[Glyptodon]

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.

[SoftTalker]

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.

[Dylan16807]

> 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.

[SoftTalker]

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.

[philipallstar]

But when you liquidate assets you... pay tax! Capital gains tax. So you liquidate, pay capital gains, and use the proceeds to pay a wealth tax?

[SoftTalker]

In the contrived example, the 5% return was "risk free" so assume it was something like CDs, no capital gains.

[golem14]

CDs generate interest, which is taxed as income, higher than capital gains. Just sayin ...

[Dylan16807]

It's not an effective tax rate, it's an absurd parody of an effective tax rate.

If that $5 of ""income"" is actually capital gains, then it won't be taxed very highly, and adding another 20% is fine. The discussion of 37% + 4.5% + 20% is misdirection.

If that $5 is honest to goodness income, then on average you're also getting $5 of unrealized capital gains, which means you're not paying $2 on $5, you're paying $2 on $10. Or maybe you realize part of the gains and you're paying somewhere between $2 and $3 on $10. A much smaller impact, and that's only if someone in a medium tax bracket with 20x their income in wealth is even affected by the wealth tax at all.

[scottmcmac]

Yes, but more specifically, it's 20% on top of your marginal rate on your capital income which maxes out at 20% federal in the U.S. for long term gains However, it is much closer to 0% for the most wealthy Americans because they never realize their gains, which is the only time the U.S. taxes capital gains. They just fund their lifestyles with debt against their assets. Then when they die, their heirs get a basis step up at death.

Graham gets this totally wrong, adding the 20% to 37%+4.75%, which are rates applicable to labor income (and short term capital gains, but those are very rare among the most wealthy Americans). That is such a major error it is hard to take any of the argument seriously.

Edit: Updated account for short term gains.

[lazide]

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.

[analog31]

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.

[lazide]

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.

[harimau777]

You could peg the numbers to inflation.

Personally, I see a big benefit of a wealth tax being lowering wealth inequality; even if the money isn't actually used for anything useful. That would at least help prevent the ultra wealthy from being able to unilaterally ruin society.

[pzo]

I compare ultra wealthy to blackholes - overtime they accumulate more and more mass and reduce mass elsewhere. But even in nature we have Hawking radiation (which leads to black hole evaporation). So for me wealth taxation is similar like this slow black hole evaporation which seems fair.

[philipallstar]

They can't ruin society unilaterally, unless you're talking about Vladimir Putin, who can only do it because he's the head of an autocratic socialist state as well as potentially being the richest man in the world. But the rich bit isn't what does it.

[Epa095]

Then let's bake it into a compromise, we add a wealth tax and decrease income tax with the same amount of money.

Labour is what actually creates value in society, let's tax it less and ownership more.

[lazide]

You have my vote!

[analog31]

Yeah, I appreciate the sentiment. Being a liberal, perhaps I was assuming that competent governance was possible. At the same time, the opposite tack, "starve the beast" was a failure.

[lazide]

Nobody starved the actual beast (military industrial complex) that I can tell

[NoMoreNicksLeft]

>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?

[Dylan16807]

> No one has a billion in cash that I've ever heard of.

What's the biggest amount anyone has in treasury bonds or gold? You could easily liquidate a ton of that.

> 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"?

If the stock tanks that much while he's selling, then the company is only worth about $300 million now, and the money he owes drops to $60 million.

Though I don't see why it would tank that much.

[lazide]

If owning stock (passively) all the sudden got taxed to any notable degree, you’ve just dramatically changed the value calculus for most of the world economy at this point. It would be shocking if the price didn’t crash.

[Dylan16807]

That sounds like a one-time thing. Once things stabilize you wouldn't see a big fluctuation every time a CEO has to pay taxes.

Also normal people and the mildly rich and retirement funds and many other big sources of ownership wouldn't be taxed, so I don't see prices actually crashing.

[analog31]

If someone sells the stock, someone else buys it. The value is still the net present value of future earnings. This is a redistribution of wealth, not a decimation. The wealthy can still earn more if they want to.

[lazide]

When market cap goes down because overall valuation does, what do you think is happening?

Valuation hasn’t been tied or related to earnings for top stocks in at least a decade.

It isn’t ’wealth redistribution’.

Removing half or more of market demand isn’t going to be pretty.

[analog31]

Market cap and valuation are the same thing.

[QuercusMax]

Your argument must not be very convincing if need to refer to your opponents using slurs.

Using a wealth tax to nationalize corporations sounds like exactly what we should be doing.

[NoMoreNicksLeft]

>Using a wealth tax to nationalize corporations sounds like exactly what we should be doing.

You want Trump and company in charge of it all? Or are we finally back to "the next time Democrats win it will be forever!" wishful thinking? I mean, even if you want to nationalize everything, it's as if you dreamt up the worst possible way to go about doing that so that they've cratered first and started hemorrhaging all their talent in the leadup.

[QuercusMax]

So let's not even think about how to build a better world because the administration we have right now is garbage?

We need a wealth tax, ONLY public financing of elections (no PAC money, no "I'm a billionaire so I can spend as much as I want on myself"), and many other reforms. Nationalizing critical industries and sectors is also something we should be pursuing.

[malfist]

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.

[naijaboiler]

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.

[pessimizer]

> 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.

[lazide]

Read my comment - it likely would be equivalently impossible. That is my point.

[pessimizer]

Read my comment - it is completely irrelevant to the discussion being had about the linked article, and no one on the planet is suggesting a 20% wealth tax. That is my point.

[lazide]

The argument was that it was ludicrous to say a wealth tax of x percent > income tax of x percent in actual impact, yes?

It is clearly the case if you try to apply the income tax rate as a wealth tax using concrete real world examples.

Even a 3% property tax makes it very difficult for many normal people to own those assets in many real world economic circumstances.

[harimau777]

I don't think that those issues would be too difficult to fix.

The tax could be made progressive so that it doesn't impact people who can't afford it.

Someone's primary home and vehicle could be omitted from the tax.

[Glyptodon]

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.

[lazide]

I read it, and was replying in context.