Viliam’s shortform posts have got me thinking about income taxes versus wealth taxes, and more generally the question of how taxes should be collected. In general I prefer wealth taxes over income taxes, although I suspect there may very well be better forms of taxes than either of those two—But considering wealth taxes specifically, I think the main problem with wealth taxes is that over the long term they take away control of resources from people who have proven in the past that they know how to use resources effectively, and while this can allow for short-term and medium-term useful allocations of resources, it prevents very long horizon investing – as exemplified by Elon Musk’s projects including SpaceX, Tesla, Neuralink and The Boring Company – projects that are good investments primarily because Musk understands that in the very long term these projects will pay off – both in personal financial returns and in general global welfare. While Tesla is very close to becoming profitable (they could turn a profit this year if they wanted to), and SpaceX isn’t too far off either, he founded companies without any eye for medium term profits—he founded them understanding the very long game, which is profitable in the absence of year-over-year wealth taxes, but could potentially be unprofitable if year-over-year wealth taxes were introduced
The proposal that came across my mind in regards to alleviating the negative impact wealth taxes would have this way, is to allow entrepreneurs to continue to have control of the money they pay in wealth taxes, but that money is held in trust for the greater public, not for the personal use of the entrepreneur.
To clarify my point, I think it’s worth noting that there are two similar concepts that get conflated into the single word “ownership”: the 1st meaning of “own” (personal ownership) is that a person has full rights to decide how resources are used, and can use or waste those resources for their own personal pleasure however they wish; the 2nd meaning of “own” (entrusted to) is that a person has the right to decide how resources are used and managed, but ultimately they make decisions regarding those resources for the good of a greater public, or another trustor (entrusting entity), not for themselves.
When resources are owned by (i.e., entrusted to) somebody, they have the right to allocate those resources however they think is best, and aside from the most egregious examples of the resources being used for the personal gain or pleasure of the trustee, nobody can or should question the judgement of the trustee.
Back to wealth taxes: in my proposal, while an entrepreneur would still be expected to “pay” a certain percentage of their wealth each year to the greater public, instead of the money going directly to the government, the resources will instead continue to be “owned” by the entrepreneur, but instead of being personally owned for the entrepreneur’s gain and pleasure, it would be entrusted to the entrepreneur in the name of the public, and the entrepreneur will be allowed to continue to use the resources to support any enterprises they expect to be a worthwhile investment, but when the enterprise finally turns a profit, the percentage of revenues that correspond to the part that is entrusted in the name of the public, will then be collected as taxes.
The main benefit of this proposal (assuming wealth taxes are already implemented) is that, while it cannot make profitable any venture that would be rendered unprofitable by a wealth tax, it can maintain the feasibility of ventures that are profitable in the long run, but which are made unfeasible in the short and medium terms by a wealth tax, due to the cost of taxes being more than medium term gains.
two similar concepts that get conflated into the single word “ownership”
Sounds like “owner” vs “manager”.
So, if I understand it correctly, you are allowed to create a company that is owned by state but managed by you, and you can redirect your tax money there. (I assume that if you are too busy to run two companies, it would also be okay to put your subordinate in charge of the state-owned company.)
I am not an expert, but it reminds me of how some billionaires set up foundations to avoid paying taxes. If you make the state-owned company do whatever the foundation would do, it could be almost the same thing.
The question is, why would anyone care whether the state-owned company actually generates a profit, if they are not allowed to keep it? This could means different things for different entrepreneurs...
a) If you have altruistic goals, you could use your own company to generate profit, and the state-owned company to do those altruistic things that don’t generate profit. A lot of good things would happen as a result, which is nice, but the part of “generating profit for the public” would not be there.
b) If the previous option sounds good, consider the possibility that the “altruistic goal” done by the state-owned company would be something like converting people to the entrepreneur’s religion, or lobbying for political changes you oppose.
c) For people without altruistic or even controversially-altruistic goals, the obvious option is to mismanage the state-own company and extract as much money as possible. For example, you could make the state-owned company hire your relatives and friends, give them generous salary, and generate no profit. Or you could make the state-owned company buy overpriced services from your company. If this would be illegal, then… you could do the nearest thing that is technically legal. For example, if your goal is to retire early, then the state-owned company could simply hire you and then literally do nothing. Or you would pretend to do something, except that nothing substantial would ever happen.
The intention is that there would be not two separate companies, but one company which is split between being owned fully by the entrepreneur, and being managed by the entrepreneur- so the entrepreneur would still be motivated to make the company do as well as possible, thereby generating revenue for the public at large
over the long term they take away control of resources from people who have proven in the past but I know how to use resources
Umm, that’s the very point of taxes—taking resources from non-government entities because the government thinks they can use those resources better. We take them from people who have resources, because that’s where the resources are.
Viliam’s shortform posts have got me thinking about income taxes versus wealth taxes, and more generally the question of how taxes should be collected. In general I prefer wealth taxes over income taxes, although I suspect there may very well be better forms of taxes than either of those two—But considering wealth taxes specifically, I think the main problem with wealth taxes is that over the long term they take away control of resources from people who have proven in the past that they know how to use resources effectively, and while this can allow for short-term and medium-term useful allocations of resources, it prevents very long horizon investing – as exemplified by Elon Musk’s projects including SpaceX, Tesla, Neuralink and The Boring Company – projects that are good investments primarily because Musk understands that in the very long term these projects will pay off – both in personal financial returns and in general global welfare. While Tesla is very close to becoming profitable (they could turn a profit this year if they wanted to), and SpaceX isn’t too far off either, he founded companies without any eye for medium term profits—he founded them understanding the very long game, which is profitable in the absence of year-over-year wealth taxes, but could potentially be unprofitable if year-over-year wealth taxes were introduced
The proposal that came across my mind in regards to alleviating the negative impact wealth taxes would have this way, is to allow entrepreneurs to continue to have control of the money they pay in wealth taxes, but that money is held in trust for the greater public, not for the personal use of the entrepreneur.
To clarify my point, I think it’s worth noting that there are two similar concepts that get conflated into the single word “ownership”: the 1st meaning of “own” (personal ownership) is that a person has full rights to decide how resources are used, and can use or waste those resources for their own personal pleasure however they wish; the 2nd meaning of “own” (entrusted to) is that a person has the right to decide how resources are used and managed, but ultimately they make decisions regarding those resources for the good of a greater public, or another trustor (entrusting entity), not for themselves.
When resources are owned by (i.e., entrusted to) somebody, they have the right to allocate those resources however they think is best, and aside from the most egregious examples of the resources being used for the personal gain or pleasure of the trustee, nobody can or should question the judgement of the trustee.
Back to wealth taxes: in my proposal, while an entrepreneur would still be expected to “pay” a certain percentage of their wealth each year to the greater public, instead of the money going directly to the government, the resources will instead continue to be “owned” by the entrepreneur, but instead of being personally owned for the entrepreneur’s gain and pleasure, it would be entrusted to the entrepreneur in the name of the public, and the entrepreneur will be allowed to continue to use the resources to support any enterprises they expect to be a worthwhile investment, but when the enterprise finally turns a profit, the percentage of revenues that correspond to the part that is entrusted in the name of the public, will then be collected as taxes.
The main benefit of this proposal (assuming wealth taxes are already implemented) is that, while it cannot make profitable any venture that would be rendered unprofitable by a wealth tax, it can maintain the feasibility of ventures that are profitable in the long run, but which are made unfeasible in the short and medium terms by a wealth tax, due to the cost of taxes being more than medium term gains.
Sounds like “owner” vs “manager”.
So, if I understand it correctly, you are allowed to create a company that is owned by state but managed by you, and you can redirect your tax money there. (I assume that if you are too busy to run two companies, it would also be okay to put your subordinate in charge of the state-owned company.)
I am not an expert, but it reminds me of how some billionaires set up foundations to avoid paying taxes. If you make the state-owned company do whatever the foundation would do, it could be almost the same thing.
The question is, why would anyone care whether the state-owned company actually generates a profit, if they are not allowed to keep it? This could means different things for different entrepreneurs...
a) If you have altruistic goals, you could use your own company to generate profit, and the state-owned company to do those altruistic things that don’t generate profit. A lot of good things would happen as a result, which is nice, but the part of “generating profit for the public” would not be there.
b) If the previous option sounds good, consider the possibility that the “altruistic goal” done by the state-owned company would be something like converting people to the entrepreneur’s religion, or lobbying for political changes you oppose.
c) For people without altruistic or even controversially-altruistic goals, the obvious option is to mismanage the state-own company and extract as much money as possible. For example, you could make the state-owned company hire your relatives and friends, give them generous salary, and generate no profit. Or you could make the state-owned company buy overpriced services from your company. If this would be illegal, then… you could do the nearest thing that is technically legal. For example, if your goal is to retire early, then the state-owned company could simply hire you and then literally do nothing. Or you would pretend to do something, except that nothing substantial would ever happen.
The intention is that there would be not two separate companies, but one company which is split between being owned fully by the entrepreneur, and being managed by the entrepreneur- so the entrepreneur would still be motivated to make the company do as well as possible, thereby generating revenue for the public at large
Umm, that’s the very point of taxes—taking resources from non-government entities because the government thinks they can use those resources better. We take them from people who have resources, because that’s where the resources are.