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Comment by thepasswordis | Hacker News Reader

I absolutely hate stuff like this.

My net worth has grown substantially in the last several years, however my income has actually gone down in that time.

So do I have an income of millions of dollars? I haven't sold anything that has appreciated (and I don't intend to).

Elon Musk's net worth may have increased, and most certainly Elon Musk is much, much richer than I am, and has a higher income, but this shell game of conflating "income" and "net worth" is just stupid.

There are examples here like:

"If you buy a donut, thats like Elon buying a dunkin donuts franchise!"

Yeah, except I don't sell property or land to buy donuts. How much money does Elon actually take per year in income is the relevant question here.

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Once you reach a certain level of wealth, your net worth increasing becomes a substitute for income because these people live off the debt backed by their illiquid assets. That allows them to avoid a large tax bill.

Take out a $1b loan using $10b in assets as collateral. When that $1b loan comes due, your net worth has grown to $15b. Take out a $2b loan, pay off the original loan and have $1b left to live on. No taxes are paid because no gains have been realized and loans aren't taxable.

This isn't an infinite money cheat. You eventually have to settle the debt. The only way to do that is with income.

There is obviously an upward limit on the debt they can acquire. The problem isn’t that this is an infinite money cheat. It is a tax avoidance cheat because now the income is all long term capital gains that can be realized whenever is most convenient and gains can be offset by losses. That is how these people have tax rates below 5%.

There is a $3000 cap on capital gains loss offsets. Useful for the middle class, but useless if you're Jeff Bezos.

You are misremembering the details of that cap. The $3k cap is for offsetting ordinary income. These people have little ordinary income. Almost all of their money would be from capital gains. A $1b capital loss can be used to completely offset a $1b capital gain and leave a tax bill of $0.

Right. Because the tax due on $0 net is $0.

You never have to settle the debt. You die with the debt and the assets and your estate settles the debt then passes the rest in to your heirs

To piggy back on this a bit, there's something cost step-up cost basis and so while you pay have bought stock at 1$ and it appreciated to 100$ your estate's cost basis will be 100$ so there is 0 capital gains. Which means that the loan can be paid off without paying any capital gains tax.

heirs don't inherit debt. Your debt will be settled by the estate which will pay the tax. What's left will be passed down to your children/heirs.

The step up basis rule applies to the estate and it is stepped up to the current value on the date of death. So the estate settles the debt and pays no capital gains tax on any assets that had to be sold to pay off the debt. Then, the remaining assets go to the heirs. Or, if it is setup like most super wealthy, the assets left in the estate will more or less be cancelled out leaving little in the estate thus avoiding estate tax. Most of the assets will have already been passed along or will remain in various trusts and non-profits for the benefit of the heirs.

Only counts for estates less than $11.2 million. Again, useful for the middles class. Meaningless if you're Bezos.

[Citation needed]

Step-up cost basis is useless for a middle class estate because below $11.2M you don't pay an estate tax. [1]

Propublica has done a lot of research of this which you should read. [2]

[1]: https://en.wikipedia.org/wiki/Tax_Cuts_and_Jobs_Act_of_2017#... [2]: https://www.propublica.org/article/the-secret-irs-files-trov...

No, I don't believe there is a limit for the step up rule.

You are thinking of the estate tax exemption. That is avoided through other loopholes.

Which can happen by liquidating assets. As long as your net worth grows faster than your debt, this is absolutely an infinite money cheat.

OK... liquidating assets is a taxable event. You aren't avoiding the taxman by borrowing money.

If you can hold off on liquidating assets until death, your estate will pay no capital gains when it liquidates due to the step up rule.

That’s not an infinite money cheat when the required input is infinite wealth growth.

During a period of low interest rates, yes this was the case, but now that rates are rising, this won't be as common.

You can get 2.33% margin loans through Interactive Brokers right now. I guarantee you a billionaire can get much less than that. Banks will always give rates near zero to billionaires because the risk is very low and they want to curry favor and possibly get other, much more lucrative deals from said billionaire.

> Once you reach a certain level of wealth, your net worth increasing becomes a substitute for income because these people live of the debt backed by their illiquid assets. That allows them to avoid a large tax bill.

Income is periodic. I get a salary every year. I can spend that amount every year as long as I'm employed at the same salary. Elon Musk can't spend 220 billion every year. If you want to compare net worth to income you should look at if he were to sell his shares and put it in a safe annuity earning 4% a year or so in perpetuity. So take his wealth, and multiply it by 4%. Also note that the annuity won't grow, unlike my income.

> Take out a $1b loan using $10b in assets as collateral. When that $1b loan comes due, your net worth has grown to $15b.

So you can expect his assets to grow at 50% a year? Here's a life hack: invest in Tesla if you think its going to grow 50% a year. Then even with $100,000 invested today would have you become a billionaire in 23 years!

Notice I said "your net worth increasing becomes a substitute for income" and not "your net worth becomes a substitute for income". These billionaires can get periodic influxes of cash through taking loans on their increased net worth. So I agree Elon's $220b net worth isn't directly comparable to my income, but the $121b increase in his net worth is pretty comparable to my income.

The numbers I made up in that example are obviously made up. I included them to illustrate my point and not as a prediction that all billionaires see their net worth increase 50% every year. That said, Elon's net worth went up over 100% last year.

The page compares it with the $120bn growth in his net worth last year, which absolutely is a capital gain over a fixed period comparable with how much salary and capital gains you made last year.

Admittedly that's an atypical return from the most hyped stocks in a bull market. But using a made up figure for Musk's earnings based on normies' annuities is just as unrepresentative of the typical annual return of being Elon Musk

Elon was able to leverage his vast personal wealth to secure loans to _buy Twitter_. His purchasing power doesn't extend solely to what he is able to liquidate. In any case he can liquidate a million dollars a day in holdings and burn it in a barrel and it wouldn't move the market in a meaningful way. In fact he could tweet that and people would probably buy more of his meme stocks.

You seem to be peeved about a distinction that is not worth making at the scale we are talking about.

I'm annoyed that people feel the need to lie in order to make a point, when the point would have easily been made without the lie.

If they just said: Elon makes $200 MILLION dollars a year, then the point would still be just as valid, and it wouldn't be a lie.

It's the same idiocy involved in people talking about needing to tax people more money. They're bait and switch income with net worth, which are radically different things.

> If they just said: Elon makes $200 MILLION dollars a year, then the point would still be just as valid, and it wouldn't be a lie.

Obviously it would a lie to claim that somebody who doubled their net worth to >$200bn last year having earned all that fortune in quarter of a century, and who earned a $23bn performance bonus last quarter earns "only" $200m a year.

Whereas the $120bn appreciation in the value of Musk's assets the website highlighted might be unrepresentative of his typical annual earnings, it actually is how much he earned last year, unlike the much smaller number you made up.

> it actually is how much he earned last year

No it’s not. It’s how much his assets appreciated. If he tried to sell that much it doesn’t convert to cash that easily.

We don't know what Elon makes a year because money gets very weird at those levels. Loans are effectively free so you don't have to "make money". Accounting chicanery is pervasive. So you have to start somewhere, which is a statement that should apply to revising how we tax ultra-wealthy people as well.

I agree whole-heartedly with you and that too was my initial reaction, yet you obviously did not persevere. The website is not about how trivial your income is compared with Elon's but how significantly wealthy most of us are vs "10% of the world, or over 750 million people, (who) live in extreme poverty on $1.90 or less a day." Take a moment to do it again and take it to the end. Having the wealth to even participate in this conversation makes us all truly fortunate.

Thanks for pointing this out! I now persevered and indeed it will end in you being a 1%-ter.

Well, IIRC Musk doesn’t technically have a salary and maybe (?) the target audience for this site doesn’t know their own net worth off-hand. So I could see why they’d make that choice.

I hear you, I am not keep of this type "propaganda" either, it's inciting to say the least.

It compares and contrasts the 0.01% with the rest of the world. Silly? Maybe. Maybe the intent is actually malice.

People should study and comprehend Normal Distribution, and how it applies to virtual everything.

Mic drop.

Thank you for coming to my TED Talk.

https://en.wikipedia.org/wiki/Normal_distribution

Why is it the relevant question?

Elon Musk borrows against his assets to pay for things. You could too.

Many Americans do. Cash out refinancing of homes is very popular

In fact I did exactly that to buy a Tesla!

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