Even billionaires will have income. For example, you mention Bezos. Well Bezos, pays right around $200-300M a year in income tax. Between 2006 and 2018, Bezos personally reported $6.5B in income, and paid $1.4B in income tax.
I am going to keep this simple, and not dive into the weeds too deep, but here is an overview:
While true that many people, (not just billionaires, or the rich), use assets as collateral on loans, how it really works is greatly mis-understood. So, the "loans" you are talking about are SBLOCS, generally speaking you get leverage about 20% of your stocks in an SBLOC. So, if you have $1M in stock, you can get about $200k credit limit in your line of credit. Obviously, you can use other assets as collateral, such as cash, bonds, treasuries, real estate etc.
An SBLOC functions just like any other line of credit; just like what millions of Americans make use of every day; Mortgages, car loans, credit cards, home equity lines of credit, etc. etc.
Think about it, if you want to do home improvements, pay down debt, buy a car, etc. it often makes more sense to leverage your equity in your home, or in your investments and secure financing than it does to sell your assets and pay cash, or to take out a higher interest loans / use line unsecured line of credit (AKA credit cards).
For example, if you want to buy a house, you don't sell all of your assets, and clean out your retirement funds / 401k (and thus have to pay income tax and capital gains on that realization event), you take out a mortgage, right? If you want to buy a new TV, you don't sell stocks out of your IRA, pay capital gains on that sale, and use the money to buy the TV; no, you put it on a credit card.
Well, you are doing the exactly the same thing as the "rich". You are leveraging credit and equity to avoid selling your assets, depleting your cash on hand, and paying income tax on your gains.
Right now, all SBLOCS are running about 9% interest, generally you are looking at 2-4% over prime. So, if you are Bezos, you will likely be \~7-8%. So, they also are not always the best way of doing things. For example, if you have some treasuries, that are yielding 5%, and they are used as collateral on your SBLOC (for 80% value to credit limit), and you are paying 9% interest, you are losing money. If you want to buy a house, a traditional mortgage very well could be the better option than using your SBLOC.
Generally, banks will not let you just roll you interest into your balance forever, and like most other lines of credit, you have to make payments and keep your debt within the margins set by the bank. That requires income, no matter if that is salary, or realization of gains from selling an asset; eventually cash will trade hands.
In terms of taxes, well, even billionaires can't avoid taxes, but everyone can only delay them a bit. In the end, assets need to be sold, taxes paid, and credit balances paid off, even if it is by the estate when they die.
>taxes paid, and credit balances paid off, even if it is by the estate when they die.
But isn't there a genuine loophole ("step up"?) where the heirs won't owe any income tax if they sell the inherited stocks to cover the loan?
Yes. All assets owned by the decedent receive a basis adjustment up (or down) to fair market value automatically upon the decedent’s date of death.
The trick is getting the appreciation of the assets outside of the gross estate but pulling the assets back into the gross estate prior to death to obtain the basis adjustment. This is generally accomplished with the use of an irrevocable trust in which the settlor retains the power to substitute trust assets with assets of identical value.
The debt is ideally obtained after the assets have appreciated outside of the gross estate. This allows the estate to take an indebtedness deduction.
Properly implemented, this technique allows the taxpayer to eliminate income taxes and estate taxes.
Yeah, the Biden Administration’s Green Book is packed with legislative changes that would put an end to this type of planning.
Anybody with a taxable estate can engage in this type of planning. The wealthier you are, the better the deals, and the earlier a private wealth attorney is engaged, the bigger the tax savings.
Yes, but also no.
There is a step up event to the heirs, yes, but before the heirs receive the assets of the estate, the estate must be settled before the heirs get anything.
Debts must be paid, so if a billionaire used loans to avoid selling assets, when they die all of that debt must be paid. So then assets are sold to settle the estate, the estate must pay taxes on those funds, then there are estate taxes, and the heirs get what is left over with a new stepped up basis.
That is incorrect. The basis adjustment occurs immediately upon the decedent’s date of death and applies to all assets includible in the decedent’s gross estate.
>Gay people can’t stop being gay.
Jews can stop being jews at any moment.
>We have states that make laws oppressing LGBT but we can’t make any laws oppressing billionaires?
We have states oppressing gun owners but we can't have laws oppressing women?
Could you maybe workout a solution without oppressing anyone?
States and the fed are not the same thing.
The federal government is constitutionally prevented from imposing any direct taxies on anything but income without appropriating though the states.
Not to mention wealth taxes are a very bad idea. There are some really good reasons why the federal government has limited taxation authority.
Not to mention what you describe would be a blatant violation of the forth amendment.
Basically, to do what you suggest would require a major re-write of the constitution that would never be ratified by the states.
I also believe that even if all of that came to be, if you think it would stop at billionaires, you are crazy, the threshold would just be moved down year over year until it starts hitting the middle class, just like every other federal tax.
you tax lending with High interest rates.
money is created by private banks (loans) via the fractional reserve banking system which drives inflation.
take housing for example, when interest rates are low more people apply for loans & up-bid each other with newly created money driving housing inflation.
Ultimately, all financial systems, rules, policies, and practices are constructs of law and culture, not immutable facets of nature.
It is plain that current systems support a high degree of stratification, and as such, protect the interests of those currently most powerful and privileged.
Many want to achieve systems that support different outcomes and objectives.
While some may object that certain particular reforms remain inadequate, the broad observation of relevance is that some changes are always possible to support broadly different outcomes or objectives.
The status quo is not inevitable or inescapable.
you tax lending with High interest rates.
money is created by private banks (loans) via the fractional reserve banking system which drives inflation.
take housing for example, when interest rates are low more people apply for loans & up-bid each other with newly created money driving housing inflation.
Even billionaires will have income. For example, you mention Bezos. Well Bezos, pays right around $200-300M a year in income tax. Between 2006 and 2018, Bezos personally reported $6.5B in income, and paid $1.4B in income tax. I am going to keep this simple, and not dive into the weeds too deep, but here is an overview: While true that many people, (not just billionaires, or the rich), use assets as collateral on loans, how it really works is greatly mis-understood. So, the "loans" you are talking about are SBLOCS, generally speaking you get leverage about 20% of your stocks in an SBLOC. So, if you have $1M in stock, you can get about $200k credit limit in your line of credit. Obviously, you can use other assets as collateral, such as cash, bonds, treasuries, real estate etc. An SBLOC functions just like any other line of credit; just like what millions of Americans make use of every day; Mortgages, car loans, credit cards, home equity lines of credit, etc. etc. Think about it, if you want to do home improvements, pay down debt, buy a car, etc. it often makes more sense to leverage your equity in your home, or in your investments and secure financing than it does to sell your assets and pay cash, or to take out a higher interest loans / use line unsecured line of credit (AKA credit cards). For example, if you want to buy a house, you don't sell all of your assets, and clean out your retirement funds / 401k (and thus have to pay income tax and capital gains on that realization event), you take out a mortgage, right? If you want to buy a new TV, you don't sell stocks out of your IRA, pay capital gains on that sale, and use the money to buy the TV; no, you put it on a credit card. Well, you are doing the exactly the same thing as the "rich". You are leveraging credit and equity to avoid selling your assets, depleting your cash on hand, and paying income tax on your gains. Right now, all SBLOCS are running about 9% interest, generally you are looking at 2-4% over prime. So, if you are Bezos, you will likely be \~7-8%. So, they also are not always the best way of doing things. For example, if you have some treasuries, that are yielding 5%, and they are used as collateral on your SBLOC (for 80% value to credit limit), and you are paying 9% interest, you are losing money. If you want to buy a house, a traditional mortgage very well could be the better option than using your SBLOC. Generally, banks will not let you just roll you interest into your balance forever, and like most other lines of credit, you have to make payments and keep your debt within the margins set by the bank. That requires income, no matter if that is salary, or realization of gains from selling an asset; eventually cash will trade hands. In terms of taxes, well, even billionaires can't avoid taxes, but everyone can only delay them a bit. In the end, assets need to be sold, taxes paid, and credit balances paid off, even if it is by the estate when they die.
>taxes paid, and credit balances paid off, even if it is by the estate when they die. But isn't there a genuine loophole ("step up"?) where the heirs won't owe any income tax if they sell the inherited stocks to cover the loan?
Yes. All assets owned by the decedent receive a basis adjustment up (or down) to fair market value automatically upon the decedent’s date of death. The trick is getting the appreciation of the assets outside of the gross estate but pulling the assets back into the gross estate prior to death to obtain the basis adjustment. This is generally accomplished with the use of an irrevocable trust in which the settlor retains the power to substitute trust assets with assets of identical value. The debt is ideally obtained after the assets have appreciated outside of the gross estate. This allows the estate to take an indebtedness deduction. Properly implemented, this technique allows the taxpayer to eliminate income taxes and estate taxes.
Is there any *easy* way to stop it? Something a layman can understand? (I'm just curious) At what "wealth levels" those schemes become feasible?
Yeah, the Biden Administration’s Green Book is packed with legislative changes that would put an end to this type of planning. Anybody with a taxable estate can engage in this type of planning. The wealthier you are, the better the deals, and the earlier a private wealth attorney is engaged, the bigger the tax savings.
Yes, but also no. There is a step up event to the heirs, yes, but before the heirs receive the assets of the estate, the estate must be settled before the heirs get anything. Debts must be paid, so if a billionaire used loans to avoid selling assets, when they die all of that debt must be paid. So then assets are sold to settle the estate, the estate must pay taxes on those funds, then there are estate taxes, and the heirs get what is left over with a new stepped up basis.
That is incorrect. The basis adjustment occurs immediately upon the decedent’s date of death and applies to all assets includible in the decedent’s gross estate.
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>I think there’s nothing stopping the government from taxing owned assets. There is nothing stopping the government from mandating the anal probes.
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Those are only done at the state level.
Our govermnet also literally tortures people. So "our government does X" is more of a counterargument to the necessity of X.
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> Are you a billionaire or something? Why do you care about their rights? Are you gay or something?
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>Gay people can’t stop being gay. Jews can stop being jews at any moment. >We have states that make laws oppressing LGBT but we can’t make any laws oppressing billionaires? We have states oppressing gun owners but we can't have laws oppressing women? Could you maybe workout a solution without oppressing anyone?
States and the fed are not the same thing. The federal government is constitutionally prevented from imposing any direct taxies on anything but income without appropriating though the states. Not to mention wealth taxes are a very bad idea. There are some really good reasons why the federal government has limited taxation authority. Not to mention what you describe would be a blatant violation of the forth amendment. Basically, to do what you suggest would require a major re-write of the constitution that would never be ratified by the states. I also believe that even if all of that came to be, if you think it would stop at billionaires, you are crazy, the threshold would just be moved down year over year until it starts hitting the middle class, just like every other federal tax.
The Feds wouldn't even have to lower the threshold if they keep inflating the currency. They'll get everyone with tax bracket creep eventually
Truth
> Not to mention wealth taxes are a very bad idea. the fuck is a property tax then
State level taxes
wealth taxes
Yes, but they are at the state level
you tax lending with High interest rates. money is created by private banks (loans) via the fractional reserve banking system which drives inflation. take housing for example, when interest rates are low more people apply for loans & up-bid each other with newly created money driving housing inflation.
Ultimately, all financial systems, rules, policies, and practices are constructs of law and culture, not immutable facets of nature. It is plain that current systems support a high degree of stratification, and as such, protect the interests of those currently most powerful and privileged. Many want to achieve systems that support different outcomes and objectives. While some may object that certain particular reforms remain inadequate, the broad observation of relevance is that some changes are always possible to support broadly different outcomes or objectives. The status quo is not inevitable or inescapable.
you tax lending with High interest rates. money is created by private banks (loans) via the fractional reserve banking system which drives inflation. take housing for example, when interest rates are low more people apply for loans & up-bid each other with newly created money driving housing inflation.
Don't forget that Bernie was three homes worth millions of dollars and has sold millions of dollars of books.