Bill Gates Objects to Elizabeth Warren’s Wealth Tax, and She Offers to Explain

https://www.nytimes.com/2019/11/07/us/politics/bill-gates-elizabeth-warren-wealth-tax.html

by mitchbob • 7 years ago

33 165 7 years ago

The wealth tax is unconstitutional unless the amount collected is apportioned between states in accordance with their census population. Hope there are a bunch of billionaires in West Virginia to carry the load!

dragonwriter• 7 years ago

The wealth tax is unconstitutional unless the amount collected is apportioned between states in accordance with their census population.

Or the implementation involves a Constitutional Amendment.

But, sure, just fixing income taxes so that they incorporate the function of payroll taxes within the progressive scheme, and do not favor capital income (but do accommodate irregular income in a manner which is fair by allowing advance and deferred recognition of income to smooth spikes from non-repeated events, which will often involve capital income) is both constitutionally more straightforward and simpler method of shifting the overall tax burden more onto the rich.

masonic• 7 years ago

Unless... nothing. There is no power to tax wealth in the Constitution.

baggy_trough2• 7 years ago

I believe it's considered a direct tax. Is that wrong?

teddyuk• 7 years ago

I’m not American so sorry if I am being naive but can the constitution not be changed?

rubyn00bie3• 7 years ago

exasperated sigh Taxes are legal... Nothing unconstitutional about a tax on wealth. The bit about "uniformity" is already severely out-of-whack; so, arguing like it isn't doesn't make sense. Uniformity could also be implemented by tax bracket, et voila, problem mostly solved, but not like it ever was a problem.

maneesh4• 7 years ago

The NYTimes had an article today about the difference between an income tax and a wealth tax, and how there is a constitutional problem with the wealth tax. https://news.ycombinator.com/item?id=21472442

throwaway123x22• 7 years ago

Why would a wealth tax be a bad thing?

zip12345• 7 years ago

Where does the money go?

throwaway123x22• 7 years ago

Healthcare, education, infrastructure... all of which badly need funding.

rubyn00bie3• 7 years ago

It would not be. It'd mean the rich are finally paying what they owe for all the externalities they currently get for "free," the rich in America get a free ride by not paying what they owe for what they get access to...

As my econ professors used to say, in America for a long while now, we're in fact a socialist country already... it just happens to be "socialism for the rich."

JumpCrisscross3• 7 years ago

Why would a wealth tax be a bad thing?

Valuing assets is complicated; for some assets, it's impossible. Furthermore, selling assets is complicated; for some assets, it's impossible.

That is the logic behind taxing transactions. The only time we know what something is worth is at the instant it transacts. About the only time we know how liquid something is, is at the instant it transacts.

For a facile example, consider the founder of a private company. They now have to sell 2% of their position each year, every year. That's a lot of work! And it gets worse if one considers a bootstrapped business, where there aren't lots of shareholders to sell to and there isn't a 409A valuation.

Traster4• 7 years ago

Well, we can create a wealth tax that doesn't have that problem. I'd wager there aren't many billionaires who actually are primarily invested in illiquid assets. I'd say the larger objection is the principle that we shouldn't be multiply taxing people. A wealth tax basically means re-taxing the same wealth every year.

dubbel• 7 years ago

I heard about an interesting way to efficiently valuate vastly diverse assets: have the owners valuate them themselves. With the twist that the state has the right to buy the asset at that validation. That incentives the owners to be as precise as possible with their valuation, as they otherwise would either pay too much tax, or run the risk to have to sell property at a loss.

wingspar• 7 years ago

Exactly, One BillG example is, how does one value his da Vinci assets? For one, the Codex Leicester:

https://en.m.wikipedia.org/wiki/Codex_Leicester

AlexandrB2• 7 years ago

Valuing assets is complicated; for some assets, it's impossible.

And yet you can insure most assets against destruction and theft.

RcouF1uZ4gsC2• 7 years ago

The math becomes interesting with the Warren's proposed 6% tax for billionaires. After 12 years, the founder will have lost half the ownership of the company [ (1-0.06)^12 ].

There are some proposals for the owner valuing the company or giving the government shares in the company in lieu of cash. However, if you do that, within 15 years, the government will have a controlling stake in every pretty much every private company.

maneesh4• 7 years ago

Here's a thought experiment: You're a HN reader. You have had ideas to build a startup that can help the world solve a problem.

So you create it. You decide to fundraise, and that capital will help you succeed. You pay yourself a salary of $100,000/year, and put everything else into the company.

You raise $4 MM in a seed round, valuing your company at $20MM.

10-months later, your company is doubling growth YoY again, has a solid SAAS model, and low churn. You decide to raise again.

This time, you raise some more money for your company, and you're now valued at 70MM.

About a year later, you're growing just as fast -- but you see a new competitor is entering the ranks. It's time to scale even faster. So you go and raise again. In a fantastic series-B round, spread across TechCrunch and HN, you raise again, at a $200 MM valuation.

As the sole founder, you now own 50% of the company -- making you worth $100MM. Your salary has remained constant at $100,000/year though.

And then the wealth tax hits.

The new wealth tax says you're responsible to pay an annual tax of 2% on all assets over $50MM. Starting this year.

Which means that you, as a private founder with no liquid assets, are now responsible for $50MM * 2% = $1MM in taxes this year.

Even though your liquid income is $100,000, and you have barely that much in your bank account -- you need to come up with $1,000,000 in liquid cash this year. And since your valuation probably won't go down, it'll be at least that much, every year, for the rest of your life, until you shutter the company.

So you go and try to liquidate your shares. But unfortunately, it's not a public company --- and it's not that easy finding private secondary-market buyers willing to buy the half of the founder's entire stake.

So what do you do now?

As far as I can tell, this is how the wealth tax would work for startup founders.

jdkee• 7 years ago

1. Why wouldn’t a private secondary market appear in response to the need for wealth tax share liquidation? It seems little different from a venture capital operation.

2. If you are worth $100MM you should be able to borrow 1% annually of your net worth until you can liquidate your shares.

steve19• 7 years ago

What you do is what all the billionaires do: take out loans backed by you assets rather than sell equity.

In this scenario the banks start profiting from startups, probably more in interest than the govt will get taxes.

onlyrealcuzzo3• 7 years ago

Here's a thought experiment. A million people read HN every day. Maybe one of them will go on to have this problem.

Meanwhile, inequality is stifling global growth and leading to protests that lead to riots that are starting to look like civil wars in several countries around the world.

But, you know, let's all pretend like we're future billionaires and only think about the future and not the present.

P.S. -- I'm sure there would be no less than 3 startups that would attempt to solve this problem if it ever materializes (which it won't because everybody in the US thinks they're a future billionaire).

nyxtom• 7 years ago

Relevant reading: https://www.cato.org/publications/commentary/why-europe-axed...

Before repeal, European wealth taxes — with a variety of rates and bases — tended to raise only about 0.2 percent of gross domestic product in revenue, based on Organization for Economic Cooperation and Development data. That is only 1/40th as much as the U.S. federal income tax raises.

Yet for little revenue, wealth taxes are difficult to administer and enforce. They may require taxpayers to report the values of financial securities, homes, furniture, artwork, jewelry, antiques, vehicles, boats, pension rights, family businesses, farm assets, land, intellectual property, and much else. But owners do not know the market values of many assets, and values change over time, so costly wealth-tax compliance would only make accountants wealthy.

And what about wealth held abroad? There is no way the Internal Revenue Service would be able to track down and value everything U.S. residents owned on a global basis.

And here’s the kicker: Since the base of wealth taxes is net wealth, debt is deductible. That allowed wealthy Europeans to jack up their borrowing and invest in the exempted assets to shrink their tax bases. If a wealth tax were imposed in the United States, the farm lobby would most certainly get farmland excluded. Then rich people would borrow heavily and invest in farmland, thus shrinking the tax base and distorting the economy.

pslam• 7 years ago

If you cannot find a buyer who will take a cut of a $50MM valuation, then the company is in fact worthless. Liquidity is no barrier to this — there are plenty of financial instruments available to do this transaction, even if you can't actually transfer the asset itself. Taking on debt, for example.

Yes, it sucks, but forgive me if I don't shed a tear for someone who has to find a way to pay taxes on their $50M of assets. They absolutely do have options which aren't terrible.

If a "wealth tax" did pass, then expect countless startups who specialize in handling the arbitrage of this.

pmoriarty8• 7 years ago

Couldn't you get a bank to loan you the money with your shares as collateral?

john_moscow5• 7 years ago

Because it will create a major incentive to take your money out of the economy and move it to a different jurisdiction that doesn't want a piece of it.

foogazi6• 7 years ago

Do we even need a wealth tax?

Whatever you have you have already paid taxes on - why does the government need to take more?

w1nst0nsm1th5• 7 years ago

To fund education and to avoid people to be crippled by college debts at 24.

To fund healthcare and to avoid diabetics to go bankrupt and die because they saved on insulin shot ; or all the people who have to take a second mortgage for basic cancer treatment, if they can, and finally go also bankrupt.

To fund crippling public infrastructure and investment.

To fund cultural events and promote art and diversity beside that culturaly dead hollywood movies pipeline ; scientific research ; libraries ; promote intelligent television programming not only motivated by a quick buck by pushing deep in your throat stupid ads for Coca-Cola and their fake, Mac Donald and other companies responsible for promoting detrimental products for health or envirronement ; to fund compagn to raise awareness on foundamental issues like global warming and stop the spread of misinformation by corporate chills or religious nutjobs.

The list go on and on...

All these public expense are the source of wealth redistribution.

Grue3• 7 years ago

Let me rephrase: why is punishing people for success a bad thing? Because it rewards mediocrity.

ethanwillis• 7 years ago

I'm really tired of all these paywalled articles taking up space on the front page.

jotto• 7 years ago

Clear your local storage, sessions, cookies, etc. for that particular domain. Chrome "developer tools" -> "application tab" -> "Clear storage"

tim3332• 7 years ago

There are usually ways around the paywall. Try the 'web' link or deleting cookies. What works varies a bit by location.

brenden2• 7 years ago

If you're using Firefox, Temporary Containers is a life saver: https://addons.mozilla.org/en-US/firefox/addon/temporary-con...

FR10• 7 years ago

Im tired as well, but in another thread I read that you can go into "reader mode" in Safari, and you can read it just fine.

jaypeg254• 7 years ago

Bill Gates also said he'd be willing to double the amount of taxes he currently pays, but you won't see that headline anywhere.

exhilaration• 7 years ago

Maybe not the headline but it's right in TFA.

tombert7• 7 years ago

It is mentioned directly in the linked article. I guess it's not a "headline", but it's not exactly hidden.

jaypeg254• 7 years ago

I know it is - that's where I got the fact from - but the fact that the headline is what it is leads to a distorted view from everyone who DOESN'T read the article.

AlexandrB2• 7 years ago

How generous. That would bring him in line with what his secretary probably pays[1].

[1] https://money.cnn.com/2013/03/04/news/economy/buffett-secret...

onlyrealcuzzo3• 7 years ago

In percentage terms? You realize Bill Gates literally has a multi-million dollar tax bill every year, right?

Even if you cheat taxes egregiously, and even if your effective federal tax rate is only 15% -- when you have $70Bn in wealth, your income (cheated to extremes) is still going to be at least in the hundreds of millions. 15% of that is still 10s of millions of dollars.

And as others pointed out, if you're going to pick fights with billionaires, Bill Gates probably isn't the best place to start. You would be hard pressed to convince many people here he's been a net-negative to human civilization.

jknoepfler• 7 years ago

You realize you're talking about one of the highest-impact philanthropists in modern history, right?

manigandham26• 7 years ago

He's paid more in taxes than probably any other citizen of the country.

And the Gates Foundation is indeed generous with how much impact it's had.

jaypeg254• 7 years ago

His secretary pays $20 billion?

RcouF1uZ4gsC2• 7 years ago

One thing that taxing billionaires will do is drive the wealth in "Foundations" that are controlled by them.

If you have a billion dollars, all your pleasures and needs are taken care of. The use for the excess money is ego and power.

Thus, if it is tax advantageous to put the money into a foundation, then you will do it. Does anyone really draw a distinction between Bill Gates giving money to a cause and the Bill and Melinda Gates Foundation giving money to a cause? While the Gates Foundation is doing great things, it is probably very ego gratifying to have the top scientists and philanthropists and heads of governments coming to you asking for money. It is also a very powerful position to be in charge of so much money.

Thus, if we have a wealth tax, we will see the money go from being the billionaire's personal money, into being part of a foundation named after the billionaire that they control.

pmoriarty8• 7 years ago

Let's close one loophole at at time.

Foundations can be tackled next.

manigandham26• 7 years ago

What "loophole" is being closed here? Having wealth?

hos234• 7 years ago

The Gates Foundation is definitely better than running a pedo island or putting up another building in Harvard, but whether it's outcomes are better than anyone else is not clear - https://www.forbes.com/sites/williammeehan/2019/10/25/philan...

m463• 7 years ago

It could be that some "egotistical and powerful" people think they can do something more meaningful with the money than the U.S. government would.

I'm reminded of the John Carmack article on Government and Taxes.

"So much of the government just grinds up money, like shoveling cash into a wood chipper."

It's worth reading (sorry can't find a better link, use this link and click to expand the first comment)

https://www.riverdavesplace.com/forums/threads/entreprenuer-...

w1nst0nsm1th5• 7 years ago

Easy game : Tax the foundation. Everybody knows these foundations are a way to avoid tax and keep wealth intact.

tim3332• 7 years ago

Wealth taxes have issues. Wikipedia:

In 2004, a study by the Institut de l'enterprise investigated why several European countries were eliminating wealth taxes and made the following observations: 1. Wealth taxes contributed to capital drain, promoting the flight of capital as well as discouraging investors from coming in. 2. Wealth taxes had high management cost and relatively low returns. 3. Wealth taxes distorted resource allocation, particularly involving certain exemptions and unequal valuation of assets. In its summary, the institute found that the "wealth taxes were not as equitable as they appeared"

manigandham26• 7 years ago

The biggest problem with these tax plans is that they're always focused on collecting more money without ever talking about where that money is actually going. The government is absolutely useless at spending it well, and it won't magically get better with even more money.

Wealthy powerful billionaires is a valid issue but there should be a better strategy based on incentives for the greater good beyond just "tax them more". A look at how much the Bill Gates foundation has done proves that wealth can be deployed with positive impact, but sadly it's not something that gets much news.

mcphage4• 7 years ago

The government is absolutely useless at spending it well

Corporations are absolutely useless at spending it well. The government, on the other hand, has a long list of successful projects that required a tremendous of money—the interstate system, the hoover dam, the moon landing, and so on. Are there initiatives that wasted a ton of money? Of course. But look at any major company, and you'll find the same thing. Apple wasted most of a billion dollars on a sapphire plant that couldn't make what they promised, Google bought Motorola for $12 billion and then sold it 2 years later for $3 billion, every company Verizon or Yahoo! bought turned to garbage. The list goes on and on and on.

manigandham26• 7 years ago

That's a strange way to look at it since the corporations have a much better ratio of wins to losses and have to manage profitability.

Regardless, the issue is government spending, not collection. I don't see how aggregating even more money into a few politicians is somehow going to solve anything, or what difference a few billion will make when the country spends trillions.

istjohn3• 7 years ago

I believe our society would be healthier if there were only three or four orders of magnitude between the wealth of the richest and poorest households in our nation. Thus taxing billionaires is a Good Thing (TM) regardless of what the money is spent on. What gets done with the proceeds is just icing on the cake.

Money is power, and an over-concentration of power is antithetical to a democratic society. Bill Gates makes a show of his charitable spending, rehabilitating his reputation as a ruthless, unscrupulous empire-builder, meanwhile every year he gets richer.

manigandham26• 7 years ago

True, money is a form of power. But now you're giving more monetary power to politicians who already have political power. Isn't that concentrating it further into fewer hands?

foogazi6• 7 years ago

I believe our society would be healthier if there were only three or four orders of magnitude between the wealth of the richest and poorest households in our nation. Thus taxing billionaires is a Good Thing (TM) regardless of what the money is spent on.

It’s always about dragging down instead of pulling up

big_chungus3• 7 years ago

Wealth taxes are a bad idea. We already have one (inflation), which is a nasty way to bypass the electorate and hits the poor hardest, but I don't think an explicit one is any better. It seems to come from the Sanders-and-company position of "billionaires should not exist"; many appear to believe that morally, even were everyone else well-off, someone having that much more is simply wrong. _Why_ is a "wealth tax" any better? Why shouldn't I be worried about the precedent of the government taking someone's assets? This seems bad for the same reasons civil forfeiture is bad.

Secondarily, I fail to understand the defense of such a policy by the "fair share" argument. Can someone explain? Here's how I see it: I am splitting a pizza among myself and seven friends. I cut it into eight pieces. My "fair share" is one piece, and does not change because someone else is hungrier. However, what the "fair share" of the "one percent" is, according to some people, seems to scale based on how many programs said people want to implement and how much they cost. Before anyone goes after my analogy, please excuse it; I understand that it doesn't fit perfectly, that not everyone has the same number of slices to start with, that the pie is not of constant size, ad nauseum. But even if I am re-distributing pizza from those who have twice as much to those who have half as much, the "just" amount doesn't fluctuate based on the relative hunger of the people in question; why, then, should the "fair share" increase because there are more things which people wish to fund? The taxes seem to be devised to keep up with the policies, rather than the government taking each person's "fair share" and doing as much as possible.

Effectively, it seems as though some people believe every dollar past a certain amount is part of a cash reserve with which politicians may fund things. This doesn't really seem "fair".

onlyrealcuzzo3• 7 years ago

LOL.

We already have a wealth tax (inflation)
which [...] hits the poor hardest.

A wealth tax does not hit the poor hardest.

big_chungus3• 7 years ago

Inflation does. The poor don't have financial advisors, stock trading, etc.; many keep money in cash.

Sources:

https://fivethirtyeight.com/features/inflation-may-hit-the-p...

https://www.iol.co.za/dailynews/why-inflation-hits-poor-hard...

http://www.poverty.ac.uk/inflation-low-income-households-nec...

http://www.washingtonpost.com/wp-dyn/content/article/2008/03...

https://www.ft.com/content/77a36048-4ddd-11dd-820e-000077b07...

https://www.fin24.com/Economy/Poor-hardest-hit-by-inflation-...

https://www.newstatesman.com/politics/2014/02/how-poor-have-...

https://www.sanders.senate.gov/newsroom/must-read/inflation-...

https://www.thetimes.co.uk/article/new-index-of-inflation-sh...

https://business.inquirer.net/151537/poorest-households-hard...

rubyn00bie3• 7 years ago

We have a system of checks and balances for our social system, but we have quite literally _none_ on our economic system. This inequality of systematic checks and balances on the economy has gradually, but fully, distorted the power structure in America.

Most people in this country don't even understand that democracy and capitalism aren't the same thing... Or that we only ever serve out one of those, and it's factually not democracy. Why is that? Why do we say democracy and mean capitalism?

Now without substantial adjustment to its ability to usurp and control power; it will remain perpetually imbalanced with economic power vastly outweighing the sum of our individual social power.

People in this thread want to talk about how this potential tax isn't fair within the context of a corrupt system. Well, I can't argue against that, it likely isn't fair, but that system itself is exceptionally corrupt. So, to argue it within that context is to already have lost.

This tax is fair because we have no checks and balances on our economy and this would be _the first_. This tax is fair because there are uncountable externalities that these individuals do not pay for and cannot pay for because it would be unreasonable burden for them to calculate it.

If you want to see the swap drain, stop letting the rich fill it. Stop consolidating power into one vertical... Stop pointing at the government and saying "look at how shitty and corrupt it is," because that corruption is fueled by money. Distribute the money, distribute the power, and a lot of this bullshit will fix itself.

... I'm done, this brought my headache back.

apta2• 7 years ago

What seems to pass many (smart) people, is that fundamentally an interest-based economy like we have today is going to lead to these large gaps in inequality due to the predatory nature of interest. Instead of trying to patch the situation with different taxes, people should work on moving away from an interest-based economy into a system that is based on risk/reward sharing.

Bill Gates Objects to Elizabeth Warren’s Wealth Tax, and She Offers to Explain

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