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The immediate provocation is the debate around the realization rule, which means wealth can’t be taxed until it is sold or transferred. But the principle applies to any asset with social costs to exclusionary control. Real estate and patents are Steve’s primary examples.
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The basic idea is: you pay property taxes on capital gains even if unrealized, but you do so on a value *you* declare. So if property tax is 5%, you could claim your home is worth $100 and pay $5. The catch? If someone offers you $101 for the house you must sell.
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So the declared property value on which tax is assessed becomes an option strike price for everyone else’s or a period. Say a week after tax day. The logic mainly applies to things where your use of an asset has exclusionary effects on everyone else — a social cost.
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Often the exclusionary effect is due to you being unwilling to work hard to realize more gains from the property than you want, leaving it underutilized and others deprived. If a hungrier person were in control they’d do more. It’s actually a capitalist means to a socialist end.
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So you, a NIMBY have 1 single-family house while 5 others struggle with long commutes/slum housing. A property developer is willing to set up a 6-unit MFH. How to resolve: pay taxes on a price at which property developer won’t buy! State uses taxes to help other 5 families.
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Applies interestingly to companies that are dependent on uniquely talented entrepreneurs without whom the enterprise doesn’t make sense. If the person is truly critical, significantly lowering their capital stake lowers their incentive to continue to work to make it successful.
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Say we apply this logic to Tesla. Elon pays taxes on his stock value. But at a price he decides, not market. Trick is, it’s also a public sale of his stock holdings at that price. But otoh people like me believe the company is valuable in direct proportion to his stake in it.
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Mechanics tricky, if he prices below market, the market will buy/sell enough of his stake in the forced stake sale to get to the new “lower Elon factored” price. Elon stans will buy more, Elon-skeptics will sell more. New equilibrium will be an Elon-diluted new price.
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If he prices *above* market for tax otoh, he’ll have to sell enough *at market* to pay his tax bill, to hold on to rest. Meaning he believes more in the company than the public does. Which is what we want. Either his control is diluted or public gets unrealized-gains tax revenue.
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Replying to
Potential objection/theory of adverse consequences. A chance it could increase inequality if mechanism is poorly tuned?
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Replying to @vgr and @interfluidity
Rich would overassess and pay more taxes in order to avoid losing valuable appreciating assets. Poorest asset owners would have financial pressure to price low in order to save cash on tax, thereby giving underpriced options to the rich. Tax revenue and inequality go up.
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Another practical problem, but I think expanded tax revenue can cover the infrastructure cost delta too. The whole point is to combat the social cost of lots of frozen assets that don’t pay refrigeration costs.
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Replying to @vgr
It isn't that simple. The cost on local infrastructure from a single family space that is converted to a SIX family space is extreme, with basically all of the US, infrastructure past its' due date. So who pays for the sewer, water, power, transport, services and eco impact?
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In general, we seem to be in a situation where the wealthy are unreasonably confident that wealth is in fact managed well and that “inequality” is a socialist concern. Old Money and New Money compete in zero-sum ways politically with each other rather than to make markets better.
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Inequality is not primarily a socialist concern. It’s a capitalist one. More unequal societies lock up more capital for longer periods as unproductive inefficient rents for failsons. Ideally wealth would be distributed in proportion to ambition to intelligently grow it.
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The point of wealth is to create more wealth via intelligent risk-taking based on newest technological options. Both failsons and too-fearful middle-class/poor are bad at this, but the former cost everybody else a lot more. The latter mainly hurt themselves with risk-aversion.
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If growing wealth (in a broad Buckminster Fuller sense) were not necessary to combat entropy, we could just dispense with growth and solve for sustainability directly. The general socialist mistake is thinking civilization can be stabilized at zero growth. No, it grows or dies.
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But the growth doesn’t have to come at high social and environmental costs. You can get to “more and more for less and less” in terms of energy, clean air, water, etc. But for this you can’t stay contented with current mechanisms as ideal because you win easily.
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Or you have a grace period where you can simply pay property tax difference on highest serious bid. Match-or-sell deal. Bidder loses a bidding fee in proportion to their bid, to prevent frivolity.
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Replying to @vgr and @interfluidity
This sounds neat on the surface, but what it really means is I'd have to claim a value of my house sufficient to avoid the giant hassle of being forced to go through selling it and finding another place to live. That's obviously much higher than it's actual value.
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That’s why you put a cost in bidding as well.
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Replying to @vgr
One challenge is that some things do not have a clear “market” value as they are much more valuable to the current owner than the market, which makes the owner vulnerable to griefing. Eg, a house you live in, or the Google .com domain.
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