How to convert between wealth and income tax

kingstoned

If you want to understand why someone would even propose taking from the rich and complain about inequality, this post titled "Inequality Talk Is About Grabbing " is illuminating: https://www.overcomingbias.com/p/inequality-is-about-grabbin...

grassfedgeek

I think 1% wealth tax should be a replacement for income tax. That way only the wealthy will pay taxes.

vessenes

There's a related calculation you can do -- what percent of your net worth is your employability? Take your salary, divide by 0.05 (or multiply by 20) -- if you had that much additional wealth earning 5%, you could replace your job's income. For most people their ability to earn is by far their largest asset. You can kind of get a feel for how difficult it is to bootstrap into generational wealth if you think about the math -- it takes time to replace that earnings portion of your own balance sheet, and even more to well replace it; a lot has to go right in the interim.

ryandrake

> To convert between wealth and income tax rates, you have to divide by the rate of return on capital. The conversion rate of 20 comes from assuming that the risk-free rate of return is 5%. This seems to only be true for people whose income entirely comes from their wealth, rather than their labor. The math doesn't math for someone on the other extreme end of the spectrum who has zero savings or investments and obtains all his income from labor: To him, a N% wealth tax = 0% income tax for all N. Those with -some- savings are somewhere in the middle. It is a very sneaky way to argue that a wealth tax should be as across-the-board unpopular as a large income tax increase. But Graham's math is only applicable to those flush with investments and with relatively small salaries from labor, so a wealth tax is only unpopular to that particular group.

whatshisface

A much more interesting formula would be how to convert between income and income tax - you'd think it worked according to the superficial bracket system, but in fact, it works along the lines of going to 0 at the top. P.S. a wealth tax is a property tax. They have existed in the US since before the income tax (which was originally considered unconstitutional by its opponents).

alistairSH

Paul the billionaire ignoring that billionaires often don't pay any income tax at all. Come on man, we're not stupid just because we don't own superyachts. https://www.propublica.org/article/the-secret-irs-files-trov...

goyozi

I don’t follow the debate and situation in the US that closely but isn’t (part of) the point of wealth tax to offset the fact that rich people are routinely avoiding paying income tax and taxes in general? Thus even if we assume the simplistic conversion here, it’s not that they’re moved from 40->60 bracket but more like <10 -> <30 ?

tony69

Wealth tax is highly impractical. Very high and inescapable death taxes is what we need. Like 80% after an initial exemption amount. https://www.yesigiveafig.com/p/the-summer-slide-part-3-the-t... https://m.youtube.com/watch?v=mX5U5DNUfBc

Havoc

I think the assumption that we're looking for an equivalence here is fundamentally flawed and with it the entire post. For most people income is tied to selling their time. It doesn't scale at all. Unless the income comes from wealth. The societal problem here is a group with self-reinforcing run-away levels of wealth. And to counter that you do need something more extreme than this nonsensical equivalency of income tax

PokedBear

The bigger difference between an income tax and a wealth tax isn't the numbers. A wealth tax, for better or worse requires some realization of paper gains that very wealthy folks normally go to great lengths to avoid because their wealth is largely based on a broadly shared polite fiction. So imposing some realization of that wealth requires accountability that doesn't always pan out.

pydry

>It's clear that politicians don't get this from the way they talk about a "mere 1%" wealth tax. None of them would speak of adding a "mere 20%" to the income tax rate, even though that's mathematically the same thing. His core point seems to be that taking $20 from him is mathematically equivalent to taking $20 from a homeless girl's hat. I guess mathematically it is the same number if you dont normalize for that, which he wont.

tyleo

I used to be against wealth taxes but as inequality gets out of hand I've more and more felt like they are the right move. Hell, I'll be the first in line to pay the damn tax so long as billionaires are right in line with me too.

deathanatos

> It's clear that politicians don't get this from the way they talk about a "mere 1%" wealth tax. None of them would speak of adding a "mere 20%" to the income tax rate, even though that's mathematically the same thing. Uh … sure I would? Why not? The top bracket was 70% in the 80s. So that 61% is still a fair bit short of what it was then. (And the 80s isn't the highest point, either.) IDK if it would be a good idea or not, but I'd entertain the debate, certainly. To state that this is unarguable, though, well…

Matheus28

You obviously can’t convert between the two directly and suggesting that is disingenuous. Income tax doesn’t affect unrealized capital gains (where the rich “hide” most of their income). A wealth tax (even without a minimum threshold) doesn’t apply to the poorest who can’t accumulate enough to even have any savings. This conversion only works for income that is entirely saved and reinvested, which the majority of people can’t afford to do.

oytis

Not everybody uses money to make more money, Paul. Most people work, get paid, and spend the money on their needs. In other words, you are in a position to care about the question, it's OK if you are taxed a bit more.

zedpm

Are there serious proposals to just add a wealth tax on top of the existing income tax that would apply to the sort of people who actually pay much in income tax vs capital gains? It's an honest question; I haven't seen proposals of that sort, so I'm skeptical that the arguments are meaningful here. For an individual like Jeff Bezos, he's paying virtually no tax under the normal income tax rates referenced in the article, but rather capital gains tax, which tops out at 20%, not 37%.

k2enemy

Lots of confusion and misunderstanding in these comments. Not surprising, given the highly charged nature of the subject. I highly recommend Ray Madoff's book The Second Estate [1] to learn more about the topic. [1] https://press.uchicago.edu/ucp/books/book/chicago/S/bo256019...

dirteater_

Because billionaires accumulate wealth through assets and unrealized gains, many of them skip taking a traditional income and pay. If the numbers in the links below are to be believed, according to paulgraham's calculations, this might bump them into a ~fair range (when comparing to average/median earners). https://www.nber.org/papers/w34170 https://www.propublica.org/article/how-we-calculated-the-tru...

n2d4

The conversion would be more accurate if it compared wealth and capital gains taxes, no? A defining feature of wealth taxes is that they only tax those that make most of their income through capital gains. This is why they're popular among much of the population. Now the question is, if we lowered capgains tax rate by 20% but instituted a 1% wealth tax, would that be better or worse? My guess would be worse because wealth taxes are nearly unenforcable, but I wonder if there are good arguments for the other position.

etchalon

I think Paul thinks people care about the distinction, or think that a 20% marginal increase to the nation's wealthiest is something the public would find "unfair". Rich people need to stop hanging out with other rich people.