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0 pointsvekker5y ago0 comments

Simplicity is also often an indicator of truth.

I think you completely missed another important point hidden in PG's article, besides the obvious compounding effect, and that is that unrealized gains would be taxed under a wealth tax regime.

To simplify with a ridiculous example: suppose I have $0 to my name and I inherit a family art piece from my grandmother that happens to be valued at $2 million. The next year, under a wealth tax regime of 2% above $1 million, I owe $20,000 to the tax man even though I don't have the money in my account.

That is why I think a wealth tax is a stupid idea. Why not just impose greater capital gains and dividend taxes above a certain threshold, for example? That's where wealth is realized. Until then, you're talking about taxing "imaginary" wealth. (edit: or more generally speaking, taxation should happen on transactions, not on an assumed wealth "state")

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7 comments · 2 top-level

nindalf5y ago· 5 in thread

Let's say you inherited a home in the US valued at $2 million. You would pay 2% of that ($40,000) as property taxes, every year. If you can't afford to pay the tax, you would sell the house and pocket the $2 million.

Is this so terrible? Doesn't seem to have stopped people investing in property.

vekkerOP5y ago

Uh, if that's true then yes, that seems really awful, but the market probably also makes it so the real estate prices are adjusted to that taxation regime, because buyers and sellers can take that into account before settling the transaction.

With a wealth tax, you can't escape it. You would have to liquidate (parts of) your own company or other illiquid property (which might not even be possible depending on how illiquid it really is) in order to pay a tax. That doesn't seem right to me at all.

Again, why would you do that, if there are much better alternatives possible (like I said, higher capital gains taxes as an example).

(For context: I'm not from the USA and property taxes are not calculated on a percentage of the value of your property where I live. I'm just using USD in my example because I know there are mostly Americans here.)

MikeUt5y ago

That's buying a new house every 50 years. That's re-building all of the wealth your family spent generations accumulating, every 50 years.

That's a direct disincentive to saving money and frugality - the more you save, the bigger your tax gets, while your income stays the same.

pjc505y ago

> re-building all of the wealth your family spent generations accumulating, every 50 years.

Correct, that's the point.

> the more you save, the bigger your tax gets, while your income stays the same.

Only if you're a completely useless investor. Most people's income increases as their wealth increases. That's part of the problem. Especially the "r > g" question: are you growing the pie or simply sitting on a larger share?

On the other hand, this can and should be irrelevant to the average family. Start the wealth tax at $1m, say.

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SamBam5y ago

> the more you save, the bigger your tax gets

And the more you save, the more the returns on your money are. Wealth grows much faster than the tax.

If you have over $50 million (which is the target of this tax), or even if you have $5 million, you're not putting this in a savings account. Even just sticking it in an index fund and forgetting about it generates 8%, and has done so for decades.

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TheCoelacanth5y ago

> That's re-building all of the wealth your family spent generations accumulating, every 50 years.

Only if you assume a 0% rate-of-return on your family's wealth. With a realistic assumption about rate-of-return, your wealth will never deplete because of a 2% wealth tax. It will simply grow more slowly.

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SamBam5y ago

You're making an obvious strawman argument by deliberately picking an asset that isn't fungible and doesn't increase in value like everything else. Any sensible person would, at that point, sell the art, so now we can talk in sensible terms, with real fungible and taxable assets.

Wealth compounds much, much faster than the tax burden grows. Someone who inherits $3 million (not much from the point of view of the very-wealthy) can live comfortably on the growth alone while still compounding their wealth further every year.

The only way a wealth tax would compound faster than the wealth itself is if it is larger than the growth rate of the wealth. And since the growth of wealth (e.g. by just putting it in the stock market) has averaged at ~8-10% over the past several decades, a 1% tax is not going to eat into a person's wealth over time. It's simply going to slightly slow that growth down.

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7 comments · 2 top-level

nindalf5y ago· 5 in thread

Is this so terrible? Doesn't seem to have stopped people investing in property.

vekkerOP5y ago

Again, why would you do that, if there are much better alternatives possible (like I said, higher capital gains taxes as an example).

MikeUt5y ago

That's buying a new house every 50 years. That's re-building all of the wealth your family spent generations accumulating, every 50 years.

That's a direct disincentive to saving money and frugality - the more you save, the bigger your tax gets, while your income stays the same.

pjc505y ago

> re-building all of the wealth your family spent generations accumulating, every 50 years.

Correct, that's the point.

> the more you save, the bigger your tax gets, while your income stays the same.

On the other hand, this can and should be irrelevant to the average family. Start the wealth tax at $1m, say.

2 more replies

SamBam5y ago

> the more you save, the bigger your tax gets

And the more you save, the more the returns on your money are. Wealth grows much faster than the tax.

1 more reply

TheCoelacanth5y ago

> That's re-building all of the wealth your family spent generations accumulating, every 50 years.

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SamBam5y ago

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