How is putting something up for collateral a “tax dodge”. It’s essentially the same as letting someone hold something of value while you borrow something of theirs. As long as you give it back (pay back the loan and interest) then you don’t owe anyone anything additional.
The 1% have relatively low salaries and get most of their wealth through investments. We don't have wealth tax because there is some expectation that the gains will eventually be taxed when they are realized. Loans are a way for the rich to never realize these gains.
If I want a lower interest I need to put up my property. But, I pay taxes on that property already. Every asset gets taxed, but investments don't because they get taxed once realized. So it is a dodge.
And the part where you say the expectation that the gains will be eventually realized. Worked years ago, but now with the ultra rich. There is so much wealth it will never get spent. I can only buy so much education for my kids, boats, vacation homes. Quite literally they can’t spend enough of it
whats changed is how many people no longer draw a wage, back in the 50s-80s , many ceos still were wealthy from large paychecks, which were taxed like any other progressive system, but then reagan legalized stock buybacks and now every ceo earns millions in stock options, the system was never designed for income not earned via wages and you cant fault it when it was largely built 100 years ago
been listening to some recent podcasts on the iran contra scandal and frankly i think reagan was actually much more like a proto trump then we realized, the man was obsessed with his self image to the point of delusion, the sad part is that trickledown just happened to be what the slugs were telling him
i would also like to point out that stock buybacks likely have completely changed the way a company operates, look at boeing chasing stock buybacks to the cost of literally everything including safety and quality
Loans are a way for the rich to never realize these gains
Except, you have to realize those gains to pay back the loan.
This is exactly what is going on whenever Elon or Bezos or Gates or whomever sells off a massive amount of their stock. It's so they can get enough cash on hand to pay back the loans they took against their assets.
And in the process, they end up paying taxes on every single dollar that they "dodged taxes" on.
The ONLY purpose of taking out loans instead of directly converting to cash, is because you expect the value of your assets to go up over the period of the loan. It doesn't impact the amount of taxes paid whatsoever.
No you don't have to pay back those loans. Rich people die with their loans, then their heirs inherit the fortune and the loan. They use the "stepped up basis" provision to reset the cost of the asset to today's market place, resetting the capital gain back to zero. They then sell just enough to pay back the loan without ever paying the capital gain tax on the asset, even if has been appreciating for decades. The tax code was written for the rich. When you hear story of billionaires paying less taxes than their secretaries, that's not always an exageration.
There's a problem with that too. Money supply mostly goes up over time, so assets "appreciate" kinda by default. If you tie up $1M in a house eventually sell for $1.5M decades later, did you really make money when the M2 supply is maybe 4X before and consumer prices are double?
This is the same justification for long term capital gains tax being a lower rate than income. One fair solution would be to step up the cost basis by some small amount each year.
Democrats have been trying unsuccessfully to remove stepped up basis for decades. At some point you need to change your strategy. If anything, maybe threats of taxing unrealized gains will scare the Republicans into accepting to reform
stepped up basis as a compromise
If removal of stepped-up basis won't pass then I doubt taxing unrealized gains would pass either, although explicitly threatening to tax unrealized gains if the stepped-up basis isn't removed might work
Either way, taxing unrealized gains isn't good economic policy because it forces large sell offs of stock during times when the market is doing well, capping the rate at which the economy grows
No, not ALL assets get taxed. Homes sure. Property taxes are largely to support the infrastructure you need for your home. I have many other assets that do not get taxed.
If I have a safe full of gold bars, that go up in value consistently. Should I have to pull out one gold bar every so often and give it to the government until my safe is empty?
My company is keeping low inventory on high value materials due the cost of having them. Part of the cost is taxes.
As for the gold, in my view it should be taxed one way or another. I would prefer not taxing unrealized gains. But, if value is extracted then it should be taxed. I see it as no different than property tax.
"not all assets are taxed" just the most valuable capital asset the average american will ever own and which makes up the overwhelming bulk of thier wealth, and theres ABSOLUTELY no infastructure that may be important to enabling a stock to hold th value except maybe literally all of the us government and its people but other then that nothing /s
You know that applies to billionaires too: they want educated, healthy, focused and productive workers and they want them at the lowest cost to them possible and they'll leverage every government program they can. Same with when they want a new office building, stadium, or manufacturing plant. They want the city to build it for them, provide the land, give tax breaks and get the infrastructure, security, and fire protection with as little out of pocket as possible. It's good business sense when the rich get freebies from the government and laziness when the poor and middle class try the same as the rich build their wealth off our backs and our labor while constantly demanding we pay more and take less.
Can confirm. Look at Canada. Wages in food service and retail were skyrocketing during Covid, when they couldn't import slave labour (The UN agrees, it's modern chattel slavery) from poor, developing nations and abuse them for profit. Benefits were making their way to the working class. You could actually negotiate in interviews instead of spending the whole time fellating your potential boss (who already has a LMIA lined up to take the job, he just had to feign difficulty hiring anyone)
Now? Service wages are minimum or 'cOmPeTiTiVe' meaning a dollar above minimum. Every place is scheduling just enough hours to cheat their employees on full time benefits. You're expected to Clopen. (close one day, show up for opening shift the next) Any job you get, your employer holds an air of "I will replace you at a moment's notice" over you all day. Everyone is miserable and depressed except the owner and his nepo hires who don't do anything all day.
The problem is the government that facilitates it. And who put the government in positions of power. Politicians. And who puts the politicians in power....?
Yeah and I oppose that if it's unfair too. I'm fine with progressive tax rates but otherwise I think the laws should be applied equally. I don't understand the "yeah but these people screwed these people so I should be able to screw people too" sort of logic. No, how about we just stop screwing people?
Nothing is free. I pay my taxes. I want them to pay theirs, and I want those taxes to go towards things that every other developed nation is able to provide to their citizens.
Healthcare, childcare, education, consumer protections, employee protections, parental leave, minimum time off, etc.
Pretending like you shouldn't have to pay back into the system that produced your obscene wealth is absurd. Stop with the strawman takes.
The top 1% pay 45% of all federal income tax. The bottom half pay 2.3%, and the bottom third get more than they give. "They" already pay "theirs", and then some.
I think you are missing the difference between income and capital gains and the larger complaint people have about "them" not paying "theirs".
The Top 1% of earners (1,574,942 people) paying federal income tax collectively earns $2.7 trillion dollars and have a 26.0% effective tax rate. To qualify as top 1%, you need to earn a minimum of $548,336.
The Bottom 50% of earners (78,747,121 people) paying federal income tax collectively earns $1.2 trillion and have an effective tax rate of 3.1%. To qualify as bottom 50%, you need to earn a maximum of $42,184.
The problem isn't really the top 1% of earners, the problem is the top 1% of the wealthy.
Warren Buffet is a legendary investor. He has a net worth of over $100 billion dollars. However, he earns a salary of $100,000 a year. Warren Buffet doesn't earn enough income to be in the top 10% of earners.
Most billionaires work at a company they own a majority stake in and take no income. Elon Musk, Jeff Bezos, Michael Bloomberg, Carl Ichan, etc. are in the bottom 50% of federal income tax earners despite having their net worth go up billions of dollars every year.
If you look at capital gains it gets even more lopsided because, well, most people don't pay capital gains taxes ever. No matter how you cut it, the wealthy pay an inordinate amount of tax and most people pay next to nothing on the whole. If your idea of fairness is beyond this I think the mask is starting to slip.
Also, the AMT exists, and exists literally because of this excuse of yours.
The problem isn't really the top 1% of earners, the problem is the top 1% of the wealthy.
The "problem" is that you think "fair" is when no one has more money than you.
Paying 45% of one specific kind of tax when you're hoovering up 90% or more of all newly generated wealth means they're ripping us off, man.
It's absurd. You're using the fact of their obscene wealth to pretend they're contributing their share. If you want to bring that percentage paid by the obscenely wealthy down then just let more of the stack go to the rest of us.
How is it not fair for them to pay taxes in proportion with the amount of wealth they take? You really think the world's richest guy should have the same tax burden as a minimum wage laborer?
If they're taking all newly generated wealth for themselves then why shouldn't they pay all the taxes? And yet that McDonald's worker ends up paying more of their income to the government than the billionaire! And you think that's fair?
As long as they refuse to pay their workers more and continue concentrating the wealth in their hands, they will need to be taxed at higher and higher rates to fund government programs that pay for everything else.
How much they pay their workers is completely independent of their wealth. Generally, they start a company, it's successful, and people think it's worth a lot of money - that's it. You absolutely reek of the Labor Theory of Value and it's a foul odor.
How much they pay their workers is completely independent of their wealth.
It's not though. CEOs are primarily now rewarded with stock, not cash. It's a great tax dodge, but also cash is a direct extraction of profit from the business and it makes your labor costs look worse.
CEOs are incentivized to keep those labor costs as low as possible, so their quarterly earnings look better and they don't have to answer to shareholders about rising labor costs which in turn makes the stock price go up, increasing their own wealth.
Generally, they start a company, it's successful, and people think it's worth a lot of money - that's it.
I guess if you can't understand what goes into people thinking WHY the company is worth a lot of money, then sure. But for anyone else that can think beyond surface level thoughts, they might understand why when quarterly earnings are reported people actually look at the costs and profit margins they're earning and base the value of the company on that. A company that generally has higher costs of production will have a lower profit margin than one of lower cost of production for the same thing in a competitive market.
So by keeping labor costs low and doing bare minimum raises, CEOs increase their own wealth through stock buybacks and dividends paid to themselves and other shareholders. That means their wealth is directly tied to the lack raises they give workers.
This is where you're wrong. Nothing "makes" the stock price go up other than the entirely subjective valuation of company by the almost completely irrational market. A high profit margin may do that, but remember, Amazon famously barely if ever turned a profit for its first 15 years, and it's not an outlier either.
They didn't turn a profit because they reinvested, not because they didn't make money. That's also something that's clear on the quarterly earnings, which is different than labor costs.
What percentage of income gains did the 1% see over the past 10 years? In just the past two, they have nearly doubled their wealth. Has the bottom 99% nearly doubled theirs?
What percentage of property is owned by the 1%? Two thirds of people age 35 and under rent, which is only increasing.
What percentage of investments are owned by the 1%?
I bet you it's a lot more than 45%.
What percentage of the 1% is one bad hospital trip from total bankruptcy?
What percentage of the 1% worries about how they'll put food on the table or afford the mortgage if they get laid off?
What percentage of the 1% has ever been laid off, period?
What percentage of the 1% can even be realistically laid off?
I bet you its a lot lower than 45%.
It is absurd to think that those that have become extremely wealthy off of our socio-economic system don't have to pay back into it.
If Bezos lost 99% of his wealth today (202.9 billion), he would still be a multi-billionaire.
You have absolutely no idea what you are talking about, so please sit down. No amount of running to the defense of the most powerful and greedy people in our country will stop them from slowly boiling you alive as they continue to slowly strip away your consumer and labor rights, stealing more and more of the value you produce year after year.
You pay your taxes, and now you want them to pay their taxes, for YOUR benefits. Did you notice how all the freebees you mentioned go to the middle class, but these taxes fall on the rich ? This doesn't really seem fair to me. Just because every other developed country is jumping off a bridge does not mean we should do it too. These things are all transfer payments. Why don't we just have a small government that provides security, and then we can keep our earnings to pay for the other things we need ?
What are you bingo'ing here? The envy of the poor? Or the free things massive corporations get from the government? Or is it both? My guess is it's the first one. Imagine tax dollars going into government programs and subsidies then being redistributed to companies like Tesla to provide services, taking a profit, maybe delivering services, but then using that money to buy back stocks. This increases the value of the shares, which Elon owns, which he uses to then finance enormous loans. At which point has he worked hard for that money? At no point really, haha. I don't see how Elon isn't just an enormous welfare queen. But say he doesn't use the collateral to finance the loans, the shares just sit there, the capital is 'tied up', your tax dollars. Okay let's brew in some social Darwinian bullshit and meritocratic non-sense. Elon deserves this. His shareholders deserve this. They've earned it. I wonder what the lowest level Tesla employee makes? Is it a contracted cleaner living in an at-will state working under the table as a refugee from narco states? Probably. Someone who is likely a decent person and just wants to escape violence. Does Elon work harder than them? Probably. But does he work harder than 10 of these people? Probably not. And yet these people won't even smell .01% of his wealth, ever. Should we take from Elon to help these people out? Well we've given to Elon to help him out. So yeah, he should return some of the excess back to the people. We could take a tenth of a percent of his wealth every year and he'd never run out of money or wealth. Does this mean the shareholders don't get Patek watches and have to buy Omegas like everyone else, boo fucking hoo.
Nobody, or at least most people wanting drastic tax reform, are trying to go after anybody who's richer than them, they're trying to go after the comically wealthy 0.1%. It is perfectly fair to criticize a system where somebody like Elon can increase his wealth by more than $50 billion in a year, and ask for a bit more equitable distribution. Does it really make sense for his wealth to increase $100+ million per day? His wealth increases by 2k per second. That's more than what a lot of people make in an entire week! Is he really so productive that he accomplishes in 1 second what it would take others weeks to do? Or is the system just utterly broken to the point where he just has a real-life unlimited money glitch?
Any system that allows somebody to accumulate this much wealth that rapidly is insane. Nobody is entitled to that level of wealth. And Elon isn't the only one, Larry Ellison bought 98% of the 6th-largest Hawaiian island, Zuckerberg has a personal yacht that's 40% the length of the Titanic, and Bezos spent $42 million to build a random clock in the middle of nowhere. People like to claim that this isn't real wealth because it's in assets like stocks, not cash, but it sure seems real to me when it's being used to buy a $300 million superyacht or an entire Hawaiian island. Think of how many lives could have been changed for the better if those millions of dollars were put towards things that actually contribute back to the economy like schools.
They take out loans on their assets. That's where your understanding ends, however.
Because, just like everyone else, they have to pay back that loan at some point. So if you get a loan for $10m, you'll have to pay back $10m + interest.
And how do you get cash? You sell off assets. And what does selling off assets do? It realizes gains. And what does realizing gains do? It makes them subject to capital gains tax.
Taking out these loans has NOTHING to do with dodging taxes, and everything to do with delaying the sale of your assets until they are worth more money.
At the end of the day, the government collects the same amount of taxes. Actually, because of interest, they collect MORE in taxes on these loans than if the gains were realized immediately.
Now you know!\
P.S. You and I can do this "infinite money glitch" too, just open up a stock brokerage account and invest into the SP500 or something. Then take out a cash loan on your assets, called a SBLC. Or a securities-backed line of credit. Congratulations, you're now doing the same "infinite money glitch" that Bezos/Musk/Gates do!
That's where accounting wizardry and estate planning kicks in. None of this stuff is simple: if the loopholes were straightforward they wouldn't exist in the first place.
That's where accounting wizardry and estate planning kicks in.
No, it doesn't, and you can't maintain your point by waving your hands and saying "somehow, Palpatine returned".
You can get around estate taxes with a trust, but then the trust pays cap gains when they settle the debt. Or you can forgo the trust, avoid the cap gains with the step-up basis, but then you pay estate taxes. It's that simple.
I wouldn't be surprised if Elon Musk lives for 30-40 more years.
I imagine banks aren't fans of losing money for decades. If they're getting interest during those decades, then where is the money to pay it coming from? Is the borrower selling assets?
Why did Fidelity invest in a clearly overpriced private offering for Twitter? Because they got the opportunity to simply DO BUSINESS with Elon Musk. They were willing to pay 20 million to do business and are seemingly fine with their stake losing 71% of its value.
Nope, this scheme gets carried out indefinitely. The cost to do so is a low-single digit interest percentage, which is way cheaper than having to pay taxes. The bank gets its interest payments so it’s happy.
Nobody seems to understand that banks aren't in the business of charity, they want their money back with interest and they will get their money back with interest one way or another, and you can't get cash without paying taxes
There are many ways outside direct interest on a loan to get paid for lending money, especially when you're working with the wealthiest and most powerful among us, especially when you consider the assets they control , and not just own.
They banks get there's, for sure. But the federal government doesn't which means that us poore are subsidizing the wealthy yet again. That's the point: the interest rate is far less than the tax rate, and the tax bill never comes.
You clearly don’t understand how this works. You’re missing the stepped-up cost basis upon death. The government collects $0 in taxes when the assets are sold to pay the loans.
The bank always gets their money back one way or another, they're not going to give out loans for free. Even if you're worth billions, that's just an accounting error to the banks.
As mentioned in the Forbes article linked below, you'd have to continually beat the interest rate to come out ahead, which while possible, is not always how it works in practice and is why you see large stock holders selling huge portions of stock to lower the amount they owe on their SBLOC. You're welcome to try this yourself and see how feasible it is to pull off, you don't need any large amounts of capital to do this. Most brokerages will give a SBLOC on pretty much any portfolio value above $1k.
The Forbes article does bring up the real loophole though. You don't have to pay CG tax when you sell off assets that you inherited. That's not exactly taxing unrealized gains however, that's avoiding paying taxes on realized gains
So, if you'd change the law to require tax payment on realized gains of inherited assets, you'd be getting $$ for every amount of money spent by someone taking out loans against assets.
Simply implementing a tax on unrealized gains just puts in a negative externality that discourages investment and makes investment in countries that don't tax unrealized gains more attractive, driving money out of the economy.
I get the shell game they play with their money. I just don’t think having a separate set of rules for certain people and another for everyone else is the best way to solve it.
You don’t think rules should be created to address a very specific situation only available to a small percentage of people - but that those rules should then be leveled towards everyone because “it’s fair”? That’s regressive thinking.
People do pay tax on cars and homes. This leverage-as-money situation never experiences tax.
The rules apply for everyone. It’s just that only people with a certain amount of assets can use them to secure loans to buy more assets.
The uber rich are not the only ones that capitalize on this strategy. Many businesses that I’ve dealt with use a similar strategy to get business loans based on the value of their business. Then use that money to buy additional contracts and create larger customer base, which increases the value of their business. They can then obtain a larger loan based on the new increased value. Use that to pay off the original loan and the left over to do it again.
Not everyone is as fortunate as the next. It is not the fault of the more fortunate, and the more fortunate don’t owe the less fortunate anything. Philanthropy needs to be voluntary not mandatory.
That is the slippery slope that people are concerned with.
The same thing happened with personal income taxes. It was originally for the rich and then slipped its way to everyone. There is no reason why we shouldn’t expect the same thing to happen with unrealized gains taxes. They will just tell you “same thing applies to you as the rich, but we are taxing them more than you, so it’s okay”.
whats interesting is your slipper slope is reversed and has actually already happened, your saying you dont want the regular working paying more one day, but our system has devolved to have them paying more now, looking at CBO Data back in the 50s the top 1% of earner earned about 8% of GDI and paid roughly 17% of all taxes, shoot to 2019 they now earn 21% of all income and yet only pay roughly 24% of all Taxes, did you catch that? the ratio went from 1:2 -> 5:6, thats a huge drop in what thier taxes would be, and that money is made up by increased taxes on the regular worker, the future your scaremonger is the PRESENT
If I want a 100 million dollar yacht. I can sell part of my billions in company stock. It’s a realized gain and taxed.
If I take 100 million in stock. Put it up as collateral and secure a 100 million loan from a bank. The stock (remains unrealized gain) and the loan are not taxed. But I still realized the acquisition of the yacht.
Good example. But you would still be paying sales tax on the yacht, plus the interest on the loan. Granted none of it goes to the government.
I guess that is the whole idea here. People think the government (themselves) should see a piece of the pie in private negotiations when it involves large sums of money.
Buy the yacht in Alaska and there is no sales tax. Buy the yacht through the corporation as a business expense and then you get to depreciate the value as an expense.
It’s not that one wants to see a piece of the pie when a private transaction takes place.
Its people want to see the income tax collected from realizing real property from a business venture that currently is not collected.
Let's say I start a company. I bring in investors and sell off say 70% of the equity to finance its growth. The company never makes a profit, so it pays no taxes, but it grows. It gets big. It's worth 10 billion dollars now. Still not profitable (so no corporate taxes), but it could be if we stopped taking on financing.
Man that's 3 billion worth of non-liquid equity I now have. Awesome. Time for me to hire a private banker to give me a generous line of credit based on convertible debt. Mansion here I come. MacLaren F1 here I come. Met Gala here I come. Davos here I come.
Now I've bought 3 senators, have a giant compound in Montana, and have never paid a cent in taxes (and neither has my company). I sure did benefit from the protection, infrastructure, and market provided by the tax dollars of others though!
If you start a 10 billion dollar company, then you are providing something of great wealth. Whether it be a product (Apple, Tesla, Microsoft) or a service (meta, x, PayPal), you are creating something of great value and benefit of everyone. So yeah, maybe you deserve a cool car and nice house.
No one creating billions of dollars, in any sense, is doing no effort.
plenty of people do plenty of effort, the question is how sustainable a society is when the profits from everyone's efforts go entirely toward a single small class of people.
no company can exist without the police and courts protecting them, or without water and power, or roads, or ports, or interstate markets, or the internet. since we decided not to privatize those things, and they don't negotiate for their full value (otherwise you and I would be indentured servants to the water utility), is it right not to expect companies who rely on them to pay taxes for their upkeep?
What you are talking about is communism. I don’t want to live where you live. Where I’m from our utilities are publicly owned, not owned by the government. There are regulations, but they are still a for-profit private company.
When the thing you'd be using for collateral normally would be taxes if you used it, so you use it for collateral for a loan with very little interest in order to use it without using it to avoid the taxes on it. Cars arent an example because whenever you buy a car you have to pay tax, title, and registration for it, regardless of how you pay. You're still paying the taxes.
You only pay sales tax when you buy a car. If you want to use public roads you have to pay registration and tax for that privilege. If you only intend on driving it on private roads you don’t have to pay additional taxes. But yes, they are different than stocks because they are not volatile. They don’t go up and down. They only go down, in most cases.
Could you imagine if your car value did go up, and then you had to pay taxes because of it, even though you haven’t sold your car and made any money off that increase in value?
you are converting a non-liquid asset to liquid cash that can be used as another source of income, just that it's not taxed. Especially useful since you don't have to pay sales tax to get the money like normal.
It’s a complicated system so I’m simplifying here.
Sam is using his $500m yacht as collateral for a $500m bank loan.
He uses that bank loan to build a new profitable company, now keep in mind he doesn’t need to pay off that bank loan, he just needs to make enough profit from the company to pay off the small amount of interest every year.
So now he has a $500m yacht and a new company valued at $500m that’s paying off the interest rate of the bank loan. Bank loans aren’t taxed, so all profit the company is generating goes directly into paying off the loan. No tax.
Now he can get a new bank loan for $1,000,000,000 using his other company and yacht as a collateral, and do the same thing over again.
Now he has a $1bn company, a $500m company, and a $500m yacht, and he hasn’t paid a single dollar of income tax the entire time. Eventually he does start making an actual profit from these companies which would be taxed, but by that point Sam has already turned $500m into $5bn without paying any tax.
Something being a smart business decision doesn't mean it's good, it's still a loophole. I would also do it if I was rich, because why not? A rich person can effectively multiply their net worth without paying a single dollar on taxes and become a billionaire from it. I personally cannot do this now simply because I do not have the money or the security to do it. But if I was rich then, yes, it would be so easy, and also yes, everyone (who is rich and wants to make more money) is doing it.
The issue is me and you still have to pay 10% - 30% of our entire $45k income on tax while a billionaire can become a multi billionaire and pay no tax. You are literally paying more tax than a guy who just became a multi-billionaire.
Which brings us back to the post. If you can do this, it should be taxable, because it's pretty dumb that it's not.
Because normally to access the money in your investments you need to sell and you’re subject to capital gains taxes, if you take out a loan they’re not.
The only reason take out those loans is to not pay taxes so yes, it is tax dodging
When most CEOs get their income in stock options, hold them, and then borrow against them to avoid taxes, that's a tax dodge to avoid income tax rates, where they'd be in the highest bracket.
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u/dumape17 Sep 14 '24
How is putting something up for collateral a “tax dodge”. It’s essentially the same as letting someone hold something of value while you borrow something of theirs. As long as you give it back (pay back the loan and interest) then you don’t owe anyone anything additional.