US super-rich 'pay almost no income tax' | Hacker News Reader

US super-rich 'pay almost no income tax'

bbc.co.uk

13 pointsbartread26 comments

I'm not saying the tax system in the US is designed properly (I think it's obvious that it's not), but unless I'm missing something here, all this article shows is that:

1. Rich people got really rich because the value of their stocks (and probably property portfolios) increased a lot in the past 20 years. This is not surprising if you look follow the Fed policy of printing money and look at a simple graph of the S&P 500 over 20 years.

2. Rich people that have their money tied up in these things only get taxed when they sell them (in the form of long term capital gain). This is by design, and I'm very curious how a system could be re-designed to tax people when the value of something like a stock increases, but is not sold. This would effect literally everyone who owns property and/or stocks outside of their 401ks.

What is honestly interesting about this ProPublica article? The only interesting thing (as far as I can tell) about it is someone in the IRS is leaking these people's filings, which is a felony.

> I'm very curious how a system could be re-designed to tax people when the value of something like a stock increases, but is not sold.

If banks can use the increase as collateral on a loan, it stands to reason that the same increase could be similarly used as a collateral tax lien. (Lay opinion - entirely possible this is wrong)

You're right, but think about the consequences.

Taxes are mandatory. Both borrowing and selling is optional. That creates two large differences.

I'll work through two scenarios:

1. When there's a price increase on something you own, you pay income tax that you can claim back if the price decreases later. In that case, owing something valuable (like your family farm, now on the outskirts of a city) lands you with a sizable tax bill as the city grows nearer and land prices grow. You have to sell the family farm, because you're taxed you on the income you would get from selling even if you never sell. (Strictly spealing you pay an advance and never get it back.)

2. Instead of paying with legal tender you could give a part of the saleable item as collateral. Great for people who are rich enough for financial acrobatics, because now they have more options for paying their tax with different assets at different past valuations.

That's kind of why I mentioned this as a lien rather than immediately owed tax. Another way to do the mental gymnastics might be a interest free loan from the IRS to pay those taxes owed secured by a portion of the farm.

The issue specifically here is that tax that's tied up in unrealized gains can be used twice as leverage, once for the purpose of borrowing, and once for the purpose of avoiding a tax burden.

I fully expect that the newish bitcoin borrowing against assets approach* will cause the US Gov / IRS perk up and reduce this "loophole" at least for low net worth indiviuals.

*e.g. crypto.com - borrow against your crypto assets rather than selling them to avoid the taxes that come from selling.

Did you know that you can "avoid" taxes by borrowing against your house instead of selling it?

But the taxes are due when you sell, anyway. All the borrowing does is delay the tax, it avoids nothing. You take some risk and may earn something. If you do earn something, the amount taxable increases, too.

I'm a Millenial. What is House? :D

One of the large things you'll inherit, being the lone grandchild of four grandparents and lone child of two parents ;)

> Rich people that have their money tied up in these things only get taxed when they sell them (in the form of long term capital gain). This is by design, and I'm very curious how a system could be re-designed to tax people when the value of something like a stock increases, but is not sold. This would effect literally everyone who owns property and/or stocks outside of their 401ks.

Instead of income taxes, tax wealth.

You simply file an affidavit showing your current "snapshot of wealth" at a specific date, say April 15th.

If your wealth is less than 10 million, you pay 1% or your wealth. For 500k that's 5k, for 30k that's 300.

Then have tiers like: 10-50 million: 2% 50-500 million: 3% 500-5billion: 4% 5billion+: 5%

For bezos (assuming 100 billion) this would be 5 billion dollars per year. A shit ton for a normal person, a drop in a hat for him.

This tax system could be modified to provide UBI to people, and have zero refunds, loopholes, etc. Everybody is required to pay whether your net worth is 300B, 300M, 300k or 300.

The government then is incentivized to create more wealth, more distribution of wealth, and less on jobs/income. Perhaps schools could also be more focused on training good financial education so students know how to manage money after high school.

It's a nice idea, but it's not so easy for really rich people to just make a "snapshot of wealth". A lot of assets are tied up in illiquid things like re-estate, publicly traded companies, etc

I do like the idea though.

Maybe it doesn't have to be perfectly exact, or maybe there's part of the IRS that handles doing it "for" them.

I mean shouldn't matter too much if it's 110 vs 100 billion, it's a lot better than taxing 0.

non-publicly*

This is a straw man. The super-rich don't have income taxes because they have little to no income. Bill Gates didn't become a billionaire by being paid hundreds of millions of dollars each year - he became a billionaire by building a company that is worth hundreds of billions of dollars and owning a large chunk of it. You have to sell that chunk in order to have income. He probably never has to sell a chunk again in his life.

Yes but, how much of that company growth came from not paying employees a fair wage? How much lost income tax would be recovered if the minimum wage tracked closer to $27 (forget $15 - lol). Not a specific comment on BG/MS, more generalized to billionaire company ownership in general.

The fair wage is the one you agreed to take.

Your statement is equivalent to "a particular practice defines what is fair".

If this were true, then there should never be any cause for indignation over any existing or change in the application of a law (e.g. whichever side of politics you're on, use either 2A rights or LGBTQ Rights here).

Unlike 2A or LGBTQ Rights, you've agreed to your wage.

Invoking godwin... the Nazi's agreed to their orders... it did not make those orders fair (/ethical / ...)

Agreement to a wage purely means that you've exhausted reasonable alternatives available to you due to your constraints (time, energy, location, family, ...)

If you have lots of wealth, you don't need to have much income to tax, and you can use your other resources to offset it. If you want to take more money from Billionaires, income tax isn't going to cut it.

No, all you need to do is fix the tax brackets, so that when someone liquidates five billion dollars worth of capital gains income, they are paying a higher effective rate than someone making 1/10000th that in regular income (not currently the case).

The solution is so trivial it hurts, but it makes it clear that no politician or "expert cabinet member" wants to solve the problem except where it might give them new political power, e.g. to track all private property to implement a wealth tax.

For example, some new federal income brackets might be 50% over 3 million, 55% over 15 million, 60% over 60 million, 65% over 250 million, 70% over 1 billion, 75% over 5 billion (at 2021 USD values). Maybe a 5% discount for long term capital gains instead of the separate mega-discounted bracket we have now. If the aforementioned were implemented 30 years ago, we wouldn't be having so many wealth inequality discussions.

The rich have done this for a long time (borrow against assets to avoid income). What is the purpose of this article now? Are they gunning for an unrealized capital gains tax?

I'm on my phone so can't list the previous threads but if you put Propublica in the search box at the bottom of HN pages, they'll show up.

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They pay income tax when they recognize their income (selling equity). Sensationalist headline.

With over 35T in US retirement savings, an annual 10% tax would solve every problem facing humanity.

The US wealth disparity vs the world is morally inexcusable.

There's a lot of non-billionaire retirement money in that $35 trillion... Assuming market growth minus inflation is about 7% (yeah, the last 10 years have been crazy, but this is an accepted long term number [0]), you're killing people's retirement savings by about 3% per year.

To put that in perspective, assuming a diligent and reasonably paid (i.e. non-FAANG salary) person puts $20k into their 401k and their company matches that, they can never save more than $1.3 million no matter how long they work. That's the point where 10% negates any new contribution of $40k.

After 50 years (working from 22 until 72), they've paid $2 million in and only have $1 million to show for it. They're better off putting their money under a mattress and only suffering inflation losses. In other words you would ruin the 401k as an incentive to save or invest.

[0] https://www.investopedia.com/ask/answers/042415/what-average...

> There's a lot of non-billionaire retirement money in that $35 trillion

That’s my point. Soaking billionaires is just virtue signaling.

To 98% of the world, millionaires and billionaires might as well be the same thing.

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