a decline of x% by such and such date, etc) and then implement policy that get there. And then correct as needed.

There was a time when universities had a very disproportionate amount of males VS females. So we passed policy that was designed to make a university degree more achievable for females. And it has worked, which is great! However, we never really implemented an end condition to this policy. And the entrenched apparatus that makes it's living or achieves ideological goals continue the policy, as-is, in a never ending battle.

If we would have said "we want 50% of college students to be female by x-date" (or better, we want to maintain a balance of 50/50) then we could have either stopped the policies that were used to correct the initial condition or modify them to hold it steady at 50%. But we haven't and now 56% are females and it's growing and any suggestion that we either need to hold off on these policies now that we achieved the goal or even correct it to get more males into universities is immediately labeled sexist, etc.

I think it's easier to get a diverse group of people to work towards a common goal when you define the end condition (put a man on the moon) rather than using vague descriptions of what would be a better world. At the very least it stops skeptics from just flat out saying "no, as it will never end".

The avoidance issue is a big one and the mechanism of making sure people pay is at least as important as where one sets the floor. Cross border capital flows can be pernicious.

Piketty gets into how different rates of capital accumulation create huge rifts between people who own appreciating assets like land and equities and people who don’t who primarily earn wages. The idea behind the wealth tax is to try and narrow the rift.

A significant proportion of Americans would disagree with you that it's the government's business to "combat inequality". Most people agree with taxes to help the needy and fund infrastructure, but it's a harder sell that the government should punish people just for being too successful.

>Piketty gets into how different rates of capital accumulation create huge rifts between people who own appreciating assets like land and equities and people who don’t who primarily earn wages. The idea behind the wealth tax is to try and narrow the rift.

But he doesn't outline clearly what the problem with this rift is. To quote the criticisms section of the Wiki page on his book (https://en.wikipedia.org/wiki/Capital_in_the_Twenty-First_Ce...):

"One strand of critique faults Piketty for placing inequality at the center of analysis without any reflection on why it matters.

According to Financial Times columnist Martin Wolf, he merely assumes that inequality matters, but never explains why. He only demonstrates that it exists and how it worsens.[36] Or as his colleague Clive Crook put it: "Aside from its other flaws, Capital in the 21st Century invites readers to believe not just that inequality is important, but that nothing else matters. This book wants you to worry about low growth in the coming decades not because that would mean a slower rise in living standards, but because it might ... worsen inequality."[35] "

Extreme inequality tends to destabilize society. At some point all the multitude of have nots get sick of their lot and rise up and take from the haves by force.

So I would say inequality is good, in manageable doses. The question is are we headed to a managable place?

A perfectly equal society can also exhibit a great deal of unfairness, and a perfectly fair society would most likely be unequal.

"Fairness" should be the metric under discussion, not inequality.

The problem with wealth taxes is not slippery slope, but rather that wealth can be obfuscated and moved around much more easily. Transactions are easy to tax; wealth worth taxing is about what you control, rather than stuff you have.

There's good reasons the most successful wealth taxes are land taxes. You can't easily move land.

This is a bit misleading. The first income tax of 1861 was on incomes over $800, which inflation-adjusted is about $23000. The next year the threshold was lowered to $600 or about $17,000 in today's dollars. Currently the standard deduction is $12,200. Certainly some creep, but it doesn't quite fit the described jump from only the wealthy to everyone, except perhaps to the degree that nearly everyone in the US today is wealthy compared to the average citizen in the 1860s.

Rates have certainly gone up since then (originally a 3% rate), but top rates today are quite low by modern standards - they were higher than today from the 1930s through the late 80s. Typical average rates have been on a slow downward trend since WWII.

https://en.wikipedia.org/wiki/History_of_taxation_in_the_Uni...

I think it's arguable that taxes only ever go up. Income taxes on the rich used to be near 90% in the top bracket, so it's not a one way ratchet. That said, I agree government tends to expand and needs to fund that growth somehow. But I think it's much more likely that need manifests as an increase in the wealth tax rate rather than a lowering of the wealth threshold. The billionaires have so much more money than everyone else (and so much more than they need) that it will be much more politically popular to raise the wealth tax on them than it would to expand the pool. Not to mention, there are more of us.

I'm not advocating a wealth tax, and I think it's problematic for other reasons, but I don't think the slippery slope argument is much more than fearmongering in this case.

[0] https://en.m.wikipedia.org/wiki/Slippery_slope

The history of taxes in the US (and especially California--remember the "temporary" 13.3% highest marginal rate?) has more slippery slopes than 6 flags fiesta Texas. It's not fear mongering, its a very solid argument against new taxes.

My reading of the way the slope slips is that rates go up, not that the minimum threshold is lowered. This reflects historical tax law changes, political sensibilities, and basic economic theory. This was all in my original post as well, so I'm not sure it'll land this time, but I'm a bit offended that you have mischaracterized my post as reflexive, implying thoughtlessness, when I believe it was anything but.

My opinion restated, billionaires have more to fear from this than any of the rest of us do.

Sadly it is legitimate to some extent IMO.

Falsely asserting a slippery slope—that A must lead to B which must lead to C when none of these things are inevitable—is a logical fallacy. It is not a fallacy to point out that the grass is wet and the hill is steep and suggest that perhaps we should put up a sign advising people to stay away from the edge. The argument is simply that this is a dangerous situation which we would do best to avoid, not that anyone who goes near the edge will inevitably lose their footing.

> The billionaires have so much more money than everyone else …

Do they really? It seems to me that what they mainly have is not money but rather illiquid assets, i.e. capital. That includes stocks, which can be sold—at the expense of giving up control of the company—but also stock options which can't be exercised immediately and tons of actual capital equipment, inventory, buildings, and so forth which can't readily be put to other use.

> Income taxes on the rich used to be near 90% in the top bracket, so it's not a one way ratchet.

Keep in mind that they never actually collected anywhere near that much. Those 90% brackets were purely theoretical.

There are many millionaires for whom what you describe is a problem. I assure you that billionaires do not have a problem with liquidity unless they want to.

No, they don't. You only have to go back a couple years in the US for an example where tax rates for the wealthy were massively cut.

Tax rates for the wealthy were cut? That's great, for them. Were tax rates cut for the middle class? Did any of the lower class no longer have to pay income tax? That's what would be a response to nemo44x. (What would be a response to me would be for there to be no income tax for anyone in the lower 90% of income. That would be back to the original intent, and would reverse all the years of scope creep.)

Remember what the argument in the local thread is. nemo44x stated that "these things" (things like the wealth tax) always expand to cover more people than they did at the beginning. rurp said that the income tax cuts a couple of years ago disproved that. I said that the expanding scope of income tax over the last 107 years supported nemo44x, not rurp.

Your arguing that that's OK, because we want the society that results. That may be. But that's a different claim than "this won't expand to hit everybody".

You can't do that on HN, regardless of how wrong someone else is or you feel they are. Perhaps you don't owe "dude" better, but you owe this community better if you're posting here.

I'm dismayed to see that you've been making a habit of posting like this, as well as unsubstantive comments generally. If you keep doing that we're going to have to ban you, so would you please review https://news.ycombinator.com/newsguidelines.html and take the spirit of this site more to heart?

Personally, this and income tax increases make me seriously consider moving out of CA (where I’ve been a resident for a very long time)

That is only true if your wealth is in diversified ETFs or funds. That is not where most of the wealth of super-rich founders is. If 90+% of your wealth is in a single company (I.e. the one you founded), then there's no guarantee that this wealth will necessarily appreciate on its own (esp relative to inflation).

This is literally not true for the wealthiest founders. The vast majority of billionaires (and even high $100M) only enjoy that net worth because the vast majority of their wealth is in a single stock: their own company. Even if 10% of their wealth is in diversified portfolios, that isn't nearly enough to offset the tax required to pay off the remaining 90% of their wealth.

Second of all, even for those that have decided that they no longer care about maintaining a majority of their net worth in their own company, they have to liquidate their existing holdings in order to buy into diversified portfolios, at which point the wealth is taxed. And then any appreciation within their new portfolio is ultimately taxed when any capital gains are realized.

In the US, we do not tax wealth, we tax income, dividends, and capital gains, because wealth is not money.

> The idea that billionaires can find money for multiple million dollar homes, but it's impossible for them to pay taxes is ridiculous.

It's not ridiculous at all, it's literally in the math. It's one thing to occasionally voluntarily liquidate tiny fractions of your holdings for one-off purchases (like a home or a yacht or to make an annual living), and another thing entirely to impose a yearly "cost to maintain ownership of your company" resulting in involuntary liquidation.

There is also the reason that income is easier to manipulate, and the rich-of-the-rich do not, for the most part, have "income".

The top marginal income tax rate is 37%. The top capital gains (income for wealthy people) tax rate is 20%.

Why does someone actively working for an income pay a higher tax rate than that paid on someone's passive income?

That, or adding a top marginal capital gains bracket for any gain above (say) $100 million.

This also has the built-in advantage of not requiring a Constitutional amendment.

You missed a major reason long-term capital gains rates are lower than income tax rates: they are not indexed for inflation in the US and inflation on income is negligible. As a matter of tax policy, it is much simpler to reduce the rate than to compute a very large inflation deduction, but you can find countries that go both ways.

I stuck entirely with federal numbers when comparing capital-gains to income taxes to make it a more apples-to-apples comparison. It looks like you took that in order to compare california-specific state+federal capital gains tax, and compared it to federal-only income tax?

The other issue of high-cost states being more often included in high-rate brackets (due to federal tax brackets not being adjusted for cost-of-living) is a different, and also complex, issue.

Very interesting point.

Just do the math, you need to divest a significant percentage of your own holdings in order to re-invest it into diversified portfolios sufficient to pay a wealth tax. The vast majority of founder paper-billionaires haven't come remotely close to doing this.

S&P 500 has a long term annualized return of 10%. If you have a 5% wealth tax on stock you have in S&P 500 then you are still earning 5% returns (well above long term average inflation) without actually lifting a finger.

There is no guarantee that the single individual super-wealthy founder whose wealth derives from the ownership of their own company will appreciate at an annualized rate of 10%.

The two most pervasive myths about wealth among the super-rich appear to be:

1. They are sitting entirely on liquid cash

2. They are sitting entirely on highly diversified funds that enjoy 5+% annualized appreciation.

Even if a wealthy founder took out a collateralized loan, in order to pay back the loan, they have to realize some gain somewhere (which is already taxed). That money isn't free. Even to simply pay back the interest, they would have to liquidate some of their stock (which is already taxed). Eventually when the principal needs to be paid back, the only way to do it is to liquidate (and divest) the equivalent value in their company (which is already taxed).

PG's essay shows that the wealth tax compounds every year. That just doesn't happen with consumption. Bezos doesn't have 20 homes and 20 yachts.

What do you mean by that? Can you give examples of that single asset?

The S&P500 is a portfolio that puts together all of these companies and diversifies them. In other words, Bezos is one part of the S&P500.

If Elon Musk's goal was ROI maximization, he has no business maintaining ownership in SpaceX and Tesla — he ought to just dump his billions in high yield ETFs.

Fortunately, that is not his primary goal, and (at least in the US), he is able to continue to pursue success by maintaining ownership in his companies.

Diversification is a solid strategy for most people, but founders that own highly valuable companies are not "most people"..

On the contrary there are plenty of areas where we know governments are vastly more efficient than markets.

B) I know people who were bankrupted by existing tax laws - had shares in internet companies during the dot com boom; company IPOd making them paper millionaires, thus owing millions in taxes, but had 6 months lockup. By the time the lockup expired, company went bust, nothing to sell to cover the tax bill. Any law that takes valuations into account (as a wealth tax law is bound to) is likely to wrong some people in a similar way, especially entrepreneurs and early employees.

I personally think there are too few of the big, risky ventures these days, and too many low value-at-risk software-only startups (aiming to be bought up by a FAANG), but that is just an opinion.

That's a good thing, and I disagree completely with your assertion that "there are too few of the big, risky ventures". My impression is just the opposite: there are too many stable companies with modest success that are being killed by VCs who insist they have to adopt go chasing mega-growth that has no chance of actually materializing. Dropbox, Kickstarter, and Patreon are a few prominent examples of this trend: they achieved success in the marketplace and could've been happy with that, but their backers would rather take a 1% shot at meteoric mega-growth, and so now the products increasingly suck while the companies hopelessly go after initiatives way outside their core competency until their loyal customers get sick of it and leave, the company crashes and burns, and the VCs write it off as just another failure.

Discourage starting a company at all? Probably not, but the article does not suggest that. Do you think it might influence where they start it? Looks reasonable to me, at least qualitatively.

This has always been the argument, and I've never bought it.

Now, more than ever, is the time to start a company remotely, thanks to Mr./Mrs. Covid. Have we seen a massive move away from SV and other tech centers? Have we seen a massive wave of startups in 'flyover' country?

It'd discourage the people who pay the bills (VCs, wealthy, etc.) from living in those states. Founders would simply follow the money to other states as they have done in the past.

Nevertheless, I’m now at risk of having a six figure tax bill every year for paper wealth that is 100% illiquid.

If this passes I would be leaving the state and guarantee you I would NEVER found a startup in California again.

The very first U.S. income tax, imposed during the Civil War (the nation's bloodiest conflict), was 3% on income over $12,720, rising all the way to 5% on income over $159,000 (in 2020 dollars). This was unconstitutional at the time, and was eventually repealed.

The first income tax imposed after the ratification of the 16th Amendment was 1% on income over $78,510, with an additional 6% on income over $26,170,000 (2020 dollars).

The current U.S. income tax ranges from 10% to 37%, with a standard deduction of at least $12,200. There are also payroll taxes under FICA, which are even more.

I recount all this riveting history as evidence for my contention that there is absolutely no way that a wealth tax would remain at 1% for anything above $50 million. I guarantee that within a few years to decades most citizens would be required to pay wealth taxes, and that they would amount to a considerable amount even before taking into account their compounding nature.

> This means that there is a floor on how "poor" the government can make you via a wealth tax.

The only floor is zero: a government can, if it chooses, take everything from its subjects — or just from some of them.

Either way - I think we fundamtally agree that there needs to be more tax on the rich, be it investments, wealth tax, inheritance, or that sort of thing.

I am not (here) worried about it being regressive: I am worried about it being yet another mechanism for the state to take a larger fraction of GDP (about 2½% in 1900; almost 20% at the height of the Second World War; about 17% now, according to Wikipedia).

> Either way - I think we fundamtally agree that there needs to be more tax on the rich, be it investments, wealth tax, inheritance, or that sort of thing.

I certainly don't! I agree that we need a government; I agree that we need taxes to fund the government (I disagree with those who think that we can fund the government on a voluntary basis); I agree that taxes need to be fair in some sense.

I suspect that fairer taxes would be higher for the middle classes, to be honest. Certainly the countries with effective welfare states seem to have more taxes on the middle than the U.S. does.