If you want to understand why someone would even propose taking from the rich and complain about inequality, this post titled "Inequality Talk Is About Grabbing " is illuminating: https://www.overcomingbias.com/p/inequality-is-about-grabbin...

It's clear from the way paulgraham talks about the subject that they not only don't know the answer, but don't even realize there's such a question.

You can tell from the way they talk about the subject that they don't understand what they're talking about.

Imagine, poor person, if you had to pay an additional 20% in income tax! That would not be fair!

Fuck off paul. Billionaires aren’t paying anything in income tax when they should be paying 60 or even 90.

So, yes, let’s hit them with a 5% wealth tax.

I think 1% wealth tax should be a replacement for income tax. That way only the wealthy will pay taxes.

There's a related calculation you can do -- what percent of your net worth is your employability? Take your salary, divide by 0.05 (or multiply by 20) -- if you had that much additional wealth earning 5%, you could replace your job's income.

For most people their ability to earn is by far their largest asset. You can kind of get a feel for how difficult it is to bootstrap into generational wealth if you think about the math -- it takes time to replace that earnings portion of your own balance sheet, and even more to well replace it; a lot has to go right in the interim.

> To convert between wealth and income tax rates, you have to divide by the rate of return on capital. The conversion rate of 20 comes from assuming that the risk-free rate of return is 5%.

This seems to only be true for people whose income entirely comes from their wealth, rather than their labor. The math doesn't math for someone on the other extreme end of the spectrum who has zero savings or investments and obtains all his income from labor: To him, a N% wealth tax = 0% income tax for all N. Those with -some- savings are somewhere in the middle.

It is a very sneaky way to argue that a wealth tax should be as across-the-board unpopular as a large income tax increase. But Graham's math is only applicable to those flush with investments and with relatively small salaries from labor, so a wealth tax is only unpopular to that particular group.

A much more interesting formula would be how to convert between income and income tax - you'd think it worked according to the superficial bracket system, but in fact, it works along the lines of going to 0 at the top.

P.S. a wealth tax is a property tax. They have existed in the US since before the income tax (which was originally considered unconstitutional by its opponents).

Paul the billionaire ignoring that billionaires often don't pay any income tax at all. Come on man, we're not stupid just because we don't own superyachts.

https://www.propublica.org/article/the-secret-irs-files-trov...

I don’t follow the debate and situation in the US that closely but isn’t (part of) the point of wealth tax to offset the fact that rich people are routinely avoiding paying income tax and taxes in general? Thus even if we assume the simplistic conversion here, it’s not that they’re moved from 40->60 bracket but more like <10 -> <30 ?

Wealth tax is highly impractical. Very high and inescapable death taxes is what we need. Like 80% after an initial exemption amount. https://www.yesigiveafig.com/p/the-summer-slide-part-3-the-t... https://m.youtube.com/watch?v=mX5U5DNUfBc

I think the assumption that we're looking for an equivalence here is fundamentally flawed and with it the entire post.

For most people income is tied to selling their time. It doesn't scale at all. Unless the income comes from wealth.

The societal problem here is a group with self-reinforcing run-away levels of wealth. And to counter that you do need something more extreme than this nonsensical equivalency of income tax

The bigger difference between an income tax and a wealth tax isn't the numbers. A wealth tax, for better or worse requires some realization of paper gains that very wealthy folks normally go to great lengths to avoid because their wealth is largely based on a broadly shared polite fiction. So imposing some realization of that wealth requires accountability that doesn't always pan out.

>It's clear that politicians don't get this from the way they talk about a "mere 1%" wealth tax. None of them would speak of adding a "mere 20%" to the income tax rate, even though that's mathematically the same thing.

His core point seems to be that taking $20 from him is mathematically equivalent to taking $20 from a homeless girl's hat.

I guess mathematically it is the same number if you dont normalize for that, which he wont.

I used to be against wealth taxes but as inequality gets out of hand I've more and more felt like they are the right move.

Hell, I'll be the first in line to pay the damn tax so long as billionaires are right in line with me too.

> It's clear that politicians don't get this from the way they talk about a "mere 1%" wealth tax. None of them would speak of adding a "mere 20%" to the income tax rate, even though that's mathematically the same thing.

Uh … sure I would? Why not? The top bracket was 70% in the 80s. So that 61% is still a fair bit short of what it was then. (And the 80s isn't the highest point, either.)

IDK if it would be a good idea or not, but I'd entertain the debate, certainly. To state that this is unarguable, though, well…

You obviously can’t convert between the two directly and suggesting that is disingenuous.

Income tax doesn’t affect unrealized capital gains (where the rich “hide” most of their income).

A wealth tax (even without a minimum threshold) doesn’t apply to the poorest who can’t accumulate enough to even have any savings.

This conversion only works for income that is entirely saved and reinvested, which the majority of people can’t afford to do.

Not everybody uses money to make more money, Paul. Most people work, get paid, and spend the money on their needs. In other words, you are in a position to care about the question, it's OK if you are taxed a bit more.

Are there serious proposals to just add a wealth tax on top of the existing income tax that would apply to the sort of people who actually pay much in income tax vs capital gains? It's an honest question; I haven't seen proposals of that sort, so I'm skeptical that the arguments are meaningful here. For an individual like Jeff Bezos, he's paying virtually no tax under the normal income tax rates referenced in the article, but rather capital gains tax, which tops out at 20%, not 37%.

Lots of confusion and misunderstanding in these comments. Not surprising, given the highly charged nature of the subject. I highly recommend Ray Madoff's book The Second Estate [1] to learn more about the topic.

[1] https://press.uchicago.edu/ucp/books/book/chicago/S/bo256019...

Because billionaires accumulate wealth through assets and unrealized gains, many of them skip taking a traditional income and pay. If the numbers in the links below are to be believed, according to paulgraham's calculations, this might bump them into a ~fair range (when comparing to average/median earners).

https://www.nber.org/papers/w34170 https://www.propublica.org/article/how-we-calculated-the-tru...

The conversion would be more accurate if it compared wealth and capital gains taxes, no?

A defining feature of wealth taxes is that they only tax those that make most of their income through capital gains. This is why they're popular among much of the population.

Now the question is, if we lowered capgains tax rate by 20% but instituted a 1% wealth tax, would that be better or worse? My guess would be worse because wealth taxes are nearly unenforcable, but I wonder if there are good arguments for the other position.

I think Paul thinks people care about the distinction, or think that a 20% marginal increase to the nation's wealthiest is something the public would find "unfair".

Rich people need to stop hanging out with other rich people.

> So in the median case, a state adding an additional 20% in income tax would have a total marginal tax rate of 37% + 4.75% + 20%, or 61.75%

Good! It should still be higher!

There's nothing more tone deaf than an uber wealthy man arguing he shouldn't pay more in taxes to the system that allows him to be uber wealthy and to be deliberately misleading at the same time.

Yeah this ignores at least three things:

1. Most people do not derive even a fraction of their income from interest on wealth.

2. Earning income from interest on wealth requires zero effort. That isn't true for salaries.

3. Income and wealth are totally different things. You can find a way to equate them in one contrived example but there are so many other factors involved in the real world.

Billionaires gonna billionaire.

This is a transparently misleading framing.

The very wealthy are paying very low effective rates on their investment gains. Various billionaires have publicly described the truth of this. This is not 20% on top of 35%. They are paying a marginal rate of 35% of deliberately minimized taxable income and zero on deliberately maximized unrealized gains. Then 20% when realized, but as we all know by now there are ways to make sure it’s never realized.

I don’t know what the best approach is here, but I know this framing is nonsense.

This is misleading and not the point of the wealth tax.

If you’re lucky enough that you don’t need to work for your income, you should be taxed. A lot. How much? Enough to make sure you don’t become so rich that your children don’t need to work.

Being rich is not fair, it’s very rarely deserved, and it needs to be taxed unfairly.

This is wrong. You can’t convert between the two because it’s possible to have a lot of wealth with very little (even zero) income. Billionaires can completely avoid income taxes by paying themselves a very low salary and instead borrowing money against their assets (usually stock), which is not taxed as income.

Source: The Second Estate by Ray Madoff (2025)

His math is correct, but the conclusion is wrong.

Income is money that comes from actually laboring and contributing to society. Wealth tax is tax from sitting on your ass doing nothing.

Also, taxes don’t have to be a flat percentage. Like income tax, a good wealth tax would be progressive. Only wealth beyond a certain amount would be taxed, and the percentages would scale.

This is why we should have income taxes that are as low as possible, but still progressively scaled. We should similarly have a progressive scaling wealth tax, but it should be much harsher than the income tax because we want people to work.

Here is a better algorithm to edify the masses: if someone is such a massive billionaire as to have the boldness to teach the public basic 5th-grade math, their wealth tax rate should be set at 10%. From that point on, the rate goes in proportion to their level of condescension.

> In fact the conversion rate between them is about 20. A wealth tax of 1% is equivalent to an income tax of 20%.

Sure, but you actually have to work for continued income. Wealth accumulates with no input once established.

Wealth has the ability to increase (capital gains) without having to pay tax until it changes hands, whereas when income increases it is immediately taxed at a higher rate. Additionally, wealthy people can use securities as collateral for near zero interest lifetime loans which also bypass having to pay income tax.

So make income tax a deduction on a wealth tax, and avoid penalizing people who do indeed pay top marginal rate income tax on a large salary/bonus.

Given that the ultrarich pay very little to no income tax then Paul’s argument is “don’t increase my income tax from unnoticeable to 20%”

Isn't PG's conflation of Denmark's high income tax with a proposed wealth tax a clear flaw in his math and argument re: "the highest taxes in the world"? Why wouldn't you instead compare to other countries that also have both income and wealth taxes?

The wealth tax that we should have is a federal property tax, in the form of a land-value tax. A property tax is more enforceable and produces much better incentives than an income tax or capital gains tax or death tax or wealth taxes in other forms.

I think it's underestimated how important ease of enforcement is for taxes and laws in general. Laws that are hard to enforce require more powerful law enforcement agencies, more invasion of privacy, more punishment, more restriction of freedom. Enforcing a death tax, for example, necessarily requires limiting and tracking of all transfers of money or assets between people including personal gifts. A property tax merely requires keeping track of land ownership, which is a function governments already do, and in the worst case you can simply physically go to the land and see who is using it or seize it.

This blog post is incredibly tasteless. Really Paul should take it down and get the butler to wipe the egg off his face

There is a bit more to the story than a 1% wealth being "equivalent" to a 20% income tax. The primary difference is that unrealized gains are taxed by a wealth tax. We need a mechanism for assets to be sold by the richest in society. If those with assets keep accruing more assets the median person will suffer. When we're talking about real assets (housing, retail shops, warehouses, land) we don't need to be concerned about capital flight. The assets are still there on the ground. Reducing the cost of those assets is exactly what we need to help a local economy.

That being said, the richest are effectively _not_ paying the highest marginal tax rate considering all the tax structuring they do. Claiming that they would be paying the highest income tax in the world is misleading, for one. Secondly, the richest in the world _should be_ paying the highest income tax.

Why choose the median state tax? The proposed wealth tax is in California, where the top tax rate is 13%. Also relevant would be Medicare (1.45% or 2.35% depending on your employment income) and presumably for billionaires, the Net Investment Income Tax, another 3.8%.

I understand why he simplifies things, but it doesn’t really jive with saying politicians don’t understand how taxes work.

I think politicians have a better understanding of taxes than Paul does, and they have a better understanding of how politics work - basically as in all things political, if you convince the majority that you’re dumping on minorities (billionaires, immigrants, trans people) you’ll do well.

Anymore I think the question shouldn't be about some kind of economic fairness (the time value of money thing being discussed) but the idea that wealth accumulation is a disease that afflicts society. I don't think anyone should have the level of control or influence on others that having a billion dollars currently allows. If a millionaire gives $100 to a political candidate it probably doesn't require too much thought. It's impressive to note that a 10-billionaire can give $1M just as easily, and so we have a class of folks who can throw around influence, who can order a team of lawyers to do things, can employ their legion of sycophantic followers to harass people, or can threaten the employment of many people not-of-their-class because they can make decisions that threaten someone's employer's bottom line. And note that above I compared a millionaire to the 10-billionaire, but there are plenty of folks, especially around the planet, who economically live several orders of magnitude below the millionaire.

As a bit of an aside, "spending more time with family" is an often-used euphemism around someone being fired, but if you have more money than you know what to do with and you aren't using it to spend more time with those you love, then what on earth is it for?

I think the post is correct in a one-period sense, though I’m not sure the equivalence survives once you model long-term compounding, additional capital gains taxation and liquidity constraints.

Wow, I like to actually see the numbers laid out like this. Most of the ultra-wealthy pay almost nothing on their income taxes from investments because they have found ways to avoid capital gains, and even if they were paying long term capital gains rates of 15%, pg’s assertion that the wealth tax adds another 20% doesn’t seem unreasonable at all. If anything, it makes me think 1% is not nearly enough of a wealth tax!

True enough, but it doesn't address the motivation or the issues presented by California's proposed wealth tax.

It's a big democracy red flag when a majority wants to take a lot from a tiny minority; the moral hazard of the unfairness is that it's unclear where this ends. (Saying "one-time" and "1%" are trying to limit that risk)

It's a democracy red flag when an unpopular minority is vilified as the cause of society's problems. It short-circuits real policy making and distracts from real issues.

The bargain of private wealth is that it's better at innovation that should spread widely -- if it's subject to competition and does not export costs.

One problem is that one of the best investments is to change the law to reduce competition, increase market power, and export costs -- i.e., to weaken politics.

Another is that wealth used to mostly invest locally (information and transaction costs), so locals would see some benefit. No longer.

Finally, as an accelerant, enterprises are made of legions of managers and experts, who now compete more than ever; they would lose that competition by supporting less extractive policies or gentler politics.

Net result is that wealth seems not productive but extractive, and there is no negative feedback to reduce that.

Once the grand gambit of goodwill is lost, it cannot be recovered for at least a generation, but there's no real feedback to prevent that. The political viability of something like a wealth tax is just an early indicator.