The US Already Has A Wealth Tax

August 19th, 2020
money, policy, taxes
In Modeling A Wealth Tax, Paul Graham writes:
Even a 0.5% wealth tax would start to keep founders away from a state or country that imposed it.
The US, however, effectively already has a ~0.3%-0.4% wealth tax.

Specifically, the long-term capital gains rate in the US is 20% for high earners (like the startup founders Graham describes) and the IRS taxes nominal gains. This means that part of what they're taxing is real gains, but another part is imaginary gains due to inflation. This is not exactly the same curve as a percentage wealth tax, because while it starts at total inflation * capital gains it asymptotically approaches the capital gains tax rate. You can see this in the extreme: if inflation is high enough or you hold your money long enough, effectively everything you have is capital gains, and when you sell you'll be taxed at the capital gains rate.

Inflation is about 2.4% (the annual CPIAUCSL change from January 1990 to January 2020) and the long-term capital gains rate is 20%, so we have something close to a 0.4% wealth tax over 20y, or a 0.3% wealth tax over 50y:


(sheet; shows a real interest rate of 0% for illustration purposes)

To be concrete, imagine you had $100 in 2000, and invested it in the US stock market. In 2020 it's worth $250 and you sell it. Your nominal gain is $150, and that's what the IRS will tax you on. But your real gain is only $100; the rest is 2020 dollars being about 2/3 as valuable as 2000 dollars. Taxing this difference is taxing wealth.

This makes me think that Graham is overstating his claim, since the US is very popular for startups and has a wealth tax nearly as high as he discusses.

Comment via: facebook

Recent posts on blogs I like:

A Big Problem With The Going To Bed Book

One day my dad was reading this book called the "Going to Bed Book" to my sister Nora. The book is basically about a bunch of animals who are getting ready for bed on a boat. They go down the stairs, take a bath, hang their towels on the wall, find…

via Lily Wise's Blog Posts September 18, 2023

Investing in boundaries with young kids

Putting in some work to get the behavior you want The post Investing in boundaries with young kids appeared first on Otherwise.

via Otherwise August 15, 2023

Self-driving car bets

This month I lost a bunch of bets. Back in early 2016 I bet at even odds that self-driving ride sharing would be available in 10 US cities by July 2023. Then I made similar bets a dozen times because everyone disagreed with me. The first deployment to pot…

via The sideways view July 29, 2023

more     (via openring)