Is Warren’s 2-cent wealth tax good or bad?

[djrenown]

Even rates well below 100% will create an effective cap - assuming the tax rate is above the returns you can expect to average. It's easier to think of it's effect on someone who currently has insane wealth. Imagine Rich Uncle Pennybags is worth $100bn, but we're going to tax everything above $20bn at 50%. Let's also assume he grows capital by 20%yearly.

By the end of year 1, he's worth $120bn, but he now owes $50bn in taxes. So now he's worth $70bn. Year two he's worth $84bn, but now he owes $32bn in taxes, dropping him to $52 bn. At some point - as a function of tax rate and yearly return - that will balance and his wealth will hold steady as his capital growth perfectly balances his taxes.

So you are going to tax people on unrealized earnings in this model? Very few, if any people, are worth in liquid assets over 10 billion, more less 20 billion.

 

[djrenown]

FWIW - This is a topic that completely changed my opinion on economic issues. I would have been with your general position 6 years ago until I started digging into this data.

Your example is correct on the trend - both in yearly income and in wealth. There's piles of data and research on this but of course debates on methodology and magnitudes.

Here's a direct link to Federal Reserve data that goes back to 1989. I think there's much better analysis from academics on this, but you can quickly plug in the numbers here to get a feel.

Wealth Share 1989:

• Top 1% - 20.8%
• 90-99% - 34.5%
• 50-99% - 37.5%
• Bottom 50% - 7.2%

Wealth Share 2020:

• Top 1% -28.3%
• 90-99% - 36.1%
• 50-99% - 30.1%
• Bottom 50% - 5.5%

Total Change in Wealth (not inflation adjusted - just raw $$)

• Top 1% - 8x
• 90-99% -6x
• 50-99% - 4.7x
• Bottom 50% - 4.5x

It hasn't always been like this. The Fed data shows top 1%, but really the problem is more concentrated than that. Here's the wealth share of the top 0.1% over the last century (source).

Thanks for the data, it's definitely interesting. so the plan is, tax the .1% of wealth, take that money, and redistribute it as a "credit" to people making less than 50k/families under 100k?

 

[Knight In TN]

Even rates well below 100% will create an effective cap - assuming the tax rate is above the returns you can expect to average. It's easier to think of it's effect on someone who currently has insane wealth. Imagine Rich Uncle Pennybags is worth $100bn, but we're going to tax everything above $20bn at 50%. Let's also assume he grows capital by 20%yearly.

By the end of year 1, he's worth $120bn, but he now owes $50bn in taxes. So now he's worth $70bn. Year two he's worth $84bn, but now he owes $32bn in taxes, dropping him to $52 bn. At some point - as a function of tax rate and yearly return - that will balance and his wealth will hold steady as his capital growth perfectly balances his taxes.

Holy fück this may be the dumbest thing I’ve ever read.

Just complete fantasyland nonsense.

 

[Crazyhole]

Holy fück this may be the dumbest thing I’ve ever read.

Just complete fantasyland nonsense.

Huh? It isn't nonsense, it's math. No it isn't practical or applicable in real life but what he is saying is totally sound

 

[Crazyhole]

Nobody would attempt to create the headache of wealth if it was completely stolen anyway. It's dumb even for a lefty view.

Maybe that would be a good thing. Give people an incentive to not accumulate more wealth than they could ever enjoy. Capital carries far too much weight relative to labor at this point, so we need to find creative ways to bring that back to a sustainable balance.

 

[Boosted87]

Holy fück this may be the dumbest thing I’ve ever read.

Just complete fantasyland nonsense.

I mean, I literally just did some math.

 

[Boosted87]

So you are going to tax people on unrealized earnings in this model? Very few, if any people, are worth in liquid assets over 10 billion, more less 20 billion.

Yea I'm not saying this approach is practical - just wanted to illustrate that conceptually you only need a tax rate that is higher than someone's growth rate to create a cap.

 

[Knight In TN]

Huh? It isn't nonsense, it's math. No it isn't practical or applicable in real life but what he is saying is totally sound

Who gives a fûck if it’s mathematically sound if the policy he advocates for is completely absurd?

And let’s say for argument’s sake that a valuation of your assets could be made every year. Would there be an appeal process? Because if not the government can value your $10B in assets at $40B and now you have a $4B tax bill. Is the government seizing shares in your company (your life’s work) as payment? Because you certainly don’t have the cash to pay it. So you end up either taking on massive debt to pay the tax just to hold the government at bay for a year, or the government takes shares in your company to pay for your owed taxes - which was the goal all along.

This is nothing short of a proposal for government to seize control of private businesses and real estate, naively embraced by people who don’t think the 1% pay their “fair share.”

 

[Knight In TN]

I mean, I literally just did some math.

I get the math. The policy is a blatant appeal for government takeover of private industry.

 

[Crazyhole]

Who gives a fûck if it’s mathematically sound if the policy he advocates for is completely absurd?

And let’s say for argument’s sake that a valuation of your assets could be made every year. Would there be an appeal process? Because if not the government can value your $10B in assets at $40B and now you have a $4B tax bill. Is the government seizing shares in your company (your life’s work) as payment? Because you certainly don’t have the cash to pay it. So you end up either taking on massive debt to pay the tax just to hold the government at bay for a year, or the government takes shares in your company to pay for your owed taxes - which was the goal all along.

This is nothing short of a proposal for government to seize control of private businesses and real estate, naively embraced by people who don’t think the 1% pay their “fair share.”

I brought this up earlier in the thread.

 

[Boosted87]

Thanks for the data, it's definitely interesting. so the plan is, tax the .1% of wealth, take that money, and redistribute it as a "credit" to people making less than 50k/families under 100k?

I don't know the right answer moving forward. But I do think this explains our politics really well. Bernie and Trump's popularity had a lot in common. They were both populists organizing working class Americans against some perceived enemy. For Trump, it was "the swamp" and immigrants. For Bernie, it was corporations and billionaires. I think what you see in this data is the root cause of rising populism across the board.

The overall grievance that DC has spent 40+ years working against the economic interests of the middle class is pretty well illustrated in that data, and I think it's the root cause of populism both left and right today.

So regardless of whether left-wing economics are the right answer or not, it's the only side recognizing the underlying problem in some way. So solutions like Warren's are the only game in town.

 

[Boosted87]

I get the math. The policy is a blatant appeal for government takeover of private industry.

Who gives a fûck if it’s mathematically sound if the policy he advocates for is completely absurd?

And let’s say for argument’s sake that a valuation of your assets could be made every year. Would there be an appeal process? Because if not the government can value your $10B in assets at $40B and now you have a $4B tax bill. Is the government seizing shares in your company (your life’s work) as payment? Because you certainly don’t have the cash to pay it. So you end up either taking on massive debt to pay the tax just to hold the government at bay for a year, or the government takes shares in your company to pay for your owed taxes - which was the goal all along.

This is nothing short of a proposal for government to seize control of private businesses and real estate, naively embraced by people who don’t think the 1% pay their “fair share.”

I didn't advocate for the policy. I responded to a post that said we'd need 100% tax rates in order to cap wealth. I simply explained how you only need tax rates that exceed growth rates to create an effective cap. It was literally a hypothetical math example to illustrate a concept. Not a policy proposal.

Let's move on - Here's what I think is a good question for all of us.

I think we all agree that in some cases, the government needs to flex anti-trust muscle to deal with monopoly power - right? OK - at what point (if any) would you apply that logic to private wealth?

For example, if we lived in an effective oligarchy and 10 individuals held 99.9% of all wealth, would you support or oppose policy that begin to systematically confiscate and repurpose that wealth?

 

[goodknightfl]

As a Trumpster, I am not against immigrants, I am ok with bringing in more legally. I am against willy nilly illegal immigration.
As for the swamp, The richest counties in the US surround DC and live off the money they take from us.

 

[Knight In TN]

Let's move on - Here's what I think is a good question for all of us.

I think we all agree that in some cases, the government needs to flex anti-trust muscle to deal with monopoly power - right? OK - at what point (if any) would you apply that logic to private wealth?

For example, if we lived in an effective oligarchy and 10 individuals held 99.9% of all wealth, would you support or oppose policy that begin to systematically confiscate and repurpose that wealth?

At no point should that be applied to private wealth. I would never support policy to confiscate and repurpose wealth. Period.

There’s a fundamental misunderstanding of what the ultra-wealthy’s net worth is actually made of. When the argument is framed as whether or not someone should be allowed to have $50 billion, people don’t have any concept of what that actually looks like so they imagine someone with a ten or eleven-figure checking or savings account because that’s all they know.

But the real question is: if someone shouldn’t be allowed to have a net worth of X billion dollars, what happens to their ownership of the fantastically successful business they started? If you start a business and grow it to be worth $100 billion you shouldn’t need to give up your ownership of that business just to stay below an arbitrary net worth cap.

 

[djrenown]

I don't know the right answer moving forward. But I do think this explains our politics really well. Bernie and Trump's popularity had a lot in common. They were both populists organizing working class Americans against some perceived enemy. For Trump, it was "the swamp" and immigrants. For Bernie, it was corporations and billionaires. I think what you see in this data is the root cause of rising populism across the board.

The overall grievance that DC has spent 40+ years working against the economic interests of the middle class is pretty well illustrated in that data, and I think it's the root cause of populism both left and right today.

So regardless of whether left-wing economics are the right answer or not, it's the only side recognizing the underlying problem in some way. So solutions like Warren's are the only game in town.

I agree. I just simply don't believe the government is capable of solving complex economic issues when they continue to prove each and everyone of them is in it for the their own self interest and survival. People like Biden, Bernie, Pelosi and McConnell are life long politicians looking to stay employed by running a popularity content at home with their constituents and staying on govt pay, pension and insider information to line their pockets.