alt Hacker News> To convert between wealth and income tax rates, you have to divide by the rate of return on capital. The conversion rate of 20 comes from assuming that the risk-free rate of return is 5%.
This seems to only be true for people whose income entirely comes from their wealth, rather than their labor. The math doesn't math for someone on the other extreme end of the spectrum who has zero savings or investments and obtains all his income from labor: To him, a N% wealth tax = 0% income tax for all N. Those with -some- savings are somewhere in the middle.
It is a very sneaky way to argue that a wealth tax should be as across-the-board unpopular as a large income tax increase. But Graham's math is only applicable to those flush with investments and with relatively small salaries from labor, so a wealth tax is only unpopular to that particular group.
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On top of that it seems to imply that a 20% effective tax rate is outrageous even though that's totally normal for most. Maybe it's not what you're used to as really wealthy person who avoids realized income and has a 0 or 5 or 10 percent effective rate. But it's totally normal for most middle and median income folks who actually pay income taxes.
I'm retired. I hope to get a 3% per year income from my savings every year after inflation and taxes. If my state implemented a 1% wealth tax on savings each year, I would go bankrupt in 20 years. I am hoping that I will live 20 years.
Corrected version:
A wealth tax of 1% is equivalent to an income tax of 20% on capital gains.
> The math doesn't math for someone on the other extreme end of the spectrum who has zero savings or investments and obtains all his income from labor: To him, a N% wealth tax = 0% income tax for all N. Those with -some- savings are somewhere in the middle.
Productivity comes from labor AND assets though. You need the farmer and the tractor. Why would we create a tax system that encourages people to divorce themselves from having a stake in the means of production?
> But Graham's math is only applicable to those flush with investments and with relatively small salaries from labor, so a wealth tax is only unpopular to that particular group.
Not quite, because you're using the opposite extreme where someone has no assets. Meanwhile the median net worth in the US ~$200k, which would be $2000/year in tax for every 1% in wealth tax. That's certainly enough for ordinary people to notice.
On top of that, the conversion is even worse than that implies for ordinary people, because the primary reason the median is ~$200k isn't that the median person has $200k their whole lives, it's that they have ~$0 when they're 18 and ~$400k when they retire and the median person is about halfway to retirement age. If you transfer tax burden from income tax to wealth tax then that means they'll be paying more in wealth tax in the second half of their life, which means they need to be saving rather than spending the money not paid in income tax, including during the first half of their life. But that causes their net worth to go up on paper by more/sooner, because they're essentially holding extra money they'll only have to pay in tax later, which in turn causes them to pay more in tax for a tax on holding assets.
Moreover, then you can't say that Alice always benefits because she has no assets and Bob always pays more because he has $400,000 because what's actually happening is that Alice pays less when she's 20 and more when she's 60. That's going to be unpopular because the 20 year olds are generally expecting to be 60 someday but the 60 year olds never expect to be 20 again.
I think it’s a good point that these taxes don’t apply to most people. Another reason they don’t apply is that most people save for retirement using retirement accounts.
But nothing in the article implies that these wealth taxes apply to most people. The argument is that a 1% wealth tax is equivalent to a 20% income tax because, under certain assumptions, the government gets the same amount of money.
I feel the same way. I hear a lot of complains about wealth tax but it always seems like the problems mainly pertain to billionaires. I don't see why we should optimize for that small minority.
If we moved to a wealth tax I'd be the first in line to pay it. So long as everyone else had to pay it too.
If you mean that a person with 0 savings pays 0 wealth tax, then sure. Most people when they earn income save some of it. Therefore it is wealth taxed.
> But Graham's math is only applicable to those flush with investments and with relatively small salaries from labor, so a wealth tax is only unpopular to that particular group.
That can be quite a lot of people on HN, and also including FIRE people, so I can see why it's unpopular.
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I can't tell what's worse: intentionally obscuring the fact that the vast majority of people would pay ~no wealth tax or unintentionally forgetting that the vast majority of people would pay ~no wealth tax.