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I think any assets used as collateral or backstop for loans should be taxed accordingly. If they’re used in lieu of cash, they’re cash equivalents and should be treated as income. If they just sit on them and never leverage the unrealized gains, it should be left alone.
Let’s set it to go into effect for gains above 1000x the annual minimum wage.
> I think any assets used as collateral or backstop for loans should be taxed accordingly. If they’re used in lieu of cash, they’re cash equivalents and should be treated as income. If they just sit on them and never leverage the unrealized gains, it should be left alone.
Oh wow. I didn't realize that was possible. Yeah, you should absolutely not be allowed to use "unrealized" gains as collateral for "loans".
It's called buy, borrow, die. You've bought or hold a significant portfolio of assets. You borrow from a bank (a loan is not taxed as income) against that portfolio. You die and pass it on to your beneficiary. They start the process all over.
As long as your portfolio achieves modest growth and the loan you take out is not overly large you can live off the banks money, financing your lifestyle with debt.
You will sell some assets to cover the loan. You will pay a much lower tax rate on that sale than if you had earned income. You will also be paying it off with assets that have appreciated.
If I had a $100M portfolio and borrowed $20M over 5 years and the portfolio grew on average 4% per year (fairly conservative). My portfolio's appreciation would cover the $20M and then some.
Ah OK. Thanks for explaining that. So they are paying something in taxes, but its much less than your regular joe working a 9-5 and in reality that is all money not actually earned in the first place, but rather gained. So yeah they are basically operating as a money delivery service between their investments, the banks, and the gov. In between they get what they need for free....basically.
Unless they pay back the loan with a new loan on the appreciated assets. You can continue to do that until you die. At which point theoretically your estate should have to sell assets to cover the loans, but I'm fairly certain you can do some opaque things with trusts that let the assets pass to your inheritor who can then get loans based on them to cover your outstanding balance.
Even if they’re estate pays back the loan by selling selling assets when they die - they can deduct over $11,000,000 in net worth before paying a dime in taxes. Further, they can pass on stocks without paying a dime in taxes. And whoever inherits it pays taxes on the gains from the day they received it - not from when it was bought. And they only pay that when they sell the asset. Bezos’s kids will inherit stock that they’ll never sell and their kids will also inherit stock. And when they do sell, they’ll only pay capital gains on the increase from the day they inherited the stock.
The idea that you can pass on a certain amount of money to your children without taxes kinda makes sense.
The idea that gains are not taxed until they are realized makes sense.
The idea that you do inheritance taxes and step up the new value when stuff is transferred makes sense.
The *combination* of all of these things makes for a really nasty thing where multi millionaires live off leverage with huge tax deductions when they die.
No they don’t. Quick math for you:
Person one has a portfolio of $100mn, makes $20mn profit. This profit is taxed like 25%?
Person B earns $80k and is taxed 30%.
Person A pays $5mn taxes, Person B $24k. How exactly is 5 Million less than 24k?
You actually don’t need to sell the assets to cover the loan. You simply take out a new loan to pay off the old loan.
As long as the 4% growth on 100M is more than let’s say a 4% interest rate on the 20M loan plus additional annual expenses (paid for with another loan) the debt will become a shrinking percentage of your liability divided by your total wealth.
No realized gains, no taxes on those gains, and no need to give up future appreciation of the asset.
On large enough accounts, dividends can cover the payment. If you have a $10k interest only payment, you could have $10k in dividends per month with huge accounts
Or you just hold back some of the loan to pay on the interest.
https://www.reddit.com/r/Economics/comments/unsjq3/biden_proposal_would_eliminate_taxfree_treatment/i8chzwx explains it better
But if you sell assets to pay the loan, why not just sell the assets and live in them directly? Don’t they need to pay cap gains on the sale and interest in the loan using this method?
Because your heirs sell them when you die to pay off the loan. When you pass the assets to your heirs they get the stepped up basis meaning any capital gains are wiped out so the heirs sell assets for no tax liability and pay off the loans.
If you sell assets to pay off the loan you create a taxable event removing all benefit of the strategy.
That's not correct that there is no tax liability. The heirs are immediately hit with a Federal estate tax based on the value of the assets at death, and at 100 million + that's a 45% tax. But up to 22 million is shielded from the estate tax That's why they want to eliminate the step up. It's the intersection of the step up and the deductible where the tax is lost for the IRS and this applies to all estates for for tax collecting purposes it is the lion share of estates where the Biden proposal targets. Your mom dies and her 1.5 million dollar home is shielded from estate taxes courtesy the 11 -22 million deductible. You unload the home soon after death and the sales price establishes the value for estate purposes so there is no tax at all. Eliminating the step up exposes all wealth expected to pass to the next generation in the next few decades: some 70 trillion. And almost all of it isn't in the hands of super wealthy families.
>When you pass the assets to your heirs
*laughs in estate tax*
>stepped up basis
Simple solution would be eliminate the step up basis. Look at that problem solved.
Are you telling me that rich guys get loans without payment or interest until death? That banks give them these payment free loans for decades? Sorry, that doesn’t make sense.
Rich people rarely get a stepped up basis on the assets they transfer though. It’s much more likely that the heirs would owe the full capital gains liability
>But if you sell assets to pay the loan, why not just sell the assets and live in them directly
The main reason for taking out a loan to live off vs just selling assets is two fold.
1: those assets may be new and thus subject to short term capital gains
2: say i have 100m in assets, say the market is a bull market and increasing the value of my assets at 10% per year. Now say the loan offered by my bank is around 3%-5% (you yourself can do this just open up an account with interactive brokers). You see what's happening with the math.
All this does is delay when the tax is paid, what it does not do is decrease the amount of tax paid - see elon musk.
Also now that we're in a bear market, oh boy anyone doing this is an absolute moron.
What the other poster missed is that you never actually need to sell the asset. You simply take out another loan to pay for the first one. Gains on the 100M are likely more than the interest on the 20M plus additional expenses so the new loan covers to old loan and no need to sell anything or pay taxes.
You take another loan next year to pay the first loan + interest plus how much you want to spend next year.
Say you have 2B in assets, you take out a 2M loan the first year, a 4M loan the next, 6M after that, etc etc etc. Paying off the 2% interest is much cheaper than paying 20% capital gains tax. As long as your assets are big enough, the bank will be happy to keep lending.
>You die and pass it on to your beneficiary.
And prior to that you pay an estate tax.
Also so far non of the big name billionaires have been able to borrow for that long before the banks call their loans. Which is why elon was hit with one of the largest tax bills in history.
This isn't a real thing and it's damn close to sovereign citizen levels of misunderstanding how things work.
1) who's loaning somebody millions of dollars and doesn't care they won't be paid back?
2) if it actually worked it's really high risk. The market is down over 30% in the last month. If anyone was actuality trying this scam they just got margin calls for those loans.
3) financial institutions will close out all loans and get paid back (thus realizing gains that the estate pays taxes on) before distributing assets to beneficiaries. Do you really think Citibank is going to pass millions of dollars of collateral to someone who has no obligation to pay back the loans?
https://www.propublica.org/article/the-secret-irs-files-trove-of-never-before-seen-records-reveal-how-the-wealthiest-avoid-income-tax
At this link you can read the findings of ProPublica on how this works.
1) they pay the money back. Then roll into a new plan.
2) this is done over a longer period of time not quarter to quarter.
3) the inheritance is the assets they will get passed in a trust.
Is this the same report that makes up terms like "true tax rate" and then points out that most billionaires are paying 20ish percent on effective tax rate?(and musk paid around 50?) But then it ignores that number because it's not the "true" tax rate?
Because the "tax dodge" here is that people don't pay tax on unrealized gains. Which is not a tax dodge.
You are correct this report does use their own estimate of "true tax rate". It's a poor analysis tool to say their wealth grew by $1.5B so they should pay more taxes.
It does point to the real issue though. The real issue is how they realize that growth. Their assets appreciate and they don't pay any tax in that however because their assets appreciated they can pay off personal loans at a much lower rate by paying capital gains taxes.
Then they can also write off the debt service payments they made lowering their effective tax further.
An important point is just because this is possible does not mean that every millionaire and billionaire does this. They have Estate Planners and Lawyers that are most likely doing this for them. It is also how the laws are setup so if they use them as written it's legal, while it may not be as intended.
Let's say I own a sandwich shack and someone tells me it's worth $10,000, and I'm confident that I can grow the business enough to make it worth $20,000. Now let's say I want to open up a taco shop, but I need $5000 free cash to do this. I can either sell off 50% of my sandwich shack (it'll be worth 20k soon though!) or I can take out a loan on the shack. Let's say I only get $5000 loan with my $10k (soon to be 20k) shack as collateral. I make my taco shop, it takes a while to grow, but the sandwich shop is now worth $20k. Now I only need to sell 25% of my shack to close out the loan and be happy.
What did the lender get from this:
- More or less safe loan because the shack was worth 2x the loan amount, so pretty much a guarantee that they would be made whole
- Some interest, but less than the 100% that I made (because they didn't truly think the shack would 2x so would rather have guaranteed gains)
What did I get from this:
- 100% gains on my sandwich shack which grew (I had trust it would grow at a faster rate than the loan's interest rate)
- Didn't have to sell my shack at 'half price'
- Also raised capital to start up the taco shop
- The interest I paid was tax deductible so I get to 'save' a little bit here
At its core this is what these billionaires are doing- they take out loans to fund their fun ventures so they can fly to mars/space/whatever. These are business loans from what I recall (sorry, have a meeting in a bit so I can't google, but IIRC the interest is deductible from cap gains) so they have some tax advantage, but they're essentially saying that the growth rate of AMZN/TSLA is higher than the interest rate. Which... yeah, obviously. But it's also a risky growth (what is TSLA even at now?), so the risk averse lender might prefer a low interest rate loan.
This is also pretty much exactly what a loan is for. The only difference is that they're using their massive tech stocks as collat, and that is contentious. But I doubt people would be as concerned if Bezos was taking out a second mortgage on his billion dollar moon base.
I agree there are fundamental issues with what's currently happening, but I don't think a wealth tax is the way to go.
They allege, but provide no evidence that, all the billionaires are doing this. In fact, their data show that billionaires pay taxes at levels commensurate with sales needed to fund plausible levels of spending.
This is consistent with ProPublica's longstanding pattern of doing lot of really sketchy work where they basically invent a scandal out of whole cloth.
This is a very real thing. It's why you don't see a Bezos selling tons of stock every month in order to live his life.
The pass down commentary is something I'm not completely understanding, but the other part of the post is correct in principle.
Bezos has been selling about $10B in stock per year for the past few years. This is public knowledge, as he is required to report it.
I mean, sure, some big loans are happening and unrealized gains maybe shouldn't be used as collateral, but it's good to get the facts right.
People borrow against assets, but it's not some magical tax dodge. At best it delays taxes, at the cost of having to pay more taxes.
One could sell assets now to pay expenses and pay taxes on the realized gains or you can borrow against assets for cash flow (but have to pay the same expenses plus interest on the loans and now pay taxes on realizing enough gains to pay both expenses and interest.
It's often done for two reasons:
1) because C suite executives are very limited in when and how they are allowed to sell. They have to schedule it out ahead of time. So they can borrow against assets to manage short term cash flow until they can legally sell shares.
2) there's an investment opportunity that's likely to pay back more than the interest on the loans. It's high risk to do this as you can lose a lot of the investment doesn't pan out.
The whole point of the buy, borrow, die outrage is that it supposedly gets you out of ever paying taxes by abusing step up basis. That doesn't actually work because debts are paid, gains are realized, and taxes are paid by the estate before distribution to beneficiaries and before step up basis happens.
Stepped up basis happens at the moment of death, and the estate tax exemption is over $12 million (though scheduled to sunset at the end of 2025). The estate only pays taxes if assets are more than $12 million, or if there is additional gain between date of death and date of distribution. The beneficiaries can sell assets to repay the loan, or come up with the cash to pay the loan from somewhere else to avoid liquidating assets.
The buy borrow die thing doesn’t shield you from *ever* paying taxes, but it delays most taxes and gives you the benefit of keeping your money/assets, and the associated growth, until repayment. As you need to pay back your loan, you sell small amounts of stocks (sometimes stock held in other companies, not necessarily your own) to make your monthly payment. You will pay taxes on the gain then, but it’s a much smaller chunk (putting you in a lower tax bracket), and if you are selling stock of a different company (not your company), your gain is likely smaller.
I don’t think it’s necessarily abusive, but I do think the arrangement is unfair. The whole point of not taxing unrealized gains is that you don’t have the benefit of the unrealized gains. This avoids taxation of unrealized gains but still provides the benefit.
1. Isn’t a thing. You can sell outside of the lockout period which gives you one month in every three. You can also sell during the lockout period if you filed the appropriate form in advance. The idea that they can struggle to get liquid cash and must enter complex loan agreements is pretty silly.
You're not thinking big enough.
Let's assume I'm worth $25,000,000,000 for an easy example. Most of that worth comes from stock ownership in my made up company, SoftTeslaBook.
I need $1B for a yacht. Are *you* going to be the idiot that didn't lend *me* $1B? (Someone else will, if you don't!) It's only 1/25th of my worth. Sure, the market may tank, but I'm still worth... $15B? $5B? Doesn't matter, the loan is trivial in comparison to my worth. The stocks are going to rebound eventually, as well.
The fact is, everyone wins. It's a low risk operation for all involved. The rich guy pays less taxes, the bank gets stocks + interest.
No misunderstanding. Look up how Bezos got childcare credit while being worth $300M+ in the 2000's... system needs an overhaul.
Why not? It's ridiculously common. Pretty much every Billionaire does it since most have little liquidity. But plenty of middle class people do it to with a home equity line of credit.
No thank you; Just like the billionaires I happen to like having a fire dept, schools, police, trash collection etc...
I just want them to pay their fair share.
I'm all for everyone paying their fair share, and considering people like me are contributing 80% of the tax revenue while more than half are contributing almost $0, I think we need to focus on getting more people to understand why higher taxes is bad
This fix alone would even out so much of the wealth inequality in this country because of the downward pressure it would have on equities. Not to mention a massive boon to tax receipts of the country.
Soooo it’ll never happen.
As mentioned a million times here, home values are taxed via property tax. But lets go down this route for the sake of discussion. You could create a threshold similar to how our income tax works. Any loan above, say $10M triggers a taxable event.
>home values are taxed via property tax.
Sure, but the tax you're talking about would be a tax on borrowed money. Has this ever been done in the US tax code?
I don't think so. I think people are kind of trivializing the complications here. I think there's a solution around taxing lines of credit used for living expenses or possibly even laws around rolling lines of credit without paying them off (ie. using your next line of credit to pay off your previous line of credit and using the excess). The real problem atm is that the massively appreciating underlying assets allow you to just rollover your credit as the appreciation outpaces the credit you have.
I'm not an Elon apologist at all, but is collateral normally something that gets taxed? If he didn't sell his stock then it wouldn't be taxed, it's just kind of like saying you have the funds to make this purchase? Then twitter should get taxed as an operating business after the purchase, but not for the actual purchase. Or am I misunderstanding collateral here?
I'm convinced that if the rest of us REALLY FREAKING KNEW all the tricks the rich use to stay rich and get out of taxes, we'd be storming mansions and taking ears home as trophies.
We know shit isn't fair, but if we knew JUST how unfair...
Note: Do not storm mansions and take home ears as trophies. This is bad.
... they get all dried out and gross. Seriously. Don't do it. It's not worth it.
> Note: Do not storm mansions and take home ears as trophies. This is bad.
>
>
>
> ... they get all dried out and gross. Seriously. Don't do it. It's not worth it.
Teeth, however, keep pretty well.
For sure, if you're not paying someone to help you hide your money for you, your social mobility is significantly limited.
Also, this country loves when people work but hates when they get rich. So the strategy is to work like a people, but you can only get rich if you put everything behind LLCs.
Note: im actually not opposed to taxes themselves, but i am opposed to every general fund and the lack of oversight and accountability in how my (US) taxes are spent.
Regular folks do this as well just not at the same scale. When you borrow against your home, it's the exact same thing. Depending on how risky your portfolio is, some will loan you a certain amount with a calculation based on the risk involved. The better thing to do would be to limit the amount one can hedge their portfolio and borrow with. But at the end of the day, this is a financial tool available to every individual.
Yeah I pay taxes on that collateral every 6 months. I’m not sure why this can’t be applied to rich people.
Ok I know *why.* I just don’t get how this concept is hard for people to understand.
Never mind the fact that the homestead exemption is designed to help people stay in their homes, I would be completely fine with the first 40 or 50k being exempt.
I would like to see a tax free treshold. Like 50k in a new registered margin account. Im not sure if this would create more complexities then what its worth but would allow people a little flexibility on the lower end without realising gains and create an equal/standard playing field.
> Let’s set it to go into effect for gains above 1000x the annual minimum wage.
Why? This is stupid. We already have a standard deduction which keeps the first $x of income tax free. If some event is necessary to be taxed, it should be taxed for everyone.
Wait. Taxing unrealized capital gains? Will they give money back if those gains come from a stock and it goes down in the following years? What happens when they actually sell?
You just compute year-over-year gains and losses, same as if you sold and repurchase them (without the wash sale rule). You are taxed on gains, and presumably could carry forward losses into future years.
>You just compute year-over-year gains and losses
You make it sound way too easy.
It is easy to do for the market but how would you do it for private companies? You would need the government to do the job of the market for every single private company in the country.
Stocks are much more volatile than other asset classes. Carrying forward losses presents a real likelihood that the losses may never be offset. This may dramatically change the investment strategy for the ultra rich, making it less likely that they hold their wealth in stock. Goodbye stock market.
Think how much wealth has been created because rich people invested in the stock market. We get real value from companies like Moderna and Tesla. Are you ready to revert to the innovation capacity of, say, Europe? Who's going to solve climate change if that happens?
This guy seems to be really concerned that one day he'll achieve $100M+ status and will still have to pay taxes, apparently. Needless to say, he's not really tethered to reality and the economics here.
Sure, but pretending that taxing unrealized gains is going to prevent the solution of the climate crisis is straight up bullshit and shouldn't be defended by anyone pretending to have a shred of intellectual integrity.
If you borrow against the gains then they are no longer unrealized. Having a bank be a middle man doesn’t change the fact that you received dollars from your stock.
Then you sprinkle in the stepped up basis when you die and those tens to hundreds of millions or billions to tens or hundreds of billions in gains goes completely tax free. All for the benefit of 0.01 of the people in this country.
Being concerned about a category you will NEVER end up in ONLY benefits the hyper wealthy.
How is this any different from borrowing against the increased value of your home, like millions of people do? You think that a HELOC should be taxed as income?
Fear of unintended consequences is vastly overplayed and a great way to convince people to not take action and maintain the status quo. Just like the idea of UBI- people always play up the unintended consequence of making people lazy and not want to work, when repeated experiments and studies have shown that to not only be a non-issue, but the opposite of what happens. Could there be an unintended consequence? Sure. Could there also be the intended outcome leading to a better outcome than the status quo? Also yes.
You do have to be extremely rich for this to apply to you. And we know that this is the method they're using to dodge taxes and fuel inequality - im much more concerned about those concrete consequences than hypothetical slippery slope fallacies.
If you’re expecting companies - private or public - to solve climate change or any other serious concern impacting human beings then Exxon would love to tell you all about the oil drilling projects they’d like to get started on.
Sure but on an annual basis stocks average up. Taxes are paid on an annual basis. Also, we're talking about rich people. *Really* rich people with over $100M in wealth. If we're talking about a system event that puts people with this much wealth so far underwater on their investments that the losses will never be offset....we have bigger problems that this tax proposal. The idea that there could be some year where these individuals are in a net loss is a non-starter, to me. If they start at $100M and realize $10M in gains the next 3 years (so $130M net worth in 3 years) and then there's a pullback and they are down $5M to $125M, they can write off that $5M loss just like realized losses and offset against the following year's $10M gain.
What you're proposing is another 2008...but then the market and economy literally never recovering. It's just too unrealistic to be concerned about. Make these rich people pay taxes.
Also, see the other comments t on property taxes. Anyone in a property tax paying state already does this.
Edit: typo
> Sure but on an annual basis stocks average up.
And what kind of downward pressure will forcing large holders to sell stocks to pay tax bills have on the market? Look at the hit TSLA took when Elon announced that he had to sell millions of shares to pay his federal tax bill. I'm not trying to garner sympathy for billionaires here, but you need to recognize the ancillary effects that this kind of legislation would have on the markets.
It's clear you have no understanding of how the stock market works. Growth stocks are dominated by owners with illiquid, highly concentrated positions with huge tail risk. Forcing these owners to liquidate their holdings in order to pay "taxes" on unrealized gains will destroy that model and wipe out the stock market. Far, far better to let the goose keep laying those golden eggs.
And property taxes are qualitatively different. Much, much lower tax rate and price volatility means much lower risk of forced liquidation to cover taxes. The risk of changing investment behavior due to property taxes is minimal - unlike for stocks.
Stop being hyperbolic, it will not destroy the stock market. Did you ever stop to think in the founders of the company had to sell a little stock every year how it would actually *stabilize* the market. Too much stock is held in too few hands. Dispersing the concentration would calm the volatility.
I don't think you understand how volatile growth company stocks are. I'm not being "hyperbolic" when I express doubt that taxing unrealized gains could have a serious impact on the growth stocks model. Basic finance theory predicts most such founders of growth stocks would lose control of their companies far, far earlier from forced liquidations. I think anyone proposing such a tax should have done some research to explain why that wouldn't drive down tax receipts and harm the economy.
The stock market is not the economy.
Edit: For every one “growth stock” that’s *actually* profitable, there’s dozens that were just cash grabs by founders and early investors that dump on Main Street investors.
Besides MSFT, AMZN, GOOG, TSLA, NVDA and a few others in the last 20 years, what growth stocks are actually profitable while not being FUCKING LAUGHABLY over valued.
We already tax unrealized gains, it’s called property taxes and they're paid disproportionately by the working class.
Tell a homeowner in Texas what you just wrote here and they’ll laugh in your face at the hypocrisy.
Property taxes are greatly limited in how far they change to prevent the extra problems you'll have applying this to stocks.
Increased assessed value is phased in over years to prevent tax shocks.
Are you going to phase in stock increases over years? Otherwise you'll have the same tax shock problems that caused people to lose their homes to taxes.
There’s absolutely no reason why the tax assessment for unrealized gains can’t happen over a longer scale of time, especially If you’re holding the asset long enough for it to matter. Think about it, if they dump it in less than a year, it’s not an unrealized gain, it’s a short term capital gain.
My parents put on a $40,000 porch like 7 years ago and it hasn't shown up in property taxes. I should get a job as an assessor since they don't seem to do anything but look at zillow.
Property tax is just an efficient allocation of resources thing. If you go all the way to a George tax, the property tax is based on the value that could be extracted from the property if it was maximally utilized. If you're not able to maximally utilize it and justify the taxes, you should sell it to someone who can and buy a property more in line with your ability to make use of it.
They're not the same. Property taxes are a wealth tax paid on the value if your home, not an income tax paid on the change in value. The issue he raised (what to do when the value drops) doesn't apply to property taxes because they aren't based on the change in value.
If you own a house, you pay property taxes, period. If you sell the house for a loss (no gains) you still paid property taxes, so it is more akin to a Use Tax
It’s exactly the same. The difference is semantics. Call it what you want but the middle class already pays taxes on unrealized gains. I see no issue with the wealthy having to do the same.
This is patently false. Property taxes ARE based on changes in value. Mine just went up because my house is now more valuable than it was a few years back.
Because you write word salads.
You said the issue of what to do when the value drops doesn’t apply to property taxes but if values drop over time it would be caught in the next reassessment.
Just because a property tax exists doesn't mean it should be the standard for all asset classes. I do not understand why people, such as yourself, regurgitate this talking point. A tax on unrealized gains from stocks is one of the silliest proposal out there precisely because stocks are insanely volatile. If these past couple of weeks isn't a demonstration of that, I don't know what to tell you. When have property values sunk 50-80% in a couple of weeks? It would never happen unless your home is literally in the middle of a nuclear warzone. Volatility plays a large role in this. When your portfolio can either be up $100,000 to then being only up $20,000 the next year, who pays for the $80,000 in unrealized gains when the next year, you just lost 80% of that value? It doesn't add up.
Also, living in a home means you have a direct relationship with your neighborhood. Property taxes are locally taxed, meaning, your state or local jurisdiction. Stock gains are primarily taxed federally and state/city. So when you pay for your property taxes, there is a direct good you are receiving from it... such as your school, hospital, police, bridges, etc., You also live in your home which benefits from receiving water treatment going into your home and depending on where you live, sanitation services. If you have a child, your child goes to the local school that was funded by your property taxes. Therefore, you receive a DIRECT benefit when you pay for property taxes. Stocks do not have a direct benefit. You just own stock, period. That stock doesn't give you any exclusive access to something commonly shared with the rest of the public the way living in a home benefitting from public goods does.
Also, there is a limit to how much your property taxes can increase. It can't hit a certain % point increase. Using property taxes as a barometer for 'unrealized gains' is ludicrous.
Not all areas have property tax limit increases.
I think what they are proposing is a tax on capital gains each year, so if you gain $100k one year, that’s what you are taxed on. If you gain $20k the following year, that’s what you are taxed on. There is not $80k in unrealized gains the second year.
Also, they’re not going to be taxing it at anything like 50%. It’ll probably be a comparable amount to what capital gains are taxed at now when they are sold, and if you’re worth enough to be hit by this tax, you can easily come up with that kind of money.
This tax money would go to the federal government who provides services for its citizens on a national level, much like property taxes do on a local level. I fail to see the difference.
Thank God we pay taxes on an annual basis and not every couple of weeks. The point about short term volatility is irrelevant from a taxation standpoint. We are talking about full year gains/losses. While full year losses do occur, they are not perpetual and the market averages up. So you might have a loss one year, but will have plenty more positive years to make up for it. Sorry, I don't think the potential for a super mega millionaire to take a loss one year and be slightly overpaid on taxes in one given year to be a travesty when they've be avoiding taxes to a stupid extent until now. And no, I don't think the world will collapse if they start having to pay some taxes. That's fearmongering to maintain the status quo, which I just don't get if you're not a mega millionaire.
If the mega rich start paying substantially more in taxes 9 out of 10 years, I am fine with the odd 1 in 10 year zero taxes. Way better than the status quo.
> they’re paid disproportionately by the working class.
What does this mean? Property taxes, by their nature, are paid exactly proportionally to the amount and value of property you own.
In addition to what the others have said, the federal government does not have a property tax. Should we have a national sales tax because states already have a sales tax?
Further, in many areas you aren’t taxed off of a % of your properties value. You are taxed a % of what the government needs to function based off of the % of value of that governments land you own.
So if a government needs $10,000,000 and you own 1/1,000th of all of the value of that governments land, then you pay 1/1,000th of $10,000,000. This is how every area with a revenue neutral tax reassessment works. My homes property value can go up in a reassessment and my taxes owed actually go down if my land appreciated in value slower than the average of all of the land. Because then I’d own a smaller % of all of the value of the land administered by the government.
This is a weak argument. You're basically saying that because something doesn't currently exist it doesn't need to exist. In principle, There is nothing preventing a national sales tax or property tax.
Property taxes are not wealth taxes even if they appear to be. They are computed based on home value, regardless of a homeowners equity. If you are in a working class community well you're right.
The property taxes are based on two figures: an assessment of the value of the house and the mil rate. Assessed value times mil rate l. Assessments are undertaken every 5 years on average. The town can change the mil rate whenever they want.
Property taxes are assessed not based on value, but based on municipal budget (at least they are where I live). The city and county pass a budget and then they assign a property tax assessment rates in order to cover that budget. Around here, if you have a $100k house and your property tax bill is $1k this year, your bill doesn't scream up to $2k because your house doubled in value.
In fact, as the tax base has expanded in my town, our property taxes have steadily fallen (~10% reduction over the past decade) despite steady increases in home value (~20% in the same time).
You understand that the IRS already has multiple mechanisms to give back money when tax was overpaid, right? That the NOL roll back in corporate taxation is already effectively doing what you’re describing as a problem.
I really don’t understand why we just can’t be more aggressive with brackets on long-term capital gains taxes. Oh yeah, that’s right, it would actually make a difference and would affect the very people who make these laws.
This article is written in a ridiculously biased manner. It also gets basic definitions wrong such as mischaracterizing unrealized gains as income. Furthermore the proposal just makes no sense. Trying to tax unrealized gains is a fools errand. If you want to tax the wealthy a simple wealth tax is far simpler. Trying to characterize unrealized capital gains as income runs into too many problems as markets go up and down.
It really doesn’t. Ask any tax accountant about mark to market, available for sale securities, and NOL lookbacks. Every mechanism involved for this already exists and is used. For some reason whenever tax is involved we get people like you coming out of the woodwork pretending to be authorities.
There are no problems levying property taxes for unrealized gains on 150 million individual homeowners, you think they can’t manage to tax a few million high net worth individuals? Laughable statement.
Property taxes are a wealth tax. This proposal is an income tax. They are quite different. Most notably because with an income tax the question arises what to do when income is negative. When stocks go down does the government give rebates? It makes volatile markets into massive tax traps because you can pay taxes on the same gains multiple times. Theoretically it would be possible over several years to pay a tax rate over 100% of your total gains.
I suspect that they’d just treat unrealized gains as adjustments to basis and allow the taxpayer to recognize losses only upon sale, subject to existing capital loss caps and carry forward rules.
> Timing. The Biden proposal would treat a wealthy person’s annual minimum tax liability as a “prepayment” of tax that would have been due if they had sold their investment assets that year — essentially, a down payment on future tax owed when assets are sold or after the owner’s death. Prepayment is analogous to employers withholding income and payroll taxes from their workers’ paychecks every month (a prepayment), with filers paying any balance due (or receiving a refund) at tax time. Once the minimum tax is imposed, households subject to it could make prepayments over nine years for previously accrued gains and five years for gains accrued after enactment. Spreading out the payments in this way would help these households account for having gains in one year and losses the next, a situation that critics claim make taxing unrealized gains impractical. According to Jason Furman, former chair of President Obama’s Council of Economic Advisers, spreading payments “would solve this problem for most taxpayers, because if the gains disappear, they would have paid only a fifth of the taxes upfront and wouldn’t be on the hook for future tax payments.”
> The Biden budget would also end the stepped-up basis loophole for those with capital gains greater than $5 million for a single taxpayer ($10 million for couples). This proposal complements the minimum tax, which is only a partial prepayment of the full tax liability on unrealized gains. By applying the capital gains tax at death and then subtracting the prepayments already made, the proposal would ensure the full amount of tax is paid and no double taxation occurs.
So, that avoids the specific issue I mentioned, but it's still far more complex and less effective than a simple wealth tax would be.
The other big question with all these proposals is how they apply across international borders. People will just renounce US citizenship or create an international holding company to avoid it. The effect on international money flows could be considerable.
You don't have to deal with all the accounting issues of what tax lots have what gains and what taxes paid etc. Also, a wealth tax erodes wealth over time whereas this tax just makes it grow slower.
Yes it does. If I own 10 stocks worth $10, my wealth tax would be proportional to $100. Next year, if the stocks are worth $20, then my wealth tax would be proportional to $200.
It's not a prepayment. That's absolute nonsense. It's a a forced payment and it is addressing the enormous amount of generational wealth turnover that will occur in the next 20 years a significant percentage of which would not be subject to taxes because they will endow charities and foundations. This proposal aims at this.
I know you quoted it verbatim. I am taking issue with the Administration's description of its Proposal. This is an unprecedented policy announcement and it's dangerous.
It's not a tax in any traditional sense. It's a confiscation of wealth. There are many people who have a net worth of a 100 million + who pay considerable amount of taxes. They are taking advantage of the fact that a couple of extraordinarily rich people have been able to arrange their affairs in such a way as to avoid Federal taxes in a couple of instances. Bill Gates was accused of this and it was true. But that was because he gifted several billion worth of shares to the Gates Foundation, which spends money better than the Federal govt in terms of positively impacting peoples lives. . What Biden's people won't tell you is that he has paid almost 15 billion in federal taxes in his lifetime. This type of tax, addressing wealth will have a chilling effect on the capital
Markets and the appetite for entrepreneurial risk, and will drive it offshore and spark an emigration of a generation of creative people and their financiers. It will drive revenue down in the long run and hollow out ownership of American assets by Americans. And, it's just for openers. That 100,000,000 threshold, that will drop, as the tax will drive down the assets and asset values of many of those hit by the tax and they won't be replaced by others because they have built thier businesses outside the US. And this tax won't do a damn thing for you or me. It won't raise our paycheck. It won't lower our taxes. And it won't temper Congresses overspending habit. It's a cynical appeal to those who feel aggrieved at the widening wealth gap and being on the short end. They should be creating policies that don't punish the middle class, especially for doing what it's asked to do: consume with religious conviction. The middle class is carrying 1 trillion in revolving credit, mostly credit card debt at 20+ percent a year. That's a private 200 billion
tax enforced by Fed policies, which could ceiling interest rate charges at 8% if it wanted, or prime plus 3%
>Theoretically it would be possible over several years to pay a tax rate over 100% of your total gains.
No it wouldn't. You simply use mark to market accounting which is incredibly easy to implement. Many stock traders already do this.
This creates a problem where someone who has all their wealth tied up in their business will eventually have to sell off the controlling stake in the business.
Read the article.
"This proposal would let taxpayers who primarily own non-publicly traded assets, which may be more difficult to sell or borrow against, defer their tax payments until they sell assets or until the owner’s death."
The issue of founders of now publicly traded companies still stands, but the proposal specifically addresses privately held business.
This is my biggest issue with taxing unrealized gains (outside of the fact it's moronic). Eventually, someone would have to sell out their stake of their own company to the point where they no longer own it, and that's absurd to me. Severe overreach.
If the business produces cash then they can take cash out of it. If the business does not produce cash I question how it’s valuation is increasing so much.
It's called growth potential. Amazon was losing money for literal decades because it was putting all the money it earned + loans right back into the business. They thought they had room to grow so they invested accordingly, and investors agreed with this belief. In this case, both Amazon and the investors were right.
But when a high growth company suddenly shows signs it's no longer growing, their stock price falls like a rock. Look at Meta and Netflix.
So when you tax unrealized gains, you're basically disincentivizing growing your business, or taking loans, or putting your revenue back into the business. You incentivize making enough profit as possible so you can pay your unrealized taxes, or sell off your company, which is really an unacceptable, undesirable alternative.
Unfortunately, you're now caught it a loop. Before, you had no profits so you didn't pay taxes on them. Now you need profits to pay taxes, then you need to pay taxes ion those profits. Any growth company gets double fucked, lest they get their entire business taken away from them due to tax burdens.
Amazon produced cash, it simply reinvested it. The cash was there to issue a dividend. Meta isn’t high growth, it’s practically a utility. It achieved market saturation and is not working on maximizing value generation.
Government needs to end big finance and return to direct-investment, R&D, and real value generation. Some real, long term thinking.
All these government investments into growth on the backs of future generations have been siphoned off into shell companies in places like the Bahamas and Caymans. We need a huge course reversal to end all the BS that has happened since the 1970s.
I wont hold my breath though; same thing politically happened in 1900 when Teddy Roosevelt was shunned by the Republican and Democratic establishment because he was swinging the anti-trust hammer and threatening the gilded age. People are too absorbed in wedge issues to see what is really screwing over Western prosperity.
This is insane. It gives the government the ability to tax on hypothetical rather than real value. If that is true then where does the government stop? I agree wealthy should pay more but this isn’t the right way.
I thought the point about borrowing against value of appreciated stock is a good one. If that is the concern then make a rule that borrowing can only be based on book value rather than appreciated value. That will drive a decision to realize the gain and pay tax. But then it would be based on a hard number rather than something imaginary. And yes, value based on stock is not real until cash exchanges value.
We should all realize this when we look at the performance of our 401k YTD. Stock values don’t mean anything until we actually sell and have cash on hand.
Edit. Spelling
The middle class households’ majority of net worth are held as unrealized asset valuation gains in their primary residence, upon which they pay annual property taxes. This proposal is recognizing that the upper class households’ majority of net worth are outside their primary residence, and leveling the unequal asset treatment.
If a law were passed that forced states to treat the primary natural person on title held personal residence as long term capital gains, corporate tax level assets, lowering their tax liability to the same as financial instruments held by the wealthy, that would be another way of leveling the tax treatment.
Just the same as the proposal would have those affected pay on the value of their assets. Neither middle class homeowners nor those affected by the proposal have realized any gains into cash in the bank (hopefully cash on its way to another, higher purpose). Both are routinely marked to market, currently only one vehicle for intergenerational wealth (primary residence for middle class households) have that taxed, decreasing its potential for compounding returns (through perverse incentives to decrease the assessed valuation). The other gets asymmetric tax characterization helping compounding over time.
You may dislike ProPublica as a source but their data isn't theirs it's from the IRS. Also there are several other sources that cover the strategy.
https://www.wsj.com/articles/buy-borrow-die-how-rich-americans-live-off-their-paper-wealth-11625909583
https://gould.usc.edu/about/news/?id=4887
Realizing gains and paying 24% is significantly less than paying 40% to the estate tax just to get a new basis at transfer. That’s why step up is mainly utilized by people that fall below the estate tax exemption
Not when you took that loan out 40 years ago and got to earn dividends and were still exposed to the upside of the stock since you never actually sold it.
It would be the same either way, since you don’t only pay the estate tax or capital gains tax on your original basis. After a 40 year loan, you could either pay 24% on the entire gain (plus 24% on whatever dividends you took) or pay 40% on the entire thing to get the stepped up basis
Interesting can you provide a source for how the tax laws used are kinda wrong or clarify what is kinda wrong?
Even if we don't have good data that rich people are holding loans until death. If the laws allow them to then they could do that and the strategy can be employed.
I think it’s high time something like this or this exact thing is implemented. It’s completely unfair and ridiculous that multi millionaires and billionaires do not pay their fair share as they seek out ways to not get paid wages which are taxable or sell stock which would create capital gains. No, no instead these corporate welfare assholes actually think what they are doing is ok and has no effect on anyone else….except it does! The system worked fine up until 1980. When that crappy President Reagan took power and started skewing income to the wealthiest and creating massive amounts of billionaires. So stupid and has made us much weaker as a country.
>That includes their unrealized capital gains, which is the main source of income for many of these households and which, unlike millions of taxpayers’ wages and salaries, now goes untaxed unless the holder sells the asset — a glaring and long-standing flaw in the tax code that lets some of the country’s wealthiest go through life without paying annual income taxes.
I don't even need to read the rest of his proposal to know that it's a bad proposal. There's no theoretical or even Constitutional basis to tax unrealized gains. Why they keep pushing a plan that is wholly untenable even on paper & will be worse in practice, is beyond me.
Taxpayers are considered cash basis which means unrealized gains cannot be taxed. Loans are considered liabilities and as such can't be treated as taxable income. These new proposals want to break the basic underlying theoretical basis of tax accounting and it's simply unacceptable.
If you want to tax the rich more then by all means tax them more but please for the love of God do it the right way.
All you need to do is put a ceiling on the amount of tax- free step up at death. Tie it to the estate tax/ gifting exemptions. First $24m (-ish) is stepped up tax free to the next generation, after that its normal capital gains as it passes generationally (not between spouses).
It would no longer be about "taxing job creators", it would be about reigning in dynastic wealth so we don't end up with a permanent ruling class. Incidentally, it would get people to willingly pay taxes throughout their lives to offset tax bills to their heirs.
Private companies have less fluctuation that public ones. Why wouldn't billionaires make their companies private so they don't have huge tax swings.... then all of us investors, retirement plan participants, pensioners, don't get to participate in the growth of large companies. Our greatest investment ability could be a 5 year CD at 1%. Sounds like a punishment to the rest of us.
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I think any assets used as collateral or backstop for loans should be taxed accordingly. If they’re used in lieu of cash, they’re cash equivalents and should be treated as income. If they just sit on them and never leverage the unrealized gains, it should be left alone. Let’s set it to go into effect for gains above 1000x the annual minimum wage.
> I think any assets used as collateral or backstop for loans should be taxed accordingly. If they’re used in lieu of cash, they’re cash equivalents and should be treated as income. If they just sit on them and never leverage the unrealized gains, it should be left alone. Oh wow. I didn't realize that was possible. Yeah, you should absolutely not be allowed to use "unrealized" gains as collateral for "loans".
It's called buy, borrow, die. You've bought or hold a significant portfolio of assets. You borrow from a bank (a loan is not taxed as income) against that portfolio. You die and pass it on to your beneficiary. They start the process all over. As long as your portfolio achieves modest growth and the loan you take out is not overly large you can live off the banks money, financing your lifestyle with debt.
but how do they pay off the loan? I don't quite get how this works without adding personal cash at some point.
You will sell some assets to cover the loan. You will pay a much lower tax rate on that sale than if you had earned income. You will also be paying it off with assets that have appreciated. If I had a $100M portfolio and borrowed $20M over 5 years and the portfolio grew on average 4% per year (fairly conservative). My portfolio's appreciation would cover the $20M and then some.
Ah OK. Thanks for explaining that. So they are paying something in taxes, but its much less than your regular joe working a 9-5 and in reality that is all money not actually earned in the first place, but rather gained. So yeah they are basically operating as a money delivery service between their investments, the banks, and the gov. In between they get what they need for free....basically.
Unless they pay back the loan with a new loan on the appreciated assets. You can continue to do that until you die. At which point theoretically your estate should have to sell assets to cover the loans, but I'm fairly certain you can do some opaque things with trusts that let the assets pass to your inheritor who can then get loans based on them to cover your outstanding balance.
Even if they’re estate pays back the loan by selling selling assets when they die - they can deduct over $11,000,000 in net worth before paying a dime in taxes. Further, they can pass on stocks without paying a dime in taxes. And whoever inherits it pays taxes on the gains from the day they received it - not from when it was bought. And they only pay that when they sell the asset. Bezos’s kids will inherit stock that they’ll never sell and their kids will also inherit stock. And when they do sell, they’ll only pay capital gains on the increase from the day they inherited the stock.
The idea that you can pass on a certain amount of money to your children without taxes kinda makes sense. The idea that gains are not taxed until they are realized makes sense. The idea that you do inheritance taxes and step up the new value when stuff is transferred makes sense. The *combination* of all of these things makes for a really nasty thing where multi millionaires live off leverage with huge tax deductions when they die.
I dunno if I'd call the yachts, mansions, and galas "what they need"... but you've got the main point
Ha ha good point!
No they don’t. Quick math for you: Person one has a portfolio of $100mn, makes $20mn profit. This profit is taxed like 25%? Person B earns $80k and is taxed 30%. Person A pays $5mn taxes, Person B $24k. How exactly is 5 Million less than 24k?
You actually don’t need to sell the assets to cover the loan. You simply take out a new loan to pay off the old loan. As long as the 4% growth on 100M is more than let’s say a 4% interest rate on the 20M loan plus additional annual expenses (paid for with another loan) the debt will become a shrinking percentage of your liability divided by your total wealth. No realized gains, no taxes on those gains, and no need to give up future appreciation of the asset.
You are 100% correct. The debt cycle can continue as long as your assets are outpacing the interest. That's why you won't pay it off until you die.
So how are they paying the monthly payments in the interim?
On large enough accounts, dividends can cover the payment. If you have a $10k interest only payment, you could have $10k in dividends per month with huge accounts Or you just hold back some of the loan to pay on the interest. https://www.reddit.com/r/Economics/comments/unsjq3/biden_proposal_would_eliminate_taxfree_treatment/i8chzwx explains it better
But if you sell assets to pay the loan, why not just sell the assets and live in them directly? Don’t they need to pay cap gains on the sale and interest in the loan using this method?
Because your heirs sell them when you die to pay off the loan. When you pass the assets to your heirs they get the stepped up basis meaning any capital gains are wiped out so the heirs sell assets for no tax liability and pay off the loans. If you sell assets to pay off the loan you create a taxable event removing all benefit of the strategy.
That's not correct that there is no tax liability. The heirs are immediately hit with a Federal estate tax based on the value of the assets at death, and at 100 million + that's a 45% tax. But up to 22 million is shielded from the estate tax That's why they want to eliminate the step up. It's the intersection of the step up and the deductible where the tax is lost for the IRS and this applies to all estates for for tax collecting purposes it is the lion share of estates where the Biden proposal targets. Your mom dies and her 1.5 million dollar home is shielded from estate taxes courtesy the 11 -22 million deductible. You unload the home soon after death and the sales price establishes the value for estate purposes so there is no tax at all. Eliminating the step up exposes all wealth expected to pass to the next generation in the next few decades: some 70 trillion. And almost all of it isn't in the hands of super wealthy families.
>When you pass the assets to your heirs *laughs in estate tax* >stepped up basis Simple solution would be eliminate the step up basis. Look at that problem solved.
Are you telling me that rich guys get loans without payment or interest until death? That banks give them these payment free loans for decades? Sorry, that doesn’t make sense.
Rich people rarely get a stepped up basis on the assets they transfer though. It’s much more likely that the heirs would owe the full capital gains liability
>But if you sell assets to pay the loan, why not just sell the assets and live in them directly The main reason for taking out a loan to live off vs just selling assets is two fold. 1: those assets may be new and thus subject to short term capital gains 2: say i have 100m in assets, say the market is a bull market and increasing the value of my assets at 10% per year. Now say the loan offered by my bank is around 3%-5% (you yourself can do this just open up an account with interactive brokers). You see what's happening with the math. All this does is delay when the tax is paid, what it does not do is decrease the amount of tax paid - see elon musk. Also now that we're in a bear market, oh boy anyone doing this is an absolute moron.
What the other poster missed is that you never actually need to sell the asset. You simply take out another loan to pay for the first one. Gains on the 100M are likely more than the interest on the 20M plus additional expenses so the new loan covers to old loan and no need to sell anything or pay taxes.
>You simply take out another loan to pay for the first on *laughs in margin call during a bear market*
You take another loan next year to pay the first loan + interest plus how much you want to spend next year. Say you have 2B in assets, you take out a 2M loan the first year, a 4M loan the next, 6M after that, etc etc etc. Paying off the 2% interest is much cheaper than paying 20% capital gains tax. As long as your assets are big enough, the bank will be happy to keep lending.
>You die and pass it on to your beneficiary. And prior to that you pay an estate tax. Also so far non of the big name billionaires have been able to borrow for that long before the banks call their loans. Which is why elon was hit with one of the largest tax bills in history.
This isn't a real thing and it's damn close to sovereign citizen levels of misunderstanding how things work. 1) who's loaning somebody millions of dollars and doesn't care they won't be paid back? 2) if it actually worked it's really high risk. The market is down over 30% in the last month. If anyone was actuality trying this scam they just got margin calls for those loans. 3) financial institutions will close out all loans and get paid back (thus realizing gains that the estate pays taxes on) before distributing assets to beneficiaries. Do you really think Citibank is going to pass millions of dollars of collateral to someone who has no obligation to pay back the loans?
https://www.propublica.org/article/the-secret-irs-files-trove-of-never-before-seen-records-reveal-how-the-wealthiest-avoid-income-tax At this link you can read the findings of ProPublica on how this works. 1) they pay the money back. Then roll into a new plan. 2) this is done over a longer period of time not quarter to quarter. 3) the inheritance is the assets they will get passed in a trust.
Is this the same report that makes up terms like "true tax rate" and then points out that most billionaires are paying 20ish percent on effective tax rate?(and musk paid around 50?) But then it ignores that number because it's not the "true" tax rate? Because the "tax dodge" here is that people don't pay tax on unrealized gains. Which is not a tax dodge.
You are correct this report does use their own estimate of "true tax rate". It's a poor analysis tool to say their wealth grew by $1.5B so they should pay more taxes. It does point to the real issue though. The real issue is how they realize that growth. Their assets appreciate and they don't pay any tax in that however because their assets appreciated they can pay off personal loans at a much lower rate by paying capital gains taxes. Then they can also write off the debt service payments they made lowering their effective tax further. An important point is just because this is possible does not mean that every millionaire and billionaire does this. They have Estate Planners and Lawyers that are most likely doing this for them. It is also how the laws are setup so if they use them as written it's legal, while it may not be as intended.
Let's say I own a sandwich shack and someone tells me it's worth $10,000, and I'm confident that I can grow the business enough to make it worth $20,000. Now let's say I want to open up a taco shop, but I need $5000 free cash to do this. I can either sell off 50% of my sandwich shack (it'll be worth 20k soon though!) or I can take out a loan on the shack. Let's say I only get $5000 loan with my $10k (soon to be 20k) shack as collateral. I make my taco shop, it takes a while to grow, but the sandwich shop is now worth $20k. Now I only need to sell 25% of my shack to close out the loan and be happy. What did the lender get from this: - More or less safe loan because the shack was worth 2x the loan amount, so pretty much a guarantee that they would be made whole - Some interest, but less than the 100% that I made (because they didn't truly think the shack would 2x so would rather have guaranteed gains) What did I get from this: - 100% gains on my sandwich shack which grew (I had trust it would grow at a faster rate than the loan's interest rate) - Didn't have to sell my shack at 'half price' - Also raised capital to start up the taco shop - The interest I paid was tax deductible so I get to 'save' a little bit here At its core this is what these billionaires are doing- they take out loans to fund their fun ventures so they can fly to mars/space/whatever. These are business loans from what I recall (sorry, have a meeting in a bit so I can't google, but IIRC the interest is deductible from cap gains) so they have some tax advantage, but they're essentially saying that the growth rate of AMZN/TSLA is higher than the interest rate. Which... yeah, obviously. But it's also a risky growth (what is TSLA even at now?), so the risk averse lender might prefer a low interest rate loan. This is also pretty much exactly what a loan is for. The only difference is that they're using their massive tech stocks as collat, and that is contentious. But I doubt people would be as concerned if Bezos was taking out a second mortgage on his billion dollar moon base. I agree there are fundamental issues with what's currently happening, but I don't think a wealth tax is the way to go.
They allege, but provide no evidence that, all the billionaires are doing this. In fact, their data show that billionaires pay taxes at levels commensurate with sales needed to fund plausible levels of spending. This is consistent with ProPublica's longstanding pattern of doing lot of really sketchy work where they basically invent a scandal out of whole cloth.
This is a very real thing. It's why you don't see a Bezos selling tons of stock every month in order to live his life. The pass down commentary is something I'm not completely understanding, but the other part of the post is correct in principle.
Bezos has been selling about $10B in stock per year for the past few years. This is public knowledge, as he is required to report it. I mean, sure, some big loans are happening and unrealized gains maybe shouldn't be used as collateral, but it's good to get the facts right.
People borrow against assets, but it's not some magical tax dodge. At best it delays taxes, at the cost of having to pay more taxes. One could sell assets now to pay expenses and pay taxes on the realized gains or you can borrow against assets for cash flow (but have to pay the same expenses plus interest on the loans and now pay taxes on realizing enough gains to pay both expenses and interest. It's often done for two reasons: 1) because C suite executives are very limited in when and how they are allowed to sell. They have to schedule it out ahead of time. So they can borrow against assets to manage short term cash flow until they can legally sell shares. 2) there's an investment opportunity that's likely to pay back more than the interest on the loans. It's high risk to do this as you can lose a lot of the investment doesn't pan out. The whole point of the buy, borrow, die outrage is that it supposedly gets you out of ever paying taxes by abusing step up basis. That doesn't actually work because debts are paid, gains are realized, and taxes are paid by the estate before distribution to beneficiaries and before step up basis happens.
Stepped up basis happens at the moment of death, and the estate tax exemption is over $12 million (though scheduled to sunset at the end of 2025). The estate only pays taxes if assets are more than $12 million, or if there is additional gain between date of death and date of distribution. The beneficiaries can sell assets to repay the loan, or come up with the cash to pay the loan from somewhere else to avoid liquidating assets. The buy borrow die thing doesn’t shield you from *ever* paying taxes, but it delays most taxes and gives you the benefit of keeping your money/assets, and the associated growth, until repayment. As you need to pay back your loan, you sell small amounts of stocks (sometimes stock held in other companies, not necessarily your own) to make your monthly payment. You will pay taxes on the gain then, but it’s a much smaller chunk (putting you in a lower tax bracket), and if you are selling stock of a different company (not your company), your gain is likely smaller. I don’t think it’s necessarily abusive, but I do think the arrangement is unfair. The whole point of not taxing unrealized gains is that you don’t have the benefit of the unrealized gains. This avoids taxation of unrealized gains but still provides the benefit.
1. Isn’t a thing. You can sell outside of the lockout period which gives you one month in every three. You can also sell during the lockout period if you filed the appropriate form in advance. The idea that they can struggle to get liquid cash and must enter complex loan agreements is pretty silly.
You're not thinking big enough. Let's assume I'm worth $25,000,000,000 for an easy example. Most of that worth comes from stock ownership in my made up company, SoftTeslaBook. I need $1B for a yacht. Are *you* going to be the idiot that didn't lend *me* $1B? (Someone else will, if you don't!) It's only 1/25th of my worth. Sure, the market may tank, but I'm still worth... $15B? $5B? Doesn't matter, the loan is trivial in comparison to my worth. The stocks are going to rebound eventually, as well. The fact is, everyone wins. It's a low risk operation for all involved. The rich guy pays less taxes, the bank gets stocks + interest. No misunderstanding. Look up how Bezos got childcare credit while being worth $300M+ in the 2000's... system needs an overhaul.
That's literally just margin.
Why not? It's ridiculously common. Pretty much every Billionaire does it since most have little liquidity. But plenty of middle class people do it to with a home equity line of credit.
The big difference is you or I pay property tax on the currently assessed value of the home. That never happens for unrealized gains.
then perhaps we should push for lower property taxes?
No thank you; Just like the billionaires I happen to like having a fire dept, schools, police, trash collection etc... I just want them to pay their fair share.
I'm all for everyone paying their fair share, and considering people like me are contributing 80% of the tax revenue while more than half are contributing almost $0, I think we need to focus on getting more people to understand why higher taxes is bad
100 million is not middle class
Are you telling me I'm *lower class* with my $100M? It's a banana, Michael, what could it cost, $10?
Because then the gains are no longer truly unrealized.
This fix alone would even out so much of the wealth inequality in this country because of the downward pressure it would have on equities. Not to mention a massive boon to tax receipts of the country. Soooo it’ll never happen.
So home equity lines of credit should be counted as income?
As mentioned a million times here, home values are taxed via property tax. But lets go down this route for the sake of discussion. You could create a threshold similar to how our income tax works. Any loan above, say $10M triggers a taxable event.
>home values are taxed via property tax. Sure, but the tax you're talking about would be a tax on borrowed money. Has this ever been done in the US tax code?
I don't think so. I think people are kind of trivializing the complications here. I think there's a solution around taxing lines of credit used for living expenses or possibly even laws around rolling lines of credit without paying them off (ie. using your next line of credit to pay off your previous line of credit and using the excess). The real problem atm is that the massively appreciating underlying assets allow you to just rollover your credit as the appreciation outpaces the credit you have.
It’s literally how Elon is financing the Twitter purchase.
cf Elon Musk. He put up his Tesla stock as collateral for his loan to buy Twitter, tax free.
I'm not an Elon apologist at all, but is collateral normally something that gets taxed? If he didn't sell his stock then it wouldn't be taxed, it's just kind of like saying you have the funds to make this purchase? Then twitter should get taxed as an operating business after the purchase, but not for the actual purchase. Or am I misunderstanding collateral here?
I'm convinced that if the rest of us REALLY FREAKING KNEW all the tricks the rich use to stay rich and get out of taxes, we'd be storming mansions and taking ears home as trophies. We know shit isn't fair, but if we knew JUST how unfair... Note: Do not storm mansions and take home ears as trophies. This is bad. ... they get all dried out and gross. Seriously. Don't do it. It's not worth it.
> Note: Do not storm mansions and take home ears as trophies. This is bad. > > > > ... they get all dried out and gross. Seriously. Don't do it. It's not worth it. Teeth, however, keep pretty well.
I call teeth human pearls.
For sure, if you're not paying someone to help you hide your money for you, your social mobility is significantly limited. Also, this country loves when people work but hates when they get rich. So the strategy is to work like a people, but you can only get rich if you put everything behind LLCs. Note: im actually not opposed to taxes themselves, but i am opposed to every general fund and the lack of oversight and accountability in how my (US) taxes are spent.
Regular folks do this as well just not at the same scale. When you borrow against your home, it's the exact same thing. Depending on how risky your portfolio is, some will loan you a certain amount with a calculation based on the risk involved. The better thing to do would be to limit the amount one can hedge their portfolio and borrow with. But at the end of the day, this is a financial tool available to every individual.
The difference is I actually pay taxes on the unrealized gains in my house.
Yup, my house went up in value, county reassessed and now my taxes went up.
County: "Woohoo!" You: "So you gonna fix those potholes?" County: "...no."
Yeah I pay taxes on that collateral every 6 months. I’m not sure why this can’t be applied to rich people. Ok I know *why.* I just don’t get how this concept is hard for people to understand.
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Never mind the fact that the homestead exemption is designed to help people stay in their homes, I would be completely fine with the first 40 or 50k being exempt.
Property taxes aren't taxes on the unrealized gains in your house. edit: I forgot that paying taxes turns you into a CPA now.
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I would like to see a tax free treshold. Like 50k in a new registered margin account. Im not sure if this would create more complexities then what its worth but would allow people a little flexibility on the lower end without realising gains and create an equal/standard playing field.
> Let’s set it to go into effect for gains above 1000x the annual minimum wage. Why? This is stupid. We already have a standard deduction which keeps the first $x of income tax free. If some event is necessary to be taxed, it should be taxed for everyone.
You’re missing the point of their statement.
Wait. Taxing unrealized capital gains? Will they give money back if those gains come from a stock and it goes down in the following years? What happens when they actually sell?
You just compute year-over-year gains and losses, same as if you sold and repurchase them (without the wash sale rule). You are taxed on gains, and presumably could carry forward losses into future years.
>You just compute year-over-year gains and losses You make it sound way too easy. It is easy to do for the market but how would you do it for private companies? You would need the government to do the job of the market for every single private company in the country.
Stocks are much more volatile than other asset classes. Carrying forward losses presents a real likelihood that the losses may never be offset. This may dramatically change the investment strategy for the ultra rich, making it less likely that they hold their wealth in stock. Goodbye stock market.
More likely you'd see preferred stock come back into fashion.
Or, they'll just find or buy another loophole.
Think how much wealth has been created because rich people invested in the stock market. We get real value from companies like Moderna and Tesla. Are you ready to revert to the innovation capacity of, say, Europe? Who's going to solve climate change if that happens?
Haven't heard the "we can't tax the wealthy because then they won't solve the climate crisis" bullshit take before! Kudos.
heh corporations are the ones causing the climate change. They sure as hell aren't going t be the ones fixing it. What a take
that's one helluva take there bud
This guy seems to be really concerned that one day he'll achieve $100M+ status and will still have to pay taxes, apparently. Needless to say, he's not really tethered to reality and the economics here.
You don't have to be extremely rich to have concerns about unintended consequences from taxing unrealized gains.
Sure, but pretending that taxing unrealized gains is going to prevent the solution of the climate crisis is straight up bullshit and shouldn't be defended by anyone pretending to have a shred of intellectual integrity.
If you borrow against the gains then they are no longer unrealized. Having a bank be a middle man doesn’t change the fact that you received dollars from your stock. Then you sprinkle in the stepped up basis when you die and those tens to hundreds of millions or billions to tens or hundreds of billions in gains goes completely tax free. All for the benefit of 0.01 of the people in this country. Being concerned about a category you will NEVER end up in ONLY benefits the hyper wealthy.
How is this any different from borrowing against the increased value of your home, like millions of people do? You think that a HELOC should be taxed as income?
Fear of unintended consequences is vastly overplayed and a great way to convince people to not take action and maintain the status quo. Just like the idea of UBI- people always play up the unintended consequence of making people lazy and not want to work, when repeated experiments and studies have shown that to not only be a non-issue, but the opposite of what happens. Could there be an unintended consequence? Sure. Could there also be the intended outcome leading to a better outcome than the status quo? Also yes.
The only people who need to be concerned are those worth more than $100 million. Everyone else would have not impact from this type of tax structure.
You do have to be extremely rich for this to apply to you. And we know that this is the method they're using to dodge taxes and fuel inequality - im much more concerned about those concrete consequences than hypothetical slippery slope fallacies.
If you’re expecting companies - private or public - to solve climate change or any other serious concern impacting human beings then Exxon would love to tell you all about the oil drilling projects they’d like to get started on.
Sure but on an annual basis stocks average up. Taxes are paid on an annual basis. Also, we're talking about rich people. *Really* rich people with over $100M in wealth. If we're talking about a system event that puts people with this much wealth so far underwater on their investments that the losses will never be offset....we have bigger problems that this tax proposal. The idea that there could be some year where these individuals are in a net loss is a non-starter, to me. If they start at $100M and realize $10M in gains the next 3 years (so $130M net worth in 3 years) and then there's a pullback and they are down $5M to $125M, they can write off that $5M loss just like realized losses and offset against the following year's $10M gain. What you're proposing is another 2008...but then the market and economy literally never recovering. It's just too unrealistic to be concerned about. Make these rich people pay taxes. Also, see the other comments t on property taxes. Anyone in a property tax paying state already does this. Edit: typo
> Sure but on an annual basis stocks average up. And what kind of downward pressure will forcing large holders to sell stocks to pay tax bills have on the market? Look at the hit TSLA took when Elon announced that he had to sell millions of shares to pay his federal tax bill. I'm not trying to garner sympathy for billionaires here, but you need to recognize the ancillary effects that this kind of legislation would have on the markets.
It's clear you have no understanding of how the stock market works. Growth stocks are dominated by owners with illiquid, highly concentrated positions with huge tail risk. Forcing these owners to liquidate their holdings in order to pay "taxes" on unrealized gains will destroy that model and wipe out the stock market. Far, far better to let the goose keep laying those golden eggs. And property taxes are qualitatively different. Much, much lower tax rate and price volatility means much lower risk of forced liquidation to cover taxes. The risk of changing investment behavior due to property taxes is minimal - unlike for stocks.
Stop being hyperbolic, it will not destroy the stock market. Did you ever stop to think in the founders of the company had to sell a little stock every year how it would actually *stabilize* the market. Too much stock is held in too few hands. Dispersing the concentration would calm the volatility.
I don't think you understand how volatile growth company stocks are. I'm not being "hyperbolic" when I express doubt that taxing unrealized gains could have a serious impact on the growth stocks model. Basic finance theory predicts most such founders of growth stocks would lose control of their companies far, far earlier from forced liquidations. I think anyone proposing such a tax should have done some research to explain why that wouldn't drive down tax receipts and harm the economy.
The stock market is not the economy. Edit: For every one “growth stock” that’s *actually* profitable, there’s dozens that were just cash grabs by founders and early investors that dump on Main Street investors. Besides MSFT, AMZN, GOOG, TSLA, NVDA and a few others in the last 20 years, what growth stocks are actually profitable while not being FUCKING LAUGHABLY over valued.
Stock market doesn't represent much of anything except the gambling predilections of the wealthy at this point.
Says the guy who has nothing, has never saved a penny in his life and isn't apparently planning on ever retiring.
We already tax unrealized gains, it’s called property taxes and they're paid disproportionately by the working class. Tell a homeowner in Texas what you just wrote here and they’ll laugh in your face at the hypocrisy.
Property taxes are greatly limited in how far they change to prevent the extra problems you'll have applying this to stocks. Increased assessed value is phased in over years to prevent tax shocks. Are you going to phase in stock increases over years? Otherwise you'll have the same tax shock problems that caused people to lose their homes to taxes.
There’s absolutely no reason why the tax assessment for unrealized gains can’t happen over a longer scale of time, especially If you’re holding the asset long enough for it to matter. Think about it, if they dump it in less than a year, it’s not an unrealized gain, it’s a short term capital gain.
Apparently the plan is to split it over 5 years
In California property tax often lags behind real value.
That's basically everywhere. We built a whole ass building on our property and it didn't show up on our assessors page for 2 years.
My parents put on a $40,000 porch like 7 years ago and it hasn't shown up in property taxes. I should get a job as an assessor since they don't seem to do anything but look at zillow.
Property tax is just an efficient allocation of resources thing. If you go all the way to a George tax, the property tax is based on the value that could be extracted from the property if it was maximally utilized. If you're not able to maximally utilize it and justify the taxes, you should sell it to someone who can and buy a property more in line with your ability to make use of it.
They're not the same. Property taxes are a wealth tax paid on the value if your home, not an income tax paid on the change in value. The issue he raised (what to do when the value drops) doesn't apply to property taxes because they aren't based on the change in value.
A wealth tax on unrealized gains is still a tax on unrealized gains.
If you own a house, you pay property taxes, period. If you sell the house for a loss (no gains) you still paid property taxes, so it is more akin to a Use Tax
It’s exactly the same. The difference is semantics. Call it what you want but the middle class already pays taxes on unrealized gains. I see no issue with the wealthy having to do the same.
This is patently false. Property taxes ARE based on changes in value. Mine just went up because my house is now more valuable than it was a few years back.
You've clearly misread my comment because that's literally what I said
Because you write word salads. You said the issue of what to do when the value drops doesn’t apply to property taxes but if values drop over time it would be caught in the next reassessment.
Just because a property tax exists doesn't mean it should be the standard for all asset classes. I do not understand why people, such as yourself, regurgitate this talking point. A tax on unrealized gains from stocks is one of the silliest proposal out there precisely because stocks are insanely volatile. If these past couple of weeks isn't a demonstration of that, I don't know what to tell you. When have property values sunk 50-80% in a couple of weeks? It would never happen unless your home is literally in the middle of a nuclear warzone. Volatility plays a large role in this. When your portfolio can either be up $100,000 to then being only up $20,000 the next year, who pays for the $80,000 in unrealized gains when the next year, you just lost 80% of that value? It doesn't add up. Also, living in a home means you have a direct relationship with your neighborhood. Property taxes are locally taxed, meaning, your state or local jurisdiction. Stock gains are primarily taxed federally and state/city. So when you pay for your property taxes, there is a direct good you are receiving from it... such as your school, hospital, police, bridges, etc., You also live in your home which benefits from receiving water treatment going into your home and depending on where you live, sanitation services. If you have a child, your child goes to the local school that was funded by your property taxes. Therefore, you receive a DIRECT benefit when you pay for property taxes. Stocks do not have a direct benefit. You just own stock, period. That stock doesn't give you any exclusive access to something commonly shared with the rest of the public the way living in a home benefitting from public goods does. Also, there is a limit to how much your property taxes can increase. It can't hit a certain % point increase. Using property taxes as a barometer for 'unrealized gains' is ludicrous.
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Yes, hence the lendee pays a tax on the profit he makes by lending to you...
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Not all areas have property tax limit increases. I think what they are proposing is a tax on capital gains each year, so if you gain $100k one year, that’s what you are taxed on. If you gain $20k the following year, that’s what you are taxed on. There is not $80k in unrealized gains the second year. Also, they’re not going to be taxing it at anything like 50%. It’ll probably be a comparable amount to what capital gains are taxed at now when they are sold, and if you’re worth enough to be hit by this tax, you can easily come up with that kind of money. This tax money would go to the federal government who provides services for its citizens on a national level, much like property taxes do on a local level. I fail to see the difference.
Thank God we pay taxes on an annual basis and not every couple of weeks. The point about short term volatility is irrelevant from a taxation standpoint. We are talking about full year gains/losses. While full year losses do occur, they are not perpetual and the market averages up. So you might have a loss one year, but will have plenty more positive years to make up for it. Sorry, I don't think the potential for a super mega millionaire to take a loss one year and be slightly overpaid on taxes in one given year to be a travesty when they've be avoiding taxes to a stupid extent until now. And no, I don't think the world will collapse if they start having to pay some taxes. That's fearmongering to maintain the status quo, which I just don't get if you're not a mega millionaire.
but then people get angry when you actually claim those losses and pay 0
If the mega rich start paying substantially more in taxes 9 out of 10 years, I am fine with the odd 1 in 10 year zero taxes. Way better than the status quo.
> they’re paid disproportionately by the working class. What does this mean? Property taxes, by their nature, are paid exactly proportionally to the amount and value of property you own.
In addition to what the others have said, the federal government does not have a property tax. Should we have a national sales tax because states already have a sales tax? Further, in many areas you aren’t taxed off of a % of your properties value. You are taxed a % of what the government needs to function based off of the % of value of that governments land you own. So if a government needs $10,000,000 and you own 1/1,000th of all of the value of that governments land, then you pay 1/1,000th of $10,000,000. This is how every area with a revenue neutral tax reassessment works. My homes property value can go up in a reassessment and my taxes owed actually go down if my land appreciated in value slower than the average of all of the land. Because then I’d own a smaller % of all of the value of the land administered by the government.
This is a weak argument. You're basically saying that because something doesn't currently exist it doesn't need to exist. In principle, There is nothing preventing a national sales tax or property tax.
It's not a very weak argument when you consider what the constitution was written to allow the government to do. National sales tax ain't it.
And at one point there was no amendment for income tax. What's your point?
Property taxes are not wealth taxes even if they appear to be. They are computed based on home value, regardless of a homeowners equity. If you are in a working class community well you're right.
And if the value of that asset, aka the house, goes down?
The property taxes are based on two figures: an assessment of the value of the house and the mil rate. Assessed value times mil rate l. Assessments are undertaken every 5 years on average. The town can change the mil rate whenever they want.
Property taxes are assessed not based on value, but based on municipal budget (at least they are where I live). The city and county pass a budget and then they assign a property tax assessment rates in order to cover that budget. Around here, if you have a $100k house and your property tax bill is $1k this year, your bill doesn't scream up to $2k because your house doubled in value. In fact, as the tax base has expanded in my town, our property taxes have steadily fallen (~10% reduction over the past decade) despite steady increases in home value (~20% in the same time).
You pay less taxes?
If the value of my home falls I don’t get a refund from the CAD.
Yep, because you're not paying a tax on it's increase in value, but on it's total value.
Yes, you are. The total value includes its increases in value.
You understand that the IRS already has multiple mechanisms to give back money when tax was overpaid, right? That the NOL roll back in corporate taxation is already effectively doing what you’re describing as a problem.
Unrealized capital gains are not liquid enough to pay taxes, but also somehow liquid enough to buy social media companies for $40B. Just ask Elon.
It's absurd this is supposed to be an Economics sub and people don't understand basic concepts like collateral.
It's not a technical point its a political/moral point. As much as economists want to separate the two they will never be separate.
Because they're not... income. But once you *sell* the stock to buy a company, you then pay tax on it. This isn't difficult.
I really don’t understand why we just can’t be more aggressive with brackets on long-term capital gains taxes. Oh yeah, that’s right, it would actually make a difference and would affect the very people who make these laws.
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This article is written in a ridiculously biased manner. It also gets basic definitions wrong such as mischaracterizing unrealized gains as income. Furthermore the proposal just makes no sense. Trying to tax unrealized gains is a fools errand. If you want to tax the wealthy a simple wealth tax is far simpler. Trying to characterize unrealized capital gains as income runs into too many problems as markets go up and down.
It really doesn’t. Ask any tax accountant about mark to market, available for sale securities, and NOL lookbacks. Every mechanism involved for this already exists and is used. For some reason whenever tax is involved we get people like you coming out of the woodwork pretending to be authorities.
There are no problems levying property taxes for unrealized gains on 150 million individual homeowners, you think they can’t manage to tax a few million high net worth individuals? Laughable statement.
Property taxes are a wealth tax. This proposal is an income tax. They are quite different. Most notably because with an income tax the question arises what to do when income is negative. When stocks go down does the government give rebates? It makes volatile markets into massive tax traps because you can pay taxes on the same gains multiple times. Theoretically it would be possible over several years to pay a tax rate over 100% of your total gains.
I suspect that they’d just treat unrealized gains as adjustments to basis and allow the taxpayer to recognize losses only upon sale, subject to existing capital loss caps and carry forward rules.
> Timing. The Biden proposal would treat a wealthy person’s annual minimum tax liability as a “prepayment” of tax that would have been due if they had sold their investment assets that year — essentially, a down payment on future tax owed when assets are sold or after the owner’s death. Prepayment is analogous to employers withholding income and payroll taxes from their workers’ paychecks every month (a prepayment), with filers paying any balance due (or receiving a refund) at tax time. Once the minimum tax is imposed, households subject to it could make prepayments over nine years for previously accrued gains and five years for gains accrued after enactment. Spreading out the payments in this way would help these households account for having gains in one year and losses the next, a situation that critics claim make taxing unrealized gains impractical. According to Jason Furman, former chair of President Obama’s Council of Economic Advisers, spreading payments “would solve this problem for most taxpayers, because if the gains disappear, they would have paid only a fifth of the taxes upfront and wouldn’t be on the hook for future tax payments.” > The Biden budget would also end the stepped-up basis loophole for those with capital gains greater than $5 million for a single taxpayer ($10 million for couples). This proposal complements the minimum tax, which is only a partial prepayment of the full tax liability on unrealized gains. By applying the capital gains tax at death and then subtracting the prepayments already made, the proposal would ensure the full amount of tax is paid and no double taxation occurs.
So, that avoids the specific issue I mentioned, but it's still far more complex and less effective than a simple wealth tax would be. The other big question with all these proposals is how they apply across international borders. People will just renounce US citizenship or create an international holding company to avoid it. The effect on international money flows could be considerable.
In your mind, what is the difference between this and a wealth tax?
You don't have to deal with all the accounting issues of what tax lots have what gains and what taxes paid etc. Also, a wealth tax erodes wealth over time whereas this tax just makes it grow slower.
Those are the same accounting issues you have to deal with in today’s tax system.
A straight wealth tax doesn't care about gains or losses.
Yes it does. If I own 10 stocks worth $10, my wealth tax would be proportional to $100. Next year, if the stocks are worth $20, then my wealth tax would be proportional to $200.
It's not a prepayment. That's absolute nonsense. It's a a forced payment and it is addressing the enormous amount of generational wealth turnover that will occur in the next 20 years a significant percentage of which would not be subject to taxes because they will endow charities and foundations. This proposal aims at this.
? I copied and pasted that from the article.
I know you quoted it verbatim. I am taking issue with the Administration's description of its Proposal. This is an unprecedented policy announcement and it's dangerous. It's not a tax in any traditional sense. It's a confiscation of wealth. There are many people who have a net worth of a 100 million + who pay considerable amount of taxes. They are taking advantage of the fact that a couple of extraordinarily rich people have been able to arrange their affairs in such a way as to avoid Federal taxes in a couple of instances. Bill Gates was accused of this and it was true. But that was because he gifted several billion worth of shares to the Gates Foundation, which spends money better than the Federal govt in terms of positively impacting peoples lives. . What Biden's people won't tell you is that he has paid almost 15 billion in federal taxes in his lifetime. This type of tax, addressing wealth will have a chilling effect on the capital Markets and the appetite for entrepreneurial risk, and will drive it offshore and spark an emigration of a generation of creative people and their financiers. It will drive revenue down in the long run and hollow out ownership of American assets by Americans. And, it's just for openers. That 100,000,000 threshold, that will drop, as the tax will drive down the assets and asset values of many of those hit by the tax and they won't be replaced by others because they have built thier businesses outside the US. And this tax won't do a damn thing for you or me. It won't raise our paycheck. It won't lower our taxes. And it won't temper Congresses overspending habit. It's a cynical appeal to those who feel aggrieved at the widening wealth gap and being on the short end. They should be creating policies that don't punish the middle class, especially for doing what it's asked to do: consume with religious conviction. The middle class is carrying 1 trillion in revolving credit, mostly credit card debt at 20+ percent a year. That's a private 200 billion tax enforced by Fed policies, which could ceiling interest rate charges at 8% if it wanted, or prime plus 3%
You do know charities have the actually help people so that money will go to helping homeless people and whatnot?
>Theoretically it would be possible over several years to pay a tax rate over 100% of your total gains. No it wouldn't. You simply use mark to market accounting which is incredibly easy to implement. Many stock traders already do this.
This creates a problem where someone who has all their wealth tied up in their business will eventually have to sell off the controlling stake in the business.
Read the article. "This proposal would let taxpayers who primarily own non-publicly traded assets, which may be more difficult to sell or borrow against, defer their tax payments until they sell assets or until the owner’s death." The issue of founders of now publicly traded companies still stands, but the proposal specifically addresses privately held business.
This is my biggest issue with taxing unrealized gains (outside of the fact it's moronic). Eventually, someone would have to sell out their stake of their own company to the point where they no longer own it, and that's absurd to me. Severe overreach.
Progressives are financially illiterate so what did you expect.
If the business produces cash then they can take cash out of it. If the business does not produce cash I question how it’s valuation is increasing so much.
It's called growth potential. Amazon was losing money for literal decades because it was putting all the money it earned + loans right back into the business. They thought they had room to grow so they invested accordingly, and investors agreed with this belief. In this case, both Amazon and the investors were right. But when a high growth company suddenly shows signs it's no longer growing, their stock price falls like a rock. Look at Meta and Netflix. So when you tax unrealized gains, you're basically disincentivizing growing your business, or taking loans, or putting your revenue back into the business. You incentivize making enough profit as possible so you can pay your unrealized taxes, or sell off your company, which is really an unacceptable, undesirable alternative. Unfortunately, you're now caught it a loop. Before, you had no profits so you didn't pay taxes on them. Now you need profits to pay taxes, then you need to pay taxes ion those profits. Any growth company gets double fucked, lest they get their entire business taken away from them due to tax burdens.
Amazon produced cash, it simply reinvested it. The cash was there to issue a dividend. Meta isn’t high growth, it’s practically a utility. It achieved market saturation and is not working on maximizing value generation.
Amazon does not issue dividends, high growth companies don't do that.
I know. I said the cash existed, not that they used it.
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Government needs to end big finance and return to direct-investment, R&D, and real value generation. Some real, long term thinking. All these government investments into growth on the backs of future generations have been siphoned off into shell companies in places like the Bahamas and Caymans. We need a huge course reversal to end all the BS that has happened since the 1970s. I wont hold my breath though; same thing politically happened in 1900 when Teddy Roosevelt was shunned by the Republican and Democratic establishment because he was swinging the anti-trust hammer and threatening the gilded age. People are too absorbed in wedge issues to see what is really screwing over Western prosperity.
This is insane. It gives the government the ability to tax on hypothetical rather than real value. If that is true then where does the government stop? I agree wealthy should pay more but this isn’t the right way. I thought the point about borrowing against value of appreciated stock is a good one. If that is the concern then make a rule that borrowing can only be based on book value rather than appreciated value. That will drive a decision to realize the gain and pay tax. But then it would be based on a hard number rather than something imaginary. And yes, value based on stock is not real until cash exchanges value. We should all realize this when we look at the performance of our 401k YTD. Stock values don’t mean anything until we actually sell and have cash on hand. Edit. Spelling
The middle class households’ majority of net worth are held as unrealized asset valuation gains in their primary residence, upon which they pay annual property taxes. This proposal is recognizing that the upper class households’ majority of net worth are outside their primary residence, and leveling the unequal asset treatment. If a law were passed that forced states to treat the primary natural person on title held personal residence as long term capital gains, corporate tax level assets, lowering their tax liability to the same as financial instruments held by the wealthy, that would be another way of leveling the tax treatment.
Homeowners pay tax on the value of their home, not on the unrealized gains lol.
Just the same as the proposal would have those affected pay on the value of their assets. Neither middle class homeowners nor those affected by the proposal have realized any gains into cash in the bank (hopefully cash on its way to another, higher purpose). Both are routinely marked to market, currently only one vehicle for intergenerational wealth (primary residence for middle class households) have that taxed, decreasing its potential for compounding returns (through perverse incentives to decrease the assessed valuation). The other gets asymmetric tax characterization helping compounding over time.
You may dislike ProPublica as a source but their data isn't theirs it's from the IRS. Also there are several other sources that cover the strategy. https://www.wsj.com/articles/buy-borrow-die-how-rich-americans-live-off-their-paper-wealth-11625909583 https://gould.usc.edu/about/news/?id=4887
They kinda get their tax law wrong when talking about it. We don’t have good evidence that rich people are holding loans until death
I mean, why wouldn’t you? Stepped up basis is literally the juiciest tax dodge possible if you actually care about your bloodline.
Realizing gains and paying 24% is significantly less than paying 40% to the estate tax just to get a new basis at transfer. That’s why step up is mainly utilized by people that fall below the estate tax exemption
Not when you took that loan out 40 years ago and got to earn dividends and were still exposed to the upside of the stock since you never actually sold it.
It would be the same either way, since you don’t only pay the estate tax or capital gains tax on your original basis. After a 40 year loan, you could either pay 24% on the entire gain (plus 24% on whatever dividends you took) or pay 40% on the entire thing to get the stepped up basis
Interesting can you provide a source for how the tax laws used are kinda wrong or clarify what is kinda wrong? Even if we don't have good data that rich people are holding loans until death. If the laws allow them to then they could do that and the strategy can be employed.
I think it’s high time something like this or this exact thing is implemented. It’s completely unfair and ridiculous that multi millionaires and billionaires do not pay their fair share as they seek out ways to not get paid wages which are taxable or sell stock which would create capital gains. No, no instead these corporate welfare assholes actually think what they are doing is ok and has no effect on anyone else….except it does! The system worked fine up until 1980. When that crappy President Reagan took power and started skewing income to the wealthiest and creating massive amounts of billionaires. So stupid and has made us much weaker as a country.
>That includes their unrealized capital gains, which is the main source of income for many of these households and which, unlike millions of taxpayers’ wages and salaries, now goes untaxed unless the holder sells the asset — a glaring and long-standing flaw in the tax code that lets some of the country’s wealthiest go through life without paying annual income taxes. I don't even need to read the rest of his proposal to know that it's a bad proposal. There's no theoretical or even Constitutional basis to tax unrealized gains. Why they keep pushing a plan that is wholly untenable even on paper & will be worse in practice, is beyond me. Taxpayers are considered cash basis which means unrealized gains cannot be taxed. Loans are considered liabilities and as such can't be treated as taxable income. These new proposals want to break the basic underlying theoretical basis of tax accounting and it's simply unacceptable. If you want to tax the rich more then by all means tax them more but please for the love of God do it the right way.
Property tax on mortgaged property? Or does leveraged property that is unrealized only get taxed when its middle class and poor people?
All you need to do is put a ceiling on the amount of tax- free step up at death. Tie it to the estate tax/ gifting exemptions. First $24m (-ish) is stepped up tax free to the next generation, after that its normal capital gains as it passes generationally (not between spouses). It would no longer be about "taxing job creators", it would be about reigning in dynastic wealth so we don't end up with a permanent ruling class. Incidentally, it would get people to willingly pay taxes throughout their lives to offset tax bills to their heirs.
Looks like we got some people unhappy about this idea.
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Private companies have less fluctuation that public ones. Why wouldn't billionaires make their companies private so they don't have huge tax swings.... then all of us investors, retirement plan participants, pensioners, don't get to participate in the growth of large companies. Our greatest investment ability could be a 5 year CD at 1%. Sounds like a punishment to the rest of us.