At 2% inflation, it's not possible to maintain $100M of wealth without also having $2M in annual income. If every dollar over $1M in income were taxed at 70%, then you would need over $4M in annual income, plus more than twice your annual expenditures to maintain that level of wealth.
4% rent on $100M in assets is probably sustainable over a long time, so if you live frugally, you could likely self-sustain that level of wealth.
If you have $1B in assets and make a 7% return (which is my conservative estimate of the maximum long-term rent you could extract on a large fortune) then that's $70M return in income, essentially all of which is taxed at the 70% rate, leaving $21M remaining, $20M of which is "lost" due to inflation.
This means that if you have a billion dollars and want to live just off of rents, you would need to both invest prudently, and live on expenses of no more than $1M per year. Mess up either and you are on track to leave the billionaire's club.
In addition, consider an heir who gets a high-paying professional job with a rags-to-riches one. The one with no wealth isn't having unearned income to pad their tax bracket, so the marginal pay they get for working is much higher than the heir who is also collecting investment income, thus allowing them to grow their wealth faster if they have an identical savings rate.
The US right now has an income tax scheme that is regressive for wealth because wealthy people have a greater fraction of their income in the form of long-term capital gains. GP suggested making it extremely progressive vs wealth, and I'm merely pointing out that a properly implemented wealth-blind income tax will work out to be progressive vs wealth due to inflation.
In theory, a 3% wealth tax makes the life of a billionaire difficult. You have like a 60% tax rate for fed/state/local. You make maybe 8% by being safe in your investments. If you pay taxes on your income, get that 8% reduced to 6% by 2% inflation and then your left with a 3.6% YoY gain (6% * 60%) before a 3% wealth tax wipes you out down to 0.6%.
But you still don't have to pay taxes on your gains with this bill. You can take out a loan on your new assets at a 2-3% rate and its reduced to around 1% with inflation. Now you don't have to pay taxes because a loan on the principal value doesn't cause a taxable event with the step up in value. You just sell enough to cover your interest liabilities and pay taxes on that.
I wish they'd address WHY these rates are so low by attacking people and companies that aren't being productive with their capital by building things people want. Why attack a people or a company with a wealth tax if they are paying low rates because they spend most of their revenue on building the business. Capitalism is about rewarding good allocators of capital.
Hence the idea of progressive capital gains. In the same way you would not tax normal income up to an approximation of the happiness threshold you would do the same with capital gains.
Progressive consumption taxes do nothing to ablate the central problem of the argument, the centralization of wealth as a means to distort society to your whims. The wealthier you are the less you spend on goods and services as a percentage of income and the more you save. Eventually most of your income just goes back into reinvestment to make you more money. The current model basically lets anyone business savvy enough just make perpetually more money, increasing their wealth... just for the sake of having more wealth. The majority of billionaires are not rich with a purpose of how they want to use that money, they just control incredible amounts of capital for the purposes of accumulating more. The Bill Gates are the exception, not the rule, and even then while Bill spends tremendous amounts of money for good he only spends money he is already making off a considerable fortune to begin with.
And those kinds of fortunes are what I am talking about.
> Oh, and there is no happiness threshold. Or more precisely, more money doesn't necessarily buy more happiness, but it does tend to buy less unhappiness (which is not the same thing!), albeit not linearly.
More money buys less unhappiness up to a limit[1]. It is simply the fulfillment of base needs in Maslow's heirarchy, and once you have enough not to worry about starving, homelessness, or sickness ruining you, you have a much better quality of life, less stress, and more importantly, peak productivity.
My argument is not that everyone has the same limit, or that it is constant regardless of inflation - it is of course a function of the real cost of needs, and varies from place to place. But that is why I argue to start taxation at a normalized threshold like this, to potentially extract the most revenue in the least harmful way possible.
That's just an argument for why wealth taxes should never go above 2%. If you can't double or triple your wealth in 60 years what are you doing with it?
This is such a straw man argument. No one is proposing something like that - most wealth tax proposals have a floor of like $100m, and a 1% tax seems extremely reasonable when most people can get 4-10% returns just from parking their money in a index fund.
I'm of the opinion that no one should have north of $100M. The difference in lifestyle between $100M and $1B isn't going to magically halt entrepreneurship or innovation, and it's immoral to have that much when most people living paycheck-to-paycheck in this country are miserable.
Doesn’t this already happen to some extent with property taxes? You pay tax on the appraised value of the property. If it later goes down, you just pay less from that point onward. It doesn’t seem like a problem.
To me, taxing wealth and only wealth seems like the most straightforward route to a truly progressive tax system. That’s not to say it’s simple or straightforward in an absolute sense, but neither is taxing income, is it?
At a high level, taxing wealth instead of income or transactions ensures that rich people are paying their share, while maximizing upward mobility so that people can become rich more easily. Think about how much easier it would be to become wealthy without income taxes, sales taxes, property taxes, taxes on corporate profits, etc. etc.
This is what we should optimize for imho: making it as easy as possible to become wealthy. Sure, there details to figure out, as with any approach, and maybe some rich people will face some difficult choices or be forced to sell assets; I’m ok with that and it seems well worth the tradeoff.
That's the ultimate appeal of a wealth tax. Taxing a hundred millionaire, or billionaire, or even a 10 billionaire a progressive 4% annual tax won't affect someone making good money off of income in nearly every scenario.
Wealth is just a static number. It goes up through income. You're talking about a double taxation for maintaining what you have which was already taxed on the way in.
There are different kinds of incomes like capital gains which is a different discussion and one that many people agree with raising.
> "I'd tax wealth over $1 million at 90%"
You'll lose most tax income. Every entrepreneur will leave. And the middle class (which builds up more than that over a lifetime) will be decimated. It's a great way to crash a nation.
The proposal in the article is to tax wealth at an annual rate of 2%. Not realized gains. Not unrealized gains. Wealth.
Under such a system — unless I've badly misunderstood something — if a billionaire's assets decreased in value over the course of a year, they would still pay 2% on their assets. I can't think of any sense in which a decrease in the value of one's assets would be defined as income.
I have an opinion of the wisdom of a wealth tax, and I could be wrong. Regardless of my opinion, I think it's indisputable that a wealth tax and an income tax are different and that conflating the two makes a debate on the merits much more difficult.
Only a poorly designed wealth tax would have that property. This is exactly why progressive tax systems use marginal rates. People wouldn't stop saving at 49 million when they had to pay tax of 1% on the money above 50 million. they wouldn't stop at 99 million if they had to pay 2% on the parts above 100 million.
His article shows why we need a wealth tax instead of an income tax... There is a huge difference between a hard working manager making $100k and an equally hard working owner with $10m in assets. I suggest dropping the income tax entirely, and tax wealth under $50k at 0%, $50k - $1m at 1%, $1m - 10m at 2%, $10m - $100m at 3%, $100m - $1b at 4%, and everything higher at 5%. This keeps even billionaires motivated to work hard to earn returns on their assets, without taking from the little guy who can't afford it.
90% tax on income not wealth. Our current system already punishes income earning over wealth growth and much gaming goes on by the rich to keep wealth growing while keeping taxable income low.
I think 99% is an overkill. If you assume 7% ROI and 2% inflation then a 70% top marginal bracket (combined with unifying capital gains and income) would make it very hard to maintain wealth.
To get rid of these high levels of inequality we don't need to make it impossible to be rich, just make it very hard to be rich and let nature take its course.
Note that in my lifetime the top marginal tax bracket has been over 70% so it's not even that radical of a change.
I really don't see the point of wealth taxes; modest inflation combined with actually taxing investment income seem to accomplish the same goal with easier enforcement.
So maybe we should be taxing wealth instead of productivity (i.e. income). Or at least let's tax both, with a 0% tax rate on the first $100m of wealth.
The median US household pays an amount of tax each year equivalent to about 8% of their net worth, so that would be an obvious rate for billionaires to pay on their wealth.
For example, if I have a debt of $250k for a house worth $250k and inflation is causing a net benefit on my asset of 1%, then sure I'm gaining from the inflationary regime.
But what of the wealthy that have billions in assets and maybe even billions in debts?
The two situations belie a completely regressive tax. The billionaire gains net 1% on their billions and I as a peasant gain net 1% on $250k.
How can you argue this doesn't generate wealth for the wealthy?
Consider further that 1% is a modest number for the net benefit of asset backed debt.
At 2% inflation, it's not possible to maintain $100M of wealth without also having $2M in annual income. If every dollar over $1M in income were taxed at 70%, then you would need over $4M in annual income, plus more than twice your annual expenditures to maintain that level of wealth.
4% rent on $100M in assets is probably sustainable over a long time, so if you live frugally, you could likely self-sustain that level of wealth.
If you have $1B in assets and make a 7% return (which is my conservative estimate of the maximum long-term rent you could extract on a large fortune) then that's $70M return in income, essentially all of which is taxed at the 70% rate, leaving $21M remaining, $20M of which is "lost" due to inflation.
This means that if you have a billion dollars and want to live just off of rents, you would need to both invest prudently, and live on expenses of no more than $1M per year. Mess up either and you are on track to leave the billionaire's club.
In addition, consider an heir who gets a high-paying professional job with a rags-to-riches one. The one with no wealth isn't having unearned income to pad their tax bracket, so the marginal pay they get for working is much higher than the heir who is also collecting investment income, thus allowing them to grow their wealth faster if they have an identical savings rate.
The US right now has an income tax scheme that is regressive for wealth because wealthy people have a greater fraction of their income in the form of long-term capital gains. GP suggested making it extremely progressive vs wealth, and I'm merely pointing out that a properly implemented wealth-blind income tax will work out to be progressive vs wealth due to inflation.
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