> 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.

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jppope 5 hours ago | parent | next [-]

> Wealth accumulates with no input once established.

This is incorrect, historically you'll pay a ~2%-3% loss via inflation if you keep your money in cash. If you invest (making it capital) in bonds or securities then you will see accumulation, but thats actually a risk premium.

> Additionally, wealthy people can use securities as collateral for near zero interest lifetime loans which also bypass having to pay income tax.

This is true, its typically called "Buy, Borrow, Die" but the reality is that it is only available to a very small percent of wealthy individuals and exists because of the way inheritance is handled ("stepped-up basis"). Even reasonably (not fabulously) wealthy people will still pay retail rates on the loans making the tactic basically ineffective. Last I heard you needed something like 100M+ liquid for lenders to even consider it (presumably, because they will make more off of some other deal with you)

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Epa095 12 minutes ago | parent | next [-]

The S&P500 has increased 9.8% annually the last 100 years, roughly 6% annually adjusted for inflation. Yes, past performance is no guarantee for future, but historically a completely passive index placement of wealth into S&P500 would double the real (adjusted for inflation) wealth every 12 years. With absolutely no work.

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skybrian 5 hours ago | parent | prev | next [-]

Step-up basis is important for anyone who inherits property from their parents. That can be substantial in places like California where real estate has gone up a lot.

And for inherited rental property, there is another huge loophole: you can can depreciate the full market value of an asset that you got for free. That’s a substantial tax benefit for many years.

	▲	PokedBear 3 hours ago \| parent [-]
		The step up basis makes sense in a world where you still have to pay substantial inheritance taxes. But with minimal to no inheritance taxes, the step up is a giveaway.

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an hour ago | parent | prev [-]

[deleted]

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jandrewrogers 3 hours ago | parent | prev | next [-]

There is little evidence that wealthy people actually borrow for income in any significant way. For example, this paper[0] finds that borrowing only accounts for 1-2% of economic income among the top 1%.

This makes sense. Borrowing for income in most scenarios is strictly worse financially than recognizing conventional income if you actually do the math. Wealthy people are optimizing for financial outcomes, not avoiding taxes per se.

[0] https://www.sciencedirect.com/science/article/abs/pii/S00472...

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opo 3 hours ago | parent | prev | next [-]

>...Additionally, wealthy people can use securities as collateral for near zero interest lifetime loans which also bypass having to pay income tax.

This is just Internet mythology. The IRS would go after such arrangements very quickly - the IRS has the Applicable Federal Rate for loans. Though this really isn't an issue with banks as they are not charities and tend to want to make money.

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blitzar 5 hours ago | parent | prev [-]

Ironically, a wealth tax of 1% is equivalent to 20% of the risk free earnings on that wealth.