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.
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.