But none of the people you are trying to target with the wealth tax have their holdings in the S&P500. Instead they have close to 100% of their holdings in a single asset represented by the more diversified S&P500.

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.

So what? That just means that you get ahead if the company you own grows ahead of the broader economy and that you lose out if you fall behind.

No, it means that if you fall behind the broader economy, you lose control of your own company. It deprives the business owner of the ability to turn their own company around. All to raise a minuscule percentage of the Federal budget. That's a terrible system.

Honestly, a better system (but still bad, and with lots of issues) would be to just give the US government a percentage of your ownership as your receive it. Ex: Elon Musk would have to give the US government 1% of the shares he receives ownership of. The government would then be the recipient of any dividends earned or liquidity event from these shares.

What you described sounds like a sovereign wealth fund, and that’s IMO a great idea.

They can, and do, borrow against their shares.

Yeah but borrowed money needs to be eventually paid back, so you're (at best) just deferring the problem.

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).

If you can borrow against shares to buy a big house, mega-yacht, etc you can do so to pay your taxes.

No, your argument would be like saying "if you can borrow against shares to buy a big house, mega-yacht every single year, you can do so to pay your taxes".

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.

>> Instead they have close to 100% of their holdings in a single asset represented by the more diversified S&P500

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

The company that they own.

I guess I interpreted your statement as: "That single asset they own is more diversified than the S&P500", which I don't think is what you meant right?

I meant the opposite of that. The single asset that they own is less diversified and riskier than the S&P500, and therefore you can't take the annualized return of the S&P500 and then conclude that "money makes money" on a founder paper-billionaire's wealth.

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.

A company that they own?

They aren’t diversified?!

Super-wealthy founders are not sufficiently diversified, no.

So this wouldn't be helpful as an incentive to get them diversified?

That's an arbitrary incentive that's not particularly useful. And in any case, it forces one to relinquish a significant partial ownership in their own company just to be able to afford to continue owning the rest...all so that we get them to diversify their portfolio?

This sounds like the exact opposite of what the US as a whole wants to occur.

Would Elon be interested in selling his stakes and diversify? Would he be lose control over his company to retain his wealth?

This comment was flagged for some reason, but it's entirely valid.

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.

Yeah, that sounds weird. I either need a source or some proof of knowledge/authority on the topic.

Sure, if you get recruited by a $100m startup, and you hear that the founder sold half of their stock "to diversify", there's almost not chance you're working there.

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

The S&P has a long-term annualized return of only 7.41% since the end of the Bretton Woods system (beginning of the modern financial system). And that ignores investment costs such as trading and mutual fund fees; actual annualized returns will be lower for real investors.

That might be your preferred ideology. There is, however, no evidence that democratic goverments that control more of a societies spending do worse for their countries.

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