I wonder if this is coming up just before the election because of the Harris campaign’s suggested policy of capital gains tax on unrealised gains for people who have over $100m in assets? I think this is a great idea personally given what these people are doing to avoid paying tax including taking out loans against their own share portfolios. Worth thinking about what people are willing to do to not pay billions of dollars worth of taxes.
Unrealized gains taxes is an extractive and totalitarian tax. Someone is always risking 100% loss until they realize those gains. It's an affront to entrepreneurial risk-taking and it's capricious. It would be just as ridiculous to allow someone to write-off unrealized losses.
The point is that none of these guys are risking 100% of anything. Meta stock is liquid. You can sell it or hedge. You might slip 10% but it’s vanishingly unlikely to lose 100%.
The well-known tax dodge is to avoid realizing gains by borrowing against your stock. Say you pledge $1b as collateral on a loan. If interest rates are lower than your stock appreciation, the loan is free. So you don’t ever need to realize the gains, even though you are unlocking capital.
Of course, in the bear market you could get a margin call and have to liquidate at unfavorable prices (and pay taxes then). But not if you are keeping a big enough buffer.
It seems like it would make sense to stop allowing people to put up their stock as collateral on these types of loan, rather than taxing unrealized gains.
Even if losing 100% is unlikely, someone could lose control of their company. Say I own 51% of my company. Harris wants 25%. I sell my shares to cover it… if my math is right, I then own 38.25%, the year after that, 28.6%, then 21.5%, 16, 12, 9… the control is gone. I lost my company. Let’s say the company was worth $1B. At 9% ownership I’m now under the $100m net worth threshold. So I would have paid $420M in taxes. Then let’s say the stock tanks… I have been selling off shares flooding the market, the direction has been taken from me, the decisions aren’t good and I’m powerless to stop it, the company’s value drops by 85%. Had I never paid any taxes on unrealized gains, my stock would be valued at $76.5M, below the threshold of the tax. But instead, I paid the government $420M, my new position is $13.5M, and the company I founded and build from the ground up is slipping away.
This may be dramatic, but it could happen. $13.5M isn’t nothing, but it is when the government taxed you 420M.
And what happens when all this stock is sold and floods the market? Does the market crash? When the market tanks, what happens to everyone’s 401k, the middle class… they get screwed.
Someone tell me why I’m wrong, because this is there my mind goes with this stuff.
I wonder if we’ll start seeing more bootstrapped companies staying private, instead of everyone going after VCs who are looking for a big return, either through going public or an acquisition.
Nope, your maths is not right, once your unrealised tax has been paid you don’t pay it every year in the same way you don’t keep paying capital gains on realised profits. Maybe read up on this before commenting.
That math is still pretty close to right for a growing company. Let's say you're the founder of a company with a market cap that makes it to ~$100B. To get from $100M to $100B, the value of the company has to double every year for ten years. So if the tax rate is 25%, for each year the price doubles you lose 12.5% of your shares.
By the end of ten years you have barely a quarter of what you started with. If that was 51%, it's now 13% and the MBAs come to ruin your company.
If that's their honest concern, why wouldn't they simply tax large collateral-backed loans as income?
If an issue can be addressed with a scalpel, it should be addressed with a scalpel. Any man who insists a machete is required is just looking for an excuse to swing his machete.
Borrowing against your assets might make mathematical sense, but I think it’s kind of stupid to burden yourself with that kind of debt. The tax you pay is your peace of mind and the interest in the loan. Paying taxes on the sale of your investments is simpler, and if you’re living off your assets, you can afford it.
You’re also introducing the risk of being liquidated if there’s a big drawdown in the asset. If you borrow against your stock and then there’s a 50% drawdown, you could easily find yourself worse off than if you had just sold the stock.
> The point is that none of these guys are risking 100% of anything. Meta stock is liquid. You can sell it or hedge. You might slip 10% but it’s vanishingly unlikely to lose 100%.
All companies eventually go to zero and some of them do it without a lot of notice. How many people in the year 2000 expected Kodak to be bankrupt in a dozen years?
But that isn't even the main problem.
Suppose you own 51% of your company, i.e. a controlling interest. The company is doing very well under your leadership -- value doubles. But then you have to pay tax on the unrealized gain. The shares are your main asset so the only way to pay is to sell them. Now you no longer have a majority of the shares and control of the company moves to the soulless Wall St vampire squid which only cares how much money they can extract from your customers by any means necessary.
But it gets worse, and this time the "worse" includes for the government. You're forcing people to sell their shares in order to pay the tax, but selling shares, at scale? That lowers the stock price. Which lowers the amount of the capital gain. Which lowers the government's revenue. And the value of everybody's pension fund and 401(k).
Then it gets even worse for the government. Normally the way the stock market works is that it will go up by a little over 10% a year but then once in a while it will fall by 50% as the economy enters a recession. Right now what happens is that investors buy the stock, it goes up little by little, and when the recession hits they give back some of their gains but are still ahead of where they were when they bought the stock ten or twenty years ago. When the recession hits most of them still have an unrealized gain, so anyone who sells shares is still reporting a gain and paying taxes. Which the government desperately needs at that very moment to deal with the recession, because their other revenues will be down too. If the government taxes unrealized gains then government revenue from capital gains goes to zero when a recession hits, because basically nobody has a capital gain that year and the tax revenue from all past capital gains has already been spent. If you do this, the next time there is a recession the government is screwed.
> Say you pledge $1b as collateral on a loan. If interest rates are lower than your stock appreciation, the loan is free.
Which is exactly what the government does with unrealized capital gains. If they demand the money right now, it forces the shares to be sold, and since we're talking about something that happens at national scale, on net they'll be sold to someone outside the jurisdiction who doesn't pay US taxes. So the government gets the money now but they lose the future tax on the capital gain from the money that would have stayed invested in the stock market.
In other words, they get $100 now but that $100 in tax would have otherwise stayed invested and each year it would increase by 12%. Meanwhile the government is paying less than 4% on multi-year bonds. So tax revenue that would be collected by allowing the money to continue to be invested is by itself nearly as much as the government would pay to borrow it instead, before you account for the effects on capital gains of depressing stock prices by forcing sales.
Doing this could very realistically lower government revenue.
> Suppose you own 51% of your company, i.e. a controlling interest. The company is doing very well under your leadership -- value doubles. But then you have to pay tax on the unrealized gain. The shares are your main asset so the only way to pay is to sell them. Now you no longer have a majority of the shares and control of the company moves to the soulless Wall St vampire squid which only cares how much money they can extract from your customers by any means necessary.
One of the reasons I'd like this policy even more if the shares were sold to the government and the government is forbidden from voting outside of exceptional (e.g valuation crash over x years) circumstances.
But the reality is that companies play games with voting rights on shares all the time, so your scenario is easily worked around by founders themselves.
> One of the reasons I'd like this policy even more if the shares were sold to the government and the government is forbidden from voting outside of exceptional (e.g valuation crash over x years) circumstances.
So your premise is that the government gets the shares, but can't sell them and can't vote? To begin with this implies that they would never be able to spend the money, and then what's the point? Moreover, that's effectively taking those shares off the market, so if the policy applies to everyone (i.e. price goes up so all shareholders have a capital gain) it would be equivalent to a reverse stock split, which is a paper transaction with no real effect.
> But the reality is that companies play games with voting rights on shares all the time, so your scenario is easily worked around by founders themselves.
Those workarounds aren't free. VCs are wary about putting a lot of money into a company without a corresponding allocation of voting rights, i.e. the exact opposite of "the founders keep voting rights for themselves". Also, first time founders often don't know they can even do this and by the time they figure out it's important it's too late.
If it goes through I bet you are going to have all sorts of people trying to claim unrealized losses for a tax break, that is gonna be a fun time for the courts.
The way realized gains work is that if you sell at a loss, you don't get a tax deduction, but you can claim a loss against future gains in the next three years (if you ever have any). I'd imagine it would work the same: if you had $1000 worth of stock in January that went down to $750 in December, you'd have a $250 carry-forward "credit" for the next year, so if the stock went up to $1250 you could sell it with no tax implication. That's more or less how it works now, it just makes for some complicated tax forms, but aren't really a problem for the courts.
Nobody with assets over 100m has a "pile of gold", as you put it. Those assets are always productively invested in some form or another. But you would prefer that those investments be pulled, because the government are clearly much better at employing those assets productively?
To put it another way: if a popular artist sells a painting for $1m and the IRS assesses they have enough paint to make 1000 paintings over the next 10 years, do they tax the artist on $1bn of unrealised gains?
Do we make them give 20% of their unrealized paint to members of the public so they can make their own paintings, hoping they too will fetch $1m each?
If the IRS took control of 20% of the paint, borrowed against it to fund the state, but then the artist decided to quit does the government somehow force them to paint?
If the artist said this ahead of time and this was priced into the future value of their paintings (now worth $0 because there will be 0 paintings) does the IRS revalue their unrealized gains down to $0bn?
Listen mate, if you want to have discussions about economics you need to be able to reason about scenarios without resorting to metaphors and simplified models. If you can’t do that then you need to read up some more.
You learned in school that electrons orbit atoms, but that’s not how it really works is it? Trying to reason with a simplified model in mind can only lead to misunderstanding.
Electrons don’t have orbits. Capital gains aren’t paint.
I think communicating it that way is perfectly fine, the point you’re arguing is clear.
Personally I disagree, because while the gain hasn’t been realized, you can act on the assumption that it can be realized at any point. There are really degenerate strategies once you get to this level of wealth, such as taking out loans with these “unrealized gains” as collateral and realizing the gains without paying taxes.
Well I think the nature of internet forum stuff is you sometimes take extreme examples and/or dramatic metaphors to illustrate the point in a way that, one hopes, is easy to see, without actual intent in hyperbole. It's also common as we see here to refute the metaphor but ignore the underlying argument, perhaps some sort of argument fallacy.
Anyway, here's the problem with unrealized gains. If stock go brrrrr up 10-fold, wow! Huge unrealized gains! Get taxed on it. Unexpectedly, now the stock crashes, or it's found the company was doing something illegal, or the finances were fraudulent, or it was a ponzi scheme, etc, etc. Now stock is worth -zero- dollars overnight. Now I don't exactly what the logistics are going to be, but even if you hit those unrealized gains in tax year 2023, and the stock collapses in tax year 2024.. you had better get those gains that you were taxed on (but never got!), you had better get them back, plus interest.
In your example, a stock went up 10x overnight. Mature stocks don’t do that, so you must be investing in something very risky.
What a tax would do is incentivize you to realize some of your gains to pay the tax. If you don’t want to do that and would rather keep gambling, then you’re free to do that. If the stock then crashes and you lose all your money that’s on you.
Obviously you have to think about implementation to make sure you’re not charging a tax that people can’t pay, but that can be figured out.
If you are indeed Banksy or some other modern, conceptual artist, what are you supposed to do?
That big pile of sketches you made as a teenager? Well it says here that some person bought an “early Banksy” for $500k this week so we the government would like 20% of your $49,999,995.60 unrealized gain by next Tuesday please.
What? You burned them in an attempt to avoid the wealth tax? We have a dealer from on the line saying he’ll pay $2m for the ashes and $10m to remove the fire place for display in Brad Pitt’s private gallery. Tap tap tap 20% of $12m less $2k for your upfront building costs is… let’s just round it up to $2.5m. Please submit your check by next April.
Oh hang on, Elon Musk has tweeted saying he’ll pay $69m for the fireplace plus a $420k bonus payment if you throw in some vials of your own tears. He wants them to hand out in gift bags at his next toga party, apparently. Can you get back to us with how well hydrated you are so we can run the numbers on these unrealized capital gains?
Its not a question of who is better at managing money but more who needs benefit in our society. The government supports welfare programs. Someone throwing 100m in the market does not unless they are taxed to do so.
The government also supports bombing the living fuck out of people on the other side of the world. Similarly, someone throwing 100m in the market does not unless they are taxed to do so.
The government will spend the money regardless. Does the money come from
1. inflation - a regressive tax that disproportionately takes from the poor
2. taxation as a % of wealth - takes from everyone equally
The fact is the rich pay a WAY lower tax rate, we can spend the next 1000 years playing legal cat and mouse over how to tax these people but it doesn’t get us closer to option 2 unless the government gets aggressive about collecting tax.
We all earned the money. Nobody makes 100M in a vacuum. That sort of profit only comes from taking full advantage of a country's infrastructure, its educated population, its safety from invasion. We all provide the society that allows someone to amass that much wealth, and we all deserve a piece of the pay out.
> That sort of profit only comes from taking full advantage of a country's infrastructure, its educated population, its safety from invasion. We all provide the society that allows someone to amass that much wealth, and we all deserve a piece of the pay out.
This is such a goofy argument. The US 2% of its budget on infrastructure. It spends 4% on education (yet literacy rates are only marginally higher than they were before compulsory education). Military spending is 20% of federal spending, and could be 1/4 of that without any risk whatsoever of invasion.
You don't need more tax revenues to pay for the stuff that makes business possible.
There is a broader definition of "infrastructure." For example, Medicare is infrastructure that is directly related to the success of any company in the United States.
Has Tesla ever received a check from Medicare? Probably not. But the fact that Medicare exists means that Tesla's factory workers don't need to be paid at levels that reflect they need to 100% self-fund their retirement.
Has Salesforce ever asked for regulation or assistance from the FDA? Probably not. But because the FDA exists, Saleforce's employees don't have to spend time verifying their medication is authentic and does what it claims to do, so they can spend more focus on their work for Salesforce.
Even beyond government: how much do you think a Ford or Chevy have benefited from the US's culture? They certainly don't sell many large consumer trucks Europe or Asia. That profit exists because of the ideals and beliefs Americans have about how they should live their lives and what type of car they need to do that. Yes someone made the truck, and the truck maker should reap most of the benefits, but some of that profit should feed back into society that supported it.
Sure, we probably spend too much on the military and there exists some cronyism that we should strive to stamp out, but make no mistake that anyone with 100M in investable wealth has earned it with substantial help from the society we have all built together.
> Medicare is infrastructure that is directly related to the success of any company in the United States.
That must be why there were no successful companies in the United States before 1965.
> But the fact that Medicare exists means that Tesla's factory workers don't need to be paid at levels that reflect they need to 100% self-fund their retirement.
Tesla is paying them that much, because Tesla--and all employers and employees--are funding Medicare via earmarked taxes on income.
> There is a broader definition of "infrastructure."
"The most effective way of making people accept the validity of the values they are to serve is to persuade them that they are really the same as those they have already held, but which were not properly understood or recognized before. Adn the most efficient technique to this end is to use the old words but to change their meaning. Few traits of totalitarian regimes are at the same time so confusing to the superficial observer, and yet so characteristic of the whole intellectual climate as the complete perversion of language." ~Hayek
> That must be why there were no successful companies in the United States before 1965.
Of course there were. There were also lots of successful companies before we had highways or municipal plumbing. So I’m not sure what point you are trying to make here.
>Tesla is paying them that much, because Tesla--and all employers and employees--are funding Medicare via earmarked taxes on income.
Tesla benefits because every employer has been paying in. Anyone can freely go work in a Tesla factory because they know they will receive the same health benefits at the end of their working life if they go work there. They also benefit because their current employees don’t need to pay for the cost of their parents healthcare, which Tesla most likely did not pay for.
Regarding your quote. Was your intention to imply that I’m a totalitarian because I’m using a slightly different definition of a word than you? That seems a bit severe.
Let’s ask Wikipedia about infrastructure:
> One way to describe different types of infrastructure is to classify them as two distinct kinds: hard infrastructure and soft infrastructure.[4] Hard infrastructure is the physical networks necessary for the functioning of a modern industrial society or industry.[5] This includes roads, bridges, and railways. Soft infrastructure is all the institutions that maintain the economic, health, social, environmental, and cultural standards of a country.[5] This includes educational programs, official statistics, parks and recreational facilities, law enforcement agencies, and emergency services.
I don’t think it’s by any means a stretch to say Medicare or the FDA are institutions that maintain economic/health standards.
> So I’m not sure what point you are trying to make here.
Companies are no more successful with Medicare than they were without Medicare, so simply claiming that it is "directly related to success" is meaningless.
> Tesla benefits because every employer has been paying in.
Your argument was that Tesla was paying lower wages, which was objectively false. Now you're really branching out! This first claim is just a low-effort handwave. They benefit because... the program exists? Compelling.
> Anyone can freely go work in a Tesla factory because they know they will receive the same health benefits at the end of their working life if they go work there.
People went to work before Medicare, and more freely, because they kept more of their income. So the only difference you're actually stating here is that "they know they will receive benefits", which, again, is tautological--the benefit of the program is that people know the program exists. Amazing.
> They also benefit because their current employees don’t need to pay for the cost of their parents' healthcare, which Tesla most likely did not pay for.
How is this a benefit to tesla? Vibes?
> Was your intention to imply that I'm a totalitarian because I'm using a slightly different definition of a word than you?
I was merely observing the age-old tendency of people who advocate for the never-ending growth of the state to manipulate language in service of their goals. It usually takes the form of conflating less popular things for which they're advocating (welfare, etc) with obviously necessary things (roads, bridges, the electric grid, etc) which already enjoy broad support. I don't doubt that you are sincere in your belief that this new definition is legit. (Who wouldn't happily use terms which make their policy preferences sound better?) Yet this is an obvious example of the old trick, which is always worth calling out for the benefit of the uninitiated.
How many of the people on welfare contributed to those things? It just sounds like you're in favor of distributing the wealth to people based on their contribution to the country as a whole.
It’s simply pay for use. The more someone uses the system, the more they pay back into it. Anyone with more than 100M in assets has used the system a shit ton and owes a lot back into it.
This is false. Toll roads are "pay for use". Capital gains tax is, objectively, not "pay for use".
> Anyone with more than 100M in assets has used the system a shit ton
There's zero evidence that supports a strong correlation between how many assets someone has and how much value they've obtained from government services. This is just entirely fabricated.
> and owes a lot back into it
...which they've already actually paid through taxes on profits.
This bundle of falsehoods is just a thin facade around the emotional plea that "someone having more money than me is bad, and I should get some of it".
Pointing out that toll roads are "pay for use" is factually true.
Capital gains tax is, factually, not "pay for use". There's no usage that is being metered.
You also claimed "Anyone with more than 100M in assets has used the system a shit ton" and I pointed out that there is no evidence that supports a strong correlation between how many assets someone has and how much value they've obtained from government services. This is, again, a fact - had you had any evidence against this, you could have put it here, in your reply. But no, you didn't have evidence, so you tried to (incorrectly) portray it as an "opinion".
You calling my true statements "opinions" proves that you cannot differentiate between opinions and reality. The fact that you think that pointing out that capital gains tax is not pay for use is a conjecture proves that you literally cannot tell the difference between facts and opinions.
The US government, both at the federal and state level, is extremely inefficient at building infrastructure, in terms of value per dollar spent.
Proposing that we should continue to throw more money at infrastructure, before diagnosing and fixing the problems that are causing that inefficiency (at which point, sure, double the infra budget - as long as we're getting good value, the absolute amount can go up as far as I'm concerned), is straight-up malicious.
The only people who make the argument to keep increasing the infrastructure budget before fixing the problems are those generically interested in throwing more money and power at the government, not those actually concerned about infrastructure (who will seek to fix the problem first).
We've banned this account for repeatedly posting personal attacks and flamewar-style comments. You can't do that here, no matter how wrong another person is or you feel they are.
If you don't want to be banned, you're welcome to email hn@ycombinator.com and give us reason to believe that you'll follow the rules in the future. They're here: https://news.ycombinator.com/newsguidelines.html.
What's productive? Measured in purely financial terms selling cigarettes, junk food, and fentanyl is productive. Figuring out how to get teenagers to scroll TikTok all day is productive.
... What people are suggesting is to take money from some productive enterprises and put it towards other productive enterprises such as education, medicine, public infrastructure, etc. Enterprises which have more benefits beyond simply increasing the bank account of entrepreneurs and fund managers.
Increased spending is the simplistic solution. Government spending as percentage of GDP is 35%, compared to about 25% in the 50s/60s. Since then inflation-adjusted spending per student has increased by roughly 3X with no measurable increase in test scores. Baltimore spends 21k/yr per student, with abysmal results. College tuition prices have increased far more than inflation, in large part due to federal student loans. The USA spends more on healthcare as a percentage of GDP than any other country, with insane markups on routine procedures. The California High Speed Rail project has taken 15 years to do environmental reviews and lay a few miles of track in the middle of nowhere, all while costs have grown to more than 128B from its initial estimates of 10B.
Giving money to ineffective organizations is throwing good money after bad. I'd love to see competent government that can effectively use funds, but I'm not seeing a lot of evidence for it these days. There needs to be deep reform and anti-corruption efforts. Good luck doing that without the status quo powers pulling out all their dirty tricks.
Those assets are always productively invested in some form or another.
This is a rather large assumption. One's assets might be invested inefficiently, as those who financed Elon Musk's takeover of Twitter have learned to their cost.
> Well when you have over 100m in assets in your pile of gold in the dragon lair, its time to be extractive.
This is emotional pleading, not a serious argument of any sort, based on the core premise of "this person has more money than me, and I don't like that, therefore I should get some".
It's a very serious argument, and it's somewhat insulting that you consider it to be emotional and meritless.
Wealth and income inequality has well-studied negative effects on society.
The ability for a single person to own over $100m in assets is not a human right. It's not a protected class or status. It's an abhorrent misappropriation of human resources. It is a societal mistake.
And let's not forget, people like Elon Musk, Jeff Bezos, and Mark Zuckerberg have multiple THOUSANDS of $100 million dollars in net worth. This completely insane $100 million figure is so small to those men that you would have to earn $100 million every single year for over 30 lifetimes to get to their level of wealth.
It's not about demanding some of the money from the wealthy. That's a shallow way to think about it. It's about the inherent power imbalance and exploitation that comes along with being excessively wealthy like this.
Think for a second what would happen to you if Jeff Bezos banned you from using all Amazon products. Would the Internet even work anymore for you? You know, every company has the right to refuse service to anyone. This one man can basically cut you off from television, e-commerce, Internet, employment (if you do engineering work on AWS), even Thursday Night Football.
> It's a very serious argument, and it's somewhat insulting that you consider it to be emotional and meritless.
Because, factually, the statement "Well when you have over 100m in assets in your pile of gold in the dragon lair, its time to be extractive." is emotional and meritless. There's literally zero value here. It's an opinion. In fact, you doubled down on this throughout your response.
> It's an abhorrent misappropriation of human resources. It is a societal mistake.
This is also factless, meritless, emotional pleading.
> And let's not forget, people like Elon Musk, Jeff Bezos, and Mark Zuckerberg have multiple THOUSANDS of $100 million dollars in net worth...
As is all of this.
> It's not about demanding some of the money from the wealthy.
That's literally what you're doing.
> It's about the inherent power imbalance and exploitation that comes along with being excessively wealthy like this.
It's clearly not about the power imbalance and exploitation, because someone genuinely interested in curbing those effects would address them directly. The fact that everyone who claims to care about the destabilizing effects of concentrated wealth immediately goes to "we should take the wealth away" instead of "we should try to figure out why concentrated wealth is destabilizing and address that" is extremely strong evidence that the goal is, actually, to take money from the wealthy.
If you consider pointing out that you're not making logical arguments, and instead engaging in emotional pleading, to be insulting (especially when, upon that being pointed out, you can't make a rational argument and instead continue pleading), then you should take a step back, because there's a good chance you're engaging in advocacy and emotional manipulation as opposed to genuine, rational arguments in good faith.
> It's clearly not about the power imbalance and exploitation, because someone genuinely interested in curbing those effects would address them directly. The fact that everyone who claims to care about the destabilizing effects of concentrated wealth immediately goes to "we should take the wealth away" instead of "we should try to figure out why concentrated wealth is destabilizing and address that" is extremely strong evidence that the goal is, actually, to take money from the wealthy.
As someone who thinks wealth inequality is a huge problem in the US - I'm genuinely curious as to what you would propose to address this problem "directly". Because to me, this tax proposal is addressing it directly.
Wealth inequality doesn't have any direct effects - merely having more money than someone else doesn't do anything. It's only after the money gets spent that you see negative effects, and the magnitude and type of spending determine the effects. It's more accurate to call this "spending inequality".
This proposal doesn't address the problem because it doesn't affect spending - only wealth. (a capital gains tax is actually a deceitfully name wealth tax) Wealth doesn't do anything until it's spent. That's the main problem with this proposal - it doesn't even try to address the problem it pretends to address.
As to how to actually address the problem: there's two types of wealth inequality that most people are concerned about - that between the super-rich and everyone else (discussed here), and that between the poor and everyone else (not discussed).
Thank you for engaging honestly, it's a breath of fresh air in this thread.
The ~wealth~ spending inequality problems of the super-rich seem to be mainly manifested in corruption - donating large amounts to political groups, and lobbying. You want to regulate/outlaw those specific things.
However, aside from corruption (which is a huge problem) most of the spending inequality problems seem to come from the middle and lower class. For instance, cost of housing and living - I think that that's being driven by the middle class having more access to capital in a supply-constrained environment (which is partially caused by big hedge funds buying up housing to rent it out - which again is a separate problem that can be addressed separately and isn't fixed by the capital gains tax). People like Zuckerberg aren't personally buying up housing all over the US on their own - this problem isn't at their level and this tax wouldn't help.
You can't outlaw the exercise of power, so the extreme power imbalance itself is the core problem for humanity; and the only way to fix that is to take some of their power away.
> donating large amounts to political groups, and lobbying
Those are indeed ways of exercising power that can be outlawed, but there are other ways of exercising power that are impossible to outlaw. For example, the ultra-rich can spend far more money on lawyers than anyone else. How are you going to outlaw that? And even the charitable contributions of the ultra-rich are controversial and probably wouldn't happen in a true democracy. E.g., the Bill Gates foundation has a lot of influence on global health spending[1]:
>
If you look across global health, they’re funding everybody. Nobody is more than one degree removed from the Gates Foundation. So it’s really difficult to avoid the foundation’s money.
Basically they wield so much power that even their charitable contributions to society are inherently political, unlike say if I volunteer at my local rescue mission.
Prologue: To be clear, I absolutely agree that rich people have disproportionate power in our economic system due to their wealth, but taking away that wealth is simultaneously (1) evil (according to every self-consistent non-arbitrary moral system I've seen - if you have another, I'd love to hear it) and authoritarian and (2) completely unnecessary - you don't need to tax people in order to get rid of these behaviors, and it completely misses the underlying problems that are present for all economic strata.
> You can't outlaw the exercise of power, so the extreme power imbalance itself is the core problem for humanity; and the only way to fix that is to take some of their power away.
This is not the only fix. It is possible to outlaw specific exercises of power that actually harm people, such as lobbying and bribery, without taking any money away at all, and it's possible to level the playing field in other areas such that money is much less of an advantage.
> For example, the ultra-rich can spend far more money on lawyers than anyone else.
By simplifying the legal system, and removing barriers to entry in the legal profession, such that people can effectively self-represent, both because they're legally allowed to, and because the legal system is simple enough that individuals can comprehend it and argue effectively. (this will also greatly reduce the effectiveness of high-powered lawyers, because the simpler the system is, the less advantage the best lawyers have over the worst ones)
The legal system is inherently flawed in that richer people have a massive advantage over poorer people - that is the problem, not that some people have more money and so can take advantage of it.
Please, seriously, think about that for a bit - our economy is filled with systems that are unfair or exploitative (e.g. legal, healthcare, non-compete agreements, the rent collusion that's currently happening), but the solution is not to start taxing the ultra-rich, because that still leaves those systems in an exploitative state, and they'll continue to take advantage of the middle and lower class even if you eliminate all of the rich people.
> E.g., the Bill Gates foundation has a lot of influence on global health spending
This is also very feasible to fix - make the status of being a tax-deductible charity contingent on not doing the bad things you want to disincentivize. This is similar to how Title IX is a huge lever over public institutions that prohibits them from doing some bad things.
The underlying problem is not "the owners of large companies have too much money", it's "large companies are too large". If you take ownership of the company away from Jeff Bezos and give it to Wall St, whoever they make the CEO can still ruin your life by denying service to you etc. It solves nothing and plausibly makes the problem worse because founders generally run companies less extractively than MBAs.
What you need is to remove barriers to competition and enforce antitrust laws.
You have what I refer to as “root cause syndrome”. It happens a lot to engineers and tech adjacent people.
You see a problem and you refuse to fix it, and instead look for a root cause that should be addressed instead, that will then fix the problem itself.
The problem with that kind of thinking is that that’s not how the real world works. The problem of homelessness is that people don’t have homes. It’s not something else. Give people homes and you solve it. But people with RCS try to solve it through jobs, training, education, etc. All those things are nice but they won’t fix the problem, which is that people are homeless.
Likewise, the problem of wealth inequality can only be solved by reducing wealth inequality. There is no other solution. Just tax rich people until they’re not rich anymore.
> The problem of homelessness is that people don’t have homes. It’s not something else. Give people homes and you solve it.
Have you considered how this is supposed to work? If being homeless means you get a free home, millions of people would purposely become "homeless" so they could eliminate their housing costs. Also, homes are quite expensive, especially in areas with high homelessness, so where does the money come from?
Meanwhile one of the primary actual causes of homelessness is zoning that prevents new housing from being built, causing people to be unable to afford it. If you just have the government buy up existing housing stock for the homeless, the scarcity is not resolved at all, you just cause new people to become homeless because you remove the housing they'd have bought from the market.
To actually solve it you can't just do the naive "have the government pay for it" thing, you have to understand the root cause, which is that you have to not just give housing to the homeless but build new housing across the overall market so it isn't in undersupply.
> Likewise, the problem of wealth inequality can only be solved by reducing wealth inequality. There is no other solution. Just tax rich people until they’re not rich anymore.
This is exactly the same level of not thinking it through. Mark Zuckerberg has billions and it gives him control over Facebook. But if you take his money and leave Facebook, someone will still be the CEO and that person will still have all of that power. The problem is not the money, it's the size of the company.
I get what you’re saying, but it really comes down to just addressing the problem directly.
Homelessness crisis -> provide housing for all -> not enough supply? build more -> can’t build because of zoning? fix the zoning -> etc
It’s the same thing with wealth inequality. Tax him until his wealth isn’t that unequal. If you then decide that the CEO of facebook has too much power you can break up Facebook, but that’s a separate issue.
> You have what I refer to as “root cause syndrome”.
This is an ad hominem fallacy/attack. Instead of discussing the actual argument, you instead attack the person making it.
> Likewise, the problem of wealth inequality can only be solved by reducing wealth inequality.
This is an opinion, completely non-factual and unjustified by any reasoning. And, the only possible underlying belief from this paragraph is "some people having more wealth is intrinsically bad" - completely separate from the negative societal effects of that wealth, and from any moral framework that even allows you to describe "bad". You just believe that it's bad.
If you took it as an insult that’s on you. I just stated a fact.
Like the fact that wealth inequality is bad, and we know that it’s bad. It’s just a fact, and if you want to ignore the facts because your opinion doesn’t agree why them that’s ok, but it doesn’t make it any less true.
> If you took it as an insult that’s on you. I just stated a fact.
This is factually and objectively wrong, in multiple ways.
First, don't understand the difference between "an insult" and an ad-hominem attack. An ad-hominem is a logical fallacy where you attack the character of a person making an argument, rather than addressing the argument itself. Whether or not it is insulting is completely irrelevant - they're orthogonal axes, and the fact that you conflated them means that you don't know what they are.
Second, you did not state a fact, you expressed an opinion. You can't read my mind, you don't even know me in person, and even if you did, there's no objective test for “root cause syndrome”, which, as you said, is a term that you have invented yourself. (your statement "Likewise, the problem of wealth inequality can only be solved by reducing wealth inequality." is also an opinion that is not a fact) You don't even know the difference between an opinion and a fact. You should stop claiming that your opinions are facts, and learn the difference.
> Like the fact that wealth inequality is bad, and we know that it’s bad.
Provide a citation for the fact that wealth inequality is bad. If it's factual, it should be easy for you to provide a study that proves that it's bad by establishing a causal link between them, and doesn't merely express a correlation. (prediction: you won't, because I've never seen any evidence ever cited despite having read hundreds of comments expressing opinions like yours)
> Please don't post insinuations about astroturfing, shilling, brigading, foreign agents, and the like. It degrades discussion and is usually mistaken. If you're worried about abuse, email hn@ycombinator.com and we'll look at the data.
Accusing others of astroturfing doesn't help the quality of HN, or your case against the poster. Please respond in a chill manner. Use the downvote and flag buttons if people are breaking the HN guidelines.
this is so weird because astroturfing is real, extremely prevalent, and people have pointed put “russian bots” on HNany times without being flagged or deleted. such a weird tging that you cant point it out
Yes, astroturfing is real - however, you do not know how prevalent it is, or which comments are it. You don't have access to the internal server logs that dang does. You don't know whether someone is astroturfing or just really invested in an ideology. And it's against the guidelines to point out.
> people have pointed put “russian bots” on HNany times without being flagged or deleted
Because dang didn't see those comments and they weren't flagged by other users. If you see what you think is astroturfing, or dishonest/manipulative/HN-guideline-breaking comments (like those above), downvote and flag it, and if you want to respond, don't accuse the user of astroturfing, but actually respond to their points. If the people on the other end are really FSB officers or whatever, you literally waste their time and money, and divert their resources from other things they could be doing (e.g. the war in Ukraine). Accusing someone of astroturfing isn't just against the guidelines, it's counterproductive!
Imagine if you saw someone who ate so much food they weighed 10,000 pounds.
I come over and tell you, “this isn’t healthy! Nobody should weigh 10,000 pounds, we weren’t designed to exist that way!”
You come back to me and tell me that I’m making an emotional argument that isn’t backed up by facts.
But, the problem with that is that this is common sense, and it’s even backed by a bunch of science and observed reality. Someone who weighs 10,000 pounds basically can’t exist, and if they did it would be so ridiculous it’s almost incomprehensible.
I think it actually should be on you and not me to prove that people owning that much wealth is something that should be considered to be okay, not the other way around. You counter my “emotional pleading” with your own emotional “nuh uh, you are wrong” argument.
Who do you know that has over $100 million in net worth that you feel would be hurt by a proposal to tax unearned gains on people with $100 million net worth and above? I don’t know anyone like that. What I do know is that I would personally benefit from my government having more income to fix potholes and pay teacher salaries.
And that’s the other double standard: when the wealthy people advocate for policy that hurts the majority like tax cuts for the wealthy, they are seen as smart businessmen. But as soon as I advocate for something that hurts the wealthy, I’m being emotional and unreasonable.
Sorry dude, I’m just advocating for what’s in my best interest. It’s in my best interest as an average person who isn’t a billionaire or millionaire for these wealthy people to not exist. They’ve done nothing positive for me and everything negative. Every penny or nickel or dime that goes to their extravagant pay package is a penny or nickel that could have gone back to me, their customer. It would be better for me if my company CEO made $200,000 a year instead of $20,000,000 a year. That could at least buy us a solid pizza patty.
No, I won't. This is a logical fallacy, that of the false allegory. It's not an argument in general, and in this particular case it's an extremely bad allegory that's also trivially inapplicable to this situation. There's plenty of scientific evidence that being physically overweight is directly unhealthy for you. Meanwhile, there's zero evidence that having a lot of money is the sole cause of any negative societal phenomenon. Think I'm wrong? Drop a link right here. Correlation isn't causal, by the way - if you show me a study that merely demonstrates correlation without causality (and sole causality, as opposed to multiple factors), then it's invalid.
> You come back to me and tell me that I’m making an emotional argument that isn’t backed up by facts.
In the case of your actual comments (as opposed to this irrelevant story you're spinning), this is true, because you are repeatedly making emotional non-arguments without providing any facts whatsoever: "very serious argument", "somewhat insulting", "abhorrent misappropriation", "societal mistake", "multiple THOUSANDS of $100 million dollars in net worth", "completely insane $100 million figure", etc. These are purely manipulative, emotional, non-arguments that are meritless and valueless, and are a symptom of someone actively trying to manipulate others. Repeatedly pointing out how much money someone has is not a valid argument.
You're inventing a completely fictional, irrelevant world because you're unwilling to or incapable of either providing a single rational argument, or a single piece of evidence.
> I think it actually should be on you and not me to prove that people owning that much wealth is something that should be considered to be okay
Over a hundred million people in the US, where I live, disagree with you. I have nothing to prove, because it's an extremely popular belief that it's ok to be rich.
Additionally, you have it exactly backwards: in almost every country in the world (and especially the US), things are assumed to be OK to do unless people explicitly decide otherwise. You can invent a new sport, make a new game, write a new book, and do whatever, and that's OK unless it violates established laws, or people decide that your specific thing is bad. This idea of "things are bad to do by default unless you prove otherwise" is completely hypocritical, because you have absolutely done novel things in your life that nobody else has done before, and felt not a shred of guilt, because you do not hold the internal belief that your actions are bad by default unless you explicitly justify them to others.
> You counter my “emotional pleading” with your own emotional “nuh uh, you are wrong” argument.
False. I've made extremely rational and detached counter-arguments to your fallacies. You are the one making objectively emotionally pleading statements like "very serious argument", "somewhat insulting", "abhorrent misappropriation", "societal mistake", "multiple THOUSANDS of $100 million dollars in net worth", "completely insane $100 million figure", and fallacies like the false allegory, the appeal to pity, and the red herring. I've pointed out your fallacies - you've continued to make more of them. You've shown that you don't even know the difference between arguments and emotional pleading.
> And that’s the other double standard: when the wealthy people advocate for policy that hurts the majority like tax cuts for the wealthy, they are seen as smart businessmen. But as soon as I advocate for something that hurts the wealthy, I’m being emotional and unreasonable.
This is a red herring. Nobody else brought up this double standard, nor did I mention it, nor is it relevant to this argument. It's just another way for you to emotionally manipulate.
> Sorry dude, I’m just advocating for what’s in my best interest
This can be used to justify every single kind of evil. Someone can make this argument to justify why they can murder, rape, steal, lie, and cheat, and it works exactly the same way, because they're just doing "what's in their best interest".
Your comments demonstrate an inability to differentiate between opinions and facts, and between emotions and logic. You should stop confidently conflating those things.
Here’s an article from the
council on foreign relations that talks about how inequality is a drag on the economy and fuels populist authoritarian movements,:
Here’s a Saint Louis Federal Reserve article which doesn’t necessarily prove that wealth inequality is bad, but helps to detail how wealth inequality has grown along the lines of education and generation (so you might need to explain how “the younger generation is more poor than previous generations at their age” is good for the economy): https://www.stlouisfed.org/open-vault/2019/august/wealth-ine...
Let me know when you’ll be dropping your links that say that wealth inequality is totally cool and awesome.
I think you need to stop debating people by attacking their logic and reasoning abilities just because they disagree with you. I mean, one of your points was that 100 million people agree with you that being rich is okay. Well, that’s an opinion that 100 million people hold, right? There are more than 100 million Christian’s and over 100 million Muslims, but they can’t both be right.
Literally every link you posted is correlation, not causation, which I already pointed out is fallacious before you sent those links:
>> Correlation isn't causal, by the way - if you show me a study that merely demonstrates correlation without causality (and sole causality, as opposed to multiple factors), then it's invalid.
So, you still have provided exactly zero evidence for your claims.
> Let me know when you’ll be dropping your links from reputable institutions that say that wealth inequality is totally cool and awesome.
This is a strawman fallacy - I never claimed that wealth inequality was "totally cool and awesome". My point is that it's a correlation without a causation, and that wealth inequality is not the causing factor. It's still up to you to provide evidence for your claims.
> I think you need to get over yourself and stop debating people by attacking their logic and reasoning abilities just because they disagree with you.
You need to learn how to actually use logic and reasoning. Almost every single thing that you've said in this entire thread has been emotionally manipulative and fallacious. You're not merely "disagreeing" with me, you're making invalid points to justify something morally dubious - it's entirely reasonable for me to point out those fallacies and that emotional manipulation.
Also, literally the definition of a "debate" is to use logical arguments to argue for a point. You cannot have a "debate" with out logic.
It's also extremely ironic that your last statement is yet another emotional plea, because you can't justify your positions with logic or evidence.
I honestly suggest spending some time to think about why you're unable to justify your positions and beliefs with logic. Usually, that means that they're either purely driven by emotion, or logically inconsistent with each other - neither of which are good for either you, the people around you, or society as a whole.
If yes to both, then the centralization of money is bad.
You have no argument against this. The best you can do is to attempt to refute the notion that money is tantamount to power, which will be laughable. But please do try.
Expropriation of wealth from the rich just centralises it more by giving it to the government (and in particular whoever is in charge of the government), as happened with every single communist revolution.
The government controls the supply of money, they don’t need anyone’s money they already have complete monetary power.
Taxes don’t fund the government. All of the money the government collects via taxes is written off in a spreadsheet and disappears. The government then creates money, however much money it wants to, in order to fund its activities.
No? We aren't a communist country, so bringing up communist revolutions is irrelevant here.
We used to tax the rich much more than we do now, and government bureaucrats were not obscenely wealthy then as you seem to be implying.
Also, the US government spends more money than it accrues every year, so there isn't any consolidation of money happening in the government (nor will there be if taxes go up).
> We used to tax the rich much more than we do now, and government bureaucrats were not obscenely wealthy then as you seem to be implying.
This is inaccurate. We used to have higher tax rates on paper but nobody actually paid them because the tax code of the time had many enormous loopholes that have since been closed, which happened at the same time as the rates were lowered. Real government revenue per capita has been increasing over time.
It's not inaccurate. While it is true that they didn't pay the rates on paper, their effective rate was still significantly higher than it is today (even with all the loopholes).
GDP is the aggregate of everyone's income, but the highest income earners have a disproportionate share by definition. The lowest tax brackets have never represented a large proportion of government revenue; they both pay lower effective rates and have less income. It's a decent proxy unless you expect that the tax rates paid by the upper middle class (e.g. the top 50% as opposed to the top 1%) have gotten dramatically out of proportion from what they used to be, but that isn't what happened.
You can find the raw data here though (Tables II: distributional series, you're looking for tab TG2b): http://gabriel-zucman.eu/usdina/
And then you can see that the highest effective income tax rate ever paid by the top 1% was 23.4% in 2001. The most current number from that table was 2019 when it was 20.3%. Whereas the highest rate from the mid-20th century period when they were alleged to have been paying such high income tax rates was 21% in 1945. In 1953, when the US had its highest marginal tax rates (92%), the effective income tax rate on the top 1% was 14%. Which is more typical for the period; 1945 was an outlier, it being the height of WWII.
The thing that has actually come down is not effective income tax rates on the top 1%, it's corporate income tax, which is a consequence of globalization. "Corporate income tax" is not a good fit for an international supply chain because tax avoidance and jurisdiction shopping is too easy if you're trying to tax something that only exists in a spreadsheet ("corporate profit") instead of something that has a definable physical location (goods, workers, real estate, etc.) So corporate tax avoidance is higher (because of transfer pricing etc.) and corporate rates are lower because it's easier for corporations to set up shop somewhere else if the somewhere else is taxing them less, which puts tax jurisdictions in competition with each other. But that's not an easy one to fix without abandoning globalization, so other taxes got raised to compensate (which brings us back to, government receipts as a percent of GDP haven't really changed).
Thank you for clarifying and providing that source, it's very informative.
The numbers I was looking at before were referring to the overall tax rate, which included both income tax and corporate taxes. With that said, the overall tax rate for the top 1% has gone down significantly since 1950 (from 45ish percent down to 32ish percent). As you mentioned, that is mainly due to the lower corporate income tax rate.
Given that drop in the overall tax rate (along with rising income inequality and increasing debt spending), it seems clear to me that the income tax rate was not raised enough to compensate for that loss but that's a separate discussion.
All this to say that - my original point that the rich were effectively taxed higher back then still stands, and government bureaucrats were not getting rich off of the higher tax rates either (that was a response to the person I originally replied to, not you)
> The numbers I was looking at before were referring to the overall tax rate, which included both income tax and corporate taxes.
Including corporate taxes in the overall rate doesn't make a lot of sense to do. Corporate taxes are on a different entity and who really pays them depends on the nature of the business.
For example, there are a lot of businesses that are simply capital intensive. You need to make a large investment in order to operate. Nobody is going to invest in them unless the returns can beat alternative investments like bonds, but that will be the after tax returns in both cases. Bond interest and dividends are both taxed, but corporate income tax is an additional tax, so with higher corporate taxes every company in that industry would have to generate higher profits to attract investors. So higher corporate taxes drive mergers/dissolutions, the market consolidates to give incumbents more market power and the tax mostly ends up getting paid by customers or employees rather than investors.
Conversely, if the market is already consolidated, it might mostly get paid by investors. But it also acts as a force to keep the market consolidated for the same reasons, which is not super great.
The point being, you can't just assume corporate taxes are always paid by the rich or the owners of the company.
> Given that drop in the overall tax rate (along with rising income inequality and increasing debt spending), it seems clear to me that the income tax rate was not raised enough to compensate for that loss but that's a separate discussion.
Income inequality has very little to do with tax rates -- it's often measured on the basis of pre-tax income, and has increased significantly even using that metric, largely as a result of market consolidation and regulatory capture. Incumbents that capture government regulators and exclude competitors become megacorps and then their executives and owners extract disproportionate income. Taxes rates have little to do with it.
The increased deficit spending is because the government is spending more money. Federal receipts as a percent of GDP are around the same, federal spending as a percent of GDP has gone up.
> government bureaucrats were not getting rich off of the higher tax rates either
But there weren't higher tax rates -- and the real measure of what there is to get rich off of would be government receipts, if not expenditures. Receipts are flat as a percent of GDP, but up quite a lot in real dollars and real dollars per capita as a result of growth in population and real GDP per capita. Spending is up even on top of that because of deficit spending. So the time they'd be getting rich isn't back then, it's right now.
Which they are. Of course, "they" are Lockheed and healthcare companies and members of Congress, but there's little doubt that it's happening.
> The point being, you can't just assume corporate taxes are always paid by the rich or the owners of the company.
I was just pulling the numbers off of the source you gave. I'm not sure what methodology they used to compute those numbers.
> Income inequality has very little to do with tax rates
Sorry, I meant wealth inequality. I agree with you that the wealth/income inequality we're seeing is mostly driven by the actual incomes of the rich vastly outpacing the middle/lower classes - what I meant is that a higher progressive tax rate should be deployed in order to help correct that problem.
> The increased deficit spending is because the government is spending more money
Yes, I'm aware. Again what I meant is that if we're going to continue to spend at the levels we are, and wealth inequality continues to grow at the rate it has, then it makes sense to increase the tax rate on the highest brackets.
> But there weren't higher tax rates --
There were though - according to your source.
> So the time they'd be getting rich isn't back then, it's right now
No argument there - but again my point is that they aren't getting rich from increased government taxes, they are getting rich by lobbying/regulatory capture.
> I was just pulling the numbers off of the source you gave. I'm not sure what methodology they used to compute those numbers.
It's Piketty/Saez/Zucman. They did a lot of work to compile the data but they have a particular conclusion they're trying to support, so the data is probably accurate but they're organizing it in a way that supports their position.
> I agree with you that the wealth/income inequality we're seeing is mostly driven by the actual incomes of the rich vastly outpacing the middle/lower classes - what I meant is that a higher progressive tax rate should be deployed in order to help correct that problem.
I don't think that really fixes it because it isn't the underlying cause. The problem here is market consolidation, e.g. Facebook is too big. So Zuckerberg has "billions of dollars" but in fact the vast majority of that money is in shares of that one company and what he really has is control over an enormous and disproportionately powerful corporation. Which is a problem, but taxes don't solve it, because the corporation is still just as big even if nobody has a controlling interest. Wall St would still put someone in charge of it and that person would still have massively disproportionate influence.
Whereas if you do something about the market consolidation then individual corporations don't come to be that size and their owners/executives don't come to have that much influence or money. So higher tax rates neither solve the problem nor are necessary if you do solve it.
> Again what I meant is that if we're going to continue to spend at the levels we are, and wealth inequality continues to grow at the rate it has, then it makes sense to increase the tax rate on the highest brackets.
The current level of spending is pretty useless. Indeed, it's actually one of the causes of the problem -- a lot of the money is going to the megacorps. It's probably better to stop giving it to them to begin with.
> There were though - according to your source.
On corporations, not rich people.
> No argument there - but again my point is that they aren't getting rich from increased government taxes, they are getting rich by lobbying/regulatory capture.
The thing they're lobbying for is the tax dollars. Lockheed and healthcare companies are getting rich from tax money. And the same for Congress, though the mechanism there is less direct. They allocate tax dollars to corporations that then funnel a portion of it back to the legislators in various ways.
By the philosophy under which the human right to property is defined, someone has just as much right to own a billion dollars without it being stolen as they do to have ten dollars.
>It's an abhorrent misappropriation of human resources
It's not a misappropriation; for a company founder, they _created_ those resources. Without them, the resource wouldn't exist. And if you punish them a lot, such people will all go somewhere else, and then you'll have no businesses or jobs and everyone's standard of living will be worse. This has been demonstrated historically countless times, every single case of the government mass-appropriating the wealth of the wealth led to extreme poverty; Maoist China, Stalinist Russia, Pol Pot's Cambodia.
>Wealth and income inequality has well-studied negative effects on society.
Negative as defined by some left-leaning social scientists. Conversely, punitive taxation has been overwhelmingly shown by economists to lead to reduced growth in people's standard of living as measured by income and GDP.
> It's not a misappropriation; for a company founder, they _created_ those resources
Created, or taken the fruits of others’ labor? Obviously, no Amazon-sized company is the work of a single person. Was the pharaoh, sitting in luxury, more responsible for the creation of the pyramid as the architect or the common slave building it?
Its more a question of if the best way to allocate our resources is to allow the bulk of the population to struggle while a lucky few have more money than they could reasonably spend on themselves in several lifetimes.
> Its more a question of if the best way to allocate our resources is to allow the bulk of the population to struggle while a lucky few have more money than they could reasonably spend on themselves in several lifetimes.
This is emotional pleading, dishonest framing, and a false dichotomy. Are you going to make a real argument, or continue to engage in emotional manipulation?
How do you know you have over 100m in assets? One never really knows the worth of something until it's sold. (i.e. try selling a used car. there's what you think it's worth and what you get...)
And once the asset is sold, that's a taxable event.
You raise a good point. I found this page from the Norway tax authority. (In a previous post, I noted that Norway had had a wealth tax for a long time. About 1%.)
> When calculating wealth tax, you must include any assets that you own at the end of the year. These assets must generally be valued at what the asset is worth on the open market. However, an exception is made in the case of housing, and a lower value, known as the tax value, must be used when calculating wealth tax.
(1) "assets must generally be valued at what the asset is worth on the open market". I guess there will be GAAP accounting rules about how to value less liquid assets. Tradable securities are easy to value; other things, like artwork are less easy to value. In the case of a car, an accountant could reasonably use an online used car marketplace to find a value. (The US has something called the Kelley Blue Book.)
(2) "an exception is made in the case of housing". It sounds like there is a totally different set of rules for taxing housing (land+building).
So if I don't apply for a loan, I don't get assessed, which means I don't pay taxes? Anyway, the system is not that simple and bank assessment would be trivial to game. People do it now even without taxes on the line...
This doesn't work if the shares have low-to-zero liquidity, similar to housing or land. In environments where it can take days to find a buyer, the price slippage could be more than the tax itself.
Few things are easy. Some problems with your proposal:
1. Assumes the asset in question is publicly traded.
2. Assumes the publicly traded asset has a non trivial amount of trade volume
3. Assumes asset price is relatively stable, moving in a narrow band along a clear trend-line
4. Assumes you have defined the price from the stock information (last trade before close. Daily average, etc)
5. Assumes holder's position is small enough not to affect stock price were they to sell.
And stocks are the easiest to do this with!
Look at the Trump vs NY court case for the value of his house in FL. Unlike the valuation imposed by government fiat, the valuation was agreed to freely by the parties. The courts found it excessive (and it might be) and proposed a valuation so ridiculously low it alone gives Trump grounds to appeal that the judge is either incompetent on the matter or has a personal bias and should anyway have recused himself.
I do believe it was the Mar a Lago, yes. Trump's valuation was eye watering, I still can't believe it, but the market players agreed to it.
The banks agreed to the valuation and under no coercion agreed to lend money with it as collateral. Trump pays off that loan and the banks are made whole.
By contrast my school board telling me my house is worth 600 k instead of 400 k scares the shit out of me. I can't agree to it and my only recourse are the courts. The school board has lawyers on staff so it costs them nothing if I sue.
The courts found it excessive (and it might be) and proposed a valuation so ridiculously low it alone gives Trump grounds to appeal
This is just wrong. The very low valuation was not proposed by the NY court, but by the Palm Beach County tax appraiser. This is because the property is deeded for use as a social club rather than a private residence (a condition of sale when Trump purchased it iirc, and one which affects future disposal of the property) and as a commercial entity the value is appraised as a multiple of business income.
Thing is, under law you are not allowed to falsify information on financial disclosures like this, regardless of whether the counterparty is OK with it or not. It may be that the state considers the integrity of the financial system a higher priority than individual deals, or it may be designed to prevent money laundering - more likely the latter, as there are a lot of ways to clean dirty money if everyone involved is willing to accept some imaginary claims as fact.
The art is very valuable, financially, because people are willing to pay for it.
However, absent the market clearing the asset, its value is impossible to objectively evaluate. Even if we had an objective function to evaluate art the basis of evaluation is incorrect - the artwork is valuable as an instrument of government corruption
So m, if we can't even agree on the reason why Hunter's artwork is worthwhile, how can we even possibly evaluate it?
1. Properties are bought/sold constantly around most people's homes. Evaluating a home price is not that hard, compared evaluating how much the remains of the car that Ted Kennedy crashed is worth (I purposely chose this example. The car is "worthless" yet I guarantee you can find a nut willing to spend a fortune to have this piece of political history)
2. Properties are purposely, often by statute, assessed far less then they are bought for
3. There are tons of lawsuits around this, imagine the cost of every asset being scrutinized and potentially appealed!
There's a gradient of risk, though. Suppose someone is sitting on 5 billion dollars unrealized gains by holding the index fund VT. The idea of "risking 100% loss" in VT is ludicrous.
Maybe unrealized gains tax can be formulated as "cushy gains tax" if riskiness can be quantified in a reasonable way based on an asset's age and metrics over time. Then if an asset's risk score is above X, you don't pay tax. If it drops below X, you start to pay tax.
This would probably lead to more innovation and fewer monopolies, as people are incentivized to invest in riskier companies, and companies are incentivized to self cannibalize to maintain a healthy risk score.
OK, but in that case people shouldn't be allowed to put up securities they own as collateral for loans ( a popular kind of financial engineering among very wealthy people).
> shouldn't be allowed to put up securities they own as collateral for loan
Is that because the people making the loan aren't sophisticated enough to price those securities correctly in this context and so are being taken advantage of?
> a popular kind of financial engineering among very wealthy people
To use assets without a single universal price as collateral? I think everyone does this.
No. Say you just made $1 billion in capital gains but you don't want to turn it into cash and pay taxes. So what you do is take out a loan of say $100 million against some of your securities, which gives you plenty of cash to play with. In fact you can keep doing this, just raising another loan to pay off the first one, and so on, until you die - at which point your estate can pay off the outstanding loan, and your legacy is exempt from capital gains taxes. It's called 'buy, borrow, die'.
> Is that because the people making the loan aren't sophisticated enough to price those securities correctly in this context and so are being taken advantage of?
No, it's because using stock (and other securities) this way allows them to "convert" the stock into money without actually realizing the gains. Thus they derive benefit from the gains without actually paying capital gains tax.
They're not converting anything. If they don't pay back the loan the stock must be surrendered. If the stock does not have the face value required to satisfy the loan more money must be paid in to settle the debt. If the stock loses value you may very well get a call from the bank reducing the size of your loan facility or requiring you to put more collateral into the contract.
They're deriving secondary benefit from ownership and they're paying interest for the facility with the ultimate expectation that they pay back the loan and the stocks never actually trade hands.
This is not much different from any interest bearing account. Should it be that you have to take all your money out of savings and ensure you earn nothing from it if you intend to offer it as collateral on a loan?
> This is not much different from any interest bearing account. Should it be that you have to take all your money out of savings and ensure you earn nothing from it if you intend to offer it as collateral on a loan?
The difference is taxes. Interest on a savings account used as collateral is still taxed. Gains used as collateral in a loan are not taxed.
The parent poster is suggesting this loophole be closed - that the practice either be disallowed or considered realizing the gains for tax purposes.
You think Mark Cuban is risking being homeless or something? How insulting to equate the risk of people who already have over 100 million dollars to the risk of hourly wage employees who live paycheck to paycheck.
When you are wildly wealthy you are not risking anything, risk is merely an input to the math equation that only goes one direction. Up.
The $100M is an arbitrary number. It can go up, it can go down. It will be eroded by inflation and almost certainly not be indexed or indexed to a number controlled by bureaucrats.
Are you sure the Harris proposal is only about publicly traded stock portfolios? Maybe I'm missing something, but I don't see publicly traded stocks being singled out by the President, which is supposedly the policy Harris is adopting.
"The proposal would impose a minimum tax of 25 percent on total income, generally inclusive of unrealized capital gains, for all taxpayers with wealth (that is, the difference obtained by subtracting liabilities from assets) greater than $100 million."
And there are many private farms in America worth more than $100m. I have no idea what amount of that would be "unrealized capital gains", which is kinda the problem.
> Taxpayers would be treated as illiquid if tradeable assets held directly or indirectly by the taxpayer make up less than 20 percent of the taxpayer’s wealth. Taxpayers who are treated as illiquid may elect to include only unrealized gain in tradeable assets in the calculation of their minimum tax liability.
Which seems to suggest that if someone's wealth is mostly tied up in property or art or a private business, then they wouldn't be taxed on unrealized gains.
I actually met a farmer on the East coast from a mayflower time family. They have the same land and basically been doing the same thing for a couple centuries. According to the fed they are worth $50M.
I feel an exchange tax that included loans would probably be a much better approach. Taxing seated/parked assets, especially on the very wealthy seems like a recipe for disaster. So you have to sell, or leverage the property to pay taxes. What would trying to sell billions in stock at once, or leverage hundreds of thousands of rental properties look like to the larger economy, and what would the effect be? Also, who is going to be able to even buy the stuff, if everyone with enough money/credit is scrambling to make huge tax layouts. Will you be able to deduct the interest on loans taken out to pay these taxes?
It's not like the money is just sitting, liquid in a vault like Scrooge McDuck.
> Taxing seated/parked assets, especially on the very wealthy seems like a recipe for disaster.
Idea: tax loans taken out using assets as collateral at regular income tax rates. After all, that money gets used like regular income (living expenses).
The taxed amount can then be added to the basis when the asset is sold. It would be like reverse of depreciation calculations.
Set an asset and loan value floor so it only affects people with assets $10M+.
After all, regular people pay taxes on annuities, which are similar in structure.
Disclaimer: IANA-Accountant, but I am a taxpayer who tries to legally minimize my taxes.
Yes, but we have to be careful about double-taxing mortgages for ordinary home-buyers. Those home purchases are already taxed by local municipalities—and in many places that hits the SALT cap.
> Yes, but we have to be careful about double-taxing mortgages for ordinary home-buyers.
In the context of home ownership, a loan using an asset as collateral translates to a home-equity loan or reverse mortgage. If you want to protect ordinary home-buyers, set an asset value floor of say $20M.
However, I think most share "pledging" [1] by the uber-wealthy is done using company stock as collateral, so you could restrict the tax further by having it apply only to loans taken against stock holdings over some similarly high value floor.
> Idea: tax loans taken out using assets as collateral at regular income tax rates.
I don’t think it’s as simple as this. This will end up catching normal people (any mortgage, automotive loan, etc) but may result in tricky accounting/loan structuring to avoid having literal collateral for the billionaires you’re trying to hit.
I don’t think that taxing unrealized gains is the solution either, but I also don’t think doing nothing is the solution. This is a very tricky problem without an obvious solution (and it doesn’t help that the ultra-wealthy can fairly easily influence lawmakers).
> This will end up catching normal people (any mortgage, automotive loan, etc)
So just have it kick in above $5M/year or something like that, and have it only apply to securities as assets. Not a lot of ordinary people are taking $5M+/year in loans against their stocks.
I love your consideration for the financial problems of some of the most privileged people in all of human history. I just don’t really care that much if they get a big tax bill (I’m sure they’ll find a way to pay) and for a variety of reasons it will be good for society.
A large part of the United States' economic leadership is specifically concentrated in the tech startup sector.
Whether or not you think any of the companies funded by YCombinator[0] are actually worth their valuation, you have to realize that there will be fewer such startups if a tax on unrealized capital gains is passed, and that VC activity, along with the future startups chasing their money, absolutely will move to countries without such a tax.
Again, maybe you actually believe the startup scene in the US is worthless, in which case, go ahead and advocate for an unrealized gains tax Just be honest with yourself that it will entirely shut down sectors that others view as critical to the country's future dominance.
> you have to realize that there will be fewer such startups if a tax on unrealized capital gains is passed, and that VC activity, along with the future startups chasing their money, absolutely will move to countries without such a tax.
That's a bold claim. The tax-averse amongst us say that, but in my experience investment flows to the best ideas / best distribution / best businesses. If those people are in the US because they're citizens, the capital will flow to the US, and investors will take the hit.
I think it’s simpler than that. People here tend to enjoy, and have careers around, understanding complex systems. “Consideration” for rich people isn’t required for thinking about the possible impacts of this, especially when the government has a near perfect track record in eventually shifting policies down to the working class.
The impacts could be extremely positive, some people are starting to believe the very richest having an optional tax system in the US is bad for everyone.
There seems to be a simpler fix though, that avoids the major negative effects of the larger changes.
They take out loans and aren't taxed on it. But they have to pay taxes when they pay off the loans, and at that time they'll owe even more money meaning more stocks will have to be sold.
But wait, how are they avoiding that tax even then? Well they take out another loan. But eventually that stops. They can't take out infinite loans, so what is happening? When they die, there is some tax trickery that involves resetting the cost basis of assets, then selling them with 0 capital gains to pay off the loans. The simple fix is to only reset the values after the estate pays out, meaning that any assets sold to pay off any loans will have to pay the real tax on their value, and only afterwards is the cost basis reset when inheritors receive those assets.
That seems a much more minimally invasive change, and also seems much more in line with the intent of the existing tax code to begin with, as the cost basis should only reset for those inheriting and not for paying off existing debts.
I feel you're missing the forest for the trees... You're advocating a policy of the ultra rich not having to pay tax during their lifetime because it's less complicated.
I understand you're viewing it as a tax increase as the estate pays less tax on death under the current system, but sometimes you need to realise you're stuck in the overton window.
It's not just their financial problem... I'm concerned with triggering an event that could make the great depression look like a tropical vacation by comparison.
Just for a second, imagine seeing the sale of roughly 5% of all stocks across the board... what would the side effect of that be? Since all of the very wealthy would be doing the same, that means that the prices will likely go down by more than 5% triggering more downstream sales.
They're not concerned about the wealthy, but the state of the economy. Bad things happen when the prices of things change dramatically. E.g., if you happen to own an asset that a billionaire now needs to fire sale, you'll lose out as well.
It’s not that simple. If hundreds of billions of dollars need to be liquidated across every asset class in every industry, the entire economy is going to tank. Not just “oh no the stock market’s down.” Asset prices would drop severely (housing being the most “regular-person” applicable), many business will fail meaning many people will lose their jobs, and mortgages will be foreclosed upon due to suddenly being incredibly underwater without jobs. Picture 2008, but worse.
“Hold your shares or buy more at a discount” is incredibly out of touch with the average person who will be affected by an economic depression.
Then it becomes a question of selling the needed asset now during the fire sale or waiting and having to sell even more as the price fails to recover over the years.
SVB would still be around today if it was possible to convince people to not panic sell
Price shocks in anything are generally bad for the economy (maybe with the exception of some commodities like oil, but even this can be bad since the producers of that commodity will be in trouble). You're too focused on the rich people, and not enough on the economy.
Price shocks are bad because they can cascade and cause businesses to fail, resulting in layoffs, etc.,. Stability is one of the most important things in the economy.
It’s standard practice when dealing with huge volumes of shares to sell over a long period of time, we’re not forcing them to sell everything 10 mins before taxes are due.
They will be incentivized to do this otherwise they will get nothing for their shares.
This is a tax on some extremely affluent people who are doing shenanigans to avoid paying capital gains tax. Seriously, communism it is not. Great companies were still built in the US when rich people had to pay capital gains and they still will be if these rich tax avoiders get a big bill they can split over 5 years.
Ignoring the many other reasons why that would be problematic, what happens when the US government suddenly owns notable (or even controlling) stakes in companies?
You would effectively have corruption. Governments would be more reluctant to take actions which could be negative when they have direct ownership vs their normal "indirect ownership" via taxation.
I'd love to see a list of pros. There are no pros. It's effectively death to competitors and actually extremely damaging to the companies themselves as well.
One solution to deciding how much an asset is worth is to let you declare any value you want for it, with the caveat that if someone is willing to pay you more than the declared value, you must sell it to them.
Now obviously things like transaction fees need to be factored in, and timing should matter - you should have the option to increase your stated value if something changes (or even to say "yes, okay, it's really worth X" and keep the item at the higher valuation).
That's very open to malicious actors though. Suppose you set a fair market value on your house or car. If I'm evil it may be worth a small loss on my part to 'out-bid' you simply to take that asset away from you by force, perhaps at a very disruptive time.
It also has all the other problems with estimating the true value of an asset.
> What would trying to sell billions in stock at once, or leverage hundreds of thousands of rental properties look like to the larger economy, and what would the effect be?
Billionaires already routinely sell billions in stock "at once" (meaning, per quarter or similar, not a $1 billion limit order on Robinhood...), so on that one, we can empirically suggest "not much of an effect on the larger economy".
Taxes are not an automatic good. There are things we want the government to do. It costs some amount of money to do those things. We should figure out what that amount of money is, tax enough for it, and the rest belong to the person who earns it.
Why do people assume we always have to give more and more money to the government? What have they done with the $6 trillion they spend every year so far? What evidence is there that giving them more will improve anything?
Taxes are not for you to punish people you don't like. They're to fund the government enough to perform its necessary functions. That's all.
This is such a stupid argument. Is your issue that the number is too high? Why? What’s the right number?
Should government spend 25% percent of GDP? Who cares. Governments shouldn’t aim for a specific number, they should spend enough to make sure full employment is achieved, according to saving desires and the private market’s appetite for investment.
Whatever the private market isn’t willing to invest, the government should take care of.
Whether that’s 10% or 50% is literally irrelevant.
The government only gets money by skimming off the top of private enterprise. If the percentage is too high then there’s nothing left to skim and the system collapses, so yes we should care what the percentage is and we should want it to be as low as possible.
We should be demanding ruthless efficiency from the government, not dreaming up new ways for them to take our stuff.
No, you have no idea how sovereign economies work. Taxes don’t fund government spending. Learn about economics before you complain about the number being too high.
Cool, then let's just do away with them altogether. This is great news. All those people saying I needed to pay taxes so I can have roads and schools and a military and everything must be wrong.
You arguments so far have been “the number is too big” and “let’s get rid of all taxes” so I don’t feel like you’re very serious about having a discussion.
Look, if you actually knew what you were talking about you would be able to explain it in a few sentences. I'm guessing you're misremembering something you never really understood from the econ elective you took in college ten years ago and so all you can do is say "go read a book" because you don't really understand it beyond a vague notion that taxes are somehow unnecessary to fund the government.
Like, just as a basic common sense test, if it were possible for the government to spend as much as it wants without taxes, why wouldn't a politician implement that, eliminate taxes, and immediately become the most popular politician in the history of the world? If it were as easy as you say, surely that would have happened. Since it hasn't happened, it stands to reason that maybe you don't know what you're talking about when you say the government doesn't need taxes to fund spending.
Assume you have a new country with no money. How does anything get done? The central bank needs to issue capital that the government then allocates first.
Eventually this money makes it down to the citizens of the country who spend it. Then the government can tax that money, and that gives it non-inflationary spending room to reallocate those resources.
For example, there’s a car company that’s using up most of the country’s steel supply. But the government wants to shift the country’s manufacturing from cars to other green industries. What the government
can do is tax the car company so that it’s not able to use up as much steel, which frees up resources for other industries to utilize.
The same goes for people, since people are a country’s most important resource. Through taxation the government can influence the resource allocation of the country. That doesn’t mean that the government can’t spend without taxes though.
If you want to learn more there’s plenty of resources
out there, you can start with Keynes, skip anything from chicago, move on to MMT for the latest theoretical thought.
> Then the government can tax that money, and that gives it non-inflationary spending room to reallocate those resources.
Hmm, why might it be important to have a non-inflationary means of spending? I wonder. Of course, the government can print money. They can't just print all the money they want forever with no consequences.
> For example, there’s a car company that’s using up most of the country’s steel supply. But the government wants to shift the country’s manufacturing from cars to other green industries.
A car company is not "using up" the steel supply. They are meeting consumer demand for cars. If consumers found green technologies more useful than cars, they would buy that instead, then the green technology companies would be able to outbid the car companies for steel and they would buy it. If they aren't it's because people find cars more useful than whatever "green technologies" are.
Also, if there's a high demand for steel, new steel suppliers can enter the market and increase the supply of steel. There's no need for the government to manage this and it's generally harmful for them to do so, since they are allocating resources away from something people have demonstrated they find useful and towards something they don't find useful. This is not optimal. We should want the resources to go where they are most useful and valued, not where some bureaucrat decides he or she likes them to go.
I do not think "skipping to MMT" is the right plan for understanding mainstream economics, or any kind of economic theory likely to govern decisionmaking in the near future. I think some of the core ideas in MMT took a real bruising over the last couple years.
I’d love to hear which ones. I think economicists are going to be arguing this for 100 years but I, as an interested layman, see a lot of evidence _for_ MMT in recent years.
You know I'm not an economist, and I'm just going off of nerding out on AskEconomics and BadEconomics (and bookmarks from when this was a live issue a couple years ago). But mostly my argument would be built around how burnt the Biden administration was by the run-up in inflation (which I'm sure is a mix of supply chain and fiscal stuff). Conservative opponents of MMT predict hyperinflation, but I think we've learned that making a 12-pack of Diet Coke $1 more expensive is enough to trigger regime change; that's what we'll get instead of hyperinflation, but either of those outcomes breaks MMT as a policy tool.
Which has implications --- beyond political/policy --- for MMT, in that MMT is (if I understand this bit) built in part on the premise that increased government spending won't increase expectations of future inflation (which needs to be the case in order to use control of the money supply to cover debt service).
Mostly though I'd just make two dumb arguments:
* Economists do not seem to like MMT ("not even a theory; what does it predict?")
* MMT was for a time part of the branding behind Biden's proposed and actual spending, which did not go well politically.
I hope I'm wrong in some lurid fun way you're going to spell out for me. :)
I’m again not an economist nor someone who reads a lot of Reddit. But economists don’t dislike mmt, they invented it after all. Economists are as mixed and varied in their beliefs as priests!
But my main contention is that we had a ton of loose monetary policy for nearly 2 decades with no major inflationary issues.
Then we had a short supply chain shock and a minor catch up in real income and boom inflation. That’s fairly compelling to me.
Yeah I think most of my argument is political, though I think I'm on reasonably steady ground saying that MMT isn't mainstream. We will at some point become irritating enough to lure actual economists in here to dunk on us.
I can see the political argument against it, but at the end of the day I think that’s a marketing issue. Japan vehemently denies that any allegations of using MMT, but MMT has been very good at predicting japanese economic outcomes.
It’s definitely not mainstream though, I agree with you there, but I would argue that that’s because there’s a lot of people who would have to admit they were wrong for decades if MMT was accepted.
My understanding of MMT (unburdened by any formal econ training) is that government spending financed by debt in that government's own currency is OK if and only if the society has — or can quickly enough build — sufficient productive capacity to handle the increased demand that will be caused by the increase in the money supply. I found Dr. Stephanie Kelton's book The Deficit Myth to be a very-accessible explanation that made intuitive sense (which of course is always dangerous).
The perhaps-facile analogy is pump-priming, a.k.a. fiscal stimulus, summed up in the old Kingston Trio song Desert Pete: You come across a hand-operated water pump in a well in the desert (hah!), with a bottle full of water sitting there, and a note explaining: You can "borrow" the water and use it to prime the pump; once you get the pump going: "Drink all the water you can hold, wash your face, cool your feet | Leave the bottle full for others | Thank you kindly, Desert Pete."
But that only works if the pump is working and has sufficient "raw material" (water in the well). And if you drink most of the bottle of water (borrowing for consumption instead of for boosting productive capacity), then the pump won't draw water, and you'll angrily claim that priming it doesn't work. As Desert Pete warned, "Now there's just enough to prime it with, so don't you go drinkin' first. Just pour it in and pump like mad and, buddy, you'll quench your thirst."
The lack of acceptance of MMT among mainstream economists is of course a red flag. But then in medicine, Marshall and Warren asserted — correctly — that many common stomach ulcers were caused by Helicobacter pylori bacteria and could readily be cured with cheap antibiotics instead of with major surgery. They were scorned by mainstream physicians and surgeons protecting vested interests. And eventually they were awarded the Nobel Prize in Medicine.
So lack of acceptance isn't dispositive; as I read somewhere but can't find online, old economics ideas don't die out until old economists do. (Or maybe it was physicists?)
I might be wrong, but my impression is that MMT has been pretty good at predicting economic outcomes.
The main reason I suggested it is because MMT is the only innovation happening in economics, and understanding the core concepts has been very helpful to me.
The only other game in town is synthesis, which has been a dead end for decades and has very poor real world predictive power.
Glad you asked. There's the obvious three ways to finance government:
- Taxes
- debt financing
- seignorage
The latter two aren't taxes, but people end up paying for the expenses anyway.
Governments can also plunder other country's money. While this sounds very Roman empire, it's still a thing. Case in point freezing another country's foreign exchange reserves, refusing to return their gold, confiscating the interest on the reserves, etc
You know what else was a "great idea" that was supposed to be only for the wealthy class? The income tax [1]. 100 years later and all of a sudden everyone is paying it.
Maybe if you stopped with the sarcasm and thought about this critically you'd see that the solution isn't taxing everyone to death, but reducing the out-of-control government spending. Because at the rate the government is spending money, you will be paying this "capital gains" tax in 2 decades on a much smaller balance.
A new type of tax on the absolute wealthiest of the wealthy is not "taxing everyone to death." I'm sure there are some great ways we can reduce/improve government spending, but that is completely separate from the idea that the mega-rich should be paying more.
His point was that a tax on unrealized gains can one day be applied to less wealthy people.
I can explain it to you with a simple example:
Imagine, for instance, you're making 50k a year and have a brokerage account that has appreciated by 100k and that you're being taxed 20% on unrealized gains in year x. In year x+1, say your account falls back to where it was before. You paid 20k plus another 10k, and you will need to set aside another 10k. In essence, your income has been reduced to 10k, which could make daily life impossible for many people making 50k annually, especially those with families.
My point was that just because we impose a new tax on unfathomably wealthy people, it doesn't mean that we are inherently going to impose that tax on normal people. We can't be so scared of our own shadow that we are paralyzed into inaction. So scared of new taxes imposed on ourselves that we don't try to tax the uber wealthy. At the end of the day this is a democracy (obv with flaws, but still a democracy.) If politicians start taxing your 100k investment fund the way they are taxing a 100M investment fund, vote them out.
She didn’t even suggest that she supports that policy, it’s just assumed for some reason despite the fact that she’s already made her own choices on tax policy.
Either way, I’m far more concerned about Trumps $4k tax on me (in addition to the tax hike he implemented on me when he was president but I’ll let that slide).
Quoting New York Times: "The vice president supports the tax increases proposed by the Biden White House, according to her campaign."
...
"That’s how much more revenue the federal government would raise if it adopted a number of tax increases that President Biden proposed in the spring. Ms. Harris’s campaign said this week that she supported those tax hikes, which were thoroughly laid out in the most recent federal budget plan prepared by the Biden administration."
...
"The tax plan would also try to tax the wealthiest Americans’ investment gains before they sell the assets or die. People with more than $100 million in wealth would have to pay at least 25 percent on a combination of their income and their unrealized capital gains — the value of the appreciation in the stocks, bonds, real estate and other assets that they own but haven’t sold. The so-called billionaires-minimum tax could create hefty tax bills for people like Elon Musk who derive much of their wealth from stock they own."
> Either way, I’m far more concerned about Trumps $4k tax on me (in addition to the tax hike he implemented on me when he was president but I’ll let that slide).
He cut taxes did not increase taxes. This just tells me you are a lying shill for the Kamala Harris campaign. Do better.
> The vice president supports the tax increases proposed by the Biden White House
Yeah I'd wait for her to specifically say that before you sell your unrealized gains in a panic and flee the country. The self martyrdom thing is super weird imo.
> He cut taxes did not increase taxes.
Look up the SALT deduction cap as part of the TCJA. I paid ~$3k more than I would have if the SALT deduction was intact and I itemized. I am a shill for the Kamala campaign though, because I support America.
> Yeah I'd wait for her to specifically say that before you sell your unrealized gains in a panic and flee the country. The self martyrdom thing is super weird imo.
Welp. Kamala Harris' economic advisor confirmed the plan to tax unrealized gains on CNBC Squawk Box. There goes her full tilt to Socialism. Communism is next in line.
We had an entire convention last week where she shared her policies, as did her surrogates and supporters. She supports a $6k child tax credit not taxing unrealized gains. But if you want to feel victimized (?) by a hypothetical tax on people with >$100M unrealized gains go for it I guess.
The right are currently targeting facebook and tech firms because they want to be able to influence the ‘algorithm’ to support their policies.
They are current churning out concepts such as the ‘censorship industrial complex’, and finding ways to publicize blame on “liberal Californian tech firms”.
The right wing think tanks are posturing about this from the perspective of free speech - while avoiding getting down into the weeds of trust and safety decision making.
I am on board with better freedom of speech protections - but not someone pontificating on principles, but ignoring the massive amounts of failure when you run moderation on “principles”.
This is where they lose credibility for me, and the power grab becomes apparent.
This letter is almost certainly to appease the Republican Party so that Meta is not dragged into hearings near the election.
Vaccine hesitancy and general distrust of 'big pharma' started in left wing, hippy / naturalist culture in the 1970s. And lawyers suing big corporate pharma companies for harm caused to children is definitely a liberal thing (RFK jr's career profile).
Russian sympathizers were almost always leftwing from the 1940s on. It's only very recently that the media has attempted to flip the script to say that Trump or right wingers are pro Russia. Only gullible people believe this.
And someone who spent their fortune and life focus on fighting climate change through the EV car revolution is somehow right wing?
> Vaccine hesitancy and general distrust of 'big pharma' started in left wing, hippy / naturalist culture in the 1970s.
This just isn’t true. Groups of people suspicious about medical treatment for religious reasons predate the 1970s considerably, and the antivax movement was famously an example of fringe right-wing and fringe left-wing people finding common cause.
> It's only very recently that the media has attempted to flip the script to say that Trump or right wingers are pro Russia.
This similarly betrays deep historical ignorance. Russia isn’t a communist state, it’s run by an oligarchy of rich white men who have beliefs about race, gender, and sexuality which have a lot in common with those of the people they make common cause with.
> And someone who spent their fortune and life focus on fighting climate change through the EV car revolution is somehow right wing?
He didn’t spend a fortune, he made one by sagely taking advantage of government subsidies and market demand. There’s nothing wrong with that but it’s hardly selfless to make yourself fabulously rich and there’s no evidence that he’s a climate activist in areas which don’t directly benefit his wealth. As to his political leanings, what makes him a right-winger is his years of support and endorsement of right wing positions and politicians.
To be clear, Norway has also had a wealth tax for years. Summarised: The wealth tax rate is 0.7%(local)+0.3%(national) and is calculated based on assets exceeding a net capital tax basis of NOK 1.7 million for single/not married taxpayers and NOK 3.4 million for married couples. (Ref: https://taxsummaries.pwc.com/norway/individual/other-taxes)
And regarding "taking out loans against their own share portfolios": Yes, I agree, this is genius tax avoidance strategy. And, I am pretty sure the interest paid on that loan would be tax deductible in the US! Most large investment banks have a separate trading desk that facilitates these loans via private bankers.
> I think this is a great idea personally given what these people are doing to avoid paying tax
I very strongly believe you to be wrong:
1. Unrealized gains is unworkable. Billionaires will spend tens or hundreds of millions yearly to avoid paying literally billions in taxes because the expected value is net positive. The IRS won't win chasing down money scattered across the globe. This is not a productive use of capital.
2. Taxing unrealized gains causes extreme capital flight. This is _bad_ for the US.
3. Taxing unrealized gains will lead to corporations and startups incorporating outside the US and keeping their assets outside of the US. This is _bad_ for the US.
4. Founders would very quickly loose control of the companies they started, including before they exit. That is really bad for startups and the ecosystem.
5. This is almost certainly illegal in the US at the federal level.
6. Every tax for the wealthy eventually targets the middle class.
1. Capital gains tax is already essentially optional for the richest now with various tricks. Of course taxing people is difficult, are you saying because it’s hard let’s not bother?
2. Where will the capital go (all the best investments are in the US), if this happens lots of great businesses will be available to buy at a discount to people with smaller than $100m stock portfolios
3. Potentially true but I would still set up my business in the US and just pay the tax, if I make $100m it’s $20m for the government and I rate that as a great deal to be honest.
4. Why is a one off 20% tax going to lose founders control, this is only about companies post IPO.
5. IANAL are you?
6. If the rich continue to be able to accumulate wealth without paying taxes on it forever I think that is the road to serfdom personally. Taxation of the rich will make everyone better off. I pay over 50% tax in Europe, maybe if the rich were paying their share this could be reduced!
5. This has been brought up so many times by in the past few years and is very unlikely to pass scrutiny.
---
The federal government has the ability to tax "income." Unrealized gains are not income as gains have not been clearly realized.
The closest legal definition for "income" comes from:
The Glenshaw Glass case
In Commissioner v. Glenshaw Glass Co., 348 U.S. 426 (1955), the Supreme Court laid out what has become the modern understanding of what constitutes "gross income" to which the Sixteenth Amendment applies, declaring that income taxes could be levied on "accessions to wealth, clearly realized, and over which the taxpayers have complete dominion". Under this definition, any increase in wealth—whether through wages, benefits, bonuses, sale of stock or other property at a profit, bets won, lucky finds, awards of punitive damages in a lawsuit, qui tam actions—are all within the definition of income, unless the Congress makes a specific exemption, as it has for items such as life insurance proceeds received by reason of the death of the insured party, gifts, bequests, devises and inheritances, and certain scholarships.
> 3. Potentially true but I would still set up my business in the US and just pay the tax, if I make $100m it’s $20m for the government and I rate that as a great deal to be honest.
You've described the wrong type of tax. I make $100m and 20% goes to the government is not controversial. It's my business is valued at $100m and so I pay $20m to the government regardless of how much my company is "making".
> 4. Why is a one off 20% tax going to lose founders control, this is only about companies post IPO.
Got it. So no more IPOs and every public company is about to go private.
If you have 100M in unrealized capital gains it should be no big deal to sell some of those gains to cover the tax. Just convert the shares to non voting shares if you want to keep control.
Why does no one read the actual proposal before commenting?
It specifically states that this only applies to individuals with 80% of their wealth in tradeable assets. No founder is going to lose control because this doesn’t apply to them!
I can IPO, sell some shares and make billions but have to take 25% in tax or I can not do that and what happens? How do I turn my non IPO shares into profit? Presumably if you liquidate to cash you owe the capital gains right?
You’re still going to end up making a higher valuation on the stock market than you would trying other means to avoid this tax.
I'd love to. I'm genuinely interested in how this policy could be implemented and would love to read their suggestions. I think it's very hard to pull off successfully. Can you provide a link?
I thought Harris was adopting the President's 2025 budget proposal [1], which doesn't specifically state this is specific to tradable assets, but according to the downvoters I'm wrong about that. As far as I can tell it provides no comment on how "wealth" is determined.
I suppose the whole argument is moot anyway as the President doesn't pass a budget, Congress does. And this document is really about communicating priorities, not actual policy.
And if one wants to get really persnickety, Harris didn't actually say anything. Some people working for her campaign did.
Because that detail, like the $100milliom limit are irrelevant details subject to change. (Most) People have the ability to synthesize issue and are worried of the proposal's fundamental core:
"Do we want the government to tax unrealized gains?"
No. I find it very scary frankly, even though I believe that the top 0.01% of the US population are parasitical and their financial and political clout should be reined in.
Tax on unrealized gain is total BS. It's BS right in the name. Why don't they just say collateral assets are taxable, so the loan pegged on these assets will get taxed. The way they are going with is pure stupidity.
I am with you on that. I think they don’t because this trick is classically used by powerful old money families to generate tax free income from dynasty trusts.
I'd much prefer seeing us close up the tax loop holes than create an even more complex system.
Taxing unrealized gains will be extremely complex, and given that they aren't allowing us to deduct unrealized losses its a pretty shitty setup for the taxpayer.
We need to drastically simplify our tax code rather than further increase its complexity.
Doesn't this "close" the tax loophole in which holders of tradable assets can take out loans against those assets in perpetuity, never paying taxes on any of it?
Not necessarily, though that is the hope. This wouldn't directly close the loophole, its meant to be attempt to block it without actually closing it.
A huge question I have here is how unrealized gains on nonfinancial assets would be handles. How would the government determine the fair market value of a multimillion dollar mansion, for example?
More broadly, how would we justify only taxing unrealized gains on individuals? Or would this apply to corporations, banks, and financial institutions as well?
My point isn't actually any specific issue in the proposal, these are just examples of what could be a problem. Our tax code is massive and incomprehensible to almost everyone. Adding further caveats and stipulations just makes it worse. Taking an axe to much of the tax code seems like a much more reasonable approach in my book.
In my experience, state property tax assessments do a decent job at trying to calculate relative values but a terrible job at defining actual property values. Meaning, they may pretty reliably value my house at 10 or 15% less than the house next door based on age or size, but the actual value they put on either house isn't even close to what it would sell for (I've always seen tax assessments come in much lower than market rate).
I don't know how that plays out with mansions though. Whether a mansion is worth $30M or $10M is often hard to predict with the pool of potential buyers being so low.
> But yes, a tax on "unrealized gains" basically amounts to a property tax, not anything related to an income tax.
The main difference being that a property tax only takes into account the assessed value and ignores what you paid for it. They tax the value, not just unrealized gains.
Yeah, I just meant it is more similar to a property tax than an income tax. Of course the other difference is that you might be able to deduct the tax you paid if the value drops back down before the gain is realized... but I haven't heard enough of the proposed implementation details to sort that out.
I mean, you have to pay the loans back. Which requires income which is taxed. This would only work if you either don't spend any money (which then what is the point of the loan) or if your assets are always going up and increasing in value beyond that of the loan which inevitably will not be the case.
The actual loophole is the step-up basis for inheritance. This allows you to never realize gains, living off loans against them. Then, when you die, your heirs inherit the appeciated assets, and the liabilities. But, their cost basis for the assets is stepped up to the then-current fair value. So, they can sell off assets to pay the loans off, but have no realized gains.
But charging taxes on the loan won't really reflect that well. Also, there are limits on inheritance before estate tax kicks in, so folks with 100's of million in assets passed on to their heirs are still paying estate tax, it won't be tax free at that level.
(Edited to correct "inheritance tax" to the technically correct term, "estate tax")
If you're a billionaire who does the "take out loans against your unrealized cap gains" trick, then you, you know... can't sell your stock. So then your stock passes to your kids -- who, due to the stepped up basis, yes, do not have to pay cap gains on that stock.
But there's a 40% estate tax.
Estate tax generally isn't very relevant even to the ordinarily-rich, because it has an extremely high deduction (about $27M for a married couple), but for a billionaire it's absolutely relevant.
Now, sure, if you paid both the cap gains and the estate tax you'd pay that much more taxes, but if you compare a normally-wealthy person (pays 15-20% cap gains and 0% estate tax) and a billionaire (pays 0% cap gains and 40% estate tax), it's obvious that the billionaire, eventually, pays a much higher tax rate.
Right. In my opinion, the 'fair' and 'simple' thing to do would be to eliminate the estate tax, and the step-up basis. Then there would be no loop hole to borrow against unrealized gains (and no real point to do so), while still allowing wealth to be enjoyed by the family that generated it, requiring them to pay taxes in the same way everyone else does (simplifying the tax code).
Well, you still have to pay the estate tax, but you are probably arguing that is independent as it would need to be paid regardless of the step-up in basis.
Yeah, the real loophole is step-up in basis with no corresponding tax event. What should really happen is that every step-up in basis should correspond to a tax event or, somewhat more speculatively, only net changes in basis should result in tax events. Incidentally, this would also give everybody access to reduced taxes due to unrealized losses (tax loss harvesting) instead of just people with accountants.
That's not a loophole, it is illegal. You can't deduct personal expenses from a business. I realize the rich do it, but if that is the problem let's go after that.
Also if you sell stocks you always pay tax on the capital gains regardless if there is a loan or not.
>You can't deduct personal expenses from a business. I realize the rich do it, but if that is the problem let's go after that.
We have gone 'after it' again and again, making the system more and more complex. So much that you can now out-lawyer the IRS if you have enough money. There is no 'personal' expense, everything is somehow a business need. There is no simple solution to this really. Whatever you do to hurt ten billionaires, the ten million small business owners will face the brunt of it.
>Also if you sell stocks you always pay tax on the capital gains regardless if there is a loan or not.
That is the point, you don't sell stocks that makes you a billionaire. Instead, you find more and more creative ways to leverage that stock for loans, for deals, for power/control, etc etc. Also see cross collaterals where the same asset is used for multiple purposes at the same time!
So if you argue that we already can't enforce existing tax laws then why is proposing new, extremely expensive and difficult to enforce tax laws the solution?
I'm pretty sure that whole notion of these magical loans to avoid taxes is a made up internet conspiracy theory.
A) Loans need to be paid back, with interest. The person must either be selling assets or drawing in other (taxed) income to pay back the loan. A loan could delays the taxes to a future year to let someone buy a house or yacht or whatever without the full tax burden in year 1, but they still ultimately pay all the taxes
B) If they die while still having outstanding loans, their heirs pay a 40% inheritance tax on everything above like 10 million, so there is no magic avoidance of taxes there, just a change in whether it's capital gains tax today or inheritance tax tomorrow.
I'd love to be disproven if someone can explain a real tax loophole, but as far as I can tell, the "Billionaires avoid taxes by taking out loans" thing is completely untrue.
If I'm reading the IRS data[1] correctly, "debts and mortgages" are considered a deduction on the estate valuation, which means any money left in the estate (i.e. instead of in a trust) solely to cover loans would not be taxed. I think the idea is that you would roll the debts until death, at which point the estate can sell the securities with their stepped up cost basis, thereby avoiding (nearly all) capital gains tax.
I'm not an expert on this, and I could be misunderstanding some subtlety here.
Putting it even more simply, people don't need tax breaks. If our current system has loop holes it needs to be simplified such that loop holes can't reasonably exist.
In my opinion, we don't need perfect and we aren't comparing to good.
A perfect tax code would be impossible, a more simply one would be very doable.
We're talking about a campaign proposal here with no legislative draft so its a guessing game, but in my opinion any move similar to taxing unrealized gains will serve only to make it more complex and would not fall under the category of "good" for me.
The audience of HN are striving to be "people in these brackets" and far more here have experienced paper gains over $100M then seen it evaporate, than the few that end up at a place they are insensitive to marginal dollars.
No we're not, since we are smart enough to realize what sort of person you would need to be and what it would cost you in one's actual life (TM) to even have a chance to get there. And most folks here are not high functioning sociopaths to start with.
Upper middle class its where highest quality of life happens, if one is smart enough to understand how happiness and life fulfillment works, to not die full of hard regrets. You can have meaningful true friendships. Enough to afford whatever is you need or desire to do, not enough to become self-entitled spoiled lazy disconnected from reality piece of shit parent and partner type of folks. No you don't need private jet or mega yacht or 5 mil hypercar for that, that's poor man's idea of what sort of quality wealth brings you in life.
Seems like DNC party policies always move in the direction of what improves the job market for lawyers and bureaucrats. More complex legal code, more complex maneuvers to get around it. Tax and finance lawyers for the wealthy are going to see a salary bump if this law passes.
I don't actually see it as a left/right or DNC/RNC decide. The policies often look different on the surface, but in the US today both sides of either "divide" lean heavily into increasing federal authority and regulation.
RNC certainly has it's problems with giving powerful and wealthy individuals ways to avoid paying taxes. But when it comes to the litigation economy it is generally DNC causing the offense. RNC, to their credit, will often roll onerous regulation.
I've wondered if it wouldn't be better to shift the tax code to bias companies toward paying dividends, as used to be more universal among profitable firms. Then the shareholders will have the appropriate progressive income tax bracket applied.
The reason companies pay in shares and not dividends anymore is _because_ doing paying out profits using a share (buyback) is more tax efficient. Especially for recipients who want to let it ride in the stock market.
It doesn't seem like a genie you'll be able to put back into the bottle without reducing the net tax take.
> Taxing unrealized gains will be extremely complex, and given that they aren't allowing us to deduct unrealized losses its a pretty shitty setup for the taxpayer.
I pay taxes on the unrealized gains of my house appreciating in value over the years.
I'm not arguing one way or the other about whether various wealth tax ideas are good. But, I don't believe that the concept is as infeasible as some are making it out to be when it's been happening with property taxes for a very long time.
I pay taxes on the unrealized gains of my house appreciating in value over the years.
You pay taxes on the assessed value of your house. It doesn't matter what you paid for it, or how much equity you have in it. It's more of a use tax than a capital gains or wealth tax.
That's a fair point. It's definitely pretty different from an unrealized capital gain because, like you said, it's not about your net gain or loss on the house. But, I'd still say that it's practically similar enough to a wealth tax precisely because it's a tax based only on the current value of the thing that I own.
Also, just to add to the above discussion, it's even worse in practice than a tax on unrealized gains because I'll have to pay the same amount of tax every year if my house stays the same value. If it were a tax on the unrealized "gains" of my house, I'd pay $0 if it stayed the same value. And if the value of my house decreases, I'll still have to pay more than $0 in property tax, whereas a capital loss would mean I would pay at most $0.
So, I think I still stand by my sentiment that property taxes are more burdensome than a tax on unrealized capital gains.
Property taxes exist because we want to tax externalities like land use. Taxing fake wealth because you own a company and some VC assigns it a valuation is insane.
Why should you dilute your ownership share just because of some arbitrary number?
> Taxing fake wealth because you own a company
> [...]
> Why should you dilute your ownership share
So... is owning piece of a productive company "fake wealth"? Is it fake when you can leverage that valuation to have access to more credit and use that to buy real stuff (like property...)?
I'd argue that property taxes exist because we still live in a system resembling the feudal system we evolved from, and governments believe it is their right to tax our property to pay for their projects.
Who--other than "governments"--decided that its "your" property and that you somehow deserve monopoly rights to a piece of the planet that you didn't create?
I think we should get substantially tighter reigns on where our tax dollars are going and stop the outflows considerably before we worry about taking more and more dollars from citizens. The government has lost billions in recent years. LOST BILLIONS. No one has been held accountable.
Do you honestly think all the billionaires supporting Harris are actually for that? They’re going to be tons of loopholes and exceptions to these billionaires that give to her. If anything it’s attack on the middle class.
if we tax the super rich then the list of extremely powerful people will be one item long: politicians. i think its telling that they are going after rich conservative people rather than break up blackrock et al.
That sounds like a good thing to me. I would prefer the people who hold power in our society be the ones democratically elected, not the ones who lucked into a leviathan amount of money and can now buy Twitter for fun.
Separation of powers is a very important reason not to limit the power to just politicians. Just like how we would prefer not to have media moguls also be politicians, leaving control of the media to just the government is a bad thing for democracy as it just compounds power towards the existing holders.
It is a completely ridiculous idea. You can't value "unrealized gains" without using a third-party agency to come up with a number (typically through 409a valuation). And even if the third-party agency comes up with such a number, there is no way to have liquid cash available to pay the tax. To give you an example, say you are a Founder with a Startup that received investments from investors, through various rounds of funding, and the Startup is now valued at $1 Billion. Assume also that you sit on 5 million shares, with 51% equity post all the dilution. You will have to pay tax on $510 million. This $510 million is "unrealized gain". It is an "estimate" of what you would receive if the company was hypothetically acquired for that amount by a bigger company on that particular day of valuation. Assuming 25% tax that would be $127.5 million. Where will you come up with that money? There is no secondary market where you can use your shares to raise that money. You will probably have to take a loan from banks (if they have that sort of liquid cash available for ALL unicorn startup founders/centamillionaires/actual billionaires) and that too with exorbitant interest. Why would anyone want to go through all that hassle? The other option is for you to sell some of the shares to raise money to pay tax. But that is self-defeating because you are devaluing your net worth by the same amount.
It is the most ridiculous idea ever.
EDIT:
> are doing to avoid paying tax including taking out loans against their own share portfolios
How is that tax avoidance? You do realize that when they pay the exorbitant interest on the loan, they are paying tax on the interest right? That is typically higher than if they just sold the shares and paid capital gains tax directly. Because here they are paying interest + tax.
High net worth individuals take out loans by risking their shares. Those shares are marked as lein. In other words, those shares get locked with the lender (bank in this case) and in case of the Founder not being able to repay due to bankruptcy, the lender can liquidate the assets (shares) and not be required to get the best value for it in the market.
This is not tax avoidance by any means. This is Capitalism 101: putting YOUR capital to use the way you see fit and taking personal risk along the way.
"On 6 June, the court ruled that the country’s wealth tax went against the European Convention on Human Rights because it forced savers and investors to pay tax on income they had not earned.
The decision has opened the door to legal redress for hundreds of thousands of people who were overcharged by the tax authority.
Outgoing state secretary for finance Marnix van Rij estimated that the upfront cost would be €4bn – or £3.37bn.
But the true cost could rise by billions of euros per year while the government works out a new system to replace the controversial levy – a system not expected until 2027."
Okay so what is the startup scene in Netherlands? How many unicorns? How many millionaires/billionaires compared to US? How many millionaires/billionaires are flocking to Netherlands? How much of Netherlands economy is propped up by / dependent on US economy?
It’s probably because they got in serious legal trouble last election for donations in support of Biden, and now the whole thing is starting over again as RFK is suing federal agencies for pressuring tech companies to suppress his election campaign.
The only way to win with politics in social media is to avoid it or promote free speech
Do "these people" include entrepreneurs with equity in startups with rapidly increasing value but no way to take money off the table? It doesn't take much to cross "$100m in assets" as a startup, say, $2.5M in revenue at 40x valuation (or $5M at 20x, etc.), even while loss-making.
How should the founders and equity investors in a bootstrapped high growth unicorn that is neither public nor profit-making handle this proposed capital gains tax? Does this mean VC funds would need to set aside arbitrary amounts of cash to cover impossible-to-predict taxes on cap gains during, say, a 7 year window?
It could also make it harder to attract and keep talent, since the earliest stage employees often rely on equity grants as part of their compensation. Does this mean every early stage employee has to have deep enough pockets to cover cap gains tax pre-revenue? And what happens when the company implodes past the look-back for recouping tax overpayment?
It might make sense to focus on closing existing loopholes without creating new burdens and cash flow barriers that could disrupt the innovation and growth ecosystem with unintended second and third order consequences.
---
Edit to add:
It's true that a peeved Wall St donated a fraction to Biden this season relative to the past, and — surely entirely unrelatedly — partnerships and private equity were taken out of the latest incarnation, leaving in publicly traded and the $100M holdings.
If passed, this will be tinkered with, encircling ever more to offset the loopholes inevitably used.
> Do "these people" include entrepreneurs with equity in startups
No it doesn’t, you’re arguing using a straw man here. They need to be publicly traded securities to be taxed as I understand it. Also paying taxes is a public good, even if you’re exceptionally wealthy.
> Also paying taxes is a public good, even if you’re exceptionally wealthy.
That's not in dispute*, and the point is people can experience paper gains without being exceptionally wealthy, or even ramen profitable.
* To be fair, the notion of "tax" being just supposed public good versus requiring transactional value ("no taxation without representation") was a founding issue for the U.S.
These days, instead of citing nebulous public good, perhaps it could be thought of as NOA and SOA fees: Nation Owners' Association fees, and State Owners' Association fees. You can look for a different neighborhood, or contribute to improve this one.
Who are these non-wealthy individuals who can't afford ramen but hold over $100 million in assets of _publicly traded companies_?
> the notion of "tax" being just supposed public good versus requiring transactional value ("no taxation without representation") was a founding issue for the U.S.
This was a representational issue, not non-transactional taxation. Property taxes existed in many colonies 100 years before the revolution.
It is accurate that the latest incarnation*, the supposed Harris version, within that $100 million club, you'd only pay taxes on unrealized capital gains if at least 80% of your wealth is in tradeable assets (i.e., not shares of private startups or real estate).
Not usually mentioned: even for this illiquid group there would still be an additional deferred tax of up to 10% on the unrealized capital gains upon exit.
* Once passed, anything like this is unlikely to escape tinkering until it matches most other versions, that are not limited to "tradable". Look at how worried farms are, for example, another relatively cash neutral but cap gain increasing growth (ahem) business.
> without being exceptionally wealthy, or even ramen profitable
Correction: without SEEMING exceptionally wealthy or even ramen profitable. By, say, kneecapping your own profit. So that you don't pay as much taxes. Which is the entire problem we're trying to solve.
In practice, these people ARE wealthy. Just perhaps not on paper (depending the paper you look at). Of course when you observe their life, they are obviously filthy rich.
So we have an accounting problem. The papers don't accurately reflect the reality.
It’s hard to put into pithy terms but check out Citibank’s former top trader on wealth inequality and why we need to find a way to tax back some of the wealth from the rich: https://youtu.be/TflnQb9E6lw
> They need to be publicly traded securities to be taxed as I understand it.
On the contrary, many variations of proposals (they keep popping up) cover partnerships or other forms of company holders as well.
Even in the Harris plan, though not usually talked about, even for the illiquid not-tradable group there would be a new deferred tax of up to 10% on unrealized capital gains upon exit. To be fair, "exit" implies an ability to pay that.
"Also paying taxes is a public good, even if you’re exceptionally wealthy."
Can be a public good if it's spent well. The US has spent how many trillions killing innocents the last 25 years? How many trillion were spent building ridiculous layers of redundancy on our nuclear deterrent (that we then smashed)?
This all seems very easy to deal with. Pay employees cash not equity. Founders can negotiate with investors to take enough cash compensation at each round to cover their tax bill. Investors can use financial instruments to hedge their risk.
That’s an awful idea. Startups need cash that cash, now. Wasting it on tax bills for evaluations that don’t become reality would just make everything worse and reduce runways.
Taxing entrepreneurs will lead to worse outcomes for entrepreneurs. That is obvious. Every tax has a cost. But we need to fund the government and it is not fair for workers to pay for everything while much wealthier investors and entrepreneurs do not.
I don't think you have a grasp on how businesses work or how the markets work.
This line of thinking is so far away from reality that while I believe in your heart you think it's right, it's clearly an emotional action and not one based on factual data.
The market volatility, job volatility, international competitiveness, and impact on innovation and entrepreneurship, that this will cause will be absolutely chaotic.
Assuming it works out exactly as you believe, do you believe this will solve the US's financial issues and burdens? Everything i've read say they expect $300-$500 billion over ten years. Let's just go wild and say we get 1 Trillion a Year, currently the deficit for just 2023 is estimated at 1.5 trillion. Again wouldn't solve this issue, and that's assuming we spent 0 on any more social programs or other welfare programs.
Instead, why not focus on specific tax laws you feel are lax and more importantly hold your representatives accountable for the run-away spending? I assume based on your position you would be encourage to spend more on social programs than we currently do? It's noble.. where's the money coming from though? It's all a bit too communistic to me.
We have seen time and time again that laws passed end up impacting the middle class. Congrats, currency inflation continues to run rampant, your house value is through the roof now.... And because you don't have the capital we're going to seize it for non-payment of unrealized gains.
I have yet to see a well thought out logical response to the impacts this sort of emotional lawmaking will bring.
Can you counter the above genuinely? I truly want to understand.
