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Comment by maeln | Hacker News Reader

Most rich people have very substantial income. It's just that they also have a lot of capital gain. As an example, most CEO have the biggest salary in the company, but also get other capital comp like stocks.

There is ofc the loan loophole, but it doesn't mean that they don't get any other income, on which they are taxed on. It is just that, if you calculate their total package, compare to an average worker they pay significantly less taxes *proportionally* because a disproportionate amount of their "income" (some of which could hardly be called income but that is another subject) are in some form that are taxed less.

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Rich people, including CEOs, are disproportionately paid with equity, so your point is pretty irrelevant.

In 2022 Google's CEO made $2 million in salary and $218 million in stock awards.

No that is my point exactly. Ask anyone not in the 1% and 2M$ salary would be huge, life changing, and put them in the "rich" category. So rich do have a huge income, it is just that their other gain are just disproportionately huge compare to "traditional" income.

A number of executives used to make a point by assigning $0 as their salary, and only making money by appreciation of their shares. Better yet, you can borrow money with your stock as a collateral, and cut even more off your taxes by repaying with pre-tax gains: [1].

[1]: https://www.healio.com/news/hematology-oncology/20220928/avo...

The $218 million is taxed as income. Tim Cook paid over a 50% tax rate on his award of Apple shares recently: https://www.forbes.com/sites/antoinegara/2016/09/01/apple-ce...

You're right, I commented on this in my response to a sibling comment.

Right, but giving someone stocks instead of money will be an income, not a capital gain?

the equity sundar receives is taxed though as income so what is your point?

You were getting downvoted but you're right and I was wrong so I upvoted you. I was thinking a large portion of his compensation would have been in options, but it looks like they're all some form of stock units.

Over time, though, the lions share of Sundar's increase in wealth will come from appreciation of his stock, which will be in the form of capital gains. "Average" people don't have this luxury because they simply need to spend much more of their money to live, and thus most of their income (or increase in wealth) comes from a job.

FWIW I think a much fairer system would be to tax capital gains at income tax rates, but index the basis to inflation.

No, it's not. You can take a loan against your stock and don't pay any taxes. Very common strategy. Elon Musk, Mark Zuckerberg, Larry Page, Jeff Bezos, etc. all use this strategy to fund their lifestyles without selling stock.

This is only true for founders who had inherent ownership in the company to start with. Your average dev getting comp'd with RSUs is taxed the same as if that was straight income.

i.e. people who took all the risk when nothing existed.

Ok. I don't mind those folks getting large rewards. I do mind when they effectively pay far lower taxes than the common man. You take out a loan on assets? It should be treated the same as if you sold and took capital gains. Capital gains should be taxed as normal income above $medianHouseholdIncome.

first, yes, it is taxed as income, because it is income.

so what - the loan has to be paid off, and the stock will inevitably be sold and taxed. there is no scheme to get away from paying taxes forever without dying, and that scheme (that one that involves dying), is the same one that benefits an average person w.r.t estate tax.

> is the same one that benefits an average person w.r.t estate tax.

No, it's not. 2 points:

1. Average people don't pay estate tax, because only a teeny portion of estates make over the exemption amount.

2. I realize point one is a separate issue from what you're referring to, which is the step-up in basis at death. But that tax strategy of taking out loans to cover your lifestyle so you can pass on appreciated assets with a low basis is only possible for people with a huge amount of assets to begin with (i.e. people who already have enough to completely love off their assets without working).

OK, so you should advocate for changes in the estate tax. When that inevitably fails, because no parent wants all of their money to be taken by the government, we can come back to this thread.

> When that inevitably fails, because no parent wants all of their money to be taken by the government

I only think it fails because Democrats have horrible messaging. Republicans branded it a "death tax", when I think it should be called the "aristocracy prevention tax".

Your average person has no idea how the estate tax works (i.e. they think it applies to them). In the late 1800s/early 1900s the UK implemented what is perhaps the largest nonviolent transfer of wealth by instituting large estate taxes on their aristocracy and landed gentry.

> OK, so you should advocate for changes in the estate tax.

Haha, good one. Good luck with that, you’re up against the most powerful and influential people and their lobbyists. Others have already tried. Maybe if the U.S. were a democracy instead of a plutocracy.

They will pay zero taxes, only low interest on the loan (below 2% typically). It's called "Buy, Borrow, Die" strategy. When they die, their heirs inherit the assets, but here’s the magic loophole: The heirs get a "step-up in basis" which means the cost basis of the asset is reset to its current market value. This erases all capital gains taxes that would have been owed if the assets were sold during the billionaire’s lifetime. Average person can't get 1-2% loan against their stocks (if they even have any).

Yes, I am aware of this, and it's a separate problem - which won't be solved btw.

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