Understanding the Conversion Between Wealth Tax and Income Tax Rates
By
bifftastic
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Summary
This article explains the mathematical relationship between wealth tax and income tax. It argues that a 1% wealth tax is equivalent to approximately a 20% income tax, based on the assumption of a 5% risk-free rate of return on capital. The author criticizes politicians for not understanding this conversion, noting that the conversion rate is derived by dividing the wealth tax rate by the rate of return on capital.
Key quotes
· 4 pulledIt's clear from the way most politicians talk about the subject that they not only don't know the answer, but don't even realize there's such a question.
In fact the conversion rate between them is about 20. A wealth tax of 1% is equivalent to an income tax of 20%.
To convert between wealth and income tax rates, you have to divide by the rate of return on capital.
The conversion rate of 20 comes from assuming that the risk-free rate of return is 5%.
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