Tax details of US super-rich allegedly leaked
bbc.com
bbc.com
We are publishing the tax secrets of the .001% - https://news.ycombinator.com/item?id=27434307 - June 2021 (463 comments)
ProPublica's Tax Story is Misleading - https://news.ycombinator.com/item?id=27441277 - June 2021 (ongoing)
https://www.propublica.org/article/the-secret-irs-files-trov...
That's an unfortunately dismissive way to refer to ProPublica. They're more accomplished than most news rooms: https://en.wikipedia.org/wiki/ProPublica#Awards
Edit- this has the benefit of completely avoiding the issue of unrealized gains and sticks to the issue of income...
What happens when they pay the loan back?
Does the lender get a deduction?
> But if they’re reporting 80k income but spending 10M, maybe they should be paying their fair share on that.
A tax on spending (i.e. a sales tax) is a much more efficient means to achieve this.
But yeah, I would be down for a more sensible sales tax situation. I’m sure there are a hundred ways to skin this cat.
Edit: ways
- credit card: nothing
- mortgage: the house
- car loan: the car
One could make rules about loans secured by assets with unrealized gains (with an exemption for a primary residence).
PS Credit card reward points are taxed as interest income in the US so look for a 1099 INT.
There's also a huge advantage in the ability to choose when one wants to pay taxes even if they eventually do get paid. Buffet loves to talk about unrealized gains as a loan from Uncle Sam at zero percent interest.
A lot of companies operate close to break-even or even at a loss. What happens with the owner of a $2m / year company must come up with a 10% wealth tax amounting to $200k, but the company is operating at break-even? Expenses must be cut to pay the tax. Ultimately hurts the lower and middle class the most.
If the treshold is high (say $1B) then I don’t think it would be that unfair to tax stock like property at e.g 1% a year. Diluting power would just be a secondary benefit in megacorps.
This is bonkers logic. You stick the middle class with the tax bill because otherwise the middle class might be stuck with the tax bill.
The better solution is to cut spending and the need for more taxes in general.
I like my privacy. Having people know I make over $x00k a year would invite all sorts of bad things.
A more sophisticated argument is that since you can control capital losses by choosing which assets to sell you would be able to manage your taxes. With enough assets and some planning you could never pay taxes despite having a large income.
The $3,000 cap prevents this. Similar approaches are used throughout the tax code to prevent abuses.
As in people ascribe ongoing debates to the system being broken, yes.
Literally in this thread we have good arguments for reducing capital gains tax exclusions and special treatments and arguments for.
But I really don’t see the fascination of people with “we need to tax the rich more”. For what? To give even more money to the already bloated and corrupt government? The government has plenty of money and yet it’s not used to achieve anything positive. Places like Chicago, Baltimore get crazy amounts of money for decades but the lives of Americans living there hasn’t improved and kids are worse off today education wise. San Fran and LA have crazy taxes and yet have the worst homelessness crisis and defecation on the streets. What we should be talking about is taxing people less and getting rid of the massive bloat and corruption in the government. Getting rid of the lobbying power corporations have over Washington. Getting rid of insider trading being legal for congress and senate. Making any big tech with over a million users in the US into public utilities. Looking into how to make the military spending more efficient, stopping forever wars and cutting down on private contractors. Forcing universities to co-sign the student loans and use a percentage of the salary of the said student after graduation to pay back.
Taxing the rich just for the sake of it while the government gets to eat it all without any improvement in lives is silly.
I would recommend watching the first 4 minutes of this Walmart vs Morons podcast:
Framing the question in terms of politicians redistributing money sounds like an attempt to use base emotions to reach a foregone conclusion. I would like to think that framing the question in terms of governments providing services encourages people to examine how governments work and what they actually have to offer. In other words: you are welcome to debate the mechanisms of government in providing fair and accountable services. (Of course, it could just be that I am exhibiting a bias in the other direction.)
So in essence, taxes are a service to you, they make your money worth something to other people. Without that, we would be using soda pop bottles (or whatever) instead.
The ideal way is that wealth is more equitably distributed before it is created. Instead of a system where business owners represent a tiny minority, who then grow very wealthy and are taxed, we could have a system where everyone owns a little piece of the economy. At its simplest this could be realized by a growth of worker cooperatives, though other schemes exist. [1]
So no, we don’t have to trust politicians to redistribute the wealth and we shouldn’t. But we can build a society where billions simply do not accrue to a tiny minority of the population.
[1] I prefer situations that do not rely on “the state” however I found this historical study of the German Democratic Republic to be very interesting: https://youtube.com/playlist?list=PLhHMtkNa0BDl2oz-8z9cGR45Z...
Like 401k/HSA/DB pension fund investments in index fund ETFs?
Like, it was literally written in the constitution for this purpose.
From the Federalist No. 46:
> Extravagant as the supposition is, let it however be made. Let a regular army, fully equal to the resources of the country, be formed; and let it be entirely at the devotion of the federal government; still it would not be going too far to say, that the State governments, with the people on their side, would be able to repel the danger. The highest number to which, according to the best computation, a standing army can be carried in any country, does not exceed one hundredth part of the whole number of souls; or one twenty-fifth part of the number able to bear arms. This proportion would not yield, in the United States, an army of more than twenty-five or thirty thousand men. To these would be opposed a militia amounting to near half a million of citizens with arms in their hands, officered by men chosen from among themselves, fighting for their common liberties, and united and conducted by governments possessing their affections and confidence. It may well be doubted, whether a militia thus circumstanced could ever be conquered by such a proportion of regular troops. Those who are best acquainted with the last successful resistance of this country against the British arms, will be most inclined to deny the possibility of it.
> Besides the advantage of being armed, which the Americans possess over the people of almost every other nation, the existence of subordinate governments, to which the people are attached, and by which the militia officers are appointed, forms a barrier against the enterprises of ambition, more insurmountable than any which a simple government of any form can admit of. Notwithstanding the military establishments in the several kingdoms of Europe, which are carried as far as the public resources will bear, the governments are afraid to trust the people with arms. And it is not certain, that with this aid alone they would not be able to shake off their yokes. But were the people to possess the additional advantages of local governments chosen by themselves, who could collect the national will and direct the national force, and of officers appointed out of the militia, by these governments, and attached both to them and to the militia, it may be affirmed with the greatest assurance, that the throne of every tyranny in Europe would be speedily overturned in spite of the legions which surround it.
And how do you pay back that loan?
> You could use an unrealized loss over there to balance out the cash you're taking in from a gain over there.
So can everyone.
> If you play that game long enough, your descendants will get a cost basis step up.
That's a strong argument for reforming estate taxation.
Get another loan. If you're rich your assets are growing and so refinancing an existing loan with a larger one gives you more cash to spend and to perform perfunctory maintenance on the loan until it's time for an even bigger loan.
Dying in debt to your trust fund just means the trust fund can write off a large loss before estate taxes.
I swear people just make things up to try and prove their point.
Particularly the section "Stepped-up Basis on Death (Die)"
Forget income taxes, that's just snooping on the cattle.
There is a reason you don’t owe taxes on a stock you haven’t sold yet. For one thing, what if you have to pay tax at one valuation, and then it goes down later.
I think it would make sense to count borrowing against equity as tax-wise equivalent to selling that same equity.
With that loophole closed, together with raising the capital gains tax, I think the tax system would be much more in line with what people expect from it.
When you get a mortgage to buy a $750k house, do you want to be taxed as though you had $750k income that year? You’re just borrowing against the value of an asset after all.
What the government could do is stop loaning out money at 0% (i.e. printing free money which inflates assets, like stocks held by wealthy people). If the prime rate increased, the rate banks would charge on asset-backed loans would also increase, which would make it less attractive than just selling the asset and paying the capital gains tax.
That's now how borrowing money to buy a house works.
Anyone can start a company tomorrow and declare that they have a billion shares of stock in that company. They only become worth something because the person that started the company uses their own effort and ingenuity to make the company do something that is valuable to everyone else.
Taxation isn’t necessarily based on what’s fair or rational, it’s a way of financing public expenses. It might be more logical from the perspective of the people as a whole to tax wealth more and income less (for example) even though wealth is less logical and “fair” to tax than income or consumption.
And a trivial way to work around your proposed rule: borrow without collateral. Why would a lender be willing to do this? Because they know the other party is wealthy, that in the event of bankruptcy they have ways to collect, they make money on interest, and it is tax efficient under your new rule.
And in the meantime, they get to retain the full power and influence that comes with the stock/company that they control. The wealth inequality issue is as much about power dynamics as it is about dollars and cents.
> borrow without collateral
And it would be trivial to write the law to prevent that loophole. If a person has any unrealized gain over a certain amount, then any personal loan, secured or not, would qualify for some sort of realized gain tax.
Personally, I think it is simpler and more elegant to implement a wealth tax. It would encourage the wealthy to take more income or dividends to cover the tax, and it would also help shift investments towards more profitable/cash flow positive ventures. For example, all of the tech unicorns burning loads of VC money to acquire negative cash flow would be penalized under such a scenario.
You didn't avoid anything, you just deferred it until later.
By the way, if the bank "forgave" the loan, and said you don't have to pay it back, that forgiveness is taxed - usually in a form 1099. So there isn't a loop hole there, either.
No. You can roll indefinitely.
By doing that, ultra-wealthy _are_ realizing the value of their investments without being taxed. That's how this wealth is being accessed, and that's a large component of what drives these ultra-low tax rates for the ultra-wealthy.
Also I don't understand how a growing population leads to increasing prices, while there's so damn much unused land? Either there is enough new land, then people eventually spread out (and prices revert to the CPI, to the cost of construction), or there isn't enough land and homelessness increases as more and more people are completely priced out. Right now nearly every country is in the first situation.
I'm sorry, but HELOC is really just dumb.
It's not binary. People like to live near other people in cities. Demand to live close to one's job, friends, activities, and loved ones drives up prices in dense areas even with unlimited room to expand elsewhere.
Desirable locations are desirable even on an infinitely-sized map.
The reason that works is that basis is reset at death.
The free step-up in basis at death makes no sense for the very wealthy. The rule originates from the difficulty in determining the basis of assets of dead people. The very wealthy have accountants that track this.
Warren Buffett can pay capital-gains tax AND estate tax.
That is a far cry from taxing unrealized gains as income which is what a lot of people seem to want to do.
One question is whether we want to encourage pure ownership/holding of assets (the current stock ownership situation) or whether we want to encourage productive use of an asset (the current land ownership situation).
What "productive use" are you going to get out of a share of Amazon stock?
The company itself will do productive things, but taxing people to hold the stock is going to make them do what productive thing, exactly?
You might get a refund or you might pay more taxes when you sell, but there is precedent to paying taxes on stock that you currently hold.
Why would we want to do more of that?
No, I can't say I've ever heard of that happening. You should be able to sell to cover. This will typically happen during an open trading window and brokerages will offer an option for "sell to cover".
>Why would we want to do more of that?
I didn't make a value statement one way or the other. I'm just saying your claim is wrong and maybe your misunderstanding of taxation on stock is not the reason that unrealized capital gains aren't taxed.
That is a lot different than buying a stock at $10, having it go up to $100, and you now have to pay taxes on the gain (which may be temporary, the day after you pay taxes it could go back to $10).
The caveat would be that the capital gain during sale is calculated based on the difference from the price at vesting. So the original taxation is carried with you while you hold the stock which is the mechanism that you thought didn't exist for a reason.
For the second paragraph, it's not so different from real estate market fluctuations. You pay taxes based on the value of your property at a specific date even if that value tanks the very next day.
You can make an argument that income and capital gains should be taxed at similar rates, but it feels like they are being purposely misleading in their presentation, when they use unrealized capital gains as the denominator.
No one else’s taxes are viewed through that lens.
> No one among the 25 wealthiest avoided as much tax as Buffett, the grandfatherly centibillionaire. That’s perhaps surprising, given his public stance as an advocate of higher taxes for the rich.
It is clickbait, emotion inducing garbage. Buffett’s stance for higher taxes has nothing to do with the fact that he had less income than other rich people.
I expected better from ProPublica. Arguing for taxing unrealized gains is fine, but trying to make it seem like Buffett is doing something sneaky to churn emotions is bullshit writing.
1. They have a lot of unrealized gains. 2. They have losses. 3. They take out loans against those gains. I assume the play there is "I'll deal with it later (after 20 years of inflation-rate interest)." 4. They set up charities. 5. They lose money owning sports teams.
Did I miss anything?
Which lead to ever widening wealth gaps which might not be good for society, so taxing unrealized gains might be an answer.
How exactly does giving money to other people help a millionaire fund his/her lifestyle?
Surely the IRS you cannot have a charity that donates to just your family?
I wish these articles would be specific [so I can setup my own :) ].
I'm sure you don't know. No one knows or has a frame of reference. It was chosen to emphasize the narrative. It's like comparing the carbon/waste from mining, manufacturing, delivery and use of a electric car vs. the carbon from burning a tank of gas -- and saying "ah ha! the total lifetime of an EV is worse for the environment than driving around town in a gas car"
The IRS would more likely end up allowing you to take depreciation against your securities like they do for real property (which is subject to property tax)
1) The "so what" is that capital gains is a different thing than wage income from an economics standpoint. Capital gains taxes have different economic effects than income taxes. Most economists agree that capital gains should be taxed lower than income. Most countries tax capital gains far lower than wage income. For example, in Canada only half of someone's capital gains are included in income, and is then taxed at the ordinary income tax rates.
2) Worse, the article just looks at paper wealth and ignores whether there is even a capital gain. If Amazon's stock price goes up, and Bezos makes $10 billion on paper, the IRS doesn't tax him on it. Which is fine--to actually do anything with that paper wealth, he needs to sell the stock or engage in a similar realization event, in which case that gain will be taxed.
The ProPublica analysis that the BBC refers to [1] explains it: you borrow with the capital as collateral and then when you die the debt is repaid by selling some of the capital. But because of the stepped-up basis on death there is never a "realization" of positive gains.
[1] https://www.propublica.org/article/the-secret-irs-files-trov...
Would it make sense for tech workers to pay taxes on the options they hold as a part of their employment? That’s just deferred income as well.
However, it is completely unreasonable for long term capital gains to be taxed any differently than normal income. A dollar earned should be a dollar taxed.
I would guess it's all legal. It is still good to have transparency, which might potentially change things. I am not so sure though. After all, politicans are usually rich as well.
But: All of these super-rich have probably created many, many jobs. I guess all-in-all it is a positive game for society.
Pinning the credit for job-creation on the rich is absurd. They'd have no motivation to hire anyone without demand, which is something that others provide.
Seem absurd? Yeah, of course it is, but keep the capital but take away the demand and see how long those jobs stick around. Lots of capital and little demand, few jobs created. Lots of demand and little capital... well, give it some time, and not even very much, and you'll have tons of capital and lots of jobs, both. So, which perspective, exactly, is absurd? (nb the judges will accept "both, equally" and "both, but crediting the super-rich with job creation is the more absurd of the two" as correct answers)
When it's all secret, we can't make an informed decision on whether or not it should be legal.
That you are speaking about income and capital gains brackets indicates that you don't actually know how the rich hide their money from the tax man.
It, at a first approximation, gets laundered through foundations and into trusts, that they retain control of, but don't really pay either set of taxes on.
What bit of information do you expect that tax return add to the conversation of "Are the rich evading taxes?"
What are you going to add by having uninformed members of the public inspecting tax returns they don’t understand? Keep in mind there are people who turn down raises because they think being in a higher tax bracket will cause them to lose money. These are the geniuses you want to catch tax evaders?
Nobody's saying these people are illegaly evading taxes. The question is: "Should what they are doing be legal?". And that is absolutely a question for a layman. That's what representative democracy is all about. We get to collectively decide what is appropriate, and inappropriate in our society.
Enforcement of the rules is for an unelected executive and judiciary, with limited public input. Determining the rules is for an elected legislature, with significant public input.
There is no government department responsible for determining whether or not the current tax code is fair. We, the public, get to decide that.
Various tax strategies can be and are made public without needing to dox anyone. We are currently debating about them right now. So what do we gain by opening up everyone to identity theft and fraud?
Bill says "The rich should pay more taxes".
Bob says "No, they shouldn't, they pay plenty."
Neither actually has any idea of how much in taxes the rich actually pay. You can't have an informed discussion in that situation.
No fan of the billionaires, but they're just following the code. None of these things are "loopholes" or bugs, they're features. Stop voting in people that do the bidding of these ghouls and you might get somewhere.
It's hard to argue against sunlight being the best disinfectant.
tldr: there is no such thing as "before tax income" as all income is only able to be earned because services paid for by taxes are satisfied necessary preconditions. Tying tax owed to services rendered calls for a change in the code to properly get to Elon's fair share.
Edit: Calm down, downvoters - its not a defense of billionaires. Quite the opposite.