Comment by Glyptodon
4 hours ago
On top of that it seems to imply that a 20% effective tax rate is outrageous even though that's totally normal for most. Maybe it's not what you're used to as really wealthy person who avoids realized income and has a 0 or 5 or 10 percent effective rate. But it's totally normal for most middle and median income folks who actually pay income taxes.
It's 20% equivalent income tax rate if you have no conventionally taxable income. Otherwise it's 20% on top of your marginal rate. In his $100 example, you'd pay $1 in wealth tax on the $100 and $1 in tax on the $5 income earned, so your total tax is $2 on $5 of income, an effective tax rate of 40%.
But any real wealth tax is going to have exemptions, only apply to wealth above some threshold, and for the wealthy who structure their finances so as to have little or no taxable income, well they end up paying 20% like all the rest of us do.
> an effective tax rate of 40%.
It's not. That calculation would say that if you have $1000 of wealth and $5 of income your effective tax rate is 220%. It's bad math.
Your conventional income is taxed separately.
A wealth tax sort of stacks with capital gains, but capital gains is way too low anyway.
Yes it is.
($1,000 * 1%) + ($5 * 20%) = $11 tax due on $5 income. They are separate taxes but he's expressing them both in terms of an effective income tax rate.
In this case, since you owe more taxes than income you've earned, you'll need to sell off some of your wealth to pay up.
If you have no income at all, but do have wealth, then you get a division by zero error so I do get that it's maybe absurd to frame it this way, but the premise of TFA was "how to convert between a wealth tax and an income tax" and the context is a presumed 5% return on capital.
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20% tax on wealth (aka the potentially liquidatable value of an asset) would absolutely destroy anyone using an asset. For a classic example, look at property taxes which are a classic wealth tax. Grandma’s, people on pensions, and even middle class folks who own a home but have relatively low rates of salary increases get destroyed (and have to sell and move out) in places like Texas where property taxes aren’t capped/controlled like California under prop 13 when property prices go up.
Having your house get ‘too expensive to live in’, in fact, is a classic issue with property taxes, and was happening in California - which is exactly why prop 13 happened. And most of those locations the maximum tax is around 1-3%!
‘Wealth’ is not the same as income, because wealth is potential money, if you can sell - and if you sell, you lose access to it.
A 20% wealth tax would mean any asset which doesn’t earning free cash flow returns of at least 20% a year, or which isn’t appreciating at least 20% a year in a risk free way would be impossible to hold for anyone except the most rich people. And even they couldn’t do it for long.
I can’t think of anything which that realistically describes.
A 20% income tax reduces actual cash in hand to 80% of what you’d otherwise have, which isn’t great. But you still get the actual 80% cash in hand right now, and can use it.
You can’t have ‘80% control/ownership for the year’ of a house in a meaningful way, and especially for people actually using/relying on the asset to live, they can’t find 20% (or in most cases even 5%!) of the value in cash for the asset every year. They’d go bankrupt.
All of the people I mention wealth tax to give me the same two counter cases: Grandma and Elon.
I think there's no reason why a wealth tax can't be progressive. Just making up numbers here, it could be zero for your first 30 million, and rise to some palpable amount for your first billion.
This would protect granny from being taxed out of her house, and in fact would affect relatively few salary earners.
I'm not overlooking the possibility that such a tax structure could create an effective wealth cap at some level.
The problem in California is that it's very hard to change laws. Likewise in my state, where many aspects of the tax system are constrained by the state constitution.
Sure. The issue I’d see is in 20 years inflation might mean that applies to almost everyone, like AMT, but that is a future us issue.
The biggest personal complaint I have is why should the government be getting more tax money when all they seem to use it for is blowing up random countries in the Middle East and spying on law abiding citizens for whatever random reason.
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>I'm not overlooking the possibility that such a tax structure could create an effective wealth cap at some level.
No, I think what that does is create an effective corporate decimation. No one has a billion in cash that I've ever heard of. When you say "tax the billionaires of their wealth" because this billionaire has $1 billion, you're talking about his shares right? Maybe in one company, maybe across many. Is he supposed to pay that in cash?
How does this even really work? He could try to sell $200 million in stock, I suppose (if that's even legal according to the SEC, though that stuff could be loosened up), but what happens when he only gets $70mil for it because the stock price tanked? Should he sell more, until he comes up with that original 20% of his "billion"?
What if instead, he just gives 20% of the shares to the government, and they get to sell them, would that count? They wouldn't even have to sell them... the government could become the shareholder, until it controlled every corporation out there. The grift and graft would be massive, nothing to go wrong there. CEOs and other top positions basically appointed by whoever gets to be on the Congressional committee. The Democrats no doubt are certain they'll be in control of it, but then they'll be hysterical when it turns out they miscalculated. Could be fun to watch while eating popcorn, at least until there is no more popcorn left because the corporation that distributed popcorn melted down.
Wealth taxes are the domain of angsty teenage marxists and other retarded children.
How much does a wealth tax collect in the US, does anyone know? Does anyone care? Is it that they've identified a need for the government have revenue and devised a fair way of having the entire nation pay for that need, or are they just hoping it will be confiscatory in the most punitive way possible?
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These wealth taxes are not proposed to apply to everyone evenly, that would be a regressive tax policy. There is a wealth cutoff, most commonly proposed to be around $50M.
If grandma has $50M in her house and pension, she can afford to pay a tiny tiny tiny fraction of her wealth to make sure her grandkids still have a place to live that's not falling apart.
whats all this talk about 20% wealth tax. We are asking for 1% per year, and the rich are still screaming. damn I pay more than that on my house.
> 20% tax on wealth
Thank god no one is talking about this, then. According to Graham, a 20% wealth tax is equivalent to a 400% income tax.
Read my comment - it likely would be equivalently impossible. That is my point.
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You obviously didn't read the thing. 20% is not on wealth. The argument in the piece is that 1% on wealth is the same as 20% on income, and therefore 1% on wealth is obscene.
Please read before making replies that don't make sense in context. When I refer to 20% I'm referring the PG's characterization of a 1% wealth tax as an effective 20% income tax, not a 20% wealth tax.
I read it, and was replying in context.