site banner
PaperclipPerfector  1yr ago (text post)   32019 thread views

Culture War Roundup for the week of August 19, 2024

This weekly roundup thread is intended for all culture war posts. 'Culture war' is vaguely defined, but it basically means controversial issues that fall along set tribal lines. Arguments over culture war issues generate a lot of heat and little light, and few deeply entrenched people ever change their minds. This thread is for voicing opinions and analyzing the state of the discussion while trying to optimize for light over heat.

Optimistically, we think that engaging with people you disagree with is worth your time, and so is being nice! Pessimistically, there are many dynamics that can lead discussions on Culture War topics to become unproductive. There's a human tendency to divide along tribal lines, praising your ingroup and vilifying your outgroup - and if you think you find it easy to criticize your ingroup, then it may be that your outgroup is not who you think it is. Extremists with opposing positions can feed off each other, highlighting each other's worst points to justify their own angry rhetoric, which becomes in turn a new example of bad behavior for the other side to highlight.

We would like to avoid these negative dynamics. Accordingly, we ask that you do not use this thread for waging the Culture War. Examples of waging the Culture War:

  • Shaming.

  • Attempting to 'build consensus' or enforce ideological conformity.

  • Making sweeping generalizations to vilify a group you dislike.

  • Recruiting for a cause.

  • Posting links that could be summarized as 'Boo outgroup!' Basically, if your content is 'Can you believe what Those People did this week?' then you should either refrain from posting, or do some very patient work to contextualize and/or steel-man the relevant viewpoint.

In general, you should argue to understand, not to win. This thread is not territory to be claimed by one group or another; indeed, the aim is to have many different viewpoints represented here. Thus, we also ask that you follow some guidelines:

  • Speak plainly. Avoid sarcasm and mockery. When disagreeing with someone, state your objections explicitly.

  • Be as precise and charitable as you can. Don't paraphrase unflatteringly.

  • Don't imply that someone said something they did not say, even if you think it follows from what they said.

  • Write like everyone is reading and you want them to be included in the discussion.

On an ad hoc basis, the mods will try to compile a list of the best posts/comments from the previous week, posted in Quality Contribution threads and archived at /r/TheThread. You may nominate a comment for this list by clicking on 'report' at the bottom of the post and typing 'Actually a quality contribution' as the report reason.

5
Top Bottom Old Controversial Comments
Jump in the discussion.

No email address required.

Theory — the new unrealized capital gain tax is designed (or will have the effect of) forcing people like Elon Musk to surrender control of corporations resulting in PMC control instead of founder control.

As some detail, there is a proposed 25% tax on unrealized gains for the super wealthy coupled with a 44% tax on realized gains. So let’s say you own 10b of a 100b company. If you do nothing you will owe 2.5b of tax. But if you sell 2.5b, you’d actually owe more! So you end up having to sell a pretty big chunk of your stake. This means that before companies get really large founders have to sell a big chunk of their equity preventing super wealth. It also changes incentive structures for founders making them more likely to cash out.

Once they cash out, PMC will take control. PMC coexists with modern democratic policy. Therefore, the democrat tax proposals help ensure corporations are run by allies.

What evidence exists for this that doesn't support the simpler and more obvious theory that dems support higher taxes and taxes on the wealthy to fund redistribution, and this is an increased tax on the wealthy so they support it?

Oh the simpler answer could be the right one. But I just found it interesting that the policy proposed gives power to the Dems allies.

Why do something that's new and very hard to implement when you can just raise income taxes, which already have an infrastructure set up and aren't as tricky to get non-market valuations on?

I don't actually think it's a conscious attempt to separate Musk from his companies, but it's also clearly not just a way to raise revenues, since existing channels could work at least as well and likely better.

Why do something that's new and very hard to implement when you can just raise income taxes

Because the goal isn't just to raise the funds, the goal is to get votes for raising funds, and get attention within the party / progressive ecosystem! An unrealized gains tax just sounds more interesting than a number increasing from 44 to 47.

There are also other object-level reasons, like how borrowing against your unrealized gains avoids capital gains tax. They're not really convincing imo, but the progressive policy ecosystem (not claiming conservatives are better) is already teeming with bad ideas that don't even accomplish their stated goals, so there's not much to explain about another one.

As some detail, there is a proposed 25% tax on unrealized gains for the super wealthy coupled with a 44% tax on realized gains.

The term "proposed" here is giving it way too much credit. It's been proposed in the sense of "included in a campaign speech" and not "included in a budget sent to Congress" let alone "included in a bill actually sponsored in the House of Representatives".

Generally when a campaign puts forward a proposed policy it is called a proposal.

I don't think anyone should hold Trump or Vance (or anyone else) to the wacky things they say that aren't realistic policy either.

I think it's bad to propose wacky things that aren't realistic policy for political points, but it's not the same as actually trying to do those things.

I think you're overthinking this. It's just people who know precisely jack-all about optimal tax theory seeing people's net worth increasing in a tax-deferred manner, having their retinas contort themselves into dollar signs, and dreaming of can be, unburdened by even the most rudimentary understanding of economics.

This got me to thinking: why not have a unrealized capital gains tax on human capital? If you get a degree of any sort, 44% of the assessed increase in human capital is due in taxes. Net present value of a bachelor's degree is somewhere between a quarter and a half million dollars

This reminds me of Matt Levine's observations on net worth calculations. Own a small business (maybe you're even the only employee) that made $200k last year? Well, we're going to assume it will continue to make $200k/yr for some number of years, do a net present value calculation, and blam, your net worth is however many million. You're a lawyer who works for The Man and makes $200k/yr? Whaddya got in the bank? That's your net worth.

How would that compare to a model offering education for a percent of future earnings?

Admittedly, I’ve heard about that mostly due to some massive fraud.

It would incentivize different things. A flat tax on imputed human capital appreciation would encourage people to either not get a degree or to go for careers that pay a lot. Education for a percentage of future earnings would encourage people to go for low paying careers with a good work life balance.

To make it a truer analogy to the proposal, probably different degrees should have different human capital gains. So educational programs that increase human capital more would incur more tax.

See also The Unincorporated Man, in which every person is "incorporated" at birth into tradable shares, of which the parents get 20 percent held jointly, the government gets 5 percent, the person cannot sell the last 25 percent (which is enough for him to support himself in this high-productivity future setting; the percentage might have to be higher in the present day), and the remaining 50 percent can be sold off to pay for education and other needs.

Wouldn't this just mean increasing the student loan interest rate?

It would probably usually end up being the loan principal. Maybe since it'd be a bigger loan, the rate would be a touch higher.

Only if you have a student loan.

Any tax on assets becomes a new and relentless goad to optimization of assets.

A tax on income taxes doing things, earning money. A VAT taxes purchasing things, going out and getting things. A tax on property taxes you even if you do nothing at all.

And what this means is that you constantly have to be putting your property to its optimal use, your property has to be earning its keep.

A land-tax has the effect, if it is assessed on the hypothetical rather than current improvements as Georgists would argue for vacant land in cities, forces the owner to put his property to its greatest value. I can't decide I just like my sprawling old Victorian home, I have to turn it into a shopping center. I can't decide that I like my economically unviable small farm in the middle of a suburb, I have to subdivide it and build townhouses. Because Georgists want to tax it as though it were already townhouses, as that is the value of the underlying land.*

Taxing unrealized gains on companies will mean that people who own large shares in companies will have to put that property to its optimal use. I don't think we'll see founders selling off their shares and losing control, particularly where in IPOs it has been accepted that different classes of shares give founders control even with tiny holdings. Rather, we'll see companies being pushed towards paying dividends and returning capital, both to help defray tax bills and to reduce unrealized capital gains. Where once it made sense to hold a company and develop it into something ever bigger and try weird things in hope of producing even higher share prices; now it will make sense to have your shares in the company maintain their value while paying you a dividend. Money that might have been invested into moonshot R&D programs or skunk works will go back to owners of capital.

My guess is we'll see less of things like AWS because if you had a company like Amazon, it would make sense to have your successful online store paying you a 4% dividend rather than get hit with an unrealized gain tax if you hit blackjack on the next business. And we won't see vanity-project boondoggles like the Cybertruck, in favor of Tesla focusing on profitability and paying money back to Musk. But on the bright side, we might be spared another round of Metaverse hype?

The value of either of these propositions is debatable. Arguably it is better for publicly traded companies to pay dividends than to seek moonshot growth at all costs. Arguably it is better for me to build townhouses on my economically unviable farm rather than let it sit. But the flip side is that relentless optimization leads to less randomness, less adventure. A car company laser focused on maintaining a 5% dividend would never build something like the Cybertruck, judge for yourself the value.

*There are various workarounds to this in place already for property taxes in most states, which we can consider both proof that this is recognized as a problem with property taxes, and as a problem with Georgist moves towards property only taxation as using exceptions like that will get increasingly sticky.

I’m not convinced by the Georgist answer. But in any event, taxes don’t necessarily move assets to highest and best use but can change the nature of an asset invested in.

I strongly doubt it’s multidimensional chess like that for the simple reasons that the more economically literate parts of the establishment hate the idea. Including the democrat establishment types- CNN does not like this plan, not one bit.

You’d expect, if it was an N-dimensional plan to make an estate tax specifically advance the goals of the DNC establishment, that it would be the other way around.

Perhaps you should be more specific than “PMC,” since most founders are, in fact, professionals and/or managers. Who exactly do you have in mind? Does this tax favor them, rather than just anyone who isn’t super wealthy?

“Preventing super wealth” sounds like a pretty normal Democrat plank. What does the extra theory add?

  • -10

most founders are, in fact, professionals and/or managers

You are committing a common mistake. The term refers to a class of people, a group that has converging interests in the specifically Marxian sense (indeed the term PMC was coined by socialists to describe what Burnham called the Managerial class). It is not a descriptor of function or status.

When people who have been poor all their life come onto money, they do not become capitalists by mere virtue of owning stock. In quite the same way, people who do management and/or are professionals are not necessarily PMCs.

What does the extra theory add?

Read James Burnham's The Managerial Revolution and you'll understand. This isn't about wealth. It's about power and control and how they are shaped by the structure of organizations.

By making public corporations (as opposed to private), independant agencies and QUANGOs the fonts of power since the 1940s, the managerial class (the PMCs) have managed to wrest power away from capitalists and become the ruling class of the contemporary West. People are often puzzled at why companies make moves that agree with the politics of their internal staff but are not financially sustainable. This is why.

Disney or the WHO's present behavior looks insane to the casual observer, but it is entirely predicted by this lens.

The practical structure of a public company makes the CEO beholden to his board and staff rather than the shareholders, because the shareholders are a disorganized mass while the board and staff are an organized minority. Replicated in all the modern forms of organizations, this makes the influence of the sort of people who tend to be on boards and to be managers greater than that of capitalists.

For a very clear example of this mechanism, you can compare Twitter under Jack Dorsey (a public company run by its board and managers often against the wishes of the CEO and shareholders) to X under Elon Musk (a private company run at the behest and whim of its sole owner).

OP's point is that the proposed tax structure goes further in this direction. And is a move to seize accumulated power away from the techno-capitalists of the world to dilute it in a way that can be better controlled by managers. That it's a attempt to shut down a potential counter elite.

“PMC,”

PMC are in the words of the talleb - the intellectual yet idiots without skin in the game.

Unlike Taleb, who is an intellectual possessed with unquestionable non-idiocy.

You jest, but notice how you didn't mention the one criterion in the list that makes his interest and those of his cultural fellow travelers diverge.

The manager's power is not defined by the bottom line. That's what allows him to be fungible between companies and to cultivate a class interest that transcends loyalty to an organization.

The mechanism by which this occurs is the forced divestment of ownership in the form of taking the company public, which means the company will be run by a board of directors who can be much more easily controlled.

The distinction, which is hardly something novel so I'm having trouble believing these objections are offered in good faith, is the PMC are not entrepreneurs, they're employees.

Sam Altman was pretty clear that most of the startup founders Y Combinator funds come from PMC backgrounds. The original interview with Tyler Cowen where he talks about it is now behind a paywall, but this blog post has the key quotes.

ALTMAN: There’s a statement here that’s just bad about the world, but I think if you look at most successful founders, they are pretty smart, upper-middle-class people. They are very rarely the children of super successful people. They are very rarely born in real poverty. They are very rarely the absolute smartest people who otherwise would win a Fields Medal. They are never dumb, but upper-middle-class, pretty smart people that have grit and drive and creativity and vision and edge and a different way of thinking about the world. That is what I think I’m good at spotting, and that is what I think are good founders. There’s a whole bunch of reasons why that’s a sad statement about the world, but there it is.

Part of what Y Combinator has done (and Altman has also written about this at length) is to turn "founding a startup" into gamified meritocratic competition with a facially similar progression to moving through the junior-to-middle ranks at McKinsey or Goldman. Paul Graham (but not Altman) also did pitched early acquisitions as good for founders, which matched the McKinsey/Goldman pitch of "do this for a few years and move onto your real career with cash in your pocket and an impressive CV." The reason to do that is to make "found a startup straight out of Stanford" a more appealing option for PMC strivers, and therefore shift the universe of startup founders in a way which matches YC's comparative advantage.

I don't think salaried employment is part of what defines the PMC. Lawyers, accountants, and (in the US) doctors are core PMC members who (if successful) end up as owner-partners in their practices. Wall Street types get most of their income in what is in effect commission. Genuine entrepreneurship is exceptional for the PMC, but it is exceptional for everyone. And VC money is designed to de-risk entrepreneurship for founders so the amount of skin in a game a founder has is closer to the Biglaw partner who sets up his own boutique firm than the chef who remortgages his house to buy a restaurant.

and (in the US) doctors are core PMC members who

Just as FYI physician owned private practice is very rapidly dying for a variety of reasons (including increased regulatory/administrative burden.

I don't think salaried employment is part of what defines the PMC. Lawyers, accountants, and (in the US) doctors are core PMC members who (if successful) end up as owner-partners in their practices.

They're PMC until and unless they end up as partners. "Making partner" is a big deal; it's a transition from agent to principal. Possibly they remain PMC in some cases -- particularly doctors -- because they may technically own a practice but are really subservient to some larger group. But not in other cases.

I think you are using "PMC" in a non-standard way if you think that partners in law firms are not part of it. A "class" is a group where movement in or out is somewhat exceptional - an associate making partner is completely usual.

To me the defining features of the PMC (as opposed to other elite and elite-adjacent groups) are:

  • A self-image as engaged in meritocratic competition and tribal values that reflect this (including a much stronger work ethic than traditional elites). A rejection of explicit dynastic privilege (while still doing everything they can to help kids get ahead, because even the PMC is the product of evolution).
  • Allocating more status to formal education than it deserves.
  • A focus on professional networks (formed in explicitly professional contexts where spouses are usually absent and children always are) over traditional social networks (mostly formed at dinner parties with spouses present). This has an important impact in the way that privilege is transmitted - traditional elites would personally introduce their teen and young adult children to important social contacts purposively, whereas PMC elites pay for their kids to have access to high-end networking opportunities (e.g. Harvard) but expect them to do the networking themselves.
  • Revolving doors based on those networks as an important way of making money in the second half of your career.
  • Low ownership (relative to income and social status) of tangible capital other than primary residence (except when obfuscated through mutual funds)
  • Avoiding situations where they have line management responsibility for social inferiors (except when obfuscated through outsourcing orgs) - this includes both the types of jobs that PMC members seek out and the way they run their households. A lot of gig economy apps got built because PMC members in Silicon Valley were willing to pay to put a computer into the loop to obfuscate the fact that they were hiring servants.
  • Urban orientation
  • National (and international) orientation as opposed to local - in general elite-adjacent PMC members in the major cities treat local elites in the sticks as food animals.

In America, I would say that the boutique law firm partner who is making a mid-six-figure income based on the combination of "what he knows" and "who he knows" built up over 20 years of experience including stints in Biglaw and government work is at least as archetypally PMC as the 20-year GS-13 career bureaucrat. See this Substack or this FT Alphaville post for some discussion of the unusual degree to which the UK economy depends on this kind of person. Money quote - "The UK is the Saudi Arabia of miscellaneous business and professional services."

I think you are using "PMC" in a non-standard way if you think that partners in law firms are not part of it.

I think he's using it in the way it was originally intended. Partners aren't PMC because they're partial owners of the company, so they belong squarely in the capitalist class. PMC was supposed to reserved for people with control over capital without direct ownership of it.

If most successful professionals are excluded from the professional-managerial class because they are partners in their firms, then surely it would just be the managerial class?

The original Barbara Ehrenreich essay defining the term is less helpful that I would expect. It defines "self-employed professionals" as part of the legacy petit bourgeoisie (which she calls the "old middle class" and consistently with mainstream Marxist theory but incorrectly predicts is on the way to extinction) when she is trying to define the PMC at the beginning, but later on in the article she gives accountancy as an example of a core PMC job even though accountants are frequently self-employed professionals. Ehrenreich also says that class should be defined based on the economic substance and cultural context of class relationships, not on legal forms. The emphasis of the article is on the role of the PMC in disciplining the working class to accept capitalism, not how they get paid.

Having read the essay, it is obvious that Ehrenreich didn't think about lawyers while writing it, but based on what she did say I think she would call it as follows:

  • I think she would assign all lawyers who work for large businesses (or government departments that interact with them) into the PMC, with the distinction between in-house lawyers, associates in law firms, and partners in law firms as formal rather than real - they are all boot-boys for the real capitalists who are paid for their skilled labour, not for access to their own capital. The exception is that a subset of Biglaw partners are sufficiently close to power that they are part of the ruling class. (Ehrenreich talks about this in the context of the management hierarchy of large companies, where she says there is obviously a fuzzy boundary between middle managers who are PMC and executives who are functionally part of the capitalist ruling class even if as non-owners they are not technically bourgeois on a strict Marxist basis).
  • She would definitely put all white-collar professionals in the criminal justice system including lawyers into the PMC on functional grounds, again regardless of how they get paid.
  • The partners in the small law firm that does small business and private client work are petit bourgeois. The status of the associates is not clear - they are not performing PMC functions, so they probably count as skilled workers. This type of firm doesn't have very many associates anyway because a competent lawyer with 5-10 years' experience who still isn't made a partner is better off starting their own firm than continuing to work as an associate.

Ehrenreich explicitly says that trying to assign non-petit bourgeois status to individuals based on asset ownership was foolish as of 1977 when she wrote the essay because the function of the bourgeoisie was mostly being performed by large companies with non-owner senior management. So I don't think she would find the argument that partners in law firms are capitalists exploiting the associates decisive.

If most successful professionals are excluded from the professional-managerial class because they are partners in their firms, then surely it would just be the managerial class?

No, the PMC specifically includes professionals who were traditionally owners of their own firms (petite bourgoise in Marxist terms, I believe) but are today employed in a corporate environment.

PMC control as opposed to what? The last I checked Musk was both professional and managerial. It's not a term I've ever heard used by anyone other than an online conservative who isn't exactly blue collar.

  • -17

PMC control as opposed to what?

As opposed to founder control. It's right there in the original post.

It's not a term I've ever heard used by anyone other than an online conservative

That probably says more about you than it does about anyone else, because the term comes from some leftist trying to reconcile the classical Marxist view of society with the fact that the majority of the oppression of the working class nowadays is coming from people who aren't the owners of the means of production.

I agree that Rov is dismissing a valid issue for bad reasons and it is fair to talk of PMC, but as far as I am aware the concept of the Managerial class has its origin in James Burnham's Managerial Revolution. Who is an individual who moved from being a Trotskyist to being a right winger. I believe he wasn't a Trotskyist by the time he wrote the Managerial Revolution but he wrote it at a point where it was just a few years after he broke from Trotskyism, and that intellectual legacy still shaped to an extend the way he analyzed things.

As Bartender_Venator points out we are both right. It's a laundered term specifically coined to avoid it's association with the right.

Sometimes an insult is just too effective to pass up. People with more money than me, but less agency than the ultra rich? Tempting targets.

It’s definitely been picked up by the right opposition. I suspect that “bourgeoisie” has already been watered down enough to make it less useful for socialists. That leaves conservatives putting a label to their outgroup.

People with more money than me, but less agency than the ultra rich?

That's the opposite of what the term is about. HR has lots of agency, but they don't get paid terribly much where I'm from.

It’s definitely been picked up by the right opposition.

But so what? I get that we have cooties, but I can't imagine dropping an idea I formulated because people I don't like picked it up. Though as Bartender_Venator explains this is more of a case of "always has been", but that still makes it a weird example of "Eww, a rightoid said it? Gotta drop it!", which I find incredibly childish.

It may not be central to the term, but it’s the main reason that term caught on.

Marxists wanted to expand their class struggle from “labor vs. capital” to “labor vs. capital and capital accessories.” Reactionaries wanted to assert a class struggle between their audience and some sort of cultural bourgeoisie. They converged on similar groups of targets because ambiguously well-off, ambiguously powerful professionals are a really hateable outgroup. More potential believers have encountered a blank face bureaucrat or a petty tyrant of a manager than have interacted with a classic bourgeois.

I would guess that the Marxists got their wish. Today, the layman assumes socialists have it out for anyone above the median income. The perceived class divide has moved past PMCs.

That tide has yet to come in for reactionaries. They’re more likely to keep using the term because they’re still convincing the public.

Specifically, it's a term originating in the 70s, used to obscure the fact that the idea was coined by James Burnham, a former Marxist-turned-anti-Communist, in the 40s - thereby making the idea safe for Leftist intellectuals to discuss. Burnham simply called them the Managerial Class.

The more you know, thanks!

This 'idea' has zero percent chance of ever happening. And it's not because of rich people lobbying.

It's because it would catastrophically destroy all markets (public and private) overnight.

This is because the price of anything is different at different times and, before an actual transaction occurs, is only an approximate representation of what a theoretical buy and seller would agree on. There are plenty of reasons zero buyers and zero sellers would want to proceed with any transaction at a given time.

Example A would be startups. Startups raise cash from investors to get off the ground, develop products, market and sell them, enter new markets, acquire other companies etc. Their "valuation" at any given time is largely a projection of possible future revenue and/or a future reasonable acquisition price. It is not, in anyway, a guarantee of a spot cash price for equity. I think Anduril, the cool new defense technology company, has something like a $15bn valuation after its last funding round. To make the math easy, let's say there are 100,000,000 shares outstanding all with equal seniority etc. (this is a toy example. The realities are always more complex, which factors in later). Is anyone going to pay anyone else the $150 / share in the secondaries market for Anduril? Fuck no. There are maybe some early investors who got in at $10 (or less!) who may want to sell at $50 or something to lock in gains, but the biggest holders (including insiders) are holding out for an IPO or acquisition.

These are multi-year equity holders. What does their tax situation look like? Are they taxed every year based on new VC funding and the follow on valuations of the company? If that's the case, they would end up paying more in taxes than they invested in the company while being unable to liquidate their holdings in a thinly traded private market. Investing in a start up would become financially impossible. Perhaps evening just starting one on your own. What happens then? Only incumbent, large, highly traded public companies can be invested in - but you still have to pay tax on your not-cash winnings. Very quickly, there are only a few nationalized companies doing any business t all. Retail investors mostly hold cash which inflates away to nothing and there is zero new capital formation and investment. That's stagnancy and inflation - aka stagflation - and is the very model for how to kill a country and, very likely, pave the wave for a populist demagogue to seize power.

Taxing unrealized capital gains is literally taxing a business for existing and operating as normal, but with some sort of arbitrary number thrown on top of it as "valuation." If that number is wrong, which it will be sooner or later, you divide the business by zero and it not only ceases to be viable, it implodes overnight.

Much like price controls, this is an "idea" that reveals profound economic and financial illiteracy. It is 100% vibes based in a Robin Hood aesthetic and is designed with all the depth of most sloganeering. It should be viewed for what it is, a very public display of a lack of interest in developing meaningful policy in any direction.

So what you're saying is that they're stupid enough to come up with the idea and to campaign on it.

I don't quite think that precludes them from being stupid enough to enact it as well.

Sure Kamala would need a cooperative Senate, but she's also been campaigning on ending the filibuster. I seem to recall SCOTUS said somewhere that taxes on unrealized gains are wealth taxes and therefore don't qualify for 16a. But Supreme Court "reform" has also shown its head.

It's probably not gonna happen. But Trump's tariffs were also probably not gonna happen.

SCOTUS was expected to say as much in Moore v. United States this year. They avoided doing so outright (though the concurrence and dissent, between them four members of the court, did), but were warning enough that I can't see Kavanaugh and Roberts allowing it.

Sure Kamala would need a cooperative Senate

She would need and mindlessly obedient Senate. Chuck Schumer is often called "Wall Street's Senator." He wouldn't support this. If the Senate Majority / Minority leader won't support a bill from their own President, that's a big ugly mark in the press. It happens, but rarely. If they won't agree, the bill won't be introduced in order to avoid that public cat fight.

Even if you don't have Schumer around, there are enough concious-of-economics democrats who wouldn't support this. The Washington Post, of all newspapers, came out strongly against Harris' food price controls the day after they were announced. Apparently Obama's speech sounded like Ezra Klein economics. Right now, the Democrats are aligned behind Orange Man Bad, but, beneath that, there are some MAJOR basic economic policy clashes between the progressives (Harris, The Squad etc.) and the Liberal core of the party. This is what would preclude them (the Harris admin) from enacting these policies.

"Payments of the minimum tax would be treated as a prepayment available to be credited against subsequent taxes on realized capital gains to avoid taxing the same amount of gain more than once"

I have altered the deal. Pray that I do not alter it further.

Taxpayers for whom tradable assets make up less than 20% of their wealth will be classified as "illiquid", and can defer payment on gains in the illiquid assets in exchange for paying a "deferral charge" not to exceed 10% of unrealized gains. This charge is paid when the gain is realized

I'm still curious how this is supposed to work for early investors in startups that don't succeed, but post impressive numbers. Say I'm a founder (I'm not) with no other major assets and for one year my share of my startup gets valued at $200M, which triggers this unrealized gains tax. Even if I get this "illiquid" status, I'm going to be assessed a 25% ($50M) tax bill. It's not uncommon for startups, even hugely publicized "unicorns" to fail completely. If the company is forced into a down round next year, and my share drops to $50M, where do I get the funding to pay my tax bill? Is the government going to take my entire stake? What if the company folds and I end up with nothing: do I still owe $50M? Is that a thirteenth amendment violation?

If the answer is "yes" here, I really can't let my assets be illiquid and volatile, lest I find myself unable to pay the tax man at some later date. It's also potentially concerning that triggering Mugabe-esque hyperinflation suddenly becomes a positive (real) revenue stream for the government when every asset is worth $200M or more and gets a 25% annual wealth tax.

And it probably pushes investors into infrequently-valued investments: buy a one-of-a-kind Renaisance masterwork, and how does the government handle that valuation? Supposedly my jurisdiction assesses my real estate property values annually, but I can tell you I've seen pretty substantial divergence between actual sale prices and assessed values over the last few years.

I'm still curious how this is supposed to work for early investors in startups that don't succeed, but post impressive numbers.

Due to tax treatment of certain types of options, there were a number of early failed-startup employees in the dot-crom crash who were left in insurmountable debt by tax bills for gains they never actually received (the options vested in the money, which was a taxable event, but the value of the stock cratered before they were allowed to sell it). I believe their options were 10 years of debt slavery to pay as much as they could (living on what the IRS would allow them), or suicide (since bankruptcy does not relieve you of tax debt). Since they were not sympathetic to the media, no one cared; the same will go for early investors who end up in the same sort of hole.

It has no effect on taxpayers with net worths less than $100m. It gets phased in for those with net worths between $100m and $200m.

How would this be applied to family offices and blind trusts, among other arrangements?

For the first year this is implemented, taxpayers can choose to pay in 9 equal, annual installments. For subsequent years, taxpayers can choose to pay in 5 equal, annual installments.

Plus

"Payments of the minimum tax would be treated as a prepayment available to be credited against subsequent taxes on realized capital gains to avoid taxing the same amount of gain more than once"

Would mean you actually create a weird third order tax arbitrage effect. If I think the market is going to go down, I'll pay all up front, if I think it will go up, I'd pay over time but also probably end up paying some level of double-captial-gains taxes. I don't know how this actually reverberates throughout the system but a pretty obvious effect would be people selling if they sense a recession coming for tax reasons whereas a lot of those folks would, today, just hold their assets through the recession. This is how you get a Depression.

Taxpayers for whom tradable assets make up less than 20% of their wealth will be classified as "illiquid", and can defer payment on gains in the illiquid assets in exchange for paying a "deferral charge" not to exceed 10% of unrealized gains. This charge is paid when the gain is realized

Wait what? I pay a deferral charge on my unrealized gains when I realize the gain? Well, at what point do I determine the strike price of the unrealized gain? This is actually the zainest part because they're surfing back over into the realized gains line.

So, the effect on the day-to-day operations on startups would be approximately zero.

It isn't about operations, it's about investing over 5 - 10 year time horizons.

Kinda reminds me how banks are forced to report transactions in excess of $10,000.

Probably at the time people said "it's no big deal, imagine taking 10 thousand dollars out at one time". Now, 55 years later, $10,000 is not all that much money.

The fact that this the $100 million is not indexed to inflation is a huge red flag. Like the income tax, this tax on the "super rich" will quickly be levied on the much less wealthy. Note also that capital gains are not indexed to inflation. So if the value of the dollar declines by 50%, which it will, your investment has doubled in price and you have to pay tax on your "gains".

This will inevitably lead to regular people having to catalog their wealth so the taxman can take his share. Everything always moves in the direction of more taxation and more government interference in the lives of regular people. It almost never gets rolled back.

This proposal is awful in every way except that it's unlikely to pass.

Probably at the time people said "it's no big deal, imagine taking 10 thousand dollars out at one time"

Not necessarily. At that time, people did a lot more big transactions in cash, so it was actually more common to withdraw a big chunk of cash. They even issued $10,000 bills to make it easier.

They actually discontinued those at nearly the same time, leaving $100 the maximum currency where it has remained since.

Also worth pointing out that $100 today is worth only 1/8th as much as it was in 1970.

Cash is being phased out so the government can monitor all financial activity. Let's not give them the power to monitor and scrutinize all your assets as well.

Did you mean this the other way around? Yes.

You convincingly establish that the policy is really, spectacularly dumb.

You don't establish how it being really, spectacularly dumb would prevent it from happening.

How would Blackwater or Wagner take control of Tesla?

Ah, PMC means 'professional-managerial class' in this context.

Asset value in dollars will go up just due to inflation alone. Unless inflation is factored out, unrealised gains is a wealth tax and slow motion nationalisation.

"The way to crush the bourgeoisie is to grind them between the millstones of taxation and inflation" - Lenin.

Lenin didn't say that

https://blog.skepticallibertarian.com/2013/04/15/fake-quote-files-v-i-lenin-on-inflation-and-taxation/

Although it is now overshadowed by his later work, Keynes wrote a brilliant and enduring book in 1919, in the aftermath World War I, titled The Economic Consequences of the Peace. In it, he states:

Lenin is said to have declared that the best way to destroy the Capitalist System was to debauch the currency. By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens.

… Lenin was certainly right. There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.

Given the unambiguous parallels between this passage and Ronald Reagan’s quote, it seems Reagan read Lord Keynes (or at least, read someone who had read him), and somewhere between 1919 and 1974, what Keynes interprets Lenin as saying became a direct quote from Lenin, which was later embellished and merged with other powerful imagery about inflation and taxes circulating at the same time (grinding millstones crushing the middle class and the bourgeoisie).

You could solve this with indexing basis to CPI. But right now we have a relatively simple system. Low rate of tax on gain (in part to reflect not all book gain is economic gain). It isn’t perfect but it functions and works. Trying to tax gains at higher rates and then indexing basis is a new system that create problems not the least of which is the complexity.

There is a tax on selling stuff, tax on unrealised gains would be a tax on just owning stuff. It is messed up that inflation isn't factored out of realised gains too, sure.

Personally, I do think owning more than a certain percentage of the global economy should be taxed. No Kings, No Gods, No Billionaires. If you want to maintain your founder powers spread the ownership across more people and govern the wealth with a more democratic consent. If you can't keep the mandate of heaven under those conditions then you hardly had it to begin with.

Musk in particular would be fine. He carries the hype with him.

I sure love citizen Robespierre and all the current members of the committee of public safety. All hail the General Will. Let them seize the property of any and all suspected counter revolutionaries in the name of the people.

No Kings, No Gods, No Billionaires.

Only Bureaucrats.

Spreading the ownership across more people in practice means Vanguard and Blackrock managing more of the economy.

It's definitely designed to take from enemies, but I think the primary goal remains to prevent people from escaping inflation by buying assets.

The government has liabilities to pay for and it will use its powers for financial repression if it has to. Anyone who has value anywhere is at risk.

"Taxing unrealized gains" is quite literally just confiscation. They just decide you owe them some money based on some fictitious number to pay for some value they think they can extract from you.

Now if someone whom the mafia already doesn't like happens to have things that can be stolen, that's even better. But it's not that complicated why they do it. It's the money.

Home property tax is not actually tied to home value, except in a relative way within a jurisdiction -- property tax paid depends most directly on municipal budgets, which is something property owners can influence.

This is a big difference.

So you've proven that... property taxes sometimes fall even as values rise? That seems to be a restatement of my point if anything; the fact that they were not 100% anticorrelated in LA just means that the budget increased faster than the growth in the number of taxpayers. (plus whatever California weirdness that Nybbler is pointing out)

This is not a thing that would ever happen with a flat tax on unrealized gains -- frankly your analogy sucks, and I'm not sure why you're bothering to defend it.

California is unrepresentative when it comes to property taxes, thanks to Proposition 13. Elsewhere, @jkf is right. Property tax is a derived value, generally set by fixing a municipal budget, then dividing by assessed value of total ratables. If all houses double in price, nothing happens because assessed value doesn't change. If there's a re-assessment which captures the doubling, nominal tax rate falls because it's an output.

All you've shown is that Portland, Oregon has increased taxes, which should not be at all surprising. You have not shown that increasing home values cause higher taxes; it appears they do not in Oregon. The taxes are set as I said -- they start with the budget and set rates accordingly. Oregon's even weirder because of a bunch of initiatives which attempt (unsuccessfully, so far as I can tell) to limit tax increases.

More comments

Because you don't buy and sell shares of everyone else's houses on a market.

Because home asset values don't appreciate anywhere near the same way equities do.

Because market price is always higher than appraisal price.

Because the government subsidizes home purchasing (which inflates prices you can sell for).

Because tax law allows for deductions that make paying the property tax (which is low single digits) easier.

Two very different systems with different incentives.

Unrealized cap gains tax is far far worse and home propety tax is already awful, albeit mostly accepted.

Depends very much on the time and place.

Hard no. Residential real estate annual appreciation is between 2-6% as an asset class over 30+ years. An index funds beats that. Home's have been a "source of wealth" for Americans because, again, purchase subsidies and favorable tax treatment. You're using a loan to buy equity you can't afford on your own. The stock equivalent would be the government giving everyone favorable rate loans to buy SPY or something.

If anything, homes are far less liquid than stocks, which makes paying it much harder

Well, no. You pay home property tax and your mortgage payments with cash you generate elsewhere, usually income. Your mortgage payments are known in advanced and are fixed or within a certain rate so you can plan for them (or, you don't and 2008 happens again). At the same time, however, your home equity generally appreciates so, over the long run, you can come out on top.

In taxing unrealized gains, you have no idea what the potential payments could be. You can't plan for them. You have to manage risk much more closely, only this is upside down world where you have more downside risk (in tax payments) the more an asset goes up.

In short property taxes are on raw value (not appreciated)

I mean this is just a factual error. Your home is assessed in value every year and that's what you pay taxes on.

If I buy a home with 20% down, and the rent covers the mortgage

Are you calculating return based on renting out one's primary residence?

More comments

The rates, mostly.

Pedantically it's not quite a property tax, it's a wealth tax. Paying for local infrastructure and redistribution are not morally the same. I don't like wealth taxes in principle because I do think they amount to confiscation and require the government to spy on everyone.

But while I can tolerate the Swiss doing it with their careful handling of the information and 0.5% per year, 25% unrealized + 44% realized is just straight up confiscation and essentially places a ceiling on personal wealth.

Combined with the ongoing monetary policy of the US and ensuing inflation, I find this highly problematic. And yes, that same monetary policy argument also applies to property tax.

No. The capital gains rates for individuals (what we are talking about) under Bubba ranged between 20%-28%. Much lower than 44%.

Per the policy, this is deducted from the 44% when you eventually sell the assets, so this is just requiring earlier payment, not an increase in overall tax burden, unless you were planning to die to avoid paying taxes, but that's exactly what is being fought here.

See my run through the numbers here.

If you pay off your capital gains taxes by selling your capital (and paying the taxes to pay your taxes), then you'd sell off half your stake by the time it gets ~10x the value (higher multipliers for faster growth). And you'd still have to pay 44% for the part you haven't yet sold.

In that scenario, you'd be purely better off with a 70% (realized only) capital gains tax than the 25% unrealized + 44% realized tax.

EDIT: just realized you had already responded to my comment before posting this one. My numbers are completely incompatible with your description of the "net change", so it would've been nice to have my math directly challenged rather than pointing out an exception for private companies.

Bold of you to assume I supported Clinton's tax policy or indeed welfare economics.

this is literally just false

Just because there's some specifically defined ritual to divine the fictitious number doesn't make it real.

If a bunch of people behind desks decide my property has a certain subjective value to them and that I should pay them rent on that subjective value to have the right to continue owning things that may have a different value to me, I'm going to call that confiscation. Because that's all it is.

What's the moral justification for a wealth tax if not redistribution?

Well one reason is you got your basic facts wrong.

More comments

Redistribution is the moral justification. Did I suggest otherwise?

Why object to confiscation as a qualifier if that's what it is then?

unless you're a die-hard libertarian, that more economic inequality justifies more progressive taxes

Unless you are more right wing than a social liberal, you mean. I don't believe fairness requires economic equality. Indeed I believe it requires economic inequality.

More comments

I don’t see a tax on unrealized gains passing. The entire lobby of every super rich person in the US would have to fail, and that would surely represent an extraordinary failure.

The better approach would be to tighten up estate taxes so that the wealthiest families have a ‘minimum required tax burden’ to pay when a patriarch dies, regardless of what measures they’ve taken to transfer wealth in life. So if Bob dies having unquestionably accumulated $500m in his life,

In any case, this wouldn’t require anyone to relinquish control, because you could borrow against your equity to pay the tax bill.

I have wondered if replacing income tax with a tax on expenditures would fix some of these questions. Sure, the rich might accrue huge bank accounts, but money isn't actually useful until it's spent. Something like a flat percentage (or maybe progressive) on anything over the computed cost of living for your family. Sure, this has its own questions: does buying investment assets count? Does it have a negative version of the EITC? Can you pro-rate multi-year expenses? I think you might be able to balance timing expenses pretty reasonably with cumulative lifetime values (math: a conservative vector field, although we could do this with income tax already). How do you deal with cash tips?

Maybe it's more bookkeeping to track expenses, but those are starting to be almost entirely automated systems that could make this feasible. But I'm also not really sure it's a better system, just a different answer to a problem with no ideal solutions.

I suspect if you had a button you could press that would make the 'rich' consume less over their lifetimes, other people consume more over their lifetimes and the 'rich' to increase their share of capital then a lot of the people pushing the unrealized capital gain tax would not support pressing the button. for them its not just about fairer consumption but also about who controls capital. so this kind of kills broad support for a consumption tax even if you are able to make it fairer in terms of lifetime consumption.

The typical proposal for something like this is call a "consumption tax", using the economics definition of "consumption". Though, my understanding is that most proposals either just put it all into a form of sales tax or have something of an "implied consumption", where the calculation is just income minus investment/savings, where it's implied that you've used the rest on some sort of consumption. This is a simplification that has some edge cases, but it makes the calculation problem a lot simpler. It's still slightly more complicated than an income tax, because you have to include information from your various financial institutions about how much net new investment/savings you had in that year. You're probably getting a tax document from all these people, anyway, since they're taxing interest/cap gains, but they'd basically have to include this number, too.

The justification for such a tax regime is pretty much exactly what you've hit on. First, if what people actually care about for inequality is that some people can consume obscene amounts of things, then it makes sense to just tax that directly; we mostly don't care if some money sits in an investment account in perpetuity. Even if it is inherited, why would you care, except to the extent that those heirs are using it for consumption? Secondly, economists believe pretty strongly that investment/savings in capital is an important component of increasing GDP (super simple example here), and so people should be perfectly happy to incentivize investment/savings. Every dollar that you save, even in your bank account, makes the cost of capital 'cheaper' for a potential new product to be developed, improving the lives of everyone. So, if we want a rich society with cool stuff that people can consume, it's good to incentivize investment and not care if some baron has a billion dollars invested in an account somewhere, providing this capital. And if we want to make sure that people maybe moderate their consumption at least a little bit rather than going all out with opulent displays of consumption, it seems more palatable to just directly tax consumption, perhaps quite progressively.

I worry that a consumption tax would work too well and suppress overall demand for goods and services which might lead to government subsidy of "core" goods and services but would be difficult to fund because people stop spending on consumption and tax revenues go down.

There's some behavior assumptions built in there, so I admit that.

Consumption and consumer behavior is how prices are discovered and demand signals are captured. I don't know how you'd do it otherwise. Investment is good, but you have to eventually invest in a company that makes sales.

suppress overall demand for goods and services

Possibly so, similar to how income taxes suppress overall income. I guess whether this is a good thing might depend on how one feels about vague things like "consumer culture".

might lead to government subsidy of "core" goods and services

I don't see why this would be the case. What would be the set of "core" goods and services in question?

Consumption and consumer behavior is how prices are discovered and demand signals are captured. I don't know how you'd do it otherwise. Investment is good, but you have to eventually invest in a company that makes sales.

Sure. I can't imagine consumption would go to zero, just like how income doesn't go to zero just because we tax it. People still want to earn income and consume stuff. Both income and consumption taxes have some distortionary effects and suppress some amount of things that we like... but a consumption tax just does it all slightly better. I think a shift from income to consumption tax would have, as they say, marginal effects for most people. On the low income end of the spectrum, the rate is likely to be quite low, but it may provide a small nudge for such people to think about saving a bit more (which is often good for them, individually). This should be a positive for anyone who is worried about poor people not having a lot in savings to get through the occasional tough time.

Most importantly, for people who are concerned specifically about the opulent consumption of the super wealthy, this should be incredibly appealing. If anything, it's great for figuring out which people actually care about extreme consumption inequality (who should be totally fine with investment that helps everyone)... and which mostly just hate rich people generally and want to stick it to them.

I'm not sure exactly how I'd tie the concepts together, but somewhere here is the difference between spending that money on, I dunno, a bottle of fine wine and drinking it, and spending that money buying capital assets to make bottles of wine. Intuitively to me, it seems like the latter is "better" even if both nominally contribute to (immediate) GDP equally.

But you're not wrong that if we all spend all our money on vineyards and not finished bottles, the vineyard isn't really a productive investment either. There's probably a Russell Conjugation here: "I buy and experience valuable cultural institutions; you spend money on fleeting entertainment; and that guy over there is a drunk buying wine by the case." And maybe someone's culture values paperclips.

I'd be curious if Real Economists have words for this concept.

That you think there's a "better approach" means the proposal is already working. You've already accepted the frame that there's some problem to be solved to get the government more revenue from "rich people" (which may start with hundred-millionaires but will quickly if not immediately hit hundreth-millionaires), and now you're only arguing about the form of the massive tax increase.

Of course the rich should pay more. Since 2009 Western governments have engaged in propping up to extreme effect a ridiculous, comically unfair asset bubble that has made rich people vastly richer than at any time in the previous century while regular people have to contend with much more expensive house prices and only modestly higher incomes.

And I say that as someone who has benefited personally from that asset pricing bubble more than almost anyone, perhaps anyone, else here.

Of course the rich should pay more.

Why "of course"? The rich already pay essentially all the federal income taxes in the US.

while regular people have to contend with much more expensive house prices and only modestly higher incomes.

Taxing rich people more will not reduce house prices nor increase income for "regular people". Further, real median income had been increasing up until COVID. Yes, housing was higher, but there's always something you could pick that would be higher.

And I say that as someone who has benefited personally from that asset pricing bubble more than almost anyone,

I'm sorry you feel guilty about your success; I've worked for a living.

I've worked for a living.

How much harder have you really worked the average hard working middle class person? I’m no communist, but this fanatical obsession with meritocracy regardless of inequality has never seemed particularly sound to me.

More than some, less than others. I've certainly worked a lot less hard than some of the people this proposal targets, in particular Elon Musk. The point isn't how much more or less I worked for it, the point is I worked for it. The government didn't hand it out to me as some prize which it's perfectly fair for them to take back. What does inequality have to do with it? Why should I be upset that Elon Musk has a crapload more than me, and why should I feel guilty that I have more than someone who pushed a broom their whole life? Or did nothing productive at all? For what reason should the government be trying to equalize income levels?

He didn’t say he worked harder than the average hard working middle class person. He said he worked for a living, presumably about the same as they did.

Of course the rich should pay more.

Or .... Everything should be cheaper so that more people can buy whatever they want.

This is redistribution vs growth encapsulated.

Then isn't the way forward more restrictive monetary policy and higher tariffs?

Yes, it will reduce economic growth, but it will reduce inequality too. Importantly, it will reduce inequality in a societally constructive way – by encouraging labor, discouraging speculation, and rebuilding our industrial capacity.

The current policy seems to be to encourage financial speculation and then tax the speculators to pay for welfare for the underclass. The rich get richer, the poor get their helicopter money, and middle class and small businesses get eliminated.

Instead of taxing asset bubbles we should stop them from forming in the first place.

This is a good point. When the first income tax launched in 1913, the tax brackets were 1 to 7 percent.

More than 99% of people fell into the 1 percent bracket. The 7 percent bracket was for incomes over $500,000 (approximately a bajillion in today's terms).

Once a new form of taxation is invented, it is almost never reversed, but only expanded. Federal spending as a percent of GDP has increased from 18% to 25% in the last 20 years. State and local spending has increased apace. That is problem.

That depends in part on how capital loss rules would work. It’s one thing to take a margins loan of 50m on a 1b to fund a fun lifestyle. It is another thing to take a 250m margin loan just to pay taxes. What if the stock drops to 500m? If you get a refund of 12.5m, then you can pay down debt to retain same debt to equity. But I doubt there would be a refund.

So now you introduced a lot more risk to the founder in holding onto shares. And that’s before you even account for the founder taking out some cash to have fun.

Better yet, just close the loopholes on capital gains taxes.

If you buy $100 mil of stock and it grows to $1.1 bil, you have capital gains of $1 billion. Someone needs to pay capital gains taxes on that $1 billion. Figure out exactly how each wealthy family is paying less tax, and change the laws so that that process results in an identical tax burden. If you sell the stock, you pay tax. If you give the stock as a gift or inheritance, have the tax burden stay attached to that stock and then when they sell it, it gets taxed. If people take out loans using the stock as collateral, make sure the tax burden stays attached to that stock, which deflates its value because eventually some day it will be sold and whoever sells it owes the tax out of the proceeds. The only way the tax never gets paid is if the stock crashes in price, in which case the stock didn't actually generate a real profit that needs to be taxed, and nothing was dodged.

Inheritance and estate taxes shouldn't be relevant here, just tax the profit directly when it's realized, no matter who is currently holding the bag.

The only loophole is there is a step up upon death. Get rid of that and someone pays the tax on an exit.

You're taxed on income, the business is taxed on profit, then you're taxed again on dividends or capital gains...

Yes?

It's awful because a large percentage (sometimes more than 100%) of those gains are just inflation.

So what?

It's all in the numbers.

Inheritance and estate taxes shouldn't be relevant here, just tax the profit directly when it's realized, no matter who is currently holding the bag.

Operative term is "shouldn't be". Step-up and all that.

Well yeah. My point is, fix that directly. You don't need to do weird esoteric things with estate taxes to try to balance it out, and probably create more loopholes along the way. Just fix the actual problem.

I think most would choose to take margin loans instead, so they could raise the tax money without actually selling any stock.

See my comment to 2rafa. I think margin loans of this size are a different game compared to steady state.

Well, it wouldn't have to be a regular margin loan. I'm sure the private equity industry could arrange something creative- maybe a credit default swap? But I admit I don't really know how that works when you're talking about billions of dollars, maybe there's a limit where it stops working. But for smaller amounts in the millions, it seems surprisingly easy to just take out loans without selling anything.

Yeah for small amounts. If it was a 1% tax AND stayed there, then a bit less of an issue. The problem is a 25% rate quickly mucks up the economics of margin loans.

So you end up having to sell a pretty big chunk of your stake.

31%, if I calculated it right. You would have $3.1B of realized gains ($1.36B tax) and $6.9B of unrealized gains ($1.73B tax).

Let's say you start with 100% ownership of a $1B company, then start paying your capital gains taxes with your capital gains. When will you become a minority shareholder if it doubles in value each tax season?

  • Year 1: $1B to $2B total valuation, you have $1B of gains, sell 0.31, and keep 0.69, ending at 1.69/2 = 84.5% ownership
  • Year 2: $2B to $4B, you have 1.69B of gains, sell 0.52, and keep 1.17, ending at 2.86/4 = 71.5% ownership
  • year 3: $4B to $8B: 60.34% ownership
  • year 4: $8B to $16B: 50.98% ownership
  • year 5: $16B to $32B: 43.08% ownership

What about 10% annual gains?

  • Year 1: 1 to 1.1, keep 1.069/1.1 = 97.2% ownership
  • Year 24: 10 to 11, keep 50% ownership

That isn't even a particularly slow form of asset seizure.

You don’t start out with 100%. You start out with much less because you need funding.

For the purpose of a hypothetical, it's useful - and if you start with less, you can just choose a later point in this hypothetical to start from. So if you start with 60%, it's like starting in Year 3, in which case you only have two years of majority ownership.

One thing assisting Musk would be twitter’s massive loss in value after he bought it, according to one recent, independent value estimate. You post unrealized gains or losses using the cost basis of the asset on acquisition. Will Musk get a tax break for the unrealized loss?

As far as I understand the proposals, there is no such consideration of an unrealized loss. It has to be realized to offset gains. Which makes all this all the more ridiculous.

How does this even work with a privately traded company?

You're a founder and you (hypothetically) sell an initial 10% stake in your company for 100M, which gives your remaining 90% stake an imputed value of 900M. So now you owe 25% of 900M of this extremely illiquid asset?

Do private company fundraising rounds go down (you'll owe less in taxes) or up (investors cover the tax bill)?

What's even the value of something that's not for sale on any market?

That doesn't really answer the question.

Let's take a concrete example.

Let's say I am Gabe Newell, I own a quarter of Valve, a company that made around $6B in profit last year and which I founded and has never been public. It's clearly worth a lot more than 20% of my considerable net worth, but how much is it worth exactly and who gets to decide that?

Is it worth what capital I originally put in it? Some multiple of how much something else i exchanged a piece of the company is worth? Is it worth how much my bank thinks it's worth when they give me a loan? Is it worth what the IRS just decides it's worth? Is it worth how much I think it's worth? Or what Bloomberg thinks it's worth? Or what some judge thinks it's worth when the government sues me for tax fraud when I fill in any other of these numbers?

Now let's say that tomorrow I decide to announce the release of Half Life 3. The value of the company has clearly changed. Has the value of my unrealized gains changed at all for tax purposes. And by how much?

Well I did expect it would end up being some variation of "a bunch of IRS bureaucrats decide what the value of your shit is", but can we at least apply it to our real world case here.

Valuation events are left unclear, so what is Gabe going to pay on? The value of the company last they changed the cap table multiplied by the Fed rate plus 2 compounded if I'm getting this right?

So it's either going to be since his divorce or the Campo Santo acquisition. And the value is going to be based on how good a lawyer his wife has or how much he wanted some third party developers. Makes perfect sense.

More comments

The valuation questions become legion. One method people suggested to solve these issues is simply that any value the taxpayer asserts is a value the taxpayer is obligated to accept if a third party asks to buy. Basically each year you set the option price for your company. Maybe the option only stays open for say a month.

But that’s ridiculous per se since there could obviously be liquidity reasons that forces a founder to have a lowish value in their non public shares. But now due to liquidity they give a free option to competitors to buy their interest for 80 cents on the dollars.

I guess if it was a really low percentage, like how the Swiss do property taxes, there may be some sense you could make of this, and it would actually be some incentive to make companies public, which would reinforce the power of the PMC and create a whole bunch of sinecures in the IRS.

But at the rates proposed here it's just straight up confiscation.

Even the famed 79% tax bracket that only applied to Rockefeller was on revenue income, not just straight up stealing from him because he has too much.

Yes, governments engaged in the most destructive war that has ever been do tend to straight up take everything from people. I agree, FDR was basically Mussolini.

He straight up proved you wrong and this is your response? How about a little grace and humility?

More comments

Sounds like a cautionary tale with relevance to the instant case, no? Camel, nose, tent, yada yada...

And no one actually paid these famously high tax rates either. There were a million and one loopholes that were closed under Reagan.

When Reagan reduced the headline tax rate (70% under Carter!), he closed the loopholes at the same time. As a result, tax revenues as a percent of GDP stayed level. The wealthy were no longer able to use their preferred tax shelters. Tax avoiders paid more. People who didn't try to game the system paid less. The result was a much fairer system for everyone.

Anyone who tries to use past headline tax rates as an argument simply doesn't understand the reality of the pre-Reagan code, which was inferior in every way. Only suckers or fools ever paid 70%.

It didn’t apply to revenue but income. Revenue would not be an income tax and therefore would be required to be apportioned amongst the states.

Yeah that's what I meant, it's the same word in French which always trips me up.

What's the word for revenue in French, then?

More comments

Why would Mr Musk or any other owner be forced to sell their stake to PMC corporations and not other rich people share his goals or ideology?

He would be forced to sell on the open market. And when you have a much smaller stake in a company you are more likely to go on to different pursuits. The company then is run by PMC.

Nothing prevents him from selling it to a rich friend who shared his ideology... except that the friend would have to have enough money available to buy it, and in cash so he can pay the tax. Plus every super-rich friend is likely to run into this same tax problem at the same time, if this new law goes into effect.

This is so under-analyzed, I think the exact opposite could be asserted. This will force large PMC corporations to sell, as the wealth tax will be harder for them and their shareholders to deal with, as they are less liquid than Johnny P Billionaire—as the structure of their firms demands that all money be invested efficiently unlike individual billionaires— this will lower prices and allow rich individuals like Elon Musk and the like to step in and rein in control.

Yeah. Basically this tax both destroys wealth and moves wealth form individuals to institutions (eg super tax exempts such as calpers, BlackRock). This changes control over the investment.

What is this place?

This website is a place for people who want to move past shady thinking and test their ideas in a court of people who don't all share the same biases. Our goal is to optimize for light, not heat; this is a group effort, and all commentators are asked to do their part.

The weekly Culture War threads host the most controversial topics and are the most visible aspect of The Motte. However, many other topics are appropriate here. We encourage people to post anything related to science, politics, or philosophy; if in doubt, post!

Check out The Vault for an archive of old quality posts. You are encouraged to crosspost these elsewhere.


Why are you called The Motte?

A motte is a stone keep on a raised earthwork common in early medieval fortifications. More pertinently, it's an element in a rhetorical move called a "Motte-and-Bailey", originally identified by philosopher Nicholas Shackel. It describes the tendency in discourse for people to move from a controversial but high value claim to a defensible but less exciting one upon any resistance to the former. He likens this to the medieval fortification, where a desirable land (the bailey) is abandoned when in danger for the more easily defended motte. In Shackel's words, "The Motte represents the defensible but undesired propositions to which one retreats when hard pressed."

On The Motte, always attempt to remain inside your defensible territory, even if you are not being pressed.


New post guidelines

If you're posting something that isn't related to the culture war, we encourage you to post a thread for it. A submission statement is highly appreciated, but isn't necessary for text posts or links to largely-text posts such as blogs or news articles; if we're unsure of the value of your post, we might remove it until you add a submission statement. A submission statement is required for non-text sources (videos, podcasts, images).

Culture war posts go in the culture war thread; all links must either include a submission statement or significant commentary. Bare links without those will be removed.

If in doubt, please post it!


Rules


Recommended Posts And Communities

Recommended Realtime Chats