It always puzzled me how tax-adverse some wealthy people are.
I'm not talking about the wealthy people that have 100% of their wealth tied up to company (stock) that they operate - but the wealthy people that are just asset-rich, with zero operational duties.
Their wealth is handled by wealth managers, they probably don't even know what they own. But minimizing taxes and hoarding wealth is priority number 1.
If this is accurate, it finally explains something I've been asking about for years: The loan is paid back after the step-up in basis. That's the loophole. If the loan was paid back before step-up, the estate would still have to pay capital gains tax.
The step-up in cost basis on death is the original sin that underpins the entire debate over unrealized gains.
It's disheartening to see so much thought and deliberation going into an obviously toxic idea (taxing unrealized gains) when the obvious solution (removing the cost basis step-up when assets change hands) is being ignored.
Inherited wealth is the least earned, so it should be politically palatable to change this. But presumably because such a change would acutely affect the people who make laws in the country specifically, it is never seriously considered.
Maybe there's just no good solution here, but I think the original inspiration for this sort of law was about family homes. It's one thing to inherit stocks and have to sell some of them off, but it's much more complex to try to pass down a property that can't be arbitrarily subdivided. There are various options obviously, but I think enough people had to sell their beloved childhood home because of the tax obligation that came with the inheritance that someone thought there ought to be a law. Maybe your idea plus a carve out for a primary residence could work, but it doesn't seem politically feasible to me.
Make an exemption for a primary residence. Everything else can go. Stop letting people hoard wealth like dragons.
Is it that common for people to hoard dragons?
No, you have to be very wealthy to afford one.
I have twelve.
No. People have a right to their property, including wealth.
We're talking about what happens when someone dies. The estate tax already exists. Is that a violation of the right?
Without a cap, overpriced 8- or 9-figure residences will themselves become the vehicle of wealth transfer, rather than irrevocable trusts.
There is already a 13.something million dollar exception. If the house is worth more than that it should be taxed anyway.
Isn‘t this a false dichotomy? Removing the cost basis step-up doesn‘t automatically mean any taxes are due on the inheitance - you could just keep the low cost basis and pay the tax once you actually realize your gains.
Don't you need money to pay the estate tax?
Oh, good point. For that, you could allow people to pay off estate taxes over multiple years, if the tax is higher than the available liquid assets.
Exactly, today people get both: they inherit the assets with a stepped up basis, and also don’t pay tax
First of all, the estate/gift tax does not kick in until 13 M$, so that already covers that case.
Second, it is irrelevant. The capital gains tax that would be due on a normal step-up in basis during life is independent of the estate tax.
Assume there was no exemption and you bought stocks 20 years ago for 100 K$ that are now worth 1 M$. If you die, then your estate would need to pay estate taxes on 1 M$.
However, if instead you sold it the day before you died, you would need to pay capital gains on 900 K$. Then you pass away with N $ = (1 M$ - taxes) in cash. Your estate would then additionally need to pay estate tax on N $.
The step-up in basis is the difference between these cases. Your inheritors get your capital gains (step-up in basis) tax-free, but you still need to pay the estate tax.
Yeah, I was thinking that despite the fact that the ultra wealthy use TFA's loophole, people who don't (i.e. net worth < $300M as the author explains) have a situation where:
A - In a universe with cost basis step-up on death, they die with gains taxed at 0% and then pay 40% estate tax on everything.
B - In a world without cost basis step-up on death, they die with gains taxed at the 20% long term rate and then pay 40% estate tax on what remains.
Thus:
The step-up causes less tax revenue by percentage from the >$300M crowd who use the BBD strategy, but it causes more tax revenue by percentage from the $13M<crowd<$300M who do not use the BBD strategy. The latter pay more tax with option A! 20% on a chunk and 40% on the remaining chunk is less government revenue than just 40% unchunked, especially if the capital gains being realized on death are a majority of the net worth.
I wonder which crowd has more worth-at-death in aggregate (in the absence of BBD and the like -- if estate tax were to be paid by all, no loopholes), given that the less wealthy crowd is a much larger population.
No, that is not how the math works.
N is your cost basis. M is the gain. E is the estate tax. G is the gains tax.
((N + M) * E) is tax on the automatic step-up, option A.
(M * G) + (N + M - (M * G)) * E is the tax on the non-automatic step-up, option B.
Reorganized to ((N + M) * E) + (M * G) * (1 - E), it is clear that option B is strictly more taxes for any estate tax less than 100%.
:slaps_forehead:
Of course, it would be long term (20%) and estate (40% but on slightly less), not one or the other. Mea culpa.
Nah, the original inspiration wasn't about family homes. It was introduced in 1921, 5 years after income taxes became a thing, and was an attempt by Congress to remove a kind of double taxation that could (at that time) happen with estate taxes.
You would pay an estate tax (on the total value of something, regardless of its cost). And then you'd still (when you eventually sold it) owe capital gains tax.
Regardless of whether you think that particular reasoning makes sense, it definitely doesn't make sense if there's no estate tax (which there effectively isn't for most due to the multi-million dollar exclusion) since there's no risk of double taxation.
Step up basis was actually repealed in 1976. But there was immense pushback at the time around record keeping and Congress eventually agreed and retroactively cancelled the new law.
Whether the answer would be different today in this age of computerised record keeping .... ?
It's one thing to inherit stocks and have to sell some of them off
More or less having to do that would be good for society and mildly annoying for the like five dozen existing corporate dynasties on the planet.
This is just a guess, but I think it might be more about the government not wanting to put valuations on complex assets. Let’s say I own a network of dry cleaners in Los Angeles. It’s a private business with no public business to compare it against. Cash flow is X, but is the business worth 10 million, 20m? How is the government supposed to determine what it’s worth? Now, let’s imagine your business is Koch Industries. We know it’s worth many billions but there’s a VERY broad range of what it might be. Without taking the stock public, its basically impossible even for top investors to value (investment bankers who value businesses for a living get it wrong all the time), let alone the government.
Even public businesses are not trivial to value for very large shareholders who don’t have the ability to easily sell all shares at once without moving the market quite a bit. But in any case, removing this loophole would just encourage the ultra wealthy to put their money into opaque businesses and then try to “value” them as low as possible. So it’s not so easy to fix.
I think it was more about family businesses where the family would have to sell the business just to pay the taxes on it. Farms are also this way.
What are you talking about? Removing the step up basis doesn’t force anyone to sell anything. It just means when the asset is sold that capital gains are due—just as they would be if the original owner had sold it while alive—instead of disappearing into thin air.
This might be unpopular but I think there are ways that taxing unrealized capital gains could work without being super radical.
1. Allow unrealized losses to be deducted.
2. Once a certain percentage of the gain is taxed, step up the cost basis by the amount of tax paid. That way you avoid double taxation (once under the unrealized value and again when the asset is sold).
3. (optional) Keep the tax rate on unrealized gains low. Even 3% would be significantly higher than what we have today.
Under this logic, it almost seems like a no brainer. People who have a ton of wealth in unrealized gains would pay taxes progressively over time instead of being hit with a massive tax bill when they sell (or potentially no tax bill when they die due to the step up in cost basis). Feel free to poke loopholes in this idea.
Taxing unrealized capital gains already isn't all that radical -- property tax is effectively a tax on unrealized gains of property value, and essentially every municipality has that tax.
In addition to what everyone has already said, property taxes paid are also very explicitly deductible from income taxes. They’re more like an indirect transfer from the Federal government to municipalities, and don’t necessarily result in a substantial aggregate increase in tax burdens.
Deductible modulo SALT cap.
Property tax is very unpopular, at least where I live.
Nope it is not. Property tax does not take any gains into account - it's tax on full value (with possible exemptions) not gains, you pay the same regardless whether you bought it for $1 or $1M. Except of course in California where they have this weird scheme which led to the fact that my next door neighbor paid less than half of the property tax I did for pretty much identical house (because they bought it in the 80s) - which looks like negative tax on gains.
Why isn’t every person defending this idea mentioning this fact. It’s so obvious once you mention it.
Except (sort of) California
Also, there is a real debate to be had about if housing should be primary considered an investment or a basic need by society. Many argue that the focus on housing as an investment in the US is a primary driver of our housing problems.
Property tax is a straightforward wealth tax on a certain class of asset, not a tax on appreciation.
Taxing unrealized capital gains already isn't all that radical -- property tax is effectively a tax on unrealized gains of property value, and essentially every municipality has that tax.
Property taxes are a use tax (roads, police, fire, schools, etc), apportioned base on property value, it is not a capital gains tax.
Property taxes do not take into account the amount you paid for your house, so they are not a tax on unrealized gains since the gains are not calculated. You could be underwater on your mortgage and you would be taxed just the same.
1. Allow unrealized losses to be deducted.
This seemed really reasonable to me until I started thinking about how it might work in practice. The sequence of returns can make this proposal ineffective in practice, even if it makes sense on first blush.
By way of explanation: Let's say you're the founder of Pets.com in an alternate universe where unrealized gains have always been taxed (and correspondingly unrealized losses can be deducted). It's 2000, and you've just had an incredible run. You have also paid incredible taxes along the way.
Then your company blows up and goes to zero.
Now you've payed an incredible amount of taxes on your paper gains, and have realized no gains whatsoever. So the entire enterprise only resulted in an enormous real loss to you. Sure you can now carry forward those losses, but so what? You're never going to make up the difference, unless we're also letting your heirs carry forward those losses into the next century or two.
Given the exposure to massive tax bills without any actual profits, who in their right mind would start or invest in a business under that tax code? Who would dare invest a large portion of their personal worth in public equities given the risk that they plummet, as they did in 2022, 2020, 2008, 2001, 2000, 1987, 1962, 1929, 1907, etc.? Who would take a gamble on a big real estate development? And so on.
It seems to me that a tax on unrealized gains massively disincentivizes investment and the creation of anything new, and therefore the only way to tax capital gains that makes sense is if we calculate the tax due based on when chips are taken off the table. Issues like Buy, Borrow, Die are better addressed with other changes to the tax code that undo the weird incentivizes presently in place (e.g. eliminating the step-up basis, possibly at some threshold if the goal is to make the tax code more progressive). Unless, that is, your goal is to actively disincentivize entrepreneurship and investment. Which if it is, I guess fair enough, but then none of us should be surprised to find ourselves with a lower standard of living in a decade as a result.
I think what you do is simply tax stock ownership. Say you own 100 shares of stock. A 2% tax would mean the government would confiscate 2 of your shares, so you then own 98 shares. The government then proceeds to sell their confiscated shares on the open market (not at once, but spread out over the next year) and use the proceeds as tax revenue. You as an investor can maintain your 100 shares of stock by simply buying back the shares on the open market (or not and so pay a smaller capital gains tax than you otherwise would when you sell. This is your cost basis being adjusted). This also doesn't necessarily disincentive investing, as the tax proceeds can be used for funding jobs (ie investment), and owning stocks can still be worthwhile.
That said, I don't see why there's a need for a deduction here. There isn't one for property taxes. Sure there is one when you sell your property at a loss, and that's also already the case when selling stock. Additionally such a tax like this won't ever cause you to lose your entire stock ownership as it's always based on a fraction of your ownership. And, last but not least, you could also impose caps or progressions.
This tacitly assumes a pretty naive model of how these markets work. The dynamics of poor liquidity, dead equity, stock restrictions, intangible asset loss, etc materially change the outcomes you can expect. In many cases it may cost the government more than the revenue generated, and the counter-party as well. This doesn’t work like your retirement account. Similar types of scenarios historically created by civil litigation have had many adverse consequences to business in practice.
And property taxes are deductible in the US. I’m not sure where you got the impression they aren’t.
This tacitly assumes a pretty naive model of how these markets work. The dynamics of poor liquidity, dead equity, stock restrictions, intangible asset loss, etc materially change the outcomes you can expect. In many cases it may cost the government more than the revenue generated, and the counter-party as well
In all seriousness, that is extremely unlikely to be the case, especially in broad terms. I mean, to purchase public stock at all you already must do so from a licensed broker, who mind you, is already required by law to report the cost basis of shares purchased by investors. To require them to regularly move 2% of shares owned by investors, to the government's ownership, would be rather trivial in cost to do. Hell, it could be completely automated.
And the cost of it doing that would likely be much less than property taxes, which, is a far less liquid asset, and much more costly to assess than equities, but is nonetheless profitable to tax. I mean the SP500 alone has a market cap of ~$47 trillion, which is, surprising almost the same exact value as the entire US real estate market, but much more liquid.
Additionally, whether it is even profitable at all could be besides the intent of the tax here. It doesn't necessarily have to be profitable, from which perspective, poor liquidity and changes in outcomes isn't a problematic at all. It could be even the intent.
And property taxes are deductible in the US. I’m not sure where you got the impression they aren’t.
Okay fair. I suppose you could do something similar, but also don't see why it's necessary, just because we do so for other taxes.
From what I can tell the idea was to make sure people would have to sell the family farm or house to pay taxes on unrealized gains on inheritance. It makes no sense to apply that to financial assets.
No, but be careful where you draw the line. In particular, don't draw it between "real estate" and "financial assets". Real estate can easily be a financial asset. Instead, the trick is to draw it between "family farm" and "billionaire who bought 100,000 acres of prime farmland".
Seems straight forward enough, put a value cap on it. $10 million? 20 million? Is anyone going to feel bad for the poor soul who can't pay the tax bill on a free 20 million dollar home?
We have a limit on gifts and according to this is 13 million. Just make it that.
What would be the downside here other than extremely wealthy having to pay some taxes upon death?
It's simple really, many people don't see it as a "free home".
It's your home. It's no more free or unfree, earned or unearned than anything else.
The home that I grew up in is.. hell, I'd consider it to be "mine" and my siblings more than almost anything else I have.
If that home is over 10, 13 or 20m dollars... you can pay tax on it. If you have siblings, I assume it would be divided between you, so multiply value by siblings.
If you got a home worth that much, you can pay some taxes on it.
https://www.mansionglobal.com/articles/more-than-1-500-homes...
1,500 homes sold for over 10m in a year. We're talking about the richest of the rich. That's exactly who should be paying some taxes. The people bitching about losing 'their' home this way... are either a) delusional or b) looking for a way to protect their incredible wealth.
Is your family home worth more than 10 or 20m dollars?
I can pay taxes on one dollar. It's the principle.
In my country our threshold is significantly lower by the way - it's around a million, so bog standard houses get hit by it.
I think that inheritance taxes are wholly equivalent to wealth taxes, e.g. "you have a thing, I like that thing, give me that thing", and therefore morally wrong.
I could agree with them on the basis that the money were minimal and solely used for security e.g. police and military, it's an insurance policy against theft, the Government has a monopoly on force and that's better than warlords.
It's not used that way though, so I reject the premise.
No house costing a million is just a bog standard house. It's a mansion; if not in size then at least in value.
The greatest privilege I suppose I have is that I am able to consider a bog standard three bedroomed terraced family house as being normal regardless of how much bad Governmental policy has managed to inflate the market value.
In Hawaii my house is 870k for a three bedroom built in the 50s on a medium plot. I still agree with your argument other than that.
Basically, you don't believe in government except to protect you from others who might take, while you have would have to ability to take advantage of others freely. No basic humans should be satisified by the government.
That's exactly what the ultra wealthy seem to generally believe too. Sorry that many of us reject your premise that you should be freely protected to screw over everyone else and think that's a moral decision (it's not, but I won't waste my time).
Make inheritance count toward the gift limit. Have the full $13M limit left on your gifting exemptions? You pass down $13M in inheritance tax free.
That is literally already how it works.
Inherited wealth is the least earned
Let's be real. No wealth is 'earned'. It's almost entirely luck and social connections. No different from inheritance.
Besides, inheritance can be hard work, psychologically. Your parents may be in a very different socioeconomic group than you for most of your adult life. Your baseline expectation for a 'normal' lifestyle is somewhat elevated (due to the lifestyle you experienced in your childhood) but, for most of your adult reality, you're broke and you feel guilty knowing that your child (the only one you can afford to have) can't have the same childhood that you had.
You work like crazy just to try to earn a living to get back to 'normal' (what you experienced in your childhood) but, deep down, you know you that your best shot at getting there is inheritance in about 30 years' time when you're at death's door (because, with all the stress you experienced, you know you're not going to live as long as your parents). Your biggest worry is that your government will fall to communism and there will be no inheritance.
Your life was basically ruined since the start of adulthood as soon as you were confronted with the ugly reality that labor of any kind is worthless and capital is everything. A reality that your parents will never have to face.
If the government wants to be perfectly consistent and tax people based on how easy it was for them to earn money, then it should impose wealth tax since the amount of wealth tells you the amount of luck and social connectedness at play... And this will also impact inheritance to some extent, but to a fairer extent.
People can live a long time which can turn relatively modest investments with average returns into significant wealth. 21 to 101 is 80 years and cost dollar averaging kicks in.
Sure you could call a long life and decent job luck, but a lot of people live into their 90’s.
What do you call living to be 90 years old, if not very lucky? Again, luck.
You can do a lot to improve your odds of hitting 90 vs what actuarial tables show. Baseline may only be 15% but a very healthy lifestyle can get close to 50/50 which isn’t some major stroke of luck.
I work too hard and not rich enough to live to 90. I'm quite sure of that. Unfortunately, in my reality, I need to work extremely hard just to make ends meet which isn't enough surplus to offset the health problems I'm creating for myself.
I’m sorry you feel that way. Personally I radically reduced living expenses to get out of that kind of situation, but I understand every situation is different.
No wealth is 'earned'.
What about the crazy hours that doctors often work?
the obvious solution (removing the cost basis step-up when assets change hands)
Not as simple as it sounds...when you can set up original ownership of an asset into a trust and have control of that trust change hands.
moving the funds into the trust would be a taxable event, so I'm not sure what the problem is.
Trust owns the asset from the start. "original ownership"
That’s fine. Impute rent to the trust and have it owe taxes that way.
We need the political will, the legal problems are solvable.
Do you consider municipal property taxes (which, when the property value has risen since purchase, effectively taxes unrealized capital gains) also to be "obviously toxic"?
It's a pretty common belief. People having to sell/mortgage their family homes in order to pay higher taxes because their neighborhood is being gentrified is a self-feeding process. If they didn't have to pay taxes until they sold, it would seem far more just.
Yes. In regions where real estate prices explode many people are forced out of their homes because they cannot pay the increased tax. This specifically hits senior citizens hard. It's not uncommon for a property to increase it's taxes >30% some years in these boom towns. This creates an economic burden on long term residents, that is mostly used to pay for infrastructure that is needed to accommodate newcomers.
We already tax unrealized gains. The US has property tax. When you buy a house, you pay a tax based on it's worth. We just don't have a tax on legal fictions (paper property like stock). The question is, why not? Why can't we also tax that property?
Another thing that could be fixed if we wanted to ensure that wealthy people actually pay taxes during their lifetime would be to treat taking out a loan using an asset as collateral as effectively the same thing as selling the asset and buying it back at the same price. They then have to pay capital gains.ize
Taxing unrealized gains in general I think is impractical since many assets simply don't have well-defined valuations, but if you take out, say, a $10 million loan using, say, shares in a privately traded company, then those shares are apparently worth $10 million dollars because the owner and the bank agreed they were.
It hasn't been ignored, it's been talked about since it got instated and it's never gotten the political traction to be repealed - sustainably! If you don't ensure it's dead, you end up with a corporate tax situation where entities defer taxable events until the law changes. At one point, you have to stop trying the same failed political approach (futile attempts to repeal the stepped-up basis) and try something new.
The loan is paid back after the step-up in basis. That's the loophole.
Presuming you can continue to service your debt payments as interest rates and your income varies over time, and are never subject to a margin call due to a drop in the value of your collateral, something even the most powerful are at risk of: https://www.ft.com/content/cf78d815-7ade-40fc-a68d-ec73accb7...
It’s not really any different than what the average American family does with their home.
the real problem here (in my opinion at least) is that “borrow” isn’t a realization of gain on the assets. any time illiquid assets are used as collateral that should trigger a taxable event.
Is there any indication the ultra rich structure loans like this to avoid taxes? Or is this just a meme that, for the most part, financially illiterate redditors like to throw around?
I mean if you RTFA, and take it at face value, it was posted by a lawyer who has been doing this for 20+ years for hundreds of clients.
If it's a fake post, someone put a lot of time into making it convincing? They cite tax law and precedent cases etc..
I have not personally validated any of it myself though.
Why would anyone take anything at face value posted on reddit?
So this one random lawyer on reddit has hundreds of clients with a net worth of $300M+?
Or, they're LARPing.
I wonder which is more likely.
So this one random lawyer on reddit has hundreds of clients with a net worth of $300M+? Or, they're LARPing.
Those are not the only options. That's a pretty bad strawman.
What are the other options?
You want me to enumerate the potential experiences a tax lawyer may have, outside of having hundreds of clients with a net worth of 300M dollars, over a 20+ year career, that would allow them to do the math outlined in the post?
I don't think that's necessary.
They literally said they do it for a living for hundreds of clients, and that it doesn't make sense to do it for a net worth of less than $300M.
So, they are either a lawyer who has done it for hundreds of clients worth $300M+, or they are lying.
I don't see where they claimed what you're saying.
I see they claimed to "do it for a living". I see where they say it only makes sense for clients with 300M+ net worth.
There are plenty of other ways to interpret those two points. For instance, it may be a thing they do at their job, but not the only thing they do.
There's plenty of valuable information on reddit. In fact, there's a strong search trend to put 'reddit' on search queries to get better results.
Could this guy be LARPing? Sure.
I looked up a few of the references, they look accurate. They would need to be an excellent LARPer to get that detailed. Or they actually know what they are talking about.
One famous person who did this was Larry Ellison using Oracle shares. This almost caused a problem for him in the 90s due to the stock dropping in value:
https://www.sfgate.com/news/article/Inside-look-at-a-billion...
The reddit post talks about putting "the asset" in a trust, but the article says Ellison personally owned shares of Oracle. That does not fit.
And most ultra-rich that own lots of shares of large publicly-traded corporations own them outright. So this seems suspicious I would say.
I mean I often see news about some CEO or other selling shares, and how this is announced in advance to not be insider trading. I have even seen sometimes the documents submitted to the SEC posted on the net. There are no trusts involved.
Larry was borrowing on margin which is a similar strategy.
There are no real problems for him mentioned in the article. He had loans of about 1 billion, increasing to 1.2 billion at the peak, but his shareholdings in Oracle were 10x of that.
His advisor did his job by warning that this could go wrong if Oracle stock dropped massively. But it never dropped that far, so he was fine.
This is not an example of "buy, borrow, die." It is just borrowing against his shares. Everybody with a brokerage account does that.
Ok, so there is a famous instance of a billionaire trying this strategy and almost destroying his wealth.
I'm not sure many financial advisors for the super rich would be recommending this method based on this.
As far as I have ever been able to determine, it only makes sense as a strategy under a specific set of circumstances. It is not the general-purpose infinite money glitch many people make it out to be. There are many scenarios under which it is a suboptimal financial strategy.
If we take the post at face value, one of the requirements for this strategy to work to have your "net worth exceeding around $300M". Already there it becomes pretty specific, how many in the US has that? As far as I remember, you're already in the 1% with $10M.
The US has at least 10k individuals with wealth exceeding 100M but I can't find data for specifically > 300M.
https://www.cnbc.com/2023/10/10/number-of-people-with-100-mi...
Here's a startup SaaS idea. Take that knowledge and SaaSify it so my broke-a$$ can also use these loopholes.
I think your right this is just one approach out of many.
Once your money timeline stretches to the second generation one can start thinking in much bigger ways that have nothing to do with individual ownership of assets. The amount of assets doesn’t have to be large to start thinking in longer term cash flow cycles.
Yea. They all do it. It's a well known exploitable tax loophole. You have to be rich to even take advantage of this method of tax evasion. This is probably one of the best digestible write ups that I've seen on the topic, I highly recommend just reading it.
If “they all do it” and it’s so well‐known, surely one can point to examples where it has been used?
That doesn't sound like the lifetime loans that the supposed $2,500 an hour "private wealth attorney at an international law firm" was talking about. In his story, the loans are at .5% - 3% and only payable decades later upon death (though the firm would supposedly also get a share of earnings increase). This sounds like normal SBLOC (Securities-Based Lines of Credit).
Billionaires like to declare no income, which is why they pay such low taxes. But they spend like kings, not like people who have no income. But you can't spend unrealised gains. So they either realise their gains and pay taxes, or get their spending money elsewhere. Since they spend a lot of money, and "elsewhere" wants its money back eventually, it sounds like "elsewhere" has to be a bank.
It seems like the most plausible explanation.
No. The most plausible explanation is they sold stock and paid capital gains. They do it all the time. Don't believe me? Just look at the insider transaction reports that all public companies file. e.g Bezos sold 1.2 billion last month: https://finance.yahoo.com/quote/AMZN/insider-transactions/
I might be off but that sums up Robert Kiyosaki‘s approach to wealth.
My understanding is that this is possible with whole life insurance policies without having to be ultra rich. After a certain period, there is no longer any premium penalty, so while the insurance premium principle doesn’t grow, it doesn’t cost anything to own. At some point the owner can take loans against that the value of the policy that are ultimately paid back when the policy pays out. There’s some details that a financial advisor can fill in, but it’s doable for the average HN reader who doesn’t mind offsetting income for far in the future returns.
I don't understand what's in it for the lender in the borrow stage.
The article clarifies this?
Generally, in exchange for such favorable terms (i.e., interest-only, matures on death), the bank will ask for a share of the collateral’s appreciation (essentially, "stock appreciation rights"), and this obligation will be settled upon the borrower’s death along with the loan. The amount of the bank’s share of the collateral’s appreciation depends on many factors and it is fundamentally a matter of the bank’s underwriting process.
Ok, so now the costs are the servicing of the loan for 40 years, and paying some percent of the appreciation. Is there any indication that this would be cheaper than just paying the $17M in taxes?
Mmm, I think we're mixing up some numbers here. Let me try to break this down for clarity.
Using the numbers in the report, the $17M in taxes would be paid after just 10 years, not 40 years, because the asset appreciated from $50M to $108M in 10 years and the buyer wanted liquidity at that point. After 35 years, the FMV of the asset is $740M, and tax liability would be (740 - 50) * 1/(20 + 3.8 + 5) = $198.72M
So, the question is not whether it would be cheaper than paying $17M in taxes, but whether it would be cheaper than paying ~$198M in taxes.
A couple of other things:
1) it's not clear they are taking out a loan against the asset. The report uses line of credit interchangeably with loan. If it's just a line of credit then they are only paying interest on the credit they use not the full loan amount upfront.
2) loan/LOC allow the capital to be liquid while continually having exposure to appreciation. This is valuable in itself because otherwise you have to make a choice between having exposure or remaining liquid. It's challenging to put figures to this aside from the obvious statement that a liquidation event results in a loss of 8% compounded YoY appreciation. This can be partially mitigated by repurchasing cheaper assets at the cost of some of the liquidity.
The report says:
I’ve seen anywhere from 0.5 percent to 3 percent, even in the current interest rate environment
So, in the scenario where one takes out a loan for $97M at 3% interest after an asset of $50M appreciates for 10 years, if we assume that provides sufficient liquidity for the borrower to not take out subsequent loans during the following decades, then after 25 additional years the borrower would have paid ~$41M in interest. At 0.5% they'd pay ~$6M.
In an alternate scenario, if we assume the borrower takes out a loan for 90% of equity at 10 years, 20 years, and 30 years, then at 35 years they would have paid $127M in interest on a 25 yr loan + 15 yr loan + 5 yr loan at 3%. At a 0.5% interest rate they would have paid just $20M in interest.
All these scenarios are less than the $198M in taxes they'd owe while also giving them 8% exposure.
I do not have figures for how much the bank gets. My assumption is that they would negotiate terms where the interest rate is lower if the bank receives more of the asset or vice-versa. There's no reason for the loan recipient to take the terms if it's bad value for them relative to paying taxes at time of liquidation.
On the whole, I think the report makes sense as a reasonable approach for avoiding excess taxation.
The idea that anyone is getting a 0.5% interest rate for anything—let alone with collateral of a risky asset—when treasuries are at 4%+ is fanciful, and makes me lean strongly in the direction of the LARPer theory.
People didn't believe negative interest rates were possible either.
Anyway, I bet at that level of loan the customer has a lot more power; no lender is going to want a billionaire to do their business elsewhere. The human lender who signs the loan gets a promotion for increasing the bank's future-money. And if it goes sour, that human won't lose money. Even the bank doesn't need to worry about its existence if it will be bailed out by the tax payer anyway.
It’s 0.5% plus a portion of the asset appreciation, not just 0.5%
You don't seem to have accounted for "stock appreciation rights" at all, which was the whole point.
At a 0.5% interest rate they would have paid just $20M in interest.
Plus these "stock appreciation rights", whatever and however much they are.
I mentioned it at the bottom. The report doesn't provide numbers. I would assume that they would negotiate a rate that results in marginally higher yield than a bond that would mature over the lifetime of the loan.
30 year bond is ~4.2%. You'd pay $60M in interest on a single loan at 10yrs and $183m if you took out repeated loans at 10yr/20yr/30yr and repaid at 35.
I assume that the math works out such that if you had a LOC for 100% of the asset, at the 30 year bond rate, and continually maxed out the LOC, that the interest rate paid would equal the taxation rate.
The point is that the worst case scenario is paying equivalent fees without having to trade-off between liquidity and appreciation and the best case scenario is significantly lower fees because you didn't need 100% liquidity.
This was the question:
Is there any indication that this would be cheaper than just paying the $17M in taxes?
You wrote a lot of words besides the point, and the only thing that is on point is:
I assume that the math works out
Maybe it does, maybe it doesn't. We don't know. You don't know, and you assuming it does proves nothing and is not a useful argument.
I’m unsure how to compare a cost paid after I die to one I pay now. Is that my cost at all? It seems like a philosophical question. I guess it depends on how much you care about your heirs.
It does not matter what you personally value.
The reddit post claims the inheritors get to avoid taxes. If that is false, the reddit post is a lie, nothing philosophical about it. It does not depend on anything.
I'm going to bring up a point here that no one else is making because they mistakenly believe this to be about taxation.
So firstly I use this strategy. I am not anywhere near $300M in net worth but anyone can do this with a few hundred K in stock and a margins account at IBKR.
Anyway, the reason has nothing to do with tax and everything to do with cash. Cash is dangerous. Once you have cash, the value can decline. On the other hand equity in actual companies is always going to have value. Companies like coca cola, Johnson Johnson, etc provide necessary things. They will always have cash flow regardless of how the dollar is doing. Equity is a huge inflation hedge. For me personally I was unaffected by inflation because stock prices inflated as revenues increase anyway. Cash is dangerous.
If you sell equity, it can be difficult to buy back in. Instead it's better to borrow. The equity will eventually go up and you can borrow more. Also, borrowing is instant, whereas selling is volatile as huge dumps of shares can easily manipulate the price on the open market.
Either way, you de-risk not being exposed to equity, which is a valuable store of income. Cash is an extremely dangerous way to store value, in my view, and I'm guessing many of these people.
Yeah, I felt like the “you have to be wealthy” hand-waving in the quoted section wasn’t very explanatory. Are lenders giving the ultra-rich great interest rates here as a loss-leader to try to attract other business from them?
First, this type of planning is generally not economically feasible unless the taxpayer has a net worth exceeding around $300M. If you’re worth less than that, you’re not going to be able to command attractive loan/line of credit terms from investment banks. You’re going to have to get a plain vanilla product from a retail lender which is going to have relatively high interest rates (typically the Secured Overnight Financing Rate plus some amount of spread) and other terms that make implementing “buy, borrow, die” expensive enough that you aren’t much better off (or you’re much worse off) than you would have been had you sold the asset and taken the after-tax proceeds. (Caveat: even loans/lines of credit at retail interest rates can still be very useful for short-term borrowing needs.) Clients with a net worth exceeding around $300M, however, can obtain bespoke products from the handful of lenders that specialize in this market, and the terms and conditions of these products make “buy, borrow, die” a no-brainer for virtually everyone who has this level of wealth.
It's an investment for a bank which is middle way between regular loan/bond (where you get fixed interest and 100% of the loan at the end, but no appreciation) and stock share (where you get no fixed interest and all the appreciation when you sell it). The hybrid product would be you get some interest and some of the appreciation, but not as much interest as for a loan, and not all the appreciation at the end. How much would obviously be negotiated depending on interest rates, projected appreciation, and other factors. The point here would be to defer paying the interest (to make the asset owner's life easier while they are alive) while leave enough enticement for the bank to agree to the whole scheme (banks usually don't just buy shares in people's 401k's). I do not know which combination specifically works but it doesn't seem implausible for me for such combination to exist.
It's not really a "how to" guide but an explanation of the scheme.
The lender gets to write a secured loan with an excellent risk profile and an interest rate that, on average, generates net profit that is at least as good as other lending opportunities.
From the lender's perspective this is a relatively straightforward transaction. A lender will lend to just about anyone if the spreadsheet numbers work out.
Is it really that good of a risk profile? Some of these assets they are writing against are pretty volatile. I would not write a low interest loan against TSLA shares or commercial office buildings.
What do you think the borrower did with the $hundred-M that they borrowed?
There's only so much you can blow on intangibles. Should there be a major write down in the value of the asset, chances are not bad that there are tangibles to reclaim.
In addition to other responses, and if the lender is a bank, and given a fractional reserve banking system - it's possible that the lender doesn't actually pay the amount loaned out of their own assets. It just counts against the amount which, multiplied by the reserve fraction, must be backed by a reserve. So assuming a fraction of 1/10, it is somewhat as though they had loaned out a tenth of the money the lender actually gets.
Interest on a fully collateralized loan + a share of the tax savings on death.
Is this partly why so many billionaires own things like mega-yachts? Presumably they aren't all avid yacht enthusiasts, no?
For example, Mark Zuckerberg has a lot of money. So much that he can buy a mega-yacht and it not really affect him financially. But, he could buy lots of things that don't affect him financially, and he chooses not to do so.
I always assumed that acquiring a massively valued asset like a yacht that's assumed to appreciate was part of this "buy, borrow, die" strategy.
For example, Mark Zuckerberg has a lot of money. So much that he can buy a mega-yacht and it not really affect him financially.
That phrasing deserves a pause. If someone has money, it came from somewhere - income - which is taxed. If you play that in reverse: someone who paid no tax had no income, and therefore no money.
Zuckerberg paid 13.7% tax [1]. Ballpark figure income [2,3] for that effective tax rate is $95K/year. You couldn't maintain a yacht on that income, let alone rent or buy one.
[1] https://www.theguardian.com/us-news/2022/apr/13/wealthiest-a... [2] https://smartasset.com/taxes/income-taxes#9S4WHcw5WA [3] https://www.taxact.com/tools/tax-calculator
Hmm, I'm not sure what you're getting at or how it relates to my question.
Also, someone could have received lots of income, say 5 years ago, at which point their income tax would be very high. The following years their income tax might be low if they, e.g., don't sell any stocks or take distributions from various trusts they have set up.
It’s also something that is valuable and can be easily moved.
You just reminded me of https://en.wikipedia.org/wiki/Yachts_impacted_by_internation...
Yachts depreciate rapidly, not sure where you got the idea that they appreciate.
I wasn't sure if they did or not, as I do not own a mega yacht. I was more just posing a question as to whether the purchasing of mega yachts was somehow tied into these tax strategies (which it sounds like it's not).
Read somewhere that it's more for being able to participate decently in ultra-weatlhy events, mostly on the Mediterranean coast. In the case of Zuckerberg that may also be for fishing once the world has collapsed and he lives permanently in his bunker on that island somewhere.
I don’t think a yacht is generally an appreciating asset. They require massive amounts of money to keep afloat, and the furnishings and tech go out of date requiring expensive overhaul.
Probably not particularly an appreciating asset.
Especially not at a rate that pays to keep it shipshape.
No, they just want yachts. Zuckerberg has bought many things that do not really affect him financially.
Let's assume the asset appreciates at an annual rate of 8 percent
Quite a lot of value creation going on. Good on them!
What value creation? This could just be a simple Vanguard S&P 500 ETF like everyone else's.
This could just be a simple Vanguard S&P 500 ETF like everyone else's.
The demand for shares in a company incentivizes entrepreneurs to create companies so that they can then sell the shares.
So even passive investing contributes to innovation.
Might as well take out the biggest margin loan possible and invest in the S&P 500 if that is the case.
Indeed, someone with $10B who increased that to $10.8B over a year earned 80M.
That's like $40K/hr if they take no sick days or time off to go yachting. Their labour must be super important.
8% of 10B is 800M, which comes to $91K every hour of the year. The average American makes $29.81 per working hour.
https://www.indeed.com/career-advice/pay-salary/average-hour...
Value extraction is the predominant mode when financial instruments (including stocks) are involved, not value creation.
Seems unlikely. Value extraction would lead to big dividends but declining share price.
That's a normal amount for the S&P 500. The return on a privately held company is likely higher.
[Meta] is it common to open a subreddit just for a single post like this one?
How odd. This is a rather interesting catch, especially in light of the upcoming tax fight in 2025 with the TCJA and Expanded Child Tax Credit expirations, and the unrealized capitals gains tax proposals.
Given the other comments pointing to the SEO benefits of creating a subreddit just for a single post, it has shades of an effort to seed the information space and shape the narrative in advance of the tax fight by gaming the search results prior to uninformed journalists and legislative aids developing an interest in the topic, many of whom will search Google for background information and context as the tax fight plays out.
Nice catch, and interesting regardless of the motives.
It's mainly just a really bizzare post, super interesting and informative, but why would anyone in that position go into the trouble of typing up that amount of detail and post it in a brand new subreddit?
On a 7 day old Reddit account, no less. It’s very odd.
To sleep better at night, perhaps.
The practice of using Google to search within Reddit is already known to SEO scammers, and I’ve already started encountering subreddits supposedly geared toward a particular class of product, but upon a closer look, every single post in the subreddit recommends a particular brand of product.
Is this person SEO scamming? I don’t know for sure, but the subject matter is the same that I frequently see frontpaged from /r/FluentInFinance by obvious bots, although the motive seems to be political rather than commercial.
AFAIK, its quite rare.
It has become more popular as a result of Google Search algorithm changes in December 2023. Search results now tend to showcase relevant Reddit posts regardless of subreddit size or post popularity, so it’s an efficient way to beat the SEO game. There’s value in owning the subreddit itself, such as to be able to display sidemenu links of your choosing.
This seems to only be interesting if you have a lot of money tied up in a company and would like to realize some of that money without losing control of the company. Seems like a lot of risk otherwise. One bad year could have the house of cards crumbling.
I will never have this kind of money. It is still interesting to me from the perspective of understanding whether there is validity to claims that the rich are/aren’t paying their fair share.
Assuming the write-up is correct, it provides substantial evidence that the ultra-wealthy are capable of sheltering gains in ways that I am not.
As to the risk issue, I see no reason why the “asset” couldn’t be a combination of multiple assets, or an asset like an index ETF that tracks a diversified bundle of things. E.g. a substantial portion of my net-worth is tied up in a Vanguard target retirement fund (one asset). Most financial advisors consider this fine from a risk perspective.
It’s actually much easier for you to “shelter gains” in this way: You don’t have to worry about estate taxation.
Anyone can borrow against assets (securities and otherwise) they own. Home equity loans are big business, and securities-backed loans aren’t obscure below $300M.
Frankly, it’s the “but the ultra-rich get special low-interest loans” bit that’s the most unbelievable part of the write up. But it’s also the keystone: Without these magic loans, it’s just standard estate planning (which is all about tradeoffs of taxes vs. control) + a likely suboptimal investment strategy.
“but the ultra-rich get special low-interest loans”
If you are rich, and is not borrowing at high LVR, it means the lender has a reasonable belief that you can pay back the loan (and the collateral is also good). The lender _can_ give you a lower interest rate, due to the loan market being pretty competitive, because they take on less default risk compared to a non-rich person taking the same loan.
it's not gonna be a massive difference, but for large sums, probably does make a difference worth doing.
It’s actually much easier for you to “shelter gains” in this way: You don’t have to worry about estate taxation.
*shakes fist* "Damn you, Lucky Ducky!"
Probably more like you own a large enough percentage of the company and have enough day-to-day control over it that actually trying to sell a significant amount of your stock could trigger other investors to panic, wondering if you have some secret information about how the company is about to fail rather than just wanting to buy another island or mega-yacht today.
If you have this kind of money to throw around the risk is probably fairly described as “negligible”. What, is the housing market going to crash and not recover in the 35 years until you kick the bucket, in this hypothetical?
This kind of an explanation overlooks the obvious issue: you're exposing yourself to asset valuation risk. We don't tax unrealized gains for that exact reason.
Let's say you have $10M in in index funds. You don't want to cash out and pay capital gains, so you get a $5M credit line with your stock as a collateral. Then, there's a market crash, your collateral is all of sudden worth just $4M, and you have a bank knocking on your door - but you already spent $5M on a McMansion. Now what?
You can opt for "risk-free" assets, but then, if they're truly risk-free, they're probably not appreciating in a way that would make this tax gamble worth your time.
The people utilizing this strategy are consuming on the order of .1% of their wealth a year. They face effectively zero risk of default or liquidation because theyre not taking a loan against half their portfolio.
Nah. Or rather, I don't doubt that some billionaires do, but they're not the target audience. First, not many billionaires spend time on Reddit. Second, if you're Warren Buffett and have obscene net worth but minimal living expenses, there's really no point. It doesn't matter if you're spending .1% or .125%. If you do borrow against your assets, it's usually to invest, not pay the bills.
People preoccupied with strategies like that are the ones who are burning through their net worth at a much higher rate, so the difference in tax burden actually makes a difference. They're usually just wealthy enough to have a "wealth advisor". Doctors, successful techies, business owners, etc.
You don't take out 50% to buy another asset.
You take out a few % a year to pay for your cost of living. For example, you rent a house, or take out a mortgage and pay for the house over time using the few % a year.
Even ignoring all tax considerations it's often better to buy with a mortgage rather than full cash.
For example a few years back you could get 1-2% mortgage rates in the UK. Right now it's more like 4-5%.
Ignoring tax fun, if you have 10 mil in a share index returning say 7-8% annually and you want to buy a 5 mil house then your best strategy is to sell say 500k for the deposit, then sell just enough to pay the interest + minimum repayment in all following years.
We don't tax unrealized gains for that exact reason.
I may be missing your point but the example you give looks like an argument to tax unrealized gains.
Let's say you have $10M in in index funds. You don't want to cash out and pay capital gains, so you get a $5M credit line with your stock as a collateral. Then, there's a market crash, your collateral is all of sudden worth just $4M, and you have a bank knocking on your door - but you already spent $5M on a McMansion. Now what?
Now you have a problem caused by leverage - and it was at least in part because you didn't want to pay taxes. If unrealized gains had been taxed just the same the concern about paying taxes when cashing out would disappear.
Yes, people have lost a lot of wealth this way in market downturns.
It’s greatly ironic: in the interest of avoiding minor taxes, they lose major assets to their bankers. It wouldn’t surprise me if the same bankers who profit in the downturn from the margin calls are the ones who sold their clients on the strategy.
Any time you go into debt you need to make sure you have a margin of safety. It’s an instrument of some value but it’s a sharp blade to be wielded carefully.
Wow. This makes me really angry.
I read a New Yorker article recently about the Getty Family office, Vallejo Investments, that estimated they control $6 trillion in assets. Trillion! And here we are worrying about the billionaires.
With these kinds of wealth accumulation strategies, and hidden wealth through family offices, these people have more than enough power to control absolutely everything in our societies from the shadows.
There's no source for the claim. Here is all the New Yorker article says:
"That lucrative maneuvering is the realm of specialized attorneys, accountants, and money managers, many of whom work for family offices: in-house financial teams that typically include a dozen or so full-time attendants. Family offices, which have roots in nineteenth-century operations that served John D. Rockefeller and a handful of his peers, have proliferated in the past two decades, to at least ten thousand worldwide. They tend to have no public presence—Gordon Getty’s family office is known, inconspicuously, as Vallejo Investments—but by some estimates they control about six trillion dollars in assets, a larger sum than is managed by all the world’s hedge funds."
By some estates. Yeah ok. There's absolutely zero actual evidence to suggest the Getty family controls even a hundred billion in assets. No major wealth investigators (Forbes, Bloomberg to name two) in the past three decades has turned up such a large stash by that family.
Well thank you this makes me feel a tiny bit better, but with strategies like buy, borrow, die, it’s just a matter of time before these rumors become reality.
Don't bother looking for the amount of money Blackrock currently controls then. The big funds are approaching a point where they wield more power than governments, they just don't play it too open. Yet.
You folks are reading the sentence wrong. The $6T estimate is for all assets controlled by family offices _generally_
Thanks for the correction, but all these families and funds (don’t look up Blackrock, I should have listened) have similar goals of self perpetuation of a system that benefits them at everyone else’s expense so even though there are multiple players it is highly likely their goals are aligned as if they were acting in concert.
Let's assume the asset appreciates at an annual rate of 8 percent.
Easy peasy. You going to the asset shop and buying there a brand new shiny asset, which will appreciate 8 percent for the next 30-40 years. This is a great plan. Swiss watch.
The return % is hardly important to what author is saying here. You can assume 4% and still get to 200M in 35 years.
Does 200M or 750M make any difference to the point ?
Yes, it does matter: The entire reason this scheme is supposed to work is the gap between the % in asset value gains over time and the % interest rate charged by these supposed bankers to the ultra-wealthy over the same time.
If those are equal, this scheme is a terrible idea. You’d be much better off selling some % of the assets and paying LTCG as a fraction of the gains than paying all of the gains in interest.
So now the question is simple: If you can “buy” a risk-free 8%-earning asset, so can your friend the banker. But you can’t. You can buy a risky asset and hope it does better than the interest rate long-term, so your banker doesn’t invoke his rights to a lower yield but safer investment, which involve being able to seize your asset if its price declines.
If the rich could buy a risk-free 8% asset and borrow against its value with a 4% loan, they’d have a perpetual money machine. No such magic exists.
Even if the difference is zero between the two . The rich would still save capital gain and estate tax on the initial amount .
Rate only matters if you still worried about asset growth. At 300M+ net worth you are more worried about securing the wealth for generations to come rather than focusing on growth.
What do you mean "hardly important"? What about suddenly turning appreciation into deprecation? Will my friend banker pay me negative interest? :)
If you are investing majority of your wealth in anything risky enough to depreciate, this model of wealth management is not suited for that? That doesn't mean no risks should be taken, this step comes after that. Lets say you found a unicorn startup, you would do just before being bought out.
These products are niche for a reason, there are only few with the kind of generational wealth to structure their assets in this way.
The author puts it at 300M+ net worth, I cannot attest to that, but I expect it the costs associated and starting conditions needed of how much of your portfolio is in extremely low risk assets to make this worth while, so only sensible for the ultra rich.
I implicitly understood Buy, Borrow when CEOs making a $1/yr became a thing. That seemingly hairshirt salary is publicly reported. I didn't foresee the Die part because it is affected in private.
This actually has more to do with the vast majority of CEO compensation being structured as stock option grants, and very little if anything to do with “Buy, Borrow, Die.” It’s largely meant to communicate skin in the game to shareholders (“I don’t make any money unless I drive shareholder value via stock price increases").
Whether or not that’s actually true is a totally different matter and depends largely on the actually structure of the compensation, but that’s the theory.
The point of Buy is to acquire the asset you will Borrow against. How doesn't really matter. So Larry did that by growing a company. Good for Larry. But the tax avoidance is the same from there. Borrow, Die.
Sure. But you can do that more effectively by also being paid a salary (which you can then use to buy more stuff!).
CEOs making $1/year is more due to Clinton's 1993 law against deducting CEO pay above $1,000,000 from taxable corporate income. Before that CEOs were happy to be paid normal salaries and pay normal tax on them.
That $1M cap rose year by year. According to ProPublica, it was $8.2M in 2014.
https://www.propublica.org/article/the-executive-pay-cap-tha...
I can't read reddit anymore because I always get "Your request has been blocked due to a network policy. Try logging in or creating an account here to get back to browsing."
Any way to bypass this?
You can access via tor (they have an onion address as well) — or run individual links through an archive service
For the “old” Reddit frontend: https://old.reddittorjg6rue252oqsxryoxengawnmo46qy4kyii5wtqn...
For the new, crappier Reddit frontend (which has more dark patterns funneling people to the app): https://reddittorjg6rue252oqsxryoxengawnmo46qy4kyii5wtqnwfj4...
However, the TLS certificates on both have been expired since August 28.
Did you try other browsers? For some reason for my home IP address, only Firefox (desktop) is blocked. Chrome and Edge and even mobile Firefox work fine.
https://reddit.garudalinux.org/r/BuyBorrowDieExplained/comme...
or host a private instance.
EDIT: I'm not sufficiently sure that this comment was accurate on US tax laws so I'm going to delete it.
The cost basis of the asset can be "The fair market value (FMV) of the property on the date of the decedent's death".
Source: https://www.irs.gov/faqs/interest-dividends-other-types-of-i...
Yes, the cost basis for the inheritor, not for the deceased/estate.
Rather, it will use the original cost basis, pay tax on gains up to the adjusted cost basis, and the inheritors will use the new cost basis should they sell in the future.
This is just incorrect, at least in the US. The estate does not have to pay capital gains tax for assets passing through to the inheritors.
It's a great policy proposal though - this is one fix for the problem!
This is obviously a very important correction if it is correct.
That said, I think you may be correcting only the simplified strawman version at the top of the post, while the "actual" version offered at the bottom corrects for this by substituting borrowed cash for the actual asset. That is, I think the version at the top (1A,2A,2C) is intentionally flawed, and represents the popular misconception, while the version at the bottom (1B,2B,3B) corrects for this.
The author might not have chosen a clear format for his argument, but I don't think this is an actual error he is making. I think he addresses this directly in the bottom half of the post. But if you read through the whole thing and still feel he's wrong, I'd certainly like to hear more!
this type of planning is generally not economically feasible unless the taxpayer has a net worth exceeding around $300M
You can actually achieve much the same effect by buying property and taking out a normal mortgage against it for living expenses which can be done by people of more normal means.
You also don't have to be a millionaire to get a withdrawable margin loan on stocks you own, at not-too-terrible interest rates.
I think the piece that's missing (from my scenario and yours) is the assumption that your yearly gains from appreciation of the asset exceed your living expenses. That usually only happens reliably once the asset is worth tens of millions of dollars, at least. Especially if you have a family.
Well, there are 2 caveats to this as explained in the linked thread.
First, that interest rates for loans like that are higher than if you have the asset valuation to get loans from lenders that specialize in that kind of thing.
Second, that when you die you're subject to a 40% tax on your estate over your lifetime tax free gift limit, so it makes more sense to use irrevocable trusts to help shelter your estate from that in the event of your death.
why make a whole subreddit for one post
SEO
reddit ranks really well. and now it went viral here and elsewhere = higher ranking
I suppose it also prevents some moderator in the future from removing whatever you wrote.
Rather than the normal solutions, it would be really nice to just move to a progressive consumption tax.
1) All investments are tax deductible, not just 401Ks.
2) The sale of investments is treated as income.
3) Money from loans is also taxed as income, unless used for (1).
Investments aren’t taxed until capital gains are realized or income received via dividends. The point of 401Ks is to enable investing income which has not been taxed. So, I don’t understand your proposal.
I keep thinking "tax what you want less of"
Is having fewer investments worthwhile for society?
The existence of stuff like this is why I'm always so skeptical of "fix everything" plans such as what Harris apparently recently said about taxing unrealized gains. I heard it secondhand but it appears that whopper of a tax is 'only' for those with income or assets or something over X hundred million dollars. Guess what though? The venn diagram of those folks, and people who can afford attorneys to evade such a tax by methods such as described here, is a circle. And when that scheme brings in far too little money, I assume it'll be expanded downward till it actually hits those of us who are just trying to get to retirement and may or may not make it.
Harris explicitly said only for people worth $100 million. You can have the opinion that politicians will derive from their plan, but it is a big assumption, nothing else.
The thing I don’t get is, what if these guys get margin called in the middle of a big crisis? Don’t they get liquidated like everyone else?
They do get margin called. Usually they don’t do it for all of their assets, but only a portion needed to fund their lifestyles. In huge and persistent downturns there are always a few who get wiped out by this kind of risky behavior, though, if they aren’t well-diversified.
Then again, whenever Buffet & his ilk make self-serving comments about how they don't pay enough taxes I wonder, "why don't you pay more?" The IRS takes donations.
I hope your train of thought proceeds to the next station along that line: “oh yeah, because that doesn’t scale, obviously.”
It’s the same reason why it’s better to sponsor a “we’ll double your donation up to $X” charity campaign, than to just donate $X directly. It attracts others in with you.
So the thing does not work except if they know a friend who knows a friend who can pull some strings to get them an ultra low interest rate loan.
But I try to understand why one would give me a loan at loss for them, unless they expect a favor in return
I gather the reason for the step-up basis is to avoid taxing an asset that's already subject to estate tax, but that seems like an awkward solution. Especially since there have been attempts to reduce or eliminate the estate tax not to mention various dodges that exist. I think it would make more sense to eliminate the step-up basis (which is proposed by Kamala Harris) and just limit the scope of the estate tax to exclude capital assets. Tax is paid on gains as per normal with no exceptions.
For anyone who thinks "$80k is not a lot of money" or that it is well spent on a mere logo then I invite you to send me even a small fraction of that amount. Just $10k would move the needle here immensely. Heck $1k would move the needle.
I can receive funds via CashApp at: https://cash.app/$mk2022akmar/
Hehe... Hey Lois
Well it certainly is convenient that a "private wealth attorney at an international law firm" decided to go on Reddit and talk about tax policy a short time after there is a proposal to tax unrealized capital gains.
There are many web sites that claim this is rampant and from what I can tell the idea of “buy, borrow, die” was developed by Professor Edward McCaffery back in the 1990s, but are there any actual reliable stats on how many lifetime low interest loans are being given out? How would such a lender stay in business? Lenders with that kind of capital can't find something more profitable than letting someone have hundreds of millions of dollars of money for decades and maybe hopefully the stock market isn't in a bear market at that time and they can get their money + .5% interest and some of the capital appreciation? It is very common to make short terms based on using stocks, etc as collateral. But how common is it to have a lender be ok with deferring interest for decades until the person dies? Not saying there aren't stupid lenders, but doing a quick search, I have not found one stat on how many lifetime loans like this are actually being done.
There is a treasury department page claiming that about 160 billion dollars in unrealized gains are not being taxed, but that isn't talking about stock being used as collateral, that is talking about simply the value of assets increasing - that is entirely different.
According to this: https://finance.yahoo.com/news/jeff-bezos-sell-5-billion-185... Bezos has sold around $13.4 billion in stock in 2024. If he could easily avoid millions (maybe billions) of dollars of capital gains tax by this one simple trick, why wouldn't he have?
Generally, in exchange for such favorable terms (i.e., interest-only, matures on death), the bank will ask for a share of the collateral’s appreciation (essentially, "stock appreciation rights"), and this obligation will be settled upon the borrower’s death along with the loan.
It sounds like someone is just trading taxation for paying the lender some portion of their stock appreciation.
Presumably that's lower than what they would pay in taxes, but I wonder if that's always the case. The investment bank has a unambiguous motivation to maximize the amount of money they can make.
It seems like the most frugal approach is to minimize costs and periodically sell small amounts of your asset to cover your costs.
At the start of the circuit the government prints and spends money, at the end it collects the money as taxes. This creates a current of economic activity. The duty to pay tax is the primary incentive that stimulates the citizens to put in effort and gets this into motion. The proper action is not to try to pay less taxes, but to put in more effort and make the money to pay the taxes.
Richard Murphy (Accountancy professor / campaigner) is running a good series on YouTube atm, basically what could be done instead of wealth tax.
The general schtick is make tax equal (ie even without buy borrow die, capital gains is taxed lower then income tax). Equalising the two increases the tax take, and frankly seems like “encouraging getting into work”
Anyhow, if we as a society want a fairer society we know how, we just need to overcome the special interests problem
In this case (and cannot see this refuted in the article) I think treat collateralising an asset should be a realisation event. Both parties have come to a free agreement as to the value of the asset - tax the realised gains.
TL;DR - It's a ridiculously effective way to live a lavish life with minimal taxes if you have large assets.
When this whole "tax unrealized gains" thing first came up I first thought it was absurd...but then I learned how it is abused in ways like this and I have to say I am on board with it if its a way to shut down this loophole.
I think taxing unrealized gains for Joe Schmo sitting on $100K in NVDA isn't going to do any good, but it's also clear there is a real problem here that the ultra wealthy are taking advantage of. I'm not quite sure how you do it fairly, but something has to change.
If this in Canada, this was a decent strategy
"When a loved one passes, the last thing on most people’s minds is taxes, but they do play an important role in settling the estate. In Canada, there is no inheritance tax. You don’t have to pay taxes on money you inherit, and you don’t have to report it as income. But this doesn’t mean your inheritance is immune from taxation.
Why? The moment someone passes away, the Canada Revenue Agency (CRA) considers all their assets as part of their estate and taxes this estate directly, before any money is released to beneficiaries. In other words, the reason you don’t pay taxes on your inheritance is because it has already been taxed.
Here’s what else is worth knowing about how taxes impact your inheritance." https://turbotax.intuit.ca/tips/do-you-pay-taxes-on-money-yo...
In the USA, while there is an inheritance tax, there are a few widely used loopholes.
This explanation gets very hand-wavy when it comes to explaining how much the lawyers and investment bankers get paid.
Think about this: how much would you pay to Bobby to avoid paying $1000 to your Uncle Sam? You are technically better off even if you pay $999…
I have no doubt that Mortimer Silverspoon III is better off, and that the taxpayers as a whole are worse off. But I bet that the real winners are the partners at Quahog Sachs and Dewey Cheatem & Howe LLP. The complex paperwork and the decades between origination and conclusion probably make it nearly impossible for anyone else to know who came out on top. But we definitely know who lost.
I have the solution - someone else should pay!
When you say "the rich" don't pay enough, you're essentially saying "don't tax me" then launch into a selfish, ad hominem tirade about how greedy "those" other people are
would this be an eli5?
A owns assets worth of $500M and wants to turn it into cash. Selling it would require him to pay income taxes on past appreciations. So, instead he'll get a loan worth somewhat less than $500M and uses the asset (as is or transferred to a Trust) as a collateral. He wastes the cash from the loan and eventually dies. Now the bank gets the collateral and nobody ever paid a significant amount of taxes.
Is that it?
Why does this puzzle you? It seems like completely expected behavior to me. Most people try to minimize taxes. Who do you know that gladly pays more than they legally have to pay?
At some point in my life I took a step back to look at my life and how I’m doing and how much I pay for that life. Maybe I’m just incredibly lucky.
My conservative expectation is that we all have to start contributing a lot more over the next few decades if we want to maintain our standard of living, otherwise it will just gradually get worse. I hope I’m wrong.
What would the government spend the additional tax revenue on, in your conservative expection?
Healthcare, school lunches, diversion programs, research grants
(conts) infrastructure upkeep, managing various natural resources, emergency management, weather reporting/forecasting/research, economic reporting/research...
There are so many valuable services provided by the US federal government. People just take it all for granted.
I've always said people should be able to directly allocate where their taxes go within the government expenditures, or be able to file an objection based on religious or philosophical beliefs to having their tax dollars fund morally objectionable things. I would be much happier to pay taxes if they went to funding schools, infrastructure, NASA, emergency management, poverty relief and other useful things instead of putting undocumented immigrants who could be productive members of society in concentration camps or bombing brown people. Furthermore, I am happy to fund particular defense initiatives like supporting Ukraine, but I want a line item veto on unproductive or morally repugnant things the government does.
I’ve gotten to see some of that at a local level and… I just don’t know. We barely managed to pass a local school levy to recoup from a major accounting error that would have meant massive layoffs for the district. It’s a pretty good district academically, and I was shocked at how many empty nesters (new ones, too) were vocal about voting no just because “no new taxes“, despite all of their kids consuming that very system with great benefit for the past 18 years.
A few counties away, the library district said without a tax increase, they’ll have to shut down. “No new taxes” carried the day. Library shut down. Now folks are howling. And again it’s the non-voting kids that suffer.
If this is the behavior of folks about issues affecting their neighbors, in their own town, I’m not too optimistic what sort of support we could see for any kind of longer-term issue, especially if it isn’t atop the media cycle.
The way I (not the previous poster) envision this working is not that you can opt out of taxes, but you can skip certain items.
So I don't pay Israel's defense budget, but that money is reallocated evenly to everything else.
I find it hard to believe a meaningful number of people would opt out of libraries and schools assuming their overall tax burden is unchanged.
This sounds like a good way to accidentally create an industry of reverse lobbyists where the government contracts them to convince tax payers to allocate money to their department.
I might be too pessimistic though, I tend towards liking the idea but I'm concerned about the changes it could cause.
That already happens. Why else would Northrop advertise a stealth jet at the superbowl.
if they vote against a tax levy for a school they will most definitely vote to send the money elsewhere.
Empty nesters or childless people will funnel their tax money to things like parks, fire trucks, and other things.
Hypothecated taxes are an anti-pattern, for precisely this reason. Setting the budget and setting the taxes should be somewhat separated (but not too separated!)
Obviously, this was supposed to be the job of the person you elected.
But in 2024 we definitely have the technology to let people vote on smaller units of issues that they care about.
I would be completely in support of people self-allocating their taxes as long as (1) the distribution still had to add up to 100% so you can’t under contribute and (2) government offices capped their income and redistributed excess to the general funds instead of letting some feel-good departments waste money they didn’t need but were allocated.
The caps must be high enough that departments are in competition for funds. Presumably the outcome is then that the department for fluffy bunnies is funded up to its cap, taking money away from the department for unblocking drains.
That always sounds nice until you see how it plays out in universities and other charities. The directed donations don't get sent to where they are most needed; they end up funding large vanity projects.
Members of Congress often propose things like this because it sounds good but in practice it's meaningless.
Suppose that Democrats don't want to pay for bombs and Republicans don't want to pay for makework jobs, so they both say they don't want their tax money to be used for this. Then the government takes the money from Democrats they didn't spend on bombs and uses it to make up the shortfall in the makework jobs programs and takes the money Republicans didn't spend on makework jobs and uses it to make up the shortfall in the military, and nothing changes at all.
The only way it could actually do something is if you got the money back you didn't want spent on that thing, instead of letting the government spend it on something else. But then most people would do that with large chunks of government spending because they'd rather the money than the programs.
The US already spends more on healthcare than just about every other country and the inefficiency of that spending is an obvious problem that should probably be addressed before throwing any more money into the fire. But if it was addressed then the amount of spending needed would go down rather than up.
That other stuff doesn't even cost a significant amount of money by comparison and could be well-funded from the savings.
The government doesn't lack for revenue, it lacks for efficiency.
Our healthcare is horribly wasteful and inefficient. But since the US government isn't in charge of it for most people, you can't blame them here. Our ultra-capitalist healthcare "system" achieved this spectacular waste all by itself.
Climate crisis alone will make maintaining our infrastructure much more expensive in a lot of places.
Pretty matter-of-fact tone for a subject of complete mystery to us.
Sandberms, floodgates, concrete disease.
The austerity policies of the neoliberal turn has already caused standards of living among the less fortunate to drop over the last few decades already. The 2008 crisis is when it started to impact the middle class and we're still feeling the impacts 16+ years later.
Now factor in the effects of climate change on many communities over the next decades. Maintaining our infrastructure i.e. lifestyle is going to be much much more expensive.
Minor correction: maintaining the lifestyle of billionaire coastal developers and their clientele will be much much more expensive. The poors will continue to be encouraged to eat shit and die as per usual.
Yes, typically poor people’s contribution to the economy isn’t as great individually. Groundbreaking stuff.
The cute thing there being they outnumber the big fish by something like 400,000 to 1 in the US and without them there is literally no economy and no billionaire class.
Your take is as profound as claiming there’s no life without oxygen, but it serves very little actual utility in observing the world.
There has been no austerity: https://fred.stlouisfed.org/series/FYONGDA188S
I'm not saying you're wrong, but that graph doesn't show anything with regards to whether or not middle-class folks have been hit with austerity.
Federal outlays are not granular enough and increasing Federal outlays is pretty meaningless.
Austerity in the context of government means spending cuts. "We diverted the tax money to cronies instead of anything that benefits you and spending actually went up" is not austerity, it's corruption.
Austerity for thee, but not for me.
Do you really think the explosion in government spending is the result of austerity?
Please note - this is a more modern belief. Something that solidified in the zeitgeist post 2008.
If you go to early Reddit, you will see it a staunchly pro market, anti tax stronghold - as was HN.
For eons, “competition” was the mantra along with “greed is good”. Many people who own wealth reached there with that ethos.
No one has to “contribute more”. That’s the opportunity for whichever bright eye person decides to take advantage of the gap in the market.
If you want a counter to this dogma -
1) Yes. Market inefficiencies should be open as opportunities to the industrious
2) No. Not all market inefficiencies are the same. for example, Public goods (police, military) are not better off with multiple companies. Insurance is similar.
3) Lobbying for convenient rules, lobbying for weakened regulators has given far more advantage to firms, which then use that wealth to become rent seekers. They dont need to innovate, because they can litigate.
4) “more regulation means higher compliance costs” was a new one I saw. Guess what - if your firm uses contracts, that’s a compliance cost. Why not just do it by a hand shake? Save your lawyer fees.
Compliance costs ensure fair play between entities of unequal strength. You can trade on your competitive advantage, not on the tertiary strengths, such as a firms ability to pay for a better legal team.
Edit: Soap box - This is about Personal Responsibility.
The place where most people agree today, is the desire for a fair fight.
How can I reasonably defend the idea of personal responsibility, in something like the sale of NINJA loans.
If firms field trained, resourced, networked sales people to sell loans to people who have a negligible chance of even understanding what they are getting into, then how do I reasonably bring up personal responsibility ?
Can people reasonably be expected to read all the contracts they have signed? ( Netflix, Uber, gmail, phone, etc.)
Algorithmic ads are fine tuned to grab your attention and keep you online. There is more money spent on UI UX research than the GDP of some global south countries.
Forget America for a second - imagine how regulators in smaller economies handle these things. Heck, that’s if they even have time to worry about these things.
One of the big problems here, and the lobbyists do this on purpose, is that they promote the false notion that the issue is the quantity of regulations and not their substance. Quantity can be an issue when the number of regulations becomes excessive and their sheer number thwarts competition by creating high barriers to entry, but "incumbents want fewer regulations" is not only misleading but typically the opposite of what really happens.
Incumbents want to get rid of regulations that protect competition and add regulations that inhibit it. What we need, of course, is the opposite. Which isn't as simple as "make number of regulations go up/down", it matters very much which ones and what they do.
This is completely the opposite. Compliance costs are generally fixed costs, i.e. every entity has to hire a lawyer and pay them $250,000. For a megacorp this is negligible and they don't even notice, for a small business they're now out of the market because that amount of expense would bankrupt them. The more rules you have, the higher that number gets. This is the sense in which the absolute number of rules matters.
But it still depends what they are. Even if you only have a couple of rules, the incumbents will want rules that only they can comply with. Conversely, you can hypothetically have a lot of rules and still have them easy to comply with, though this is certainly easier said than done. What you really want is to have a small number of rules, but the right rules -- the ones the incumbents don't want and their smaller competitors do.
Just to be clear, you are quoting typical lobbyist talking points here? I definitely disagree with such a simplification.
I agree with the fact that incumbents want to make it easier to make money.
Yes, I am in firm agreement that the content, quality and enforceability of the regulation matters.
That said, I used contracts as an example, specifically to combat this common reduction: “Compliance cost price smaller businesses out of the market, so they are bad for competition and the little guy.”
Writing up a contract is more expensive than trusting someone’s word, it is fair to say that having no contracts would enable more small businesses to flourish (lower costs).
Many things reduce costs, however firms / businesses having to bear compliance costs is not bad for the polity.
But now we're back to "what the regulation is matters more than how many there are". There can exist rules that benefit small companies, obviously. But if the rules every company has to comply with can fill three shelves at the library, this is not going to benefit small companies because they will be unable to operate.
It depends what they are.
One of most insidious is regulations that are ostensibly neutral, i.e. there is a societal benefit of approximately $100 per company on average and to get it the rule is going to impose costs of approximately $100 on the average company. The books are full of these because they provide some ostensible benefit and the cost isn't even being calculated. Nobody fights against them too hard because they're approximately breakeven.
Except that each of them adds $100 in compliance costs to every company, and there are ten thousand of them, so now every company in that industry has a million dollars in compliance costs, which small companies can't sustain. So the rules on their own provide neither benefit nor cost to society, but impair competition, and that has a societal cost.
you and me are back to this.
Most arguments dont get this far, unless these answers are first furnished. Which was the spirit and intent of my parent comment.
And I agree, good regulation is better than absurd regulation.
Sure.
No, most people don't care about their tax the way wealthy people do. I ended up in a wealthy family through marriage and I can tell you nobody I my original social circle spent even a fraction of the effort the wealthy do when it comes to taxes.
Mostly because there's really no way for them to. When I was young and poor, I didn't have much way to pay less taxes (not that I paid that much - but if I wanted to pay less, I couldn't) - I just had my salary, and whatever is deducted from it was it, I had no realistic way to change it. Even such things as charity donations wouldn't change it because to get out of standard deductions etc. I'd have to donate way more than I could afford.
When I got a bit more money, mortgage, stock options, investments, etc. then I started to have options - do I pay this way or that way? Do I invest in this account or that account? Does HDHP/HSA make sense for me or not? Should I sell the certain investment to harvest the tax loss or keep it? Etc. etc. then my asset structure is more varied, so are the opportunities to pay more or less tax. I imagine for really wealthy people (definitely not me, still) there are even more options how to pay less taxes, and they are doing right serious considering them (or paying people to seriously consider them) - if I ever get rich, that's what I'd do.
Right but why go so far? Until you become like Buffett, surprised to pay less than ones secretary.
I don't think this is actually true. It's a nice rhetorical soundbite, but if you count properly (e.g. all taxes all assets owned by Buffett actually pay) there's no way he pays less unless his secretary is extremely exceptional for some reason. It is true that her tax structure is probably different from Buffett's, so if you creatively form your query so that taxes that Buffett predominantly pays are excluded and taxes that the secretary predominantly pays are included, you could probably find a way to justify it, but that would not be a valuable insight.
And of course the whole "pays less", as formulated, is a bit deceptive - his rate of one of the taxes is lower as a percentage, but he actually pays vastly more in actual money (Berkshire Hathaway alone, in which he holds a substantial share, pays billions in taxes every year).
I don't think the quote is meant in absolute dollars, but rather the percentage of her income and assets.
If you only count one specific tax among dozens, maybe. But again, that's just a pointless soundbite, which completely dissolves under a proper inquiry.
It's always funny to read this sort of thing because it's like you're so close to connecting the dots but don't quite get it.
Is it not entirely logical that a cohort that actually pays attention to where 20%, 30%, 40% of their money is going ends up wealthier than one that doesn't?
Many if not most rich never got rich, they happened to be born rich. In the situation I'm talking about, the said family has been wealthy for two centuries. And my in-laws are significantly less well-off than the generation before. Their ancestors may have been gifted in some way that got them rich in the first place, but there have definitely be some regression to average since then and their management of their wealth has been much less efficient than the one of my parents for instance (who aren't wealthy today, but are still clearly better than their own parents).
In fact I suspect that these people are obsessed about taxes because they know their fortune is ever going downhill because they lack the thing that made their ancestors successful so they spend their efforts trying to salvage their wealth instead of making one of their own.
It seems that you agree that they are wealthier than they would otherwise be because they try to minimise taxes.
The rest of your comment seems to be a political commentary on whether inheritance is legitimate. You're entitled to your opinion, but it comes across a bit like sour grapes to me.
It may be a horshoe (the poor need to manage every peeny, the hyper rich distort society to minmax their riches), but the American Dream died decades ago. You can't just follow some financial wellness workshop to "save money" when you can't barely pay rent as is. Hard works correlation with wealth has decreased dramatically, very quickly
That's probably because your original social circle largely already had the government minimize their taxes for them, in the form of a standard deduction that exceeds what they could hope for with an itemized deduction.
In that regard, most people minimize their taxes by doing nothing. The wealthy have to put effort in to get the same effect.
Not quite - even among those people who take the standard deduction, contributing to a tax advantaged account would reduce taxes for most of them. And a significant proportion of low income people don’t even file a tax return, so by doing nothing they literally give away money.
https://dailyyonder.com/low-income-families-risk-losing-thou...
Did it ever occur to you that perhaps that could be part of why they are in fact wealthy?
Generally, tax planning & preparation is going to be far more complicated for wealthy individuals, especially business owners with diverse investments.
What you see as "minimizing taxes" could be a necessary responsibility. If you're on the outside looking in, you may be uninformed about their circumstances and responsibilities. Its definitely a 1% of the 1st world problem, but its still a responsibility that has to be managed; Unless you're familiar their THEIR circumstances, its easy to incorrectly assume motivations.
Be glad you live in a country where you have this problem to complain about.
It’s more than tax minimization. It’s buying politicians and distorting society so they pay less.
If you had the time and resources, wouldn't you try to affect change in government? It's not fundamentally any different than showing up to your city council meeting to get housing developments approved/blocked, for instance. Moreover, most people don't think of themselves as bad people, so they probably legitimately think they're doing the Right Thing™, rather than being some sort of cartoonishly evil villain trying to ruin society by starving government of funding.
This is going to be hard for the politically inclined to understand, but no, it's simply not the case that everyone everywhere is preoccupied with finding/creating legal ways to push their will/preferences onto other people.
This is going to be hard for the ideologically blind to understand, but not every rich person everywhere keeps politicians in their back pockets. Some don't even have their own PAC!
I'm not making any comment on whether rich people are more or less likely to be politically inclined than average people, draw your own conclusions.
I'm also not sure who you're suggesting is ideologically blind. All I'm saying is that given resources like a huge pile of money, many would not wish to use that money to coerce others or otherwise change their local political situation to better suit them. Instead they'd use those resources to increase their own resilience, i.e. simply choosing to leave the neighborhood or situation that was bothering them instead of trying to change it and assuming their own interests are the best and most appropriate ones for everyone.
As the parent is pointing out, everyone thinks they are doing TheRightThing(tm) when they collect/use power to force their views on others. Instead you could have power/wealth and just choose to not fuck with other people. That's not being ideologically blind, it's just an ideology that says, you know what, even my strongly held opinions could be wrongheaded, and maybe I shouldn't be using my arbitrarily acquired wealth/power to steer anything besides my own life.
If only corporations weren't (technically) people, or at least stayed in their lane instead of capturing regulators and buying politicians.
That choice does come with the consequence of having to abide by the agendas of people who are trying to push their will onto other people though.
It's only a viable option if you trust your political system to function when your back is turned.
Definitely not.
Me? No. My goals are fairly simple. Rent is just a distraction from that goal.
whether you intentionally or accidentally put a kink in my garden hose the end result is I can't water my lawn until the kink's out.
How the proposed schema distorts the society? Sure, the federal government will have a little less money, but they still have trillions and are not exactly frugal with it. Between two worlds, one having that tax loophole and one not having it, I can't identify any societal difference that could be attributable to that loophole. Can you name one?
What paying more in taxes gets more done in the things paid by taxes.
It's like there is a direct dependency between a money received from the taxes and the things made/built on the tax money.
The rule of Bureaucracy: grow to absorb all available resources
The rule of Capitalism?
The rule of monopoly?
The rule of feudalism?
Greed isn't exclusive to to systems of government.
You're just listing different kinds of bureaucracies. The principal difference with capitalism is that there isn't supposed to be any constraint on everyone trying to do it, and then competition prevents any one entity from absorbing all the resources.
This, of course, doesn't work if the incumbents capture the government and pass regulations that constrain the competition which is supposed to be keeping them in check.
Indeed, so capitalism in its purest, unbridled form has the same flaw: it becomes all consuming. Hence the need for regulation, another form of bureaucracy.
Ah yes, Parkinson's Law.
For an average person, there's not. Like, if I pay twice as much taxes as I do now, literally nothing would change in anything paid by taxes, and I have no ways to effect that change. Same if by some miracle I stopped paying all federal taxes, there's literally nothing that would change in federal government's actions or budgets.
If everyone thought this way the government would be bankrupt.
The government is already bankrupt and has been for years, you haven't been paying attention as it seems. It's called "deficit budget", and not only they do it every single year, they regularly raise the ceiling they set for themselves of how much debt they are willing to take. They dug a $35T hole and they keep digging, faster every year.
It is extremely disingenuous to put this conundrum at my feet, as if my actions, with my puny tax which I am too lazy to even calculate how much it would be in percents, but it's sure to have quite a bunch of zeros in front, had even the tiniest influence on those decisions. It never did and never will. Maybe Buffett's decisions may, but not mine. So stop trying to shame me for things that have nothing to do with me and never could have anything to do with me.
or $35T due.
"Bankrupt" doesn't makes sense as a concept when when you can print the currency of your debt
I don't know if that's really true. The government tends to be inefficient, and I sometimes wonder if having more tax money available just allows them to be even more inefficient.
I don’t think this is true. Most people pay more in taxes, and receive the pleasure of a refund check come April.
Even these people try to minimize their taxes so the refund is larger.
By doing what? Letting their tax preparer select the EITC? Calling that a “Try” is stretching it.
Contributing to an IRA or HSA.
Most people do not do those things.
And if they do, they’re likely not doing it with tax reasons in mind.
I think "minimize taxes" is short for "minimize tax liability" and refunds due to overpayment have absolutely nothing to do with that once you've paid enough to avoid penalties and interest (which is only ~90% of your liability).
My point is they’re not doing any sort of planning to minimize their liability. They’re not doing sound tax planning of any sort.
Ah, ok. It sounded like one or the other (i.e., people who inflate their refund aren't planning well) but personally I find that adding withholding at an amount that often leads to an inflated refund is a good low-effort way of minimizing risk of underpayment penalties (and it eliminates the need to think about estimated payments) for those good years where substantial gains unexpectedly occur. Of course it's like giving a free loan, which isn't great, but it's miniscule relative to the time I get back by thinking less. And I definitely minimize my liability -- loss harvesting, avoid short term gains, etc. -- so I am squarely in both camps.
A tax that is refunded isn't really a tax liability, it's an asset making 0% gain or interest, and will be converted to a cash asset within a 18 months or less.
Regardless, most people don't like tax, and there's not much they can do about it if they are W-2 wage earners short of opening a side business or maxing out retirement investments (which isn't helpful to someone trying to buy a house before they are 65).
Guess it's easy to talk this way as someone who isn't that rich, but if I'm at the point where I have 8 figures accessible, or 7 figures liquid and own all the important assets (house, car, kids' college funds in 523, etc), I don't particularly care what part of my income is being taxed past that point.
My goal isn't to make money for money's sake. Nor even leaving oodles of money to my kids. I'd metaphorically just spend my days strumming a guitar for the rest of my days. The economy is just a distraction from what I really care about.
People always talk like this from the outside and yet when placed in the actual situation essentially everyone acts differently. "If I were in battle I wouldn't be scared" vs in actual battle essentially every soldier is scared. "If I were rich then I wouldn't worry about taxes" vs after becoming rich, essentially everyone worries about taxes.
Is there a word for this phenomenon? What makes everyone believe they're a special case?
Consider that the type of people who are more inclined to accumulate wealth are the ones faced with this choice.
The people who'd rather strum guitars don't often find themselves in that position. So your observation is painfully anecdotal and not really useful.
Yeah, probably. That's why I left a footnote.
I have some "relative" taste of it in that I'm a lot better off than the past 3 generations of my family minimum. But I was still far from what I consider "wealthy" even within the tech community, let alone to the country at large. I didn't feel it fundamentally changed how I approached finances outside of being more willing to splurge on some tech (something I've always wanted to do) after I put away 20% for savings.
But that's only one magnitude. Who knows, money corrupts for a reason.
What makes you believe that “after becoming rich, essentially everyone worries about taxes”?
People who acquire money simply reset the goalposts.
ESPN recently did a movie on what happened to poor people who suddenly became multi-millionaires when they joined a pro sports team.
TLDR: they quickly spent it all and wound up with nothing. It turns out to be amazingly easy to burn through a million dollars.
I can't refute that. while I arguably (by my family line's standard) came into "life changing money" I also did have a bunch of upbringing from family, education, and second hand experience to take steps to avoid that. But I agree that words are cheap, and 6 to 7 figures is yet another magnitude of life changing.
On a similar note, I do understand the peer pressure that comes with being on a team like that. "tradition" where you buy your entire team dinner for a night on the order of high 5 figures as a start. I can start to sympathize with how that spirals when the environment itself pressures you. More reason to make a financial planning class mandatory in school. Won't save everyone, but it'll at least bring awareness.
I've often thought that public schools need to have a course in basic financial accounting. It isn't very hard, and is just adding and subtracting.
After all, we live in a market society, shouldn't students be at least able to read a simple P&L statement and balance sheet?
I always wanted to start a business, so on summer break I took a course in basic accounting from the local community college, and it has served me very well ever since.
Will Smith is another cautionary tale. As a teen, he made it big with his Fresh Prince rap songs. He blew all the money on partying. Then the IRS came knocking. It had never occurred to him he had to pay income tax on his millions, which no longer existed. He made a deal with the IRS. On his show "Fresh Prince of Bel-Air", all his earnings other than an allowance went to the IRS.
The issue here is that it depends what you're trying to do. If you have eight figures then you have all the housing and vehicles you need and more money is not going to make a big difference in that regard.
But that's not what people use it for at that point. Mostly what money past that is used for is business. You own a company and you want to get into the auto industry? You're going to need to pay designers to design the cars well before you make any revenue, and then you're going to need factories and raw materials etc. Suddenly a million bucks is chump change and if you want to make it work you need a lot more.
I feel like if I were a billionaire or even a multi millionaire, I'd have better things to spend my time doing than worrying about taxes.
You wouldn't spend any time. You would pay a CPA $300K per year to save you millions in tax liability and never even think about it.
Or decades ago you'd face a 70-90% tax rate, stop fighting it, and be happy with an upper middle-class life. Unless you're a certain washed up actor turned governor.
I assume they don't do the work themselves, they pay a tax expert. If I was a rich businessman I wouldn't want to spend any more time than necessary thinking about taxes
I think this is an argument against how taxes are organized, at least in the US
Rather than add a bunch of subsidies in the form of tax breaks, the government could just spend money on programs that accomplish the aim they want. By making this complicated system whereby subsidies are accomplished by negating taxes you would otherwise owe, this means these benefits are more likely to help people who are otherwise going to be paying more taxes, and the fact that these require legwork to opt into without being at risk of the government thinking you're defrauding them, it seems kind of inevitable that it would devolve into a subsidy mostly for wealthier people who are good at navigating the bureaucracy of it, or rather, who can pay someone in what has become a cottage industry of tax (evasion) specialists who ply the trade of doing so in service of people who can afford them
Like, yeah, given that the game is set up this way, the obvious objective of it from the standpoint of any taxpayer engaging with it is to pay as little as possible. But if the aim of the tax breaks are something besides creating said incentive (and the industry around it), it seems like bad mechanism design to have it work this way in the first place
More then possible legal minimum for them? Approximately everyone - finding ways to minimize your taxes carries opportunity cost that may as well be bigger than the savings, though again, most people will evaluate this in terms of frustration and risk of getting it wrong. The exception are people who can outsource this to professionals - doing that is very low in terms of opportunity cost, frustration and risk, but it's an option available to the few.
So perhaps that's why wealthy people seem so tax-averse - they may be as averse as everyone, but for them the aversion is much cheaper and easier to do.
(This reflects a more general principle I summarize as: the only thing necessary for evil to triumph in the world is that good men are separated from it by enough layers of abstraction.)
Why do you think that minimizing taxes becomes their #1 priority? What actually happens is that they tell the guy handling your finances to save them some money, and that's their problem. And given their fee structure, they'll go as far as they need to, even though the rich person in question doesn't really think about their taxes all that much.
This is the real multiplicative effect of being really rich: It's not knowing that you'll never be short of money, but how many things you don't even have to think about, because they are handled in your stead.
This is where I'd expect AI will change the world for consumers first: The tasks that now require either a lot of energy, or hiring an assistant or eight, becoming so cheap a good chunk of middle class will be able to afford it.
Nah I’ve met a fair number of mega-high wealth individuals. They would go so far as to pick a materially worse deal that allowed them to pay no taxes, over a higher payout that required some taxes paid. It is nuts.
It might be they’re just against taxes. How could that be a surprising thing to you?
In democracies, the massive bulk of people are voting to steal the money of the rich. That’s not cool.
That sounds really, really cool to me. And it's an abuse of language to call it stealing.
It's not, it's literally what it is. Per default, accumulating wealth contains risks for the individual attempting to do so, and increasingly more and more of the wealth is stripped away while reducing none of the risk. Thats absolutely theft.
Fulfilling your obligation to a society that brought you riches, however much risk you took and however much hard work vs luck that was, is not theft. Fueling that society, so that it can persist for your well-being is your obligation as a citizen.
If you fully play out your argument, the least wealthy and least successful deserve it the most to have their remaining wealth taken because they are not assuming any risk in this society.
I think that is a very destructive world view.
The line of thinking we’re trying to get across to you here is best put like this I find; even if 99% of the village thinks it’s a good idea to march into the most productive individual’s house and rob it clean, it doesn’t become morally right to do so.
Even if that individual moved into the village knowing perfectly well that this is the rule in this village?
It is not unreasonable to me that you have to pitch in for common goods if you live in a village, and should you refuse to take part in this you might find yourself in a situation where you have to either move out of the village or forfeit your share.
If this is what you believe raising taxes is like, I'm not surprised you're against it. But no wonder that you're struggling to get this point across, because it's outlandish in how far removed it is from what I perceive the instrument of taxation to be from concept to application to its morality... Forgive me for my own overblown comparison, but yours is a position I'd expect to hear in a comic from Scrooge McDuck.
I like Ayn Rand as much as the next HN consumer, but let’s be a bit more judicious in how we apply her ideals.
If you earned your wealth through driving on public roads, after receiving a public education, without it actually being blatantly stolen due to a public police force, etc etc etc.
Then it is also your responsibility to pay for these items so that they dan continue to be used for future generation.
No, if you fully play out his argument then the least wealthy deserve not to have their wealth stolen. His argument is that theft is bad, it isn't a complex argument with unexpected implications.
Although it does seem a bit faulty regardless, the amount of risk someone is taking has no bearing on whether taking their stuff is theft.
Theft is illegally taking something. Taxes are part of the legal system. Literally not theft.
Ethically is it right to increase the risk to accumulate wealth? That depends on what you buy with that risk. It’s well-established that people will take risks for fun, and they’ll take significantly more risk when security for themselves and their family is on the line.
Folks with hundreds of millions or billions in assets or millions in income have vastly higher levels of security compared to folks with $100 in the bank and a $15/hr job with no benefits.
So, how much is it ethical to take from the rich to ensure that the poor have decent odds to improve their situation and have a basic level of security? In America, it’s been as much as 60% in income taxes for the highly-paid. A wealth tax of 40% upon death still exists, even if the rich have found a way around that. It sounds like America has already established that 40% taxed to the benefit of all is ethically okay.
So we should probably be killing the buy, borrow, die strategy of tax avoidance, especially on transfer taxes should be collected. But could we take more from the wealthiest and have that be ethically okay?
Let’s say we have someone with $300M in assets and those appreciate 8% annually on average. Those assets will be worth $600M in 10 years. Assuming a spend of $10M per year, they’d still be worth $400M by the end of 10 years. So we’ve had at least $100M generated compared to where we started just for existing and living a lavish life. But we could have taxed that $100M at 40% and put 40M into public services, infrastructure, or entrepreneurial grants to provide tens of thousands of people with more security without materially affecting our asset-owning individual. Even just distributing $40M to supplement incomes for low-security folks would translate to 2500+ people getting a chance to improve their situations.
So, is it ethical to tax the excess asset appreciation that the individual didn’t use for anything? It’s not that it didn’t grow, it’s that it grew a little less fast. And we were able to impact thousands based on that. I’d argue yes, and I struggle to understand how “make life no different for the individual vs make life better for thousands of people” comes down on the side of the individual. It’s not until taxes grow higher than appreciation that I start to think it might be unethical.
But as you approach taxes equaling appreciation, I can see how it could be counterproductive. I think that’s not the argument though. It wouldn’t be terribly difficult to tax assets based on appreciation above their highest appraisal, with appraisal triggering taxes being owed. Certainly no more complicated than our current taxes assets and the loopholes that lead to buy, borrow, die.
Theft/stealing is a concept that predates the idea of law and legal systems. The very first legal system talk about “stealing” and punishment for thieves without having to define the word.
I disagree with the guy upthread, but it’s a bit dense to say that taxes being theft is oxymoronic when you clearly understand what he meant.
They’re also voting for the policies that enable safe wealth accumulation and preservation, so “steal” seems like the wrong word—though there may well be some wealthy people who feel stolen from inasmuchas they’d rather live in a less secure society where they could try to be the winning warlord. Most capitalists see the value of a stable consumer class, though, backed up by a legal system and economic policy that injects money to prevent the collapse of their income-drivers.
They're literally plotting policies of "wealth redistribution" in the EU at least. The idiot bureaucrats can call it what they want, but forcibly redistributing your assets more and more to other people makes it thievery.
The longer people will call it communist plot and insist on not paying taxes, the higher is the probability of having the actual communist plot and being exiled to the Moon by a popular vote.
It’s a shame it seems to come to that about once every hundred years. We’ve won the war against the communists before though, and we’ll do it again.
Maybe if we don't strip poor people of any chance of getting out of poverty they won't turn to communism. If you chase an animal in the corner, it will fight back. You can shoot it and win but don't be surprised if the situation repeats.
The problem is that communism (as it is practiced) forces everyone into poverty, except for the tiny fraction of the population who comprise the elite of the politburo.
Revealed preference at play again, and everyone knows that whats the whole communist thing really is about anyway - crippling jealousy and wishing to kill off the people who've put more effort in their life than you.
In democracies, the minority who own the bulk of wealth are lobbying to ensure they avoid paying taxes. That’s not cool.
Firstly - many developed countries have higher tax rates than America.
Secondly - the issue isn’t being rich. The issue is that tax avoidance for so many years has resulted in absurd levels of wealth capture.
Thirdly - no polity level discussion can happen effectively, because that wealth ensures productive discussion is mired in controversy by the time it reaches the voting public.
This is mostly not true. People are often confused into comparing US federal taxes to the totality of taxes in other countries, but US states levy taxes too. The total of state and federal taxes is often in excess of 50%, which is higher than the OECD average.
The primary cause of this is not tax avoidance, it's market concentration. If your company has 0.1% of the industry and is worth a billion dollars and you pay a 0% effective tax rate, you have a billion dollars. If your company has 50% of the industry and is worth $500 billion dollars and you pay a 70% effective tax rate, you still have $150 billion, i.e. 150 times as much. Also, effective tax rates have never actually been 70%.
The real problem is that the tax system is intentionally convoluted to conceal from the public who is paying what and where the money is going. This benefits the rich in many cases, but it mostly benefits Congress, who can lie to people about what's going on to get their votes even while screwing them in particular. This is not a partisan issue; both parties want more money and want it to go to their cronies, so neither of them wants to simplify the tax system into something sensible and harder to game, because it would interfere with the diversion of everyone's tax money to the politically connected.
I went to double check, and the best answer is that America collects less tax/GDP than its peers. Even accounting for state and federal taxation.
https://www.taxpolicycenter.org/briefing-book/how-do-us-taxe....
So that clarification is warranted.
This … I mostly agree that simpler tax codes are beneficial, I am not sure its complexity is the core reason discussion is difficult.
Tax payment itself is made as painful as possible, so that it remains a focus of ire for citizens.
Hmm. I suppose in the spirit of simplicity, it would be ideal to have an automated tax generation form, and a simple tax code - making it easier for people to just pay their taxes and get on with their life.
And then have progressive taxes for people higher up the wealth ladder.
Your point is that this is not the primary reasons for wealth disparity?
I dont know - we are well aware of the kind of steps firms take to avoid paying taxes, and instead move them to tax havens. The numbers indicate that firms tend to pay much lower taxes in America compared to their OECD peers.
Again - the point here is on “primary reasons” for wealth capture.
Lol, yes, steal. Hi Elon!
I find that hard to believe.
I highly suspect that the "materially worse" deal you speak of is simply less liquid cash, but more retained wealth.
Given American anti tax sentiment, it isn’t surprising.
Plus there is a concerted effort to maintain the narrative that the government should be starved, because the government is the most wasteful body that can be.
Being rich isn’t just some sort of statistical metric - it’s also a clear cut option to have your principles and desires accommodated.
It’s not hard to believe.
To determine whether its 60-40 (tax avoidance - convenience optimization) would seem to be the question to pursue.
FWIW this person was Canadian.
Being wealthy unlocks the option to not be a rational actor with little or no real world consequences, enabling capricious urges and whim to be a significant factor in the decision making process. See: Elon musk.
As a poor person who doesn't fully own his own house but pays in taxes 60% of their income, and much of the rest in house loan interest and principal, I can see how that would play in my own case. If I were to come up onto a lump sum of money by, say, some creative endeavor of mine, and that money is going to be taxed at a 65% tax (such is the law in Sweden for income taxes), I might consider to do a number of things with that money that prevents that tax from being realized, including donating it to charities or investing it in hopeless enterprises. After all, if I can't enjoy the money myself, but I have a bit of agency over it, well the least I can do is enjoy that agency.
But would you just say “no thanks, I don’t want the money if it’s going to be taxed”? That’s what was going on here.
In this particular case that I had in mind when writing this comment, they were arguing for foregoing a tranch of money entirely because it would be taxed at income rates instead of long term capital gains, which would make their %age tax ratio go up, and massively increase the total tax paid.
They would have rather foregone that income entirely, then be forced to pay full income taxes on it. Of course they didn’t argue it this way, or else the idiocy would have been obvious even to them. They were arguing that plan B “results in less tax paid overall.”
That is what their metric was: which plan results in less taxes paid. Not which plan results in more take-home pay.
Maybe it's like the same irrational aversion that people have to shipping fees. Amazon effect for the rich?
I can confirm that I’ve seen the same.
I don’t think people have fully put together that the same personality type that was a slave owner prior to the 1900s is the same personality type of a venture founder, investor, venture, capitalist, banker, etc…
That is to say their goal in getting rich is to have a dictatorship, not necessarily simply to have a nice boat and a house and raise a family
The goal of the mega rich is the same as it always in history, which is to dominate enslave and basically shape the world to what they want it to look like without being intermediated by people with less power.
Further the more wealth people have, in my personal experience, the less they want to have any constraints by other organizations, specifically governments they disagree with.
If people haven’t, they should read about the “business plot”
I don't think it's that unfathomable when you look at how governments spend the money. E.g. a public Czech university spent 80k euros to change their logo from this:
https://cdn.xsd.cz/resize/21404adf37a83977870fe87fe0eb4ea6_r...
to this:
https://www.em.muni.cz/cache-thumbs/logo_muni_web-1580x790-2...
Why does a public university, one of the most popular in the country, need a new logo? And if it needs a new logo, why don't they assign it as a project to the students of arts/marketing faculty?
80K euro might sound like a lot until you realise it is around the combined annual salary for two mid-level employees in Western Europe, and for about a team of four to five in Eastern Europe.
To ask a team of designers to do brand and marketing research and design a new logo for a big organisation that will use said logo everywhere is not a 1K euro freelancer job.
To be fair, the new logo is a bit crap, but in the grand scheme of things, 80K is not a lot at all.
The point is that a public university doesn't gain anything from a good logo, so really anything over $0 is too much. And that $80K doesn't take into account the probably much larger expense of updating that logo throughout the university.
Universities, cities, regions and countries do have PR departments.
Arguably the public image of a university is its most important asset. Because that attracts the best students, researchers and third party funding (public and private).
You assume that the salary is what it costs for the company to have an employee. You need to at least double that.
There is overhead for the person itself (employer subsidized healthcare, office space, equipment) and there is overhead within the organization. Like a secretary and accounting departments who cannot be billed to a client. And management layers of course…
Most likely the 80k are enough to cover one person-year for a consulting agency in Eastern Europe.
That said, the new logo is atrocious.
Damn straight, and they should do the same thing with their website. And while we are at it, they could use the students to design and engineer their buildings and do their accounting and lawyering and administration.
Hell, while we are at it, why not get them to do the teaching as well?
They already do. They’re called TAs and grad students.
Two wrongs don't make a right
There may be problems in the implementation details depending on the university, but the general idea of TAs is a good one, for two primary reasons.
One, in many fields, the more advanced you are, the harder it becomes to remember or even understand why or how one may struggle with understanding the basic material of the field. TAs are still closer to the experience of having learned the basics themselves.
Two, teaching material is a great way to deepen one's understanding of the material.
It also happens to provide a nice balance of giving students a way to earn some money while working in the subject, while still being quite cheap for the university. (That last part does have a smell especially in US universities with their insanely high tuition fees. But that feels like a larger and largely separate issue.)
I'm not sure if you've ever seen how much it costs a corporation of the same size to change logos, but you'll see similar expenses
And frequently equally bad results, such as picking a logo almost exactly the same as another company in the same sector. For instance, the NBC TV network in 1975 hired consultants to make a logo almost exactly the same as Nebraska Educational Television:
http://kenlevine.blogspot.com/2011/09/one-of-nbcs-great-blun...
I worked as a webdev for the Cornell University Library (more than 70 web sites) at the time when Cornell changed their logo from a nice little square that looked like the J.C. Penny logo except it said "Cornell" on it and then they made everybody doing any kind of visual communication change their logo including hiring a friend of mine as a consultant for almost two years to change all the letterheads and similar things for suborganizations that didn't have graphic design talent in house.
We got this thing instead
https://brand.cornell.edu/logos/
which I think is OK graphically on its own but unlike the square it is demanding on the environment that it is in and might force you to change things around it to look good whereas I liked the square because you could just put the square near an edge or a corner and it always looked OK.
We rest easy knowing the wealthy are using their money more wisely: https://sfstandard.com/2024/08/18/zuckerberg-sculpture-prisc...
I personally despise it, but at least it's a cute gesture of love (I hope...) for a billionaire living in SF. Probably one of the more human gestures from Zuck.
Branding is important and should be done by professionals. It makes my eyes hurt to look at the original logo - the 80K was money well spent.
My eyes hurt from the second logo
That top logo is horrible and childish looking. The new logo will look dated soon, but at least it looks professional.
And 80k for a logo is incredibly cheap.
Who cares how professional it looks. Nobody decides “eh, I was going to go to MIT but the logo was bad”.
The marketing for the school is the success of the students and the research.
This doesn't seem to be a large spend on branding and everyone that does spend on that thinks rightly or wrongly that they are going to get their money back and more due to attracting additional customers.
Also this is pure after the fact justification with no meaning. Most people who are rich became and remained so by maximizing their monetary position and needs to excuse nor reason to actually continue doing so. They do so because it perceptibly makes them more rich and more successful even if ultimately is just points on a score board with no real meaning for their life.
Nobody minimizes their taxes in order to ensure their money is better spent. They spend the excess on themselves like everyone else. On bigger and better castles to demonstrate their wealth, on planes, on another bigger boat.
Thats dreadful, but 80k is a blip in terms of the billions collected per year. As mentioned, this would barely be 2 full time salaries, and more likely it's a small team spending part of their time redesigning it.
Sad part is the US would have spent millions on a "consultant" who would barely do any work and instead be a yes man to accept accountability for some admin who just wanted to play political theater for a promotion in another campus. That's where Atlus shrugs.
80k Euros is not even a rounding error in the budget of the Czech government. The last thing you want is them micromanaging that kind of decision because it would end up costing a lot more and make everyone's life terrible.
Considering how governments spend the money nowadays, especially the US and a few others on military stuff and promoting death, I think avoiding tax is a favor to society.
Only if you use the savings to change the government to be more humane.
I'm not in favor of telling people what to do, in general. As long as what they're doing doesn't cause undue harm to others, it's better than what most governments do nowadays.
We have very different definitions of what is "a favor to society".
Apparently. I see individual freedom as a fundamental basis of a stable society. A society that values that is a "favorable" society, in my view.
Owning productive assets is a tortured use of the word hoarding.
edit: Hoarding is buying assets that could be used productively and storing them somewhere instead of using them. People with a political axe to grind like taking words with negative connotations and applying them to things that don't make sense to manipulate you.
If you think about it for more than two seconds you will understand we already have a word that describes someone with a lot of assets, "wealthy" or "rich". So hoarding as a term only makes sense when used in the context of someone stockpiling something that could be used by people in need. "Hoarding" shares in a company does not make sense for example.
I’ll bite. Of every dollar you contributed to your 401k last paycheck, how many cents of them do you think you’ll actually spend in retirement, on a risk-adjusted basis?
For me, the answer is certainly not 100 and not 0, let’s say it’s 80 cents. Speaking for myself, I think that marginal 20 cents is by definition hoarding because the marginal utility of money to me at that point is negligible.
Sure it could benefit my kids or get me a nicer retirement home. But there are kids that are homeless, and our public education system is crumbling. I personally would much rather those 20¢ be redistributed to people who need it. Just speaking for myself.
It's not about personally using the money or marginal utility. By investing the money in the stock market, you are increasing the pool of money that is going into funding businesses (directly and indirectly).
Think of it this way:
Angel investors and venture capitalists are directly funding the creation of new productive businesses with the expectation of a future return / reward. This future reward is only possible with secondary markets such as the public stock exchange. Additionally, employees at these companies are typically rewarded with shares to align incentives. These stock based grants motivate them to work harder and produce more and this is only possible because they can then go and sell their shares on the public market.
An example of hoarding would be like someone buying a bunch of property to park their wealth with low risk but not renting out any of the homes or apartments they purchased because it's too much effort.
I’d argue it’s still about marginal utility, but you’re talking about second order marginal utility. That is, by increasing the amount of wealth that’s locked up in equities, you’re “funding progress”.
I would still posit that the second order marginal utility of those 20 cents is higher in hands of somebody who needs it. In the same way you talk about how that 20 cents impacts the derivative of “progress”, think about how those 20 cents would impact the derivative of the people it’s redistributed to.
It’s my opinion that there’s no better ROI than investment in early childhood education, for example. Because it’s an investment that pays compounding dividends integrated over an entire human lifetime.
And again, we’re not talking about removing the whole dollar from the market, just 20 cents. An amount, by the way, that is around what would be taxed if you were investing in a non-tax-advantaged account. There’s some irony in there.
I mean, some people do in fact do that.
https://www.pbs.org/newshour/amp/economy/houses-are-getting-...
Semantics? I think your first metaphor for productivity was better. Are you simply buying a yatch you use twice in your life ever, or are you living your dreams of sailing the deep blue in a flashy way? Or in the gray area; do you turn it into a business to have other rich people pay to ride?
How you use your assets or liquidity matters a lot more than what medium you store it as. =
How is it puzzling to avoid taxes? This is the rational thing to in terms of maximizing one's utility.
Only if the government provides you (and society) no services.
Even assuming a perfectly efficient government with good intentions, you should not expect to benefit from more than a fraction of your tax money if you are above median income.
Thankfully the government doesn't only serve me, but rather all of society and its diverse fundamental needs.
I think that categorising it as hoarding is a bit of a loaded stance.
I own a home and I have assets that I use to pay my daily expenses. I am, by your definition, asset rich. I don't need to "do" anything other than maintain the investments. (I also do work, but that's besides the point).
On an intellectual level I realise that if we are to have a public sector it needs to be paid for, and that I'm never going to be the arbiter of exactly how the money is spent.
But at the end of the day, I sit here and think, how much do the police, military, and the other basic functions really cost, and is the right way to do that really to say -
Hey, you bought something, give me 20% of that!
Hey, you earned something, give me 20,40,45% of that!
Hey, you sold something, give me 20,28% of that!
Hey, you died? Give me some of that!
etc. etc. If you minimise nothing and just do the "golden path", then you end up paying well over 50% when you stack it, and it feels more like theft than a "trade for civilization" as some like to put it, because I know that it doesn't cost that much.
In my country taxation functions less like "we need this to run the Government", and more like "it's politically popular for us to redistribute". Which is logically how democracy is always going to function, but it doesn't mean that I have to agree.
I prefer to pay for things that I derive benefit from and I think my family, community, country etc benefit from, I prefer not to pay for things that don't, it's honestly no different to me than say, I'll buy a TV if I want one, I won't buy a 100 inch TV because I think that's unnecessary.
When the government is us there can be disagreement about what thresholds of taxes and services are best for society. Thinking only individually misses the forest for the trees. Private industry's record is just as messy as that of government. Thankfully voting gives us a voice. Private corporations listen only to share holders. (Unless they have competitors which is increasingly rare.) Yet corporations also get to lobby with their deep pockets, and sometimes control communication mediums themselves.
And ironically enough, it costs money to figure out how to optimize budgets and labor. So your tax minimization is just ensuring that the government always performs the greedy algorithm instead of focusing on a proper traversal of the problem. It's a death spiral.
Also, we can never really say how much something costs. Most funds for taxes go to welfare. Guess what the classic conservative economic administration always targets...
Greed is hard to imagine for me, I don’t know what motivates those people.
It’s so strange that this behaviour seems to be worshipped by so many people.
Why would we do that as a society? Do we need people that hord anything for profit, do they add value to your group?
Could be they don't feel especially compelled to be a member of your group/society.
Is the real issue greed, or your perception of others?
If I were a billionaire I would avoid as much tax as possible and invest an equivalent amount in things like food banks and natural space conservation because the government is absolute shit at those things.
You can do that to a degree as charitable contributions are a tax write off.
It puzzles you in spite of knowing that wealthy people are taxed more by default due to progressive tax rates etc?
Usually, wealthy people pay capital gains tax not income tax. People who pay higher rate income tax are just normal people with a larger salary. Not every country works like this however.
Plus complaining about "billions of taxes" (absolute, big and scary sounding numbers) and never mentioning the actual tax rate as a percentage of their gains (probably in the low single digits).
It’s unfortunate that your thinking has been reduced to this by democratic rhetoric. No, the country isn’t “the rich paying their fair share” away from thriving, here or anywhere else in the world.
Loss aversion is a major factor in behavioural economics that explains why people act this way.
Seems to be an instinct.
A lawyer told me, this is how you scam people. Mainly Medical Doctors. Pitch an investment to them. They don't bite. Then mention, that they will save taxes with this investment, and they will say: Where do I have to sign?
I’d imagine that for some wealthy people it’s an unavoidable outcome of hiring wealth managers simply because they need someone to manage their wealth. The managers, in turn, have a professional obligation to minimize costs, including taxes - so they cook up these tax schemes.
I think most extremely wealthy people have a concentrated holding in a business they created or inherited.
The bill gates example where someone has 100 billion in sp500 is rare. You don't get insanely rich through diversification
I don't know if this video will display for everyone as someone tagged it as private though I can see it not being logged in. I think David Mitchell has the best take on tax avoidance vs evasion. [1]
[1] - https://www.youtube.com/watch?v=xc8epam4NyY [video][3 mins]
David Mitchell on Tax Avoidance from The Last Leg
Dont know about the US but in India, you pay sales tax on EVERYTHING you buy. Doesn't matter you are rich or poor. You pay this tax.
Want to buy an expensive car? Prepare to pay upwards of 100% car value in taxes.
Same for cigarettes. Around 200% tax just to give 2 examples.
Now, you "can" save your income tax by sleights of hand, by showing more expenses than actual or by misreporting things but still, you dont always get to pay 0 tax. That never happens.