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The spacex IPO has happened and made Elon Musk a Trillionaire.
There are probably hundreds of potential topics from this story, feel free to go off on your own tangents.
What I am interested in is that this is a company that is building real world things, and not fake internet shit. It feels like a lot of new wealth and investment in America comes from and is directed to the internet. I think one of the main reasons has been that large investors are generally play-it-safe followers. They see which companies are newly striking it rich: Facebook, Amazon, Netflix, Google, Apple, etc. And they are happy to invest in copy-cats.
I'm hoping the spacex IPO has a similar effect. That investors start chasing new copy cats. But this time copy-cats of spacex rather than copy cats of facebook or google.
From what I can gather, the consensus on the left side of the political spectrum in the USA is that it's a great injustice that there exists a trillionaire in a world where there exists poverty. Now, there are a lot of implicit beliefs and values mixed up in such a judgment, such as the false notion that it would be possible to fix world poverty or even USA "poverty" with a trillion dollars in cash and that it would be possible for Musk to convert his net worth into a trillion dollars in cash (at its limit, people literally seem to believe that Musk has a bank account somewhere with 13 digits on its balance, claiming that he's "hoarding" the wealth, as if that wealth isn't actually in the form of various companies that are functioning to produce and sell things right now). It seems like it's mostly driven by a hatred of inequality and a desire to collect one's pound of flesh.
Which I think is perfectly reasonable. One of the many reasons Musk is able to have such a high net worth is the fairly dependable capitalist system that we all uphold and partake in, and demanding that he pay the government a fee for the sole reason to appease our envy, even at the cost to overall prosperity and wellbeing of humanity might not be ideal, but it's not unreasonable.
But, as many people have pointed out, Musk - and any billionaire - has most of his assets in productive companies, and the productive nature of those companies is what makes them so valuable, and so liquidating them to put more money in the government coffers would both be logistically very difficult and also likely destroy a lot of value. If the government were to take shares away from Musk to take partial ownership of his companies, that would also likely destroy a lot of value, both because some of the value is tied to Musk being the owner and because the government is likely to have lower ownership skills than the typical private owner. Furthermore, since Musk's - and, again, almost any billionaire's - net worth is defined mostly by the market price of shares of his companies, which are volatile, it's difficult to even figure out the correct value of his net worth to use for any sort of wealth tax.
So I'm left wondering what sort of wealth tax could be implemented, in a way that doesn't destroy too much value while still being meaningful enough to appease the envious (though some may argue that the limit does not exist for that one). It would probably have to take some sort of rolling average of net worth over a period of time, the tax would have to be something like in the form of non-voting shares, and perhaps we'd need to create a ton of new government bureaucracy jobs to manage the logistics of all of that. In effect making almost any company above a certain value automatically partially nationalized. It would have to be progressive without some sharp cutoff point so that there's no single value that any company owner is motivated to keep under. We'd also likely need to have laws around giving shares to family members in order to skirt around the wealth tax - either that or just accept the creation of essentially an aristocracy where successful company owners keep sharing their wealth with more and more family members while still being de facto owners in order to minimize their wealth tax burden. Along with a bunch more government jobs to enforce this.
Of course, I heavily doubt that any of the collected money would have meaningful impact on solving poverty. On net, with the additional government costs and the reduced income tax collections from the employees of these companies, it might actually leave less money to fight poverty than just the current system as-is. But that's not the point, the point is to take money away from really rich people.
I'm not an economist, so I'm probably missing a lot of things. Does anyone have any good ideas for how the USA could implement this without causing too much economic harm? Would be especially good if it could stand up to Constitutional scrutiny as well (of course, the Constitution can always be changed or ignored, but both tend to create a lot more friction and pain than otherwise).
The primary problem of trillionaires and megabillionaires existing is not a matter of consumption. It's not physically possible for a small number of extremely rich guys to negatively impact the living standards of the general public via their personal consumption, no matter how extravagant, and the consequence of trying to liquidate and redistribute all that wealth would mostly be drive consumer prices up.
The actual problem is the way in which the concentration of wealth and purchasing power allow ultra-wealthy individuals to wield outsized political influence, silence critics, and corrupt institutions. Musk essentially bought himself a cabinet post, bullied the Nasdaq into changing their rules for him, and purchased twitter for the purpose of making it into a right-wing propaganda platform. More broadly, we've seen a ton of quid-pro-quo dealings between the Trump administration and private businesses (not that there were no problems with this before, but the 2nd Trump administration has been extraordinarily bad and blatant about it). This is how extreme wealth concentration harms the welfare of the general public - by utilizing existing financial leverage to further rent-seek at the expense of the general public, either in a direct monetary fashion or by sabotaging pro-social policy for personal benefit. And since corruption tends to be self-perpetuating, this can be a very hard cycle to break.
The problem is that the US legal system doesn't really have a way of separating the personal consumption of very wealthy individuals from political activism, and current precedent recognizes spending money as a form of speech. You can't really pass a law saying you're not allowed to own a news company or social media platform if you're sufficiently rich.
I'll never forget the best quip I ever heard about the sale: who knew the 70% completed Death Star was for sale?
It was turned into a right-wing propaganda platform from a left-wing propaganda platform. It was always propaganda, and whichever spook was supposed to be handling Jack Dorsey really fucked up.
The things that are happening in this administration are in response to and escalations from what happened int he Biden administration, and what he learned from the first administration. All of this could have been avoided, except for the propaganda that insisted on portraying Trump as uniquely evil, uniquely corrupt, uniquely threatening to democracy. What's the penalty for being late? Death. What's the penalty for treason? Also death. So might as well go for treason if you're already late. There was never any backing down for Trump, because his opponents are not reasonable, and will hang him for being late.
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I think for most people who hate Musk his billionaire status is like far third place. First and second place would be his political alignment and his cringe factor.
Well, Musk is certainly a unique case, but I wanted to engage with the underlying principles rather than just who/whom (which, to be fair, it might be all the way down). Second and third places really are just downstream from the first place reason anyway, as his awkward autistic tendencies really weren't harped upon much in the 2010s by the exact same people. And neither was his then-billionaire-status - in fact, he was often seen as almost heroic for his success in making EVs mainstream in the US, with positively depicted cameos in shows like The Big Bang Theory or Rick and Morty and even a nerdy scientist in a (terrible) Hollywood (attempted) blockbuster Moonfall asking himself, "What would Elon do?" when trying to solve some tough problem.
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I find this unreasonable. Yes, Musk benefited from a capitalist system. But so did literally everyone else. Nothing stopped you or your neighbor from doing what Musk did. The difference is he did it and you didn’t. And because of that, you want to punish him? Why are you envious?
Moreover, this “you didn’t build it” theory collapses of its own weight. The argument seems to be society enabled this collection of wealth and therefore society has an unconditional claim to the entirety of the wealth. But of course, society “didn’t build that” either. So now we have to split ownership and figure out how much society is owed.
And society is owed very little because Elon has already made society massively better off than simply 1.3 trillion. Besides the large taxes he has already paid, he has brought along a ton of American workers paying them handsomely and making thousands of millionaires and giving a comfortable life to many not millionaires. Also he makes a really cool car that millions love. There is consumer surplus there.
The whole concept behind a market economy is the belief that businesses make the world on net better for all. Sure the business leader may reap individually the most rewards from a business but that doesn’t mean they reap the most rewards in the aggregate.
This tall poppy syndrome is death.
He benefited way more though. He's using way more road capacity, he's drawing on the skills of people who've come through publicly funded education way more, he's causing way more waste to have be cleaned up by others, etc etc. How to calculate this I don't know but it seems like a reasonable part of an argument for progressive taxation based on just deserts.
I personally wouldn't make the argument this way, nor would envy be a part of my framing. I'd just say progressive taxation or a wealth tax is good when it maximises current and future wellbeing and leave it at that.
If the argument is “he used more and therefore he should pay more for his use,” then that leads not to progressive tax but to benefits based tax. Take road capacity. Charge tolls for road usage. That’s almost certainly less than Elon’s taxes.
Re public education, the whole concept is to build skills. People have gotten compensated for those skills. Those laborers pay taxes (as does Elon). Why would you think Elon has taken out more from the system of tax dollars directed to higher education as opposed to given more back? Indeed, isn’t it the opposite? The person who uses that education and becomes a Redditor owes society a lot of money. Someone who richly employs a bunch of college graduates doesn’t owe society anything.
Re waste — we can do sinking funds.
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As best as I can tell, we already have systems in place to tax people for their use of road capacity (gas taxes, tolls), skills of people who've come through publicly funded education (salary, and income tax thereof), waste cleanup (local taxes, as well as fees paid to private cleanup companies), etc. If these taxes are improperly set and there are negative externalities that he's imposing, those ought to be fixed to be properly set. Or if he's evading these taxes, then he ought to be sued to pay his fair share and also punished accordingly. Same goes for anyone, rich or poor. I don't know that these are the case for him.
This is why I believe that the sorts of wealth tax that I'm talking about must be supported by a basis of envy. Just deserts based on treating him like any other individual who participates in society isn't enough to get us there.
Like I say, I wouldn't base my own argument for a wealth tax on just deserts. I don't think you can do a good accounting of the benefits and externalities and opportunity costs of the different parts of government, over the course of decades, such that we can say: gas taxes and tolls cover roads, income tax covers education, etc. It's all interconnected, historical and hard to put numbers on. Tax levels are set by politics and pragmatism, not an accounting of fairness. (To be clear I think this cuts both ways, I don't know if we can really math that Elon Musk gets exactly what he deserves, or if he gets too much either.)
Are these really the only options? What about wealth taxes as a good way to increase the wellbeing and opportunities of more people? Taking money from those who can easily afford it and using it to improve the lot of others in order to maximise utils or hedons or human flourishing, or whatever? It's not envy if someone actually believes wealth taxes are better for the wider populace, and it's uncharitable to believe all wealth tax supporters are privately just in it for the satisfaction of seeing the rich taken down a peg.
I'm skeptical that it's possible to credibly make such an argument, at least for wealth taxes of the level we're talking about. Perhaps it's possible to correctly make such an argument, but given empirical reality, it's hard to see how someone would have the credibility to judge it as correct. It's not a matter of private beliefs, it's a matter of motivated reasoning.
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The lack of ingenuity, grit, and risk tolerance stopped anyone who's not Musk from doing what Musk did. That's why so many are envious of him, as best as I can tell; he did what he did and others didn't, because he had these qualities that others don't. It's reasonable to argue that one ought not be punished for having greater ingenuity, grit risk tolerance, etc. but I also think it's reasonable to argue that the envy of a substantial part of the population ought to be addressed by punishing such a person. We already do some of the latter with the progressive income tax.
That’s literally punishing success.
AlwaysHasBeen.jpg
Humans are a jealous species. It's not right or wrong, it simply is.
You get less of what you punish
Feature, not a bug.
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It's an interesting problem, and I'm convinced this is going to be one of the largest issues facing society in the years to come, but at least I cannot think of any easy solution.
On the first hand, I broadly believe that wealth inequality is not a problem in and of itself - it makes no particular difference that someone else has much more than I do, as long as I have what I want and need myself. To an extent where it is a problem, in that wealth allows for the concentration of power, I've always thought that it was merely a symptom of the immutable fact that increasing technological progress allows for the increased centralization of power. If there was someone capable of expropriating the wealth of the billionaires, it merely means that that someone else has expropriated their power - the government can exert much more control than any private capitalist ever could.
On the second hand, empirically the median person really does not like experiencing wealth inequality, especially in the modern social-media driven age of envy. It's easy enough to say that if everyone was an enlightened buddha, then wealth inequality would not be a problem, but it's much like saying that resource allocation would be easy if everyone simply got along - simply impossible in practice. If it were possible to burn value in order to satisfy people's lizard hindbrains and improve social cohesion, I'm becoming more convinced that this would be a good thing, even if it were not optimal in terms of resource allocation.
On the third hand, it really does not seem like there's any level of reduced inequality that would actually satisfy the median person without ruinous consequences. Complaining about billionaires and trillionaires is a useful Schelling point, but in practice I do not see that "mere" centimillionaires worth 999 million are any less targets of jealousy - in practice most people are just envious of anyone with more than them, while believing that they're all fully deserving of what they themselves have. As others write below, there are many countries which already implement wealth taxes and/or have lower Gini indices than the US, but it doesn't seem to have meaningfully reduced the inherent envy that people feel towards those with more than them at all.
I feel like there's an empathy gap going both directions left-and-right with this kind of thing. In terms of economic value, the left is fine with doing just that (though arguably the left isn't fine with being fine with just that - hence why a lot of the beliefs are dressed up and obfuscated as not being fundamentally about envy), destroying value for the purpose of increasing equality. And in terms of criminal punishments, the right seems to be fine with slaking the bloodthirst of those who want to impose suffering on violent criminals, even possibly at the price of more suffering than necessary to innocents, as well as less optimal resource allocation. I don't think we know exactly why, but irrationally or pre-rationally, people really really commonly really really hate inequality and really really love imposing suffering on violent criminals. It seems reasonable that society be structured to satisfy these preferences to some extent, as one of many competing priorities that any functioning society must balance. Of course, the devil's in the details in how much we prioritize these preferences over others.
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You write this as if the concept of a wealth tax is completely unexplored territory, but in reality many countries already have a wealth tax, including most European countries. They simply assess your net worth for tax purposes on the basis of the assets you own: bank balance, stocks, bonds, property, etc. For private companies it's based on the book value of the company according to the latest financial statement. For shares of a publicly traded company it's simply the stock price at December 31 multiplied by the number of shares you owned.
So if the US wanted to create a wealth tax, it's not that hard to figure out. You can just copy the tax law from e.g. Switzerland.
Ah, I see there's a misunderstanding here on what it means to tax a person's wealth. The government does not want to be paid in shares. They want to be paid in cash, where the amount is a percentage of your net worth. How you raise the money to pay your tax bill is entirely up to you. You can use other sources of income, borrow against your shares, sell stock, whatever.
In theory this can be tricky for people who are cash poor, own a lot of stock, but are restricted from selling it (e.g. immediately after an IPO) but in practice this is not a problem. All billionaires in America have figured out how to buy mansions, yachts and private jets while avoiding anything that resembles a taxable event. I'm sure they can figure out how to raise cash to pay their tax bill, too.
"Worst" case companies will start paying dividends and real CEO salaries again. They only stopped doing that because it allows shareholders and CEOs to dodge taxes under the American tax regime (since dividend and salary payments are taxed as income, while capital gains are only taxed when they are realized, which can be deferred indefinitely). If that trend is reversed nothing of value is lost.
To aid in this process and so people don't have to dilute their ownership stake how about we mandate that all companies pay out a dividend based on something semi-reliably related to their value, like their net profits so that the shareholders can then just forward that onto the government. Actually how about we save some steps and just have that dividend go straight to the government coffers so the investor doesn't have to do anything at all. Because this impacts corporations and brings income to the government I recommend we call this a corporate income tax.
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Ironically Musk doesn't have any of those things.
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First, many Europeans abandoned wealth taxes because they had a bunch of practical issues with less money raised than expected.
Second, as a shareholder would you prefer the Musk path where he basically doesn’t get paid unless he hits crazy milestones or he gets paid a much smaller amount regardless of milestones?
Third, a wealth tax as described is likely unconstitutional.
Wasn't an income tax also originally unconstitutional?
Yes and they passed an amendment to make it constitutional. Good luck getting the wealth tax amendment passed.
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I wasn't familiar with wealth taxes in Europe, so thanks for informing me! My very basic research showed that Switzerland has different rates based on "canton," which seems to be the equivalent of US states, and the highest rate seems to be in Geneva, at 0.38% for the top bracket. Perhaps Switzerland is an outlier, but I doubt that anything on the order of 0.38% would be meaningful enough to register for the people who call for a wealth tax in the USA based on their envy for billionaires+. Perhaps 38% would be enough, though I was thinking >50% as a symbolic gesture that it takes a majority above a certain point. If the notion is that simply existing as a billionaire - and certainly as a trillionaire - is intrinsically unethical in a world with poverty (i.e. our world), then the tax certainly must be big enough to actually turn real billionaires into merely hectomillionaires. And 0.38% ain't gonna cut it for that.
That said, perhaps it could start at 0.38% and then through a ratcheting process go up to 99.999% over the years through small individual changes, no single one of which is all that extreme? It'd take a lot of sessions of Congress to do that, though, and in the long run we're all dead, so probably not a great idea, though, given that the Sanderses and Warrens of the world likely want to see it before they die.
No, there was no misunderstanding on my part. Of course, the default way to pay a tax is via cash, but I had already pointed out the value-destruction nature of having to sell stock made it an unattractive option. Again, the amount of tax we're talking about is significantly more than the amount these guys spend on mansions, yachts, and private jets. I don't think there are many billionaires out there right now who would no longer be billionaires if you took away their luxury goods; most of them - certainly most of the richest of them - have their money tied in, again, productive assets. E.g. right now, Musk is worth something like $1.4 trillion, I think. If he had to pay a $400 billion tax bill, he would likely have to sell a heck of a lot of his stock in a way that also destroys a lot of value for a lot of people. If he had to pay a $1.399 trillion tax bill, I don't think that would actually be possible for him, mathematically, due to how his actions of starting to sell his stock would destroy the value of the remaining stock that he needs to sell to get that much cash.
It's a bit more complicated than just 0.38% because the tax rate is progressive, plus there is a municipal tax that is a percentage of the cantonal tax added on top (typically around 50%). I think you can get up to around 1% in the worst case, but it's mostly theoretical because in practice rich people move to a place where they get taxed less, unless they are either extremely principled or they really want to live in one of the major cities no matter the cost.
The point is that these taxes are charged every year. 38% would be insanely high: in just 10 years you'd have lost >99% of your wealth. That's not reasonable.
By comparison, at a 0.5% rate you pay e.g. $5000 per million dollars in savings. Over 70 years, you'd lose 30%. If you have a top rate of 1%, then you lose 9,5% in 10 years, or 50% in 70 years. This strikes me as reasonable, especially since you can usually generate some return on your wealth too (the US stock market has yielded >10% on average in the past decade even compensating for inflation).
I understand that there are some people who want that, but I don't think those are realistic proposals, in that you wouldn't be able to pass them into law even at the state level, and if you could, the main effect would be driving out billionaires and businesses, rather than generating a huge amount of tax revenue.
I'm rather more interested in proposals that:
Right, it's impossible for Musk to raise $400 billion all at once, that's why the wealth tax should be a small annual percentage instead. Selling 1% of his shares each year wouldn't tank the stock price the way that selling 30% would. But you're still getting 10 billion a year out of him alone.
I don't buy the concern about Musk losing control of the company. Musk already uses his class B shares with 10x voting power to maintain >80% control with <50% of the shares. He can sell 75% of those shares and maintain majority control. Or use tricks like equity swaps to raise money without losing his shares. Or just make the company pay 1% dividend per year (though that requires it to become actually profitable). Plenty of ways to pay taxes while remaining both CEO and majority shareholder.
So given that Musk can stay in control and pay a hypothetical wealth tax, it's not clear to me what value you think is being destroyed by taxing wealthy people somewhat. Unless you say it's always better for billionaire to have a dollar than the government, on the basis that billionaire's investments are more beneficial to society than whatever the government wastes it's money on (healthcare, pensions, education, foodstamps, the military), but that's highly debatable.
Okay, but you do understand that the entire point of my comment was to explore possible policies that would be in line with what those "some people" want, right? What you want seems reasonable enough, but what you want isn't the topic of discussion.
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Cynically, I think you're thinking about this all completely wrong, in that you are taking the words of the envious as you call them at face value. Ultimately, for these people, the point is not to take money from really rich people (ostensibly to help the poor), no, that is incidental; the point is to hurt really rich people. They are Marxists, and these are their eternal class enemies. As always, "to help the poor" is the cover story, many couldn't actually care less about the well being of those they claim to fight for beyond what they offer as a political tool in the realm of realpolitik. This is how democrats in Minnesota can get millions of dollars for "educating underprivileged children", clearly without giving a rat's ass whether it was actually used for this purpose.
There is no say-when point in $ where they will be appeased; a well reasoned new tax, a number of 0's off Elon's net worth, where they'll say "oh yeah that's actually fair, we're good". That point is not a dollar value or a percentage, it's the point where their social media fueled class bloodlust against the capitalist feels quenched; Elon can't just be a bit less wealthy on paper and that's it, Elon must suffer in some way. Be brought down a peg; humiliated, if need be. Any amount of money taken that still allows Elon his ability to exist as an influential public figure will not be enough. You're trying to apply a rational, economic solution to a religious problem. They aren't "too rich", they are infidels to Marxism, and must repent or be crushed.
Honestly, Elon and the rest's best bet would probably be to employ some kind of Br'er Rabbit strategy. I think the amount of humility required to allow the Twitter Marxists to even think they won is beyond them though.
You saw this in its purest form in Russia in 1918-20, when people rejoiced at seeing former industrialists starving, in pauper's rags. This was during Ayn Rand's teenage years and did a lot to form her world-outlook!
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I kind of half wonder if that's what happened with the Twitter/X purchase... if I recall, The Internet (tm) was dead set against it until he tried backing out, and then there was gleeful rubbing of hands at him being "forced" to go through with the deal.
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I agree that there is no such thing as appeasement for the each the rich types. There are enough marxists that I've met in real life that seem to want CEOs and the wealthy lined up against a wall and shot. Their idea of "compromise" is to simply confiscate all their wealth and imprison them for the rest of their lives in some Siberian equivalent work encampment. These people were joyous to hear about the United Health Care CEO being gunned down in the street. They were also joyous to hear that it had made other CEOs worried for their lives.
The only people like this that I have seen mellow out got married, had kids, and held down a good solid career for a decade. Which obviously has nothing to do with the policies they espoused, but it was never about policies in the first place. Its gripes about their life situation disguised as a policy gripe. And just like you can't reason someone out of position they didn't reason themselves into, you can't appease a life situation gripe with their claimed policy solution.
This jives with my personal experiences. Most of the serious marxists I know were overachieving students who underperformed in their early careers after school. The downwardly mobile upper middle class children of doctors and academics who somehow got stuck working respectable but unfulfilling jobs they think are beneath them. It's an incel-like frustration that the rules for life they internalized as children seem actively detrimental to their success in adulthood.
Do you know anything specific about the nature of their failures in work life?
It varies. A couple didn't get into the grad programs they wanted, one became disillusioned with academic office (not ideological) politics and fell into IT as a stop gap but never left, a few were the "smart but lazy" archetypes who never applied themselves enough to go to college or learn a trade, and blame capitalism for why they work in Amazon warehouses rather than being professional video game testers or whatever fantasy they had in high school. A few are reasonably successful young academics who resent that their low pay and lack of job security haven't come with the societal prestige they were promised (they're doing fine, but are frustrated that once they leave campus they have no more social status than their blue collar acquaintances. No one defers to their academic authority or trusts that they have special insight on social problems).
It's not necessarily that they're all failures, but they all resent their current positions in life.
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More by a seething envy. It's really something watching people worth 10's of millions tantrum about Musk theoretically hitting a trillion.
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A tax that could be implemented without actually destroying much value is requiring sufficiently large companies to employ worthies in well-paying sinecures. That is, presumably, the actual demand when you boil it down; much of the left side of the spectrum's representation is about how unfair it is that their degrees in fan fiction from a communist's ass don't automatically result in a high standard of living. Of course, that doesn't mean the median leftist believes this; most presumably are not the twitterati socialists who believe they should have a comfortably above median standard of living without doing any actual work, on the strength of their ideological purity(mostly expressed through degree-having). But the twitterati socialists are the representation to the public, and their enoblement would calm the rest of the leftists because they would no longer have an amplifier to their concerns.
Yeah but affirmative action and its beneficiaries indicate that the mindset of a lot of sinecure-receivers is more 'Why am I stuck at the lowly senior Vice President of Diversity role when I should be CEO. I'm great since the company rocket-boosted my ascent to where I have landed now' rather than 'Gee I wouldn't have been hired if I didn't have the diversity points, I should be grateful for getting a 500k/yr sinecure'.
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Hm, arguably that's a function that certain employment laws and HR departments are already filling. I can't say I like the idea of companies being required to financially support one specific partisan ideology. But this does remind me of something I saw on Twitter the other day - which I don't know how true it is - that it was strange that modern billionaires didn't found universities like their equivalents from prior generations. I don't really see a workable way for the government to force them to do such a thing which wouldn't be far too corrupt to be worth it, though, since the idea that schools ought not be ideological indoctrination centers is, in itself, a politically controversial position. Same issues would exist for scholarships.
It isn't true. The most recent private secular accredited non-profit university is Minerva University, founded by the former CEO of Snapfish. There's also the University of Austin, co-founded by Palantir co-founder Joe Lonsdale, which is not accredited but is a candidate for accreditation; while the people who complain that billionaires don't found universities jeer at that one, jeering doesn't actually make it go away.
And of course there's a lot of schools, programs, buildings, etc at existing universities endowed by tech billionaires.
I suspect it's much more difficult, both because of regulation and because of market saturation, to found a worthwhile new university today than it was when Leland Stanford founded his.
Yeah. You've got to plug into the already-rotten university system of peer review in order to get any significant research done, any sort of a major metro will likely absolutely mug you when it comes time to try and build a campus. Meanwhile in most Western countries the vast majority of 'new universities' are blatant visa mills.
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Even before that, Monaghan cashed out to found Ave Maria. Plenty of billionaires embark on intellectual patronage.
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I didn't say I liked it. I said it's the actual demand.
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The ringleaders, though, are doing just fine -- Bernie has several houses and a net worth of about $3M, whereas Warren's net worth is estimated at $12M.
He's also 84. Shockingly a lifetime of working and saving does eventually cause you to have substantial amounts of wealth. I think my 65 year old parents probably have about the same levels of net worth from a lifetime of dual-income working.
Average net worth is much less than $2M for any age. Median is even lower. Bernie is doing well, and Warren even better.
Bernie's money mostly comes not from his salary but from selling books to other commies. Warren's comes from book sales and also her and her husband's legal consulting fees.
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Bernie never really worked—just was a gadfly in the senate
I mean if you want to make linguistic judgements on the "definition" of "work" its a free country. He collected a paycheck from being a senator, senatorial aid, whatever. And has done so for awhile. Assuming normal middle class habits around saving and spending, then at 84 I would expect a low 7 figure net worth. It probably also helps that he hasn't retired like most of his peers at 65 meaning he probably still has neutral-ish spending.
This is a level of pedantry that borders on obnoxious.
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Which is upper-middle-class wealth in a country as rich as America. I don't think there is anything surprising about, or wrong with a successful politician being upper-middle-class.
Taking Warren's $12 million net worth estimate at face value, this website calculates her wealth as being in the 98.5th American percentile. I guess she can still reasonably claim to be fighting against "the 1%"
Donald Trump was (probably - it is hard to be sure given how much he lies about his financial status) a billionaire when he announced he was going to fight against elites on behalf of the common man. I find his claim about as plausible as Warren's, but the target audience eat it up in both cases.
FWIW, the anti-super-rich lefties I see have stopped talking about "the 1%" and now talk about "the billionaires" which is a much smaller group. Too many upper-middle-class lefties are worried about the leopards eating their faces, I suppose.
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$12M is close to top 1% in wealth. $3M is 94th percentile. This is not the upper middle class.
Does this include her congressional pension?
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"Close to, but not in, the top 1%" is precisely what upper middle class means.
Also, wealth tends to accumulate over time. So "upper middle class wealth" for a 76-year-old like Warren is a higher dollar amount than it would be for us.
With that kind of money you can draw $400K a year indefinitely. If you can make that kind of money passively, you're outright rich.
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The only people who think that the upper class starts at 99% are people between 90%-99% who don't want to face the reality that they aren't middle class. "No officer, you don't understand, I'm only at 98.5%ile."
British usage assumes a pyramidal society, so there are more working class people than middle-class people and more lower middle than upper middle. To be considered upper class you traditionally needed to have a social network that includes hereditary peers, so upper-middle class stretches a long way up the income scale. A big 4/MBB/Magic Circle partner would definitely be considered upper-middle class, not upper (unless they were upper for family reasons).
In America, everyone except the underclass and the super-rich considers themselves middle-class. Americans don't generally use the term upper-middle class, but the term middle-class is used by both the people themselves and politicians appealing them to cover everyone from a plumber to a HENRY, and upper-middle class refers to the top echelon of that huge group. Paul Fussell's Class (published 1982 so somewhat out of date, but I am not aware of any book since which attempted to define upper-middle class in the US context) gives doctors, lawyers, small town real estate developers and middle-to-VP level managers at large companies as paradigmatically upper-middle class. Warren's $12 million accumulated over a successful career would be well within the achievable range for those professions, though probably above average.
The only time I have seen the words upper-middle class used seriously in an American political context was to describe the people on incomes of $250k-400k who might or might not benefit from Obama's partial extension of the Bush tax cuts, which is also close to but not in the top 1% and given the rising stock market since the Obama era seems consistent with a net worth reaching $3-12 million today.
The algorithm I use that works in any rich country:
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I think a major component of this is borrowing against the shares. Musk doesn't have a liquid net worth of a trillion dollars. But he is borrowing against his shares in order to get liquid capital. Somebody correct me if I am wrong, but I believe this isn't taxed. I think the simple answer is that if you borrow against unrealized capital you should be taxed at some value of that capital. You are using that capital with a loophole to get cash. This is probably the cleaner solution to the stupid tax on unrealized gains that the Dems proposed last election season as it really only hits people with large capital assets and limited liquidity, not the average homeowner or stock bro when their shares/homes appreciate. Whether or not this is a fair policy is probably open to interpretation and not something I have made my mind up on. I'm sure people in the comments can tell me why this is a bad policy economically...
What if you borrow against your home to finance an improvement?
To me, make capital gains tax rate at 10% and you eliminate these silly games whilst probably raising revenue.
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This isn't a loophole. There is a loophole here, but it's not that loans aren't taxed; loans aren't income. Under your proposal, the same money is taxed twice, as @The_Nybbler says: once when a loan is taken out against it and a second time when the shares are sold to pay back the loan. Loans just defer the tax burden -- defer and increase it, since you have to pay taxes on the shares you sell to pay back the interest too. And while the rates on these loans are better than you or I could get, they're much more than what the government pays out on treasuries; they should be happy to wait, given the rate is higher than their own discount rate.
... But there is a reason rich people do this: cost basis resets on inheritance. This is the actual loophole; just defer capital gains until you die, then your heirs can sell your shares with no capital gains to pay off your creditors and start the cycle over again. (They do have to pay estate tax, at least for the ultra-wealthy class we're talking about, but it's better to dodge one of the two than to dodge neither.)
At one point there was a credible argument that the heirs might not be able to figure out the true cost basis, but I doubt that's very often the case today. I don't think there's any other serious defense of the practice. If you want to remove loopholes, this is the very first place to look.
(That said, I don't think your proposal is a terrible compromise, so long as the tax paid on the borrowed money can be used as a credit against future capital gains. I'd be for it if I thought it would actually satisfy the eat-the-rich crowd, which I doubt.)
My understanding is that yes technically, but no basically. As long as your shares increase in value it reduces the loan-to-value ratio, and at some point you use the difference to take out a new loan to pay off the old one with some interest grace period. This very much requires the stock assets to keep going up, which doesn't always happen. But it has happened to enough rich folks that its noticeable.
It's as you pointed out probably not a real loophole, but I think to many people it feels like a loophole. I think the deferring part of it feels like a way to avoid paying taxes while still living large. I would interested in seeing how much of a given UHNW-individuals income comes from this sort of personal loan mechanism before really making a judgement.
I also doubt because it's envy driven tax policy. It is however I think a fig leaf towards the less unstable set of eat-the-rich crowd. I think even a set of moderates/center-lefts/center-rights are being persuaded by the eat-the-rich-rhetoric around the growing wealth inequality in the US. Doing something to cut down on it is probably going to be a requirement at some point soon.
Yeah, so two separate things going on here: first, yes, the stock might appreciate faster than the interest... but it also might not. (You already understand this, clearly, but just to make it explicit.) Putting aside the loophole, this is really equivalent to taking out a loan to buy stock in a single company which is also your employer, which no sane financial advisor will tell you to do. From low to high (hopefully): there's a theoretical guaranteed safe rate of return (which is not literally the rate on treasury bonds, but it's close enough), then there's the rate the bank will offer you a loan at (since if they were only getting treasury returns, they'd just buy treasuries), then there's return from a well-diversified stock portfolio, and then there's the return from your controlling interest in a single company which:
The last has a substantial risk premium because it's a very substantial risk. But of course the people for whom this doesn't work out aren't on any lists of the world's richest people, so we don't talk about them.
Second: the government can borrow at the treasury rate. If they can (effectively) loan you money at the higher bank rate (which is how the math works out), they'll do so happily, issue more treasuries to cover the temporary shortfall, and pocket the difference in rates. They're not impatiently waiting for you to finally stop deferring your tax burden and pay the whole bill, they're coming out ahead every day this state of affairs continues (until you die and the principal vanishes due to the cost basis step-up).
(The point about deferred interest is more potentially problematic, but it still would eventually get paid if not for the step-up.)
Well, it might or might not be a large portion of their income, but I don't think that's really the relevant factor here. The real problem (in terms of satisfying populists) is that:
But then populists compare the bullshit (high) net worth figures to the bullshit (low) tax figures and get mad about it. Taxing savings is a terrible idea -- if you tax something, you get less of it, and capital is the main driver of economic growth -- but taxing consumption will never give a satisfactory number.
Yeah, possibly. I don't have a good answer for this problem. I do think we should fix the cost basis step-up issue, but that's probably too complicated to satisfy the (large and growing number of) people who get very angry about this subject.
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That seems really reasonable to me, but also, being ignorant of the actual reality, I have to wonder just how much the Musks of the world are borrowing against their assets, and if that's enough to make a difference. Surely they're not borrowing anywhere near their total net worth, but rather some amount much less than the total expected appreciation of their assets (so that they can actually pay back the debts while also having more left over to actually grow wealthier)?
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Consumption taxes are generally considered the best taxes, but they are pretty damn regressive. This sounds... really good from an efficiency standpoint, is appropriately targeted on the wealthy (though we need some way to exclude middle class HELOCs) and seems much harder to game than a consumption tax too. Go run for office.
Only apply it above a given net worth that even very lucky and geographically well situated middle class people will not reach.
I would consider it- I'd make a good crank candidate- but I suspect the background checking would result in this very forum shutting down, and besides, it's incredibly expensive.
Stolen valor! Get your own presidential run-viable topic!
I like this one solely for the interesting incentive structure it could create where prospective political operatives deliberately risk sending themselves to prison and then bribe during the selection.
Only if we survey everyone who would want to as a Top Secret poll and then exclude them from the selection process. I'd rig an election for this idea.
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yes HELOCs seem to be the corner-case that presents a problem, and unfortunately any carve out there is just likely to be repealed later down the line. The government loves another way to get free money. I think the easy answer is to tie to just capital gains based collateral, not property.
Ewww. Probably says something about me that I find the idea of being a politician relegated to the narcissistic and sociopathic.
HELOCs are a bullet I am willing to swallow. Tax-free consumption out of unrealised capital gains on primary residences is the same mischief as tax-free consumption out of unrealised capital gains on founders' stock, and causes the same social problems in a more distributed way. Protect the middle class with a $100,000 lifetime exemption.
I'm not sure how you distinguish a concentrated zero from a distributed one.
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Such loans involve interest payments and eventually result in consumption, which is usually taxed. Paging @DuplexFields to shill the Fairtax which might be a better approach to consumption taxation.
Right "eventually" but this is more like taxing capital gains. Its a loophole designed to get around realizing the assets and thus needing to pay the capital gains taxes, but still getting liquidity. We do tax capital gains even if that "eventually" also results in consumption. This is just fixing a current loophole. And believe me if Fairtax or LVT was on the board, I'm in agreement. However, unlike other libertarian-adjacent folks though, I live in reality...
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So you borrow money, you're taxed on the money borrowed, and then when you make money to pay it back, that gets taxed too? Maybe banks should be taxed on the value of their deposits too.
Uhhh... I had to look this up but you are not taxed on a personal loan, the IRS treats it as debt not income. So saying that you are taxed on the money borrowed is incorrect.
Not now. But that's what your proposal is.
My proposal is a tax on a collateralized personal loan as a means to avoid paying taxes on realized capital gains. I think thats a bit different than taxing a personal loan. Philosophically its about using your high net worth to unfairly secure taxation solutions that allow you to still appreciate your wealth without being required to pay for it. This tactic is not available for the vast majority of people on account of not having 100s of millions in unrealized capital gains.
The neat part is actually the stock can appreciate and reduce the leveraged burden allowing you to take additional lines of credit to pay your existing lines of credit. If I understand the process somewhat, you are never really called to pay the loan back unless the stock depreciates greatly in value and the bank views you as unreliable enough to call the loan in.
Feels like a strawman.
It’s called a margin loan. If you aren’t super poor, you can mortgage against your stocks.
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Have you never heard of a reverse mortgage?
A HELOC is the more comparable financial equivalence. Reverse Mortgages are only available to 62+ year olds, and operate differently than a HELOC or SBLOC. While we are definitely approaching gerontocracy with a large number of boomers and X-ers with large home values, I don't think many have homes valued at 100s of millions of dollars.
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Designing a working country is engineering, not philosophy. What is important for the policies is to work, not be coherent, make sense or be derived from deep ideological principles.
If a blue collar worker pays effective tax rate of x percent, then it is ok to make the upper echelons of society pay at least x.
No, this thread started by talking about how it was a 'great injustice' that a trillionaire existed. That's already out of the realm of engineering; you don't get to switch now and ignore 'philosophical' objections.
This, too, is outside the realm of engineering. It might be "engineering" to determine what Musk's effective tax rate IS, but in practice it will be entirely dependent on assumptions made which are outside that realm.
Identifying the problem is philosophy; figuring out how to fix it is engineering.
Yes, but we don't agree on the identification, and thus we're firmly in the realm of philosphy.
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