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PaperclipPerfector  2yr ago (text post)   32223 thread views

Culture War Roundup for the week of August 19, 2024

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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.

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.

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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?

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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.

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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.

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