Taxing wealth versus taxing income

Updated on June 10, 2021 in General Stuff
3 on June 9, 2021

“Amazon.com Inc. held its initial public offering (IPO) on the Nasdaq on May 15, 1997, at a price of $18 per share. $10,000 invested on that day and price would be worth more than $12 million as of May 2020.”

Suppose you inherited that $10,000.00 from your working class parents in 1996 and put it all into Amazon. Are you now rich? If so, and I think you are, then what shall we do with you and your wealth? You still live in the same old 1200 square foot house you also inherited from your parents in ’96, you drive a used Honda, you drink Budweiser, not Imported Belgian Ale, you cook and eat at home, and you buy your clothes at Target, all as countenanced by “The Millionaire Next Door.” You earn $50,000 per year as an assistant manager at an auto parts store.

What case can be made that you, who “saw your wealth soar” in the last 25 years (you plutocrat, you), should be taxed on your wealth? I’m okay with a tax on the dividends, assuming Amazon pays dividends, and I should know but can’t check right now.

You are King For a Day. What would you do? Keep in mind that, after you pay the tax on the value of your portfolio, the stock could drop precipitously. Amazon has a lot of intrinsic value, so I can’t see it ever dropping to zero. I can see it dropping by 35%, however.

If the stock is more speculative and volatile, like GameStop, it can indeed drop to zero. After you pay the tax. You could even get a second tax bill if the second tax year ends before the stock goes to zero.

 
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0 on June 9, 2021

Further to the above, no, Amazon does not pay dividends.

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0 on June 10, 2021

The ProPublica story (based on illegally disclosed tax returns) has everyone abuzz over the huge amount of unrealized gains held by Bezos, etal. Of course, the slight of hand is sloppy. They deliberately conflate unrealized gains with income, and conclude that tax rates on “the rich” are scandalously low.

The explicit call (Warren, etc) is to reach for those gains via the tax code.

Be careful what you wish for.

The REAL pile of unrealized and untaxed gains isn’t in the portfolios of a handful of super rich guys. The big dollars are in housing, which IIRC increased in aggregate price by about $2.5 TRILLION last year.

What would I do if I were king and got to set tax policy? At least as it relates to securities, there would be no taxes. No tax on gains (or dividends) of any kind.

Discussions lile this always start with the unstated premise that the way to get maximum social utility from a dollar is to put it in the hands of Schumer/AOC/etc.

I think that is exactly backwards.

Every dollar controlled by politics deprives society of the incremental utility that would have existed if that dollar’s owner had put it to voluntary use. By definition, political decision making redirects dollars from higher utility to lower utility functions.

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A few years ago I decided to torture myself. I graduated from high school in 1981. I used my graduation money to buy a nice camera. About $150 at the time.

Suppose I had opened an IRA instead, and put that money there. Then suppose I had invested in Microsoft, Google, and Amazon in sequence.

I don’t recall the answer, but it was ridiculous. Like tens of millions.

But I still have the camera.

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0 on June 10, 2021

I remember this question being a couple decades old boogey man that was being discussed back at least when I was getting my MBA in the mid-90s. The real problem is that wealth is paradoxically effectively valueless. Think about it. Yes, my house has increased in “value” dramatically in the last 6 years of ownership. But I can’t buy anything with that “value” until there’s actually a transaction that monetizes the “value”, which likely will never happen. And if it perchance does happen, I will be taxed on that transaction which will be “real”.

It’s the same issue with barter. If I fix a friend’s sink in exchange for 3 chickens, how can that possibly be taxed? The government gets one chicken from me and a used P trap from my friend?

Which then leads to all of the ways that billionaires keep the money they make. Bezos probably sets himself up with a nominal salary ($50-100 K) to cover eating and is taxed extraordinarily on that relatively small number. But most of the wealth is pieces of the company which has no  fixed value. And his will is geared to make that wealth mysteriously vanish on his death bed.

The whole idea was a losing game back when they were doing the same stupid shit decades ago. It hasn’t gotten better.

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