Perhaps notable: Switzerland has a wealth tax (of up to 0.3%), and there is zero evidence that this has any deterrent effect on wealthy people settling in Switzerland or startups being created in Switzerland.
Other features of the tax system more than offset the 0.3% wealth tax.
Personally, I am a bit disappointed by the lack of depth of the discourse: Wealth taxes and their effect have been studied quite a bit in economics literature, and there are various peer-reviewed papers that attempt to measure the effects, but the Silicon Valley crowd is strangely avoidant of examining evidence or explaining their opposition with real-world data. It's all 101ism and polemics.
I'm not sure european examples are a great comparison.
First, most european wealth taxes (including recently defunct ones) have much lower floors than US proposals. $1m instead of $100m. That changes a lot. France did experience "capital flight," famously Gerard Depardieu.
Second, "capital flight" has always been present in Europe. There's a long history of it, and practical realities make it relevant.
I do agree about depth though. One point that PG does address which is often skipped over is that a wealth tax is a "deplete billionaires" policy... or a "curb billionaire growth" policy. The premise is that the very wealthy are too wealthy and that this is bad.
A wealth tax is not like a VAT, corporate or personal income tax. The tax revenue is secondary, and relatively small. It's more like a tariff, tax as an economic policy tool.
I agree that considering a 2% wealth tax as a 70% depletion of wealth over 60 years is... not nuanced. The most important nuance being that you control most of this wealth for most of this time and will be paying your taxes out of interest. If you apply the model to actual examples (say Bezos or Buffet), you'll find that their wealth will still have increased... just at a reduced rate.
But, to be nuanced we also need to address the core question: "are billionaires bad for the rest of us?" That is the premise of a wealth tax, at least the currently popular one.
The question if billionaires are bad for society is pretty much the same question as asking if the aristocracy was bad for previous societies. The existence of billionaires clearly undermines the core principles of democracy which is that all people have essentially the same political power. The existence of many laws which clearly aim to benefit billionaires only is enough evidence that this power balance does not exist when there are billionaires. Essentially strong wealth imbalance leads to unstable societies.
I find it ironic that the US which was largely founded by people who left their home because of entrenched economics and limited opportunities and who used to have some of the highest taxes for the top brackets and strong eversion to the development of a new aristocracy have after Reagan developed into a nation of defenders log the superrich.
> is pretty much the same question as asking if the aristocracy was bad for previous societies.
Well... that's stacking the deck somewhat. We were talking about how to add nuance. Nuance would be "what do we expect the economic result to be" or "this is a matter of right and wrong, not money."
>I find it ironic that the US which was largely founded by people who left their home because of entrenched economics
This gets abstract, but... The individuals most influential in the Revolution itself were mostly high ranking colonial officials from British nouveau aristocracy families of the empire. Granting voting rights only to property owners was the default position. "Universal" suffrage limited to european males was the radical position.
Not a criticism of them. Just... we can't solve these things with history. If you think billionaires are harmful, why? Equality? Economics?
Contrast between a growing/innovative/free society and a stagnant/authoritarian one. Key difference is meritocracy -- can competent newcomers displace incumbents?
This is mirrored at smaller scales -- good leaders of healthy teams want newcomers to grow and learn and surpass them. Bad leaders are afraid of failure and don't want their people to fundamentally grow and change. Likewise good parents want their children to surpass them; bad parents harass and belittle and shame.
When Apple makes it painful to build sizable businesses on their platform, this is intentional stagnation to maximize profit.
When billionaires run think tanks, fund political campaigns, and rig laws to increase their power at the expense of the common good, this is intentional stagnation to maximize profit.
When you look at the data, most millionaires and billionaires don’t come from family wealth. Don’t misunderstand, I’m sure they’ve had “leg-ups” like going to private school, or having an SAT tutor, or having a professor at a top20 school as a family friend. So, we don’t really have stagnation of wealth.
35% of the Forbes 400 list was born into a middle class or lower household.
22% inherited up to $1m.
12% inherited between $1m and $50m
7% inherited more than $50m.
21% inherited enough for that alone ensure they are on the Forbes 400 list.
The first bucket is clearly self made. The last two buckets are clearly not self made. Depending on your definition of "self made" that would leave somewhere between 35% and 69% of these people as self made.
Self Made is interesting. Does your family background have enough to cushion you if your startup fails.
It costs at least 20k a year to live (rent and food). You can gamble if you have 100k of funding, but that's setting you back a lot on things like 401ks and property ladders. If you have security from your family then shoot for the stars, great.
Same applies in many cases, it's not always as simple as how much wealth has been transferred from one generation to the next.
One example want to get a traditional 'good job' in London, lawyer, jouranalists, finance, etc, you need to take an unpaid internship and low paid start to your career for 5 years, all while maintaining London expenses. If you live with parents in commuterville you can do that, if you 're from Newcastle you're screwed. After 5 years of rent free living with parents you're £60k better off even with no cash injection, that's enough buy a house which means you're paying far less than renting, you start building your wealth.
But taht assumes you get the entry level jobs on merit, and not because of parental contacts, which happens a lot. Work experience at your Dad's squash partner's firm will get you rolling, yet wouldn't factor into your 'self made' list.
No man is an island, no man is self made. Those who 'succeed' do so through grit and luck and are often blind to their own advantages. Those that fail do so despite working hard.
The American dream of 'work hard and be rewarded' is bollocks. So much relies on advantages you don't even realise you've had.
> The American dream of 'work hard and be rewarded' is bollocks.
It is indeed bollocks, because it is "work smart and be rewarded". You have to work on the right things. Working hard at digging holes and filling them in again will get you nowhere. Looking around for an unfilled need, then starting a business to fill that need, will get you everywhere. Preparing yourself to become a valuable employee is another path.
You are of course right, but lets not conflate someone saving 5 figures by living with their parents for a few years with people who inherited 8+ figures which seems to be roughly a third of the Forbes 400 list. I don't know exactly where the appropriate place is to draw a line between these groups, but it is clear that these are vastly different scenarios.
>35% of the Forbes 400 list was born into a middle class or lower household.
Just to provide a little more clarity. Those numbers are from 2012. In 1997, 31% were in born "in the batters box"
However, there is a wide range of circumstances in the batter box. Defined as: "individuals and families whose parents did not have great wealth or own a business with more than a few employees."
Perhaps we differentiate on self-made, but some of those 35% I would not consider self-made either.
I think focusing on “self-made” is a red herring. No one is truly self-made. The point is, a good portion of the top wealthy people were not born into families of the top wealthy people, 1 generation ago.
It depends on definitions of "good portion" and "top wealthy people", but I don't think the numbers show the conclusions you are drawing from them.
The numbers vary by year as people enter or drop out of the Forbes list. However generally speaking you can probably divide that list into rough thirds. One third is the first generation experiencing any wealth. One third was born into enough wealth that they likely would never have to work a day in their life, except they decided to work and were able to compound that wealth into a obscene amount of money. The last third was already born with that extravagant wealth and may or may not have done anything to increase it.
Back to the topic at hand, a wealth tax would not have prevented those first two-thirds from earning their fortune. It would only negatively impact the starting position of that last third. The primary impact of a wealth tax would be to decrease generational billionaires which serves to increases the meritocracy.
The percent of totally self-made rich seems to be around 56%, and partially self-made is at around 30%. Note also that the proportion of self-made rich people is actually growing, even as the amount of wealth the rich has has decreased a bit[1] (methodology of the quoted study[2]). Also take a look at this intergenerational income mobility chart in figure 3 of a Pew study[3]; it says that people are
"likely" to stay poor, but that's actually less than half, so I would say it's more like "unlikely."
That Pew study you cited is from 2012. It's an interesting read, for sure, but do you have any more recent studies? It seems that some factors that dampen economic mobility have been worsening since then[1] and the wealth gap has grown significantly since then, especially between the top 5% and the rest of us[2]
Shorter timescale than generational. Once anyone becomes a billionaire incentives push them towards extracting rents rather than creating wealth.
Rich founders who get pushed out often start new companies (Pixar, SpaceX, Square, etc..)
Rich founders who stay waste their talent & access to capital on moat digging.
Why did Gates, after inventing personal computing, spend the 90s killing Netscape and stagnating browser standards?
The trend of wealthy founders leaving their companies to become mentors/investors for the next batch of startups is likely the biggest contributor to the ongoing success and prosperity of Silicon Valley.
A "rotating" ruling class is a lot more contestable than a hereditary one. That makes it at least potentially more meritocratic. (It could also theoretically be less meritocratic, depending on how power is contended in any given case. But typically, the "hereditary" case involves battle-axes, dark intrigues and treacheries, which is the polar opposite of actual merit.)
It’s not very democratic. Someone was in the right place at the right time as much as they earned it, do they then deserve to have basically 100s of orders of magnitude more influence for their life? Just doesn’t add up.
> If you think billionaires are harmful, why? Equality? Economics?
They already answered that:
> The existence of billionaires clearly undermines the core principles of democracy which is that all people have essentially the same political power. The existence of many laws which clearly aim to benefit billionaires only is enough evidence that this power balance does not exist when there are billionaires.
I don't understand this. Clearly not all people have the same political power, regardless of the existence of billionaires.
AOC, as a party firebrand, has more political power than Jeff Bezos, although it manifests differently. You can argue that the power was "earned" (in the sense that AOC won a primary), but how is the power that Bezos has any less earned? The same argument applies not just to politicians, but literally any influential public figure (artists, authors, journalists, actors, etc.).
AOC's power stems from democratic support. Jeff Bezos' power stems from monetary wealth. It's the difference between oligopoly and democracy.
No, there will never be absolute equality of power. Certain people will always have a louder voice in the culture than others. But cultural power is fickle and comes and goes easily unlike wealth.
That's strictly not true. People vote for Amazon the product (over Walmart's web experience), they don't vote for Amazon the Jeff Bezos Political Agenda. Those are two totally different things. For instance, there's plenty of right-wing folks who shop on Amazon while simultaneously hating the Washington Post.
As mentioned upthread, this is the difference between democracy and rule by wealth.
Excellently put. And put differently: even if people actually thought that Bezos was just a brilliant businessman, why would anyone think that he's a brilliant social strategist? Or resource planner? Or commander-in-chief? Just because someone knows how to build and run a company that's great at selling stuff tells you absolutely about their qualities as a political/national leader.
Amazon tried to unseat a couple Seattle City Council members in the last election. It backfired, and Amazon faces a Council that has voted a huge payroll tax onto Amazon in revenge.
So if Amazon can't even control local elections, I wonder where all this supposed political power is?
Also, AOC was instrumental in preventing Amazon from establishing a second headquarters in NY. As a freshman Congressman.
You're welcome to take a hit to your wallet when you don't want to enrich a certain business leader. What you shouldn't have to do is take a hit to your wallet because you don't want to politically empower a certain business leader. This is especially true as there's less and less competition, and a few huge players control a disproportionate amount of the market (which is an issue on its own, albeit a separate one).
The idea behind a democracy for better or worse is one individual gets one vote. When you start having to figure out how you're voting by proxy through the leadership of each company you do business with, I'd wager, that wouldn't be within the spirit of the system.
Companies should compete for individual walletshare by merit, and it really should be apolitical. It won't always be, of course, but I think we're better off if we try and limit it. Conflating the two weakens both imo.
AOC's power will vanish the moment she breaks with the interests of her constituency. Bezos' wealth does not represent a continuing endorsement of his actions.
How would Bezos continue to have power if people stopped using Amazon? Most of his wealth is in Amazon stock. Sure, he'd have a few billion left over, but his real political power comes from his companies, not his money.
"A few billion" places his wealth in the top .0001%. It's telling that even in this far-fetched scenario where Amazon and Bezos' "real political power" are destroyed, he's still much more powerful than the vast majority of US citizens.
You seem to be equating wealth and power. Wealth and power are certainly related, but probably on a logarithmic scale. Someone worth $20,000 isn't twice as powerful as someone worth $10,000.
The primary source of political power Jeff Bezos has is his control of a very large employer. Employing lots of people gives you some power over local politics in the areas where you employ those people, and it gives you some level of influence with politicians who might be interested in ensuring you continue to employ lots of people, because it's good for the economy.
Your run of the mill billionaire heir/heiress that doesn't really do any useful economic activity doesn't have a huge amount of political power, in general. They probably have more than you or I do, but not a ton more. Certainly not more in (linear* proportion to the wealth difference.
Once you realize that the relationship between wealth and power is logarithmic, it's not really a super concerning relationship. There are other sources of power that are much more important, and much less transparent.
I would guess that most of Bezos' wealth is stilled tied to the stock price of Amazon, and thus actually represents an endorsement of his actions at least a bit more than if it were all in cash.
His monetary wealth shouldn't give him power over anyone but his own company, nor should it allow him to exercise his right to speech that are denied others for reasons directly related to wealth.
It does in both instances. They're not orthogonal.
Actually your example of newspaper and TV stations exactly examplifies why billionaires have such a vast political power which is unhealthy for society. No single TV station, newspaper by itself would ever yield so much power as to be able to shape public opinion in one direction. However take the media empire of the Murdochs which yields a disproportionate amount of power in several countries, very directly pushing the ideology of it's owners.
I can't believe that we are seriously discussing that using some online retailer is somewhat a voting process equivalent to democratic elections. This really shakes my faith in humanity and the HN community.
I think you have some very distorted concept of democracy. I don't know any definition which includes voting by where you shop.
Also I note that the strategy to paint the political class (as opposed to e.g. the business class or some "new" political class) as all corrupt is a common strategy by totalitarians to undermine democratic processes.
A capitalist-ish economy is designed to create winners. If it wasn't Bezos, it would be someone else. What matters about Bezos' wealth (in this context) is not that this specific person controls it, but that we live in a society/economy where there will always be people who accrue this level of power and wealth. The problem isn't that Jeff Bezos is this rich, it's that we live in a society designed to concentrate money in this way.
ps. I was the 2nd employee at amazon, and worked closely with Bezos for 14 months.
Buying from Amazon does not imply endorsement of Jeff Bezo's politics and economic interests. Your equivalence between that and AOC's grassroots support is completely nonsensical.
Democratic support of a vocal minority and remember her power is predicated on violence, where bezos's power is based on voluntary interaction -- a big difference.
Bezos's power is entirely predicated on violence, as the ownership of any assets he holds are marked as belonging to him through the backing of violent institutions. This is arguably moreso than AOC as she has no executive authority.
She, as most politicians, compete in a primary - that is where the real election is. Her district was going to vote for the Democrat candidate no matter who was selected in the primary. Lastly 57% may seem like a lot or whatever, but it's ~16,000 votes out of a potential ~700,000 for the district. Hell, 16k out of ~100,000 that voted last time isn't a huge amount.
AOC does not have more political power than Jeff Bezos and to suggest otherwise is tremendously foolish. Political power is far more than just the ability to change federal statutes, it includes things like being able to get faster approval for the zoning of your particular projects or getting your company tax breaks.
Bezos has vastly more power than AOC. His decisions affect the lives of 840,000 direct employees and at least as many again - I'm not sure the figures even exist - "freelance" content suppliers, small businesses, and casual workers.
His tax avoidance policies have a significant impact on the budgets of the larger Western countries.
AOC has a media profile, but - so far - almost no influence at all on US policy. That may change in the future, but given that the Dem Establishment seem to consider her a dangerous extremist, it's possible she'll be sidelined into becoming her generation's powerless token left-leaning icon.
I said that different sorts of power were fungible. I did not say that a specific sum can be used to acquire a highly specific office by any particular individual. It's entirely possible to use vast wealth inefficiently and fail to acquire political power or influence.
It's possible to use the same wealth efficiently to pay individuals to study the problem of which individuals to contribute to in order to acquire increasing and undue influence.
Your argument is that you shot at someone five times and failed to injure them thus guns doing kill people.
He didn't, but with his donations to the DNC and the creation of Hawkfish, he'll have an inordinate amount of power in the direction of the party for years to come regardless because of his money.
Certainly in some ways. But AOC (with others) arguably shifted an entire mainstream party's platform. I think that the "hard power" that Bezos has is larger, but the "soft power" wielded by political and cultural elites is massive and easy to underestimate.
I would like to introduce you to a family which is called the Murdochs. This family alone has probably yielded more political power than most elected officials in many western democracies combined. You don't even need to look at Fox news, but only look at Australien politics, where Rupert Murdoch (who isn't even an Australien citizen or taxpayer anymore) has had the most intimate access to politicians. I encourage you to look at the repeal of the NBN (which was very popular) and the role of Murdoch newspapers in getting the labor government voted out.
AOC has to actually work for her political power. Billionaires can sic 1000 lawyers and lobbyists at whatever initiative they want, without lifting a finger.
And that's just an example :-)
Activists do it as their day job, for billionaires it's just one of the many side effects of their wealth.
I'm not sure how this is apparently a controversial point. There's vast and obvious evidence that this is the case. More Dunning-Krugerism from the tech industry.
"Political power" is an unavoidable side effect of having power, simply – this almost reads like a tautology, but it's worth keeping in mind that the former is effectively an extension of the latter.
I argue money is power in a free market society. I'm not sure there is a way to fix the first part of that sentence without completely modifying the latter.
Actually there is significant research that successful people significantly overestimate their skills/contributions even if they rely largely on luck or advantageous starting conditions. There is also significant research that shows that even in a relatively "fair" trading scenario wealth distribution very quickly becomes completely unequal, just based on luck in the first couple of trades [1]
It was actually gifted to him by his parents, in the form of a $300,000 loan. How is it so difficult to accept that the vast majority of the wealthy were helped by having wealthy parents rather than pulling themselves up their bootstraps?
How many people with $300k go on to build Amazon? Nobody is saying he didn't have any help, and that's frankly not the bar we want to measure people by.
Statistically, people with wealthy parents are far more likely to be wealthy than those of poor parents. Bezos would have been far less likely to create Amazon did he not get that loan. Do you dispute this?
Maybe. So what? No one is an individual. “He” is also a product of his parents’ DNA mixing to produce an intellectually healthy and superior brain. His parents also stuffed copious amounts of useful information into that brain. As did people around him growing up. And his parents used savings, likely derived from many generations of people passing on their wealth/culture/knowledge, to aid in the continuation of their DNA’s importance to humanity.
I don't exactly give a shit, I googled Bezos current net worth. I'm savvy enough to know it's not liquid cash, if you're trying to make a snarky remark. Or you could just say what you mean.
You say clearly, but it isn't clear. I would argue the existence of billionaires is a symptom and not the root of the problem. This country was founded with all people created equal under the law, but the system of kickbacks and corruption allows the wealthy to commit all manner of civil, financial, antitrust, and even criminal acts without any repercussions. How many people were charged in the financial crisis that wiped out half the wealth of Main St? 1 person? Google is larger than all of it's search competitors combined and yet Congress rolls over when Pichai says it isn't not a monopoly? Give me a break. It will only get worse, whether UBI and Universal Healthcare are implemented or not. There's a reason Big Tech CEOs are all card carrying Democrats. Modern Communism won't see the seizure of the means of production by the State. Instead it will consolidate the working class under a smaller and smaller group of larger and larger corporations that work in concert with politicians. Progressive regulation and taxation schemes support this. We even have on-campus housing for employees now so you can dedicate your whole life to a company. All that's missing is childhood education and you can be birthed into Amazon employment, get educated and trained, and live your life inside the bubble.
Every person has the same political power, though. One vote is one vote, one voice is one voice. Why do politicians pander to the wealthy and influential? Well, precisely because they are influential and connected to many of the people in society.
You contradict yourself. You literally just said that everyone has equal political power, but rich people have more political power. Rich people aren't influential because they have a lot of friends. Rich people are influential because they have a lot of money.
Isn't it because the wealthy and influential can donate/raise huge sums of money for politician's superpac and help them win elections term after term and stay in power for decades?
To get rid of that incentive you need to advocate for separating government from economy, in the same manner and for the same reason why state is supposed to be separated from church in a modern secular society. No lobbying from economic players and no government intervention into economics.
If government is responsible for running common infrastructure, just by their choice of which infra to grow or let decay, they are affecting economy.
If government is responsible for social welfare (for the poor), they are affecting economy.
If government is collecting taxes, by their choice of what to tax how much etc, they are affecting economy.
If you take economic affections away from the government, what remains with the government?
With gerrymandering of districts votes are diluted or concentrated specifically to create imbalance of each vote being equal.
They pander to wealthy and influential because they will receive donations in unlimited amounts for such pandering. If they don't, they'll be primaried out by that spending being directed toward another candidate willing to pander.
> The existence of billionaires clearly undermines the core principles of democracy which is that all people have essentially the same political power.
I'm very pro-democracy; but that isn't a principle that has ever shown to have massive success at scale. There are a lot of fools out there.
Notably, some of the most successful experiments in democracy (British, American & Indian traditions) all have pretty clear principles of not having people with equal political power. Eg, a judge simply has more political power than an ordinary person. Britain and India have appointed members of their upper houses and the US has several safeguards to stop power defaulting to a majority.
Democracy hasn't achieved success due to some rosy concept of equality, it achieves success because the insufferable can't hold power and it provides an excellent method for different interest groups to negotiate and play mock-battle to work out who is stronger. There is plenty of evidence that dictatorship would be a better model if there were some magic method of keeping the dictator focused on good results - and indeed the US political system has tendencies in that direction. The creation of billionaires as replaceable aristocracy is a potential strength.
Plus most of the top US billionaires are self-created. It isn't really comparable to aristocracy either.
> Plus most of the top US billionaires are self-created. It isn't really comparable to aristocracy either.
That's just a function of accretion. The pearl has just begun to be produced. Do you think that the kids of the current top billionaires will not be at least middling billionaires? The US has lower social mobility than most European countries. Considering the fact that Europe is part of the "Old World", that's a worrying fact in my opinion.
Broke aristocrats are a trope. Broke billionaires are an oxymoron.
Just looking at https://en.wikipedia.org/wiki/List_of_Americans_by_net_worth I don't see a lot of hereditary names. There is the Mars family I suppose. I don't see names like Getty, Bruce, Mellon, Carnegie, Rockefeller or Vanderblit. There is a Hunt.
The wealth doesn't look like it accretes faster than family growth divides it at that level.
Leaving aside George Spencer-Churchill, Marquess of Blandford, and a few other aristocrats, the latest-born of the descendants of Cornelius Vanderbilt is James Vanderbilt (https://en.wikipedia.org/wiki/James_Vanderbilt), currently worth by somebody's estimate $20M. The family also includes Anderson Cooper, a fair stock of earls and such, and a number of artists.
All but 5 of those families have less wealth than MacKenzie Scott; whose claim to fame is marrying the son of a bike shop owner.
The odds of breaking in to that list are something like 1 / 300,000,000 but evidence is anyone can do it. MacKenzie is also my subtle counterargument to "Look at the Waltons". Breaking up the wealth ain't always voluntary.
*grandson of one of the first nuclear engineers and nephew of one of the most successful musicians of the 20th century, whose parents had nearly a million (2020) dollars to spare to help him get in on the dotcom boom. But anyway.
Those are about the same odds as breaking in to the House of Lords.
Would the explanation that "while it is statistically impossible, it is strictly speaking plausible for an extremely devoted and lucky regular person to join the club" be a good enough excuse for re-introducing a landed aristocracy to American government, in your estimation?
I just remember when I was school in the 60's there were a lot of games played where one person out of 30 would 'win'. Very much like professional sports. Talked to my dad whose much older. He said they didn't do that when he was a kid. I think schools don't do that shit as much because they realize that one kid has a very temporary positive experience and 29 kids have a negative one.
Seems to me where the system is fair is unimportant, first we know it's not. Second is it designed to create disparities and a negative experience for most people. From a societal point of view that probably bad. And as I like say, the needs and wants of a couple of super wealthy people shouldn't be anything society cares about.
Yes and what happened every time in between? Significant civil unrest or wars. The first and second world wars actually acted as great equalizers (as did the civil war, the French revolution etc.) everytime after a new "aristocracy" develops and tries to keep keep the wealth to themselves. So I guess we need another upheaval, is that the argument?
> The pearl has just begun to be produced. Do you think that the kids of the current top billionaires will not be at least middling billionaires? ... The US has lower social mobility than most European countries. Considering the fact that Europe is part of the "Old World", that's a worrying fact in my opinion.
I'm not sure that this is actually true, wrt. "old" wealth. Mostly, because Europe's high income taxes and broadly business-hostile environment makes it very hard for new wealth to compete with old wealth, and especially unattractive for "old" wealth to get involved in riskier, more innovative ventures of their own as opposed to just kicking the can down the generational road.
Money is a poor form of meritocracy because once you have it you can tilt the board towards you and yours forever regardless of future merit.
Worse the portion of wealth from true merit is cover for just how much is graft, rent, and corruption.
The end point of any system whereby power gives one the ability to further consolidate power needs to be balanced with redistribution else all power naturally concentrates in a shrinking few.
No man is self made. Billionaires are generally the children of lesser wealth.
Professional meritocracies where groups of professionals judge the efficacy of fellow practitioners? Licensing boards. Colleges, testing, professional memberships, peer review.
We can also acknowledge that we are incapable of making such systems optimal and take from all to give to all in terms of public works, education, health.
This insures that even if capitalism doesn't properly reward all participants aptly for their contributions to society all get a chance to live and contribute. If you look at true believers in capitalism one would suppose that the market is the only guide to worth and how we should allocate capital. Neither is true.
And there are multiple members of the Rockefeller family that have net worths in the billions. There is substantial swaths of land in this country that have been held by the same families since the 1700s.
> The question if billionaires are bad for society is pretty much the same question as asking if the aristocracy was bad for previous societies
I think the main difference is that aristocracy was zero sum and rent seeking where billionaires aren’t necessarily (and with recent tech ones not) zero sum. Bezos having a billion dollars doesn’t limit anyone else from having a billion dollars.
Only the king was allowed to hunt in the king’s forest. Aristocracy owning 50% of land (or whatever) means no else could own it and more land wasn’t (usually) created.
If someone is king, then that means no one else can be.
There’s some similarities with aristocracy, especially with generation after generation. But theoretically we have estate taxes and laws against perpetuity that help some and could be prevented.
Perhaps half of billionaires are “self made” [0]. I don’t like that term, but I wish we had “how many billionaires weren’t born to millionaires?”
But Bill Gates being born to a middle class lawyer and making billions is very different from Bill Gates being born to the Earl of Orkney and selling all the potatoes in Ireland to make billions.
Bill Gates was not born middle class. His Father Bill Sr. was a partner in a very prestigious law firm and his Mother Mary was on the board of Regents at the University of Washington.
Despite his wealth, Bill's father reportedly ran the slide projector for Bill's talk in the early days of Comdex. In those pre-powerpoint days a draftsman created a paper version of the "viewgraphs" which were photographed and then displayed with a slide projector or on a overhead projector. The overhead projector used a "burned" transparency created by putting a special type of transparency film instead of paper in a xerox machine and copying the draftman's original.
It doesn't matter if he was the son of Warren Buffet. He flipping made Microsoft let him keep his billions he earned them. I guarantee, if 99% of the population were born under the same circumstances, they could not produce a Microsoft.
You forget how instrumental his lawyer father was in creating the first software license agreements and how his family financed the mainframe computing time he was given before any teenager had ever had access to these machines.
His biography is quite clear on how lucky he was and how much his parents contributed to his success. Denying it is perpetuating a myth of a self made billionaire that simply isn't true.
Being self made is irrelevant, all that matters is society benefited from the value that Microsoft produced, and he was enriched accordingly. It's not complicated. Who cares if he had a leg up. Should we think any less of SpaceX because Elon had rich parents. Progress is hard, we need to welcome it how ever it comes, and reward those who produce.
His parents weren’t billionaires. There’s a big difference between being born poor lowering risk of success and 99.999% being born non-aristocracy preventing success.
I have no doubt that he earned some of what he has. But I have doubt that his work added enough value to the world that he should be so extraordinarily wealthy. The scientists who discovered, and started producing Insulin probably added more net value - yet I don't think any of them became a billionaire as a result.
Bill Gates's mother was on the board of IBM, which helped lead to IBM making a deal with Microsoft. This isn't very different from landed aristocracy marrying only other aristos to maintain power and wealth within their networks.
The same kind of deal making happens in the VC/PE world? Isn't it true that you not only get money investments from VC/PE firms but also get connections and deal-making with their portfolio companies. In that way it is quite similar. Either you are in the club or you are not.
> aristocracy was zero sum and rent seeking where billionaires aren’t necessarily
How can you look at companies like Google, Apple and Facebook and conclude they aren't rent-seeking? Google's entire business is essentially renting space on the most valuable real estate in the world. Apple routinely shuts down or replaces apps that compete with theirs. All of these companies seek to just barely toe the line of not being subject to anti-trust laws. Of course these are companies rather than individuals, but the nature of capitalism is such that rent-seeking happens via corporations controlled by the wealthy.
> But Bill Gates being born to a middle class lawyer and making billions
Other people can litigate the specifics of Bill Gates or others, but the US has poor income mobility compared to other wealthy countries, largely due to the capture of our political system by the billionaire class.
Only the billionaire is allowed to walk on the billionaire's private beach (often in violaton of nominal law).
> If someone is king, then that means no one else can be.
Obiously not true. Each king is only king on the king's property. Much like Ellison and Gates and Walton have their own property.
> Theoretically we have estate taxes and laws against perpetuity that help some and could be prevented.
And maybe if they were practical and not purely theoretical, the democratic populace would be mollified.
> But Bill Gates being born to a middle class lawyer
Bill Gates was born to a multi-millionaire.
> different from Bill Gates being born to the Earl of Orkney and selling all the potatoes in Ireland to make billions.
Bill Gates signed deals with IBM and Dell to sell almost all the OSes in the US, to make billions. Even people who installed other OSes had to pay Bill Gates first.
Typical viewpoint on HN is that a $600k a year is average for someone in their early 30s, therefore there's nothing non-average about a multi-millionaire parent.
Billionaires are not bad for society. However they are a magnate for those who seek to mold society in a particular direction and as such they have to either be exploited or expunged from consideration.
Billionaires are in effect about the only means to challenge the political machine that runs each country. They only occur in countries that protected property rights to the point people could amass sufficient wealth so as not be subject to all the pettiness of the political class.
Their power is their mobility but only if they have staged their wealth in such a way it cannot merely be confiscated with a single action. Billionaires who come into effect outside of those created by the armed forces of countries being used to enrich their leadership are signs of wildly successful economies that others want to be part of. Yes there is disparity between them and the bottom rungs of the society they are part of but those bottom rungs are usually as far apart from those in nations with no respect for property rights.
America isn't suffering from a lack of tax on the wealthy, their wealth or income. America is suffering from misuse of the money taken from all sources used to prop up two political parties so that they are immune to their own actions.
When we talk wealth we need to understand how the political class is fleecing America. All this talk of fair wages, $15 an hour, while they lavish pensions on their public employee buddies to the tune of a 100k or more per year, while they gain seats on various commissions and committees paying them 200k a year for part time work all on our dime.
The real money issue is the theft by the political class. However they have the best marketing and are adept at playing people against each other.
I find this attitude odd. Billionaires are accountable to no one at all, yet have enormous power over all of us. To you this is a good thing? Our political system is obviously a total disaster, but at least we have the power to change it if we want to. In fact, there are popular movements on both the right and the left that are working to make this change happen.
Many of the problems with democratic government are in fact caused by the power of the billionaire class to shape society to their whims. I remember reading a paper that compared people's policy preferences to actual implemented policy. They found no correlation. Instead what they found is that the policy preferences of the wealthy were quite well represented.
> America is suffering from misuse of the money taken from all sources used to prop up two political parties so that they are immune to their own actions.
This makes no sense. Both political parties are in fact propped up by their wealthy and corporate donors. If you look at the establishment of both parties, you will find that they are indeed quite cozy with your beloved billionaire class. Paul Graham has given hundreds of thousands for example: https://www.opensecrets.org/donor-lookup/results?name=paul+g..., and he is a fairly mild example.
> All this talk of fair wages, $15 an hour, while they lavish pensions on their public employee buddies to the tune of a 100k or more per year, while they gain seats on various commissions and committees paying them 200k a year for part time work all on our dime.
Why shouldn't ordinary workers have retirement benefits? It used to be part of the deal: you devote your life to the company, and get to have a decent, comfortable retirement. In the private sector, unions are so weak/nonexistent that these benefits are gone, but why is that a good thing to you? Similarly, if you refuse to pay politicians a good salary, then only the wealthy will become politicians. I guess to you, that would be a good thing, but most of us would prefer having more ordinary people in power, not fewer.
> Billionaires are accountable to no one at all, yet have enormous power over all of us.
it's not an enormous power, it's economical power to create new things. It's a productive force, unless there's a bad incentive to influence politics. No billionare is capable of dictating you how you should live your life. Politicians are. Separate government from economics and make lobbying and interference into economics illegal and punishable, and you will never see these two groups of people seeking favours from each other.
> it's not an enormous power, it's economical power to create new things. It's a productive force, unless there's a bad incentive to influence politics.
Like how the waltons use their great creative power to extract taxpayer money in the form of underpaid workers on assistance? (1) Like how bezos' amazon exploits the generation forced out of retirement by the 2008 crash as an underclass of temporary seasonal workers (2)
Billionaires got there by exploiting loopholes and viscous cycles that drain money from many people, to consolidate it in the hands of a few. There is an inherent problem with any society that allows the existence of billionaires, while some of their citizens starve as a result.
> Like how the waltons use their great creative power to extract taxpayer money in the form of underpaid workers on assistance?
That's mostly returning, not extracting, taxpayer money, since employment by WalMart reduces those workers’ eligibility for means-tested, and where it doesn't (e.g., moving up EITC eligibility) the recipient of additional taxpayer money is the worker, not WalMart. Calling this extracting taxpayer money by WalMart, the Walton family, etc., is ludicrous in the extreme.
Are the Waltons’ under taxed, sure. But if they were taxed more to provide broader aid, that would increase the share of their employers receiving some kind of public benefits. Which is a good thing, not a problem.
no need to tax them more to solve THAT one, just make them pay a living wage. Nobody working full time should be below the poverty line, nobody working half-time should require food stamps - otherwise it is exploitation not employment.
> no need to tax them more to solve THAT one, just make them pay a living wage.
Thereby reducing the scope of jobs for which they can hire to ones that return sufficient value for that, sure.
Of course, that will add to the public welfare burden, not reduce it, since it will reduce employment.
There's a very good argument for some minimum wage in the absence of better of minimum support policies like UBI (that is, while it may not be the ideal minimum support mechanism, there's plenty of evidencie that, to a point, minimum wage is a net gain compared to not having it.)
There's also probable a decent argument for “living wage” (sufficient for independent support) as a floor for certain kinds of labor in government contracting, etc.
There's not really a good argument for living wage as the minimum wage floor; making everyone whose most valuable labor is not sufficient valuable to support them independently unemployable rather than employable at a level from which they can gain experience and advance is good for neither the unskilled nor the broader society.
> to solve THAT one, just make them pay a living wage. Nobody working full time should be below the poverty line, nobody working half-time should require food stamps - otherwise it is exploitation not employment.
This argument is equivalent to: “No one whose full time labor returns less value to the employer than would merit pay above the poverty line should be employed at all; nor should anyone whose half-time pay would leave them eligible for food stamps.”
Making the relatively unskilled completely unemployable isn't helping anyone. (Also, food stamp eligibility limit is generally 130% of the poverty line, so aside from the general outline being bad, the specific details you've chosen would set a minimum hourly wage for half-time work at 2.6× the minimum for full-time work.)
It's much better to tax capital income and increase the minimum support floor independent of employment than place increasing demands on employers, which just promotes automation and reduction in employment. You want to improve conditions for workers, especially at the low end? Tax capital income equal to labor income—both the basic income tax and the payroll/self-employment tax employed to labor income (this also includes uncapping the social security portion of payroll taxes.) Use the added income tax equivalent revenue to fund broad, unconditional minimum support (it won't be anywhere close to a mature UBI initially, but that's okay.) Use the added payroll tax equivalent revenue to (1) provide SS and Medicare eligiblity based on qualifying income that isn't labor based, but with (for SS) additional high income “bend points” beyond those in the current formula so that the marginal additional benefit for additional income continues to drop with income, (2) provide additional security for payroll tax funded programs, (3) beyond what is actuarially needed for long-term program security, transfer the excess to fund additional broad, unconditional minimum support. After indexing minimum wages to inflation, reduce the by $0.01/hr for every $40/yr of the minimum unconditional support (that is, full-time minimum wage would be reduced by half the unconditional benefit.)
Workers are, in net, better off. Those unable to find work are better off because of the unconditional benefit. Taxes paid are fair, income is income. There's less incentive to reduce employment, and indeed more people can be employed.
> Thereby reducing the scope of jobs for which they can hire to ones that return sufficient value for that, sure.
The fact that they are BILLIONAIRES seems to indicate there is a decent amount of headroom to their business model.
> This argument is equivalent to: “No one whose full time labor returns less value to the employer than would merit pay above the poverty line should be employed at all; nor should anyone whose half-time pay would leave them eligible for food stamps.”
No. My argument is: if your business model can't sustain people at a living wage, then YOUR BUSINESS SHOULD NOT EXIST. Remember that walmart put a lot of small shops out of businesses - many of those shops paid their employees enough to live without needing food stamps. They sucked up all the air, if they can't sustain their workers, they need to stop sucking up the air and make room for businesses that can.
edit: for details. the article I linked suggested that walmart employees receive $6.2 billion in gov assistance (2014) - wikipedia suggests that walmart made $14.8 billion (2020). Seems like they DEFINITELY have the headroom to pay their employees that difference. Why are we even arguing about this? Walmart would have made $8.6 billion and government would have at least 6.2 billion more for schools, PPE, covid relief, etc. nobody needs to lose their job, NOBODY EVEN NEEDS TO STOP BEING A BILLIONAIRE to at LEAST get people off food stamps.
> The fact that they are BILLIONAIRES seems to indicate there is a decent amount of headroom to their business model.
Does it? If you multiply a small per-labor-hour surplus by 1000+ hours per worker per year and lots of workers, you can accumulate lots of money per year and become a billionaire, but that doesn't mean you have lots of headroom, just lots of scale.
> No. My argument is: if your business model can't sustain people at a living wage, then YOUR BUSINESS SHOULD NOT EXIST.
Sure, and when you kill all the businesses that can't pay every entry level employee enough for a comfortable independent life, who is going to pay the additional public benefit costs to give even minimum poverty support to the much wider pool of unemployed and unemployable? Your plan is lose (for the people who would be employed but now won't)-lose (for the people unemployed in either case for whom there is now less revenue to provide support)-lose (for the capital owners who are now prohibited from employing people whom they otherwise could, mutually profitably). Taxing capital gains fairly and using the proceeds to provide better universal support while reducing employment friction is win-win-mixed for the same groups.
> the article I linked suggested that walmart employees receive $6.2 billion in gov assistance (2014) - wikipedia suggests that walmart made $14.8 billion (2020). Seems like they DEFINITELY have the headroom to pay their employees that difference.
Their 2020 net income was more than double their 2019 net income, of $6.67 billion. Tax net capital income more, and you don't ever switch a profitable business into a losing one by your policy, increase employment costs and you make profitable decisions to employ people into unprofitable ones.
You’ve cherry picked the one bad yearwalmart has had in recent memory: 2019. From 2006 to 2020 they have made over 10 billion per year except for 2018 (9ish billion) and 2019 (6ish). They CAN afford to pay their staff a living wage.
Again, by describing the choice as bad job (walmart) or no job, you are ignoring the fact that walmart did not CREATE jobs - they merely consolidated jobs from many small businesses.
It’s not a choice between walmart or nothing. It’s a choice between an exploitive business model, or non-exploitive business models.
> Again, by describing the choice as bad job (walmart) or no job, you are ignoring the fact that walmart did not CREATE jobs - they merely consolidated jobs from many small businesses.
Driving up the minimum cost of labor isn’t going to bring back smaller, less-efficient businesses, it will make them less viable, too. Higher minimum wage actually reinforces the advantages of scale, since smaller acheivable average returns means the importance of being able to internally diversify (e.g., against regional problems) becomes more important to survival.
> It’s a choice between an exploitive business model, or non-exploitive business models.
It's a choice between a government model that chooses to actively harm the employed, the unemployed, and employers irrespective of business model to express moral outrage at certain business models and one that wants to use the power of taxation and spending to reduce the power of business models to be oppressive.
I think what you are really upset about is that politicians in the US need private funding to get elected. This is usually not the case in European countries where they just ban political ads on television and provide tax-funded funding for parties that gain significant representation.
Retirement benefits were always a terrible deal; no one should be putting all of their eggs in one basket. We should enable people to simply and easily save for their own retirement, without banking on totally-unrealistic rates of return that are never going to materialize.
> We should enable people to simply and easily save for their own retirement
Perhaps that would be reasonable if everyone were paid enough income to handle all their expenses and save for retirement. Of course, that's not the case for probably 30-40% of the population. As things stand now, it's just cruel to lecture those people that they "should have done a better job of saving" (and I hear that a lot these days).
> The question if billionaires are bad for society is pretty much the same question as asking if the aristocracy was bad for previous societies.
Not at all. The aristocracy was a legally special class of people based on your ancestors. The end of aristocracy, especially in America, meant for a long list of rags-to-riches stories, and lots of politicians who came from very poor beginnings. The end of aristocracy also meant the end of officers being drawn solely from the aristocracy, which made for a far more effective military, as talent was not related to your parents.
Economic mobility is more or less the lowest in the US of all OECD countries. This means that it is extremely likely that whatever quartile/quintile/percentile you are born into in the US, you will also die in the same economic bracket.
Yes, you can cite whatever exceptions you like - the statistics are clear.
Most billionaires are born to other billionaires (or at least extraordinarily wealthy people compared to median wealth). As such, they represent an ancestral inheritance just nearly as much as the aristocracy.
There is almost no evidence of de novo great wealth being correlated to great talent. It may (or may not) be a necessary component, but it certainly is not necessary, even if it was possible to quantify precisely what is meant by "great talent".
In a capitalist-ish society, there are always going to be great winners in the competitive economy. Pointing them out as if they are special is absurd: the system is designed to generate such cases.
Back in the 90's, the Seattle Times reported that there were over 10,000 millionaires (excluding home equity) in Seattle as a result of working at Microsoft and getting stock options.
A million bucks is nothing to sneeze at, it's upper middle class. And that's the cutoff - many are in 8 figures.
Without Amazon and Microsoft and their billionaires, Seattle wouldn't be the wealthy city that it is. Not even close, and that wealth has filtered out all over the area. For example, there are all Paul Allen's initiatives and developments in the area, and that's only a tiny bit of what has happened.
Be careful what you wish for in getting rid of billionaires. A lot of very nice things we all have will go away with them.
> I'm not for Paul Allen deciding what's nice or what we get.
The thing is, Allen didn't take anything from you to give those things. He didn't raise your taxes. He didn't impose any levies. They were gifts you could ignore if you chose.
Me, I liked his flying WW2 aircraft museum very much. It's a little thing in the grand scheme of things, but I've enjoyed it a lot. If you read his autobiography "Idea Man" you're sure to find a number of things that have benefited you - without costing you anything.
Musk has given us a space program. Carnegie gave us public libraries. Gates has saved millions of lives through his foundation.
BTW, you don't get to decide what nice things government does for you, either. A vote is not the same thing as a choice. I've lobbied my Congressmen. Did they do what I wished? Absolutely not!
Apaprently you're not aware of the gigantic shift in the proportion of GDP that ends up in the hands of labor vs. capital.
A significant chunk Paul Allen's share of the GDP would have been in the hands of workers had he been economically active during the period 1949-1978.
That's what he "took" from people to be as wealthy as he is.
I am flabbergasted that you feel that the "lack of choice" over what your government does is the same thing as the "lack of choice" over what rich people do with their money. In fact, I feel sorry for you in that you live in a country fundamentally built on formalizing this difference and creating a nation based on a belief in government "of the people". You don't believe that - you're not alone. But I still feel pity for you that you've been forced to give up the dream that this country was built on after just a couple hundred years.
Allen's wealth was neither given to him nor taken by him. He created it.
As for me, I prefer having a choice on what's for dinner than a vote on that. The US was founded on the principle of individual rights and liberty, not communal purpose.
No need to pity me, we are living in a golden age in the US. I have little doubt future historians will see it that way. I have no fear of billionaires. I don't buy that money buys elections. Hillary outspent Trump 2:1 and still lost, Bernie outspent Biden by some huge amount, and lost. Bloomberg flooded money into his campaign, and was completely eviscerated. I confess I daydream sometimes about what I'd do with a billion dollars that I'll never have, but that doesn't translate into any desire to tear down existing billionaires.
I missed several forks in the road in my life that could have led to billionaire status, but my taking the wrong fork each time was entirely my fault. I simply didn't see what in hindsight was obvious.
I'm missing something right now that could make me a billion dollars, and in five years I'll be able to tell you what it was :-)
billionaires definitely can be good for society. they do things that are in the public interest but governments can't attempt because they are inherently risk adverse because politicians want to get re-elected.
Bill Gates does high risk speculative, investments for causes such as eradicating diseases.
Elon Musk is attempting to colonize Mars. Because Presidential administrations are a maximum of 8 years and it takes longer to achieve a big goal in space, such as moon or mars colonization, Nasa has had a hard time sticking to a long term goal for space.
Inflation changes this detail daily. A billion is just a number of units of an arbitrary currency.
The real issue goes beyond the number and is more about generative assets vs liability / depreciating ones.
IMO the real problem is money in politics. Fix that and many of these issues with billionaires will sort themselves out as the system corrects itself.
EDIT: By "money in politics" I mean big money that overwhelms small distributed money. (ie money that does not look democratic) . Obviously it's always going to _take_ money to run campaigns
The problem with trying to separate money and politics is that accumulating money equates to accumulating leverage/power, and that's what gets politics done.
Almost the only thing that could get money out of politics is to make holding money the most shameful thing imaginable, and even that would just force the flow of capital/power underground, not actually curtail anything.
As I get older, I realize more and more that the thirst for power will never go away, and these cycles of accumulation and overthrow will be the overall flavor of human existence for the foreseeable future.
Unless we figure out how to shame people out of wanting power, maybe?
There's nothing to repeal. The aberration is not Citizens United, which has always been the law in the US. The aberration is the McCain-Feingold Campaign Reform Act, which Citizens United overturned. The relevant law is the First Amendment to the US Constitution. McCain-Feingold is the thing which tried to limit this, and was tossed out by the Supreme Court in Citizens United.
Most countries do not have strong protections on speech. The US does. There's no way to distinguish Fox News Media, a for-profit news organization with a distinct partisan slant, from One America News, a money-losing, overtly partisan news organization, from Citizens United, a political action committee trying to air a political documentary critical of Hillary Clinton on Pay-per-View.
You can't donate unlimited sums to candidates, but you can spend as much as you want on political media, including advertising. I'd love to hear how we can overturn Citizens United, but maintain things like Fahrenheit 9/11, a different political documentary critical of George W. Bush, and released right at the height of the 2004 election campaign.
Lawrence Lessig has a proposal to offer political donation vouchers to each and every private citizen. I think this is a great take on public financing that would help to level the playing field, while maintaining this country's strong protections on speech.
Citizens United very much has not "always been the law". Before Citizens United, there was precedent going back about a century. The first amendment does not mean and never has meant that free speech wins in all cases when balanced against other interests. The government can (and still does!) regulate campaign speech. McCain-Feingold was not out of line with that. But the conservative majority flipped the table on that precedent because they wanted to. Citizens United didn't even ask them to overturn the law. They briefed the case on narrower grounds, and then the court asked them to come back and argue to overturn the law.
The facts of the case were this: Citizens United wanted to run ads for its documentary . But it was within the window of time set for increased restrictions on political ads. Citizens United crucially was not a political action committee, but just a non-profit corporation. As such, it could only run the ads by either making a PAC or using money from a segregated fund (you've seen this if you've ever signed up for a union) collected specifically for political activity. Note that the lawsuit was over the ads, not the documentary itself.
Before the ruling, Citizens United was allowed to spend money on political activity. They were allowed to spend money on political activity close to an election. They were allowed to spend money, close to an election, to broadcast issue-based political advertisement (e.g., for or against a ballot initiative) on TV. They were allowed to spend money distributing their documentary in any way other than broadcasting it on TV. They could show it in theaters. They could put it on the internet. They could print DVDs and mail them out. They could distribute it to PACs and campaigns for them to spend their own money distributing it, including broadcasting by on TV. They could pay money, close to an election, from a segregated fund, to broadcast their documentary on TV. All they weren't allowed to do was spend money, close to an election, on broadcasting something expressing views for or against a political candidate, on television or radio, to an audience of at least 50,000.
The courts argument hinged on the unacceptability of "identity-based" restrictions on speech. But there are such restrictions elsewhere. See you, for example, prisoners, or executive branch employees.they just invented a first amendment principle out of thin air and selectively applied it to corporations.
To reach their decision, The court rejected numerous opportunities to rule on narrower grounds. They did no factfinding to determine whether or to what extent the restrictions chilled free speech, substituting congress's research for their own opinions. They gave no opportunity for the government to do their own fact-finding. And they would have if Citizens United hadn't dropped their attempt to overturn the law (until Scotus revived it) while the case was still at the District court. Scotus could have kicked it back down to do that fact-finding, but they had already made up their minds.
Technically... you can in all but one circumstance: modern US constitutional law.
I don't think any country has the same laisezz-faire approach to buying politicians... certainly not in the name of free speech. I don't think the argument has even been made.
That said, even in the US there isn't a real constitutional barrier to doing something about money in politics. You could make candidates wear sponsorships on their jerseys, like racecar drivers. No free impediment. That's a joke example, but you see my point. That particular ruling is not an actual barrier, the barrier is a legislative majority.
The US is what I was talking about re: "money === speech," e.g. Citizens United.
I'll less interested in sound byte-like fixes like "wear sponsorships on their jerseys" and more with what you can realistically change without overturning Supreme Court precedent or ignoring the Constitution entirely.
I think the joke/soundbite example demonstrates a point: The Jersey Rule would be ok constitutionally. Even with that ruling standing, there is plenty of room for legislators to fix "money in politics" practically, without contradicting the SC. Laurence Lessig has some of the best known proposals.
The problem, as I see it, is status quo bias within any congress/parliament. Actually removing money from politics crashes their industry, puts all their friends out of work, and challenges their power. Every unsuccessful candidate, campaign manager, staffer, and such makes their living this way. Every successful candidate was successful at this way of doing politics.
It's a similar problem to legislation (or even customs) that would enable 3rd parties to succeed. It's against the interests of the Republican and Democratic parties, so it won't happen.
Citizens United was not about buying politicians: it was about a group of citizens wishing to show a movie critical of a politician. How is that not legitimately-protected speech?
You can't get money out of politics. Money is power intrinsically it's like getting the stripes out of the zebra. The fix is redistribution of wealth to reduce inequality to a tolerable level.
> EDIT: By "money in politics" I mean big money that overwhelms small distributed money. (ie money that does not look democratic) . Obviously it's always going to _take_ money to run campaigns
in the UK political donations over £500 have to be registered and be by someone on the electoral role.
the Brexit Party was funded by millions of donations of £499 from Russia and US sources via paypal.
the reason why money is in politics is because policy can effect money. You have to address the root cause, or else you are just playing whack-a-mole (thought exercise: if PACs were banned, is there a difference between Bezos buying $500M in paid media vs. buying the washington post?)
America needs to go through a revolution of thought, like the one that lead to the 'Separation of Church and State' principle. For many of the same reasons, we need a 'Separation of of Economy and State' movement. Only then will you get money out of politics.
> IMO the real problem is money in politics. Fix that
You can't. Economic and political power are the exact same thing: the ability to direct other people to do your bidding.
The idea that you can separate them has always been a fiction, and it's a fiction that is perpetuated for exactly one purpose, to support oligarchic capitalism by keeping people distracted by their engagement in the hunt for the “one weird trick” to make politically egalitarian democracy work without dismantling the radical economic inequality of capitalism.
And yet, it is the very potential of radical economic inequality that drive the creation of new inventions and innovations that make the modern world possible. Killing that potential is killing the goose that lays all the golden eggs - that's Graham's point: even small confiscatory wealth taxes will act as a significant deterrent to people who would otherwise start great companies that improve some aspect of the world, including by providing a livelihood to their employees.
I've been CTO for a dozen startups, and this sort of thing would almost certainly deter me from exerting the effort required to go through the always-grueling startup process. It's hard enough not getting screwed over as a founder without wealth taxes!
Assuming that you are incredibly successful, you may need to contribute a bunch of money (mostly from interest, not principal) back to the common good.
I really don't see Mark Zuckerberg (as an example) deciding not to create Facebook because if he was incredibly successful he'd have to pay a wealth tax. It just doesn't strike me as likely at all.
This is (sadly) Paul Graham taking a valid argument and turning it into a reductio-ad-absurdam.
Billionaires are a necessary consequence of having a scale-free market structure in a wealthy society, which is itself necessary for efficient resource allocation in the absence of (hypothetical well-implemented) dictatorial central planning.
> necessary for efficient resource allocation in the absence of (hypothetical well-implemented) dictatorial central planning
Replacing a singular dictator with multiple agents that concentrate power is not necessarily more efficient. The biggest inefficiency with disproportionate wealth/resource accumulation is that the incentives/competence of the wealthy doesn’t match up with the money they sit on. Note that I am not talking about only billionaires, rich corporations that employ the smartest of humanity is equally culpable. Although venture capital tries to cure this problem, it is only a small percentage of the outbound money of the wealthy.
Think it this way, Apple sits on billions and only innovation we get year after year is slightly thinner devices. Google has tons of billions and machine learning PhDs that work on classifying your cat’s pictures. Elon Musk’s puer aeternus dreams fixate on getting out of the planet instead of fixing it.
For all the power they hold, the innovation and improvements in society we get is abysmal. This is not that different that dictatorial central planning, in which a narcissistic entity thinks they can have the wisdom and competence to manage our collective resources and potential as humanity. (Yes, that is exactly what money is, it is being owed other people’s goods and service should you choose to transact it)
Why do we have to be capped by the best these people can think of? Accumulating wealth and using it wisely turns out to be very different skills, just like getting elected and governing wisely has been.
So billionaires are a source of inefficiency and a part of the market, not a consequence of it because they don’t get out of the market once they are rich. If anything, the more rich they get the larger their participation gets, with all its downsides.
That is completely irrelevant, unless you are claiming they are doing absolutely the best that can be done. They are not, and we have a huge headroom. My argument is against singular control points, so I am not suggesting myself or any single person or instuition as a better replacement, I am suggesting not having that concentration of power in the hands of a few in the first place. Kind of like Frodo and co. destroying the ring instead of thinking they can use it for good wisely. In this case nothing is destroyed because money, which expresses goods and services one is owed to, is merely not allowed to concentrate above a certain point. Why does a major chunk of humanity’s goods and services, produced by humanity, is owed to Jeff Bezos etc? It is absurd to assume one person can wield that power properly.
Having billions of dollars is not a magical measure of how much societal good one did or can do. If anything, I would trust anyone who could make billions much less than the average person to use it for good and wise causes.
Indeed. Now imagine how much more of that we could get if he didn’t also obsess about escaping to Mars. His money and attention is a constant sum, anything foolish is going to be replacing something wise.
> The question if billionaires are bad for society is pretty much the same question as asking if the aristocracy was bad for previous societies.
Are you comparing billionaires of today, with dictatorships and monarchies of yesterday? Where people can be killed, jailed, sent to work camps, etc. at will? Are people today working for "the man" essentially indentured servants?
> The existence of billionaires clearly undermines the core principles of democracy which is that all people have essentially the same political power.
I don't think this is a core principal. Every person should have the same voting power, and the laws should apply to everyone equally. But the president and representatives clearly have much more political power than any average citizen.
> Essentially strong wealth imbalance leads to unstable societies.
This is a big claim, and would have to show some sort of evidence to support it.
I’m sorry, what? Wage growth has stagnated for most Americans in the lat few decades. The idea that billionaires are a necessity for the existence of jobs is absurd.
Ask yourself this: if they are paying their employees so well, where are they getting all that money?
The cause for wage growth stagnation isn't immigration. Immigration is a net positive for society. Emigration is the real harm. That much is settled in Economics.
The cause for wage growth is, perhaps, the offshoring of labor to cheaper economies. Better for Nike to pay minimum wage in China than in the US.
Meanwhile, capital gains remain domestic as business owners don't relocate
> I'm not sure why you think having more people to fill a role wouldn't drive the price down.
Immigration indeed lowers wages for competing workers, but it also increases wages for complementary workers and generates surplus to owners of capital – which in the long-term constitute a net gain to all of society, but at a minimum does constitute a net loss to workers at large.
Research suggests negative wage effects are concentrated among low-skilled workers.
Immigration can indeed have disruptive effects, but it can be managed, and its net gains for the whole of society are fairly well established.
I'm curious what you mean by complementary workers.
In the example of immigrants doing hard manual labor, especially agricultural work, who are the complementary workers? I'd infer it's workers like the people who transport crops around or operate the machinery to plant / grow the crops, etc.
Protections for labor have been stripped await as Capitalism has become more and more hegemonic over the last 50 years. Profit seeking corporations have always looked for ways to cut their wages. Combine this with the fact that we have become an increasingly globalized world, where labor standards are much lower in third world countries, and you have many factors that play into wage stagnation.
It is ultimately a race to the bottom when you have a globalized economy, but do not have standardized worker protections across said economy.
Immigration has plenty of benefits on society, and we should not use wage stagnation relative to productivity growth (which can be stopped) justify isolationism and protectionism. Whether we like it or not, we live in an increasingly globalized economy and we should fight to have broader labor protections and give more power to workers to be able to protect themselves and fight for fairer wages. The alternative is, as I previously stated, a race to the bottom.
Do billionaires exist in a vacuum, creating their wealth away from society? What does it mean to be a billionaire? Physically, it means they’ve affected a large amount of the population. For the better, or worse? Take away the companies the billionaires created and imagine life.
You seem to assume that billionaires would throw a hissy fit and go off grid to Galt's Gulch if they faced a wealth tax. But maybe they are motivated by more than the concrete purchasing power of their wealth.
If they are motivated by the desire to build, they would still build. If they are motivated by the desire to beat their peers in a game of "Who Has The Most Money," they would still compete. The winning number would just have fewer digits. If they are motivated by the power money buys, well, maybe the rest of us are better off not playing that game.
To curtail and equalize the political power of the rich with the rest of world, their wealth have to be reduced to such an extent that they also don't have the leisure to engage in deep politics. Let's say, if 75% of the voting population has < $x and if even 1% has 3x of that, then they basically have 2x leisure buffer over everyone else to be more politically engaged and influence the small number representative politicians, to manipulate the narrative for the rest of the 75% etc.
Marx wrote something almost to that effect in the Communist Manifesto. About half the first chapter is intense praise for the advances brought by capitalism.
We may not literally need billionaires for jobs to exist, but we need savings and investment for highly productive jobs. A wealth tax is borne over time by assets that are saved and invested; it obviously isn't by the portion that's consumed. If you tax Bezos' and other billionaires' wealth, Amazon and other firms will face sharply higher costs of capital, which can indeed be seen as a partial "dissolution".
You don't fix this by penalizing people that are successful. You fix this by preventing companies from buying all their competitors, or unfairly running them out of business. If we actually enforced existing anti-trust laws, with an eye toward NEVER allowing any company grow to be too big to fail via acquisition, we wouldn't be in this mess. (Note that companies that actually grow organically (Amazon/AWS is a good example) aren't hindered by this. Their success attracts other competitors (Azure, GCP, even IBM and Oracle), and competition is what should be encouraged for the good of society.)
Interesting, so billionaires directly affect the majority of jobs, and the rest of the jobs may be indirectly affected by billionaires and their job prowess as well. GDP growth is roughly 2% a year. Everyone here ok with GDP contraction for our future? How do we fund all the social experiments that many people want?
> The existence of billionaires clearly undermines the core principles of democracy which is that all people have essentially the same political power.
Why is this axiomatically good, though? We should not be maximizing adherence to some theoretical democracy, but to a more abstract idea of how to best organize a successful society.
Billionaires are good for society. elon musk and jeff bezos are leading the way into space and that is huge for humanity. If you tax them you will literally stop humanity from becoming multi-planetary.
The comparison to aristocracy is absurd. The US was founded abolishing the class system because the wanted equal opportunity, not equal outcome.
>Billionaires are good for society. elon musk and jeff bezos are leading the way into space and that is huge for humanity.
Enough with the blanket statements, Sure bill gates is ok but just yesterday the front page had a story of the Sackler family and how they amassed billions by pumping the united states with opiates. They literally killed thousands and ruined the lives of millions, while destroying American society. Billionaries are people, some evil some good.
Also, the point of a government is to provide for it's citizens (with taxes) not to hope that in a 100years we can settle on other planets. And btw, in that scenario we would not be the ones who end up on Elysium. As much as SV programmers like to think they can be part the billionaire class you are not and will never be an oligarch.
I thought it was Doctors who pumped the United States full of opiates.
I also thought the demand was a result of political policies that didn’t provide support for communities who were impoverished by the globalization of manufacturing and other industries.
Yes, the Sackler’s profited, and were irredeemably bad actors in this, but they are just one part of the story.
> the point of a government is to provide for it's citizens (with taxes)
Isn't this a sort of oxymoron? The taxes come from other citizens. The ones who are paying a majority of the taxes are not provided for by the government. Government should seek to provide everyone equal protection of their rights.
> Billionaires are good for society. elon musk and jeff bezos are leading the way into space and that is huge for humanity. If you tax them you will literally stop humanity from becoming multi-planetary.
This argument really doesn't hold water.
For a start it implies that becoming a multi-planet species would be impossible without Musk or Bezos holding vast personal wealth. There is no reason to believe that.[1]
It also implies that Bezos couldn't possibly fund Blue Origin if he was worth (say) a paltry $100 billion, instead of his current $190 billion.
[1] You could, for example, use some of the money from a "billionaire tax" to fund NASA.
>For a start it implies that becoming a multi-planet species would be impossible without Musk or Bezos holding vast personal wealth. There is no reason to believe that
There is 50+ years of evidence that we will not become multi-planetary without private funding. The only reason NASA was funded enough to get to the moon in the first place was because of the cold war. Very unlikely it would have happened otherwise.
The soviet union was the first one to go into space and had far more of the outer space firsts than the US. They also had no market incentives to begin such projects.
It's ridiculous you could even bring up the cold war without acknowledging the major scientific and engineering breakthroughs done by communist societies.
Both the US and Soviet Union basically stole rocket tech and rocket scientists from Germany after WW2. The only reason the US and soviet governments supported and funded those rocketry efforts was due to the military and intelligence benefits.
> For a start it implies that becoming a multi-planet species would be impossible without Musk or Bezos holding vast personal wealth. There is no reason to believe that.[1]
I'd say there's significant argument that it is indeed impossible. Democratic governments as a rule do optimize for cost where currency is created by fiat. Private capital generally does in order to stay in business and not go bankrupt. There's tons of recent evidence showing that existing space business is incredibly inefficient in cost.
> You could, for example, use some of the money from a "billionaire tax" to fund NASA.
Alternatively, you could allow billionaires to donate some of their billions, untaxed, into non-profits which they control and which have humanity-benefiting goals like space colonisation or clean energy or medical programs.
There could be problems, however, with these non-profits hoarding vast amounts of resources long after the billionaire dies, at which point a wealth tax on the non-profit's unused assets might make sense.
To state it more accurately, a wealth tax will lower the odds that elon musk will colonize mars. even with his wealth... i think it's safe to say the odds are agains musk colonizing mars.
he doesn't pay income tax cuz he usually have income, no salary. he just has stock, and he lives off debt against the stock. he will be forced to sell stock to pay a wealth tax. he will have less control over his companies.
It's true, it's possible a nation-state could colonize mars. But there is a problem for the US.
Presidents come to office, scrap the previous adminstration's space goals, create their own new goals and then their's are scrapped by the next admin before they come to fruition. It takes more than 8 years (the max a president can serve) to really follow through on an ambitious vision for space.
Yeh, that true. It's just hard to create a sustainable program. STS was retired. ISS will be probably be retired in 2025.
George HW Bush wanted to go Mars then scrapped it when he got the price tag.
In 04, George W Bush wanted to go to the moon by 2020.
Obama scrapped the moon 2020 plan and planned to go to Mars by 2030.
Trump is sending them back to the moon then Mars.
read "the case for mars" to get the story on the dysfunction at nasa and the presidents changing every 8 years. It's from the 90s and talks about how bush wanted to go to mars but the space station won out for the funding.
And in the ensuing time, those with money and influence built up the class distinctions in the legal and tax codes. The comparison isn't an exact match, but the class distinction IS.
Bezos may be contributing to the privatization of space, but he's doing it by exploiting the ones who keep the merchandise flowing through the cash cow. 19th century robber barons honed some of that machinery, Amazon has capitalized on and honed to a fine sharpness that blade.
> The US was founded with an extreme class system -- slavery, and aristocratic-only male-only voting.
The US is the story of a country that is constantly struggling to live up to its founding ideology. Slavery was widespread globally at that time, and ended up fighting its most deadly war to end it. Over time its flaws were sought out and eradicated to give way to the most prosperous and free country in human history, all within a couple hundred years.
The founders were not perfect (no one is), but did realize the evils of slavery and some did end up releasing their slaves.
Think about how hard Founders work to efficiently divide up the equity pool of their company in order to entice and retain top talent. Consider that the State and Federal government is already a silent partner to the tune of ~20% of the company profits, and then again ~20% on capital gains. Every little bit more carved out for the government is just reducing the portion left which has to justify the risk/return proposition.
There's another problem which I'm surprised PG didn't address. Liquidity. A wealth tax means valuing property before it's even perhaps practical to sell it, and while the government might take your last 409a valuation as the means to valuing your net worth, they aren't accepting your shares as payment, only cold hard cash.
If you have a large private holding, now you are forced to find ways to throw off cash against that notional value, e.g. by arranging loans against your holdings to pay the tax man. Shares that ultimately never sell could end up being taxed for more then they are ever even worth.
> and while the government might take your last 409a valuation as the means to valuing your net worth, they aren't accepting your shares as payment, only cold hard cash.
There aren't any wealth taxes of this nature on the books in the US, so assuming that they will only take cash and not shares is premature.
But I think you raise a good point that payment in shares is far more tenable, and likely probably, for highly illiquid economic assets.
Ooof that sounds like a big loophole. What would prevent me from establishing a new entity (I the inheritor, control), having it buy assets from the old one for pennies on the dollar and then sell the old entity for a nominal amount?
IMO, the honest way to think of a wealth tax is as am implied income tax. That is, a tax on the implied income from wealth. Instead of calculating CGT, which doesn't work very well in practice, just tax the wealth.
This avoids all the problem incentive structure, and even worse tax code structure dealing with the fact that some years you make a return and in other years you make a loss.
Liquidity is solvable, if we're actually talking about a super wealthy tax with a floor of $50m and above. At that point, you are dealing with people individually.
In terms of "reducing the portion left which has to justify the risk/return proposition..." I don't think this applies. You have $1bn. You owe $10m in taxes. You owe that tax regardless of what you invest in, conservatively or otherwise.
It even solves some of that problem, if it replaces CGT. A CGT without loopholes (doesn't exist, and won't) disincentivizes risk. If you win big, you pay big. But of you lose, the IRS doesn't pay you. That incentivizes playing it safe.
IRL tax credits exist, and those more than compensate big CGT payers. In some famous example (eg Trump) derivative policies are big money generators. IE, invest for tax credit, not market gains.
The implied income from wealth is zero, because e.g. $10 being spent ten years from now is less valuable than $10 being spent today, in a way that - in expectation - accounts precisely for the apparent "income" yielded by $10 (as 'wealth') over ten years.
Sure, but that seemingly-extra "revenue" or "growth" is not free - it comes with offsetting risks. Should people be taxed merely because they made a risky bet that happened to pay off for them?
Nothing in this world is risk-free, because the world is inherently uncertain. Holding cash is also risky. We can calculate a risk free rate of return however, and we can also look at historical returns and rates wealth growth to estimate what a "fair" rate might be.
But since this is really a "should" question (aka about values), theres not really a right answer. We can mostly just talk about fairness, of which there are many different conceptions.
My take: Society has to work hard to preserve the billionaire's wealth. You can't be king without an army, and billionaires exist because of laws, police and a social fabric that lets them keep owning so much stuff. You would otherwise have to be a warlord to keep your hands on so much, and that has its own costs and risks.
Perhaps we could look at it as a fee or compensation for the aggregate social guard labour required to preserve the social order that ensures the safety of the billionaire's assets.
What happens when some of those billionaires band together and decide that they are better at defending what they have? It'll result in governments being overthrown or the billionaires leaving for somewhere else.
Billionaires are still people. If they become too unsatisfied with their treatment, then they will do something about it. Just like everyone else.
So what I'm suggesting is sort of "user pays" for property rights. Since billionaires have way more property (and associated rights) it's only fair they should pay more for that.
Since I assume you're not literally suggesting that billionaires will arm themselves and I dunno, patrol their golf courses and beaches with rocket launchers, I suppose you are suggesting they buy some island and hire private forces, and I dunno, next they have to move their factories or offices there, and presumably hire workers and provide healthcare and education and retirement...
I guess if billionaire island seems like a really good deal, workers might move there. Without knowing more about (and assuming it doesn't just get annexed) it kinda sounds like Dubai.
Or sure they could try their luck in some other country if they feel safer there. Maybe somewhere that's happy to provide "inequality services" / free guard labour for them.
Re: billionaires taking over government so it works in their interests, this has basically already happened and these kinds of wealth tax proposals are a way to balance billionaires existing with the effort needed to sustain them.
And seriously when you look at the alternatives 0.5% (say) doesn't seem like such a bad deal.
The most sensible arrangement is to have a consumption tax (the user pays when they take their wealth out of the system) and/or a tax on incomes and rents, but not affecting the pure yield of capital (the user pays when they put wealth into the system).
This. The California wealth tax would kill the startup ecosystem in California, simply because every founder dreams of being a unicorn, but being a unicorn puts you in an untenable position of owing a six or seven figure tax bill every year while you have no liquid assets.
Sounds like the bubble would naturally dry up and the "burn the cash, take the payout and run" culture would start to heal.
Having startups that grow profitable, useful things at a healthy pace and that give back a small slice of their overall growth sounds like a pretty stable business model.
> One point that PG does address which is often skipped over is that a wealth tax is a "deplete billionaires" policy
It has long been my impression that eliminating or reducing billionaires is the primary goal of wealth tax advocates other than those whose advocacy primarily consists of sharing memes on social media. Raising revenue is largely a red herring.
It's the primary goal of a wealth tax. To reduce the concentration of wealth in a small minority of the population.
Let's say that there was a 1% wealth tax on all wealth over $1b. So Bezos would have to liquidate say $1b each year for that tax.
Yes, he'd have to sell Amazon stock. That would feed into the stock price of Amazon in terms of increased liquidity of the stock, but it has zero effect on the operations or growth or income of Amazon itself.
Arguably it would have little or no impact on Bezos' activities. He would still be running Amazon, he would still be working to make it grow etc.
What would change is that over time, the wealth would be distributed via the items funded by that tax.
“The wealth would be distributed by the items funded by that tax”
This is highly questionable - the idea that a dollar of tax is equivalent to a dollar of wealth distributed rests on the assumption that elected officials can deploy the money efficiently.
I’m not claiming that government can never do this - clearly nation building has been done before.
> Let's say that there was a 1% wealth tax on all wealth over $1b.
This is what the article disingenuously(?) leaves out.
If a society wanted to deplete billionaires, it could put a wealth tax on just the dollars above and including the billionth dollar that an individual nominally owned.
The idea is that anyone who isn't a billionaire wouldn't be affected. Making this tax rate be 1% has the added advantage that you can call it "the 1% tax", because it would only apply to (a small subset of) the top 1% of richest people.
I don't know how many Americans became multi-billionaires by founding companies in their twenties, but here is a list of billionaire founders of internet companies:
A tax on the top 1% of net worth households would start much lower than a billion dollars. A quick google search says it's around $10 million. That's more on the order of a medium-large car dealership or similar local business than a significant share in a megacorporation.
Reducing billionaire wealth, or limiting its growth is st stated aim. Piketty and like minded economists argued for it directly. The political proposals (eg Warren's) were also straightforward.
It is a red herring, but money always is when it comes to politics. They all have stuff they want to fund.
By Picketty's math, 2%-2.5% is roughly break-even. That is, average billionaire wealth will grow in proportion to the economy & wages. Less, they will grow more slowly relative to the economy. Above 2.5%, millionaire wealth will decrease, relative to the size of the economy.
> The most important nuance being that you control most of this wealth for most of this time and will be paying your taxes out of interest.
Then a wealth tax boils down to a punitive tax on interest income. Which means billionaires will be incented to save or invest a lot less, and consume a lot more of their wealth since they're going to lose it either way. (See, e.g. Larry Ellison's yachts as an especially obvious example of billionaires' consumption.) That's an "economic policy tool", alright. It's not as clear that it's a sensible one.
> Which means billionaires will be incented to save or invest a lot less, and consume a lot more of their wealth since they're going to lose it either way.
That's the goal. The idea is that society doesn't need billionaires, so you force them to get rid of their wealth. Either through taxation, or by spending it on things that benefit others.
Interesting question there - do Larry Ellison's yachts "benefit others"? (And i mean beyond the immediate effect of "spending money". We should always keep in mind that opportunity cost is a thing, and that investment involves plenty of "spending" and economic activity of its own.)
They do. He's paying sales tax to buy them, he's paying for the wages for people that built then. Consumption is when the money starts to trickle down. I think I'd be ok with forcing super-rich to spend their money or taxing then above some level. Let's make the limit somewhere around GDP of a smaller European country (Slovakia - ~105bn, Ukraine - ~140bn) & tax above that.
> do Larry Ellison's yachts "benefit others"? (And i mean beyond the immediate effect of "spending money".
I don't think that's a useful question, though the answer is generally no. Yachts, or more generally pleasure craft, are a form of entertainment. The owner spends large and ever-growing amounts of money, funding other people's lives, in exchange for some kind of fun for themselves and their immediate circle.
Larry Ellison could certainly make them benefit others by, say, using them to provide housing for the homeless, but that's not a part of the primary equation.
> We should always keep in mind that opportunity cost is a thing, and that investment involves plenty of "spending" and economic activity of its own.)
The economic activity of moving around vast sums of money benefits very few people, and those are generally not the people working multiple jobs just to make ends meet. That's the reason people want a wealth tax: concentrating wealth to such an extent benefits almost nobody.
"funding other people's lives" is not enough? When the shipbuilder fires people, and the engine maker fires people and Larry fires the maintenance people who will fund them?
I do think it's enough. My point was that excluding money from the question is not useful, because buying a yacht is explicitly an exchange of money for entertainment.
"The idea is that society doesn't need billionaires"
so when was the vote to declare that the line in the sand? what about millionaires? Let me guess, there are enough millionaires now that it's too big of a group to make an enemy out of. You can't say society doesn't need millionaires because there's enough that maybe someone's friend or family is a millionaire and will think "..wait a minute, that doesn't seem right".
Flip it around and give the 0.01% poorest people the same treatment, society certainly doesn't need the poorest of the poor either. It makes about as much sense.
> Flip it around and give the 0.01% poorest people the same treatment, society certainly doesn't need the poorest of the poor either. It makes about as much sense.
Again, that's the goal.
There was no vote to declare a line at 1 billion, because nobody cares about the exact number. The goal of measures like this is to reduce inequality.
Definitely. There's a conversation to be had about which billionaires do we want. Most Americans have a favorable opinion of Bill Gates [0], but not Jeff Bezos [1]. And there's good arguments for having large-scale philanthropic efforts be semi-privatized.
A "punitive tax on interest income" is popular with the left because it is, on paper, very progressive and avoids taxing the poor. But in truth, I don't think people actually want fewer billionaires, they just don't want aristocratic billionaires.
It also doesn't help that it's so unclear what the money would be spent on.
A mildly-punitive tax on high levels of personal consumption (including imputed consumption. such as business owners using business assets for private use, etc.) would seem to be a lot less distortionary and more socially-beneficial than a punitive tax on wealth, and just as politically sensible. What it doesn't have, unfortunately, is the raw appeal of soundbites like "soak the rich!" and "you didn't build that!".
There's a cool related video of Greg Mankiw [0]. He talked about two "redistribution" schemes:
1. $1000 per month to those with zero income, phased out at 20c / dollar extra income, financed by 20% tax on all income above $60k
2. Transfer of $1000 per month to everyone, financed by 20% flat tax on income
Apparently a group of Harvard students he asked were strongly in favor of the former, without realizing that the two plans are equivalent. It's all about framing.
This is trickier than it might seem. A yacht is actually an asset! (Albeit one that depreciates quickly and has enormous running costs).
Practically everything a billionaire could spend money on "at scale" is just another asset. Although again, "yacht" is a terrible asset class.
To actually get rid of enormous wealth you have to either waste it (throw a huge party? own assets that depreciate a lot? shoot it into space?) or give it away somehow.
I think one common criticism of wealth taxes is that assessing these asset values can be gamed. When I'm donating my yacht to charity it's worth way more than when the government is assessing it for taxes
But there's other stupid crap you can waste money on that doesn't count as assets. Spaceship rides, political donations... Maybe you can sell your yacht to some yacht company and lease it back from them?
I was just using the bruhaha to demonstrate a point. A millionaire tax and a billionaire tax are totally different in practice, both operationally and socially.
Oh no! France lost Gerard Depardieu! Whatever will they do! /s
In seriousness, I did have a number of French clients fleeing to California after France proposed a wealth tax. One of them famously said (of California): "I love it here! Your taxes are so low!"
The downside of a wealth tax compared to other taxes is that it drains a corpus every year. It creates "financial anxiety" in the people it would target, similar to range anxiety in EVs. Even if the target could afford to pay the wealth tax and live comfortably for the rest of their lives of their children's lives, they are suddenly terrified that they will be taxed into the poorhouse if they misspend their money, and that anxiety drives them toward places without a wealth tax.
Switzerland isn't a good example of why a wealth tax would work, since it's openly acknowledged that nobody actually pays the correct tax on their wealth; it is the same reason that Swiss banks were the financial institutions of choice for criminals and dictators for decades. (If I was being too subtle: the Swiss are notorious for under-reporting financial assets, and their banks are even more notorious for hiding the assets of account holders.)
One argument I would make is that it's a LOT easier to just move to another european country and you are still very close to your home country.
Capital flight in the US is logistically much more difficult than in europe I would imagine.
>"are billionaires bad for the rest of us?" That is the premise of a wealth tax, at least the currently popular one.
I don't think that's very accurate.. the wealth tax is saying "billionaires have so much excess money that they should be contributing on another layer than the rest of the population". While you can ALSO say "there should be no billionaires / they are bad", that is not what the wealth tax does.
> But, to be nuanced we also need to address the core question: "are billionaires bad for the rest of us?" That is the premise of a wealth tax, at least the currently popular one.
Suppose we impose such a tax. How will that affect wealth formation and accumulation by not-yet-billionaires, and how will it affect existing billionaires? As you say, Bezos and Buffet would continue being billionaires, but if new billionaires became an impossibility, then such a tax will essentially be creating barriers to competition with existing billionaires! That would be a billionaire protectionist measure disguised as a populist measure!!
If we see existing billionaires support such a measure, then we'll know they likely don't see it hurting them. Kinda like when Buffet advocated for higher income taxes knowing full well he has no taxable income (all his "income" as most people imagine it is just unrealized -and therefore untaxed- capital gains).
Also, the biggest problem with any new tax is that without a hard cap on rates it's difficult to predict what it will be in the future. When the income tax was proposed in the U.S. it was said it would never rise above 5%, but marginal income tax rates in the U.S. have been north of 90% (yet, of course, these never reach the super rich as explained earlier). A wealth tax might come with "it will never be higher than 0.2%!" claims, then rise to 5% anyways. If it comes with such a claim, that limit needs to be baked into the Constitution.
Besides the intended political and economic effects of a tax, its unintended economic impact, there's the question of how much revenue it will raise and what that shall be used for. Leviathan never shrinks, so a decision to enlarge it should not be made lightly.
Interestingly, the US is perhaps the only major country that makes capital flight like that in France quite difficult: upon renouncing citizenship, there is essentially an immediate wealth tax imposed.
The US is also the only major country to demand citizens file US income taxes even though they may never visit or earn in the US for the entire year.
In the case of billionaires like Musk, Bezos, Gates... It's unrealistic to think that the government would make better use of that capital. It'll absolutely be wasted in comparison.
Taking ever more capital from the most effective/productive allocators and giving it to one of the least effective doesn't strike me as a good strategy.
A case like the Walton heirs is another story. I suspect we'd be better off taxing most of that wealth.
So Elon, relying on NASA contracts to bootstrap Space X and government mandates to bootstrap Tesla may have to sell shares in those companies to other people to generate the cash to pay his wealth tax.
That doesn't affect the capital that either Space X or Tesla have to invest. It also doesn't affect whether or not Musk is still in charge of those companies.
I imagine there could be more spent on improving the condition of the roads, public housing and health provisions, school budgets could be larger, any number of things.
I don't imagine tax take would double, however many billionaires got fleeced, but the premise that the government would necessarily be worse at disbursing the funds than private individuals is laughable.
Musk, Bezos, and Gates would have access to all of the funding in the world for any future ventures. What the government could do is lower taxes on everyone else.
I have not seen a single wealth tax proposal suggest the funds be used to lower taxes for others, and it's incredibly disingenuous to suggest any wealth tax proponents want to do that. These types of tax proposals are always to fund other services.
How's it disingenuous to propose that the government could do something with a wealth tax besides spending it on social programs? If we're talking about what leftist politicians would want to do with the money, then we shouldn't be talking about a wealth tax at all, because it's likely never going to ever pass a national scale.
It's disingenuous to propose it as a viable option when every proposal involves spending the money on something. These things do not happen in a vacuum.
Who are these proposals coming from and what kind of traction do they have with voters? My answer to that is they are coming from politicians rallying their base for primary elections, knowing full well that the proposals are extremely unlikely to come into fruition.
I am suggesting something that might actually get the middle class, or those aspiring to join the middle class, to support and vote for the idea. I think it's pointless to talk about more radical concepts like a wealth tax or UBI without considering how such a thing could be made appealing to a majority of voters.
Sure and if you impose a tax a national level instead of a state (or EU member country) the diminishing returns for increased taxation occur at a higher rate because it's much harder to move to a new country than it is to move to a new state.
Also housing prices probably have more to do with people leaving high priced cities than taxes do.
If you impose a wealth tax at the national level, rich people will leave America (edit: renounce citizenship) and ambitious people will never come here to begin with. America will no longer be the land of opportunity. The US has already passed an exit tax to try to prevent the wealthy from renouncing their citizenship.
At some point even an exit tax won't be enough. If you study the fall of the roman empire, you will find people abandon huge estates to just start over away from roman taxes.
If the presence of wealth in a nation was the sole factor in growing entrepreneurship then the gulf kingdoms would have dethroned silicon valley decades ago.
There's obviously a whole lot more involved in the decision making of wealthy people looking to start their next venture.
I never said wealth is the sole factor for a tech hub/ecosystem.
California is creating a huge incentive for billionaires to leave. So they are more likely to move and take their experience and move the tech ecosystem.
It's fine with me. I don't live in California. Boston lost the tech ecosystem with government regulation around non-competes... maybe California will lose it over a wealth tax or even the threat of one.
It would probably be better for the whole country if less wealth was concentrated in California and the wealthy moved to red states. Probably Texas.
What kind of revisionist history is this? Boston “lost” the tech ecosystem because its main players were too entrenched in the mainframe/minicomputer business to pivot quickly enough to compete with the Silicon Valley microcomputer revolution.
Silicon Valley is a start-up culture which can only thrive where non-competes are illegal. 'Main players' rarely pivot and create new business divisions that can compete with all the start-ups. I'm not saying the main players were not too entrenched, but that there is a reason that the Silicon Valley microcomputer revolution happened there. Fairchild's children and all that came after.
This is wild stuff. SV had its origins in Fred Terman, the halo effect of Stanford, and that Shockley happened to have been born there and decided to move back. By the time the computer club was around it already had enormous momentum.
I'm no fan of noncompetes, but you are vastly overstating their impact.
Freedom to create corporate spinoffs (which, contrary to GP, is itself government regulation —- one freedom that would be surrendered upon moving to Texas) is one aspect of SV’s success, but it’s far from the only factor and by no means essential. How do you think Massachusetts (and Texas) grew to be tech hubs in the first place? (A: university spinoffs and government funding and luck, just like SV.)
I think you’re right. Most people dream of becoming rich, not “filthy” rich. So taxing >100 million should not impact things, and there are plenty of other reasons to move to the US
I don't think in absolutes. It won't "destroy any incentive"
But yes, it is a powerful disincentive due to the compounding nature of wealth taxes.
Rich people are already leaving such as Eduardo Saverin. It's a growing trend and one that, as I mentioned, the US is desperate to stop by imposing an exit tax for renouncing US citizenship.
An example of a guy who left nearly a decade ago to avoid paying taxes on wealth he did virtually nothing to earn is not data of an impending mass exodus of the ultra wealthy. Yes, there are handful number of people who have done such things, their existence is proof of nothing but absolute human greed and disloyalty to this great nation.
I like America. I don't plan to leave but yes... many wealthy people already have secondary citizenship. Jim Rogers says you should think of it like insurance. Hopefully you don't need it but for a variety of reasons it's a good idea to have a backup plan.
Secondary citizenship is not the same thing as denouncing your citizenship and fleeing taxes. US citizens are taxed worldwide, irrespective of location or other citizenship status. Your point is taken, it's just not relevant.
>If you impose a wealth tax at the national level, rich people will leave America (edit: renounce citizenship) and ambitious people will never come here to begin with. America will no longer be the land of opportunity.
>But yes, it is a powerful disincentive due to the compounding nature of wealth taxes.
This compounding nature of wealth taxes is nonsense. It's a negative feedback loop not a positive one. Compound interest is powerful because it compounds on itself--it's a positive feedback loop. Comparing compound interest to a wealth tax is just flat out wrong.
The whole point of the pg essay is that wealth tax losses compound.
> The reason wealth taxes have such dramatic effects is that they're applied over and over to the same money. Income tax happens every year, but only to that year's income. Whereas if you live for 60 years after acquiring some asset, a wealth tax will tax that same asset 60 times. A wealth tax compounds.
Compounding is not exclusive to positive feedback cycles. It applies to negative feedback cycles as well. Have you heard the phrase "my problems are compounding?"
The one that we are talking about here is in relation to compound interest: to pay (interest) on the accrued interest as well as the principal.
I'm going to take the fact that you keep talking about the power of compound interest to mean that this is the definition you're talking about.
>Compounding is not exclusive to positive feedback cycles.
Compound interest isn't powerful because it happens every year, it's powerful because you accrue interest on the principal and the additional interest. It's only powerful explicitly because it is a positive feedback cycle.
A negative feedback cycle is self limiting. The rate of change gets slower each year.
>It applies to negative feedback cycles as well. Have you heard the phrase "my problems are compounding?"
I'm positive that you don't understand what negative feedback means based on this comment.
To be clear, I understand that the rate of gets lower every year in negative feedback cycle. I am not saying a wealth tax takes your money at an exponentially increasing rate.
I am saying that it lessens your ability to grow your wealth at an exponential rate. It mitigates the miracle of compounding growth.
Think about if you create a startup and you have to sell shares to pay your wealth tax. What if Larry Page did that in 2001. He wouldn't be out the $100 of the stock price in 2001. Today he is out thousands of dollars of what it would have been if it could have grown.
>I am saying that it lessens your ability to grow your wealth at an exponential rate. It mitigates the miracle of compounding growth.
It doesn't mitigate the miracle of compounding growth any more than a capital gains tax. A capital gains tax of 50% combined with inflation would completely mitigate the compounding growth of any many investments.
For some easy numbers: take an interest bearing account that pays 10% interest. A 1% wealth tax and an 11% capital gains tax are functionally equivalent.
And Elizabeth Warren's wealth taxes don't even kick in until $50 million. So the vast majority of people should prefer that to increasing the capital gains tax or setting to income tax rates.
>Think about if you create a startup and you have to sell shares to pay your wealth tax. What if Larry Page did that in 2001. He wouldn't be out the $100 of the stock price in 2001. Today he is out thousands of dollars of what it would have been if it could have grown.
That's just an absurd way to frame things. My grandparents paid $500 in income tax 70 years ago. If they had been able to invest that they would have thousands.
If he sold shares, someone else would own them, so someone else would have those thousands of dollars, it's not like the value would just disappear into the ether.
I am not talking about compounding interest. I am talking about exponential growth and loss. The startups that make many founders wealthy experience exponential growth. The wealth tax is exponential (look at the formula in the essay and note the exponent). Compound interest is an unrelated example of exponential growth. income tax and capital gains taxes are not exponential. You don't use an exponent when calculating income tax.
>It doesn't mitigate the miracle of compounding growth any more than a capital gains tax.
The point of the essay is that a 1% wealth tax over 60 years is equivalent to a 45% capital gains tax.
If you own a stock that doesn't pay a dividend, you don't pay capital gains taxes till you sell the stock. Are you aware of that?
Thanks for helping me to crystalize my ideas on this topic.
On a personal level, I am concerned you deceive yourself and that you have resentment of wealth and success that blinds you. I implore you to seek guidance and help.
> Compound interest isn't powerful because it happens every year
Yes it is. If you just got a one time payment compounding interest would not have exponential growth. I agree that payment on the principal and additional interest is another component of the exponential growth.
It's obviously impossible to provide a source for what people will do in the future based on some hypothetical policy change, on either side of the argument. Stop it.
I don't buy this argument at all. This is exactly the type of thing experts write policy papers and perform economic research to answer. If your claim were true, we could never debate policy proposals because they all rely on what people will do in the future based on a policy change.
Medicare-for-All is a hypothetical policy change that has lots of research (data and sources) on how things would play out if implemented [1] [2] [3].
I actually know someone who does this. Real weirdo, but then what other kind of person is there who’s so afraid of not having enough millions they feel the need to uproot their life every 6 months.
If you impose a wealth tax at the national level, rich people will leave America
US taxes the income of citizens living abroad, so that doesn't help. They'd have to reject their American citizenship to avoid US taxation of their income (and presumably their wealth as well).
That's certainly possible, and wealthy retirees certainly do this. But, it's not without downsides.
If I understand you correctly, you mean that wealthy americans who have built their fortune and life in america will choose to not only leave but also revoke their citizenship and leave the US? All because they have to pay more money than before in taxes?
Personally, I don't think all millionares and billionares are willing to leave their life and family behind because of a some dollars in federal tax...
I think a more accurate way of phrasing your original statement is "if a wealth tax was implemented and I myself were wealthy to the point where it applied to me, I would renounce my citizenship".
Because you don't speak for rich people, as there is no evidence that they would, in fact, leave America.
The effective tax rate has been on a downward trend for the past 50 years, so if renouncing US citizenship is a growing trend, that doesn't make a good argument for a strong positive correlation between the two.
All governments are increasingly competing with other jurisdictions on lower taxes and better services. The reason is people have increasing options because of better communication (internet), transportation (especially shipping), job mobility, etc. Covid has accelerated this trend with wfh.
Well the only trend that we can look at quantitatively, tax rate vs US citizenship renunciations shows the exact opposite correlation to what you've been arguing.
Idk. It's about time rich people got to pay for the wealth they enjoy on the back of the USA. It's not free to send multiple carrier groups into the south china sea/SE asia region when we're forcing TikTok to sell itself to us you know?
And we've also seen a complete and utter reduction of the middle class over the last 40 years, resulting in a much richer 1% and poorer 50%
The other aspect here is that the people with wealth have seen it increase at a fairly linear rate. They can handle a small tax on it just fine. and it's about time they start directly paying for a service that the rest of us have.
The irony is poor people will never be wealthy till that start investing in assets and understand the compounding nature of wealth. It's that same lack of understand of compounding that contributes to the argument for a wealth tax.
It's true. US inequality is rising as you stated, but global inequality is down. So you don't have the moral high ground. You have a false sense of entitlement and want to profit on the backs of the rest of the world instead of the people who invest their time and money into those assets.
Would you mind stop telling everyone that they don't understand compounding interest?
I've read a lot of comments and your replies and I have noticed a disturbing amount of normal comments being greyed out while you explain to them that they don't understand compounding, because if they did understand it they would be against any form of wealth tax.
Pretty much everyone who owns stocks or invest money, which quite a lot of people do, understand the effects of compounding interest.
> The other aspect here is that the people with wealth have seen it increase at a fairly linear rate.
Do you think this guy understands compounding growth?
It would actually help his argument if replaced the word linear with exponential, which is more accurate. Compounding growth is exponential, not linear.
If you read what I posted you would understand that I know what compounding growth is instead of making ad-hominem attacks at me without reading anything I posted.
I was refering to the linear growth of the the 1% controlling more of the TOTAL wealth of the USA. Which is, yes, most likely a result of compound growth of assets. Which is wealth management 101.
Stop assuming I don't (or other people) know something that basic.
I expect people to pay for services they utilize to get wealthier.
I am not including myself as any sort of beneficiary in this. Most likely I would be taxed more. So keep your comments about my supposed sense of entitlement to yourself.
In fact, my entire support of a wealth tax IS TO REWARD THE PEOPLE THAT DIDNT GET PAID OUT FOR SAID WEALTH GENERATION.
But sure, compound interest for people that live hand to mouth is a valid strategy. Better than trickle down economics at least.
>If you impose a wealth tax at the national level, rich people will leave America and ambitious people will never come here to begin with. America will no longer be the land of opportunity.
Has this happened in Switzerland? Would it happen in the US if we had a wealth tax of 0.001%? Obviously not. It likely would if we had a wealth tax of 100%.
An income tax should do more to dissuade ambitious people than a wealth tax. A wealth tax only kicks in once you've accumulated wealth, and income tax slows that accumulation in the first place. We already have a national income tax. That doesn't seem to slow down immigration.
> If you study the fall of the roman empire, you will find people abandon huge estates to just start over away from roman taxes.
I know that it's fashionable in some circles to compare every non libertarian move the US makes to "The fall of the Roman Empire", but honestly people can't agree on what economic lesson to take from the great depression, do you really think we are going to be able to agree on what lessons to learn from the economy of the late Western Roman Empire?
I missed a zero, but you missed the point completely.
A wealth tax is simply about higher taxes for those with assets. The compounding nature of that tax reduces the taxes over time so there is nothing to complain about in terms of "compounding".
This seems way less egregious than property taxes, which don't go down, are assessed regardless of how much equity the owner has, and are directed at assets that often have far less liquidity than stocks.
US is known to tax Americans abroad. IMO, rich people seeking to avoid taxation will have to loose US citizenship. And even after that, it's not clear whether US will let them off the hook.
> If you impose a wealth tax at the national level, rich people will leave America (edit: renounce citizenship) and ambitious people will never come here to begin with.
I might be guessing wrong here, but I'm going out on a limb and asserting that you've never owned an international business for more than 7 years.
The decision matrix on where to establish domicile if you have the means to pick anywhere in the world is a lot larger than the unitary "how much taxes" value. The US has a lot of problems with it. No question. The US also has a relatively unique business environment that happens to intersect well with many businesses' requirements, especially those owned by individuals who want to transact business internationally.
It is unique enough that many with means to offshore their wealth voluntarily choose to domicile in the US. Yes there are many who run offshore accounts, but generally speaking, you "only" need around a consistent $1M USD in annual income before some pretty sophisticated offshore tax management structures start to become attractive. There are a heck of a lot of people like that in the US, and they aren't stampeding for many of these structures, despite the best efforts of those selling them. Roughly speaking, if you value your time, it doesn't become worth it until you can afford your own private wealth management office (say around $2-5M+ expense per year depending upon your overall directives to them).
Generally speaking, the juice isn't worth the squeeze. People in that income bracket and above carefully spend their time, and even with a modest say 0.01-0.1% wealth tax per year, that's not enough to spend a huge amount of hassle over. We're not talking about the finance nexus moving from NYC/Chicago to Dubai, for example. They'll make it sound like it means just that because money is money. There are people who do move out, or renounce citizenship, but using the demand for residency visas as a proxy, we're "pricing" the benefits of staying in the US too low and there is room for a wealth tax.
I don't unequivocally support a wealth tax, by the way. I'm pointing out that "the sky will fall, rich and innovative people will leave/never enter" line of argument against a wealth tax is not going to win with policy makers who have the facts at their staffs' beck and call. A more likely argument that will win with these policy makers however, is along the lines of "your $10K/plate donor base will evaporate if you vote for this, and you'll never offset the loss from the increase in people-who-work-for-a-living donations".
Engage the wheels of constant price deflation with increasing quality for real-estate-dirt, healthcare, insurance, finance, and education, and that will go a long ways towards addressing the ailments a wealth tax purportedly does.
> Is the EU hurting for tax revenues, or something?
Yes it is, the core problem the EU has is that its budget almost entirely comes out of member state contributions (plus a bit of import duties and fines for rule violators). It does not have a meaningful source of funds that is at the sole discretion of the EU parliament - imagine the US federal government with a budget that is decided by the 50 individual states.
A proper funding source for the EU as an institution would finally allow things such as a joint EU foreign policy/military at the authority of parliament, decent wealth redistribution (i.e. equalizing especially the disparities between Eastern Europe and Core Europe), or major infrastructural works such as assisting all EU railroads to get rid of buffer/chain couplers... and especially to get rid of the political bullshit that the individual member states can pull off at the moment.
The EU parliament desperately needs to be reformed so that it stands on an equal footing with the member states.
> It does not have a meaningful source of funds that is at the sole discretion of the EU parliament - imagine the US federal government with a budget that is decided by the 50 individual states.
We don't need to imagine that - it's exactly how the USA worked under the Articles of Confederation.
But the only solution to that involves significant transfer of sovereignty from member states to the federal structures. And it doesn't feel like most EU member states are willing to go there.
Yeah, look at the disaster that has happened in federal governance in the US. We used to have a government of enumerated powers, now there is very little that the government can't do.
The problem with a strong federal government is that you can't escape bad governance by moving to a neighboring state, you have to change countries. People are generally far happier with local governance than federal governance.
s/cherry picking/showing an example with interesting properties that is different from France/g
So this is actually where the discussion should go: What properties does the Swiss wealth tax have (particularly in the wider taxation system) that the French wealth tax did not have?
What is needed for a wealth tax to have no negative effects? What about income and capital gains tax at the same time? Etc. etc.
I am not trying to make an argument pro wealth taxes, I am trying to make an argument against shallow and non-empirical arguments.
You're cherry picking as well. There are other European countries with a wealth tax [1] — notably Belgium, to which these wealthy people allegedly fled to avoid wealth taxation.
Belgium has very high income tax but very low capital gains tax. For already rich people is pretty much a tax haven, for salaried workers is almost confiscatory.
> Not to derail the topic but “taxing the rich” was one of the bullet points that was supposed to answer where the money for a UBI system would come from.
Obviously this could as easily refer to any form of taxation that comes disproportionately from the rich. Which, because of what a UBI itself does to the effective rate curve, is actually pretty much all of them. You could use VAT and VAT+UBI is still a progressive tax system, because everyone at the lower income levels is still receiving disproportionately more than they're paying. It actually solves the biggest drawback of a flat tax and allows you to use one while still having the money come disproportionately from people making more of it.
> This is exactly how globalization will impact UBI as well, because at the end of the day the manufacturing firms, big corporations and everyone else who is vested in making money will uproot and go elsewhere, where they won’t be taxed so harshly.
If you're funding it with VAT or some other consumption tax then it isn't the companies manufacturing there who pay it, it's the ones who sell there. Which they can't avoid by moving their operations somewhere else, because the customers are where they are.
Don't most of these individuals hold bulk of their wealth in corporations? They are probably not sleeping on a few billion dollars :)
When they have to pay this tax, they will have to dilute the company which in turn affects their control and hold, possibly even the direction of the company over time. So yes - corporations will eventually feel the heat.
The first thing to notice about a wealth tax is how little it fundamentally differs from an income tax on investment income. If you have a billion dollars and you get a 2% return and pay 15% capital gains tax, you paid 0.3% of your wealth in tax. So then what's the difference?
For one, it pushes people towards riskier investments. At a 1% annual return, a 0.3% wealth tax is equivalent to a 30% income tax. At a 5% annual return, it's equivalent to a 6% income tax. This has various consequences, but a big one of note is that it makes it much less desirable to own government debt, which has a low rate of return, which means the government could end up having to pay significantly higher interest on the debt. It could also incentivize excessive risk taking.
Another concern is that it requires investments to be liquidated in order to pay the tax. Generally we defer taxes on investment income until the investment is sold in order to avoid this, because it can be quite problematic, e.g. you own 51% of your company but over time you're forced to become a minority shareholder just in order to pay the tax, or you owned 100% of it and are required to take on external investment over time just to stay in business. This also costs the government money because the government pays lower interest on borrowing than average investment returns, so paying 0.7% to borrow money in the interim while the investor is earning 5% returns on the money you'd have collected as tax means that when the tax is ultimately paid, the government ends up with more additional revenue than they paid in interest in the meantime.
It also increases foreign ownership of domestic resources, because domestic owners are forced to liquidate in order to pay the tax and domestic buyers are in the same boat so the liquidated securities go primarily to foreign buyers.
Another problem is that a lot of forms of wealth are hard to value. If you had a wealth tax and someone owned a piece of art, or some intellectual property, or shares in a privately held company, what are they worth? It's inherently subjective and estimates can very wildly. But then you're creating an opportunity for accountants to do their thing and avoid the tax. Waiting until the property is sold and then taxing the gain solves this neatly because then you have the sale price to go on.
It seems like, if you wanted to help stop the wealthy from ducking paying taxes, one should just stop providing a special long term capitol gains tax and tax capitol gains the same as income. It simplifies the tax code, stops punishing workers who receive a wage over those who earn investment income, and doesn't require a bunch of new accounting to implement. My cynicism hat tells me the reason it isn't the policy goal is that it could actually pass in the US, the wealth tax likely never will.
The reason why long term capital gains tax is taxed at a lower rate is to index for inflation. Inflation on short term income is negligible. As a matter of tax policy, it is much simpler to reduce the rate than to compute a very large inflation deduction.
> the wealth tax likely never will.
It also requires a Constitutional amendment, because the Constitution only allows the Federal government to levy taxes on realized income (16th Amendment).
> you own 51% of your company but over time you're forced to become a minority shareholder just in order to pay the tax, or you owned 100% of it and are required to take on external investment over time just to stay in business
Doesn't this assume the owner receives no other income? I assume owners either receive a salary from the company, or are paid a dividend with which they could use to pay the monetary-valued tax.
Or especially in the case of 100% owned company, the owner pays themselves a "bonus" equal to the tax. The company now is worth less, reduced by the amount of that bonus, so the owner's wealth has decrease and the tax has been paid.
> Doesn't this assume the owner receives no other income? I assume owners either receive a salary from the company, or are paid a dividend with which they could use to pay the monetary-valued tax.
Not always. To use the extremely adversarial example, Bezos' annual salary is (famously) $82,000, and Amazon pays no dividends because our tax code incentivizes re-investing surplus into R&D rather than enriching shareholders.
The wealth tax, as a result, adds the incentive to increase shareholder dividends and/or inflate executive compensation just for them to be able to maintain ownership in their own companies.
That's not true. In some cantons, the very rich get extra deals, called Lump-sum tax, independently of their revenues. E.g. the Ikea founder only paid around 165000$ in total taxes in 2014 on a fortune of 46.5 billion US $ and all his revenues which he had.
The lump sum tax is only possible for non-citizens, who do not have direct W2 income from Switzerland. Local governments (if the state allows it) can use it as a shortcut to estimate the tax amount. Nevertheless wealthy Swiss citizen don’t leave Switzerland either. Probably also because there is no capital gains tax which offsets the wealth tax easily.
"the Silicon Valley crowd is strangely avoidant of examining evidence or explaining their opposition with real-world data. It's all 101ism and polemics."
It’s often not even self interest; fairly often it’s obvious that some participants in these discussions are searching for arguments to validate pre-held beliefs and policy positions.
Although sometimes self interest is also a factor.
The big thing to understand is that we lie about these things to ourselves, so we can easier lie about them to others. Unconscious parts of your brain lies to the conscious part!!
Stating that "some participants are searching for arguments to validate pre-held beliefs and policy positions" is roughly akin to saying "some participants eat food and breathe air".
Confirmation bias is part of the human condition, and should be expected by default.
Majoritarianism usually justifies itself via populist arguments that some particular minority is too powerful and needs to be cut down. This is the basis of nearly every conspiracy theory about the Jews, for instance.
In the case of a wealth tax, the target not simply a "particular minority", but capital, which is very literally power itself. And it's increasingly clear that it really is too concentrated.
Except that you can provide evidence for why the wealthy minority is too powerful whereas jews are just attacked for... being jewish. You know, the nazis for example were a minority, that doesn't mean attacking them was bad... populism isn't inherently bad...
Could you please stop creating accounts for every few comments you post? We ban accounts that do that. This is in the site guidelines: https://news.ycombinator.com/newsguidelines.html. You needn't use your real name, of course, but for HN to be a community, users need some identity for other users to relate to. Otherwise we may as well have no usernames and no community, and that would be a different kind of forum. https://hn.algolia.com/?sort=byDate&dateRange=all&type=comme...
Also, please don't post in the flamewar style to HN. That's very much against the rules also.
What you're saying is that critical thinking is required to determine morality. That is indeed true.
To oppose a wealth tax on majoritarian grounds you need to demonstrate that the wealthy are oppressed in some way. Simply saying "but majoritarianism" is not sufficient, and appealing to Jewish oppression is plain whataboutism.
I'm not advocating for guillotines or whatever. Simply that a small percentage of individual wealth over a certain amount (say $10MM) be redistributed to the rest of society. The end result of this is that individuals are still going to be able to hold $10MM even if the wealth tax redistributed 100% of the rest of their wealth. They will still be incredibly rich and not have any meaningful financial constraints on their lives.
> To oppose a wealth tax on majoritarian grounds you need to demonstrate that the wealthy are oppressed in some way.
There are multiple ways in which this is wrong.
Firstly, the term “oppression” is overly charged here. I prefer a more general term, so I’ll use “injustice”.
Secondly, you are making a circular argument. In my opinion, confiscating people’s wealth on the basis that they have too much of it is unjust. You are pointing out that the wealthy aren’t, as a whole, subjected to any kind of injustice as it stands; but you’re doing that in the context of proposing to commit injustice against them.
The point that you’re missing is that the primary human motivation for injustice is to perceive a successful group of people as fortunate and privileged, and to resent them for it. So your test for majoritarianism actually fails almost every time that it is tested because, in the perceptions of most majoritarians themselves, they would pass your test.
What's strange is that the same cohort that doesn't deeply discuss higher tax rates on tens of millions in wealth, love to get out tomes of research to support the social cause du jour.
Came here to say this. If I have the time stamps right it looks like rabois even replied before this HN post even existed, which makes the comment a little dubious. I'm sure it was a mistake, but rabois only took 5hrs to reply. Please give someone an appropriate amount of time to reply and check before posting on other social media calling them out.
Not strictly contradicting what you said, but I take the implication of your statement to be "the wealth tax actually doesn't change people's behavior", but it seems to in some cases.
Agreed. I doubt a very wealthy man's short blog post against taxing very wealthy people would make it to the front page of HN if it wasn't for the identity of the very wealthy man.
Is the blog post "against taxing very wealthy people"?
Literally, it is a demonstration by mathematics of the effect of a tax on capital.
Polemically, it is an argument by induction that a higher level of such a tax will discourage junior entrepreneurs from attempting to create start-ups in a jurisdiction.
What's clever about the polemic strategy is how it appeals to the hopes and fears of young entrepreneurs who have not yet accumulated great wealth, to recruit them to support the interests of older entrepreneurs who may have done so in the absence of the tax.
"Suppose you start a successful startup in your twenties" gets you hooked. You readily identify and strap yourself in for the ride.
"if you live for 60 years after acquiring some asset" appeals to your fears by tapping in to your understanding that once you are older, you will not have boundless energy, and unbridled understanding of the zeitgeist. You'll need protection then.
The young entrepreneur, with little wealth accumulated, consults the table, reads linearly down from the top to the lower right, building understanding, until bang 95%! At this point, he or she viscerally feels the pain of losing 95% of his or her capital, which, at this point, still being meagre, is unbuttressed by the psychological accoutrements that great wealth affords its owners.
The conclusion is genius.
"Even a .5% wealth tax would start to keep founders away from a state or country that imposed it. That's more than a quarter of your stock." Ouch! The budding entrepreneur must now pack up and move to have any chance at a decent life. The tax must be resisted!
I never understood..what’s the fascination in turning one county into another? We have Switzerland, France, Belgium, Germany. Why force America to become one of these? Those countries already exist. Turning one country into another doesn’t make sense and isn’t what makes America unique.
Imagine I moved to Germany and kept stating “Germany should be more like America because X Y and Z.” Can you imagine how offensive that would be?
It's not about turning the US into a European country, it's about decreasing wealth inequality. The US is doing a lot worse than the countries you mention--Gini of 41 for the US, vs 27-32 for Switzerland, France, Belgium, Germany. The poverty rate and poverty gaps are also a lot higher in the US.
https://data.oecd.org/inequality/poverty-gap.htm
Perceived wealth inequality. The US has less wealth inequality because most of it is already wealthy. The shrinking middle class is shrinking because most of them are moving to the upper middle class.
It is definitely a confounding variable in the context of the question at hand (posed by the GP commenter): why inequality is a bad thing, and whether it is directly responsible for the "shrinking middle class" going to the "lower class" instead of the "upper class".
Historically, the middle class has been shrinking because the upper class has been rising. Insofar as that hasn't been the case since 2000, it's not because of the mere existence of billionaires, it's because of a specific type of financial instrument (in one case), and a one-in-a-century global pandemic (in another case). The mere existence of Bill Gates et al did not cause either the credit default swap crisis or COVID-19.
Sure, but the root cause of that is pretty well known to be the proliferation of credit default swaps that led to a housing bubble that burst in 2008, and not the mere existence of billionaires writ large.
> The analyses presented here confirm the broadly accepted picture of rising income inequality and slowing income growth for middle-class Americans. But a few additional points are worth drawing out. First, while the benefits of economic growth have not accrued equally, they have not gone solely to the top 1%. The upper middle class has grown. Second, the main reason for the shrinking of the middle class (defined in absolute terms) is the increase in the number of people with higher incomes.
This is laughably wrong. Social mobility in the USA is the lowest among developed nations. Indeed, most social mobility in america is downward, not upward.
i'm reading piketty right now and have to say, some overwhelmingly clear and rigorously collected data in this one book alone convincingly contradict this ill-informed statement
First of all, the observation that US's shrinking middle class is attributable to an increasing upper-middle class is objectively true, it's not that controversial [4].
Second of all, Piketty's argument is more that capital's share of growth will necessarily outpace labor's share of growth (r > g).
Third of all, Piketty isn't gospel. There have been a number of rebuttals published since his findings that make fairly strong refutations.
The IMF studied empirical evidence to see if it matches up with Piketty/Saez/Zucman's theoretical models, and was unable to validate their finding[1].
Further studies showed that r > g almost entirely goes away when you exclude land/housing appreciation, mostly attributable to restrictive zoning regulations [2].
Auten & Splinter found that Piketty failed to account for existing taxes and transfers. When you do that, the perceived growth in inequality goes away almost entirely[3][5].
If you offer compelling arguments for changing certain aspects of a country to be more similar to another country that handles things better (in your opinion), then I don't see the problem. Sure, some people will always be offended if you propose to change amything about their country, but many more people are open to suggestions for specific changes. Very few people, on the other hand, are actually proposing change just for the sake of "turning one country into another". If that were the case, then I would think it a very weird fascination too.
I believe it's because the people most affected in these situations are also the people who are unable to simply move to a country that benefits them more.
To most of the country, yes it’s a bit offensive. If people feel very strongly, they should move to the respective country they strongly believe about. My parents did it, twice.
You might like 8/10 things about a country, there is nothing wrong in asking changes on the remaining 2 things. Moving to Germany might not give the remaining 8 things easily.
Homosexuals were 'a bit offensive' less than a few decades ago.
Should they have moved somewhere else too?
Every place is going to have a combination of things you agree and disagree with. There isn't a utopia for each person to relocate to, I hope that's obvious.
Regarding what's offensive to 'most of the country' - feel free to link me to the polls you looked at to arrive at this conclusion.
> That's a good thing. Taxing wealth more, and income less, helps equalize wealth disparities over time.
It also slows economic growth over time, because most of the tax money is redistributed by the government, not invested, while the wealthy generally invest their wealth.
This is wrong. The redistributed tax money doesn't magically disappear. Almost 100% goes back into the economy because the people receiving it actually need the money for various things.
It is much more likely that the wealthy will use the same money instead to buy another yacht or private jet, which while also providing some jobs is ultimately a net waste for society.
Not that yachts should be banned, but economic policy should never encourage such spending.
The US introduced a "luxury tax" on yachts in 1991. It was a disaster and basically killed the domestic boat industry (many jobs lost) because wealthy buyers just went offshore. A general wealth tax may be fine, but targeting particular industries like yachts is a terrible idea.
Which is why a wealth tax is a better approach than "penalty" taxes on yachts or jets.
Would the high end suppliers of luxury items see a reduction in the very small numbers of people able to buy their top end products? Yes. Is that a bad thing? Probably no in the scheme of the entire economy or even the luxury industry affected.
People downgrading from their $100m yacht to a modest $95m yacht isn't going to destroy the yacht industry.
Are you going to bemoan the job loss of pyramid builders if/when some rich schmuck decides to spend half his net worth on building a pyramid too? (A yacht is a modern pyramid)
Jobs are not magic resource humans can't do without.
Jobs are a temporary, unpleasant condition of having to do shit you'd rather not do, because some idiot schmucks decided wage slavery is a natural progression from outright slavery and serfdom.
Why do I or anyone need to do unpleasant work unless it fulfills irrefutably necessary needs of my community, such as agriculture, medicine, construction of shelter, raising children etc.
Building yachts, pyramids and I'd argue the majority of the 'work' being done in cities world-wide is not fulfilling communal necessities and should therefore be abandoned.
This is not some pipe dream, it is an inevitable conclusion - humans don't like living in a system where their natural desires are constantly suppressed or left unfulfilled. There'll come a 'prophet' of sorts that will explain the human condition plainly and simply, explain where humans have gone wrong for thousands of years and propose viable alternatives enabled by science and technology that will seem obvious in hindsight. It will involve humans getting to be their animal selves and live simpler, happier lives, enabled by advanced science and technology that serve human needs, not individual needs of idiot schmucks with an inferiority complex.
There are a lot of caveats to this observation. The tax was levied during a recession, at a time when yacht sales had already declined sharply (from 16,000 in 1987 to 9,100 in 1990 for $100k+ boats).
Not really disagreeing, but you seem to be implying that the non-wealthly would use money on needs as opposed to wants and also that the money would not be used for societal waste. I think part of that's true to an extent - eg how many ovens or microwaves can one billionaire need. There are plenty of normal people who waste money on things that do not improve society, such as TVs, expensive vacations, fancy new cars, and so on instead of using that money for education, healthcare, etc or using that time for productive activities like volunteering, growing a vegetable garden, etc.
I was mostly responding to the part about money not entering the economy again, I was then lazy and introduced another topic into the discussion without comparing both sides.
> Not that yachts should be banned, but economic policy should never encourage such spending.
Yachts and private jets are obvious symbols of unequal wealth, but they are also objects that require huge amounts of ongoing spending that goes into the pockets of middle class workers.
Making sure a yacht or jet is ready to go when and where it is wanted requires a few full-time jobs. As strange as it may sound, I don't think economic policy should discourage such spending. Perhaps just be neutral on it?
It doesn't magically disappear in the same way that an incandescent lamp is 100% efficient if your goal is to heat your house as well as light it. The distinction isn't really meaningful unless you're trying to sell incandescent bulbs.
Most people would consider money directed at things that don't benefit the citizens (graft, boondoggles, arguably a bunch of things on the defense budget) more than the money would have had it stayed in the hands of whoever had it in the first place. Obviously graft and pork trickles down but does it really trickle down more than a chunk of money in a bank account but does it really trickle down more than if it had been spent on a yacht? Is hand-waving away efficiency (relative to whatever goal you're spending toward) losses as some sort of under-handed welfare really something we want to accept?
This is a strawman argument, but the logic actually does hold: If the original premise is true, "taxing the poor to give to the rich" would accelerate economic growth.
The problem is of diminishing returns - it would have a disproportionate negative effect on the poor and a minimal impact on accelerating growth, so it would be considered one of the most inefficient ways to achieve the latter.
> most of the tax money is redistributed by the government, not invested, while the wealthy generally invest their wealth
If the money redistributed by government is given to poorer people, what do they do with it? Are you suggesting they save it somewhere it cannot be invested in the economy?
All of the tax money is redistributed by the government. What else can it do with it? If it pays off debt, it is redistributing it, if it invests in infrastructure, it is redistributing it, if it sends cash to the population, they'll spend it and it has been redistributed.
Poor people spend money faster than wealthy people. Taxing wealth (up to some unknown limit) and redistributing it increases the income velocity of money--speeding economic growth.
But if the government redistributes the wealth to its citizens, wouldn't that boost consumer demand and thereby boost economic growth on the demand side?
Consumption is an important part of the process, without which production has no purpose, but you don't become wealthier just by increasing your spending. Consumer demand is an accelerant, not a fuel source. Boosting it gives you short-term growth at the expense of a long-term decline as you consume the capital that makes efficient production possible in the first place.
Capital depreciates at varying rates. I assume by "consume the capital" the parent means allow the total amount of capital in the economy decreases over time because the savings/consumption ratio is not high enough to compensate for the depreciation that occurs.
Yes, exactly. "Capital consumption" is a standard term in economics[1]. A common (if somewhat outmoded) example would be farmers eating their seed corn rather than saving it to plant the next year. In practice it usually looks more like what you described: Productive durable goods like machines or buildings simply wear out and aren't properly maintained or replaced. The total amount of capital investment thus decreases over time.
Capital consumption just refers to capital depreciation. Reduced capital investment, and more specifically reduced efficient in capital investment doesn't necessarily follow from increased consumer demand. Just stating that it does isn't an argument.
> Reduced capital investment, and more specifically reduced efficient in capital investment doesn't necessarily follow from increased consumer demand.
Of course not. However, the original question was about the government redistributing resources from capital ("the wealthy") to consumers, which would have the direct effect of shifting the balance from capital investment to consumption.
The vast majority of consumer spending will go directly to companies who can invest the extra profit in whatever they want (and going down the chain, their suppliers can invest their extra profit).
The percentage of savings to consumption can go down without the absolute value going down.
It's redistributed to people who spend it, fueling consumption. Switzerland has a higher GDP per capita than the US. The country has a wealth tax, but no tax on capital gains though.
One problem with a wealth tax is rich people who are not in publicly traded corporations are not extremely liquid. Often times this means having to sell off assets which is hard to do if their assets are largely in private corporations.
I always wonder how the farmer would deal with a wealth tax. Farmland, for example, is worth an incredible amount of money (where I live, at least), but cashflow is marginal, and net incomes are often negative.
That would mean that the farmers would often have to sell off their land to cover a wealth tax on the land. Severing farmland is rarely permitted, so it would have to be entire parcels.
It seems like soon you'll find yourself without any land on which to farm. Which means that we'll start to carve out exemptions, like we already do with existing wealth taxes, and then the race to find loopholes begins.
If done properly, the tax would never be more than the annual net return of the farming activities. In theory, if the net gain is low, then the value of the land should also be low. If the land is worth an incredible amount, but not as a farm, well, that is a different problem worth solving. It will always be a never ending races to cover up new loopholes and create proper incentives.
> the tax would never be more than the annual net return of the farming activities.
Doesn't that end up being nothing more than an income tax? Presumably the intent of a wealth tax is to capture from the benefits people have from holding things that do not normally return an income, such as housing. In fact, housing property is already taxed in many jurisdictions for that reason, so maybe not the best example of where a new wealth tax would benefit, but you get the idea.
You are right that the discourse is not nuanced, but it highlights a very basic problem with taxing an asset again and again, especially on unrealized gains.
We gladly support this idea, because it affects "the billionaires" but not when it comes to everyone else and for good reason. Repeated taxation on an asset can erode your wealth really quickly. Here in California, your house gets taxed on the purchase price, but not the current valuation. Therefore you have people sitting on more than one multi million dollar houses that they bought for low 6 figures 3 decades ago. (Ironically this is one of the main contributor to sky high real estate prices and housing crisis) But we don't tax people on those unrealized gains, that too again and again, because if we do, most people would lose all their wealth in a matter of couple of years.
> it highlights a very basic problem with taxing an asset again and again, especially on unrealized gains.
Why is it so hard to understand the concept of a floor? If we only tax wealth above $10m or $100m, it will literally never result in "all of your wealth" disappearing.
> We gladly support this idea, because it affects "the billionaires" but not when it comes to everyone else and for good reason.
> Ironically this is one of the main contributor to sky high real estate prices and housing crisis
Right. We support it, but we don't do anything about it, even though it causes one of the most obvious policy problems in the state.
> if we do, most people would lose all their wealth in a matter of couple of years.
Like literally every other state? I'm sorry, no. This comment is internally logically inconsistent, ignores obvious examples to the contrary, and asserts itself as its own proof.
Economists actually love recurring land value taxes because they're non-distortionary, but almost all land value tax proposals exclude primary residences under a certain value, for the reasons you've described.
Another question I would like to see discussed w.r.t. Switzerland is whether they are, in crude terms, dependent on other countries not being stable.
An example would be the South African originated company Compagnie Financière Richemont SA. Apart from economy of scale reasons, the reason why they moved to Switzerland is absolutely the stability of that country. South African citizens, many pensioners, now pay tax in Switzerland on dividends. (Yes, you have a DT treaty that allows you to go from 35% dividends tax to 15%, but still paid in Switzerland. And yes, probably they spend tax money much better than the SA government.)
LVMH by contrast doesn't have to move around, but in theory could have moved to Switzerland if it were the only stable country around.
So, to be Devil's advocate, is Switzerland a well performing country when considered critically or do they get a lot of money that in practical terms is or was historically generated in other geographic areas?
Conversely, if you don't have any stable countries at all, and you're left only with an option like South Africa, then there are countless examples of companies that simply could not survive. By the way, South Africa's taxes are getting quite high and there is absolutely no correlation between tax rates and service delivery. My personal opinion is somewhat more focused on practical terms. My first question about a country is not about taxes, but about the poverty line and buying power; and then about environmental issues. South African's don't have much hope for governments making any kind of sensible decisions.
Wealth taxes are one solution. But in my opinion the only way to get extremely wealthy is to own a company that goes public. Personally I'm starting to think that when a company goes public there should be limits on what percentage of that company an individual can hold. Bezos being able to control 11.1% of Amazon given it's size seems a little ridiculous. The entire point of the stock market or "going public" was to allow public ownership and benefit of these massive behemouths (whether they should even grow that large in the first place is another discussion).
But when one person owns such a large percentage it really tips the scales.
I don't know how you'd solve this. Forced pay out to the owners when a stock goes public? There are probably negatives I am not thinking of. But it just seems like public markets let companies grow to levels so large that having an individual have such a large share doesn't make sense anymore.
There are plenty of companies that are private that have large ownership shares. The point of going public is to raise capital buy relinquishing some ownership. Owners don't want to give their shares unless they have to. If there were mandates to sell out of a company that you started and at a stage before you realized the gains on the capital you raised, it would incentivize companies to stay private and find their funding through private channels.
I agree with what you are saying. But by relinquishing ownership they are gaining the ability to receive far more capital than they would without the public market from what I understand. If this is reinvested in the business it allows said company to grow to levels that would not be possible as a privately owned company. Even the largest privately owned company, Cargill, is making interesting restructuring moves that point to it possibly going public.
I'm actually fine with companies staying private because I fundamentally believe this seriously restricts their growth. I do not think a company like Amazon, Facebook, Microsoft, or Google (20% of the S&P 500) would be able to reach the size they did without access to going public.
Of course I fully admit I could be wrong and would love to hear interesting arguments why.
I think the growth part can be the case in some instances, but not all. I don't think it's a fundamental restriction, but maybe more common in the private world.
The voting rights don't necessarily come with every share, nor are they evenly distributed. So you could raise capital through non-voting shares and retain the ownership.
Another thing to point out is that the size of the company based on the market cap and share of S&P500 doesn't really have an influence on the capital they raised by issuing shares. You have companies that have 100s of billion in market cap that only raised one or two billion through stock offerings. Private companies are also able to raise that sort of money too, like SpaceX recently did. With this in mind, how does staying private restrict growth?
Even if you required a buyout of the majority or minority (10%+) owners, you still wouldn't solve the problem. In fact, you could create a bigger funding issue because you aren't using the capital raised for expanding the business but for paying out. For example, you might want to raise $100M, but if the buyout requires the owners to sell a substantial postion, then you might need to raise $400M.
I don't necessarily disagree with what you said. This is because I don't know what you're arguing for.
Wealth taxes are one solution for what? For the anger people feel when they realize billionaires exist, absolutely. To improve the lot of the very poor, maybe (but an argument needs to be made here).
These discussions assume too much about the end goal of society.
Sorry if my point was unclear. I'm arguing that not only does the stock market allow companies to grow too large (stifling innovation and competition), but also allowing large ownership to become too wealthy at the expense of society in general.
If a company goes public I think there should be some consequences to that since it allows for this insane growth. Such as a more even diversification of ownership among the general public (aka investors on the public stock market). This spreads the wealth so to speak in a much more straightforward fashion than taxing the rich which leads to all the money flowing into the government.
Someone not replying to you isn’t an argument when an answer is trivially found. That too me ten seconds to find. (Finding the report would take longer but should be doable)
No offense, but I personally hate it when someone online mentions the existence of scientific research supporting their position, and then doesn't post a link to said research.
I'm personally interested in reading the papers you mentioned, could I get the link(s)?
@thomasdullien Re: "Other features of the tax system more than offset the 0.3% wealth tax.". Yes, but the problem is the other countries contemplating implementing a wealth tax want to have their cake and eat it. They want to implement a wealth tax whilst not making any tweaks elsewhere. All take and no give does not make for an attractive environment, especially in this globalised world where resettlement of people and businesses elsewhere is not as difficult or time consuming as it might have once been.
There should be some ROI for the individual paying the wealth tax. How good is their infrastructure? how well do they handle social problems like homelessness?
Though the parts of Switzerland where the billionaire class settles have lower wealth taxes - they don't have their main residence in Geneva or Basel, but in canton Zug, ore even Obwalden/Nidwalden where the maximum wealth tax rate is 0.13% (and capital gains taxes are laughably low too).
The top wealth tax rate is definitely higher than 0.3% in Switzerland. In Zurich it's up to 0.7%.
There is no capital gains tax for private long-term investments in Switzerland (with the exception of real estate). However, dividends are normally taxed the same as income from employment.
Here in India Switzerland is mainly famous for their bank accounts where all the corrupt politicians store their ill gained wealth. Everyone here knows the phrase "swiss bank".
2) The Swiss wealth tax is only charged on Swiss tax residents, so corrupt politicians who stash their money there won't be paying it unless they are Swiss resident (which is pretty unlikely).
I'd also like to point out that we already have a wealth tax for everyone who would otherwise put their income taxes into savings. The lower the savings rate, the higher the effective wealth tax rate on the middle class.
Assuming an absurdly high 25% savings rate on your pre-tax income and a 25% tax rate on that income, boom, there's your 50% wealth tax. So the 45% wealth loss over 60 years in PG's toy example that ignores asset growth sounds totally fair to me in this light.
And with this "absurd" wealth tax on the middle class, why do we still have educated people from all over the world pounding at the door to get into the US? I would posit that it's for the same reasons that a wealth tax wouldn't suppress startups in this country.
On the other hand, the wealth tax is not the same across the country and definitely there is evidence of wealthy people choosing their residence accordingly.
If you reside (183 days per year is the rule of thumb) somewhere they’ll usually want to tax you. That may be an issue even within a country. Swiss cantons and US states often go to court regarding where some particular person should pay taxes.
Which is a good reason to only tax natural resource wealth, rather than all assets. You can't move a private beach or a n oil reserve from one country to another. It also is a fairer way to tax, since natural resources are not wealth created.
>Switzerland has a wealth tax (of up to 0.3%), and there is zero evidence that this has any deterrent effect on wealthy people settling in Switzerland
The model in PG's post appears to predict around a 12% "lifetime" (60-year) rate from an 0.3% wealth tax and thus suggests (at least to me) that this would be at most a minor concern for most wealthy people. So this does not seem like contrary evidence.
>there is zero evidence that this has any deterrent effect on wealthy people settling in Switzerland or startups being created in Switzerland
Got a peer-reviewed citation that there is zero evidence? Or is that your opinion?
Here's some evidence on Swiss rich mobility [1]: ".. tax records of two cantons with quasi-randomly assigned differential tax reforms suggest that 24% of the effect arise from taxpayer mobility .." [4]
Taxpayer mobility.... means rich people moving for tax reasons, correct?
Many countries had a wealth tax; almost all of them dropped it because it did cause capital flight and didn't generate much revenue compared to the costs. Switzerland was late to that party, and will likely drop theirs for the same reasons.
Here's but one paper on the actual effects of the Switzerland wealth tax:
[1] "We estimate that a 0.1 percentage-point rise in wealth
taxation lowers reported wealth by 3.5% in aggregate. Expressed relative to taxable capital income flows, this implies a net-of-tax elasticity of roughly 1.2, which is large compared to the elasticities typically estimated in the income literature. The elasticity of tax revenues with respect to tax rates is only -0.2"
So you see it's already pushing wealth out of the tax base.
As to where wealthy people settle, look for the papers on wealthy moving between Swiss cantons to get the best tax advantage (the tax rates are by canton). So there is absolutely evidence of rich moving to take better tax advantage.
>Wealth taxes and their effect have been studied quite a bit in economics literature, and there are various peer-reviewed papers that attempt to measure the effects, but the Silicon Valley crowd is strangely avoidant of examining evidence or explaining their opposition with real-world data
Yes, there is ample economic evidence. It's odd that those pushing for one in the US ignore the past case evidence.
For example, [2] shows that a wealth tax does lower entrepreneurship, in [3] Stiglitz shows that a wealth tax does have a negative effect on investment and increased risk-aversion.....
Google scholar has lots of papers on what happened to countries that implemented such taxes, and why those taxes got dropped.
It's honestly embarrassing that PG would even post this. The post strikes me as particularly lazy and dismissive because it doesn't engage with any of the arguments for a wealth tax or the motivations behind one. As other comments have pointed out, the example is not even close to a good "model" of a real-world wealth tax. It's a straw man. I would expect an overconfident high school student who just finished The Fountainhead to make this kind argument but not a successful and supposedly smart venture capitalist.
I've seen this pattern from PG and other people in tech over and over. They assume their expertise in one domain translates into other fields in which they have no special knowledge. Underlying a post like this is the arrogant assumption that nobody smart has ever thought of calculating .99^60, and that PG knows what's best.
“ and there is zero evidence that this has any deterrent effect on wealthy people settling in Switzerland or startups being created in Switzerland.”
- I can’t name any startup out of Switzerland, but can name at least one for pretty much any european country.
Other features of the tax system more than offset the 0.3% wealth tax.
Personally, I am a bit disappointed by the lack of depth of the discourse: Wealth taxes and their effect have been studied quite a bit in economics literature, and there are various peer-reviewed papers that attempt to measure the effects, but the Silicon Valley crowd is strangely avoidant of examining evidence or explaining their opposition with real-world data. It's all 101ism and polemics.
See also https://twitter.com/halvarflake/status/1295283922117566464?s... - I tried to ask @rabois for the source of a claim, and got crickets in return.
I'd like to see a more nuanced and thorough discussion, to be honest. Perhaps that's a bit much to ask.