* $0 to $9,950 - 10% of taxable income
* $9,951 to $40,525 - $995 plus 12% of the amount over $9,950
* ...
* $523,601 or more - $157,804.25 plus 37% of the amount over $523,600
Problem? There is effectively no taxes on wealth, only income/capital gains.
This system really screws over the middle class and immigrant families because we generally accumulate wealth through income... meanwhile Bezos can passively "earn" billions per year through his prior ownership of Amazon shares, with an effective tax rate of 0%.
The low interest rates further benefit the rich because they can take out low-interest loans collateralized by assets (that is, Jeff can take out a $100M loan to get liquidity, without liquidating $100M in shares - he only needs to sell enough to pay off interest [the portion sold is taxed as income]).
because the wealth is already taxed - how else did you acquire that wealth without paying taxes first?
To tax wealth is to prevent accumulation of wealth, and i think that has bad, unintended consequences. On paper it sounds good, but like all things, this hurts some group of people more than others, and just because that group being hurt isn't "your" group of people, it doesn't mean they deserve it.
Taxing income (of which capital gains is one type) is fine - adjusting the brackets is fine too. But a lot of times, people come into the more-taxation side assuming that more taxation means better society - but i can tell you it isn't true. Better politicians comes first.
The very wealthy minimize taxes paid by taking deferred compensation in the form of equity held past the long term capital gains threshold, and then only selling a small portion at the low long term capital gains rate.
The next level tax avoidance approach is as the GP described: don't sell your equity, thereby not realizing any taxable gains, but get cash flow by borrowing against it. This requires you to have so much equity that borrowing a small percentage against it is all you need to pay for your daily life, a position that few people are in.
That's just scratching the surface of tax avoidance mechanisms, but the result is as Warren Buffett described: he pays a lower tax rate than his secretary.
but they'd have to pay interest on that borrowing, and presumably, these interest from borrowings for daily life and consumption is not tax deductible (or only the portion related to an investment expense could be deducted).
Therefore, to pay that interest, they'd either have to borrow even more, or sell some equity to pay. The current taxation scheme encourages this, because if the person's consumption is lower than their wealth's growth, they would want to reinvest their excess, and this is the most efficient way to do so without the state taking away a large portion from taxation.
Or take a minimal salary or use equity sold at the low long term capital gains tax rate to pay for it.
Also consider that when you have huge amounts of assets - far greater than the loan principal itself - you can negotiate an interest rate that regular people can't. Borrowing 20M for living expenses against assets worth 200M is a very low loan to collateral value ratio.
When the group is "the most successful in the current system", it's not exclusionary / discriminatory or exploitable. Whether their success is due to luck or smarts or inheritance, they succeeded in the current system by definition, because there is only one system. Therefore, they can be asked to pay proportionally more to maintain it. Furthermore, the bargain "to pay less tax, be less successful" is not one that any rational actor would make. It's inherently fair.
The only part you could reasonably quibble with imo is using wealth as a measure of success, but since it is the currency that taxes deal in -- one alternative: government takes some of your children -- it's the one that makes the most ssense. Still, those in society that find some way to life satisfaction without accumulating wealth do have an advantage in the proposed system. Maybe that's something we should encourage?
if it were really true that paying more taxes leads to more success, then they would pay more. But it isn't true - patently not true. The less tax you pay, the more you get to keep for yourself, and reinvest, and the more likely you reach higher "success".
Thiel bought a lot of PayPal equity for basically zero dollars in a tax-free account. The tax exclusion for inheritance is enormous, allowing children to inherit millions and millions without paying taxes and receive a step-up in basis.
so he did pay his taxes - he paid the amount required by the financial instrument setup by the gov't (which happens to be zero here).
And his situation is fairly unique and rare - very few people invested in a startup via their retirement account, and have massive success.
For most people, their wealth would already have been taxed; e.g., people with excess savings that they put into investments such as property or shares.
Why do you see this as a bug rather than a feature? Sure, it disproportionally benefits rich people but it's still beneficial for not-so-rich people.
I find it unlikely that there is a system in which rich people don't benefit more unless you create an arbitrary definition of "rich" (I.e. $10M net worth) and tax "rich" people more. Even then they'd probably be able to get around it.
> This system really screws over the middle class and immigrant families because we generally accumulate wealth through income
I disagree. Almost no one gets wealthy without owning assets that appreciate in value.
Taxing capital gains on principle residences means people are less likely to move up to a better home which creates a problem for first time home owners trying to enter the market as no supply exists.
Wealth tax requires you to know everyone's wealth. How are you going to get that information / verify on a yearly basis.
obviously this would be difficult and would require new rules, but it doesn’t seem at all impossible
you could start high (say 1000x the federal poverty line) and work backwards
there are already a number of proposals from lawmakers that cover the details better than some rando on the internet
I'd really like to understand your wealth accumulation algorithm here because, having lived in CA, I wrote a bunch of programs to model my family's guessed at expected inflation, house appreciation, income appreciation, and tax scenarios, and I bailed.
The people ahead of you are not going to let you climb that ladder, is what I decided. Twenty-five years later, yup.
And I won that game. Survivor bias for sure, but now I'm sitting on what I didn't expect: prime real-estate for CA remote workers + retirees.
Y'all got yours, now what - screw me?
I want to build my wealth - give people like me a 5 year tax break or something instead. I can't afford to live where I work (California) unless I'm willing to live in a shitty area with high crime and terrible schools.