Annotations (6)
“A wealth tax of 1% means you get to keep 99% of your stock each year. After 60 years the proportion of stock you'll have left will be .99^60, or .547. So a straight 1% wealth tax means the government will over the course of your life take 45% of your stock.”
Economics & Markets · Philosophy & Reasoning · Strategy & Decision Making
DUR_ENDURING
Compounding tax effect: 1% yearly becomes 45% lifetime
“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.”
Economics & Markets · Philosophy & Reasoning
DUR_ENDURING
Stock vs flow: wealth tax hits same base repeatedly
“A 2% wealth tax with a $50 million threshold takes about two thirds of a successful founder's stock.”
Economics & Markets · Business & Entrepreneurship
DUR_ENDURING
2% rate compounds to 67% lifetime take
“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%.”
Business & Entrepreneurship · Economics & Markets
DUR_ENDURING
Startup growth phases: hypergrowth to mature to public
“Losing shares does not, obviously, mean becoming net poorer unless the value per share is increasing by less than the wealth tax rate.”
Economics & Markets · Philosophy & Reasoning
DUR_ENDURING
Share count vs share value: growth offsets dilution
“It may at first seem surprising that such apparently small tax rates produce such dramatic effects.”
Psychology & Behavior · Economics & Markets
DUR_ENDURING
Humans underestimate compound effects systematically
Frameworks (1)
Compound Policy Effect Calculator
Modeling cumulative impact of recurring percentage-based policies
A mathematical framework for calculating the lifetime impact of policies applied repeatedly to the same base. Uses exponential decay formula (rate^periods) to reveal how seemingly small annual percentages compound to dramatic cumulative effects. Applicable to taxation, fee structures, inflation, erosion rates, and any recurring percentage-based policy.
Components
- Identify the Base
- Convert to Retention Rate
- Raise to Power of Periods
- Convert to Cumulative Take
Prerequisites
- Basic exponential math
- Understanding of percentage operations
Success Indicators
- Accurate prediction of cumulative effects
- Ability to reverse-engineer acceptable rates from desired cumulative limits
Failure Modes
- Using linear math (addition) instead of exponential math (multiplication)
- Ignoring growth rate of the base asset
- Confusing nominal ownership with real wealth
Mental Models (6)
Exponential Compounding
MathematicsSmall recurring effects multiply rather than add over time.
In Practice: Wealth tax calculation demonstrating that 1% annual rate compounds to 45% over 60 years
Demonstrated by Leg-pg-001
Long Time Horizon Effects
TimePolicies that seem trivial in the short term can dominate outcomes over long per
In Practice: 60-year modeling horizon reveals compounding effects invisible in short-term ana
Demonstrated by Leg-pg-001
Stock vs Flow Taxation
EconomicsTaxes on flows (income) touch money once. Taxes on stocks (wealth) touch the same money repeatedly each period.
In Practice: Explicit comparison between income tax and wealth tax structures
Demonstrated by Leg-pg-001
Nominal vs Real Value
EconomicsLosing share count does not equal losing wealth if per-share value is growing faster than dilution rate.
In Practice: Share dilution from wealth tax doesn't equal becoming poorer if growth exceeds tax rate
Demonstrated by Leg-pg-001
Phase-Based Growth Models
TimeGrowth trajectories are rarely linear or constant. Startups typically exhibit mu
In Practice: Multi-phase growth trajectory used to model realistic startup valuation path
Demonstrated by Leg-pg-001
Linear Bias in Exponential Contexts
PsychologyHuman cognition evolved for linear relationships and systematically underestimates exponential effects.
In Practice: Observation that small tax rates producing dramatic cumulative effects seems surprising
Demonstrated by Leg-pg-001
Concepts (2)
wealth tax
CL_FINANCIALTax applied annually to total net worth above a threshold, distinct from income tax which applies only to yearly earnings
capital gains tax
CL_FINANCIALTax on profit from sale of assets, triggered only when asset is sold
Synthesis
Synthesis
Migrated from Scholia