Hey Jeramy. I love the writing. I would also love you to go a bit more into detail about what you think a fairer system is? Clearly there has got to be a better balance of wealth than what we have now. At the same time, seeing Bernie Sanders attacking Elon Musk and Bezoes for the ''billions made from the pandemic rings hollow because we understand that wealth and values of shares that you can or can't easily liquidate aren't the same thing. I think we do need a stronger tax system, but the idea of taxing something like shares that you can't realise the value of them without selling them doesn't seem fair either. Any thoughts?
The big thing about inequality (as it presently exists in developed countries) is that it’s more a political issue than a moral or economic one. While we should care an awful lot about living standards at the bottom, there’s no inherent link between said standards and the size of gap from bottom to top in the current system. Amazon’s growth is good for GDP and gov spending capacity irrespective of how rich it makes Bezos.
That said, political issues, even where purely symbolic, are important in their own way. And I think there are a few sensible adjustments that can reduce the gap a bit without overturning the tax code or risking capital flight etc.
1. Consumption taxes. When Bezos goes to buy a mega-yacht, making him pay an extra 15-20% seems fine to me. This would, in effect, equalize his capital gains rate with his marginal income tax rate for money that’s going to personal spending. Clean, fair, and not super hard to implement if you just focus on really big tickets (eg, > $5m).
2. Trust capping. While I think trust schemes are a bit overstated in what they really allow, structures like GRATs are needlessly generous. Lifetimes caps on contribution amounts are an easy solution. Then let the estate tax do its thing. (And probably drop the estate exemption a bit for estates with fewer heirs. No one needs more than ~$1m tax free.)
3. DAF reform. Donor advised funds and similar structures should be forced into accelerated liquidation on the founder’s death to avoid the whole dynastic foundation thing. I’d be good up to like 15% per year.
4. Roth reform. While I have no issue with stuffing Roths with founders shares conceptually, I think establishing a minimum value for shares is reasonable. Benchmarking their value to capital raised in the first full round (or first 18-24 months or whatever) would be one fairly clean solution. Maybe also some rules on convertible debt to avoid gamesmanship. Then just force the transfer of some percentage of shares that end up above the normal contribution caps once readjusted, etc. Owners don’t have to liquidate, and can step to the new basis tax-free. Just no further shielding.
(I’d also scrap the corporate tax. It’s only like 6-7% of gov revenues now, and it induces a lot of offshoring shenanigans. We’re already taxing the outflow of profits via dividends / cap gains. If we need to make those taxes a tad higher, that’s fine. But I think countries like the US would come out net ahead that way.)
This post feels like its mostly about your disagreements on tax policy. That's not a critique of journalism, its a policy disagreement. You also seem unwilling to take seriously positions that diverge significantly from your own, instead framing them as "very radical" or otherwise unreasonable. This makes any policy engagement pretty hollow since your unwilling or unable to take their position seriously. Finally, if your going to apologize for being "overly fight-y" maybe don't end w/
"I appreciate that ProPublica is trying to recruit tax lawyers to help them. Though maybe the time to do that was before they started writing."
This piece is a bad straw man of a policy position, not media criticism. I'm quite disappointed.
1. It's definitely a criticism of their journalism! What they did was akin to publishing "the truth and nothing but the truth" while leaving out "the whole truth". The estate tax especially is an obvious and massive counterbalance to their narrative. The Thiel estate isn't going to escape taxation! The estate tax was designed for folks like him. His only real escape hatch is giving it all away to charity. But that's just (in effective terms) voluntary taxation!
2. I don't take divergent positions as radical or unreasonable. I take radical positions as radical, and unreasonable ones as unreasonable. There are loads of positions that I personally disagree with that I think are perfectly in-band and/or reasonable!
3. I didn't apologize for being fight-y! I did the exact opposite! Go re-read. I said I was going to restrain myself more this time. And I did! That doesn't mean I was going to (or should) drop it down to zero.
Anyway, you're welcome to be disappointed! But I'll note that general criticisms aren't super helpful to anyone. Eg., for point 2, try naming a specific thing that I'm framing as radical and coming up with a plausible theory for why it isn't. (If you're talking about Disney's "assets should always be structured to generate income vs. growing", I think a plausible theory there is going to be *very* hard to come by. The idea of businesses being allowed to retain earnings for investment is bedrock in America!)
There is a lot of substance to debate here, i.e. your claim that charity is "just (in effective terms) voluntary taxation." Unfortunately I don't have the time, interest or frankly expertise to have that discussion. The fact that this quickly devolves into real substantive ideological/policy question such as that one is what I was trying to point out.
On point #2, I didn't say you paint *every* point you disagree w/ as unreasonable, but you certainly took that attitude toward some ideas you disagreed w/ in this piece. Saying "I treated the silly ideas as silly" is only a good argument when you already agree about what is silly. I'm not sure that you and the ProPublica staff meet that criteria, and in the interest of intellectual rigour I think its better to take those ideas seriously. I don't want to be an intellectual sealion here (and demand you engage w/ everything) but I think that refusing to engage w/ moderate left positions on taxation is way to narrow.
On #3, your right I did a poor job understanding your first paragraph.
That said, I do think its worth contrasting your willingness to be aggressive w/ your "recommendations" for ProPublica near the end of your conclusion:
"Printing slant pieces about billionaires you dislike is not going to help there! This libel-y approach to tax-policy-by-anecdote isn’t going to cause Thiel and those like him to move towards whatever we imagine the right consensus to be. If anything, we’re encouraging him to take the other side more aggressively.
I dunno, maybe we should stop doing that? Just a thought."
P.S. The idea that your going to convince Thiel to support some kind of political consensus on *tax issues* is so hilariously naïve I don't even know how to respond.
A) If you go and poll people who really understand taxation (i.e., not non-expert journalists or political pundits), you're going to find that what I'm calling unreasonable and/or radical really does reflect something like a consensus view. I infer from your comments that you're more familiar with what you term "moderate left" positions. But the tricky thing there is *lots* of commentators who would label themselves something like that actually do have quite radical beliefs on taxation. The disconnect is that they themselves often don't have a great grasp on policy or the discussions happening in the real operational sphere there, so they don't understand their own positions to be as radical as they are.
B) I didn't refuse to engage with anything in the text (or here). This is why I encouraged you to be specific! Take Disney's position on retained earnings. I didn't just call it radical. I spent half a long paragraph pointing out some of the ramifications of her idea. I could add any arbitrary amount of additional commentary on the point. But until you/her/anyone engages with what's already there, it hardly feels fair to suggest that I need to flesh out my ideas more.
C) You're again strawmanning me. I didn't say I was going to be 0% aggressive. I said I was going to restrain myself more vs. the first time. And I did.
D) Your PS is an unkind and undeserved barb. I'm engaging in good faith here. Why aren't you?
While I think this is thoughtfully written and you are an engaging writer, I think you're wildly missing the main points here. Your conception is that donating all of his money to charity is a perfectly acceptable alternative to paying 40% estate tax, and that these charitable institutions will, in effect, do the same or better than the government "in targeted niches".
The most famous of the billionaires have donated their gains to their own private foundations. Now see where those foundations put their money? How many times has Donald Trump funneled 'charity' money through his own businesses for profit? Did he not pay for a portrait of himself and hang it in his own for-profit golf course? Has anyone ever meaningfully been held accountable for these crimes? How much has their endowments swelled? And why should the ultra wealthy be able to save up all their extra cash all their life and then only direct it into the causes they see fit? Basically every example I can think of involves creating 'think tanks' that poison public discourse, buying wings of universities to teach your libertarian philosophy, or vanity projects like the Sackler's many museums. I would LOVE for that money to go into the national debt, a social safety net, or in eliminating taxes for the bottom 90%. After all, the bottom 99.9% are the workers who TRULY created all the wealth in the world.
Now imagine a more intelligent and more overtly anti-government figure like Thiel. You really think a libertarian wouldn't do everything in their power to avoid taxes, even if they explicitly don't want to be charitable with it? The critical issue here isn't that he legally used an IRA. It's that he flagrantly exploited it from his unique position as a startup founder. .0001cents a share is him spitting in the face of any IRS agents that dare attempt to audit him. The fair market price is what he would have paid for, or sold, a single share of his business for at that moment in time. To even pretend it was $1700 is preposterous. You seem to understand exactly why this ought to be illegal, you just think its grey-area 'avoidance' and not criminally defrauding the rest of us taxpayers.
Obviously the line between tax evasion and tax avoidance is extremely muddied, to the point that most journalists don't seem to bother distinguishing, and why should they? If I can donate my own wealth to my own charity that my own children will then run in perpetuity and use as a piggy bank with no repercussions, what is the ethical difference between avoidance and evasion? If I give 20 billion to my own 'charity' and it ends up being worth 30 billion next year, and people of my choosing get to buy goods, services, portraits, trips around the world, etc. with it then how is it ethical?
Moreover, you seem to be flatly missing the leftist perspective here- that 5 billion accumulated over all these years is not a temporary delaying of taxes, but a theft from the workers who produced that capital. Labor is a priori to and independent of capital, and every dollar squirreled away in a bank account represents a dollar not given to the employees who did the work. Those are circulating, meaningful dollars with a far greater multiplier throughout the economy. As inequality grows, economies slow, and everyone suffers. Dollars collected now and aimed at fixing current problems will reduce inequality, and potentially save us from ecological collapse. This doesn't even touch on the fact that most of these billions are only made possible by wildly anti-competitive practices, which I can't call illegal because we haven't done trust busting in years. You seem to waffle between ethics and legality where it is convenient to apologize for the ultra-rich. It is simply not ethical to avoid taxes on 5 billion, even if you do donate it to your libertarian pet projects as seen fit by your children.
It seems like you understand that at its core the tax system is set up with myriad ways to 'legally' but 'unethically' pass on huge sums to your children, but your solution is tinkering with rates. These people are clearly violating the spirit of the laws, often the letter of the laws as well, and the solution involves prison, not fines. I don't care if someone built facebook, if they clearly self-deal to avoid taxes they should face more prison time than someone stealing food to survive.
1. Trump isn't a good example here, as many of his transactions (eg the painting) have been quite obviously illegal. While it's certainly plausible that some number of other billionaires have gotten away with similar actions, he's had a pretty unique prosecution shield. I would be very for increasing auditing and harsh penalties here, for Trump and all others. While many tax laws have intentional exemptions (some good; some bad), anyone who actively breaks the law or exploits a clearly unethical loophole should be penalized emphatically, whomever they are. IRS funding to the moon.
2. There's a notion out there (alluded to in your comments here) that billionaires don't actually create much value, and that it's their workers who deserve nearly all the upside. While it's certainly true that workers are the backbone of capitalism, rich industrialists and investors are far more often rich as a result of value created than any other means. Takes Bill Gates as a trivial example. Microsoft exists because of him, and has unlocked trillions of dollars of positive economic impact. This has roughly never been true of any worker collective. That he's gotten to keep a large share of this is is good for everyone on the balance. But I certainly wouldn't be opposed to raising the max marginal rates a little (or at least limiting the payroll tax exemptions). The key is just keeping rates where we're still providing max incentives for innovators to do their thing in our tax jurisdiction. Capital flight is a thing!
3. One key thing about philanthropic donations is that they result in a much larger amount of money going to public good. If I sell $1B in stock and pay ~$250m in taxes, the gov has ~$250M to spend on social causes. If I give $1B away, the non-profit has $1B. Even after accounting for possible deductions from the gift, the public is getting something like 3x as much money. Now, of course, some non-profits don't spend this money all that well. But the same is true of the US gov, and the bulk of non-profits do actually advance comparable work to the best gov programs. I'll take that ~3:1 leverage every time!
4. You assume there's a lot of self-dealing within these non-profits / charities. But there are strict laws limiting this, which brings us back to point 1: we just need more enforcement.
5. Museums are a public good!
6. With modern finance, a dollar given to a worker to spend vs. a dollar sitting in stock doesn't produce wildly different economic effects. Companies leverage their stock price to grow, which enhances both payroll and payroll taxes. And any stock that's sold off produces both taxes and direct spending that still circulate through the economy.
7. I am wildly for interventions that increase competition. I've been consistent on that front in all my public writing for many, many years.
8. The tax system is absolutely (objectively!) not set up to allow unethical inheritances. Gift and estate taxes exist for a reason, and passing money through trusts--when you look at it carefully at a mechanical level--aren't nearly as efficient as many assume. If a billionaire wants to avoid said taxes, their primary option is giving it away. And per 3, this is very good on the net.
Basically, I encourage you to be more judicious in your criticisms, and to dive into the economics a little more without forcing a partisan lens.
Well I greatly appreciate that you took the time to read and respond- I like your journalism and you definitely made me think!
1. I would agree that Trump has a unique prosecutorial shield, but I would also argue that the reason we KNOW about all the myriad fraud he has committed is because he also is in a unique position to be examined. Most billionaires go to great lengths to avoid public scrutiny, and to avoid political and journalistic investigations. I agree, IRS funding to the moon! But (unfortunately) this is an incredibly partisan stance right now.
He made great fortunes by kneecapping the Free and Open Source Software movement, and charged extortionate rates once he achieved monopoly status. The fact is that anti-trust actions have been toothless for decades. If one or two robber barons had not controlled the entire railway development we might well have high speed rail and much more connectivity between cities, which is abysmal in our country. If oil and auto execs hadn't squashed public transit in LA, imagine the upside to society and the environment. Elon Musk admitted the hyperloop was a ruse to destroy public transit so that he could profit from his vehicles. The world is absolutely RIFE with examples of the ultra rich directing societies resources into self-serving purposes at everyone else's detriment.
Compare this to workers movements which have given us 40 hour work weeks, child labor laws, overtime, pensions, and essentially all forms of modern working dignity. If Warren Buffet had his way it wouldn't only be railroad workers who do not receive consistent scheduling and scheduled time off, it would be all of his businesses. We would have children in mines if it weren't for workers collectives! What great value did the Sacklers give us? An Opioid Crisis. Then they shifted the entire bill for the crisis onto a bankrupt shell company, and thus the taxpayer. Behind every great fortune is a great crime and Bill Gates is a perfect example of this. Capital flight? Oh no our great job-creators will flee to the Cayman Islands if we tax them.
3. Come up with an example of a billionaire's charity that came up with value similar to the Internet, the man on the moon, penicillin, insulin, etc. If these created so much value, we would have lists upon lists of great discoveries. If the man who gave the insulin patent away had been greedy, he could have been a billionaire- how many lives would have been lost? That would not have been value creation.
4. Well until there's enforcement, they get to keep calling it "avoidance" instead of "evasion" or "criminal evil".
5. The point is that a bunch of opiate-pushing evil men get their name on buildings and their choice of the art it holds. Would much rather that be done democratically, with an honorable name on it.
6. Strongly disagree! Due to the money multiplier effect in the economy, a dollar given to the poor provides far greater value to overall society than sitting in a billionaires account. This has been shown many times by economists. Companies have been doing quite a lot of stock buy-backs and dividend payments instead of R&D or more meaningful economic activity. A dollar given to a worker is far more likely to go into building a home or investing in their own children's education than a dollar given to a billionaire, this is pretty Econ 101 stuff. We need more housing, not more ultra-luxury goods. Marginal propensity to consume and all that. https://www.theguardian.com/business/2015/jun/04/better-economic-growth-when-wealth-distributed-to-poor-instead-of-rich
7. The more you trust bust, the more competition. Maybe a trillion dollar business is too big to exist? Sure seems like theres a lot of regulatory capture happening these days.
8. The Pandora and Panama papers show plainly there are many ways to hide your money, but I admit I am not expert, and most of the big names are outside the US. I know that many of the journalists involved in those efforts have been killed, and that we had a billionaire president set up his own family business and self-deal to it for 4 years with impunity (emoluments clause be damned). I don't think inheritance laws are going to phase him or his ilk. I don't think billionaire's charities are going to reverse climate catastrophe or invent the next internet, but I suppose I can't disprove that. The Koch brothers certainly aren't giving me much hope.
"Thus did a handful of rapacious citizens come to control all that was worth controlling in America. Thus was the savage and stupid and entirely inappropriate and unnecessary and humorless American class system created. Honest, industrious, peaceful citizens were classed as bloodsuckers, if they asked to be paid a living wage. And they saw that praise was reserved henceforth for those who devised means of getting paid enormously for committing crimes against which no laws had been passed. Thus the American dream turned belly up, turned green, bobbed to the scummy surface of cupidity unlimited, filled with gas, went bang in the noonday sun.” -Vonnegut, 1965
2. This point is brought up a lot, but doesn't seem especially meaningful to me in this context. Is it true that Gates/Microsoft acted in some obviously anti-competitive ways early on? Absolutely! And the courts stepped in pretty late there. That said, open-source only has a good track record at certain project types, and enterprise software isn't one of them. You need a more capitalist structure to be responsive to corporate needs. (But to be clear, per my prior point, I'm very into maximizing competition. It's natural for billionaires to push for the opposite, and that's where society has to step in keep capitalism from eating itself.)
3. A trivial example is the work that Gates has done with polio and malaria. GiveWell is another. (While insulin is a stock example of anti-greed, it's worth noting that it's an exception for pharma given the massive R&D costs for typical drug development, testing, manufacturing etc. And even for drugs where the base concept/formula was discovered by a single individual, large-scale R&D is also hugely important in driving efficacy gains. Today's best insulin products are much better.)
6. It's definitely not econ 101--or at least only is if you want a very superficial view of it! Take buybacks for example. Where does that money go? Lots accretes to pension and insurance funds, who use those gains to increase payouts / keep premia low. Pensionsers spend money, and a dollar saved on a premium generally leads to a dollar of spending elsewhere. And the higher share price increases effective compensation, which gooses spending etc. With modern finance, no money just "sits". That's just not a thing, unless you're Pablo Escobar filling up your walls with actual cash. And while the distributional effects aren't always equal between classes, it's also important to keep inflation spread across a maximal range of goods and asset types.
Anyway, I return to my main point here: a sophisticated view of econ/finance works at odds with partisan narratives. There are lots of things that leftists are right about in a broad sense. As I've freely agreed with here, we need meaty IRS funding, antitrust measures, and worker protections. But all of it is tangential to the main point of my piece here: the reporting on Thiel was bad, mostly because it was partisan, simplistic, and lazy. The truth almost never falls cleanly on political lines, and nearly always requires a complex view of tradeoffs etc.
Also, note how the Pro Publica story calls investments in his own startup a “sweetheart deal” that’s “not available” to most people. Yes, most people don’t start startups and therefore can’t put their own company in an IRA. Shocker.
A better headline would have been: brilliant man turned $2000 investment into $5 billion in around two decades.
Yeah. I mean *if* Thiel artificially discounted those shares (as opposed to them just having naturally been worth ~$0 at the time), I can see the criticism there. But otherwise, I dunno how mad we're supposed to be that someone kept founding/picking winners.
"At the time Thiel bought his founders’ shares, his own hedge fund had already loaned the new startup $100,000, California and SEC records show.
And soon after the company sold him the shares, millions of dollars poured in from investors, securities filings show. In just a month’s time, the company sold a slice of itself to investors for $500,000."
At the time of the purchase, the company would likely have already put together internal estimations of market capitalization to present to outside investors. They also would have already had some sort of due diligence conducted by the loaning hedge fund.
A hundredth of a penny was not a fair valuation, even at that time, and it seems likely that the people involved in setting up this transaction would have known that.
Certainly could be. As I say, I’m not ruling out gamesmanship here. Just not obvious to me that we have good evidence for it.
One complication is the Confinity -> X -> PayPal timeline. There were some fairly complicated transactions there, and it would be easy to confuse them. I’m currently reading through PayPal’s S-1 (which I *think* is the SEC filing that PP is taking about), and it’s all still a bit opaque to me.
PP really should have done an appendix laying out their receipts and arguments in more detail.
Hey Jeramy. I love the writing. I would also love you to go a bit more into detail about what you think a fairer system is? Clearly there has got to be a better balance of wealth than what we have now. At the same time, seeing Bernie Sanders attacking Elon Musk and Bezoes for the ''billions made from the pandemic rings hollow because we understand that wealth and values of shares that you can or can't easily liquidate aren't the same thing. I think we do need a stronger tax system, but the idea of taxing something like shares that you can't realise the value of them without selling them doesn't seem fair either. Any thoughts?
The big thing about inequality (as it presently exists in developed countries) is that it’s more a political issue than a moral or economic one. While we should care an awful lot about living standards at the bottom, there’s no inherent link between said standards and the size of gap from bottom to top in the current system. Amazon’s growth is good for GDP and gov spending capacity irrespective of how rich it makes Bezos.
That said, political issues, even where purely symbolic, are important in their own way. And I think there are a few sensible adjustments that can reduce the gap a bit without overturning the tax code or risking capital flight etc.
1. Consumption taxes. When Bezos goes to buy a mega-yacht, making him pay an extra 15-20% seems fine to me. This would, in effect, equalize his capital gains rate with his marginal income tax rate for money that’s going to personal spending. Clean, fair, and not super hard to implement if you just focus on really big tickets (eg, > $5m).
2. Trust capping. While I think trust schemes are a bit overstated in what they really allow, structures like GRATs are needlessly generous. Lifetimes caps on contribution amounts are an easy solution. Then let the estate tax do its thing. (And probably drop the estate exemption a bit for estates with fewer heirs. No one needs more than ~$1m tax free.)
3. DAF reform. Donor advised funds and similar structures should be forced into accelerated liquidation on the founder’s death to avoid the whole dynastic foundation thing. I’d be good up to like 15% per year.
4. Roth reform. While I have no issue with stuffing Roths with founders shares conceptually, I think establishing a minimum value for shares is reasonable. Benchmarking their value to capital raised in the first full round (or first 18-24 months or whatever) would be one fairly clean solution. Maybe also some rules on convertible debt to avoid gamesmanship. Then just force the transfer of some percentage of shares that end up above the normal contribution caps once readjusted, etc. Owners don’t have to liquidate, and can step to the new basis tax-free. Just no further shielding.
(I’d also scrap the corporate tax. It’s only like 6-7% of gov revenues now, and it induces a lot of offshoring shenanigans. We’re already taxing the outflow of profits via dividends / cap gains. If we need to make those taxes a tad higher, that’s fine. But I think countries like the US would come out net ahead that way.)
This post feels like its mostly about your disagreements on tax policy. That's not a critique of journalism, its a policy disagreement. You also seem unwilling to take seriously positions that diverge significantly from your own, instead framing them as "very radical" or otherwise unreasonable. This makes any policy engagement pretty hollow since your unwilling or unable to take their position seriously. Finally, if your going to apologize for being "overly fight-y" maybe don't end w/
"I appreciate that ProPublica is trying to recruit tax lawyers to help them. Though maybe the time to do that was before they started writing."
This piece is a bad straw man of a policy position, not media criticism. I'm quite disappointed.
Hey, criticism always welcome.
Though to address your specific points here:
1. It's definitely a criticism of their journalism! What they did was akin to publishing "the truth and nothing but the truth" while leaving out "the whole truth". The estate tax especially is an obvious and massive counterbalance to their narrative. The Thiel estate isn't going to escape taxation! The estate tax was designed for folks like him. His only real escape hatch is giving it all away to charity. But that's just (in effective terms) voluntary taxation!
2. I don't take divergent positions as radical or unreasonable. I take radical positions as radical, and unreasonable ones as unreasonable. There are loads of positions that I personally disagree with that I think are perfectly in-band and/or reasonable!
3. I didn't apologize for being fight-y! I did the exact opposite! Go re-read. I said I was going to restrain myself more this time. And I did! That doesn't mean I was going to (or should) drop it down to zero.
Anyway, you're welcome to be disappointed! But I'll note that general criticisms aren't super helpful to anyone. Eg., for point 2, try naming a specific thing that I'm framing as radical and coming up with a plausible theory for why it isn't. (If you're talking about Disney's "assets should always be structured to generate income vs. growing", I think a plausible theory there is going to be *very* hard to come by. The idea of businesses being allowed to retain earnings for investment is bedrock in America!)
There is a lot of substance to debate here, i.e. your claim that charity is "just (in effective terms) voluntary taxation." Unfortunately I don't have the time, interest or frankly expertise to have that discussion. The fact that this quickly devolves into real substantive ideological/policy question such as that one is what I was trying to point out.
On point #2, I didn't say you paint *every* point you disagree w/ as unreasonable, but you certainly took that attitude toward some ideas you disagreed w/ in this piece. Saying "I treated the silly ideas as silly" is only a good argument when you already agree about what is silly. I'm not sure that you and the ProPublica staff meet that criteria, and in the interest of intellectual rigour I think its better to take those ideas seriously. I don't want to be an intellectual sealion here (and demand you engage w/ everything) but I think that refusing to engage w/ moderate left positions on taxation is way to narrow.
http://wondermark.com/c/2014-09-19-1062sea.png
On #3, your right I did a poor job understanding your first paragraph.
That said, I do think its worth contrasting your willingness to be aggressive w/ your "recommendations" for ProPublica near the end of your conclusion:
"Printing slant pieces about billionaires you dislike is not going to help there! This libel-y approach to tax-policy-by-anecdote isn’t going to cause Thiel and those like him to move towards whatever we imagine the right consensus to be. If anything, we’re encouraging him to take the other side more aggressively.
I dunno, maybe we should stop doing that? Just a thought."
P.S. The idea that your going to convince Thiel to support some kind of political consensus on *tax issues* is so hilariously naïve I don't even know how to respond.
A) If you go and poll people who really understand taxation (i.e., not non-expert journalists or political pundits), you're going to find that what I'm calling unreasonable and/or radical really does reflect something like a consensus view. I infer from your comments that you're more familiar with what you term "moderate left" positions. But the tricky thing there is *lots* of commentators who would label themselves something like that actually do have quite radical beliefs on taxation. The disconnect is that they themselves often don't have a great grasp on policy or the discussions happening in the real operational sphere there, so they don't understand their own positions to be as radical as they are.
B) I didn't refuse to engage with anything in the text (or here). This is why I encouraged you to be specific! Take Disney's position on retained earnings. I didn't just call it radical. I spent half a long paragraph pointing out some of the ramifications of her idea. I could add any arbitrary amount of additional commentary on the point. But until you/her/anyone engages with what's already there, it hardly feels fair to suggest that I need to flesh out my ideas more.
C) You're again strawmanning me. I didn't say I was going to be 0% aggressive. I said I was going to restrain myself more vs. the first time. And I did.
D) Your PS is an unkind and undeserved barb. I'm engaging in good faith here. Why aren't you?
or point C) I am not strawmanning you. I initially misread your first paragraph. That was my bad.
While I think this is thoughtfully written and you are an engaging writer, I think you're wildly missing the main points here. Your conception is that donating all of his money to charity is a perfectly acceptable alternative to paying 40% estate tax, and that these charitable institutions will, in effect, do the same or better than the government "in targeted niches".
The most famous of the billionaires have donated their gains to their own private foundations. Now see where those foundations put their money? How many times has Donald Trump funneled 'charity' money through his own businesses for profit? Did he not pay for a portrait of himself and hang it in his own for-profit golf course? Has anyone ever meaningfully been held accountable for these crimes? How much has their endowments swelled? And why should the ultra wealthy be able to save up all their extra cash all their life and then only direct it into the causes they see fit? Basically every example I can think of involves creating 'think tanks' that poison public discourse, buying wings of universities to teach your libertarian philosophy, or vanity projects like the Sackler's many museums. I would LOVE for that money to go into the national debt, a social safety net, or in eliminating taxes for the bottom 90%. After all, the bottom 99.9% are the workers who TRULY created all the wealth in the world.
Now imagine a more intelligent and more overtly anti-government figure like Thiel. You really think a libertarian wouldn't do everything in their power to avoid taxes, even if they explicitly don't want to be charitable with it? The critical issue here isn't that he legally used an IRA. It's that he flagrantly exploited it from his unique position as a startup founder. .0001cents a share is him spitting in the face of any IRS agents that dare attempt to audit him. The fair market price is what he would have paid for, or sold, a single share of his business for at that moment in time. To even pretend it was $1700 is preposterous. You seem to understand exactly why this ought to be illegal, you just think its grey-area 'avoidance' and not criminally defrauding the rest of us taxpayers.
Obviously the line between tax evasion and tax avoidance is extremely muddied, to the point that most journalists don't seem to bother distinguishing, and why should they? If I can donate my own wealth to my own charity that my own children will then run in perpetuity and use as a piggy bank with no repercussions, what is the ethical difference between avoidance and evasion? If I give 20 billion to my own 'charity' and it ends up being worth 30 billion next year, and people of my choosing get to buy goods, services, portraits, trips around the world, etc. with it then how is it ethical?
Moreover, you seem to be flatly missing the leftist perspective here- that 5 billion accumulated over all these years is not a temporary delaying of taxes, but a theft from the workers who produced that capital. Labor is a priori to and independent of capital, and every dollar squirreled away in a bank account represents a dollar not given to the employees who did the work. Those are circulating, meaningful dollars with a far greater multiplier throughout the economy. As inequality grows, economies slow, and everyone suffers. Dollars collected now and aimed at fixing current problems will reduce inequality, and potentially save us from ecological collapse. This doesn't even touch on the fact that most of these billions are only made possible by wildly anti-competitive practices, which I can't call illegal because we haven't done trust busting in years. You seem to waffle between ethics and legality where it is convenient to apologize for the ultra-rich. It is simply not ethical to avoid taxes on 5 billion, even if you do donate it to your libertarian pet projects as seen fit by your children.
It seems like you understand that at its core the tax system is set up with myriad ways to 'legally' but 'unethically' pass on huge sums to your children, but your solution is tinkering with rates. These people are clearly violating the spirit of the laws, often the letter of the laws as well, and the solution involves prison, not fines. I don't care if someone built facebook, if they clearly self-deal to avoid taxes they should face more prison time than someone stealing food to survive.
1. Trump isn't a good example here, as many of his transactions (eg the painting) have been quite obviously illegal. While it's certainly plausible that some number of other billionaires have gotten away with similar actions, he's had a pretty unique prosecution shield. I would be very for increasing auditing and harsh penalties here, for Trump and all others. While many tax laws have intentional exemptions (some good; some bad), anyone who actively breaks the law or exploits a clearly unethical loophole should be penalized emphatically, whomever they are. IRS funding to the moon.
2. There's a notion out there (alluded to in your comments here) that billionaires don't actually create much value, and that it's their workers who deserve nearly all the upside. While it's certainly true that workers are the backbone of capitalism, rich industrialists and investors are far more often rich as a result of value created than any other means. Takes Bill Gates as a trivial example. Microsoft exists because of him, and has unlocked trillions of dollars of positive economic impact. This has roughly never been true of any worker collective. That he's gotten to keep a large share of this is is good for everyone on the balance. But I certainly wouldn't be opposed to raising the max marginal rates a little (or at least limiting the payroll tax exemptions). The key is just keeping rates where we're still providing max incentives for innovators to do their thing in our tax jurisdiction. Capital flight is a thing!
3. One key thing about philanthropic donations is that they result in a much larger amount of money going to public good. If I sell $1B in stock and pay ~$250m in taxes, the gov has ~$250M to spend on social causes. If I give $1B away, the non-profit has $1B. Even after accounting for possible deductions from the gift, the public is getting something like 3x as much money. Now, of course, some non-profits don't spend this money all that well. But the same is true of the US gov, and the bulk of non-profits do actually advance comparable work to the best gov programs. I'll take that ~3:1 leverage every time!
4. You assume there's a lot of self-dealing within these non-profits / charities. But there are strict laws limiting this, which brings us back to point 1: we just need more enforcement.
5. Museums are a public good!
6. With modern finance, a dollar given to a worker to spend vs. a dollar sitting in stock doesn't produce wildly different economic effects. Companies leverage their stock price to grow, which enhances both payroll and payroll taxes. And any stock that's sold off produces both taxes and direct spending that still circulate through the economy.
7. I am wildly for interventions that increase competition. I've been consistent on that front in all my public writing for many, many years.
8. The tax system is absolutely (objectively!) not set up to allow unethical inheritances. Gift and estate taxes exist for a reason, and passing money through trusts--when you look at it carefully at a mechanical level--aren't nearly as efficient as many assume. If a billionaire wants to avoid said taxes, their primary option is giving it away. And per 3, this is very good on the net.
Basically, I encourage you to be more judicious in your criticisms, and to dive into the economics a little more without forcing a partisan lens.
Well I greatly appreciate that you took the time to read and respond- I like your journalism and you definitely made me think!
1. I would agree that Trump has a unique prosecutorial shield, but I would also argue that the reason we KNOW about all the myriad fraud he has committed is because he also is in a unique position to be examined. Most billionaires go to great lengths to avoid public scrutiny, and to avoid political and journalistic investigations. I agree, IRS funding to the moon! But (unfortunately) this is an incredibly partisan stance right now.
2. Bill Gates is a GREAT example! You point to him as having created value, but he made his fortune by DESTROYING value! https://en.wikipedia.org/wiki/Embrace,_extend,_and_extinguish
He made great fortunes by kneecapping the Free and Open Source Software movement, and charged extortionate rates once he achieved monopoly status. The fact is that anti-trust actions have been toothless for decades. If one or two robber barons had not controlled the entire railway development we might well have high speed rail and much more connectivity between cities, which is abysmal in our country. If oil and auto execs hadn't squashed public transit in LA, imagine the upside to society and the environment. Elon Musk admitted the hyperloop was a ruse to destroy public transit so that he could profit from his vehicles. The world is absolutely RIFE with examples of the ultra rich directing societies resources into self-serving purposes at everyone else's detriment.
Compare this to workers movements which have given us 40 hour work weeks, child labor laws, overtime, pensions, and essentially all forms of modern working dignity. If Warren Buffet had his way it wouldn't only be railroad workers who do not receive consistent scheduling and scheduled time off, it would be all of his businesses. We would have children in mines if it weren't for workers collectives! What great value did the Sacklers give us? An Opioid Crisis. Then they shifted the entire bill for the crisis onto a bankrupt shell company, and thus the taxpayer. Behind every great fortune is a great crime and Bill Gates is a perfect example of this. Capital flight? Oh no our great job-creators will flee to the Cayman Islands if we tax them.
3. Come up with an example of a billionaire's charity that came up with value similar to the Internet, the man on the moon, penicillin, insulin, etc. If these created so much value, we would have lists upon lists of great discoveries. If the man who gave the insulin patent away had been greedy, he could have been a billionaire- how many lives would have been lost? That would not have been value creation.
4. Well until there's enforcement, they get to keep calling it "avoidance" instead of "evasion" or "criminal evil".
5. The point is that a bunch of opiate-pushing evil men get their name on buildings and their choice of the art it holds. Would much rather that be done democratically, with an honorable name on it.
6. Strongly disagree! Due to the money multiplier effect in the economy, a dollar given to the poor provides far greater value to overall society than sitting in a billionaires account. This has been shown many times by economists. Companies have been doing quite a lot of stock buy-backs and dividend payments instead of R&D or more meaningful economic activity. A dollar given to a worker is far more likely to go into building a home or investing in their own children's education than a dollar given to a billionaire, this is pretty Econ 101 stuff. We need more housing, not more ultra-luxury goods. Marginal propensity to consume and all that. https://www.theguardian.com/business/2015/jun/04/better-economic-growth-when-wealth-distributed-to-poor-instead-of-rich
7. The more you trust bust, the more competition. Maybe a trillion dollar business is too big to exist? Sure seems like theres a lot of regulatory capture happening these days.
8. The Pandora and Panama papers show plainly there are many ways to hide your money, but I admit I am not expert, and most of the big names are outside the US. I know that many of the journalists involved in those efforts have been killed, and that we had a billionaire president set up his own family business and self-deal to it for 4 years with impunity (emoluments clause be damned). I don't think inheritance laws are going to phase him or his ilk. I don't think billionaire's charities are going to reverse climate catastrophe or invent the next internet, but I suppose I can't disprove that. The Koch brothers certainly aren't giving me much hope.
"Thus did a handful of rapacious citizens come to control all that was worth controlling in America. Thus was the savage and stupid and entirely inappropriate and unnecessary and humorless American class system created. Honest, industrious, peaceful citizens were classed as bloodsuckers, if they asked to be paid a living wage. And they saw that praise was reserved henceforth for those who devised means of getting paid enormously for committing crimes against which no laws had been passed. Thus the American dream turned belly up, turned green, bobbed to the scummy surface of cupidity unlimited, filled with gas, went bang in the noonday sun.” -Vonnegut, 1965
2. This point is brought up a lot, but doesn't seem especially meaningful to me in this context. Is it true that Gates/Microsoft acted in some obviously anti-competitive ways early on? Absolutely! And the courts stepped in pretty late there. That said, open-source only has a good track record at certain project types, and enterprise software isn't one of them. You need a more capitalist structure to be responsive to corporate needs. (But to be clear, per my prior point, I'm very into maximizing competition. It's natural for billionaires to push for the opposite, and that's where society has to step in keep capitalism from eating itself.)
3. A trivial example is the work that Gates has done with polio and malaria. GiveWell is another. (While insulin is a stock example of anti-greed, it's worth noting that it's an exception for pharma given the massive R&D costs for typical drug development, testing, manufacturing etc. And even for drugs where the base concept/formula was discovered by a single individual, large-scale R&D is also hugely important in driving efficacy gains. Today's best insulin products are much better.)
6. It's definitely not econ 101--or at least only is if you want a very superficial view of it! Take buybacks for example. Where does that money go? Lots accretes to pension and insurance funds, who use those gains to increase payouts / keep premia low. Pensionsers spend money, and a dollar saved on a premium generally leads to a dollar of spending elsewhere. And the higher share price increases effective compensation, which gooses spending etc. With modern finance, no money just "sits". That's just not a thing, unless you're Pablo Escobar filling up your walls with actual cash. And while the distributional effects aren't always equal between classes, it's also important to keep inflation spread across a maximal range of goods and asset types.
Anyway, I return to my main point here: a sophisticated view of econ/finance works at odds with partisan narratives. There are lots of things that leftists are right about in a broad sense. As I've freely agreed with here, we need meaty IRS funding, antitrust measures, and worker protections. But all of it is tangential to the main point of my piece here: the reporting on Thiel was bad, mostly because it was partisan, simplistic, and lazy. The truth almost never falls cleanly on political lines, and nearly always requires a complex view of tradeoffs etc.
Also, note how the Pro Publica story calls investments in his own startup a “sweetheart deal” that’s “not available” to most people. Yes, most people don’t start startups and therefore can’t put their own company in an IRA. Shocker.
A better headline would have been: brilliant man turned $2000 investment into $5 billion in around two decades.
Yeah. I mean *if* Thiel artificially discounted those shares (as opposed to them just having naturally been worth ~$0 at the time), I can see the criticism there. But otherwise, I dunno how mad we're supposed to be that someone kept founding/picking winners.
From the article:
"At the time Thiel bought his founders’ shares, his own hedge fund had already loaned the new startup $100,000, California and SEC records show.
And soon after the company sold him the shares, millions of dollars poured in from investors, securities filings show. In just a month’s time, the company sold a slice of itself to investors for $500,000."
At the time of the purchase, the company would likely have already put together internal estimations of market capitalization to present to outside investors. They also would have already had some sort of due diligence conducted by the loaning hedge fund.
A hundredth of a penny was not a fair valuation, even at that time, and it seems likely that the people involved in setting up this transaction would have known that.
Certainly could be. As I say, I’m not ruling out gamesmanship here. Just not obvious to me that we have good evidence for it.
One complication is the Confinity -> X -> PayPal timeline. There were some fairly complicated transactions there, and it would be easy to confuse them. I’m currently reading through PayPal’s S-1 (which I *think* is the SEC filing that PP is taking about), and it’s all still a bit opaque to me.
PP really should have done an appendix laying out their receipts and arguments in more detail.