A few thoughts on tax policy. Thread:

So you are worth >$100M or perhaps even a few billion. There are only two ways to become this rich.

1. You start a business that becomes very successful.
2. You inherit wealth from your family. 1/

Whether you created a great company or inherited a lot of wealth, you are now sitting on a capital asset. You don’t really have any ordinary income (not meaningful to be relevant) and you never will. To the extent you ever pay taxes, it will be capital gains. 2/
The highest tax rate that the super rich will ever pay on their income (or wealth) is 20% capital gains tax. So, the super rich pay the equivalent effective tax rate of any American earning $75K (when you include FICA taxes). Same as a teacher or a cop. 3/
The question following from this obvious injustice in the tax system is the appropriate policy for taxing capital income. Economic policy would suggest that the best tax rate on capital is 0%. Why? ...4/
...Because in a capitalist society you want capital flowing efficiently without friction to its most productive use. Benefits of that are obvious. 5/
The problem, however, is the apparent injustice this creates in terms of how the tax burden is shared among citizens. I doubt any hard working American would be able to find a rational justification for why they should pay a higher effective tax rate than the super rich. 6/
This is why policy making is required to reconcile this conflict and find an approach that balances the various objectives. There are many ways of approaching this issue, but they all start with a conversation and an acknowledgement of the other side’s POV. 7/
Now, it does get more complicated from a policy perspective bc the reality is that the super rich do not pay 20% effective tax rate. They pay less. A lot less. 8/
The extreme example of the Bezos or Buffets is that they never will pay any taxes. Probably nothing even approaching 10% of their net worth - cumulatively over their entire life! 9/
The reason most billionaires will never pay any taxes is because they will never be able to spend all of that money, which means they will never sell the assets/stock that made them billionaires. 10/
They can also use stock to fund initiatives in controlled corporations (tax free) and make donations of zero basis stock which has big tax advantages and reduces taxable income. 11/
So, such billionaires will die never having paid any meaningful amount in taxes. Which brings a few other policy questions. Should we tax the super rich on their wealth during their life to ensure that they pay some taxes, like the rest of us? 12/
A wealth tax would make sense, especially in combination with a very low tax on capital. What would that look like and what would be the consequences? This is a legitimate policy question. 13/
And of course, there is the estate tax, which is another policy question. What should we allow the estate of the rich to obtain without paying a tax and at what rate. As discussed, much of this wealth has never been taxed. Nor has the estate done anything to earn this money. 14/
Unless there is such a thing as free lunch, an estate tax seems to make a lot of sense. What is absent in our conversation is a debate about policy, which is not to be confused with a debate about religion. End.

More from Economy

On Jan 6, 2021, the always stellar Mr @deepakshenoy tweeted, this:

https://t.co/fa3GX9VnW0

Innocuous 1 sentence, but its a full economic theory at play.
Let me break it down for you. (1/n)


On September 30, 2020, I wrote an article for @CFASocietyIndia where I explained that RBI is all set to lose its ability to set interest rates if it continues to fiddle with the exchange rate (2/n)

What do I mean, "fiddle with the exchange rate"?

In essence, if RBI opts and continues to manage exchange rate, then that is "fiddling with the exchange rate"

RBI has done that in the past and has restarted it in 2020 - very explicitly. (3/n)

First in March 2020, it opened a Dollar/INR swap of $2B with far leg to be unwound in September 2020.

Implying INR will be bought from the open markets in order to prevent INR from falling vis a vis USD (4/n)

The Second aspect is now, that dollar inflow is happening, and the forex reserves swelled -> implying the rupee is appreciating, RBI again intervened from September, by selling INR in spot markets. (5/n)
https://t.co/9kpWP7ovyM
True that all the people cherishing the support of IMF or WTO for farm reforms need to cool it down a bit, because that is a model we do not want to emulate to the t in India here.

But here are some issues that deserve to be better discussed by all:


1. People who say we are emulating the Western model of agriculture are way off with this assumption. The process of primitive accumulation, the alienation of their people from their land and the way these 'first-world' countries have pushed their people into Industrial sector +

+ was a merciless phase.
But the same assumption won't work for India, because we have always had a large workforce in agriculture, agri subsidies have always run high, protection has been the hallmark of agriculture and rural representation in the parliament has always been+

+ high. Still, it is our utter failure from the beginning that we have not been able to incentivize the movement of our people to other lucrative sectors.

2. This brings us to the another point of providing MSP on all the commodities and the demand side of the issue that we+

+ conveniently ignore. Here's the thing, Food prices in India have about 65-70% weight in calculating the Consumer Price Index and 25-30% of wholesale price index. These indices affect the general price level in the economy i.e. the inflation. If MSP is offered on all the+

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THREAD: 12 Things Everyone Should Know About IQ

1. IQ is one of the most heritable psychological traits – that is, individual differences in IQ are strongly associated with individual differences in genes (at least in fairly typical modern environments). https://t.co/3XxzW9bxLE


2. The heritability of IQ *increases* from childhood to adulthood. Meanwhile, the effect of the shared environment largely fades away. In other words, when it comes to IQ, nature becomes more important as we get older, nurture less.
https://t.co/UqtS1lpw3n


3. IQ scores have been increasing for the last century or so, a phenomenon known as the Flynn effect. https://t.co/sCZvCst3hw (N ≈ 4 million)

(Note that the Flynn effect shows that IQ isn't 100% genetic; it doesn't show that it's 100% environmental.)


4. IQ predicts many important real world outcomes.

For example, though far from perfect, IQ is the single-best predictor of job performance we have – much better than Emotional Intelligence, the Big Five, Grit, etc. https://t.co/rKUgKDAAVx https://t.co/DWbVI8QSU3


5. Higher IQ is associated with a lower risk of death from most causes, including cardiovascular disease, respiratory disease, most forms of cancer, homicide, suicide, and accident. https://t.co/PJjGNyeQRA (N = 728,160)