Hacker News Reader

Comment by jvanderbot | Hacker News Reader

What I don't understand is: If I (a wage slave) find a football sized diamond in my back yard, I'm suddenly very "wealthy". Should I be forced to pay taxes on that find because my wealth has increased?

What if I want to keep that diamond but cannot afford to because of the taxes?

Isn't that how business owners gain wealth: By the valuation defined by others to the thing they "found". Should we force Bezos et al to sell some of their stock in their companies to pay tax? Surely a $100m+ tax burden would do that?

View on HN

> What if I want to keep that diamond but cannot afford to because of the taxes?

Then you have to sell it. This is no different from game show awards, where the “car” you ein is taxed at the car’s value, so unless you have enough savings, you have to sell the car to pay the taxes.

I don’t really see any problem with this though? Absolutely we should force Bezos to sell some of his stock to pay taxes: employees already have to do this when they’re given stock grants, why should it be any different for owners?

But why should someone be forced to sell parts of their business (stock) because that business has increased in value?

Or is that not the claim being made here? Isn't that the vast majority of the richests' wealth?

We have a system based around the notion that when a worker is given money or other value in exchange for work, part of their value increase needs to be transferred to the state. That is the same even if you get a car in compensation instead if a paycheck.

Why should the system be such that if you gain value without exchange of work, then suddenly you should not transfer anything to the state?

Yes that means that you might need to liquidate part of the asset to cover taxes on its value, just like paying a workers sallee by giving them a car might mean they need to sell it to cover taxes.

But it’s extremely odd to argue that there is some inherent “unfairness” in Musk or Buffet having to transfer part of their value increases to the state when we all agree every worker should do this.

Why do we tax property more (outside California) when it increases in value? Didn’t the owner of it rightfully make a smart claim and stake out a great piece of land? Why should they be penalized by paying more when the land becomes worth more?

In short: there’s no amount of personal “hard work” that made Bezos’ company worth what it is: the vast majority of the gains are due to his employees’ work and having staked a claim on the right plots of business ventures. Absolutely Bezos should be rewarded for making those smart decisions, but why should he take the vast majority of the gains, when he was not responsible for the vast majority of the value added?

Allowing a few individuals to amass a fortune larger than the non-US NATO budget, while we’re at the same time facing human-extinction level threats, feels a little absurd on its face. Moving the needle towards any one individual only having more power than a few thousand average people, rather than a few million, seems fine?

I mean, it's possible he paid tax on stock he got when he started Amazon. It just wasn't that much back then.

Also, forcing people to selling stock seems like something that can be abused - imagine stock spike like we had with GME this year, during change of address year followed by significant drop. You would probably have to pay more tax than stock is actually valued at.

Note this happens all the time to people who vest stock, and then before the next trading window the stock tanks in value. The employee owes income tax on the stock they vested, at the time the stock was granted, then have capital losses for the drop in share price. Losing 90% of the value of say $1,000 of stock, you could still owe something like $300 in taxes on what is now worth $100. This is the normal world for employees.

I’m not totally sure why we would want billionaires to shoulder less downside risk than their wage earning employees?

This is a strawman argument.

Bezos did not stumble across Amazon while digging weeds in his back garden. He built a successful business through a mixture of hard work, risk, his contacts, laws and infrastructure that we collectively paid for.

It’s not downplaying his efforts to point out that he now contributes proportionally less to the country than he benefits from. This isn’t an accident, either. Bezos pays smart and connected people to push for lower taxes and then avoid as many of those as possible.

No, it was a question, not an argument. Let me restate it: Buying a stock (or bitcoin) uses gobs of the same regulated, government-funded infrastructure. If that stock/coin becomes immensely valuable, that (the fact that I now have a high net worth) makes me "wealthy".

What I'm asking is: Please clarify whether the intent is to tax people based on their net worth (wealth), not their income.

The articles are not clear. They state that capital gains are lower than income taxes, but they are not 1%. Yet they state that Bezos paid less than 1% effective tax rate on his wealth increases. Implying that it's obvious we should have taxed that. It's not obvious. Presumably, and I'm asking for clarification here, he would eventually be taxed on that wealth when he liquidates it.

If so, forcing someone to liquidate by placing a high tax burden on them is unprecedented for stock holdings and other forms of wealth, but not unprecedented for, say, land valuations.

Look at the countless issues raised by people being unable to exercise stock options for tax reasons. It’s clear that taxing stock is NOT unprecedented.

We’ve seen repeatedly over the past 50 years that Bezos will NOT be taxed of that wealth under the current system.

There’s nothing sacred about different types of wealth. The question is whether society can benefit more from taxing and redistributing that wealth, or whether Bezos can by hoarding it.

I don’t just mean the raw tax receipts either. Tax policy influences behaviour, too. This has ups and downs but arguing about finding diamonds in the dirt isn’t a remotely similar analogue to the discussion at hand.

> Look at the countless issues raised by people being unable to exercise stock options for tax reasons. It’s clear that taxing stock is NOT unprecedented.

It is unprecedented to tax someone on the value of their unsold stock. That's what a wealth tax would be: We force someone to pay taxes on something (their holdings / net worth) simply because it is valuable, but not necessarily because it was liquidated into cash (sold). (like we do with land, but not stocks).

> There’s nothing sacred about different types of wealth. The question is whether society can benefit more from taxing and redistributing that wealth, or whether Bezos can by hoarding it.

I think the answer to my question is: Yes, taxing wealth is one way of extracting more public funds from those who are the most wealthy, and many such ways should be considered.

I don't advocate for/against this, I just want to understand and find appropriate analogies.

Propublica seems to have taken advocacy a priori, when comparing wealth to income, and that was confusing to me because it is actually a drastic change without precedent that I'm aware of (except perhaps land ownership).

> It is unprecedented to tax someone on the value of their unsold stock.

You mean unprecedented in the US, right? European countries have been trying various wealth taxes on and off for some time now, some of which count global assets including stocks.

When Jeff Bezos buys a yacht, he doesn't buy it with Amazon stock. He cashes out that stock and then buys the yacht.

I think a fair approach would be to use their total net worth as the threshhold for which wealth taxes apply, but taxes are only paid when that stock is turned into actual money, or equivalent. If you're not cashing out your company holdings, if your wealth is only "on paper", then you owe nothing. But if you try to start cashing that out, then you owe the wealth tax, and you don't get any proceeds until you pay off that tax first. Note that this would be on top of capital gains taxes.

But the article lays out wealth as a baseline, stating that taxes paid are a small percentage of the wealth increases. Wealth is mostly unliquidated because it is stock.

If I'm understanding the argument correctly, the proposition is that we should ( morally, not legally ) have levied additional taxes on these folks because their net worth has gone up as calculated by the value of things they own, like stock. I find that surprising and somewhat unintuitive. Thanks for clarifying.

I think you're correct in how you're characterizing the general consensus around wealth tax - that people should be taxed based on all accumulated wealth, including unrealized gains. I don't know how practical that is. I think an approach that frames it as 100% capital gains and/or marginal income tax rate on equivalent to the first 2-3% of your total gross wealth is more workable.

He almost certainly doesn’t cash out his stock because of the tax impact. He gets a loan collateralized by his shares.

Exercising stock options is a unique case. If I as an employer give you $10m worth of stock (through grants or options), you have something akin to an "income" of $10m on the receipt of that stock. (For the record I disagree with taxing stock grants/options until they're realized and the proceeds can be used to pay the accompanying tax burden.)

If I give you $1 worth of stock and it appreciates to $10m, you have capital gains that will be taxed when you realize those gains.

Should you be able to take out a million dollar loan against the diamond, use the loan to buy stocks, and claim a loss on the year? Then the stocks increase in value, you're able to take out a new loan against them, and use that to pay off the diamond loan. Now you have a diamond, stocks, and no taxable income. Of course, you rinse and repeat.

Maybe we need to re-examine the definition of "realized gains".

When you own stocks, you don't pay taxes every time the value of your portfolio changes. You only pay capital gains when you sell those stocks.

Your example isn't really that much different. You would only really need to pay taxes on that diamond when you sell it, in which case you would just use the proceeds of the sale to cover that.

Right. But the article (and I think the general consensus around the movement) states that the net worth (wealth) is a missed tax opportunity, regardless of whether it is liquidated. Is that correct?

You don't pay capital gains taxes until you sell the stock. The IRS only taxes you when you cash out. Presumably the articles will show the wealthy "cashing out" via loopholes that evade the tax.

The trick is to cash out by dying. You can do this by living off loans against your unrealized capital gains. These then get paid off at your death, and there are all kinds of "simple" ways to keep estate untaxed.

I have a friend who is a member of the ultra rich, and this is exactly how his family uses their portfolio. They currently can borrow with .03% interest through their brokerage.

What I’m curious about is at what level of funds flows does it make sense to start using these strategies. The average faang employees income is dominated by shares but a) they weren’t granted in the distant past when the prices were lower so the tax difference isn’t big between income and b) they have different risk tolerances as Bezos can lose half of his net worth and still be unable to spend all his money before he dies.

There must be some level where these strategies make sense but articles like this rarely point them out.

You do own taxes if you find a diamond. You don't owe taxes if you buy a rock for $10 and it increases in value to $50m.

If you want to keep something you find and can't afford to because of taxes, you either get a loan or have to sell it.

Reply on news.ycombinator.com