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Comment by _bin_ | Hacker News Reader

This is something people love to rage about, yet it's not one with an obvious fix. The counterpoint is that this leaves money invested, which means others invest in other things, and still entails interest payments. It exists in part because you don't want someone who inherited his parents' house and wants to move in to go broke trying to pay taxes, or have to re-mortgage it, with an even stronger case with family farms.

And it exists in part because there are so many legitimate cases for doing it, even as a wealthy person: pretend you're a relatively successful businessman whose company has appreciated to $50mm. In this world, you can't just leave your gains unrealized and borrow against them. So you can

- Try to find somebody to sell to, which is a sketchy move. Of course, as your company continues to appreciate, you will be forced to continue reducing your ownership stake. Over time, this will make keeping a family business in the family largely impossible.

- Try to find money to pay taxes. This means less money for R&D, for expansion, for your employees.

- Just dump the whole business to private equity and move on.

These all suck, and the government generally collects money on assets as they move not assets at rest. I see no way to resolve it that isn't suckier than the status quo and so am left with the conclusion that people who agitate for such changes are more resentful of the rich than they are worried about the justice or lack thereof of tax avoidance.

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These are just generic anti-tax arguments. Yes, if you pay your taxes you will have less money. And maybe you would have used some of that money to do good things. Oh well.

I don't think anyone is seriously suggesting you shouldn't be allowed to borrow against assets. That isn't even the problem. The problem is that you can go your whole life without paying taxes on gains of those assets, then pass them on to your heirs who can sell them and also never have to pay those taxes. It's like a big gift from the IRS: your assets that were previously encumbered by unpaid capital gains taxes instantly become more valuable upon your death.

Your heirs should have the same cost basis as you did. And so if they sell they have pay the taxes that you never did.

The main concern with this is how do you actually get the records of what the cost basis was from someone who is dead?

If the issue is that people are dying leaving behind significant wealth but not documenting this, just make the estate tax 100% on any assets missing documentation like this. I'm sure the lawyers would figure out the rest.

That's effectively already the rule if you sell something and can't figure out the cost basis - it counts as zero.

That isn't really the main concern. It's really a question of alienability.

If your great grandfather invested in something a hundred years ago and now 99% of its value is appreciation (or inflation), you may or may not want to continue investing in it. If you do, the step up in basis doesn't really matter because you're not going to sell it anyway.

But if you now think it's a mediocre investment, you may be inclined to sell it and invest in something else. Except that you won't if you'd lose a significant proportion of its value to taxes. This is a problem with capital gains taxes in general, but it's especially a problem for anything held intergenerationally (i.e. for a very long time) because not only will the appreciation be large, the inflation by itself would represent most of the value of the "gain". So the step-up in basis is a stupid hack to avoid this and let children make different choices than their parents and grandparents without being punished by the tax code.

There are probably better ways to handle this, but "delete it and replace it with nothing" is not one of them.

> There are probably better ways to handle this, but "delete it and replace it with nothing" is not one of them.

Why not? Why do I care about someone being deprived of a portion of some investment his great-grandfather made?

If I get money from some relative who invested in stuff and then you get money from working really hard in a way that someone thought valuable so they gave you money for your work, why should you pay taxes on that money while I don't pay taxes on the money I got from my dead relative?

Are we trying to incentivize people to be born to families that already have money or something? Like are we afraid that if we don't do this, we'll be creating incentives for people to get born into poor families instead?

> Why do I care about someone being deprived of a portion of some investment his great-grandfather made?

Because they only get deprived of it if they sell it, so that gives them more incentive not to sell it, but selling it may be more economically productive, and then you lose the positive externalities of the more productive investment and the tax revenue it would have generated, which could by itself plausibly be more than the loss from the step up in basis.

In general the problem is that capital gains taxes when implemented simplistically create a lot of perverse incentives (tax on productive investment is economically undesirable in general and some of the edge cases are especially ugly), and then the tax code gets full of warts that try to reduce the bad incentives/consequences instead of rethinking the structure of the tax.

> If I get money from some relative who invested in stuff and then you get money from working really hard in a way that someone thought valuable so they gave you money for your work, why should you pay taxes on that money while I don't pay taxes on the money I got from my dead relative?

Your dead relative already paid the taxes on any money earned in the equivalent way. Capital gains are on asset appreciation, which is an industrial-sized can of worms.

Brokers have been required to track costs basis information since 2011. That doesnt really help for assets purchased before then, so estate executors would need to find records for transactions before then. The IRS will generally assume a costs basis of zero until proven otherwise.

Yep step up in basis reform. Thats actually on the table under Kamala.

Why would capital gains be taxed in the first place? It's simply double taxation on the income

I always ask myself, "What was a government service necessary in order to obtain this money?" Since there are no capital gains without all manners of law enforcement, the answer is yes here. A capital gain is not a tax on the original income. It's a tax on the capital gain, which would be impossible without the rest of us.

Capital gains do depend on participants of the market and economy in general. But each and every one of them has already been taxed. I simply stating the obvious that money should be taxed exactly once, not so many times.

> I simply stating the obvious that money should be taxed exactly once, not so many times.

Why is that obvious? Doesn't a rule like that necessarily create distortions in who gets all the benefits of civilization? For example, in only income is taxed, but not gains on investments, doesn't that mean that working people do ALL the work AND pay ALL the taxes, while people who are rich enough not to work literally do NO work and pay NO taxes?

People like you don't realize that economics involves living, breathing humans.

Also, most of my capital gains are due to inflation and not an increase in value.

Then you really need to pick better investments. Say, any broad market index fund.

> Yes, if you pay your taxes you will have less money.

The issue is that it can cause you to have less than zero money, and be forced to sell (possibly illiquid) assets solely in order pay the tax. This is kind of a major deal, e.g. you have an asset worth $20M, but not if you have to sell it right now because it would take time to find the right buyer, so instead you're forced to sell it for $8M to the only person who will buy it immediately. Some assets may not even be possible to sell in the current year, e.g. because the law requires the owner to have some specific license but the only other current licensees are rightfully prohibited from buying you out by antitrust laws. Not to say that the resulting market consolidation would be a good thing when that isn't the case.

> Your heirs should have the same cost basis as you did. And so if they sell they have pay the taxes that you never did.

What this is really encouraging is that they never sell. Which isn't even obviously going to increase tax revenue. If the daughter inherits the business and runs it successfully for a few years and then sells it for 25% over its value at transfer, the government gets tax on the 25%, and then going forward gets the taxes from the new, more productive investment she sold that one in order to buy. And the latter isn't just capital gains; better investments would also be employing more people (payroll taxes, fewer unemployment claims), paying more property taxes, etc.

If you make it so the tax basis stays low so a sale would have to pay tax on 95% of the value instead of 25%, she doesn't sell, you don't even get the tax on the 25% and the tax base stays lower because she doesn't switch to the more productive investment.

I do not understand your first point at all. I’m saying we should eliminate the step up in basis for inherited assets. In what scenario would that force someone to sell something?

Yes their heirs could hold the assets forever and never sell, correct.

> I’m saying we should eliminate the step up in basis for inherited assets. In what scenario would that force someone to sell something?

The proposal has been floated recently that unrealized capital gains should be taxed. This would nominally mitigate a major problem with your proposal, which is that it would heavily discourage people from switching from long-held mediocre investments with a low tax basis to better investments. So they're often proposed together or as the mechanism to remove the step-up in basis, i.e. it's unconditionally stepped up to market value every year but then you have to pay the tax immediately.

But if you tax unrealized gains then you force the sale of assets any time the tax is more than the owner's liquid cash, which is its own major problem.

Whereas if you don't do this, now you haven't solved the original problem that the owner suffers a huge tax penalty for switching from a long-held mediocre investment to a better one.

> If you make it so the tax basis stays low so a sale would have to pay tax on 95% of the value instead of 25%, she doesn't sell, you don't even get the tax on the 25% and the tax base stays lower because she doesn't switch to the more productive investment.

Eventually, someone will sell it. And, at that point, if the tax basis stays with it, all taxes that weren't payed before are payed then. Having the tax basis transfer with the property doesn't prevent the taxes from being payed, it just (might) defer them. Having the tax basis _not_ transfer gets rid of the taxes (on the currently accrued profit) completely.

> Eventually, someone will sell it.

"In the long run, we are all dead." -John Maynard Keynes

"Eventually" could be a thousand years from now, or after the fall of the nation.

More to the point, compounding interest is a powerful force.

Suppose you have an asset valued at $1000 which is generating annual returns of 10%. You know of another investment that would return 11%, and also employ more people etc. If you had to immediately pay 20% of the $1000 in tax to switch to the better investment, it would take more than 20 years for the extra 1% to recover the cost, and then you might not do it. So instead you keep the original investment and in 20 years if you sell you would have (and owe tax on) ~$6700.

Whereas with a step up in basis, you could sell the investment immediately and invest the full $1000 (instead of $800) in the better investment. Then if you sell in 20 years you would have >$8000 and owe tax on >$7000. So both you and the government come out ahead when you sell in 20 years, to say nothing of the additional people you employed (and who themselves paid more taxes). Preventing that from happening is bad for everybody.

Notice also that this problem gets worse the higher you set the tax rate.

But by that logic, we should force people to pay taxes on everything they own that goes up in value, on a regular basis.

My point wasn't that "not forcing the sale won't impact taxes at all". It was more to point out that not forcing the sale doesn't magically make the taxes disappear. It just leave them unrealized in the same way they would if the original owner was still alive and owning them. They'll just get paid later.

Your post made it sound like, by not forcing the sale and taxation, those taxes are completely lost the society.

> But by that logic, we should force people to pay taxes on everything they own that goes up in value, on a regular basis.

We don't really know the value of most things when a transaction isn't happening. Also, this would force people to sell things they otherwise wouldn't have merely in order to pay the tax on their value changing, which is six kinds of disaster.

And, that would imply that you would have a tax loss any time the value of something you own goes down, even if you don't sell it. Which would cause government revenue in recession years to be inverted, even though government spending in recession years is usually increased.

> It was more to point out that not forcing the sale doesn't magically make the taxes disappear. It just leave them unrealized in the same way they would if the original owner was still alive and owning them. They'll just get paid later.

They're unrealized gains. They may not ever be realized.

One of the more common ways for this to happen is for the business to eventually go under. Most of them do in the long run. What percentage of companies are over a hundred years old?

More to the point, that's exactly the problem. If you force a large tax event on sale, things get held longer than they ought to, and then (poorly) managed by someone not really interested in that line of business. Malinvestment leads to lower returns, which reduces tax revenue, often by more than the amount of the step up in basis.

In general, anything which is economically inefficient is also going to be bad for government revenue.

It's also relatively easy to enforce with a generic assertion that all inherited assets must provide proof of adequate payment of capital gains taxes or carry a cost basis equal to the earliest point from which proof can be established.

I'm sure there would be hijinks to avoid this, but for the amounts in question a great deal of legal and accounting hours could be expended to audit the correctness of the returns.

The obvious fix is to not step up basis on death.

The estate tax already means that the estate of a person who dies may need to sell / divide / split stuff to pay the government. There already is no fundamental protection for an asset passing unscathed from a parent to a child. I don't see how not stepping up basis qualitatively changes this.

And your argument of "you want a child to be able to inherit a family business / house and keep the family business protected" is incredibly axiomatic and the antithesis of a tax. While it's inherently consistent, you're making the same general argument as "all taxes are theft".

Yes taxes may be theft in one view, but under our current society, raising revenue for the common welfare is also a virtue, so we can't have have it both ways.

It's a funny argument the one about the family farm. In this case it's not even about inheritance tax. It's a sob story about a guy who couldn't inherit the farm because his dad owed the state money because they had let him not pay tax on his capital gains for a long time.

Sorry for not tearing up.

It also rarely applies to farms. https://www.cbpp.org/blog/the-myth-that-the-estate-tax-threa...

You can't just arbitrarily set the status quo that way, can't just sneak a premise that the state has default a right to collect a piece of arbitrary appreciation on an asset (as all assets are used for speculation) when the owner hasn't actually gotten cash from that, and that any government that doesn't tax that is just cutting someone a break on something rightfully owed. The state of nature is no tax, and as it's unpleasant, we create societies and fund them with taxes that we must deliberate and determine to be just and reasonable. You don't get to argue from the point that your preferred taxation regime is simply how things should be and that how things are is therefore wrong, especially not without a justification.

I'd also point out that people's assets have gone up in nominal terms in the past few years, but for many that's not reflective of an increase in purchasing power. Much of that increase is due to excess inflation from the profligate overspending of our past two administrations, so the cycle currently looks like this: government prints money and causes inflation -> your assets are "worth more" -> taxman says "give me a piece of that" even though your real wages have fallen or have just barely recovered to pre-2020 levels. And of course, even if we index to inflation, that will necessarily hit the poor harder: food and energy are deemed "too volatile" to include in headline CPI, but as necessities, they comprise a larger part of poor households' spending and so inflation will hit them harder than the numbers suggest.

yes, we can. the whole premise of a democracy is that every law is a solid majority away from being turned over.one of the reasons big money is inherent anti-democratic.

Okay, I don't actually believe in that form of democracy. Not all things that are legal are good, therefore we should set constraints on what the majority can do. I'd describe your system as closer to mob rule. And no, that is not the premise of every system that incorporates democracy as an element, it's the premise of an absolute democracy.

>I'd describe your system as closer to mob rule.

lmfao this is always, always, always the refrain

> therefore we should set constraints on what the majority can do

Which inevitably leads to the question: who should get the power to do that and why they, specifically?

You have it backwards. The actual question is, how did the majority magically get the power to enforce its will on the minority in the first place?

The majority held this power as long as we’ve been a social species. Even a Pharaoh lives with consent of the majority even if they’ve convinced that majority they are divine.

Maybe the question is, how are the wealthy magically protected from the mob?

The answer is, some form of government protects them. And that form of government is going to want it's tribute.

Violent revolution, mostly.

> You have it backwards. The actual question is, how did the majority magically get the power to enforce its will on the minority in the first place?

This doesn't answer my question at all.

Who should decide those limits, and why they? Who pics them?

Think of a thought experiment: A new city/town/state/country is getting started (let's assume peacefully somehow, this is a thought experiment).

Who gets to set those limits on democratic action?

One choice that comes to mind is everyone gets together and pics the wisest person in the crowd = representative democracy.

Another choice is the strongest bully in the group beats everyone up and sets the laws however he likes = dictatorship.

What other choices? And which one should be best?

> This doesn't answer my question at all.

I wasn't trying to answer your question. I was pointing out that your question presupposes that the majority has the power to enforce its will on the minority. It doesn't even consider the possibility that the majority having that power is not a law of physics, it's a social construct, and a society does not have to adopt it.

> A new city/town/state/country is getting started (let's assume peacefully somehow, this is a thought experiment).

Who gets to set those limits on democratic action?

Again, you're assuming that what gets started is a city/town/state/country as a political entity, with the ability to enforce its will on its residents, and then asking how that power gets regulated.

You're not even considering the possibility of a community getting started without anyone having the power to enforce their will on others, with everyone having to deal with everyone else as an equal, and nobody having any "governmental" powers.

Historically, such things have happened. For example, saga period Iceland went for several centuries without anyone having governmental powers. Some of the American colonies in the late 1600s and early 1700s--Pennsylvania is a good example--had effectively no one having governmental powers, since while there was nominally a "goverment", it had no ability to enforce its will on residents. These are "other choices" that your question doesn't even comprehend.

What happened in those cases? Historically, those societies did fine as long as they were left alone. What eventually ended them was outside interference. Saga period Iceland ended up conquered by Norway. Pennsylvania ended up having its regime tightened up by the British after the French and Indian War (as part of a general tightening up on all the American colonies).

There is no mystery here. The majority has the physical power to force the minority to do what they want (at least if the difference is big enough). This is an objective, measurable power, not some theoretical concept or moral right. It's not magical, it very much comes from physical laws, like fists and clubs.

Of course no one is surprised.

> therefore we should set constraints on what the majority can do.

The constraints are supposed to be a constitution and time. In time, as people die and new people are born, the world changes. New people are in charge. They can even rewrite the constitution.

What other alternative is there?

> I'd describe your system as closer to mob rule.

“Mob rule” is just the pejorative anti-democrats use for democracy not going their way.

What’s a rule-by-rich-people pejorative? Pig-rule? Just a pejorative. Just as meaningless.

Anti-democrats don’t have rational arguments on their side. Therefore they have to invent specters of the pitch-forked mob who is killing babies in the streets, the desperate, unwashed…

But all of that begs the question: if the “mob” rules, why are they in the streets? With pitch forks? Desperate? Of course it is completely irrational. If the “mob” already ruled there would be be no mob because the average person would enjoy dignity and respect. Safety and security.

They would have enough means to appear upstanding. Like you know, those rich people who rule now or ruled in the past. Those who never had to excuse themselves for being part of a mob or being unclean.

But it’s clear that if you want people to be desperate and in the dirt then you also don’t want them to rule. That’s how you get a mob.

Really? We're a 'solid majority' away from murder being made legal?

> The state of nature is no tax

> You don't get to argue from the point that your preferred taxation regime is simply how things should be

Those two statements seem mildly contradictory.

Not really. Trace the course of history and the natural state of man is much closer to what Hobbes described. In the wild, homo sapiens doesn't have a taxation system. As we built up civilizations, we created taxes as I described. And neither am I arguing for my preference to stick with how we mostly run our taxation regime (tax value when moved, not value at rest) without some justification for it.

No tax in the wild? In my view, sure there was: you get water and share it, the other guy hunts and shares it. The fact no centralised system existed does not mean no tax on the community was levied in some way.

I don’t believe sharing was all that common. But the difference in your story is voluntary sharing.

Once the hunter demands water for meat it becomes an exchange, and is the basis of our capitalist society.

Taxes in that system would be more like 10 men who did not hunt or gather demanded you give them food and water or they would beat your face in.

==Taxes in that system would be more like 10 men who did not hunt or gather demanded you give them food and water or they would beat your face in.==

This seems a little dramatic. Are the 10 men demanding food and water also building roads, cleaning the water, removing waste, educating children, protecting collective assets, or any of the other things that Governments do with collective taxes? If not, the analogy falls apart.

The state of nature has no schools, no water, no sewer and no police. If one is going to live in a civilized nation, he should pay his share of taxes. Capital gains is 15%. That is not an outrageous amount. Everyone should pay because everyone benefits. One is free to leave and live in tax shelter principality or Sultanate.

There is a problem with high taxes on earned income, but anyone complaining about the 15% capital gains tax has problems. The estate tax only applies to this who are very, very fortunate. These are not even earned. Again, if one hates his country, he can move to Dubai, Bermuda or the Glorious Sultanate of Brunei and enjoy their lifestyle.

I do understand that people in California get angry because the state is so poorly run, but most of the US has easily avoided the self-created problems of California and New York city.

==most of the US has easily avoided the self-created problems of California and New York city.==

Two places which produce an outsized share of the country's businesses and wealth? Seems like they are doing something right.

Fair enough that they are outsized productivity but they are also two places which have managed to basically population-cap themselves, primarily through real-estate mismanagement and refusal to build sufficiently to make it worth living there even as infamously high paying areas.

>You can't just arbitrarily set the status quo that way,

huh, what natural, physical laws are being broken? collecting taxes exceeds the speed of light or goes below 0K or something?

> The state of nature is no tax

The state of nature is no property. Billionaires can't exist without a government enforcing their property rights. Why shouldn't they pay the entity that made it possible for them to accumulate their vast wealth?

The state of nature is it is your property so long as you can protect it. There are lots of different ways to do that. Many animals have concepts of owned territory which they protect in various ways.

And you principally protect your property by… wait for it… paying taxes to the state to uphold law and order

That is not the state of nature though. There are "primitive" societies that don't organize their village that way. Social pressures and you working alone are enough to protect your property when the total population to worry about is around 100 people.

We use taxes because nature doesn't scale to towns of 1000, much less nations of millions. But that is not the state of nature.

The concept of property (the way we understand it i.e. all the stuff besides of a handful of personal items) is not something that generally exists or existed in "primitive" societies.

i.e. you can't really "own" more land than you and your family can personally farm and extract rent on it without a state to protect your claim.

You can if you can convince others to protect it for you.

And even much later under feudalism, property as we know it didn't really exist. Land (essentially the only productive asset that existed) was owned by the government, but the government was a loose network of aristocrats instead of a faceless state.

While I'm sure that someone somewhere objects to paying for law and order, I think most tax grumbling comes from taxes rising (and, arguably, still not rising enough) to pay for bigger and bigger programs with an increasingly tenuous relationship to law or order. Not everyone objects to every line item, of course, but the bigger the budget gets the more certain it becomes that those rising taxes are not just to keep up with inflation on basic essentials.

Yes that is the nature of compromise

Agreed, but the post above draws a direct line between a taxes and basic law and order, but one could support scaling back any number of taxes and spending programs without opposing or endangering law and order.

You don’t get the law and order unless the government is able to derive power from an accepting populace.

> I think most tax grumbling comes from taxes rising (and, arguably, still not rising enough) to pay for bigger and bigger programs with an increasingly tenuous relationship to law or order.

The Constitution addresses this confusion in its' preamble. The role of the government includes law and maintaining order, but it extends further -

"We the People of the United States, in Order to form a more perfect Union, establish Justice, insure domestic Tranquility, provide for the common defense, promote the general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity, do ordain and establish this Constitution for the United States of America.

A perfectly valid way of reading "promote the general welfare" is as a constraint on the government, i.e. it shouldn't do anything not consistent with that premise, not that it's empowered to do anything that is. The latter would be inconsistent with the overall architecture of the constitution as setting out a government of enumerated powers.

But the preamble to the constitution isn't legally binding anyway.

Even if you read it that way, it's not really a constraint. If I believe socialized healthcare improves the general welfare, then even your reading implies that it's something the government should be allowed to do. Maybe you don't think that should be it's overriding purpose, but I don't see how it constrains. If they wanted to be more specific, they could have been.

> But the preamble to the constitution isn't legally binding anyway.

No one said it was, but the intent of the framers, at least, is very clear - the government should do things that promote the general welfare, not merely establishing rule of law and enforcing civil order.

> If I believe socialized healthcare improves the general welfare, then even your reading implies that it's something the government should be allowed to do.

It implies that it isn't something the government would be separately prohibited from doing, if they were otherwise allowed to do it.

Consider how the First Amendment works. The constitution explicitly gives Congress the power "To promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries". But if they tried to pass a law saying that you couldn't quote a politician to demonstrate that politician's hypocrisy or mendacity as a violation of the politician's copyright in their own words, that law would be unconstitutional as a violation of the First Amendment.

A binding requirement for the government to "promote the general welfare" should likewise e.g. prohibit the government from issuing no-bid contracts to politicians' cronies for the operation of Post Offices, even though the government is explicitly authorized to operate Post Offices, because corruption doesn't promote the general welfare.

If you wanted the government to have the power to operate a healthcare system then you should have to amend the constitution to grant that power to Congress, since they didn't have it originally. Or have your socialized healthcare system(s) operated by the states.

Given that most billionaires have their billions as imaginary ownership of gigantic corporations, how exactly would someone steal their shares from them such that government needs to enforce their property rights? Can I just walk up to the bank and say "hey, I have $100 billion worth of Facebook stock, gibs me da money"? You know, but for the feds swooping in (or possibly the Delaware state troopers) and shutting that down?

The government may indeed enforce property rights in a meaningful way, but it doesn't seem like it's doing this for billionaires.

> Why shouldn't they pay the entity that made it possible for them to accumulate their vast wealth?

If this were indeed a true description of how that process occurs, why are you so comfortable with letting the government "make that possible"? Where in the Constitution (or even common law) does it grant the government this power?

> ...most billionaires have their billions as imaginary ownership of gigantic corporations

Exactly. The entire notion of their wealth is predicated on an elaborate system of law and governance! Otherwise, it's all just freaking numbers on a computer.

> Can I just walk up to the bank and say "hey, I have $100 billion worth of Facebook stock, gibs me da money"?

No, but assuming you are on Facebook's board / in upper management you can conspire with the rest of the board to get rid of Zuckerberg (possibly permanently) and share the company amongst yourself.

ARM China seems like somewhat close example of what can happen when there is no government willing to protect property rights. e.g. as long as he has enough local support a CEO of your subsidiary could just take over the entity and there would be nothing you can do about it.

IMHO we'd end up with some dystopian form of Cyberpunk style techno feudalism without strong governments regulating everything. Which in theory might be a good thing for the corporations themselves, just not for most of the people who are currently running them.

> No, but assuming you are on Facebook's board / in upper management you can conspire with the rest of the board to get rid of Zuckerberg (possibly permanently) and share the company amongst yourself.

Yes, if you want to oust him and take over as CEO, then boards of directors have that power. But that's more about his job security. When he leaves, he leaves with just as much stock as he ever had, and in the case of some termination clauses in contracts for that stuff, he walks away with more than he walked in with.

With the government out of the picture, this doesn't much change. If the board of directors tries to confiscate shares or some equivalent (I dunno, withholding dividends? Does Facebook even pay dividends?), then their stock price tanks immediately. Somewhere down near $0. Their financing falls apart shortly after that, and pretty soon the company goes under. The punishment for some group stealing Facebook isn't government goons stepping in and bashing skulls, it's in the complicated structures that make it worthless just about as soon as it's stolen.

I think your Chinese example is quite the opposite of this. The government of China basically has to step in and allow ARM China to pull such a stunt, or it's impossible.

> Somewhere down near $0.

> complicated structures

I guess. But I just don't see how could the stock market (in its current form) or most of those complicated structures exist without governments. Of course it's a silly discussion since Facebook in its current form (including corporate and ownership structure) wouldn't be a thing without all of that.

> in the complicated structures that make it worthless just about as soon as it's stolen.

Facebook is still highly profitable, arguably without any government regulation it could be even more profitable. Why share any of that value with the shareholders who can't really sue you or do anything else? Sure if you did that nobody would trust you if you started a new company and were looking for investors (which is why Facebook wouldn't exist in the first place in a system that allows that) but that doesn't really matter if the government suddenly disappeared.

Not saying that Facebook's upper management would immediately try pulling off something like that it's just seems like the natural long-term outcome. Political/social instability is usually already priced in, so FBs valuation would collapse just because something like that became an option regardless of Meta's/FB's intentions. At that point the cost of "confiscating" shares or similar shenanigans wouldn't really be that high since being in direct control of the company would be worth a whole lot more than owning some theoretical share of it.

> allow ARM China to pull such a stunt, or it's impossible.

Why? What could ARM/Softbank do if their Chinese subsidiary decided to just ignore them while continuing to use their IP. Of course their whole business model couldn't exist in the first without any way to enforce contracts since the companies actually manufacturing the chips would just steal that IP themselves.

Imagine the government went away tomorrow. Would Mark Zuckerberg's employees keep giving him any kind of money for the work they are doing? Would they even give Facebook money, or would they just emit invoices with their own bank accounts as the destination?

Billionaires absolutely depend on a very robust system of laws to maintain control of the giant corporations that they own. Zuckerberg couldn't even enter a Facebook building if his employees rebelled against him and the law wasn't protecting him.

Note, I'm not trying to single out Zuck in any way, just wanted to pick some billionaire tied to a well known corporation to make the examples simpler.

>Given that most billionaires have their billions as imaginary ownership of gigantic corporations, how exactly would someone steal their shares from them such that government needs to enforce their property rights?

You have it backwards. "imaginary ownership of gigantic corporations" doesn't exist without government. The government doesn't "protect" Zuckerbergs shares, the government is the vehicle that gives Zuckerbergs shares value. Without the government Zuckerberg's billions is worthless.

In this fairytale world where Zuckerberg is somehow made a persona non grata, then all his shares would become worthless as he wouldn't be able to sell them, nor would he be able to enforce Facebook (the entity) to do anything on his behalf.

Eh, the oldest form of government is a Kingdom.

If a government won’t enforce others rights to property, eventually someone is going to form a government where everyone’s things are theirs eh? Since what other option do they have if they want to own something.

That's fine. Such people can renounce their citizenship and pay the required exit tax, convert all their assets to gold bars or whatever, and go move somewhere in the world without a functioning state, where they can hire a private militia, build their own basic infrastructure, etc.

why would they do that when they can take over the gov’t and steal everyone else’s stuff? (see Russia, Venezula, China, and many others)

Notably, the biggest thefts seem to happen when they can convince people that the gov’t is doing it for ‘the good of the people’, and they’re ‘going after the rich people’, and then they can pocket it when no one is looking.

In the USA it's mostly "the rich people" and extremely profitable corporations who have captured parts of the government and figured out ways to corruptly siphon money out of the rest of the economy into their own pockets.

This is a reason why we need better anti-corruption legislation, an end of the "super PAC", much higher inheritance taxes with fewer loopholes, and structural reforms to fix a profoundly corrupt Supreme Court.

Sure, but that isn’t what the comment I was replying to was saying, was it?

Also, a lot of what you’re describing seems like regulatory capture.

We (almost) invariably tax money when it changes hands. Like if you own something and then I own it, there's a tax. If I give something of value to someone else, the government takes a cut.

There's a ton of nuance there, sometimes intended to avoid certain negative consequences that feel like double taxation or that provide peverse incentives. But that's the general premise.

If you pay taxes on your income and then use it to buy something from me, I have to pay taxes on it too. That's my income now.

If my father paid taxes on something he earned that's his tax bill. When I get it, I have to pay too. That's my income now.

This is very clear and consistent. Outside of all the people with an interest in pretending otherwise.

Also worth noting that there's no state interest whatsoever in preserving generational wealth. Just none. The fact that kids have to earn their own money instead of a family coasting for generations is a good thing for the most part.

There are some plausible arguments for preserving continuity in certain cases, like community based family owned businesses, farms, that kind of thing. But everybody already agrees with that which is why those kinds of things have been generally exempt from estate taxes for generations. The people telling you otherwise are trying to trick you into caring about their agenda, which is how to not pay taxes on their substantial wealth.

> We (almost) invariably tax money when it changes hands. Like if you own something and then I own it, there's a tax [..] But that's the general premise.

I appreciate HN is USA-centric, but over on this side of the pond it's nowhere near as simple as that.

> If you pay taxes on your income and then use it to buy something from me, I have to pay taxes on it too. That's my income now.

Except that companies - even one person companies(!) - generally pay taxes on their profits, not their total income or revenue.

All companies almost everywhere absolutely pay taxes on revenue, in the form of sales tax / value-added tax.

"VAT is...

- an indirect tax on the vast majority of goods and services

- borne by the final consumer, not by businesses

- charged as a percentage of the sales price and collected fractionally at every stage of production and distribution

- neutral, as the tax borne by the final consumer is the same regardless of the length of the supply chain"

https://taxation-customs.ec.europa.eu/taxation/vat_en

VAT (and sales taxes) are absolutely paid by the company, not by the consumer. I as a consumer don't need to keep track of my purchases and pay VAT on them at the end of the month or year. Companies instead keep track of their sales and need to pay the associated VAT to the state every month.

And the final consumer of a good can also be a business, in which case VAT is still paid for that good. For example, if you buy a company car for use by your employees, you can't get back the VAT on that purchase (only if you buy a car to sell it on to someone else can you get the VAT back).

And, of course, given that consumers make purchase decisions based on the nominal price of a good, which includes the VAT, the market price of a good will depend on VAT as well. If an increase in VAT risks to push the price so high that demand decreases, companies can choose to reduce the price before tax so that the final price is low enough not to affect demand.

So, again, VAT is essentially a tax on all sales revenue a company makes. It's true that it doesn't apply to other sources of revenue.

> VAT (and sales taxes) are absolutely paid by the company, not by the consumer [...] companies instead keep track of their sales and need to pay the associated VAT to the state every month

Businesses collect it on sales to their consumers (output VAT) and offset any VAT they've paid to their suppliers (input VAT) and the balance is paid to the state.

As that taxation-customs.ec.europa.eu article states: "VAT is borne by the final consumer, not by businesses."

(Source: I've been personally registered for VAT, I've worked for companies who were registered for VAT, I've had customers who were registered for VAT).

> I appreciate HN is USA-centric

We're commenting on a specific article written about the US tax system. The term "US" is in the title of the post I am commenting on.

> The state of nature is no tax, and as it's unpleasant

Being able to accumulate capital, at least without having to resort to extreme violence is also about as "unnatural" as it gets..

No taxes = No government = No excess (above subsistence level) accumulation of assets

And the people who have a strong drive for the accumulation of capital/assets build armies and those armies shake down subsistence-living people for food and supplies in order to sustain themselves and suddenly you've got taxes again

Yes, thankfully modern liberal(ish) democracy(sort of) and the rule of law allowed us to exit this circle (well.. at least brought us much closer to that point than we ever were).

> Being able to accumulate capital, at least without having to resort to extreme violence is also about as "unnatural" as it gets..

(This is a genuine clarifying question, because I'm struggling here) are you suggesting that saving is somehow unnatural?

I believe that the claim is this: In the long scope of history, being able to accumulate money without having to be strong enough to defend it is really rare.

> that saving is somehow unnatural

Depends on how you define saving. Hoarding perishable goods is of course a pretty natural behaviour but that only scales so much. Investment (i.e. owning more land or other productive assets than you can utilize directly yourself) seems pretty as opposed to communal ownership seems pretty "unnatural".

Not that I'm somehow implying that "natural" (whatever that really means, since using violence and coercion certainly seems like natural human behaviour) is somehow always superior to the opposite.

> You can't just arbitrarily set the status quo that way, can't just sneak a premise that the state has default a right to collect a piece of arbitrary appreciation on an asset (as all assets are used for speculation) when the owner hasn't actually gotten cash from that, and that any government that doesn't tax that is just cutting someone a break on something rightfully owed.

That's a great point.

But note that you also cannot arbitrarily jump so far back in an implied chain of premises as if to suggest that you've somehow build your own (suspiciously libertarian-leaning) argument from first principles. For example:

> The state of nature is no tax

Well, the state of nature is also tribalistic. But imagine someone making an argument that collectivizing the farm in question is right because the state of nature is humans living in a collective.

You'd rightly reject such an appeal to nature in that case. Therefore, you should reject your own appeal above.

When should he have paid his capital gains tax? Had the farm changed hands back and forth?

Not even sure why I should be upset in the first place. If I get fired from my job, nobody is going to run to my aid crying that I deserved that job because my daddy worked really hard to put me through school (he didn't, but that's besides the point) and he wanted me to have it. No, I just get fired. How is a family farm any different? It's just an asset. Birthrights shouldn't exist past citizenship.

Because the idea of leaving something to your kids (and a legacy beyond oneself) is a fundamental motivator for most people?

Boo. That's not what's at stake here; people don't wanna pay taxes that are fairly owed to the government.

The asset has not moved outside the family, has not been sold, no profit on sale has been realized.

You think a profit transfer has been made, because you think in terms of atomized individuals with no family.

Citizens are taxed as individuals, not families. A person did not have assets, and now they do. I don't care that the land was "in their family." If they are even decent at managing their assets, then they will have more assets when they die than when their parents did. And if they don't, then it's not my concern. I don't believe in government policies to perpetuate generational capital wealth, and I will vote against them as long as we have a system where money can be used to influence the government.

This is the ‘fuck anyone trying to pass anything to their children’ element which most parents will (rightly) got WTF at.

The exemption is several million dollars.

I don't mind if people get mad when anything more than that is taxed.

That is not what the prior comment I was addressing said. Maybe implied, but that’s different.

Yeah, I'm sure the 1% of people this actually affects will be really big mad and stuff.

Wrong, we literally double everything in our tax code so that spouses can file jointly.

Literally the comment I am replying to is about making it so no one can pass on property to their kids.

> fairly owed

You're doing it again. You're assuming that it must be a just tax. You're assuming that a tax is somehow intrinsically "owed", that any tax requires no justification.

You can make that claim, but the fact of the matter is that the US is a representative democracy, and our elected representatives make the laws. We are free to choose other people for the job if we want different laws. The vast majority of people were not lucky enough to be in a situation where their bumpkin ancestors just happened to possess a large swath of land, and so we don't vote to protect large swaths of inherited land.

They owe taxes? They can pay them. They can afford to pay them because they have inherited assets. "Oh no, they're gonna get a diminished inheritance. What a disaster." I'm not getting one, and neither are most of the people in the country. They'll still have their inheritance, they just won't have the land. And they aren't entitled to it if they don't have the money to pay their taxes.

I've watched chunks of beautiful Texas ranchland get sold off and built up by insufferable austinites for the marginal mcmansion. I will probably oppose a policy that encourages that and would rather the descendant of your so-called "bumpkin" keeps it.

Yes, let’s implement this so that all farms are owned by large corporations.

There's also no fundamental reason for the state to institute any form of estate tax; on the contrary, I specified it goes against our usual federal regime of taxing value as it's moved rather than value at rest. If anything, I'd question why you believe there's some inherent reason or right to have any form of estate tax, let alone to the point one forces liquidation of assets. One form of taxation can be more or less just than another and it's much easier to make the moral case for using force to collect a portion of value moved through government infrastructure (banking system, roads, ports, etc.) than something that remains unsold.

I didn't say taxation is theft and would rather you didn't put words in my mouth. You're assuming I'm against any form of taxation whatsoever on a moral basis, which isn't actually true. I think there are values reasons (most of us actually like the idea of a family business staying in a family, not getting sold to private equity) and moral reasons why we should continue resetting the tax basis of inherited assets. As a compromise position, I think it would be more reasonable for you to suggest removing the stepped-up basis but not counting inheritance as a taxable event.

I don’t get you intro argument. An estate tax is like the poster child of value moved: from the parents to the children. In contrast to a wealth tax.

I can see the reasoning. But the value did not really move. As the estate is family owned. The family did not die, a member of it did.

Seems like splitting hairs to me. If the estate is put into an LLC or similar then the death of a member doesn't involve movement of money. If the estate is owned by an individual and then inherited by their beneficiary then money moved from the deceased to the living. The Family is not a legal unit; the beneficiary doesn't have direct benefit of ownership while the owner of the estate lives.

By this logic, if I sell you a car, no money moved, because both the car and the money are still owned by the both of us. Or at least, if you're brother takes your car, you can't ask the state to give it back to you, as the car didn't really move, it's still in the family.

A family is not a single entity under any law in any country I know of. Certainly not in the USA or anywhere in Europe.

Are you going to drive me to work everyday after the transaction?

The difference is the kids have been spending estate money and have access to all the assets the estate controls. It make no sense that would change because a member of the family died.

I'm not sure that's a very good fix because the data of how much was paid for the assets may not be available after their owner is dead. The system in the UK seems to work ok for the most part. No CGT on death (the equivalent of step up basis in the US) but 40% inheritance tax on most of the assets over £325K.

We do have the odd exemptions like Clarkson's Farm which was bought partly for inheritance tax avoidance, but you don't have to do that.

What would the owner have done if they decided to sell the assets shortly before death? Either they can establish a cost basis, or the basis is assumed to be $0. I don't see why this is a big problem.

It's enough of a hassle acting as an executor when your parents die without that on top.

> The obvious fix is to not step up basis on death.

And that's how it's done in many parts of the world, works perfectly fine. There's really no reason to step up basis except to provide that loophole, which is probably exactly the reason it's done.

> The counterpoint is that this leaves money invested, which means others invest in other things,

This is a bad argument. Taxes are also money invested, in schooling, infrastructure, etc.

It's a very common fallacy of people criticizing public spending to point to the stock market and say "Look! Imagine how rich we would be if we had just invested the public spending instead." Completely falling into the trap of discarding the value growth of public investments just because they are not measured and advertised the same way.

> Taxes are also money invested, in schooling, infrastructure, etc.

Not presently. Most tax dollars are spent elsewhere and infrastructure/education get less than 7%: https://fiscaldata.treasury.gov/americas-finance-guide/feder...

Even that spending is not effective. Drive California roads and you’ll often see fixes that aren’t much better than the damaged roads they replaced. And let’s not talk about our wonderful train projects…

In theory, this money would make a lot of difference. In practice, it’s heartbreaking.

It's invested. In infrastructure, schooling, endless wars on foreign soil, etc. You not agreeing with the quality of the investment is a separate issue. You probably don't agree with every investment in the private sector either.

Infra in CA is not going so well. Roads as an example are terrible compared to most developed countries. When last years winter storms damaged many roads, the newly paved replacements are not very smooth at all and some have been redone multiple times in the span of a single year. I don’t know what the causes are, but when comparing to EU where they have to account for freezing temps, CA doesn’t seem THAT complicated. Yet EU highways on average are a lot better.

Most tax dollars go to social security, health (including medicare) interest and defence.

So on the one hand, very little of that is infrastructure. Mostly it seems to go on "keeping people alive".

Now sure, the govt could invest the money instead, and let a bunch of (mostly old) people die.

In our "money" equation, old people have little practical value (and there's no line in our fiscal analysis for measuring our humanity).

Which perhaps is why it's best not to evaluate returns on govt spending the way you would measure returns on personal investments.

[As a PS I'd add that all those taxes, flowing back to the old people, is flowing back into the economy, which is what keeps businesses in business, and keeps those share prices going up.]

Nevertheless, welfare for olds is in no way an investment when those same individuals have reached the end of their productive years and have a decade or two to live. The point was that calling taxes "an investment" is largely untrue when most tax dollars don't go to anything of the sort.

Social security and medicare are not means-tested in any way whatsoever. In fact, they are massive welfare programs that make our budget structurally unsustainable to give money to the demographic that has had the most time to build up wealth and assets. Around one-third of all US wealth is held by Americans over seventy years old. Perhaps instead of an estate tax, we should explore having those well-off seniors use their savings and home equity instead of demanding government funds. Not to mention decades of subsidizing housing demand has drastically inflated housing prices, and younger Americans are now paying many of these retirees several times what those properties went for decades ago, an increase well in excess of inflation. In other words, through multiple channels, the young are being sucked dry by the old, despite the fact that the old hold a huge chunk of wealth.

I'd also point out old people are a terrible way to feed money back into the economy. They are generally the last people to adopt any innovation outside medicine, so increasing their share of spending draws dollars away from new innovation and towards constructing bingo halls. That has a caustic effect on our long-term economic outlook.

There will of course be the poor grandmother whom we don't want eating dog food. I doubt anyone disagrees with you on that. Let's just not pretend all of them need the checks they presently receive.

Social security, specifically is a mostly or was mostly a way to force retirement preparation on the masses who decided they didn't want or know how to before this. Most wealth is now held by middle aged people in the US actually, housing issues isn't even caused by old people but by multinational banking/holding corporations like BlackRock and its like.

What are you doing to change this? Are you trying to make the situation better? California has been run into the ground for the last thirty years intentionally. Many residents love having mentally ill people die in the streets. They have created an entire system to support this. Money has been drained away from roads and schools to pay for ever growing "programs" to employ rich white ladies so they can brag to their friends about their incredible virtue.

You are free to leave. There are plenty of low-tax countries. If you want to live in the US, Europe, Japan,..., then you must pay to be part of our reindeer games.

That said, PLEASE get involved and try to direct public funding and attention towards core activities (roads, schools, infrastructure) instead of ever more ridiculous programs to employ Berkeley graduates in virtuous-looking jobs. Utah does a great job at this sort of thing. Instead of learning from them, our political elite degrade them and insult them for their religious beliefs. I once repeated a colleague's obscene jokes, only I stated that he said them about Muslims instead of Mormons. He lost his mind trying to correct me. It was amusing.

From your reply you haven’t actually lived in either Europe or Japan. They generally do not have people die on the streets and you enjoy some excellent infrastructure. It would be nothing short of amazing to get half the services or protections people in other developed countries take for granted.

Both arguments are bad, in that they are both based on the best use of money that isn't yours to use.

Saying "this person's money most benefits me if I let them keep it" vs "this person's money most benefits me if it's redistributed to me" are just two frames that reveal your belief in your entitlement to others property and labor based on your belief of it's benefit to you.

This is something people love to rage about, yet it's not one with an obvious fix.

In Canada, assets are deemed to have been disposed of upon death (or gifting) so the estate pays capital gains taxes on the accrued profit. There are a few exemptions for political reasons, e.g. to allow farmers to pass appreciated farm property to their children tax free, but they're sufficiently limited that they don't cost very much.

Seems like an obvious fix to me -- when the cost basis is stepped up, taxes are due -- and in practice it seems to work pretty well.

Family farms are a good example but there are still plenty of others like a family business. I wouldn't care to see an increasing fraction of assets fall into institutional ownership simply because people are taxed out of owning them intergenerationally. There's a massive difference between "the government will tax you for part of your value" and "the government will, over a sufficient time, tax you entirely out of even a growing asset."

If the concern is how much the policy costs the nation, then I don't think that's a sufficient reason to change things either. The top 1% in America hold about 31% of a total $140 trillion, or $43 trillion. This is, in a very optimistic case, around twenty years worth of the current federal deficit. Given the trajectory it's taken over my entire lifetime I find it unlikely it would last more than a decade. If the concern is cost, we have a "money out" problem in the US, not a "money in" one, largely driven by our ballooning mandatory spending (much of which goes to a radically outsized group of old people, whose entitlements neither party will touch despite their outsized ownership of wealth) and the high interest expense that's caused. Even if we outright confiscated every dollar of the 1%'s net worth, that wouldn't represent a remotely sustainable solution. Hence my comment about most of these policies looking more like schadenfreude than a sincere desire to fix things.

Help me understand why a family farm would have such an issue if the owner-operator dies, but Walmart didn't when Sam Walton died? Is it an issue of incorporation/business structure?

Leaving aside the fact that Sam Walton was an American and so his assets had no "deemed disposition" upon his death: Walmart is a publicly traded company, so if his heirs inherited a few % less of the company it wouldn't make a big difference.

In the "family farm" (and "family business") scenario, we're talking about private companies -- whether incorporated or not, all the owners are related. If part of such a company needs to be sold off to pay taxes, it would presumably be sold to a someone at arm's length, which would fundamentally change the business structure -- just like running a startup with VC investors is different from running a bootstrapped startup.

Couldn't family farms plan around such an event occurring, either by having the cash on hand to pay taxes or through some sort of insurance?

Where does that cash come from? Family farms often are worth millions on paper, but it is all land. There typically isn't that cash. And the way tax laws and inflation works you are discouraged to not keep that kind of cash on hand - there is no place to save it that keeps pace with inflation after taxes that is low risk (If everyone tried this you will hear horror stories about someone who puts the money aside and then the parents die so it is needed but the market is down and so they lost money)

Thank you. I feel like I understand the structure better now

In the particular example of a "family farm" (mostly extinct since the 1970s in any meaningful way), profit margins were always slim. Furthermore, life insurance for grandpa isn't likely to cover the difference... the real estate value of smallholdings is positively astronomical in many cases (acreage alone does this, but it's often high quality land in many ways).

There's not many plausible routes to "paying the millions-dollar death tax so that developers don't turn the cornfield into a suburb" in such scenarios. Mostly moot though, this all played out and was over before most of us were born. I suppose there are gigantic 20,000 operations that "won't stay in the family"... but those farmers:

1. Aren't really living on the same piece of land that they farm

2. Having to sell off 1500 acres to pay the tax bill doesn't much affect their operation except that it's slightly smaller

3. Have someone custom combine it anyway... they're basically a management company that hires a bunch of contractors

4. Generally are incorporated in such a way that sole ownership hasn't been an issue since great-great-granpa died back in 1961

Family farms are, at this point, largely mythological.

Suppose you're a young 20 something with maybe $300 to your name. Daddy gets struck by farming equipment and dies. Now you have two choices:

1. Continue operations of the family farm, assuming you can come up with the money to cover taxes.

2. Sell the farm to Big Farm, Inc., get a $5M check and forget about it, regardless of the consequences that means to your customers.

The taxes are less than buying the farm outright so it would just be a very cheap buyout. I do not see the problem, you can get finance for that in civilized nations. It's not easy but neither is buying a farm normally.

Inheritance, even with normal tax, is a cheap way of keeping money in the family and keeping rich people rich. It is not based on merit, capabilities or need and serves no purpose in a society based on improving the lives of the entire population. (Which you can argue is not what [country with low inheritance tax] is)

[inheritance] serves no purpose in a society based on improving the lives of the entire population

I would say that society is served well by the ability of widows to inherit and not be left destitute. Similarly for minor children.

If you're talking specifically about inheritance by adult children, I agree the arguments in favour are weaker.

Is there no system which can provide for widows and minor children yet isn't able to be taken advantage of by the hyperwealthy?

Here in the Netherlands the (once setup as) farmers coop bank is notorious for not doing that, they heavily favour bigco and business models that capture subsidies effectively (which usually means scaling one part to ridiculous proportions).

> The taxes are less than buying the farm outright so it would just be a very cheap buyout.

If you have $300 to your name, you're not getting finance. The bank will just laugh you out the door.

Amd this is why there are no mid-sized family businesses remaining in Canada, except for the occasional farm. Billionaire oligopolies are all that remain as only they are sustainable in the tax farm once known as the great white north.

Billionaire oligopolies are everywhere, this isn't a uniquely Canadian problem. TFA points out we live in an era of Gilded Age inequality.

I come from a province that is wholly owned by a billionaire family. They own all industry, all media, and basically every (barely) living wage job outside the government. Look up the Irving family.

Billionaires may not be a uniquely Canadian problem, but the lack of a wealthy middle of entrepreneurs and reasonably wealthy individuals is uniquely Canadian.

Canadians cheer at taxing the rich and as a result end up with a “middle-class” that is barely getting by, a billionaire class that rules the Kingdom, and nothing in between.

Canada is designed to support Oligopolies. It does so in the media, food distribution, telecom, insurance, banking and virtually every industry in the country. This is an intentional policy decision of punishing entrepreneurs and pushing us out of the country. Look at the recent wealth taxes and the national response to them as an example.

So you create a startup.

- The first year it has 10k€ ARR.

- So it is worth 100k€. You must my pay 30k€ in capital gains taxes.

Like this, every year? Every time it has more revenue, it multiplies its future worth, therefore multiplies it FMV, therefore you must pay the CG on the multiple of your income?

Only if there is a "deemed disposition". Which in most cases happens when the owner dies.

You probably don't need to worry about this happening multiple times.

> The counterpoint is that this leaves money invested, which means others invest in other thing.s.. This means less money for R&D, for expansion, for your employees...

When grandma's Fidelity manager takes 2% every year to buy overpriced mutual funds that themselves eventually just buy SPY, how many dollars do you think goes to capital raises of any kind? The top of the S&P, which essentially determine its returns, are doing stock buybacks with their cash.

You would have been more persuasive if you had said, "Taking cash out of the stock market and into real assets results in inflation, which is bad for everyone, because nobody needs Apple stock to live, but they would like houses."

>This is something people love to rage about ...

Yes, people get angry about this, but no one has provided any statistics showing this is actually a common loophole.

The basic idea in the reddit post is that there were lenders giving multi-decade loans at a tiny interest rate (only payable upon death with also sharing a % share of the gains).

Maybe there are lenders who have lots of capital and also don't understand the time value of money, but no one has actually provided the names of these lenders, etc.

According to this: https://finance.yahoo.com/news/jeff-bezos-sell-5-billion-185.... Bezos has sold around $13.4 billion in stock in 2024. If he could easily avoid millions (maybe billions) of dollars of capital gains tax by this one simple trick, why didn't he?

I'm very much on your side of the argument but it's common practice. It's not like you can walk into a bank tomorrow and ask for that sort of thing, but for a HNW customer who makes use of lots of private banking services it's routine.

I'm not Bezos or part of his family office so I can't say for sure. My guess would be a mixture of capital demands elsewhere (Blue Origin?) and a desire to diversify. Start-up founders necessarily keep all their eggs in one basket; people building a multi-generational fortune don't.

Is it still that common? I'm not super duper high net worth so maybe I'm missing out on the good deals, but my bank offers these loans interest of SOFR+2-4% depending on your net worth. When the SOFR rate is <1% like during COVID, it's a pretty good deal. When the SOFR rate is more like 5% (which I think is more typical?), it's not such a good deal.

>When the SOFR rate is <1% like during COVID, it's a pretty good deal.

It is very common to make loans based on using stocks, etc. as collateral. But that isn't what people claim happens with the "buy, borrow, die" loophole. The claim is that these loans have incredibly low interest rates (much lower somehow than the IRS Applicable Federal Rate) and the interest is only payable upon death - which might be decades away. That is how the borrower can supposedly avoid capital gains taxes.

Maybe there are rich lenders who don't understand the time value of money, but doing a quick search, I have not found one stat on how many lifetime loans like this are actually being done.

I don't know that I've seen a lot of details, but I didn't realize the rates were supposed to be less than benchmark rates. Either way, the expectation is that the appreciation of the capital exceeds the interest. (Not that anyone should rely on that expectation, but clearly, people do)

And that the lender is offering the loan to capture an ultra high net worth investor; so even if you lose money on the interest, you gain on advisory services and fees; plus first bite at holding the accounts of the heirs. Requiring good collateral and high account minimums make the risk for the lender low --- if broad market value drops significantly, the account should still have more collateral to pledge to get back to 1:1. Also, if market value drops significantly, selling shares becomes easier for the investor, as there may be some shares with capital losses, and paying down the loan becomes more attractive.

> I don't know that I've seen a lot of details, but I didn't realize the rates were supposed to be less than benchmark rates.

I know someone who got a mortgage rate way, WAY below prevailing rates (like around 1%, gotten back when normies like us got rates around ~3%), because 1. he is a very high net worth individual and 2. he owns a business that does a lot of business with the bank. So, he gets extra special treatment because he's rich and the bank appreciates his business and expects the relationship to lead to even more business.

It's not a huge stretch to imagine that Jeff Bezos's bank would happily loan him money at some token 0.01% interest rate or some similar sweet deal.

It's not under AFR, it's just generally less than inflation.

And the loan terms aren't payable at death on any of the loans, they just let you refi every year when you want another $100M for that year's incidentals.

>...but it's common practice.

There are many web pages claiming this, but I haven't seen actual statistics on this loophole. To be clear, many, many, people borrow against the value of an asset - from the middle class up to the ultra wealthy and they can defer capital gains in that way. The claim with buy, borrow, die is that you can borrow for decades and not have to pay back the loan until death. Some claim that the rich just keep rolling over loans on to new loans to avoid paying interest/principal for decades. The reddit posting discussing this has been edited since it was first discussed on hacker news, but now it emphasizes that the bank and the ultra wealthy person come to some sort of agreement to share in the gains of the asset upon death. Considering the length of the agreement it seems it would difficult to come up with an agreement that would be fair to both sides in that agreement.

I saw that on reddit, /u/Taxing responded to a different post by the author of the reddit posting and was skeptical of how common this approach is:

>...I too went to law school, earned my LL.M. from NYU and have been practicing in this area for decades with broad family office clients ranging from a few hundred million to many billions, and yes have clients with public companies, private companies, and taken companies between the two structures. I’ve worked at every level and now sit on the boards, manage the relationships, etc., which I enjoy more.

>...I struggle to think of a single family office interested in a lifelong arrangement with Goldman or other firm at that level, providing them strings of participation and control. Over time, circumstances change, and they are not your friend.

So, maybe, the "Buy, Borrow, Die" approach is common practice, but I have yet to see any actual stats on it.

The banks don't like to dump multiple billions at once into these schemes. It's more about trickling hundreds of millions a year out to cover all possible living expenses, and a lot of that going into assets like houses and ships that can get repoed if shit hits the fan.

He wanted $13B liquid to start Blue Origin, a pretty speculative venture that might end up with nothing. And wanted to still outright own Blue Origin unlike Musk's Twitter buy that was highly leveraged by the Saudis.

> In exchange for such favorable terms (i.e., small carrying cost, matures on death), the bank will receive a share of the collateral’s appreciation (essentially amounting to “stock appreciation rights"), and this obligation will be settled upon the borrower’s death.

It's a loan in name only.

Regarding Bezos's selling of stocks - perhaps he has offsetting capital gains. See https://old.reddit.com/r/BuyBorrowDieExplained/comments/1f26...

Getting a loan against assets is another way of "using" it, so why not make that a taxable event?

Just like now your stock value would not be taxed while it is invested. But now it would be taxed if you use it as collateral for anything. If you don't want to pay capital gains by selling the underlying stock then you can just get a bigger loan and pay the taxes out of that.

There, now you don't have to liquidate but the taxpayers benefit too when the wealth is "used" by the owner.

This still leaves open ‘buy, don’t borrow, die’ as a way for the dynastically wealthy to opt out of paying capital gains tax.

I think the sensible option is making death a taxable event, rather than borrowing (with perhaps exceptions for the family farm, but not for the family billion dollar business).

And the second best solution is eliminating the step-up basis, which without deemed disposition at death is just a free gift of capital gains tax rebates to heirs of the most wealthy.

Or another way to think of it: your estate has to settle all outstanding tax bills after your death, including the gains in assets that have remained untaxes your whole life.

Death already is a taxable event though?

Only issue I can forsee is that every loan, except a credit card, personal loan, and student loan, is typically loaned against an asset. I guess you could make carve outs for mortgages and auto loans.

Why would there need to be a carve out for home/auto loans?

1. No one really borrows against the value of their (paid off) car. 2. Property taxes already, generally, are against the assessed value of the home, so it's already happening for that case. There are some minimal exceptions, like CA Prop 13, of course, but generally speaking, if I want to take out a second mortgage or something, my home's value is already appropriately "stepped up."

I guess I'm not sure how this mechanism would work without being abused. I assumed when I take out a car loan, the bank is giving me money, in which the collateral is the car or home.

But I now assume the tax would be on the assessed change value of the asset, for which a new car or home would be 0, so no tax.

There are literal mansions on dozens of acres (with landscaping, ponds, etc) 3 miles from me that have a lower property tax than my 2000sq foot suburban home. They were purchased by a trust in the 80s or early 90's, and now the kids (or grandkids) live in it. My state limits how much property tax can be raised on a home until its sold, and then that number resets.

It drives me a bit crazy..

I don't get why people say a tax on unrealized gains is not feasible. All it means is that a percent of your investment becomes "realized" every year and you sell a portion of your investment to cover it. So if you have a billion dollars in stocks and you have to realize 10% of it in a year, you sell enough stock to cover the $20 million and the other $80 million becomes realized and never taxed again (only future gains on it). In the end you're only taxed $20M in capital gains every year on a billion dollar investment and after 10 years of this your remaining $800M is not taxed any further.

EDIT: Since it's not obvious, this would apply to the very rich, not to someone running a family farm. There would be a threshold and exemptions, which is how most taxes work.

> All it means is that a percent of your investment becomes "realized" every year and you sell a portion of your investment to cover it.

Because there is a ton of investments that aren't liquid, aren't trivial to value on an ongoing basis, and aren't infinitely divisible.

Again, a farm is a perfect example. Land prices are going up. Your family farm was worth n million, and is now theoretically worth twice that. Do you sell a portion of it to developers to pay the tax on the unrealized gains? Oh by the way, the land is probably zoned agricultural, so you actually can't.

Or, you buy a famous painting as an investment. Do you cut off a piece each year and auction it off?

Yeah, it's relatively easy for stock market holdings. But if stocks get unfavorable tax treatment, all this will accomplish is moving money away from the stock market toward assets that get a better treatment... like investment real estate, with all the problems that entails.

If you buy a famous painting as an investment, I'd assume you have enough money to cover the taxes without having to auction it.

Accurately valuing the painting every year is definitely very difficult.

The same argument doesn't necessarily go for a farmer's farmland. The zoning could of course be calculated into the land value. But I'm unsure if farming economics allow for paying the taxes on those unrealized gains

Just to be clear, we're talking about a wealth tax above a certain threshold, think hundreds of millions of dollars to billions and billions. This has no application to anything remotely related to the "family farm". And yes, it is okay to force someone with a half a billion dollars in assets to sell off a small percentage for tax reasons, unless you think they should never ever be taxed for it.

I'm addressing the parent's proposal, which is to "why not just keep selling fractions of the asset to cover taxes".

Yes, if you're rich, you might have other ways to cover the liability, but that's not what the parent said.

And for what it's worth, these "billionaire" thresholds in political discourse are fairly meaningless. The last time the Biden admin "cracked down on billionaires", they instituted IRS reporting requirements for Paypal and eBay when you receive in excess of $600 a year. There just isn't enough billionaires for policies that truly target only them to make a difference, unless you flat out start taxing / confiscating wealth.

But that's largely solved right? The banks that issue loans _against_ those assets do put a number on them! Just tax it based on this value. And since they are willing to lend money anyhow, the user can just take out a slightly bigger loan to cover the tax too.

How would you implement that in startup world for example? It's very common for startups to be valued at ~20M$ right out of the gate in seed stage, not because the company is worth $20M, but because at $20M valuation it allows the VCs to invest say $4M and only take 20%, no one want the VCs to take more (not even the VCs themselves) because otherwise it would mean the founders are left with too little equity too soon and probably won't care about their business anymore.

Now, as one of the founder, maybe you own ~40% of that business, so now your paper net worth is $8M, and just made $8M of unrealized gains in that year, how are you going to pay that? There is no way you will ever find someone to buy $1M of your share at the price of that round, you probably wouldn't find anyone willing to buy your entire paper $8M for $1M, because again, the company isn't worth $20M yet.

This is true until pretty late in a VC backed company, most round aren't priced based on how a realistic buyer would value the company, they are priced based on complex dynamics. Even a large number of unicorn startups founders in the Series C/D stages would have paper wealth of potentially 500M range, but absolutely no way to find 50M.

So, you effectively have no way to pay that tax.

This system actually already pseudo-exist in Canada in specific conditions: If you stop being a tax resident of the country, all your assets are considered realized the year you leave and you must pay taxes on them. Which is effectively impossible for most startup founders, because again, your stock isn't actually liquid. This means you can't stop being a tax resident of Canada until your companies either dies or you exit somehow. To be clear you can't easily just choose to remain tax resident of Canada while living abroad, Canada gets to decide, to maximize your chance you must prove that you still have ties, so e.g. you have to keep a home, you have to keep your bank accounts opened there, you must visit often enough etc.

Canada revenue agency offers one alternative: You leave the country but leave your stock in their keep, on the day you actually realize the gains, they will take what they were owed, which sounds great, except if the company fails, or you realize gains at a lower valuation, they still consider you owe them what was computed the year you left, not the day you exit, so there is a real risk of being in debt for the rest of your life.

You set a minimum threshold to trigger it, and you set certain realistic exemptions for things that would benefit society, including giving a VC time to mature.

Minimum thresholds, and exceptions for less liquid assets (private equity) - ideally, again, coupled with thresholds.

The same way we have exceptions like CA Prop 13 for increasing property taxes.

These problems aren't impossible to solve. It's wild how people will find any tiny excuse to give up on making a change to try and make tax code more fair. If there are edge cases that a blanked change to the code makes worse, that's NOT a reason to just throw our hands up and say "whelp, can't make changes" - it just means we need to add a bit more nuance.

The vast majority of assets held by the ultra-wealthy are non-liquid. Thinking that these assets are "stock" that you can just "sell" is fundamentally misunderstanding the nature of the problem. You can't force realization for tax purposes because in most cases there is no feasible way to realize notional gains. Reality doesn't care if it is inconvenient for the government that assets with unrealized gains have no realizable value. The problem of asset value that is non-realizable is endemic in finance.

Additionally, in the minority of cases where it is plausible to force realization, doing so would destroy the notional value of the asset in many cases. The government will have to issue a tax credit, undoing any tax revenue they hoped to gain, but the business is now destroyed so there is no future tax revenue either.

Trying to prematurely force realization of asset value is either impossible or destructive in the vast majority of cases.

Oh I'm fully aware of that the ultra wealthy will have to sell off some of their assets. Mind you if this exists, the market will automatically build this assumption into the net worth of an asset. If anything, it will help encourage diversification, overall improving the health of the economy.

So what you're saying is that many asset values are purely fictional and don't correspond to a real value that anyone would pay. But, you think this is a good thing and that the government would ruin things if it foced asset values to be closer to what someone would actually pay for them.

I don't think your argument is as strong as you think it is. The value of an asset in a market economy is supposed to be what someone would pay for it. If you can't sell your Tesla stock for it's value, then it doesn't actually have that value.

Attach a lien to the property. If it’s a small business, the government’s share of the step up is put against the business. There will still be shenanigans. But it avoids forcing liquidation wile preserving the state’s interest.

This actually seems like a very reasonable solution. Although it would lead to perpetual liens on properties that simply get passed down dozens of generations, never getting sold. At some point, the music has to stop, or the rich will exploit it.

If someone leases a car instead of buying it in many states they still have to pay sales tax, just on each lease payment. Somehow we can figure out how to charge sales tax on non-sales sales when it impacts the average joe, but not income tax on non-income income when it impact business owners because 'think of the business'. I don't see how taxes when someone extracts value from their company is any different or more difficult than taxing Joe average 'sales tax' on a lease payment.

The business is irrelevant. We are talking about the tax on the person who is getting income because our government functions from taxes on income. Just like how we charge sales tax on a non-sale when state government functions on taxes on sales. Tax business owners when they extract value from their business.

There is definitely an obvious fix, just have collateralization be considered realization. You're welcome to have as much money on paper as you want, but if you want to post $Xm in stock against a loan, you need to pay taxes on it first.

What happens if the value of the underlying asset depreciates?

Here’s a hypothetical:

- I own $100 of stock in Company A.

- The First International Bank of efsavage decides to accept that $100 in stock as collateral on a loan. So I pay taxes assuming a value of $100.

- When I dispose of the stock, it is only worth $80.

Will that be a retroactive credit, meaning that I will have to amend my tax return in the year that I collateralized those assets? Would it be a forward tax credit, meaning that I could apply that credit to future years?

I worry about this both from a bookkeeping point of view (since this is potentially a lot of credits) but also worry the ways it could be manipulated.

Why would you earn a credit?

You created a tax event and paid taxes on it and you got a loan for x% of $100.

If you sell the stock at $80 you'd pay no taxes on the appreciation (-$20). No credits, investing is risky.

Why not just treat it as any other loss for tax reasons? If I understand this correctly, then the current state is basically: If you take losses you can use those to nullify a future gain. Just do that.

And.. the bookkeeping thing is really solvable. That's kind of what banks are for

There is a quite simple fix that already applies to the IRAs that most people use as their main tax deferral - if you take a loan using your IRA as collateral, that loan is considered a distribution from the IRA, and is thus taxed. Requiring capital gains to be realized when an asset is used as collateral wouldn't be nearly as problematic as you're making out. For example, if someone's company appreciates to $50M and they then wish to turn some of that abstract value into concrete cash, then yes it's time to pay some taxes. Those taxes can simply be paid with some of the money from the loan too, you know.

> This is something people love to rage about, yet it's not one with an obvious fix.

Rage about. Off to a good start. I wonder what the conclusion will be?

> [look at all of these reasonable-looking arguments for the existing tax laws]

Sure. Most people are fine with rich people not getting taxed into the middle class or having to work for a living.

What does this prove about anything?

> These all suck, and the government generally collects money on assets as they move not assets at rest. I see no way to resolve it that isn't suckier than the status quo and so am left with the conclusion that people who agitate for such changes are more resentful of the rich than they are worried about the justice or lack thereof of tax avoidance.

Hmm. I knew there was something off about attributing “rage” straight off the bat.

I don’t know how you disentangle “justice” from “resentment” so easily. Resentment IS EXACTLY injustice over a sufficiently long enough time.

But I tend to see this idea that people who are upset about something real need to have... pure emotions. They must be upset because someone else (the poor maybe) are getting shafted. They certainly can’t be resentful (jealous) or something selfish like that.

(I don’t know what dimension you live in in the real world, confronted with these kinds of people, where this would be a compelling argument to anyone. Seems like a Let Them Eat Cake position.)

So people who are rightfully upset—you don’t even argue against that part—get dismissed because they have allowed impurity into their hearts. While the rich get to do their tax schemes. But, he shrugs his shoulder, better that the rich fleece the government than that the commoners have impure thoughts.

> These all suck, and the government generally collects money on assets as they move not assets at rest.

The government can also collect money on assets at rest (or at least, on cash at rest). They do so by creating money. It could be an interesting tax regime where the only forms of taxation are taxes to discourage action (e.g. tax on tobacco) and money creation.

> This is something people love to rage about, yet it's not one with an obvious fix.

Removing the step-up in basis seems like an obvious fix. Record the basis at the time of transfer, then charge taxes when or if it is sold. Adjust for inflation if that seems reasonable.

Is there anything wrong with this? It doesn’t require selling on receipt.

Really easy, power law formula marginal sales tax rate. The more and more you spend, the higher and higher your sales tax rate is. Considering most spending happens via electronic payments, this should be easily trackable since we have internet/electronic databases/identifying numbers for each purchaser.

You get a 1099 or W-2 for income, why can there not be an equivalent for spending?

This plus power law formula land value tax rates would fix multitude of societal problems. Land values are also already in electronic databases.

And get rid of income taxes altogether. This would disincentivize hoarding and wasting, and incentivize working and being efficient.

The only other aspect of rent seeking I can think of that would need to be nerfed is copyright terms being reduced to 10 years.

> These all suck, and the government generally collects money on assets as they move not assets at rest.

But staying at rest has been used as a way to sidestep taxes for so long.

I'd rather have all investments be taxed every K years as they were sold and bought back. Ideally with selling dates spread throughout the K days to avoid huge spikes.

Pay a percentage over the difference between the original value (50m) and the death value 740M, to inherit, you have to pay taxes on the difference, with brackets, as first millon 0%, second million 10%, etc.

> Of course, as your company continues to appreciate, you will be forced to continue reducing your ownership stake

Why? In an hypothetical world where getting a loan on an asset is impossible (or taxed the same as realizing the gains), you still don't get taxed on unrealized gains. You can leave your stock alone and you aren't forced to sell anything.

Of course if you decide that now that you are worth a billion you must live like a billionaire, then yes, you will have to sell stock, reduce your influence in the company and pay tax on the gains.

I don't see any problem with this? It offers a way for the stock owner to choose if they want to use the stock as power (don't touch it) or as cash (sell it), only taxing you when you opt for the later.

edit: I realised I might have misread your post as defending the system allowing one to use unrealized gains to back a loan, hence enabling the buy/borrow/die loophole, when you are in fact defending against taxing unrealized gains. To me the obvious fix is to prevent those loans as discussed above: force people to choose how they want to use their assets, if they choose to use them to live like kings then they must pay tax.

The fix in your edit isn't an obviously workable fix though. When talking about the rich, it's best to talk about private corporations -- because that's really how the operate.

Firstly, do you want to prevent corporations from taking loans against their assets? Preventing that seems like it would be quite detrimental.

Secondly, how do you differentiate legitimate corporate expenses from personal expenses? Is a billionaire having one of their corporations rent a yacht from another of their corporations for a business meeting with another CEO who just happens to also be their friend a legitimate business expense or a personal expense? What if the yacht rental company rented it to the CEO's company instead?

If one believes it’s a big problem, it seems to me there’s an easy solution that doesn’t disrupt anything else. If you use a stock as collateral like that, it’s a taxable event that steps the basis of the stock by the amount of the loan. No unnecessary taxation of assets at rest, no double taxation later because of the step up in basis, and you close the loophole if you view it as such.

You missed the obvious one - borrow against the asset to pay the tax.

I mentally bucketed that in "try to find money": if you're not selling equity, debt is one way to do that. But the caveat - less money for R&D, expansion, and employees - still applies.

Not really, nobody goes "ooh, the stock price is up 5% this year, we can hire 5% more employees!"

Most stock wealth isn't doing anything for the company. If the stock price of Apple went down by 90% tomorrow for no reason, the main effect on Apple would be... almost nothing.

The employees who get equity compensation would be mad but they don't use their stock value to fund R&D or expansion or salaries.

But if you have "unrealized gains" tax you should also have "unrealized losses" tax deduction.

Also, instead of Apple try imagining NVIDIA: their stock went up like 1000% in two years, they are now a trillion dollar company. If they had to pay tax on that it would bankrupt them. Or, they could use all their cash + borrow some money against the stocks to pay tax. But then the stock can suddenly crash 90% and the lenders, seeing how their collateral is now 90% down might start demanding repayment of the loans, again, bankrupting the company.

"Unrealized gains" tax simply does not make sense. It's just greedy government attempt to squeeze more money from businesses.

You aren't arguing against what I wrote: an investor currently pays no tax on their own stock going up.

I'm suggesting if an investor in NVIDIA uses their $100 Million in stock that they bought for $10 Million to get a loan they would have to pay capital gains on that $90 Million capital gain. Just like they would have to pay capital gains when they sell the stock. No stock sale has to occur - the investor could pay $18 million in taxes out of their loan.

When we decide to tax things is inherently arbitrary: I'm suggesting that we count "borrowing" against an asset as a taxable event which is a simple and straightforward change that makes buy-borrow-die more equitable: government gets taxes at the same time as the investor gets the benefits.

But that’s the thing: until you sell all the “capital gains” are illusionary: you borrow against your stock and tomorrow it falls down 50% and now you’re double screwed because you owe tax on those illusionary gains and your bank is also after you, demanding extra collateral on your loan. So your proposal would essentially ban borrowing against stocks completely

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