> To convert between wealth and income tax rates, you have to divide by the rate of return on capital. The conversion rate of 20 comes from assuming that the risk-free rate of return is 5%.<p>This seems to only be true for people whose income entirely comes from their wealth, rather than their labor. The math doesn't math for someone on the other extreme end of the spectrum who has zero savings or investments and obtains all his income from labor: To him, a N% wealth tax = 0% income tax for all N.<p>It is a very sneaky way to argue that a wealth tax should be as across-the-board unpopular as a large income tax increase. But Graham's math is only applicable to those flush with investments and with relatively small salaries from labor, so a wealth tax is only unpopular to that particular group.
I think the assumption that we're looking for an equivalence here is fundamentally flawed and with it the entire post.<p>For most people income is tied to selling their time. It doesn't scale at all. Unless the income comes from wealth.<p>The societal problem here is a group with self-reinforcing run-away levels of wealth. And to counter that you do need something more extreme than this nonsensical equivalency of income tax
This is misleading and not the point of the wealth tax.<p>If you’re lucky enough that you don’t need to work for your income, you should be taxed. A lot. How much? Enough to make sure you don’t become so rich that your children don’t need to work.<p>Being rich is not fair, it’s very rarely deserved, and it needs to be taxed unfairly.
There's a related calculation you can do -- what percent of your net worth is your employability? Take your salary, divide by 0.05 (or multiply by 20) -- if you had that much additional wealth earning 5%, you could replace your job's income.<p>For most people their ability to earn is by far their largest asset. You can kind of get a feel for how difficult it is to bootstrap into generational wealth if you think about the math -- it takes time to replace that earnings portion of your own balance sheet, and even more to well replace it; a lot has to go right in the interim.
I don’t follow the debate and situation in the US that closely but isn’t (part of) the point of wealth tax to offset the fact that rich people are routinely avoiding paying income tax and taxes in general? Thus even if we assume the simplistic conversion here, it’s not that they’re moved from 40->60 bracket but more like <10 -> <30 ?
Yes. And that wealthy individuals are avoiding taxes via things like buy -> borrow -> die, in which high stock valuations that increase but are not sold are not ever taxed, and roll over the taxation potential upon death to their current value. Thus by borrowing against them until death, the inheritor will inherit with a tax basis at the current value upon receipt and thus all taxes are avoided. In which case the tax would go from 0% to 20% (functionally a small amount may be sold to pay interest, so really assume 1% or 2% taxes default). The horror!
The conversion would be more accurate if it compared wealth and capital gains taxes, no?<p>A defining feature of wealth taxes is that they only tax those that make most of their income through capital gains. This is why they're popular among much of the population.<p>Now the question is, if we lowered capgains tax rate by 20% but instituted a 1% wealth tax, would that be better or worse? My guess would be worse because wealth taxes are nearly unenforcable, but I wonder if there are good arguments for the other position.
Not everybody uses money to make more money, Paul. Most people work, get paid, and spend thd money on their needs. In other words, you are in a position to care about the question, it's OK if you are taxed a bit more.
Lots of confusion and misunderstanding in these comments. Not surprising, given the highly charged nature of the subject. I highly recommend Ray Madoff's book <i>The Second Estate</i> [1] to learn more about the topic.<p>[1] <a href="https://press.uchicago.edu/ucp/books/book/chicago/S/bo256019296.html" rel="nofollow">https://press.uchicago.edu/ucp/books/book/chicago/S/bo256019...</a>
Are there serious proposals to just add a wealth tax on top of the existing income tax that would apply to the sort of people who actually pay much in income tax vs capital gains? It's an honest question; I haven't seen proposals of that sort, so I'm skeptical that the arguments are meaningful here. For an individual like Jeff Bezos, he's paying virtually no tax under the normal income tax rates referenced in the article, but rather capital gains tax, which tops out at 20%, not 37%.
The bigger difference between an income tax and a wealth tax isn't the numbers. A wealth tax, for better or worse requires some realization of paper gains that very wealthy folks normally go to great lengths to avoid because their wealth is largely based on a broadly shared polite fiction. So imposing some realization of that wealth requires accountability that doesn't always pan out.
It's clear from the way paulgraham talks about the subject that they not only don't know the answer, but don't even realize there's such a question.<p>You can tell from the way they talk about the subject that they don't understand what they're talking about.
The post goes out of it's way to mischaracterize the strategy (and purpose) of wealth taxes being proposed.<p>> Each 1% of wealth tax is equivalent to 20% of income tax.<p>Mathematically sound.<p>> Politicians understand that an additional 20% income tax would be a lot. And indeed a US state that added 20% to its top income tax rate would have extraordinarily high taxes.<p>That's the point.<p>> In the median case, US state politicians talking about adding a "mere 1%" wealth tax are talking about causing the residents of their state to have the highest taxes in the world. That's not the sort of decision you make lightly.<p>Not "all of the residents". Specifically the ultra wealthy that have a billion dollars. 20% at that point, is 20% of lots. You still have lots left over.<p>Mathematical fairness isn't the point, which is one reason there isn't a flat tax rate.
Please make higher quality posts -- what in specific do you think pg has missed or does not understand?
A much more interesting formula would be how to convert between income and income tax - you'd think it worked according to the superficial bracket system, but in fact, it works along the lines of going to 0 at the top.<p>P.S. a wealth tax is a property tax. They have existed in the US since before the income tax (which was originally considered unconstitutional by its opponents).
Wealth tax is highly impractical.
Very high and inescapable death taxes is what we need. Like 80% after an initial exemption amount.
<a href="https://www.yesigiveafig.com/p/the-summer-slide-part-3-the-tax-code" rel="nofollow">https://www.yesigiveafig.com/p/the-summer-slide-part-3-the-t...</a>
<a href="https://m.youtube.com/watch?v=mX5U5DNUfBc" rel="nofollow">https://m.youtube.com/watch?v=mX5U5DNUfBc</a>
This is wrong. You can’t convert between the two because it’s possible to have a lot of wealth with very little (even zero) income. Billionaires can completely avoid income taxes by paying themselves a very low salary and instead borrowing money against their assets (usually stock), which is not taxed as income.<p>Source: The Second Estate by Ray Madoff (2025)
I think 1% wealth tax should be a replacement for income tax. That way only the wealthy will pay taxes.
Because billionaires accumulate wealth through assets and unrealized gains, many of them skip taking a traditional income and pay. If the numbers in the links below are to be believed, according to paulgraham's calculations, this might bump them into a ~fair range (when comparing to average/median earners).<p><a href="https://www.nber.org/papers/w34170" rel="nofollow">https://www.nber.org/papers/w34170</a>
<a href="https://www.propublica.org/article/how-we-calculated-the-true-tax-rates-of-the-wealthiest" rel="nofollow">https://www.propublica.org/article/how-we-calculated-the-tru...</a>
His math is correct, but the conclusion is wrong.<p>Income is money that comes from actually laboring and contributing to society. Wealth tax is tax from sitting on your ass doing nothing.<p>Also, taxes don’t have to be a flat percentage. Like income tax, a good wealth tax would be progressive. Only wealth beyond a certain amount would be taxed, and the percentages would scale.<p>This is why we should have income taxes that are as low as possible, but still progressively scaled. We should similarly have a progressive scaling wealth tax, but it should be much harsher than the income tax because we want people to work.
> <i>It's clear that politicians don't get this from the way they talk about a "mere 1%" wealth tax. None of them would speak of adding a "mere 20%" to the income tax rate, even though that's mathematically the same thing.</i><p>Uh … sure I would? Why not? The top bracket was 70% in the 80s. So that 61% is still a fair bit short of what it was then. (And the 80s isn't the highest point, either.)<p>IDK if it would be a good idea or not, but I'd entertain the debate, certainly. To state that this is unarguable, though, well…
I used to be against wealth taxes but as inequality gets out of hand I've more and more felt like they are the right move.<p>Hell, I'll be the first in line to pay the damn tax so long as billionaires are right in line with me too.
You obviously can’t convert between the two directly and suggesting that is disingenuous.<p>Income tax doesn’t affect unrealized capital gains (where the rich “hide” most of their income).<p>A wealth tax (even without a minimum threshold) doesn’t apply to the poorest who can’t accumulate enough to even have any savings.<p>This conversion only works for income that is entirely saved and reinvested, which the majority of people can’t afford to do.
I think Paul thinks people care about the distinction, or think that a 20% marginal increase to the nation's wealthiest is something the public would find "unfair".<p>Rich people need to stop hanging out with other rich people.
Paul the billionaire ignoring that billionaires often don't pay any income tax at all. Come on man, we're not stupid just because we don't own superyachts.<p><a href="https://www.propublica.org/article/the-secret-irs-files-trove-of-never-before-seen-records-reveal-how-the-wealthiest-avoid-income-tax" rel="nofollow">https://www.propublica.org/article/the-secret-irs-files-trov...</a>
>It's clear that politicians don't get this from the way they talk about a "mere 1%" wealth tax. None of them would speak of adding a "mere 20%" to the income tax rate, even though that's mathematically the same thing.<p>His core point seems to be that taking $20 from him is <i>mathematically equivalent</i> to taking $20 from a homeless girl's hat.<p>I guess mathematically it is the same number if you dont normalize for wealth, which he wont.
This is a transparently misleading framing.<p>The very wealthy are paying very low effective rates on their investment gains. Various billionaires have publicly described the truth of this. This is not 20% on top of 35%. They are paying a marginal rate of 35% of deliberately very low taxable income and zero on deliberately maximized unrealized gains. Then 20% when realized, but as we all know by now there are ways to make sure it’s never realized.<p>I don’t know what the best approach is here, but I know this framing is nonsense.
Yeah this ignores at least three things:<p>1. Most people do not derive even a fraction of their income from interest on wealth.<p>2. Earning income from interest on wealth requires zero effort. That isn't true for salaries.<p>3. Income and wealth are totally different things. You can find a way to equate them in one contrived example but there are so many other factors involved in the real world.<p>Billionaires gonna billionaire.
> So in the median case, a state adding an additional 20% in income tax would have a total marginal tax rate of 37% + 4.75% + 20%, or 61.75%<p>Good! It should still be higher!<p>There's nothing more tone deaf than an uber wealthy man arguing he shouldn't pay more in taxes to the system that allows him to be uber wealthy.
Imagine, poor person, if <i>you</i> had to pay an <i>additional</i> 20% in income tax! That would not be fair!<p>Fuck off paul. Billionaires aren’t paying anything in income tax when they should be paying 60 or even 90.<p>So, yes, let’s hit them with a 5% wealth tax.
I recently read 'the second estate' and reading about the number of loopholes the ultra wealthy exploit to pay almost no taxes and establish dynastic wealth does boil the blood.<p>Off the top of my head:<p>* 'Income' generated from loans using shares pledged as collateral should be treated the same as if you sold those shares.<p>* Someone receiving an inheritance over x million dollars (carve out 95% of family farms and small businesses if you want), should pay taxes on it as if it were any other windfall<p>* Donor advised funds should have a 5% distribution / yr requirement, same as private foundations<p>* capital gains should probably be treated as regular income. I have no idea why 50k in gains on INTC is somehow privileged over the salary paid to a roofer working in the hot sun.
This just isn't true, unless you're the president.<p>Who is the single largest taxpayer in US history? I'll wait while you google it.
Prof G Markets podcast just had an episode on this with Ray Madoff. They talk about the claim that "the top 1% of Americans pay 40% of the income tax". But Ray points out that is misleading because the 1% is basically lawyers, physicians, accountants etc that make like $500,000/yr. These people still pay income tax and that's the group paying 40% of income tax. What that claim misses is the 0.1% that pay 0 income tax because they have no income. The claim makes people believe that the billionaires are the ones paying that huge sum but we fail to realize that the 1% is our neighbours, not just the billionaires flying private jets across the world.
Musk paid $11B in a year his wealth went up $86B on his way to likely being the first trillionaire. Are we supposed to cry about it?
This seems like such a poor understanding of reality. If you want to rank order people who contribute net taxes, you would put billionaires at the top, as they not only pay taxes themselves, but their businesses pay taxes, and their employees pay taxes, and their customers potentially pay taxes (VAT) as well.<p>The bottom of the list would be anyone who works for the state, as they are a massive net tax negative, followed by benefits recipients and pensioners, followed by low income workers, followed finally by the middle classes.<p>Are you sure you want that to be your guiding principle?
In what reality does a business owner get to claim their <i>customers’</i> taxes as their own contribution?
Do you think employees and "customers" of the government don't pay tax?
Get rid of the employees and the taxes no longer get paid.<p>Get rid of the billionaire and the taxes still get paid.<p>Why do we credit those taxes to the billionaire rather than the employees?
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If you want to understand why someone would even propose taking from the rich and complain about inequality, this post titled "Inequality Talk Is About Grabbing
" is illuminating: <a href="https://www.overcomingbias.com/p/inequality-is-about-grabbinghtml" rel="nofollow">https://www.overcomingbias.com/p/inequality-is-about-grabbin...</a>
> If you want to understand why someone would even propose taking from the rich and complain about inequality,<p>Because they want to take back what was taken from them.
> People usually become billionaires via having “super-powers,” i.e., very unusual abilities, at least within some context.<p>If you count luck, maybe.<p>> But what if most billionaires had super-powers of the traditional comic book sort, like x-ray vision or an ability to fly, etc.? That is, what if people with physical super-powers earned billions in the labor market by selling the use of these powers? Would folks be just as eager to tax them to reduce unfair inequality?<p>Yes, I would.<p>> But if those few very rich folks had real physical super-powers, we would be a lot more afraid of their simple physical retaliation. They might be very effective at physically resisting our attempts to take their stuff.<p>Yes, and this is why a lot of superhero movies involve <i>fighting</i> the greedy superpowered villain.
I can't speak for others, but this doesn't match my thinking at all.<p>I want to heavily tax the ultra rich because money is power, and vast inequality in power is undemocratic and just plain dangerous.<p>I don't really care if somebody buys ten massive yachts. It's annoying and seems wasteful but it's not worth too much of my attention.<p>But it's another matter if somebody buys politicians, laws, social change. The issue with someone like Elon Musk isn't that he owns a private jet, or even that he owns a rocket company, it's that he bought his way to taking an axe to major parts of our government by pouring unimaginable amounts of money into buying a presidential election.<p>It's not about grabbing stuff, it's about preventing people from accumulating too much power. The ultra-wealthy should be heavily taxed for the same reason the President shouldn't be given unlimited power to do whatever they want.
> People usually become billionaires via having “super-powers,” i.e., very unusual abilities, at least within some context.<p>There are certainly sometimes unusual abilities in a positive sense, but the common case likely falls closer to having an unusual degree of sociopathy. It is unclear to me how else one could view the state of perfectly solvable human suffering in the world and continue to prioritize accumulating wealth over all else, moreover and overwhelmingly at the cost of being party to the suffering itself. Indeed, I suspect having such callous disregard for your fellow person is prerequisite to encountering these unfathomable sums.<p>When people with an intact capacity for empathy come into huge amounts of money I think it's far more common to give a large proportion of it away (say, Jane Street workers have a culture of doing this). And thus you only stay 'comfortably' wealthy, rather than accumulating so much that it distorts society around your existence.
this is some of the most insipid dreck i've read in a long time. the only thing illuminated here is the author's complete lack of understanding regarding ability and worth and total inability to think beyond a system imposed upon him by others. i think the kids would say he's "billionaire glazing".