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Comment by 14u2c | Hacker News Reader

You are ignoring the most common approach, borrow against the asset. In that case the sufficient assets turn into essentially unlimited untaxed cashflow. Especially with how the market has been lately, the gains erase any burden of the loan. Sounds like a broken tax system to me.

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So why isn't the suggestion to tax the loan instead of the asset (that is 10x more volatile than say property)?

That may be a perfectly viable solution. Seems like an easier path to me, at least. But the point is that these assets are a lot more fungible than you imply.

> It is not a good measure of the money someone may be able to realise.

And as such, when you get into the higher ranges, net worth is quite a good indicator.

I think it’s exactly at the higher ranges that you are more likely to run into concentrated positions where valuations are not simply a total value multiplied by a percentage ownership.

What is Cargill “worth”? Suppose the families announced they were selling 90% of it on Monday. Would they get that figure?

What is Jensen Huang’s share of nVidia worth? If he announced he was selling all of in October, why would he not end up with that figure?

It’s quite different for a bank to lend Jensen (or Larry Ellison or Elon) 5% of that notional figure. They don’t need to care whether the true value is 30% or 50% of the notional to make that loan.

Don't overlook the fact that the borrower pays interest on the loan.

> Especially with how the market has been lately, the gains erase any burden of the loan.

And when the market goes down, you get a margin call and get wiped out.

>into essentially unlimited untaxed cashflow

Loans must be paid back. Loans are cash flow neutral (cash flow negative with interest) over the maturity. That's why loans are not counted as income.

In theory, maybe, but in practice that is not what happened over the past decade(s). Instead our retirement funds are paying it back.

When the market grows it makes the collateral worth more, which lets the borrower keep refinancing the debt instead of selling assets and realizing taxable gains. As long as the assets appreciate faster than the debt grows, the borrowing can effectively roll forward for decades. Eventually the estate pays the debt out of the assets themselves, but this is not necessarily out of taxable income earned during the person's lifetime. The US markets has seen exceptional genuine growth, but the trillions of 401(k), IRA, etc money flowing in to them over the last 40 years is no small consideration.

And even so, you could say it all settles out in the end, but that ignores the fact that there have constant constant efforts (and successes) in eroding away the e̶s̶t̶a̶t̶e̶ ̶t̶a̶x̶ "death tax" during this same period.

Eventually, the loan gets paid back, one way or another. There's no escape from it.

However, the bank is happy to extend the loan infinitely for people with enough assets. It's questionable that whether such loans are cash flow neutral.

>However, the bank is happy to extend the loan infinitely for people with enough assets.

Long maturity products still have to be repaid. There are no "infinite" maturity loan products for retail customers.

>It's questionable that whether such loans are cash flow neutral.

There's zero question: loans are cash flow negative (for customers) with interest. Banks are not going to offer products that are not cash flow positive for the bank.

What evidence do you have that people borrow against assets as some tax avoidance strategy? What are the details of this brilliant, often repeated plan? In particular, where do you get interest rates that are low enough to make it worth it to avoid capital gains even with an asset that's grown 100x over its cost basis (and are you accounting for reinvestment of income like dividends that can't indefinitely defer taxes, creating regular tax lots with higher basis that you could sell first)? e.g. are they getting better interest than SOFR somewhere?

The framing was slightly glib, and you're correct that current rates impacts the equation, but there has been real damage caused by how extremely attractive this strategy has been over the past decade. We sitting on an unprecedented peace time deficit due to a failure to properly tax an economy that has been massively prosperous during this same period. This strategy is small part of it, but it is a real part.

It wasn't extremely attractive if you actually think it through. e.g. if rates are lower and you're willing to carry investments with leverage (that's the idea, right? Your investments will grow faster than interest?), why aren't you already leveraged up to your risk tolerance? I don't think there's actually a world where this plan works. It seems like this is a reddit meme for people who have never actually considered a securities loan.

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