5 ms·

I think in turn you are describing what 1%ers do to reduce their tax, and not 0.1%ers, which involves all sorts of shady schemes often involving "loans" that ar

I think in turn you are describing what 1%ers do to reduce their tax, and not 0.1%ers, which involves all sorts of shady schemes often involving "loans" that are not intended to be repaid.

fegu 11y ago
That specific loophole was closed in Norway just half a year ago. Sigh... Lucky you to still have it in the US. (or not, depending on your position)
hkmurakami 11y ago
ex: Larry Ellison taking out a 9 figure loan with Oracle stock as collateral. He prevents a capital gains tax hit, maintains control of Oracle, and gains liquidity. Kill 3 birds with 1 stone.
- charlesdm 11y ago
  And how is this a problem? You would only do this if interest rates are low, and if you believe the stock will appreciate more over the long run than it would cost you to service the interest on the loan. Also, if the value of the stock tanks, the bank will come collecting and sell the shares you pledged as collateral. Second, this is a part of doing business - you can leverage anything (real estate, stocks, bonds, etc)
  - hkmurakami 11y ago
    Generally speaking I think individuals have the right to minimize their taxes through legal means, no matter how convoluted. But I also think it's reasonable for people to draw the line somewhere for what they consider fair or unfair. Another example of an instrument that has benefited tremendously from our recent ZIRP + rising equity markets is the Grantor Retained Annuity Trust, which will likely leave a worse taste in people's mouths compared to Ellison's maneuvers. [1] It is a fair point for people to ask whether these legal maneuvers should remain legal. [1] http://www.bloomberg.com/news/articles/2013-12-17/accidental-tax-break-saves-wealthiest-americans-100-billion http://www.bloomberg.com/news/articles/2013-12-17/accidental...
    - charlesdm 11y ago
      The problem with a lot of these things is that often you can’t make them illegal, exactly because there are so many use cases that are valid. For example, if you make the above mentioned transaction illegal, with the exception of when it’s used in a valid business transaction or for non tax avoidance motives, his lawyers will just argue that this is the most straightforward way to get liquidity without eroding control of the company. People like talking about fair and unfair, and the “spirit of the law”, but that all means something completely different to whomever is reading the law. What might seem fair to someone, won’t seem fair to others. I would assume a ton of “normal” people (i.e non entrepreneurs, income tax paying people) consider the loan thing to be unfair, but wouldn’t consider it unfair if they releveraged their own primary residence to achieve a similar result. Second, if governments want to limit tax avoidance, they should learn to make proper laws (i.e. no half way, rushing something out of the door). A lot of laws are made in a half assed way. Stuff like this comes to mind: http://www.bloomberg.com/news/articles/2014-11-03/malone-gained-double-tax-break-in-liberty-address-shift http://www.bloomberg.com/news/articles/2014-11-03/malone-gai.... ("He avoided paying taxes on his remaining stake, worth about $260 million, by exploiting IRS regulations meant to block a different loophole.")
      - sokoloff 11y ago
        > wouldn’t consider it unfair if they releveraged their own primary residence to achieve a similar result. Spot on! For the less finance lingo savvy, that simply means take a second mortgage/home equity loan or home equity line of credit (HELOC) for a vacation, to invest in another property, pay for college or other large expense, etc.
      - hkmurakami 11y ago
        I completely agree. Though for better or for worse, we seem to be headed towards an age of populism, which may actually start to affect the consensus manner in which the laws are read.
      - nickpsecurity 11y ago
        You can make them illegal by making only one legal way to get money from person A to persons B. Anything over a certain amount per year, basically cost of living, gets taxed. It doesn't matter what path it took to get there. And thanks for the article. :)

I think in turn you are describing what 1%ers do to reduce their tax, and not 0.1%ers, which involves all sorts of shady schemes often involving "loans" that are not intended to be repaid.

fegu 11y ago

That specific loophole was closed in Norway just half a year ago. Sigh... Lucky you to still have it in the US. (or not, depending on your position)

hkmurakami 11y ago

ex: Larry Ellison taking out a 9 figure loan with Oracle stock as collateral. He prevents a capital gains tax hit, maintains control of Oracle, and gains liquidity. Kill 3 birds with 1 stone.

charlesdm 11y ago
And how is this a problem? You would only do this if interest rates are low, and if you believe the stock will appreciate more over the long run than it would cost you to service the interest on the loan. Also, if the value of the stock tanks, the bank will come collecting and sell the shares you pledged as collateral. Second, this is a part of doing business - you can leverage anything (real estate, stocks, bonds, etc)
- hkmurakami 11y ago
  Generally speaking I think individuals have the right to minimize their taxes through legal means, no matter how convoluted. But I also think it's reasonable for people to draw the line somewhere for what they consider fair or unfair. Another example of an instrument that has benefited tremendously from our recent ZIRP + rising equity markets is the Grantor Retained Annuity Trust, which will likely leave a worse taste in people's mouths compared to Ellison's maneuvers. [1] It is a fair point for people to ask whether these legal maneuvers should remain legal. [1] http://www.bloomberg.com/news/articles/2013-12-17/accidental-tax-break-saves-wealthiest-americans-100-billion http://www.bloomberg.com/news/articles/2013-12-17/accidental...
  - charlesdm 11y ago
    The problem with a lot of these things is that often you can’t make them illegal, exactly because there are so many use cases that are valid. For example, if you make the above mentioned transaction illegal, with the exception of when it’s used in a valid business transaction or for non tax avoidance motives, his lawyers will just argue that this is the most straightforward way to get liquidity without eroding control of the company. People like talking about fair and unfair, and the “spirit of the law”, but that all means something completely different to whomever is reading the law. What might seem fair to someone, won’t seem fair to others. I would assume a ton of “normal” people (i.e non entrepreneurs, income tax paying people) consider the loan thing to be unfair, but wouldn’t consider it unfair if they releveraged their own primary residence to achieve a similar result. Second, if governments want to limit tax avoidance, they should learn to make proper laws (i.e. no half way, rushing something out of the door). A lot of laws are made in a half assed way. Stuff like this comes to mind: http://www.bloomberg.com/news/articles/2014-11-03/malone-gained-double-tax-break-in-liberty-address-shift http://www.bloomberg.com/news/articles/2014-11-03/malone-gai.... ("He avoided paying taxes on his remaining stake, worth about $260 million, by exploiting IRS regulations meant to block a different loophole.")
    - sokoloff 11y ago
      > wouldn’t consider it unfair if they releveraged their own primary residence to achieve a similar result. Spot on! For the less finance lingo savvy, that simply means take a second mortgage/home equity loan or home equity line of credit (HELOC) for a vacation, to invest in another property, pay for college or other large expense, etc.
    - hkmurakami 11y ago
      I completely agree. Though for better or for worse, we seem to be headed towards an age of populism, which may actually start to affect the consensus manner in which the laws are read.
    - nickpsecurity 11y ago
      You can make them illegal by making only one legal way to get money from person A to persons B. Anything over a certain amount per year, basically cost of living, gets taxed. It doesn't matter what path it took to get there. And thanks for the article. :)