This is fearmongering. The bill was introduced a year ago, went nowhere, and is now dead. This WSJ article was published a month after the bill was officially killed…
The broader legislature has no interest in such a tax.
When many policies that start in California get adopted by much of the Democratic party, even the ideas being proposed show that it is the direction at least some subset of the party wants to go down. When WSJ opinion section is covering pieces like this, it's to point out the ideas that the Democrats are floating. While it may not have passed this time, it's setting the foundation for future debate on the topic.
> Edit: also note that this article is on the WSJ opinion page, and didn’t come from the news desk.
Thank you. We really need news websites to some how more clearly delineate opinion pieces from news desk pieces. In the old days, you knew which was which based on what page of the paper it was on. A standard that has all online opinion pieces published with a colored background or something would really help.
It doesn’t look dead. From your own link, it has been amended in late 2020 so it seems like the idea is alive and still being pushed. Am I missing something here?
Personally I disagree with the whole idea of wealth taxes, you should be taxed when you do things, not taxed just because you own something worth money. I should be able to go live in the woods alone and not have the government take some percent of my net worth just because I exist.
I mean I don't have a tonne of sympathy for people with tens of millions of net worth, but it just seems wrong in principle. If I start a company and it gets valued at 30 million dollars, why should the government be allowed to force me to sell my company to pay their wealth tax? Seems wrong to me, if you own something you should be allowed to keep it indefinitely. Property taxes are a bit of a grey area, but they make more sense because of all the infrastructure required for a house to be accessible.
Or another example, I own a piece of art or a car passed down through my family that is worth 30 million dollars (maybe it's a mclaren f1 or something). Now the government is going to force me to sell my car? I disagree with that, obviously that's an extreme case, but laws should still handle cases like that.
Personally, I disagree with the whole idea of income taxes. You should be taxed for owning things, because the government enforces your property rights, not just for labor, for which the government doesn't directly contribute at all. I should be able to earn money for my labor without the government taking a fraction every time it moves around. Even if you move to the woods, you're still taking military protection from the surrounding government- even if you somehow avoid using any other service like roads, public education, etc.
I don't understand this widespread belief that you have a right to permanent ownership. Someone has to enforce that ownership, and that has costs. What does seem wrong in principle is taxing transfers of money, which are virtually free with modern computer systems, not to mention the increased economic friction in the labor market.
You raise a good point with liquidity. Personally, I wonder, how could we set up a system of fractional ownership that delays repossession in such cases? Of course, if you never pay tax on that heirloom, then you'll eventually lose a controlling interest- and I think this makes sense, especially for fundamentally limited resources like land.
Speaking from the perspective of someone who has had his house smashed into an all of his stuff stolen, none of which was recovered and no meaningful attempt to do so was made, I don't particularly buy the argument that government enforces property rights. In certain cases, maybe. But mostly property rights exist because we all kind of agree they exist, and we generally don't go burglarizing each other.
Personally, I disagree with the whole ideas of both wealth and income taxes. You should be taxed for consuming things, since that's the point where you're actually imposing a burden on the rest of society.
(Note that this includes consumption of housing, and VAT + imputed rent is basically a property tax.)
i disagree with all forms of tax. we should only be taxed for consumption. it would raise the cost of living but it would also create ways to govern ourselves better, improve quality of life and take care of those who cant through charity rather than punitive forced taxation.
it's charity because someone has to take care of your financial needs because you are incapable of managing it yourself. someone has to take over another in need and take responsibility out of the kindness of their heart. it cant be demanded. the notion that we deserve a portion of another person's hard word makes a mockery of their hard work and dedication.
assets become valuable over time and the value of some assets is completely relative. if jeff bezos sold all his wealth in amazon shares, first, it wouldnt be the billions it is now..(even if he could sell it..), secondly, it would take it with it millions of dollars of income for hundreds of thousands of people. the notion of 'wealth' is a man made construct. wealth is what we consume. everything else is a resource. you cant tax resources. it is an asset that hasnt been realised yet.
Exactly. Islam took a similar route with Zakat (a form of "charity tax" if you will, over 1400 years ago, and it's proven to work. When you look at history, there was a period of time, when everyone paid their share of Zakat, and when there were no poor people left to take it!
It's not that much either, only 2.5% for currencies like gold and silver over a minimum threshold (so the poor/lower class are exempted anyway).
However, as I explain in my other post, there is no forcing to liquidate a fixed portion of any holdings you have. For example, if you own property and rent it out, the property value itself is not taxed, only the money you make out of rent if you hold on to it for over a year (and it's above a minimum threshold). Similarly if you owe shares in a company, the taxation is not a direct percentage of that ownership, it depends on things like debt and the amount of produce or products the company owns each year.
Income tax is unethical and predatory as far as I'm concerned, not to mention continues to fail even at absurdly high taxation rates.
I've got several concerns with wealth taxes in general too:
1) They are difficult to enforce. How to measure the value of a famous painting? What if the value does down? Is there a refund of wealth taxes?
2) They are an entirely new class of taxes that will give politicians the ability to increase the overall tax burden over time. At first, they will only impact the very wealthy, but it is much easier to adjust the threshold down a little than create a whole new tax.
The history of income tax in the US is a guide. At first, it was temporary. Then only impacted a few people, now it is a progressive system that reaches large swaths of the population.
> 1) They are difficult to enforce. How to measure the value of a famous painting? What if the value does down? Is there a refund of wealth taxes?
The Netherlands has had a general wealth tax since 2001 and there have not been many practical issues AFAIK. There are separate regimes for (1) primary residence (which get yearly assessments based on comparable sales/house price indices), (2) significant (>5%) business ownership (businesses need balance sheets/valuations anyway) and (3) all other assets taxed at around 1.2% of net asset value, first 30k exempt. There are no capital gains taxes. The value is assessed on 1 Jan every year. Whatever happens during the year is ignored.
For bucket (3) the vast majority are in practice held in financial assets (stocks, bonds, savings, loans) and non-primary residence) real estate, most of these are pretty straightforward to value. There are explicit exemptions for art and science artifacts, pension investments (401k), movable property for personal use (cars, furniture) [1].
There's a good degree of pragmatism is most of this. The tax authorities realize that trying to squeeze some drops of people with Picasso's in their basements is largely a waste of time and effort. Rich people typically don't hold a large part of their wealth in illiquid, difficult-to-appraise assets for obvious reasons.
Even worse is AMT. it was supposed to be a way to prevent rich people from hiding from taxes but now it just gets regular middle class people, and rich people avoid taxes other ways.
1) For assets hard to value, the owner would have to declare the value of the painting. They would pay taxes on that declared value. To prevent the value from being too low, anyone would also have the ability to purchase that asset at the declared value.
I don't think they should be routine, but given the highly unbalanced taxing environment of the past few decades which allowed for such massive wealth to accumulate (and rapidly grow during the pandemic) I see them as a reasonable corrective.
It also doesn't have to be ham-fisted. The concerns you bring up are legitimate and legislation is able to account for them.
The problems here are fairness, but also time. Wealth tax gathers funds from past and future actions, income tax only from future actions.
If you believe laws were totally fair in the past, then a wealth tax should be unfair now. Is that your stance? Has taxation been fair?
My stance is that the notion of private property is ingrained, we went to civil war due to private property of slaves, the french revolution was fomented due to financial problems due to untaxed private holdings of the church and wealthy people. Does having private property from the past mean it's ours and no one can touch it?
History has shown that oligarchies and massive wealth disparities lead to negative societal outcomes. IMO, Taxes should generate revenue for public works and lower negative societal outcomes due to negative externalities, therefore wealth tax is fine with me in principle.
I could go either way with wealth taxes—-there are efficiency and services arguments that go beyond just real property—-but I have zero problem with inheritance taxes.
You want a Van Gogh or McLaren, you go create value just as your deceased would-be benefactor did.
> “ I should be able to go live in the woods alone and not have the government take some percent of my net worth just because I exist.”
Reminds me of stories about people losing their homes for unpaid property taxes. I recall a story about some paultry amount of unpaid tax (<$100), but because the debt was neglected, the (a few) state's laws permitted the home to be siezed and sold to pay the unpaid amount, and the state gets to keep the balance.
> If I start a company and it gets valued at 30 million dollars, why should the government be allowed to force me to sell my company to pay their wealth tax?
I don't know the specifics of this proposal. But I live in a country that has a similar wealth tax, and it doesn't work that way here. When you found a company, its shares remain valued at nominal value for tax purposes, until you sell or transfer them. Only after that they'll be taxed as wealth.
> If I start a company and it gets valued at 30 million dollars, why should the government be allowed to force me to sell my company to pay their wealth tax?
How is the government forcing you to sell your company? They're forcing you to pay 0.4% of the money you own over those 30M dollars in tax, but that's it. Do you truly believe that there are people who make less than 0.4% per year profit on their >30M assets?
edit: as tsimionescu kindly pointed out below, I misunderstood the 30M threshold. My reasoning seems correct to me but a key premise was wrong, and I agree the proposal is much less onerous than I have painted below:
I personally know multiple startup founders worth $10-$20M on paper who made $120K/year salary for years (or still are.) It’s hardly unusual, startup valuations are high these days, and VCs and the founders themselves want to reinvest in growth, not issuing distributions.
A founder owning 40% at a $50M valuation would feasibly have to double his salary to $240K to afford the $80K/year wealth tax, after paying income taxes on the salary increase in California.
That’s realistically one employee they no longer have the cash flow to hire. A $50M startup may have something like $2M ARR, so if they don’t want to burn investment funds, they could support maybe 8 employees at their ARR level. Knocking out one employee at that size is significant.
Or you could say they should get VC to support hiring more employees. Now the wealth tax is indirectly impacting the founder's equity—forcing you to sell your company.
We can argue whether they should be forced to liquidate a portion yearly for taxes, but let’s not pretend everyone worth $20M on paper can light $80K cash on fire yearly without consequences.
/Personally I disagree with the whole idea of wealth taxes, you should be taxed when you do things, not taxed just because you own something worth money./
I figure if we allow passive income, we should allow passive taxes...
There is no such thing as truly passive - the assets in this case are being used by providing capital to the markets and holding shares of companies that may or may not succeed. That’s “doing something” with these assets. The family heirloom that could bring you over the threshold? It’s collecting dust.
The stock investments incidentally ARE already taxed, whether you are actively managing them or if someone else is doing it for you and collecting a fee in the process.
Look at the route Islam took with Zakat. It's a form of "charity tax" that depends on wealth. However, your scenario does not hold, the government will not force you to sell your company or any shares it in, because those are not subject to Zakat (at least not directly). Gold and silver over a minimum amount are taxed at 2.5% per Hijri year, while produce is taxed at a different percentage.
Taxation of company shares depends on many things, such as the debt ratio and value of products the company owns. It's very possible to owe only a tiny amount, or none at all, while still doing business and making money. This is the superior approach which has proven to work if you look at history.
> Personally I disagree with the whole idea of wealth taxes, you should be taxed when you do things, not taxed just because you own something worth money.
I used to as well, but now I flipped. I don't think you should be taxed for doing things, I think you should be taxed for wealth. I think there should be no tax for working ( income ), buying things ( sales tax ), etc. Activity which promotes economic growth shouldn't be taxed. But wealth should be taxed. House/assets/etc should be taxed.
It's insane that you get taxed at 39% for work ( income ) but someone letting his money "do the work" gets taxed at 20% ( long term capital gains tax ).
> I should be able to go live in the woods alone and not have the government take some percent of my net worth just because I exist.
But the government protects your ability to do so. So no. Though I'd be in favor of governments setting aside land internationally where people are allowed to live "in a state of nature". They are not allowed to form tribes/governments, but are allowed to live "free" as they wish untaxed without the help of society.
> If I start a company and it gets valued at 30 million dollars, why should the government be allowed to force me to sell my company to pay their wealth tax?
Cause the company exists in a society governed/protected/etc by the government? It's the beneficiary of the environment.
> Now the government is going to force me to sell my car?
Nope. You could always go out and work to earn money to pay the wealth tax too and keep your car.
I'd be in favor of removing all taxes for one wealth tax.
I see it the opposite way around. We should only have a wealth tax and no income taxes. Capitalism means capital that earns for you while you sleep. Those who benefit the most from the system should pay for it. With only a wealth tax more people would have the means to amass wealth and there would be a greater incentive to spend rather than sit on money which would be good for the health and dynamism of the economy.
[..]In economics, capital consists of human-created assets that can enhance one's power to perform economically useful work. For example, a stone arrowhead is capital for a hunter-gatherer who can use it as a hunting instrument; similarly, roads are capital for inhabitants of a city. Capital is distinct from land and other non-renewable resources in that it can be increased by human labor, and does not include certain durable goods like homes and personal automobiles that are not used in the production of saleable goods and services. Adam Smith defined capital as "that part of man's stock which he expects to afford him revenue". In economic models, capital is an input in the production function. [..]
i think you misunderstand what capital really means..
> Or another example, I own a piece of art or a car passed down through my family that is worth 30 million dollars (maybe it's a mclaren f1 or something).
There is no meaningful reason that a society should want you to inherit a piece of art or a car from your ancestors. (The only practical one is that the sorts of families who can pass down expensive art also control society.)
You didn't work for that art or car; you simply had the fortune to be born into a family with one. Every single reason why it is unjust for someone to inherit a government role applies here. If you don't think King James the Nth should rule simply because King James the N-1st did, why do you think James Jr. should have 30 million dollars in financial power simply because James Sr. did?
Just like hereditary rule, hereditary property breaks the fundamental relationship between work and reward that is common to any functional society. If you work hard and get a spare $30M to buy a car, sure, whatever, we can say you were incentivized to work hard and produce $30M of value. But if you work hard and give your kid $30M, how is your kid incentivized to do anything?
And the argument that well-off parents have an inherent right to make their kids' lives easier leads directly to the correlation between class and race/caste. If it's moral for me to make my children better off than others' children, who is to say it's immoral for me to make my nieces and nephews several times removed better off, too? Who is to say it's immoral to make all the people in this town who came from a certain ancestral lineage better off?
And on top of all that, it usually doesn't even work. We associate "nepotism" with waste and corruption, not just distasteful behavior, because we understand those who are chosen because of their family relationships generally aren't more qualified than the rest of the candidates. Even at the smallest scales, when you hear stories of the CEO's college-age kid getting an internship, it's almost always the case that the child has not inherited any particular talent, and in fact is probably less talented than would be needed for the job.
Parents should be allowed to provide for their children to set them up for adulthood - they should be able to pay for housing and food and clothing and education. When they can't, society should step in to help them, and we're almost there: we have welfare programs and private charities for basic needs, free public education, and (at least among private colleges with sufficient endowments) full need-based financial aid. Parents should not be able to do more than that, in a society that prizes democracy and equality over the natural superiority of certain families.
There are of course exceptions but in most cases that $30 million+ could only have been made because of the system that exists within California/USA. Paying taxes on that $30 million is just a way to support the stability of such a system that allowed an individual to make that much money. How many people with very little wealth actually inherit a $30 million car? Probably few enough that it would be more constructive to focus on the scenario most extremely wealthy people inhabit.
This seems to be the Californian version of "American Exceptionalism". Yes, California has some great things going for it. But so does Washington and Oregon and Texas and Colorado. Relative tax rates matter, especially for people as mobile as the ultra-rich.
> why should the government be allowed to force me to sell my company
If it’s your company, is there any particular reason you don’t pay it (or a loan against your equity) out of cash flow? Just like every other significant expense?
If it’s a painting or a car, it’s already getting taxed as an inheritance, so this is just a .4% increase in a 40% tax, no?
I happen to agree that wealth taxes are unwise, but it’s not because implementation is weird. We already have property taxes; we’ll figure it out.
The main reason it’s bad is because wealth taxes compound, even when you take losses on investments. Retirement accounts will simply be ~20% smaller than without the tax.
I'm not sure what the problem is. When Democrat supporters demand more more more via the politicians who promise more more more, where did they think the money would come from?
Believe it or not, the bottom ~50% don't have enough money to tax. The next 30-40% have some but not enough to raise enough money to help. The taxes have to be focused on the top 10% and more likely the top 1-3% to raise enough to meet these demands.
I think the biggest problem will be trying to enact this on people who aren't California (or even US) residents who are now out of state. You can tax visitors for actions they take while they're in your state (sales tax, hotel taxes, even income) but when they're not there and haven't been there for years?
The State of California may get a rude awakening on this one.
There’s a growing misconception that everything can be paid for by simply taxing the wealthy a tiny bit more. Several prominent activist politicians have built their platforms on the idea that billionaires are an infinite source of consequence-free tax revenue.
These ideas are especially popular among the college students and new college grads I mentor. It usually falls apart when they pull out their calculators and realize that Jeff Bezos entire net worth wouldn’t come close to paying off everyone’s student loan debt or solving climate change.
Meanwhile, completely false Tweets about how Jeff Bezos is about to become a trillionaire or how he could simply solve the entire student loan crisis himself gain 100,000s of likes, some of them from prominent politicians or their campaign managers. People don’t care about the facts right now.
Frankly, many people don’t really care if this solves anything or if second-order consequences result in a net decrease in tax revenue due to people simply moving (as is the case with some wealth taxes in other countries). For many, this is more about punishing their bad guys than generating tax revenue to accomplish something.
The most important point of taxing the top ~1% is to simply bring their wealth more in line with their contributions, and to reduce their outsized power on the political system. Jeff Bezos isn't "worth" a million times more than his warehouse workers, and he shouldn't have that kind of money either as a matter of principle, or as a matter of democratic power. It's not a matter of punishment, but a matter of ensuring a more just/meritocratic and free society.
The fact that the state can also use some of this money to help with the funding of social programs is a secondary benefit.
Exactly. The US has one of the most progressive tax systems in the world. It hasn’t magically solved the wealth gap. Many people just want to punish the ultra wealthy, but it also won’t help.
If it’s actually about raising revenue, you will need to actually look lower, to the top 10% and broader middle class. But this isn’t nearly as compelling as a populist message to fund the various proposed unicorns...
While I agree with you that the idea there is fundamentally flawed, it does seem like the greatest increases in GDP and growth have occurred when the pareto distribution of wealth was the least skewed in favor of the wealthy. To an extent, this makes sense to me from a free market perspective... The less concentrated the wealth and power is, the more we can expect competition and innovation. So even though their reasoning may be flawed, its possible the result would make sense anyway.
My favorite was when MSNBC cited a Tweet claiming that Mike Bloomberg could write every American a check for $1,000,000 and still have money left over.
I actually think our country can afford to tax the rich more than we have done, but there are a lot of people who reach the same conclusion by utterly farcical reasoning. Relatedly, there are a lot of people who rail against capitalism for making us slaves as though there is an alternate system that doesn’t impoverish and ultimately kill billions.
The US currently taxes the rich extremely low when compared to other countries or the US in the good old times. All this was rationalized with trickle down economics which have turned out to be utter nonsense. The wealth of those unfathomable rich was built on top of the society they live in and are part of. The acquired wealth is so beyond comprehension that the idea that any one person could have such a big positive impact alone to justify it is just absurd.
This is the problem with representative democracy when the average IQ is below 80. Candidates do this because it sells, and they are running like business except they get paid in votes instead of dollars.
When they are in office, they try to string along as long as they can. Like this bill will probably not pass, but some damage could be done and the next time they have to give more ridiculous promises.
Elizabeth Warren's wealth tax plan claims it will be bring in 3.75 trillion over 10 years.[1]:
>That’s why we need a tax on wealth. The Ultra-Millionaire Tax taxes the wealth of the richest Americans. It applies only to households with a net worth of $50 million or more—roughly the wealthiest 75,000 households, or the top 0.1%. Households would pay an annual 2% tax on every dollar of net worth above $50 million and a 6% tax on every dollar of net worth above $1 billion. Because wealth is so concentrated, this small tax on roughly 75,000 households will bring in $3.75 trillion in revenue over a ten-year period.
Are you saying this is wrong if I 'pull out my calculator' and run the numbers? The reality is it is not. Wealth is massively concentrated at the top in this country, and from a purely numbers perspective, if it were 'redistributed' it could cover a lot of basic costs that occur in this country.
As a rough approximation, if you’re a US citizen, then You must file a US income tax return. The US taxes your worldwide income regardless of where it’s earned. BUT under most circumstances you would get a credit against what you owe the US for what you pay the country in which you earned the money and also wanted to tax you (no double taxation in theory)
It’s kind of a pain for someone living in say Kenya which doesn’t have a tax treaty with the US, but it’s not totally absurd to think you owe something to a country whose citizenship you continue to benefit from.
It's even more absurd. They force Green Card holders to pay taxes too.
I lived and worked in country A, have citizenship with country B and the most amount of money when I worked in A was sent to the US, where I have no rights, no one would come for me to 'save me' when I'm held hostage or whatnot. Nothing. But I paid more taxes to the US than to country A (and nothing to my home country).
The problem is this incentivizes all the wrong things. This encourages the ultra rich to invest in land or large properties, driving up that particular asset class. Instead of venture capital, we’ll just get a bunch or people hoarding land
Not a Californian, but what is the more that is being asked of?
Are you aware that top tax rates are a fraction of what they were decades ago? Perhaps, the more accurate lens to view things is that the wealthy/business has lobbied for less and less.
> I'm not sure what the problem is. When Democrat supporters demand more more more via the politicians who promise more more more, where did they think the money would come from?
Who are you addressing? The Democrats who “demand more more more” are likely to be the same people who are fine with taxing the rich more.
I always find it ironic when Silicon Valley Software devs talk about how the "evil rich" should "pay more" in taxes to support the poor, never having the understanding that they likely are the "evil rich" the tax man will be coming for....
if you are a Software Dev for a FANG or FANG like company guess what you are in the top 10%.....
Well I guess I'll take the apparently bold stance here that this isn't the end of Silicon Valley or California and yes this is fair and further, good. When people are getting 5-6% returns on investments (minimum), 0.4% is still not even stopping the rich get richer effect. Not to mention that it's almost certain no one here will ever be touched by this tax.
If you're going to move where you live or significantly alter where you spend you time because of 0.4% of things above 30M, that's a real sign of just how far American greed has gone. The rich will drive themselves right into another french revolution unless they start realizing that taxes need to return to where they were from the 1930's-1970's. Trickle down economics is a known failure and at this point it's a question of when the pendulum will start swinging the other way.
Thing is we’ve done the experiment and it doesn’t work. France had a wealth tax (called the ISF, impôt sur la fortune) and it never actually garnered the expected revenues. This is because wealthy French people moved to Brussels, where you still have a pretty nice city and you can still speak French. Macron got rid of it and there was a mini-crash in Brussels real estate as people move back. There’s nothing stopping me or anyone in CA to move to CO or UT or TX. Sure I’m further from the ocean but those are still pretty nice places to live. I love CA and I’m very far from the $30M threshold, but if I did have this sort of tax it’s hard to justify not moving for lower taxes AND cheaper cost of living with very little downside. With the rise of remote work, there’s even less of a downside.
> This is because wealthy French people moved to Brussels, where you still have a pretty nice city and you can still speak French
Meh, as a French person, the number of people who did this is pretty low. People hid their assets sure, but the FTB is a bit better at this than the fisc is ;-)
Is this also your perspective on something like unit testing when your first regression slips through?
No, you fix it. Law is code, and needs tuning.
When people as so inclined to give up on first failing, then I feel it says more about their underlying worldview than it does about what's possible in the world.
Genuine question, as that doesn't sound like a a fair experiment.
Couldn't they just limit the amount you can emigrate from the country with.
So if you emigrate, you can only take a maximum of, say, €10 mill.
i.e. earn it in France, using French laws, a French education and French infrastructure, it stays in France.
Obviously it clashes with EU free movement, but basically the problem seems to be we can't tax the rich because they take advantage of globalism to move their money around.
Isn't the solution to stop them moving it, rather than giving up?
If California was well run, clean, and had otherwise lower tax, then .4% might be easy to ignore. But if you’re already on the fence, and not happy with things, and have been talking to real estate agents in Seattle, Austin, Miami, or Singapore, then this just the kick in the butt you might need to go through with leaving.
0.4% is comparable to the wealth tax in Switzerland.
I believe one of the differences is that in California, this would be on top of federal and state capital gains taxes, whereas in Switzerland, there is no tax on investment gains (from stock gaining value - dividends do count as income, and once ETFs with dividend-paying stocks get involved, it gets messy but TLDR you still pay the income tax on dividends).
Local governance running well, public services like cleaning, helping homeless etc, all require tax dollars. Saying "I'd pay tax if they had enough money they get from tax to fix the problems that cause me not to want to pay tax" seems like it's a bit of a chicken-egg problem.
Good luck with that. I bet there is majority support already for similar tax measures in Seattle, Austin and Singapore. That leaves only Miami, which is going to be underwater in a few decades. So you are better of just staying and paying your extremely modest fair share
The taxes from the "1930's-1970's" were not particularly high, that is a misunderstanding of how the structure of the tax code has changed. Net of deductions, taxation hasn't changed that much. You can't look at the nominal tax rates in isolation while ignoring the scope of deduction against those rates.
Eliminating deductions for high-income earners while reducing tax rates on that income is revenue neutral, and generally preferable as a policy.
Many people, especially at HN for some reason, don’t realize that the Tax Reform Act of 1986 made tax rates more transparent which is why the “sticker rate” was lower.
Interestingly, the former tax rates often times screwed the middle class much more, because they couldn’t afford an accountant and/or engage in the wide range of financial maneuvers that could substantially reduce one’s tax burden.
No higher earner ever paid sticker price tax rates when they were that high.
Source: My mother. She has been a tax accountant since the 70s. The Tax Reform Act changed the field considerably.
The evidence for this is that federal tax revenue as a percentage of GDP has been 15-20% since World War 2. Massive swings in tax policy have not changed this number, proving that those policy changes were more restructurings than tax cuts.
I think your premise that they will experience French Revolution like consequences is overlooking the fact that unlike the 1700s. Up and taking your money to another country that still likes you is the click of a mouse and a private jet flight out. So no they won’t capitulate to higher taxes of earlier times. They will just leave. Like they already are at the threat of it.
Maybe a percentage will, but I think when people are trying to guess and assume what these people will do as "rational economic agents", they miss the human factors. No one is going to pick where they go to college based on the taxes on the ultra-rich unless they are obsessed with money. Once rich, are you going to uproot yourself entirely from any family, friends, and connections in the US? You have to consider that rational economic behavior still has to consider what the point of it all is, and money for the sake of money doesn't tend to be the answer even among the hyper-rich.
What these people will come to terms with is a pretty age-old lesson - there are things more important than just how rich you are, and most of those are human. So long as they can maintain their lifestyle, I think many will want to stay. Needing to find 20K in a couch cushion to pay for your 5M in assets each year that you make 300K on won't be the thing that makes you move.
Of course, the rich today also have many legal shields and layers that will protect them from real french revolution violence. But I think anyone can feel the shift right now. Go on Tiktok and see just how many young people are getting real into eating the rich :)
The idea here is that it’s easy to find a safe, welcoming host nation with low taxes, and still be able to benefit from the functioning economies of the nations you left behind. However this is a pretty artificial system that only exists when there’s a lot of broadly-shared wealth and stability in the world. This kind of capital flight to the bottom is going to systematically undermine that stability. At the point where things start to seriously malfunction, nobody’s going to give a crap about a little bit of tax.
While this proposed California law is unlikely to be Constitutional, there are federal laws that prevent people from simply leaving the country and taking all their money with them to avoid taxes. You can try, and with good lawyers and accountants, you can certainly shelter a lot of it, but in the end you can't avoid tax liability just by leaving. Plenty of uberrich get away with it, but it's still not legal. You can't even completely avoid it by renouncing your citizenship if you're a dual national; there's still a liability.
I know that the uberrich get away with dodging taxes all the time, but there are potentially high costs, like having your assets confiscated, or having to hide out in your island fortress and never return to the US lest you end up in prison.
Begs the question why haven't they left already. Is there some sweet spot of taxation before the majority the people being taxed resort to capital flight?
> If you're going to move where you live or significantly alter where you spend you time because of 0.4% of things above 30M, that's a real sign of just how far American greed has gone.
I would say this isn't any different than any other greed at any other place or time. It's simply a cost-benefit tradeoff decision. If people perceive that being in California makes more money than the wealth tax costs, they will stay. If not, they will leave. There doesn't have to be any moral or principled component to this, just simple self-interest.
Also don't overlook the deterrence factor. The wealthy currently in CA may stay there if moving represents a greater overall cost. But anyone not currently in CA would have a great disincentive to never move there.
Economists love to believe that humans are rational actors, even though it has been shown again and again in experimental settings that only a minority acts in an economical rational way. Economical self interest is a really poor predictor of behavior
Once the infrastructure is in place to assess this kind of tax, it'll be a matter of time before it starts applying to those with >10M wealth, then >1M, etc
Yup. It's called boiling the frog. I am not totally against wealth taxes, however I disagree with the approach.
What I do not understand is why not just implement a more aggressive estate tax on people and close the "trust" and "foundation" loopholes for avoiding the estate tax.
Let's take Jeff Bezos as an extreme example (who isn't even a California Resident). At least until we figure out immortality, Jeff Bezos will die someday. Let him enjoy the wealth that he has earned by creating a company that has benefited society as a whole. When he dies, his wealth should return to the society from which it came. He was rewarded for his work/ingenuity/effort during his life, and now that he is gone, society reclaims the rewards it had given him. What is wrong with that?
The way I see it, once you are dead you don't get a vote, and you don't get a say in the affairs of the world so you shouldn't be able to direct that wealth through any kind of inheritance, foundation or trust. His children have done nothing to earn or create that wealth themselves so why should they deserve any of it? They will have the same opportunities to create and earn wealth that he did, and they will benefit from the society he contributed to.
If they are able to build equivalent wealth via another Amazon.. Great! They earned it! if not that is fine too. You want to help your kids? Teach them how to fish for themselves instead of giving them an unlimited supply of fish.
Passing down wealth from generation to generation or directing wealth long after you are dead through foundations and trusts is directly opposed to any effort to give "equality of opportunity" for future generations.
And for those of us that have seen this type of tax play out historically where "it's just 0.4% and just on the top 1%" and want to avoid being dragged down any farther?
The difference, however, is that today's rich people can easily move their residence, and with remote-work; maybe their companies.
In the old times, it was not quite easy to move to another country. I can imagine the difficulties (selling your assets, taking your fortune, figuring out the new kingdom, wars and instability, etc...). This is no longer an issue with city-states like Dubai or Panama; and the fact that your wealth is floating online on some stocks, banks, bitcoin, derivatives, or real-estate scattered around the world.
This doesn't concern the average joe, however. Which is why he continues to carry most of the tax bill and is cash-strapped.
California issue, however, is not the rich are greedy; but that its government is corrupt and inefficient. Raising taxes doesn't help but only grow the corrupt bureaucracy.
I can't say I have much time to engage today, but since this seems to have some support and a fundamental misunderstanding, I want to address this one.
Hatred towards the ultra-rich is not based in jealousy but in a moral stance. The argument is not "I want your 30M" it is that "people having this much wealth is bad for all of society".
There's much debate to be had over where that line of "too much wealth that it can't possibly be moral" is, but this is where the cultural conversation is. You're missing the point if you think it's jealousy.
As an example, I never plan to have more than about 2M (in today's dollars) of personal wealth. I'm not supporting this tax because I want the 30M, I'm supporting it because I think it may have positive effects on reigning in the human instinct for greed by aligning societal incentives with personal ones.
I'm trying to keep this narrow as I'm not trying to claim I'm correct that this specific iteration of the tax will work, or even of the form, but hopefully my point about the targeted issue is clear!
You can't have people starving next to people having 7 course meals.
I can't complain about my financial situation and this is precisely why I would support a fairer redistribution. I'm willing to sacrifice a bit so that others have a decent life, too. Because otherwise you can step on others only for so much, and at some point losing your possessions is the least of your concerns.
If you're a true conservative (not in the US sense of the term), you should understand this. Heck, Bismark, the grandfather of conservatives understood this.
> that's a real sign of just how far American greed has gone.
I find that a hard statement to square with the founding principles of American culture. The USA was a country that declared independence and fought a war over taxation. The colonies as a whole were a magnet for opportunistic pioneers -- in fact, for much of history, "opportunistic pioneer" (for better or worse) was and is what people think of when they think of American.
So while you're correct that it is a certain kind of greed and self-interest, where I can't understand what you're trying to say is "how far X has gone." What does how far mean? The greed has been at this level since nation's conception. And ostensibly, it was the whole /point/ of the nation.
Do you think California will never raise it above 0.4%? This is just a test, if it gets them money it'll surely go much higher.
This is a bandaid over Prop 13. We should tax land more instead of having high income taxes, economists agree the land value tax is the most efficient tax.
It's never just about the immediate target and/or accounting of the numbers. The problem with going after the rich is that it's setting up a system for this type of control. Government leaders (especially the ones in CA) constantly abuse control, and giving them more points of control makes no sense. One year is a minority being targeted (just not if it's racial, gender etc), the next it will be some large group of people, maybe middle class, maybe small business owners, and they will extend such nonsense to a larger group. These laws have to matter in principle because it is much easier to extend their power then to weaken them or even harder, undo them.
> When people are getting 5-6% returns on investments (minimum)
The 99th percentile wealth vs 99th percentile taxable income suggests that many very wealthy people are making lower returns in fact.
If people are generating those returns, however, there is no need for a wealth tax: the returns are already taxed (and could be taxed at a higher rate without a whole new invasive tax regime).
The reason people resist such a tax is because there is no transparency into where the money is going. If there was traceability into putting that money towards positive social programs, for example, there might be less opposition.
I couldn't find what the tax was supposed to go towards but I also didn't make it beyond the paywall.
If California were well run, sure. Do something about the housing and homeless crisis and we’ll talk.
California doesn’t have a money problem. They have a lack of political will problem and an incompetence (or corruption) problem. The state is held hostage by NIMBYs and is chronically unable to build infrastructure. Look at the high speed train disaster for an example of the latter.
NIMBYs ensure that any money or effort put into the homeless problem is also wasted, as there is no affordable housing for these people to inhabit even if their mental health issues are dealt with.
More money won’t fix these things. It will probably go into the pockets of the people who created these problems.
Note that much of what I wrote applies to the USA broadly. We are taxed not much less than Canadians, but have the infrastructure and social services of a “developing” nation.
Give me either low taxes at e.g. Costa Rica levels OR shiny infrastructure, free college for my kids, and universal healthcare.
Oh wait Costa Rica has universal health care...
We are great at setting money on fire in this country.
> Do something about the housing and homeless crisis and we’ll talk
You do realize a wealth tax is one way to bring in income to try to fix these problems right? You guys don't even have universal healthcare in the middle of a global pandemic. Laughably sad.
But 5-6% isn’t guaranteed, while the tax is most certainly guaranteed. For extremely safe investments the yield is what? 1.5% even on long term investments?
There's always going to be a demand for California. It's a unique country - the vibe, the culture, the creativity, the beauty. It's one of the best places in the world to start a creative business because of the raw talent that's available. People will continue to flock there, regardless of the taxes, especially in a post-scarcity world.
It's good for Californians to enforce their values. They'll keep their country unique, while the rest of the world homogenizes into a capitalist dystopia.
HN commenters are up in arms when e.g. Google stakes a claim on the off-hours output of their current employees. They would be even more furious if Google asserted ownership of future income of former employees. And if Google further claimed a right to lifetime earnings of former employees... I can only imagine the tone here. It's unfortunate that HN brings out the champagne when governments take similar predatory actions.
> that's a real sign of just how far American greed has gone
Glib support of expropriation shows just how far American collectivism has gone. Naked envy and resentment hiding behind a fig leaf of public mindedness.
The Dutch tax from cursory reading is not comparable - apparently, if you pay wealth tax, you are exempt from capital gains tax; also, if your wealth is real estate outside of the Netherlands, it is not taxed.
It may be more comparable to Norway’s wealth tax, which is 0.85% of everything above 200K€ (With some provisions for primary residence and illiquid shares IIUC, discounting these somewhat)
A Norwegian tax professional I had a chance to talk to a few months ago claimed that wealthy people were leaving Norway because of the wealth tax. Are there any Norwegians in the forum that can say more about this?
Norwegian here. Some filthy rich are moving their assets or even themselves to tax havens. F.ex. Norways richest man, the oil and shipping millionaire John Fredriksen made himself a Cypriot a few years ago. Some other are transferring their assets to their children who live in f.ex. Switzerland. But overall I don't think capital flight is a huge issue.
That's a fair critique. I understand the Dutch tax replaces capital gains with a fixed amount based on your total wealth (not your gain). So a fair comparison with California should probably include an additional amount for California's CGT.
They present it in the Netherlands as if you are paying 30% "capital gains" tax on an assumed-fixed gain of 5.28%, your actual gain becoming irrelevant under this system. You also pay this earlier - annually, not at the point of realising the profit.
Overall, the Dutch total tax on wealth is still going to be considerably higher.
The difference here is that California is a state not a country. It's much easier for a wealthy person or company to relocate to another state than it is to another country. The EU may have made it easier to relocate to another EU country than it was in the pre EU days but it's still nowhere as frictionless as moving from California to Washington, Texas, or Georgia.
Not big fan of taxes in general but I find the whole 'wealth' tax to be especially odious. Why not call it what it is, a pre-death estate tax? If the government is to tariff/tax, it should be done at the time of use or income generation/realization one time. Unfortunately double jeopardy laws seem not to apply to capital.
Tax is not a one-time contract nor a punishment, as you are presenting it to be. It's a democratic agreement about how society should be run.
Another democratic agreement is that you are allowed and encouraged to own capital. (That's why it's called 'capitalism', to distinguish it from other possibilities)
Statements like that never augur well for what follows.
> Why not call it what it is, a pre-death estate tax?
Do you have a cogent objection to estate taxes? Many would consider them the fairest of all possible taxes, since your property rights - past, present, and future - evaporate at death.
> it should be done at the time of use or income generation/realization
Why? What's the rationale, besides personal benefit/preference? Taxing money in motion reduces motion, which is hardly a good thing except when the motion itself is illusory arbitrage (e.g. HFT).
> double jeopardy laws
Double jeopardy is a concept of criminal law applied to humans. It's certainly the wrong term here, and arguably the wrong concept. Even your own "time of use" standard leads to the same money being taxed multiple times. Why should it be any different when assets are held instead of exchanged (see above about money in motion)? Henry George and others have made eloquent arguments for taxing wealth - especially land - instead of income. It has been tried many places and times, generally with good results. Do you have any substantive counterargument, or just random phrases plucked from a pseudo-libertarian website?
I don't like the Dutch system, having experienced it personally, but it is worth pointing out that the wealth tax exists in place of a capital gains tax.
I believe switzerland has no capital gains tax though. I did some napkin math a few weeks ago with a buddy who was considering moving there and we found that there are some situations where you would actually pay less tax vs US capital gains.
There is a HUGE difference between the 2 if I understand them correctly
CA is imposing a tax on the TOTAL wealth of a person over the limits and excluding real property.
The Dutch impose a tax on the increased value of the wealth in the year, even if it was not "realized", which is more like our Capital Gains.
So an example, if you had Stocks worth 100 million, and they increased in value to 108 million in 2020
Dutch: 108-100: 8 million taxable, you owe $128,000
CA: 108 Million, you owe $432,000
Pretty large difference
and the Dutch Model is better in some ways when your assets DROP in value, which does happen,
so if we are in recession your stocks go from 100 million to 90 million, under the Dutch Model you would not owe taxes, under the CA model you still would
So your money just made you 8 million USD and you had to pay 432k in taxes. Compare that to someone who makes 8 million USD cash through labour. They have to pay way more in taxes, around 1 million according to this calculator: https://smartasset.com/taxes/california-tax-calculator
Edit: just found out that in California capital gains are regarded as normal income. So you'd have to pay that 1 million already, but now you'd have to pay another additional 432k... so tax increase of 50%.
The tax rate will never be high enough for the California Government. It is so mismanaged the only plausible solution is a default on its endless obligations.
California should eliminate its income tax through ballot initiative. Moving it, from the highest in the nation to zero. Thats right. Zero.
Can you imagine how awesome California would become with no income tax? Everyone would instantly get a 10% raise. The quality of everything would go up and the cost of everything would go down. Standards of living would instantly go up.
Other states provide a much higher standard of living with zero tax. California can do it too.
CA needs income tax because the property tax situation has hobbled the government for the past five decades. AS mismanaged it may be, Newsom did inherit a budget surplus and if it weren't for the pandemic things would be relatively stable.
I was 16 when Prop 13 passed. I thought adults who thought Prop 13 would force the government to stop wasteful spending were idiots. I predicted that the result would be governments and agencies nickel and diming to make up for shortfalls in property taxes. Worse thing was low property taxes would drive up real estate prices and make housing more unaffordable not less.
Other states raise revenue by other means. Look at Texas property taxes. Also Oregon Income Taxes are about 3.5% different than California. Is it really that different?
>Taxing someone who spends only 60 days in the state in any single year—and extending that tax over an ensuing decade—would be something new under the sun.
Yeah, this won't make it past the courts let alone the economic damage its going to cause California and loss of some of the brightest college students. Who knows what your wealth profile will be after you move out? Let alone anyone who inherits wealth, will California want a piece of that even if the property is wholly outside the state?
This is basically an act of desperation which will be wrapped under some fanciful class warfare and sadly also rife with cut outs to avoid offending specific groups. If they would clamp down on industries rife with funny money accounting, namely the music and movie industry, they might not have to go after individuals.
However people always think this will stay at certain income and wealth numbers don't fully understand who exactly is paying the bills. While it easy to point to this percentage of people paying half the money the rest is equally important.
Example, in NYC it is estimated that eighty percent of taxes is from less than twenty percent of people earning a hundred thousand per year. While skewed to the much higher end the fact is this eighty percent on income taxes is twenty two percent of the total tax revenue in the city.
Finally, all of this that is happening in California is on top of a thirteen percent marginal rate which is highest in the country being over half again as much as New York.
The tax is proportional to the number of days in California, and is only on wealth above $30M (married) or $15M (single).
How many people do you think have $30M and spend >= 60 days a year in California, that do not benefit from business/property/services/educated employees in California? Very, very few.
but do people who spent >= 60 days in california one time continue to accrue benefits from their visit over the next decade? that's the egregious part.
If there are 60 jurisdictions with identical laws to this one and you try your best, you can be subject to the wealth tax in all 60 of them in the same year.
Readit News
The broader legislature has no interest in such a tax.
This is the bill in question: http://leginfo.legislature.ca.gov/faces/billStatusClient.xht...
Edit: also note that this article is on the WSJ opinion page, and didn’t come from the news desk.
https://hn.algolia.com/?dateRange=all&page=0&prefix=true&sor...
If you want a news side of it, here's the WSJ news talking about it during the primaries when many of the candidates were discussing it: https://www.wsj.com/articles/democrats-emerging-tax-idea-loo...
Thank you. We really need news websites to some how more clearly delineate opinion pieces from news desk pieces. In the old days, you knew which was which based on what page of the paper it was on. A standard that has all online opinion pieces published with a colored background or something would really help.
Maybe it's easy to miss for someone's first time on the site, but I've personally never had any issue.
Also when WSJ posts to social media they prefix the headline with "Opinion"
The title practically screams opinion piece. No serious outlet would write that at the top of a news piece.
I mean I don't have a tonne of sympathy for people with tens of millions of net worth, but it just seems wrong in principle. If I start a company and it gets valued at 30 million dollars, why should the government be allowed to force me to sell my company to pay their wealth tax? Seems wrong to me, if you own something you should be allowed to keep it indefinitely. Property taxes are a bit of a grey area, but they make more sense because of all the infrastructure required for a house to be accessible.
Or another example, I own a piece of art or a car passed down through my family that is worth 30 million dollars (maybe it's a mclaren f1 or something). Now the government is going to force me to sell my car? I disagree with that, obviously that's an extreme case, but laws should still handle cases like that.
I don't understand this widespread belief that you have a right to permanent ownership. Someone has to enforce that ownership, and that has costs. What does seem wrong in principle is taxing transfers of money, which are virtually free with modern computer systems, not to mention the increased economic friction in the labor market.
You raise a good point with liquidity. Personally, I wonder, how could we set up a system of fractional ownership that delays repossession in such cases? Of course, if you never pay tax on that heirloom, then you'll eventually lose a controlling interest- and I think this makes sense, especially for fundamentally limited resources like land.
(Note that this includes consumption of housing, and VAT + imputed rent is basically a property tax.)
it's charity because someone has to take care of your financial needs because you are incapable of managing it yourself. someone has to take over another in need and take responsibility out of the kindness of their heart. it cant be demanded. the notion that we deserve a portion of another person's hard word makes a mockery of their hard work and dedication.
assets become valuable over time and the value of some assets is completely relative. if jeff bezos sold all his wealth in amazon shares, first, it wouldnt be the billions it is now..(even if he could sell it..), secondly, it would take it with it millions of dollars of income for hundreds of thousands of people. the notion of 'wealth' is a man made construct. wealth is what we consume. everything else is a resource. you cant tax resources. it is an asset that hasnt been realised yet.
It's not that much either, only 2.5% for currencies like gold and silver over a minimum threshold (so the poor/lower class are exempted anyway).
However, as I explain in my other post, there is no forcing to liquidate a fixed portion of any holdings you have. For example, if you own property and rent it out, the property value itself is not taxed, only the money you make out of rent if you hold on to it for over a year (and it's above a minimum threshold). Similarly if you owe shares in a company, the taxation is not a direct percentage of that ownership, it depends on things like debt and the amount of produce or products the company owns each year.
Income tax is unethical and predatory as far as I'm concerned, not to mention continues to fail even at absurdly high taxation rates.
1) They are difficult to enforce. How to measure the value of a famous painting? What if the value does down? Is there a refund of wealth taxes?
2) They are an entirely new class of taxes that will give politicians the ability to increase the overall tax burden over time. At first, they will only impact the very wealthy, but it is much easier to adjust the threshold down a little than create a whole new tax.
The history of income tax in the US is a guide. At first, it was temporary. Then only impacted a few people, now it is a progressive system that reaches large swaths of the population.
https://en.wikipedia.org/wiki/History_of_taxation_in_the_Uni....
The Netherlands has had a general wealth tax since 2001 and there have not been many practical issues AFAIK. There are separate regimes for (1) primary residence (which get yearly assessments based on comparable sales/house price indices), (2) significant (>5%) business ownership (businesses need balance sheets/valuations anyway) and (3) all other assets taxed at around 1.2% of net asset value, first 30k exempt. There are no capital gains taxes. The value is assessed on 1 Jan every year. Whatever happens during the year is ignored.
For bucket (3) the vast majority are in practice held in financial assets (stocks, bonds, savings, loans) and non-primary residence) real estate, most of these are pretty straightforward to value. There are explicit exemptions for art and science artifacts, pension investments (401k), movable property for personal use (cars, furniture) [1].
There's a good degree of pragmatism is most of this. The tax authorities realize that trying to squeeze some drops of people with Picasso's in their basements is largely a waste of time and effort. Rich people typically don't hold a large part of their wealth in illiquid, difficult-to-appraise assets for obvious reasons.
[1] Here's a list in Dutch: https://www.belastingdienst.nl/wps/wcm/connect/bldcontentnl/...
It also doesn't have to be ham-fisted. The concerns you bring up are legitimate and legislation is able to account for them.
If you believe laws were totally fair in the past, then a wealth tax should be unfair now. Is that your stance? Has taxation been fair?
My stance is that the notion of private property is ingrained, we went to civil war due to private property of slaves, the french revolution was fomented due to financial problems due to untaxed private holdings of the church and wealthy people. Does having private property from the past mean it's ours and no one can touch it?
History has shown that oligarchies and massive wealth disparities lead to negative societal outcomes. IMO, Taxes should generate revenue for public works and lower negative societal outcomes due to negative externalities, therefore wealth tax is fine with me in principle.
I could go either way with wealth taxes—-there are efficiency and services arguments that go beyond just real property—-but I have zero problem with inheritance taxes.
You want a Van Gogh or McLaren, you go create value just as your deceased would-be benefactor did.
Reminds me of stories about people losing their homes for unpaid property taxes. I recall a story about some paultry amount of unpaid tax (<$100), but because the debt was neglected, the (a few) state's laws permitted the home to be siezed and sold to pay the unpaid amount, and the state gets to keep the balance.
Even owning a home in the woods isn’t safe.
I don't know the specifics of this proposal. But I live in a country that has a similar wealth tax, and it doesn't work that way here. When you found a company, its shares remain valued at nominal value for tax purposes, until you sell or transfer them. Only after that they'll be taxed as wealth.
How is the government forcing you to sell your company? They're forcing you to pay 0.4% of the money you own over those 30M dollars in tax, but that's it. Do you truly believe that there are people who make less than 0.4% per year profit on their >30M assets?
I personally know multiple startup founders worth $10-$20M on paper who made $120K/year salary for years (or still are.) It’s hardly unusual, startup valuations are high these days, and VCs and the founders themselves want to reinvest in growth, not issuing distributions.
A founder owning 40% at a $50M valuation would feasibly have to double his salary to $240K to afford the $80K/year wealth tax, after paying income taxes on the salary increase in California.
That’s realistically one employee they no longer have the cash flow to hire. A $50M startup may have something like $2M ARR, so if they don’t want to burn investment funds, they could support maybe 8 employees at their ARR level. Knocking out one employee at that size is significant.
Or you could say they should get VC to support hiring more employees. Now the wealth tax is indirectly impacting the founder's equity—forcing you to sell your company.
We can argue whether they should be forced to liquidate a portion yearly for taxes, but let’s not pretend everyone worth $20M on paper can light $80K cash on fire yearly without consequences.
I figure if we allow passive income, we should allow passive taxes...
The stock investments incidentally ARE already taxed, whether you are actively managing them or if someone else is doing it for you and collecting a fee in the process.
Taxation of company shares depends on many things, such as the debt ratio and value of products the company owns. It's very possible to owe only a tiny amount, or none at all, while still doing business and making money. This is the superior approach which has proven to work if you look at history.
I used to as well, but now I flipped. I don't think you should be taxed for doing things, I think you should be taxed for wealth. I think there should be no tax for working ( income ), buying things ( sales tax ), etc. Activity which promotes economic growth shouldn't be taxed. But wealth should be taxed. House/assets/etc should be taxed.
It's insane that you get taxed at 39% for work ( income ) but someone letting his money "do the work" gets taxed at 20% ( long term capital gains tax ).
> I should be able to go live in the woods alone and not have the government take some percent of my net worth just because I exist.
But the government protects your ability to do so. So no. Though I'd be in favor of governments setting aside land internationally where people are allowed to live "in a state of nature". They are not allowed to form tribes/governments, but are allowed to live "free" as they wish untaxed without the help of society.
> If I start a company and it gets valued at 30 million dollars, why should the government be allowed to force me to sell my company to pay their wealth tax?
Cause the company exists in a society governed/protected/etc by the government? It's the beneficiary of the environment.
> Now the government is going to force me to sell my car?
Nope. You could always go out and work to earn money to pay the wealth tax too and keep your car.
I'd be in favor of removing all taxes for one wealth tax.
Deleted Comment
If it earns for you while you sleep then it is also taxed while you sleep. Income is income: the tax man doesn’t care where it comes from.
[..]In economics, capital consists of human-created assets that can enhance one's power to perform economically useful work. For example, a stone arrowhead is capital for a hunter-gatherer who can use it as a hunting instrument; similarly, roads are capital for inhabitants of a city. Capital is distinct from land and other non-renewable resources in that it can be increased by human labor, and does not include certain durable goods like homes and personal automobiles that are not used in the production of saleable goods and services. Adam Smith defined capital as "that part of man's stock which he expects to afford him revenue". In economic models, capital is an input in the production function. [..]
i think you misunderstand what capital really means..
That's a big assumption. Not all capital earns for you while you sleep.
> Those who benefit the most from the system should pay for it.
That's also a big assumption. Just because one has capital does not mean they're benefiting from the regime they're currently under.
There is no meaningful reason that a society should want you to inherit a piece of art or a car from your ancestors. (The only practical one is that the sorts of families who can pass down expensive art also control society.)
You didn't work for that art or car; you simply had the fortune to be born into a family with one. Every single reason why it is unjust for someone to inherit a government role applies here. If you don't think King James the Nth should rule simply because King James the N-1st did, why do you think James Jr. should have 30 million dollars in financial power simply because James Sr. did?
Just like hereditary rule, hereditary property breaks the fundamental relationship between work and reward that is common to any functional society. If you work hard and get a spare $30M to buy a car, sure, whatever, we can say you were incentivized to work hard and produce $30M of value. But if you work hard and give your kid $30M, how is your kid incentivized to do anything?
And the argument that well-off parents have an inherent right to make their kids' lives easier leads directly to the correlation between class and race/caste. If it's moral for me to make my children better off than others' children, who is to say it's immoral for me to make my nieces and nephews several times removed better off, too? Who is to say it's immoral to make all the people in this town who came from a certain ancestral lineage better off?
And on top of all that, it usually doesn't even work. We associate "nepotism" with waste and corruption, not just distasteful behavior, because we understand those who are chosen because of their family relationships generally aren't more qualified than the rest of the candidates. Even at the smallest scales, when you hear stories of the CEO's college-age kid getting an internship, it's almost always the case that the child has not inherited any particular talent, and in fact is probably less talented than would be needed for the job.
Parents should be allowed to provide for their children to set them up for adulthood - they should be able to pay for housing and food and clothing and education. When they can't, society should step in to help them, and we're almost there: we have welfare programs and private charities for basic needs, free public education, and (at least among private colleges with sufficient endowments) full need-based financial aid. Parents should not be able to do more than that, in a society that prizes democracy and equality over the natural superiority of certain families.
If it’s your company, is there any particular reason you don’t pay it (or a loan against your equity) out of cash flow? Just like every other significant expense?
If it’s a painting or a car, it’s already getting taxed as an inheritance, so this is just a .4% increase in a 40% tax, no?
I happen to agree that wealth taxes are unwise, but it’s not because implementation is weird. We already have property taxes; we’ll figure it out.
The main reason it’s bad is because wealth taxes compound, even when you take losses on investments. Retirement accounts will simply be ~20% smaller than without the tax.
Believe it or not, the bottom ~50% don't have enough money to tax. The next 30-40% have some but not enough to raise enough money to help. The taxes have to be focused on the top 10% and more likely the top 1-3% to raise enough to meet these demands.
I think the biggest problem will be trying to enact this on people who aren't California (or even US) residents who are now out of state. You can tax visitors for actions they take while they're in your state (sales tax, hotel taxes, even income) but when they're not there and haven't been there for years?
The State of California may get a rude awakening on this one.
There’s a growing misconception that everything can be paid for by simply taxing the wealthy a tiny bit more. Several prominent activist politicians have built their platforms on the idea that billionaires are an infinite source of consequence-free tax revenue.
These ideas are especially popular among the college students and new college grads I mentor. It usually falls apart when they pull out their calculators and realize that Jeff Bezos entire net worth wouldn’t come close to paying off everyone’s student loan debt or solving climate change.
Meanwhile, completely false Tweets about how Jeff Bezos is about to become a trillionaire or how he could simply solve the entire student loan crisis himself gain 100,000s of likes, some of them from prominent politicians or their campaign managers. People don’t care about the facts right now.
Frankly, many people don’t really care if this solves anything or if second-order consequences result in a net decrease in tax revenue due to people simply moving (as is the case with some wealth taxes in other countries). For many, this is more about punishing their bad guys than generating tax revenue to accomplish something.
The fact that the state can also use some of this money to help with the funding of social programs is a secondary benefit.
If it’s actually about raising revenue, you will need to actually look lower, to the top 10% and broader middle class. But this isn’t nearly as compelling as a populist message to fund the various proposed unicorns...
I actually think our country can afford to tax the rich more than we have done, but there are a lot of people who reach the same conclusion by utterly farcical reasoning. Relatedly, there are a lot of people who rail against capitalism for making us slaves as though there is an alternate system that doesn’t impoverish and ultimately kill billions.
When they are in office, they try to string along as long as they can. Like this bill will probably not pass, but some damage could be done and the next time they have to give more ridiculous promises.
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>That’s why we need a tax on wealth. The Ultra-Millionaire Tax taxes the wealth of the richest Americans. It applies only to households with a net worth of $50 million or more—roughly the wealthiest 75,000 households, or the top 0.1%. Households would pay an annual 2% tax on every dollar of net worth above $50 million and a 6% tax on every dollar of net worth above $1 billion. Because wealth is so concentrated, this small tax on roughly 75,000 households will bring in $3.75 trillion in revenue over a ten-year period.
Are you saying this is wrong if I 'pull out my calculator' and run the numbers? The reality is it is not. Wealth is massively concentrated at the top in this country, and from a purely numbers perspective, if it were 'redistributed' it could cover a lot of basic costs that occur in this country.
[1]https://elizabethwarren.com/plans/ultra-millionaire-tax
It’s kind of a pain for someone living in say Kenya which doesn’t have a tax treaty with the US, but it’s not totally absurd to think you owe something to a country whose citizenship you continue to benefit from.
I lived and worked in country A, have citizenship with country B and the most amount of money when I worked in A was sent to the US, where I have no rights, no one would come for me to 'save me' when I'm held hostage or whatnot. Nothing. But I paid more taxes to the US than to country A (and nothing to my home country).
I relinquished my Green Card two years later.
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Are you aware that top tax rates are a fraction of what they were decades ago? Perhaps, the more accurate lens to view things is that the wealthy/business has lobbied for less and less.
Who are you addressing? The Democrats who “demand more more more” are likely to be the same people who are fine with taxing the rich more.
if you are a Software Dev for a FANG or FANG like company guess what you are in the top 10%.....
Please tax the wealthy more. Send the tax man to my house and all my peers. We can afford it just fine.
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If you're going to move where you live or significantly alter where you spend you time because of 0.4% of things above 30M, that's a real sign of just how far American greed has gone. The rich will drive themselves right into another french revolution unless they start realizing that taxes need to return to where they were from the 1930's-1970's. Trickle down economics is a known failure and at this point it's a question of when the pendulum will start swinging the other way.
Meh, as a French person, the number of people who did this is pretty low. People hid their assets sure, but the FTB is a bit better at this than the fisc is ;-)
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No, you fix it. Law is code, and needs tuning.
When people as so inclined to give up on first failing, then I feel it says more about their underlying worldview than it does about what's possible in the world.
Hardly a comparison. Can't do an easy commute to the office with that. Most people with that wealth won't burn the money on uprooting their companies.
Couldn't they just limit the amount you can emigrate from the country with.
So if you emigrate, you can only take a maximum of, say, €10 mill.
i.e. earn it in France, using French laws, a French education and French infrastructure, it stays in France.
Obviously it clashes with EU free movement, but basically the problem seems to be we can't tax the rich because they take advantage of globalism to move their money around.
Isn't the solution to stop them moving it, rather than giving up?
If California was well run, clean, and had otherwise lower tax, then .4% might be easy to ignore. But if you’re already on the fence, and not happy with things, and have been talking to real estate agents in Seattle, Austin, Miami, or Singapore, then this just the kick in the butt you might need to go through with leaving.
I believe one of the differences is that in California, this would be on top of federal and state capital gains taxes, whereas in Switzerland, there is no tax on investment gains (from stock gaining value - dividends do count as income, and once ETFs with dividend-paying stocks get involved, it gets messy but TLDR you still pay the income tax on dividends).
Eliminating deductions for high-income earners while reducing tax rates on that income is revenue neutral, and generally preferable as a policy.
Many people, especially at HN for some reason, don’t realize that the Tax Reform Act of 1986 made tax rates more transparent which is why the “sticker rate” was lower.
Interestingly, the former tax rates often times screwed the middle class much more, because they couldn’t afford an accountant and/or engage in the wide range of financial maneuvers that could substantially reduce one’s tax burden.
No higher earner ever paid sticker price tax rates when they were that high.
Source: My mother. She has been a tax accountant since the 70s. The Tax Reform Act changed the field considerably.
https://en.wikipedia.org/wiki/Hauser%27s_law
https://turbotax.intuit.com/tax-tips/small-business-taxes/is...
What these people will come to terms with is a pretty age-old lesson - there are things more important than just how rich you are, and most of those are human. So long as they can maintain their lifestyle, I think many will want to stay. Needing to find 20K in a couch cushion to pay for your 5M in assets each year that you make 300K on won't be the thing that makes you move.
Of course, the rich today also have many legal shields and layers that will protect them from real french revolution violence. But I think anyone can feel the shift right now. Go on Tiktok and see just how many young people are getting real into eating the rich :)
I know that the uberrich get away with dodging taxes all the time, but there are potentially high costs, like having your assets confiscated, or having to hide out in your island fortress and never return to the US lest you end up in prison.
I would say this isn't any different than any other greed at any other place or time. It's simply a cost-benefit tradeoff decision. If people perceive that being in California makes more money than the wealth tax costs, they will stay. If not, they will leave. There doesn't have to be any moral or principled component to this, just simple self-interest.
Also don't overlook the deterrence factor. The wealthy currently in CA may stay there if moving represents a greater overall cost. But anyone not currently in CA would have a great disincentive to never move there.
What I do not understand is why not just implement a more aggressive estate tax on people and close the "trust" and "foundation" loopholes for avoiding the estate tax.
Let's take Jeff Bezos as an extreme example (who isn't even a California Resident). At least until we figure out immortality, Jeff Bezos will die someday. Let him enjoy the wealth that he has earned by creating a company that has benefited society as a whole. When he dies, his wealth should return to the society from which it came. He was rewarded for his work/ingenuity/effort during his life, and now that he is gone, society reclaims the rewards it had given him. What is wrong with that?
The way I see it, once you are dead you don't get a vote, and you don't get a say in the affairs of the world so you shouldn't be able to direct that wealth through any kind of inheritance, foundation or trust. His children have done nothing to earn or create that wealth themselves so why should they deserve any of it? They will have the same opportunities to create and earn wealth that he did, and they will benefit from the society he contributed to.
If they are able to build equivalent wealth via another Amazon.. Great! They earned it! if not that is fine too. You want to help your kids? Teach them how to fish for themselves instead of giving them an unlimited supply of fish.
Passing down wealth from generation to generation or directing wealth long after you are dead through foundations and trusts is directly opposed to any effort to give "equality of opportunity" for future generations.
https://www.mcsweeneys.net/articles/i-will-do-anything-to-en...
San Francisco has a city budget larger than most other countries. This election, it voted to pass all nine measures for new taxes!
https://sfelections.sfgov.org/november-3-2020-election-resul...
The difference, however, is that today's rich people can easily move their residence, and with remote-work; maybe their companies.
In the old times, it was not quite easy to move to another country. I can imagine the difficulties (selling your assets, taking your fortune, figuring out the new kingdom, wars and instability, etc...). This is no longer an issue with city-states like Dubai or Panama; and the fact that your wealth is floating online on some stocks, banks, bitcoin, derivatives, or real-estate scattered around the world.
This doesn't concern the average joe, however. Which is why he continues to carry most of the tax bill and is cash-strapped.
California issue, however, is not the rich are greedy; but that its government is corrupt and inefficient. Raising taxes doesn't help but only grow the corrupt bureaucracy.
Hatred towards the ultra-rich is not based in jealousy but in a moral stance. The argument is not "I want your 30M" it is that "people having this much wealth is bad for all of society".
See: https://www.nytimes.com/2019/02/06/opinion/abolish-billionai...
There's much debate to be had over where that line of "too much wealth that it can't possibly be moral" is, but this is where the cultural conversation is. You're missing the point if you think it's jealousy.
As an example, I never plan to have more than about 2M (in today's dollars) of personal wealth. I'm not supporting this tax because I want the 30M, I'm supporting it because I think it may have positive effects on reigning in the human instinct for greed by aligning societal incentives with personal ones.
I'm trying to keep this narrow as I'm not trying to claim I'm correct that this specific iteration of the tax will work, or even of the form, but hopefully my point about the targeted issue is clear!
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He's just highlighting a fact of life.
You can't have people starving next to people having 7 course meals.
I can't complain about my financial situation and this is precisely why I would support a fairer redistribution. I'm willing to sacrifice a bit so that others have a decent life, too. Because otherwise you can step on others only for so much, and at some point losing your possessions is the least of your concerns.
If you're a true conservative (not in the US sense of the term), you should understand this. Heck, Bismark, the grandfather of conservatives understood this.
I find that a hard statement to square with the founding principles of American culture. The USA was a country that declared independence and fought a war over taxation. The colonies as a whole were a magnet for opportunistic pioneers -- in fact, for much of history, "opportunistic pioneer" (for better or worse) was and is what people think of when they think of American.
So while you're correct that it is a certain kind of greed and self-interest, where I can't understand what you're trying to say is "how far X has gone." What does how far mean? The greed has been at this level since nation's conception. And ostensibly, it was the whole /point/ of the nation.
This is a bandaid over Prop 13. We should tax land more instead of having high income taxes, economists agree the land value tax is the most efficient tax.
It's not because of a .4. As you said, barely anyone will pay it. And still people are leaving.
It's because it's now a fact:
That California politicians are unable to spend wisely.
That California politicians have great appetite for raising taxes, and inventing new ones.
So it's not a .4 that drives people out. It's because they know what's next.
What? Y-combinator takes in lots of people for more than 60 days and they're on track to make a lot of money given the success rate of YC startups.
>> When people are getting 5-6% returns on investments (minimum), 0.4% is still not even stopping the rich get richer effect.
How is that relevant to taxing people who dont live there?
The 99th percentile wealth vs 99th percentile taxable income suggests that many very wealthy people are making lower returns in fact.
If people are generating those returns, however, there is no need for a wealth tax: the returns are already taxed (and could be taxed at a higher rate without a whole new invasive tax regime).
I couldn't find what the tax was supposed to go towards but I also didn't make it beyond the paywall.
Where is the explanation for how the money was spent, why it hasn’t paid off, and what would be different?
As far as I can tell it’s not ‘earmarked’ it’s just more tax for the general fund.
Also, Earmarks have never been trustworthy so it wouldn’t matter even if it were earmarked.
Gas tax is the most cited counterexample, but even there roads get money from general revenues.
California doesn’t have a money problem. They have a lack of political will problem and an incompetence (or corruption) problem. The state is held hostage by NIMBYs and is chronically unable to build infrastructure. Look at the high speed train disaster for an example of the latter.
NIMBYs ensure that any money or effort put into the homeless problem is also wasted, as there is no affordable housing for these people to inhabit even if their mental health issues are dealt with.
More money won’t fix these things. It will probably go into the pockets of the people who created these problems.
Note that much of what I wrote applies to the USA broadly. We are taxed not much less than Canadians, but have the infrastructure and social services of a “developing” nation.
Give me either low taxes at e.g. Costa Rica levels OR shiny infrastructure, free college for my kids, and universal healthcare.
Oh wait Costa Rica has universal health care...
We are great at setting money on fire in this country.
You do realize a wealth tax is one way to bring in income to try to fix these problems right? You guys don't even have universal healthcare in the middle of a global pandemic. Laughably sad.
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It's good for Californians to enforce their values. They'll keep their country unique, while the rest of the world homogenizes into a capitalist dystopia.
> that's a real sign of just how far American greed has gone
Glib support of expropriation shows just how far American collectivism has gone. Naked envy and resentment hiding behind a fig leaf of public mindedness.
The Dutch equivalent is 1.6% tax on wealth above €1m.
The number of Ultra High Net Worth Individuals in the Netherlands is still increasing.
It may be more comparable to Norway’s wealth tax, which is 0.85% of everything above 200K€ (With some provisions for primary residence and illiquid shares IIUC, discounting these somewhat)
A Norwegian tax professional I had a chance to talk to a few months ago claimed that wealthy people were leaving Norway because of the wealth tax. Are there any Norwegians in the forum that can say more about this?
They present it in the Netherlands as if you are paying 30% "capital gains" tax on an assumed-fixed gain of 5.28%, your actual gain becoming irrelevant under this system. You also pay this earlier - annually, not at the point of realising the profit.
Overall, the Dutch total tax on wealth is still going to be considerably higher.
Another democratic agreement is that you are allowed and encouraged to own capital. (That's why it's called 'capitalism', to distinguish it from other possibilities)
Statements like that never augur well for what follows.
> Why not call it what it is, a pre-death estate tax?
Do you have a cogent objection to estate taxes? Many would consider them the fairest of all possible taxes, since your property rights - past, present, and future - evaporate at death.
> it should be done at the time of use or income generation/realization
Why? What's the rationale, besides personal benefit/preference? Taxing money in motion reduces motion, which is hardly a good thing except when the motion itself is illusory arbitrage (e.g. HFT).
> double jeopardy laws
Double jeopardy is a concept of criminal law applied to humans. It's certainly the wrong term here, and arguably the wrong concept. Even your own "time of use" standard leads to the same money being taxed multiple times. Why should it be any different when assets are held instead of exchanged (see above about money in motion)? Henry George and others have made eloquent arguments for taxing wealth - especially land - instead of income. It has been tried many places and times, generally with good results. Do you have any substantive counterargument, or just random phrases plucked from a pseudo-libertarian website?
CA is imposing a tax on the TOTAL wealth of a person over the limits and excluding real property.
The Dutch impose a tax on the increased value of the wealth in the year, even if it was not "realized", which is more like our Capital Gains.
So an example, if you had Stocks worth 100 million, and they increased in value to 108 million in 2020
Dutch: 108-100: 8 million taxable, you owe $128,000
CA: 108 Million, you owe $432,000
Pretty large difference
and the Dutch Model is better in some ways when your assets DROP in value, which does happen,
so if we are in recession your stocks go from 100 million to 90 million, under the Dutch Model you would not owe taxes, under the CA model you still would
Edit: just found out that in California capital gains are regarded as normal income. So you'd have to pay that 1 million already, but now you'd have to pay another additional 432k... so tax increase of 50%.
Your taxable amount on €100,000,000 is (approximately) 1.6% of the total, not of the gain. You would pay €1,600,000.
This does replace capital gains (I'm not sure to what extent): it is presented as an assumption that you will gain a fixed amount of [edited: 5.28%].
> 50306. Worldwide net worth shall not include any real property directly held by the taxpayer.
(It does include real estate held through an LLC, though, so any smart commercial landlord is still going to be subject to it.)
But who knows who'll pay for the extortionate rents if the whole thing falls apart
California should eliminate its income tax through ballot initiative. Moving it, from the highest in the nation to zero. Thats right. Zero.
Can you imagine how awesome California would become with no income tax? Everyone would instantly get a 10% raise. The quality of everything would go up and the cost of everything would go down. Standards of living would instantly go up.
Other states provide a much higher standard of living with zero tax. California can do it too.
How do you explain a state like Florida?
40 years on I was right.
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Wow. That's nuts.
This is basically an act of desperation which will be wrapped under some fanciful class warfare and sadly also rife with cut outs to avoid offending specific groups. If they would clamp down on industries rife with funny money accounting, namely the music and movie industry, they might not have to go after individuals.
However people always think this will stay at certain income and wealth numbers don't fully understand who exactly is paying the bills. While it easy to point to this percentage of people paying half the money the rest is equally important.
Example, in NYC it is estimated that eighty percent of taxes is from less than twenty percent of people earning a hundred thousand per year. While skewed to the much higher end the fact is this eighty percent on income taxes is twenty two percent of the total tax revenue in the city.
Finally, all of this that is happening in California is on top of a thirteen percent marginal rate which is highest in the country being over half again as much as New York.
How many people do you think have $30M and spend >= 60 days a year in California, that do not benefit from business/property/services/educated employees in California? Very, very few.
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