This seems to only be true for people whose income entirely comes from their wealth, rather than their labor. The math doesn't math for someone on the other extreme end of the spectrum who has zero savings or investments and obtains all his income from labor: To him, a N% wealth tax = 0% income tax for all N. Those with -some- savings are somewhere in the middle.

It is a very sneaky way to argue that a wealth tax should be as across-the-board unpopular as a large income tax increase. But Graham's math is only applicable to those flush with investments and with relatively small salaries from labor, so a wealth tax is only unpopular to that particular group.

> Each 1% of wealth tax is equivalent to 20% of income tax.

Yes, this is the right part. Taxing wealth at 1% is equivalent to taxing income at 20-25% (depending on which return you count as baseline)

> It's clear that politicians don't get this from the way they talk about a "mere 1%" wealth tax. None of them would speak of adding a "mere 20%" to the income tax rate

On the opposite, they understand it right, and PG is completely wrong here: it's not about adding income tax rate to someone that already pay income taxes, it's about making wealthy people, who don't currently pay this tax rate, pay the same rate as people living from their income.

> So in the median case, a state adding an additional 20% in income tax would have a total marginal tax rate of 37% + 4.75% + 20%, or 61.75%.

Bezos, Musk, Zuck and the likes (or even PG himself, likely) don't pay 40℅ tax on their wealth growth, they currently pays 0%.

In fact, to make them pay as much tax as their employees, there should be a 2% income tax, not 1%. Hence, a “mere 1%” is in fact a very generous proposal by leftists politicians and economists, as it would still mean the wealthy only get half the rate of working people.

For most people income is tied to selling their time. It doesn't scale at all. Unless the income comes from wealth.

The societal problem here is a group with self-reinforcing run-away levels of wealth. And to counter that you do need something more extreme than this nonsensical equivalency of income tax

Sure, but you actually have to work for continued income. Wealth accumulates with no input once established.

Wealth has the ability to increase (capital gains) without having to pay tax until it changes hands, whereas when income increases it is immediately taxed at a higher rate. Additionally, wealthy people can use securities as collateral for near zero interest lifetime loans which also bypass having to pay income tax.

That being said, the richest are effectively _not_ paying the highest marginal tax rate considering all the tax structuring they do. Claiming that they would be paying the highest income tax in the world is misleading, for one. Secondly, the richest in the world _should be_ paying the highest income tax.

If (big if) I'm remembering that correctly, I don't get why we just go after the problem directly and do something like treat putting down collateral for these type of loans as a taxable event. I'm sure it's not as straight forward as it sounds, but I can't imagine it'd be more convoluted that needing to track the wealth of every high net worth individual.

Maybe I'm in the minority on this, but I actually don't care if Jeff Bezos' net worth went up by $5 billion because Amazon had a good day in the market. If the shares are just sitting in an account doing nothing other than proving ownership it's all kind of just numbers in a computer, IMO. A painting is probably a better example than stock, but if I have a painting on my wall that was worth $1 million dollars yesterday and today it's worth $10 million that change in valuation is essentially meaningless as long as the only thing the painting is doing is hanging on my wall.

What I do care about is when he's able to access the cash value of that $5 billion of Amazon stock without paying the taxes that would come along with selling the stock. If he wants to leave $5 billion in Amazon stock just sitting in his account doing nothing until the day he dies, that's totally fine, but the second he puts it up for collateral we should tax that. I think this has the added benefit of simplifying things by avoiding a lot of questions around fair valuation of assets. If I have a $10 million dollar one of a kind painting on my wall that I'm never planning on selling, it's kind of hard to put a valuation on that and it can be easily manipulated by finding the right appraiser. If I put a painting up as collateral for a $10 million loan it becomes a lot harder for the owner to argue that it's actually worthless or the IRS to argue that it's actually worth $1 billion.

Paul tries to frame it as an increase of 20% in the tax rate, but in reality the increase is from 0% to 20%, and it's hard to see why that's unfair.

The reason I say it's currently 0% is of course that for the wealthy most of these 5% gains are unrealized (e.g. inflation in the value of their assets) and untaxed.

The principle is simple: if you are spending the money, your gains are realized, and you should pay taxes.

I think there is kind of a breakdown in social order here. If society allows you to become the chief, it ought to also impose upon you a burden, an obligation, to wield your power over the tribe fairly, generously. To care for the weak, to make sure that everyone benefits, to ensure that things stay stable and safe under your leadership... The standard is higher, not lower. The sacrifice is greater, not lesser.

It is absolutely bizarre and you can see exactly thew way PG, and other like him, are thinking. They all want to have this immense power (and it truly is immense, more immense than ever in modern history!) but they want none of the obligation, none of the responsibility.

Even asking for 20 percent is too much, apparently.

It's really sick.

For most people their ability to earn is by far their largest asset. You can kind of get a feel for how difficult it is to bootstrap into generational wealth if you think about the math -- it takes time to replace that earnings portion of your own balance sheet, and even more to well replace it; a lot has to go right in the interim.

If you accumulated a fortune, there was some skill at play. There was also considerable luck and some exploitation. The wealth tax is a way of paying back for the luck and exploitation.

You will still be extremely wealthy.

Paul wants to play the fairness card. Life is not fair and those who accumulated massive fortunes won the lottery. Don’t let the massively rich conflate issues. Don’t get fooled.

Investments shift to things whose tax value updates slowly, for example property which typically adjusted more slowly than other financial assets. This tends to rise property prices and concentrate ownership.

It causes other distortions in allocation depending on the tax details, but wealthy people tend to adjust more aggressively to changing conditions.

This does make retiring a tad bit complicated. Say you've saved $3M and are ready to retire. That means each year you're spending $75K just to satisfy this tax.

[1] Depending on how your wealth is structured. Cash is 2.5%, but if you own, say, a business, you pay the tax on the value of the goods, not on the value of the building, hardware, etc. You don't pay Zakat on the house you live on. Agriculture is actually taxed at 10%, etc.

This is the wrong way of thinking about it. It's not adding 20% to an already taxed entity, it's adding taxes where there weren't before. Adding 20% on top of the income tax would indeed be controversial. In his framing the rate of return is effectively untaxed income, so it would be more accurate to say that this is like adding income tax to a currently untaxed income stream.

I think that what you can tell is that they think the voting public won't understand the momentousness of what they're proposing (or that their "color" will cheer that very momentousness).

Whether they themselves do or don't understand how impactful the proposal would be is much harder to guess.

P.S. a wealth tax is a property tax. They have existed in the US since before the income tax (which was originally considered unconstitutional by its opponents).

This would close the gap between Buffett's tax rate and that of his secretary, but would not be the "highest taxes in the world" that PG decries.

Since a lot of billionaires pay practically nothing in taxes, relative to their wealth, a wealth tax that equates to a 20% income tax would be entirely reasonable, and they'd still pay a much smaller percentage than the taxes I pay from my wages. It closes a loophole, it doesn't punish the very rich. And, nobody is suggesting the average 401k or Robinhood portfolio should be subject to a wealth tax.

You can tell from the way they talk about the subject that they don't understand what they're talking about.

Here is a cool website showing Wealth, shown to scale.

https://wealth.ronnycoste.com

Americans really struggle to understand how tax work outside of their country.

First, the whole premise of income to wealth tax equivalence is non sensical, because interests are rarely literally in the form of coupons/payments, but rather left as compounding value. This is the whole point of share buybacks, reinvested ETFs, etc; and Paul Graham knows that of course. If you are rich, you don't need the cash of your investments, so you don't want to trigger taxable events, so you are effectively at 0% tax rate and just let it compound.

> Currently the country with the highest marginal income tax rate is Denmark, at 60.5%

This is the most BS statement ever, and would only be believable to Americans with no understanding of how foreign country do taxes. Which is at best very naive of him, or highly disingenuous. This is because "tax" in the US is essentially employee paid, whereas most other countries split the bill between employer and employee at a higher proportion. The result is the same, but the employee part only is labeled "tax", the employer part being often called "contribution".

When comparing across countries, you have to look at the tax wedge (super gross to net), not the tax rate (gross to net).

And if you do that, well the US has a lower tax wedge than even the most generous European countries (Ireland).

In France for instance, the tax wedge is close to 70% for the higher bracket. Yes, that means if your employer pays $100, you get $30. And that's in a country with 20% VAT compared to US ~8%.

Not to mention, except super rich little little business-hub countries (Hong Kong, Singapore, Ireland, Malta, Cayman Islands, etc), pretty much all _developed_ countries have some form of wealth tax, it's just common sense.

- high net wealth individuals essentially being indifferent to income tax.

- income tax and short term capital gains are taxed at much higher rates to long term capital gains.

- lower net wealth folks (ie. the general public) receiving most of their income as income.

- high and ultra high net wealth individuals now making most of their money through dynastic trusts and inheritance.

This combination ends up making it so that, as Warren Buffet would put it, he ends up paying a lower effective tax rate than his secretary.

I effectively don't really care if it's a wealth tax or some other more targeted technical fix, but it's not sustainable to have the very wealthiest individuals taxed at a lower effective tax rate than everyone else and also able to pass on their wealth directly to heirs without significant estate taxes.

A defining feature of wealth taxes is that they only tax those that make most of their income through capital gains. This is why they're popular among much of the population.

Now the question is, if we lowered capgains tax rate by 20% but instituted a 1% wealth tax, would that be better or worse? My guess would be worse because wealth taxes are nearly unenforcable, but I wonder if there are good arguments for the other position.

I'm skeptical that the super-rich are only generating 5% on their money. My anecdotal experience is that it's usually north of 15%. They have access to investments that main-street does not.

If we plug in 15% instead of 5% in PG's reasoning, the effective income tax increase is quite a bit lower.

It's a big democracy red flag when a majority wants to take a lot from a tiny minority; the moral hazard of the unfairness is that it's unclear where this ends. (Saying "one-time" and "1%" are trying to limit that risk)

It's a democracy red flag when an unpopular minority is vilified as the cause of society's problems. It short-circuits real policy making and distracts from real issues.

The bargain of private wealth is that it's better at innovation that should spread widely -- if it's subject to competition and does not export costs.

One problem is that one of the best investments is to change the law to reduce competition, increase market power, and export costs -- i.e., to weaken politics.

Another is that wealth used to mostly invest locally (information and transaction costs), so locals would see some benefit. No longer.

Finally, as an accelerant, enterprises are made of legions of managers and experts, who now compete more than ever; they would lose that competition by supporting less extractive policies or gentler politics.

Net result is that wealth seems not productive but extractive, and there is no negative feedback to reduce that.

Once the grand gambit of goodwill is lost, it cannot be recovered for at least a generation, but there's no real feedback to prevent that. The political viability of something like a wealth tax is just an early indicator.

Money in the long run can buy anything, including political influence. There are no regulations that can effectively preclude this. (And empirically, America over the past 40 years has seen moneyed entities successfully re-align politics and economic policy with their interests -- this was entirely predictable). An unequal society therefore cannot be a democracy. If you believe in democracy, then you necessarily must believe in wealth redistribution. (In fact, I argue that any person who believes that the American Revolution was justified, for any non-trivial reason, will likely find that those the same non-trivial reason could be invoked to reallocate wealth away from today's wealthy.)

Counterarguments to this view (i.e. a different top-level value than democracy / meaningful sovereignty over the society in which one lives) might invoke utilitarianism: an unequal society potentially produces "better" outcomes if capitalism is allowed to run unrestrained.

But a problem this argument encounters is who gets to decide what "better" is? All systems are economic in the long term, including political ones. A good framework for understanding is that a society in the long term is not "one person one vote" but rather "one dollar one vote." Today's preferences are dollar-weighted. Those with money decide what is better. The economy serves the average dollar's interests. And the average dollar's interest are the wealth-weighted preferences of society's members.

We started with an income tax to fund the government. But today our most pressing issue is not funding the government, but not having an oligarchy. Wealth is the thing that most needs to be taxed in order to allow for any semblance of democracy. Analogies drawn to income, though interesting, are meaningless.

Income tax doesn’t affect unrealized capital gains (where the rich “hide” most of their income).

A wealth tax (even without a minimum threshold) doesn’t apply to the poorest who can’t accumulate enough to even have any savings.

This conversion only works for income that is entirely saved and reinvested, which the majority of people can’t afford to do.

Of course there's more complexity than this, but that aspect is a plausible reductive lens.

But the conclusion is silly. We all know the extremely wealthy who'd be subject to a wealth tax basically don't pay taxes and that a 20% tax is totally right around what the typical overall tax burden is for the middle class or median households. The 1% example equating to 20% is basically saying the wealth tax would be in line with a flat tax, not even with a progressive rate tax. The wealthy have turned the tax system into one that's functionally regressive for the most wealthy and then PG complains that a proposal that makes it more like a flat tax is "not understood" by lawmakers?

It sounds ridiculous to me.

Or maybe I'm missing something.

Given that the ultrarich pay very little to no income tax then Paul’s argument is “don’t increase my income tax from unnoticeable to 20%”

I think it's underestimated how important ease of enforcement is for taxes and laws in general. Laws that are hard to enforce require more powerful law enforcement agencies, more invasion of privacy, more punishment, more restriction of freedom. Enforcing a death tax, for example, necessarily requires limiting and tracking of all transfers of money or assets between people including personal gifts. A property tax merely requires keeping track of land ownership, which is a function governments already do, and in the worst case you can simply physically go to the land and see who is using it or seize it.

Feel free to just tell the masses to eat cake since bread is so expensive while you dine on your mega-yacht. Just like the market can stay irrational longer than you can stay solvent, you may or may not be able to outlive the eventual violent outburst from the rest of the 99%. Scott Galloway is right on that the anti-data center backlash is just a proxy for anger at wealth inequality.

As a bit of an aside, "spending more time with family" is an often-used euphemism around someone being fired, but if you have more money than you know what to do with and you aren't using it to spend more time with those you love, then what on earth is it for?

1- Is this in fact a 1-time tax or is that a dishonest narrative to make the proposal easier to swallow?

2- How do you prevent capital flight to other states?

3- How do those with paper money or more voting shares than equity shares cover their tax bill?

That being said, I think more creative energy needs to be spent on the problem itself.

What do we do about individuals with $100M+ of unrealized capital gains that through various methods will never have to realize those gains to live an extraordinary lavish lifestyle, and their children will inherit the money with a step-up in basis? For those who make all their money from W2s, they pay very high tax burdens, while those who strictly have capital gains generally pay at most around ~20% for LTCG.

To those criticizing the California Wealth Tax, how do we solve this? How do we make billionaires pay more and lawyers/doctors/software engineers pay less?

https://www.propublica.org/article/the-secret-irs-files-trov...

Source: The Second Estate by Ray Madoff (2025)

1- Fundamentally, they are magnitudes of different units, one is tax/income, the other is tax/wealth/time. Not only is the denominator different, one being calculated over income, the other over wealth, but there is an additional inverse time factor.

In income tax, whether the period is yearly or monthly or hourly, is an administrative matter that doesn't materially change the rate, 1%/month is the same as 12%/month, however in wealth tax, 1% wealth tax per year is not the same as 1% wealth tax per month. In many respects one might consider wealth tax to be a second order derivative of income with respect to time. Which is again very similar to a progressive income tax. Anyone that studied polynomials knows that there is no such equivalence between ax and bx^2, they are irreducible mathematical forms.

2)Trivially, in the scenario Paul proposed, Wealth tax is comparable to income tax only with respect to capital gains. That is, if he did find an equivalence between income tax and wealth tax for capital gains (which he didn't), income tax would still apply non capital gain taxes. But I will concede that there may be an argument that, if such an equivalence were found, it could be considered that there exists an Income Tax which will always yield more tax than another specific wealth tax.

3) The equivalence between wealth and income tax cannot be linear. The example given applied to 1% wealth tax and was compared to 20%, and a risk free interest of 5%. If the wealth tax were of 2%, 5% or 10%, would that be equivalent to 40%, 100%, and 200% income tax respectively? The last one is especially ridiculous.

[1] https://press.uchicago.edu/ucp/books/book/chicago/S/bo256019...

I understand why he simplifies things, but it doesn’t really jive with saying politicians don’t understand how taxes work.

I think politicians have a better understanding of taxes than Paul does, and they have a better understanding of how politics work - basically as in all things political, if you convince the majority that you’re dumping on minorities (billionaires, immigrants, trans people) you’ll do well.

Income is money that comes from actually laboring and contributing to society. Wealth tax is tax from sitting on your ass doing nothing.

Also, taxes don’t have to be a flat percentage. Like income tax, a good wealth tax would be progressive. Only wealth beyond a certain amount would be taxed, and the percentages would scale.

This is why we should have income taxes that are as low as possible, but still progressively scaled. We should similarly have a progressive scaling wealth tax, but it should be much harsher than the income tax because we want people to work.

Explained here: https://gemini.google.com/share/e230bcecaaeb

I don't want to do math, but they aren't the same.

And people aren't investing 100% of their income in risk free 5% assets.

My read of this is "the discussion of taxing wealth makes me anxious. i will do a tap dance, please become mired in watching / discussing my tap dance so that we can put off the inevitable and ultimately necessary a little longer"

To the "conversion rate": maybe, but who cares? The answer here is: apply the tax, see if we still have billionaires afterwards. If we do, then keep doing it.

I am fully against any wealth tax but 'Don't get this'?

Who says they don't get it. It doesn't serve their purpose so of course (like anyone selling) they are not going to disclose it.

The very wealthy are paying very low effective rates on their investment gains. Various billionaires have publicly described the truth of this. This is not 20% on top of 35%. They are paying a marginal rate of 35% of deliberately minimized taxable income and zero on deliberately maximized unrealized gains. Then 20% when realized, but as we all know by now there are ways to make sure it’s never realized.

I don’t know what the best approach is here, but I know this framing is nonsense.

How I pay tax on my labor income doesn't have a lot to do with how Paul pays taxes on his investments. Paul makes his money from investment income.

https://www.nber.org/papers/w34170 https://www.propublica.org/article/how-we-calculated-the-tru...

With a wealth tax using his calculation, the higher your returns, the lower the comparable income tax would be. If your returns are 10% you'll pay $1 on $10 capital gains which is 10% and you end up with $109. Conversely someone achieving a mere 1% cap gains would be essentially taxed for 100% of his return.

With income taxes it's usually the opposite: the more you earn, the higher the tax bracket you will be put into.

Somebody like Paul Graham surely has higher than 10% capital gains, otherwise he'd not be exactly a great investor.

Personally I'm against wealth taxes, I think capital gains taxes are a much more appropriate and fairer tool. I also think taxes in general are way too high, if you are part of the middle class and add up everything you pay in taxes, fees, insurance, duties and whatnot you can end up losing 70-90% of whatever you earn. It's extremely hard to actually accumulate wealth for the vast majority of people.

I sure would, if I was talking about someone who makes more money in a week than most of us will make in our entire lives.

I think pg has forgotten that most people aren't rich.

His core point seems to be that taking $20 from him is mathematically equivalent to taking $20 from a homeless girl's hat.

I guess mathematically it is the same number if you dont normalize for that, which he wont.

Uh … sure I would? Why not? The top bracket was 70% in the 80s. So that 61% is still a fair bit short of what it was then. (And the 80s isn't the highest point, either.)

IDK if it would be a good idea or not, but I'd entertain the debate, certainly. To state that this is unarguable, though, well…

Hell, I'll be the first in line to pay the damn tax so long as billionaires are right in line with me too.

What a pompous and uninformed "I am smarter than others" way to think. And very 'parental' (ie 'we can teach them').

Note that Politicians (in order to remain in their job) need to think in terms of the people they represent and getting re-elected by those people. You may not like it it may not be good for you but understand that in the position they are in why they do it.

Person A has one billion dollars. Holds it in cash in a vault deep in a mountain he owns. He does not earn any wages.[1]

20% income tax: $0.00

01% wealth tax: $10,000,000.00

[1] Every billionaire controls their taxable income. Unlike wage earners, billionaires have 100% control over how much taxable income they have each year. They make choices.

They can have the vault in the cave. Or they can put money into artwork that grows in value and only generates income upon sale. Or a million other ways they can choose to control taxable income.

Economics is simple. Resources are finite, and money plus markets preserve that finitude as an invariant (that's why it works as a store of value). If you sit on more money and accumulate more money a natural consequence is that someone else has less access to the finite resources available (either in actuality or in potentia), period, because you can accumulate enough to begin to dictate how much they can access (by having decision power around wages). There is no reason to assume private individual wealth-hoarders have public interest in mind, and indeed they have often proven that they don't. They want to maximize value at specific points in the system, which is the literal definition of instability and eventual collapse in chaos theory. You need to bring the system back to stability through structural intervention and regulation. Tax the rich. Cap individual accumulation. It's that simple. The world does need or benefit from kings, whether minted through politic or finance.

Good! It should still be higher!

There's nothing more tone deaf than an uber wealthy man arguing he shouldn't pay more in taxes to the system that allows him to be uber wealthy and to be deliberately misleading at the same time.

Rich people need to stop hanging out with other rich people.

1. Most people do not derive even a fraction of their income from interest on wealth.

2. Earning income from interest on wealth requires zero effort. That isn't true for salaries.

3. Income and wealth are totally different things. You can find a way to equate them in one contrived example but there are so many other factors involved in the real world.

Billionaires gonna billionaire.

The missed point is that a 1% wealth tax 'only for a select group' can easily become later a 1% (or higher) wealth tax 'for a less select group'.

Fuck off paul. Billionaires aren’t paying anything in income tax when they should be paying 60 or even 90.

So, yes, let’s hit them with a 5% wealth tax.

If you’re lucky enough that you don’t need to work for your income, you should be taxed. A lot. How much? Enough to make sure you don’t become so rich that your children don’t need to work.

Being rich is not fair, it’s very rarely deserved, and it needs to be taxed unfairly.