PG's only argument was that the tax compounds, and completely ignored the fact that wealth compounds much, much faster than 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 sticking it in an index fund) 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.
The rest of the article on how PG's essay involved a slight of hand was interesting, I had missed that.
> that wealth compounds much, much faster than tax burden grows
I don't think anything compound without risk. Can I get a wealth refund if market get downturn? Wait I do with all the money the Fed is printing. Maybe we should stop messing with the economy instead of chasing X or Y policies.
Up until this point in history, the stock market has never been negative over the course of a ten-year timespan. Even if you invested at the height of the market in 1929, the day before the crash, it would have taken you less than ten years to get your money back [1].
If we are ever in a period when the stock market has been flat or negative for ten years or more, I'm sure such a wealth tax can be rescinded.
But if we are ever in such a period, the bottom four-fifths of Americans are going to be in much, much more catastrophic shape, and the small tear we shed for the super-rich that the government is still nibbling away at a fraction of their treasure during that time (presumably to spend on the massive bread lines that would exist) will be fairly irrelevant.
The New York Times article I posted calculates the math differently. For instance, the Great Depression was a deflationary period, not inflationary.
In any case, my point still stands. Whether we're talking 10, 15 or 20 years, the wealthy hold on to their wealth. And if we ever enter a long-term recession, wealth taxes could be reversed as easily as they were enacted. But why would we? The Great Depression hit the poor much harder than it did the Rockefellers.
You are already being taxed on the returns of your capital through capital gains tax (or income tax in some cases).
This is why wealth tax is redundant as it's fairer to instead just increase the capital gains tax rate.
There are cases where you can own high value assets which can't be monetized. For example you might inherit a derelict house worth millions due to its historical value.
You end up with an astronomical tax bill every year even though you might have no income.
Capital gains taxes are only taken when the gains are realized. For someone like Bezos that rarely occurs for more than a nominal amount of wealth, so SamBams comment is still correct: wealth grows faster than the rate it is taxed at.
Your case of an asset that can’t be monetized is somewhat more sympathetic, though that’s more of an edge case where wealth is poorly defined, if your asset has no liquid value (or value that can be received from recurring rents I suppose) it shouldn’t be considered wealth under a tax regime. Either way, a well defined wealth tax would still address the overall issue better. You don’t have to remain the owner of this hypothetical derelict house.
> You don’t have to remain the owner of this hypothetical derelict house.
This is the explicit endgame of any wealth tax. The ergodic nature of market returns ensure most people experience individual downturns that would wipe them out if they had the “drag” introduced by a wealth tax. The wealth will simply accumulate in the hands of those with the best lawyers and who can stay ahead of regulations and move wealth into protected assets.
I'm just amazed that the threshold in the proposal is as high as $50M, meaning it only affects what I would call the super-rich.
Here in the Netherlands we have a wealth tax (but no financial gains tax) of 1.2% with a threshold under $1M, which seems fair enough.
Even talking about having a wealth tax has negative tax revenue. For California just losing Elon Musk and the Tesla HQ and all new Tesla employee taxes will hurt by billions if not tens of billions of dollars, much more than what they can really would be able to get from him realistically.
If the goal is to ensure money keeps flowing across every nook and corner of the economy, I don't see how this would work.
Have there been studies on a tax ruleset that looks like this:
Everyone taxed at 50% of yearly income, no special cases.
Additionally every dollar which would put individual accumulated wealth greater than (yearly minimum salary in dollars * median life expectancy in years) taxed at 100%.
The problem with a wealth tax is the definition of wealthy. The delta between the 1% and the 0.1% is astronomically larger than the difference between the 99% and the 1%.
"Modeling a wealth tax correctly is to not tax anyone.
I reject your morality and economics."
The amount of waste by those empowered but unaccountable, to distribute taxes to programs of their choosing, is flabbergasting. I believe in taxes, but the abuse is unacceptable.
The amount of waste by those empowered but unaccountable, to distribute wealth to purposes of their choosing, is also flabbergasting. The assumption that tyranny and waste are limited to government is erroneous. The reality is that unregulated capitalism leads to tyranny just as surely as overregulated capitalism. And at this point in history, we are erring deeply on the side of underregulation.
PG's only argument was that the tax compounds, and completely ignored the fact that wealth compounds much, much faster than 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 sticking it in an index fund) 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.
The rest of the article on how PG's essay involved a slight of hand was interesting, I had missed that.