Modeling a Wealth Tax

[Modeling a Wealth Tax]

A wealth tax will usually have a threshold at which it starts.
How much difference would a high threshold make? To model that,
we need to make some assumptions about the initial value of
your stock and the growth rate.

Suppose your stock is initially
worth $2 million, and the company's trajectory is as follows:
the value of your stock grows 3x for 2 years, then 2x for 2 years,
then 50% for 2 years, after
which you just get a typical public company growth rate,
which we'll call 8%.
[1]
Suppose the wealth tax threshold is
$50 million. How much stock does the government take now?

It may at first seem surprising that such apparently small tax rates
produce such dramatic effects. A 2% wealth tax with a $50 million
threshold takes about two thirds of a successful founder's stock.

The reason wealth taxes have such dramatic effects is that they're
applied over and over to the same money. Income tax
happens every year, but only to that year's income. Whereas if you
live for 60 years after acquiring some asset, a wealth tax will tax
that same asset 60 times. A wealth tax compounds.

Note

[1]
In practice, eventually some of this 8% would come in the form of
dividends, which are taxed as income at issue, so this model actually
represents the most optimistic case for the founder.

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