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Summary: 1. Capital Gain taxes are delayed until you actually sell the stock. 2. Corporate taxes are being reduced because companies are moving profits to for

Summary: 1. Capital Gain taxes are delayed until you actually sell the stock. 2. Corporate taxes are being reduced because companies are moving profits to foreign jurisdictions. 3. Estate taxes & income taxes are being avoided by the creation of charitable foundations. The 2nd and 3rd points are very valid, and I wish the author had spent more time on them. Unfortunately instead, the author spends much more time on point 1, conflating wealth with income, and avoiding the obvious argument that capital gains are eventually taxed - the rich are not escaping that. ...unless point 3 (foundation) occurs. And that should be the main story. Squabbling over a wealth tax is not useful. The real issue is that the super rich create these personal "foundations" that act as never-taxed income holes, and then use them as personal and political tools. In total, there's nothing very revealing about this article. It's everything we've already known. IMO, we need to curb foreign tax havens, and severely limit tax exemptions for charitable donations. A more interesting question is how did ProPublica get a copy of Jeff Bezos' tax returns. Seems like a leak at the IRS?

danso 5y ago
> It's everything we've already known. > A more interesting question is how did ProPublica get a copy of Jeff Bezos' tax returns. Seems like a leak at the IRS? Yes the actual tax records are what make the story interesting, even if the data only confirms what “everyone knows” — at least there’s actual data and empirical analysis of the scope. According to this accompanying explainer, the leak is anonymous: https://www.propublica.org/article/why-we-are-publishing-the-tax-secrets-of-the-001 https://www.propublica.org/article/why-we-are-publishing-the... > A second question certain to arise is the motives and identity of the source who has provided this data to ProPublica. We live in an age in which people with access to information can copy it with the click of a mouse and transmit it in a variety of ways to news organizations. Many years ago, ProPublica and other news organizations set up secure systems that allow whistleblowers to transmit information to us without revealing their identity. > We do not know the identity of our source. We did not solicit the information they sent us. The source says they were motivated by our previous coverage of issues surrounding the IRS and tax enforcement, but we do not know for certain that is true. We have considered the possibility that information we have received could have come from a state actor hostile to American interests. In particular, a number of government agencies were compromised last year by what the U.S. has said were Russian hackers who exploited vulnerabilities in software sold by SolarWinds, a Texas-based information technology company. We do note, however, that the Treasury Department’s inspector general for tax administration wrote in December that, “At this time, there is no evidence that any taxpayer information was exposed” in the SolarWinds hack.
- koheripbal 5y ago
  I don't think it's any coincidence that Jeff Bezos specifically was leaked. He has been straying into politics in DC very very heavily, and it looks like he's making enemies. I suspect that is also the reason we see near-daily anti-Amazon posts on social media.
  - danso 5y ago
    He's literally the richest man in the world. If the leaker's purported motive is to expose tax avoidance by the ultrawealthy, it would be very strange for Bezos to not be in the leaked data. I don't think ProPublica describes in exact specificity the scope of the data, other than it contains "the tax returns of thousands of the nation's wealthiest people, covering more than 15 years". And it includes Warren Buffett, Rupert Murdoch, Mark Zuckerberg, Larry Ellison, Mike Bloomberg, Carl Icahn, and Elon Musk — a group of guys who, along with Bezos, are not considered to be politically aligned.
    - mc32 5y ago
      Richest from running a public company [holding stocks] not necessarily the richest overall.
      - jessaustin 5y ago
        We hope for more leaks about all these other people who are richer than Bezos.
      - rascul 5y ago
        Who is richer? Forbes says he's #1. https://www.forbes.com/billionaires/ https://www.forbes.com/billionaires/
        mc32 5y ago
        Possibly oligarchs and middle eastern royals, those kind of people.
taneq 5y ago
> voiding the obvious argument that capital gains are eventually taxed - the rich are not escaping that. In one sense yes, but if they're living happily on a tiny fraction of their wealth then they can hang on to the rest until an opportune time to cash out. Governments come and go, taxes are imposed and abolished, loopholes open and close. If they can afford to play the long game then "eventually" may be very different to what would happen if they cashed out today.
- finnh 5y ago
  But what's the alternative? Forcing people to sell? Forcing people to mark-to-market? There's no way to (fairly) tax capital gains except at the time of sale.
  - jermaustin1 5y ago
    Except the uber wealthy who can afford to lose money to pay taxes for the infrastructure that has enabled their explosive asset growth. I agree that you and me, and even my paper-millionaire neighbors and friends cannot afford to be taxed on their assets, but a billionaire can, even a paper billionaire can drum up the cash or debt when needed to pay taxes. They do it every day for their large purchases.
    - greenwich26 5y ago
      Sounds pretty authoritarian. > Except the uber wealthy who can afford to lose money to pay taxes for the infrastructure that has enabled their explosive asset growth. Federal income tax almost never gets used for infrastructure. Infrastructure is mostly built by state and local governments, which receive most of their income from sales tax and property tax, and other taxes, which are already almost entirely paid by businesses. So, they are already paying for the infrastructure that enabled their growth.
      - jessaustin 5y ago
        So you're not opposed to property tax? That's just what we're considering here, for securities rather than real property.
smitty1e 5y ago
> The real issue is that the super rich create these personal "foundations" that act as never-taxed income holes, and then use them as personal and political tools. Opinions may differ, but one major point is that our tax system is a joke. If we can put a movie about flying humans to the moon on Netflix, why can't we implement a tax system that isn't a Byzantine train wreck?
- bsedlm 5y ago
  > why can't we implement a tax system that isn't a Byzantine train wreck? because of lacking political incentives?
  - hackeraccount 5y ago
    Lacking? The incentives are in geared towards a high rate with lots of deductions, certainly on the business side. If I'm running a business I don't want a low rate or low regulation - I want a high rate with loopholes narrowly tailored to whatever I'm doing and a high regulatory burden. Politicians want exactly the same thing. It's not exactly the same with non-business tax rates but it's not that far off either - see the deduction for SALT.
- ansible 5y ago
  > ... why can't we implement a tax system that isn't a Byzantine train wreck? Because the people with power (money) like it this way. They aren't interested in what is fair for everyone, they are only interested in what they can get away with. The rich can afford to hire a team of lawyers and accountants to navigate the tax system, and pay almost nothing. But they have to keep the fiction up that they are paying tax by having their "on the books" tax rate be non-zero.
- throwaway210222 5y ago
  > why can't we implement a tax system that isn't a Byzantine train wreck? The Hong Kong tax code is about 250 pages.
bradleyjg 5y ago
> and avoiding the obvious argument that capital gains are eventually taxed - the rich are not escaping that. Not so, because of the step up basis at death. That provision allows the capital gains tax to be not just postponed, but eliminated.
- darkerside 5y ago
  Ahh the old death loophole...
  - thanatos519 5y ago
    You can't take it with you, but your estate can? WTF.
  - mc32 5y ago
    I’m just surprised more wealthy people aren’t taking advantage of that obvious one.
- koheripbal 5y ago
  The step up basis only applies to estate taxes below the federal limits, so it doesn't apply to super-rich. ...another point (deliberately?) omitted from OP's article. Step up basis might get eliminated in any case, as the Biden Administration is proposing to remove it.
  - bradleyjg 5y ago
    That’s not quite right. The step up basis applies to everyone. It is true that if estate taxes are paid on the gains then the step up loophole hasn’t completely eliminated taxes on capital gains. However, the estate tax is even more full of loopholes than the capital gains tax. See for example the Grantor Retained Annuity Trust. Finally, the Biden administration is not proposing to eliminate the step up basis entirely, unfortunately, but merely rein it in some.
- aetherson 5y ago
  For ordinary people, sure. But the estate tax kicks in at anything above $11M, and is 40%.
nlh 5y ago
I have what I hope is a genuine question here: > we need to ... severely limit tax exemptions for charitable donations Why do we need to do this? Wouldn’t the natural incentive-based result of this be a huge reduction in charitable donations? It’s essentially an asset transfer from charitable causes to the government. I’m not sure I understand why that’s default good.
- HenryKissinger 5y ago
  People should be giving to charities out of the good of their heart, not to get a tax deduction. The tax deductibility of charitable donations makes them no cost options for the donor. Remove the tax implications, and you will see who really cares about their cause.
  - bitcurious 5y ago
    For the sake of argument, assume a flat 20% tax rate for a minute. Scenario A: Your taxable income is $1,000,000. Your tax liability is $200,000. You pay your taxes, you net $800,000. Scenario B: Your taxable income is $1,000,000. Your tax liability is $200,000. You donate $200,00 to charity. Now your taxable income is $800,000 and your tax liability is $160,000. Your net income is $640,000. The only scenario where a charitable contribution doesn’t lower your overall income is Scenario C: you commit fraud.
    - rattray 5y ago
      Scenario D: You donate $800,000 to a foundation you control. Your net income is $960,000 ($160,000 cash and $800,000 with some strings attached).
      - kristjansson 5y ago
        If they cut a string, or even pull on one a bit too much, they’re right back at C.
        5y ago
2Gkashmiri 5y ago
please help me understand what you call "capital gains". in india, when you are holding a share in a company for example, its value goes from $1 to $4 in a year. for that financial year, your accountant says "hey. you earned $3 as capital gains", and its appropriately taxed as short term capital gains or long term. how do American financial statements show "wealth"? i read the article but i don't understand. if my personal balance sheet was $ 1 at the start of the year and by the closing, i say my capital balance is now $2, that means i got the balance through some earning so that is what is taxed. why the half assed approach to delay till final sale? accrual is an accounting word. isn't it?
- faet 5y ago
  If I buy a share of a company for $1 January 1 2019 and it is worth $2 January 1 2020 I've got $1 of 'unrealized gains'. I pay zero taxes. If I sold it before 1 year of holding, I'd pay $1 in taxes (the gain) at my top tax rate based on my other income. If I sell it after 1 year I pay tax at a reduced rate on the total gain.
  - 2Gkashmiri 5y ago
    i am not concerned about selling. i am saying when you "accrued" an income, you pay taxes on it.
    - kristjansson 5y ago
      It’s not an income until you sell it
- koheripbal 5y ago
  In the US (and most western countries), the difference is not reported as income until you actually sell it. This removes any debate about the value of the asset.
  - 2Gkashmiri 5y ago
    my question stands. why doesnt us tax system recognise accural of income?
hogFeast 5y ago
The rich usually are escaping capital gains tax. There are a very large number of ways to avoid realising capital gains. A good example of this is John Malone...he has spent about two decades continuously trading assets up to $8bn, I would be surprised if he has ever actually paid capital gains.
foerbert 5y ago
The problems faced at a certain level of wealth are so alien that it's not uncommon for their solutions to sound totally nonsensical - even actively harmful - to anybody outside of that demographic. In light of this, I don't think we can so easily dismiss delayed taxation of capital gains as unimportant and irrelevant. Maybe it is, but I think we need more information to solidly come to that conclusion. Even one of the things you (rightly, I think) identify as a problem seems to have some serious synergy with such a delay. What happens if one of these charitable foundations ends up with stock? How long of a delay might that taxation have then? And is there any way for them to get some liquidity out of that stock without actually selling it? Can they take out loans with it as collateral, for example? I'm not actively making claims here, but rather trying to show the situation is complex enough that we can't write off seemingly innocuous mechanics simply because they appear innocuous. It's complex, and weird, and needs deeper information and data to really understand.
- cableshaft 5y ago
  He said delay, but that's just because the stock hasn't sold yet. Until you do, the gains are unrealized, i.e. the stock could drop precipitously suddenly due to some black swan event (i.e. a pandemic), and then they suddenly that wealth may as well never have existed. Like let's say I'm some regular guy, but I put my only $1000 in some asset that appreciated 100x, and it's now "worth" $100,000. These people that want to tax unrealized gains swoop in and go "hey, you're 'worth' $100k on Dec 31, you should pay us $30k in taxes this year". And so I don't have that money and have to sell my stock to pay it, but two days before I do the stock market tanks before I get a chance to sell and it's dropped 70% in price, so now I'm 'worth' 30k. And now I've sold it all just to pay the unrealized gains tax. Now this is an extreme example and unlikely to happen exactly in the stock world, although not terribly extreme if this weren't stocks we're talking about, but some cryptocurrency. This is why taxing unrealized gains never made much sense to me. The gains aren't actually real until you've converted them into something else or you purchase goods or services with. Until then it's just some number on a scoreboard.
  - elliekelly 5y ago
    You can borrow against the gains though so they aren’t exactly unrealized gains either.
phekunde 5y ago
Add to that list: 4. Divorces are being initiated to show expenses and "reduce" wealth ;)
- alok-g 5y ago
  Unless the tax brackets go down, net taxes (spouses combined) should come to roughly the same thing.
  - yupper32 5y ago
    It's very possible to pay more taxes while married. Two high income people getting married will very often face a large "marriage penalty". It's the dumbest thing I've ever heard of when I first looked into taxes when thinking about getting married. We seriously thought about not getting married on paper because of it.
    - alok-g 5y ago
      I would like to see more details. :-) What you wrote is not my current understanding or observations.
      - yupper32 5y ago
        You can just Google "Marriage Tax Penalty" and you'll get more details and history than I can write in a post. I imagine it's not a super common problem in the general population. But for the HN demographics, two high earning bay area tech people getting married is pretty common, and they'll often be hit with the penalty.
        alok-g 5y ago
        That explains it. I looked it up and it does indeed say that it impacts those cases more when both people are high earners. Thanks. :-)
sobellian 5y ago
Capital gains are eventually taxed if you ever sell, but some individuals will just hold and take out loans against their enormously large amount of collateral to avoid incurring capital gains tax.
- ghaff 5y ago
  To the degree that someone isn't so concerned about passing down the maximum amount of wealth, there are also a number of things that can be done to turn appreciated assets into an annuity through an existing non-profit of some sort. (e.g. using a CRUT).
- lovecg 5y ago
  This argument is repeated a lot but I never understood the mechanics. Wouldn’t they have to pay back the principal + interest, from a supposedly taxed source of income? This sounds like a scheme to delay taxes and optimize cash flow, but not a way to avoid taxes altogether?
  - bklyn11201 5y ago
    It's all about deferring to death and then hoping for the best possible tax treatment at death allowing basis step-up and avoiding estate taxes via various trusts.
  - onlyrealcuzzo 5y ago
    I created this spreadsheet to show that the difference is pretty trivial IFF you ever cash out (<2% over 10 years). However, a lot of people: 1) never plan to cash out. 2) know that tax rates are fickle and plan for a day when there will be extremely low tax rates - just like for companies to "repatriate" their profits - and hope that they can in the future realize with little-to-no profits (although, I doubt capital gains tax rates will go much lower, and might actually go MUCH higher). Anyway - the difference before you realize is >13% over 10 years (and the higher the rate of return is, the bigger the difference - it's >17% with a 10% per year return, which is historically average for the extremely wealthy according to Piketty). Here's the sheet: https://docs.google.com/spreadsheets/d/1dZ6h0s2lZBp0fM6Z2w1KOiRrlUaFc3tyIYdPPMfsMpk/edit?usp=sharing https://docs.google.com/spreadsheets/d/1dZ6h0s2lZBp0fM6Z2w1K... This strategy isn't really popular unless you have a networth of greater >$20M. It's particularly attractive, because you get $40k in untaxed capital gains per year - which is roughly what you need to pay the interest on your "borrowed" / "pretend unrealized" capital gains. And, the added benefit is, the interest IS TAX DEDUCTIBLE!
elliekelly 5y ago
Point #3 has come to the (wealthy) masses via the “directed trust” which allows you to “donate” your money and take the write-off without actually donating it yet. It’s only just a bit more than a promise of eventual future donation.
jollofricepeas 5y ago
Nah. The author states clearly that wage earners don’t have assets other than homes. The facts are: “By the end of 2018, the 25 [wealthiest Americans] were worth $1.1 trillion. For comparison, it would take 14.3 million ordinary American wage earners put together to equal that same amount of wealth. The personal federal tax bill for the top 25 in 2018: $1.9 billion. The bill for the wage earners: $143 billion.”
- missedthecue 5y ago
  Don't think this is a useful comparison because wealth isn't taxed. Income is. If you take the top 1% of earners, they make 20% of the income, but pay 38% of the taxes.
  - oblio 5y ago
    > If you take the top 1% of earners, they make 20% of the income, but pay 38% of the taxes. And that's normal. If I make $1k per year, taxing me is almost criminal, since I can barely afford to feed myself. If I make $100k per year, taxing me $20k year is kind of annoying, but manageable. I'll probably have to avoid some bigger expenses I would have made if I were not taxed at all. If I make $100m+ per year, taxing me $40m per year doesn't even change my lifestyle. It just gives me topics to bitch about at dinner time, but it doesn't change my life in any material way. The more I have, the more I can afford to give away without it impacting me or my family in any realistic way. Except for losing ego points.
    - hackeraccount 5y ago
      I understand the point but I question if reality works that way. No one looks at a tax bill and says "what have I got left after it?" They just look at the bottom line. And it doesn't matter if you've got a $100m in the bank or $900m - $40m is a lot of money. Avoidance is a more or less a fixed cost. It's the price of tax attorneys and Congressman. To the degree you go over that fixed cost it's going to be harder and harder to get the amount. The biggest surprise to me is always just how much the rich pay not how little.
leroman 5y ago
> Unfortunately instead, the author spends much more time on point 1, conflating wealth with income, and avoiding the obvious argument that capital gains are eventually taxed - the rich are not escaping that. Isn't it the point that wealth creates more wealth? and the more you have the more you can make? thus not paying taxes leaves you with more to play with?
- sudhirj 5y ago
  No, the more wealth doesn't mean the "more you can make". A majority of people own homes, for instance. And these homes usually go up in value. But no tax authority comes to your house and starts taxing you on how much the value of your home has increased. You pay taxes on the profits when you sell your home, not when you sit in it. Same thing goes for shares in companies. In both cases, the home and shares, owning something that has increased in value doesn't mean you have a stack of cash in your hand. You might once you sell your assets, at which point you pay taxes in both cases.
  - thechao 5y ago
    What!? I absolutely pay a rolling cost in the increase in value in my home — to the tune of 3.1% of its expected value, every year.
    - sudhirj 5y ago
      That's a property tax, not quite the same thing. You'd still pay it even if the home didn't increase in value, and you'd still pay it even if the home decreased in value, right? Isn't that more a local infrastructure bill?
      - brewdad 5y ago
        The property tax is based on the value of the home. If your home loses value, your property tax goes down, all other things being equal. Increasing home values increase your property tax bill.
      - 5y ago
gameswithgo 5y ago
Points 2 and 3 are also being accomplished by corporations being willing to sponsor politicians that will reduce them no matter how horrible or unqualified they are in other domains.
pinkfairy10 5y ago
Capital gains are not eventually taxed if you hold the stock until you pass them get the step up in cost basis. Easier to do if you can borrow cheaply and deduct the interest.
inigojonesguy 5y ago
Looks like a confirmed prediction from The Sovereign Individual. Probably familiar to many of you, but I have my coke and mentos moment while I read it, in 2021. Here is a link to archived pdf, for others like me https://web.archive.org/web/20210112042733/https://www.lopp.net/pdf/The%20Sovereign%20Individual.pdf https://web.archive.org/web/20210112042733/https://www.lopp....
spikels 5y ago
> capital gains are eventually taxed Not if you never sell. At death the "basis" is reset to the current market price. All those capital gains accumulated during a lifetime are never subject to capital-gains tax. There is currently a proposal to eliminate this loophole which was originally intended to deal with the difficulty of determining the history of a dead person's assets. Obviously this doesn't apply to the extremely rich with accountants, lawyers and financial advisors.
evancox100 5y ago
On point 1, it’s also important to realize there is a step up in basis when inheriting or donating appreciated stock
drdec 5y ago
> Capital Gain taxes are delayed until you actually sell the stock. > Squabbling over a wealth tax is not useful. I agree that a wealth tax is not the way to go. But there are other ways to skin this cat. The big takeaway I got from the article missing in your summary is that the wealthy take loans secured by unrealized gains in order to finance their lifestyle. So what if we found a way to make a rule that using unrealized gains as collateral for a loan was, for tax purposes, the same as realizing the gains? (You might need to tweak the rule for fairness but the basic point remains.) I think aggressively closing loopholes in the current code could go a long way (you mentioned a couple, like charitable donations and tax havens).
- TimPC 5y ago
  Capital gains being delayed is not a direction we want to pursue. There are huge problems with unsellable stock in venture-backed start-ups and other situations where you can end up owning a massively valued asset that you can't sell to pay the taxes on. Said asset could go to zero without you ever realizing money. I don't think people should lose their start-up stock over taxes, or face putting their entire wealth on the line on a gamble the company pays off. Keep in mind it's not unheard of to have stock worth $2+ million for an early employee in a company that goes to zero. Even more relatable to the average person: If your house price goes up too quickly you can be forced to sell to afford paying the capital gains on it.
  - rhino369 5y ago
    No different than me selling stock A, paying capital gains and then buying stock B, which could go to zero. You can handle your hypo the same way the tax system handles mine. You can deduct the capital loss from future gains.
    - nilsbunger 5y ago
      Sure it’s different. You might not have cash to pay those taxes. When you sold and bought, you had an opportunity to set aside the $$ to pay taxes
nilsbunger 5y ago
The biggest issue is that when you die, your assets get a “step up in basis” so the gains until then won’t ever be taxed.
kylestlb 5y ago
"conflating wealth with income" The author(s) explicitly do NOT conflate these and point that out several times.
- hnburnsy 5y ago
  The authors conflated right here... "The results are stark. According to Forbes, those 25 people saw their worth rise a collective $401 billion from 2014 to 2018. They paid a total of $13.6 billion in federal income taxes in those five years, the IRS data shows. That’s a staggering sum, but it amounts to a true tax rate of only 3.4%." Income taxes paid divided by increase in net worth, how is this NOT conflating? No one's definition of 'true tax rate' is calculated this way.
boringg 5y ago
The source of how they got the tax returns is the story - very unsettling that the IRS had a security breach (either leak or hacked). I suspect SolarWinds has a part in this
ccn0p 5y ago
The article also points out that "in the coming months" it'll reveal more. Although I agree this isn't that interesting, just judging by the income reported Buffett, Bezos, Musk, paid 19%, 23%, and 30% respectively (not counting obviously massive stakes in unrealized gains)... the outlier here is Bloomberg at 3%.
xhkkffbf 5y ago
Yes... and it's important to remember that unrealized stock gains aren't really wealth either. It's not like Bezos can go out and buy 100 billion things from the McDonald's dollar menu. The money is locked up in the shares and he has so many that any attempt to sell more than a few could really depress the price of the stock. If anything, he's sort of a curator of the wealth for everyone in the Amazon world. Yes, he's able to live very well, but the simple value of his unsold shares doesn't capture his true ability to buy things.
- boatsie 5y ago
  The article explains this, they use those unrealized gains as collateral for loans—bypassing the need to pay capital gains by actually selling the shares.
  - abstractbarista 5y ago
    How do they pay back those loans? I've never understood that part.
    - xhkkffbf 5y ago
      Presumably they sell stock, but any money works. It's all a gamble. If the stock tanks -- and they often do-- then it's easy to end up in bankruptcy. But this article is all about hating on the rich and imagining that it's all perfect for them. They don't want to talk about the times when the stock falls and the once rich turn into very poor.
      - triceratops 5y ago
        > the times when the stock falls Remind me when that's ever been allowed to happen in the past 10 years. At the first sign of any market trouble, the default Fed response is OMO and cutting interest rates to shore up the markets. Stock prices can never fall even if the actual economy is in the shitter.
    - NaturalPhallacy 5y ago
boringg 5y ago
I feel like this article does 4 things: 1. Foment rage at the inequalities of the tax system (very easy to do) through their simple narrative 2. Flag to wealthy people who are paying their fair share to look at how to further improve their tax efficiency. 3. Create political damage (which seem to lean democratic) to the individuals who are doing everything legally? It seems like ProPublica is trying to continue to lay the groundwork for a wealthtax campaign by fomenting further rage around the inequalities of US tax system. Aside from that I have deep concerns about the source of this information and why it was used. Seems like IRS taxes have been weaponized and are readily available. Everyone should be deeply concerned about how ProPublica got this information.
dukeofdoom 5y ago
Fringe, whacky ideas are getting funded and their bad ideas given fuel to spread, and boosted on social media. Just thinking back how laughably bad of an idea communism was, and how many lives it cost. Just because you're a billionaire does not mean you should be playing a social engineer.
vmception 5y ago
Note that assets in a foundations and donor advised funds are not reported in anyone’s net worth online calculators. There is no way to predict somebody’s net worth and all the lists are wrong. There are only a few public things and they are all snapshots in time that assume it’s still true forever. An actor on a big movie? The list will say “we estimate they made 20 million, lets list them as a net worth of 20 million forever”, a non obfuscated real estate property record either in someones name or linked to them? Okay we are counting that. Aside from that they are just counting shares of public companies that large % holders are required to disclose. Outside of those slivers you’ll still never know if they were a savvy and passive investor in other public equities just like you are trying to be. You’ll never know if they made 1,000% more on tech stocks. You’ll never know if they assigned shares and cash to a charitable organization they control. You’ll definitely never know what subsequent trades the charitable organization made. But even without pointing at charities: Hedge Funds, VC and Private Equity firms are not reported nor are any business interest. These things can pay out arbitrarily and also have large amounts of funds in any limited partners name.
gxs 5y ago
Regarding it's not tax until it's sold, this isn't necessarily true. One little trick here is to take out huge loans using things like stock holdings as collateral. You're not paying tax on the money, and you can pay it back a bunch of difference ways that can limit how much you pay. There are nuances to this, it's not as straight forward as I mentioned, but that's the general idea.
9wzYQbTYsAIc 5y ago
> A more interesting question… From their other article, https://www.propublica.org/article/why-we-are-publishing-the-tax-secrets-of-the-001 https://www.propublica.org/article/why-we-are-publishing-the... “We do not know the identity of our source. We did not solicit the information they sent us. The source says they were motivated by our previous coverage of issues surrounding the IRS and tax enforcement, but we do not know for certain that is true. We have considered the possibility that information we have received could have come from a state actor hostile to American interests. In particular, a number of government agencies were compromised last year by what the U.S. has said were Russian hackers who exploited vulnerabilities in software sold by SolarWinds, a Texas-based information technology company. We do note, however, that the Treasury Department’s inspector general for tax administration wrote in December that, “At this time, there is no evidence that any taxpayer information was exposed” in the SolarWinds hack.“
ffggvv 5y ago
i don’t see the issue with the charity thing as long as the money is actually used for charity i would trust the gates foundation to use money 1 million more wisely than the government just wasting it
saint_abroad 5y ago
> 1. Capital Gain taxes are delayed until you actually sell the stock. By far, the greatest increase in wealth (and inequality) is due to capital gains. > [...] capital gains are eventually taxed Normally, one might sell assets before a decline, and at that point gains (and therefore taxes) may be realised. This is avoided by HODL stock in holding companies (such as Berkshire Hathaway) which can rotate assets without ever incurring capital gains (or indeed income).
socialist_coder 5y ago
What about the point about taking out loans to avoid paying income tax, since money from a loan isn't income. Isn't that one of the major points? I don't get how do they pay the loan off though, without paying taxes on the money used to pay off the loan. How does that work? Any loan I take out, I'd have to get income and then use my income to pay off the loan.
- nmfisher 5y ago
  I assume if you have a loan of $100,000 secured against an asset worth $1 million that appreciates 10% each year, you can basically continue rolling over the loan. As long as the asset value doesn’t drop, you never have to actually repay the loan with your own cash (at least, not until you die or you sell the asset).
  - socialist_coder 5y ago
    Ahh, makes sense. So they are never paying back the loan with earned income. Thank you!
jandrese 5y ago
> avoiding the obvious argument that capital gains are eventually taxed - the rich are not escaping that. I used to think this too until my wife inherited some stocks from her grandmother. Turns out the strike price is reset when you inherit and you dodge all of the capital gains tax. This turned out to be a major win for us because her grandmother had acquired the stocks when she worked for AT&T back in the Ma Bell days and had not paid attention to them for 50 years. The paperwork was a complete mess and we had zero idea what the strike price would have been on stock she got as part of her normal income some time in the 50s and had been split up and recombined so many times in the mean time.
- aluminum96 5y ago
  Nit: I think you mean "basis" -- "strike price" only pertains to options.
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Trias11 5y ago
>> ... we need to curb foreign tax havens Luckily US cannot police other countries (not that it didn't try) to prevent people from taking advantage of more competitive tax regions outside of US. US obsession with taxing people and businesses to the ground is a strong contributor for so much capital escaping US.
boringg 5y ago
This seems like a state-sponsored hack to reveal this information (Solarwinds?). Way too much information for one IRS employee to leak. I would be incredibly surprised if anyone who had that kind of access to IRS returns (ie searchable database for everyone) would leak the 25 top earners. It does add up for the career risk to take that risk on especially as its not leaking anything illegal just shining a light on the injustices of the system.
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KingOfCoders 5y ago
Funnily made that point three days ago here https://news.ycombinator.com/item?id=27404513 https://news.ycombinator.com/item?id=27404513
robbintt 5y ago
Actually, most HNWI capital growth is not taxed, ever. It is a mistake to think any meaningful percentage of the wealth is sold or transferred, except on a stepped up basis to descendants, who likewise will hold it indefinitely. This does concentrate wealth.
hnmullany 5y ago
Other countries have a time limit for how long you're allowed to sit on unrealized gains. In Ireland, for example, you have to pay capital gains on unrealized gains at the 7 year mark.
- hackeraccount 5y ago
  How does that work for housing? Or is there some exception there?
  - hnmullany 5y ago
    It doesn't apply to housing. (And there is no capital gains on sale of your primary residence anyway).
1cvmask 5y ago
The charity “scam” is brilliant because it is the hardest to argue against by the masses.
asimpletune 5y ago
This is a little random, but I had received stock as part of an acquisition, which I had to pay taxes on as if it were income. Now, if I sold that stock, do I have to pay taxes again?
- Negitivefrags 5y ago
  You pay capital gains tax on the difference in the price when you received it, and the price you sold it for.
- rebuilder 5y ago
  Presumably only on the capital gains, assuming any. So if the stock was taxed as being valued at X when you received it, and you sold it at x + y , you'd need to pay taxes on y.
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anonu 5y ago
Great summary and sensible conclusion. The problem is much of the NYT and ProPublica writing are wrapped in sensationalism and start from an extreme left position on the subject. I'm totally supportive of "taxing the uber wealthy"... But govt needs to take the long approach on this. Eventually, people die and inheritance kicks in. That's where these generational mega wealth transfers that don't do much good for society can be mitigated. The document leak probably has a banal explanation. Some insider with access to the documents...
- aluminum96 5y ago
  I hope you at least recognize that this is an uncommon opinion. Most Americans think billionaires pay too little tax, not only that they pass too much to their heirs. It's hardly extreme left.
yaroslavvb 5y ago
1. You don't have to sell the stock -- one could fund an ultra-wealthy lifestyle by renting expensive things, using stock as collateral. As your stock goes up in value, so does the value of things you have access to.
jorvi 5y ago
> IMO, we need to curb foreign tax havens That depends on what you mean. The US government (and a lot of US citizens) think that the tax on money Apple earns on selling iPhones in Europe belongs to the US, not France. But I feel if an iPhone is sold in a French building by a French person to another French person, with money transfered between two French bank accounts, all of that in French society, that that tax money belongs to the French and the US needs to keep its grubby paws off of it. No bullshit 'if you bring it back in the US we will forgo half of the tax on it and protect you internationally from the fallout'.
noobermin 5y ago
Why is a wealth tax not a good idea? Seems like it is the right idea.
- hackeraccount 5y ago
  Wealth taxes in practice tend to make income taxes look simple - to be effective they need to be capricious and arbitrary in way that's difficult to sustain in a country with a legal system that at least makes a reasonable show of not liking either of those two things.
varispeed 5y ago
Interestingly I can't hear any party, be it from the left or from the right hand side of the spectrum, telling that they are going to tackle tax avoidance by limiting 2. and 3. It should be frankly quite easy to identify fake costs and "charitable" foundations. They can only talk about minimum Corporation Tax... What a joke.
HWR_14 5y ago
Due to the step-up-basis law, the government does not collect any capital gains not realized prior to death. So if you make 10 million in capital gains on a lucky early stage $5,000 investment, and die without any other assets, the (US federal) government will collect zero in taxes from you, your estate or your heirs.
doopy1 5y ago
Are foundations available to folks on a tech salary as a similar tool?
splithalf 5y ago
If those foundations can do more good for humanity with less money than the federal system, wouldn’t it be good to leave these “loopholes” in place?
cyanydeez 5y ago
demogoguery will be pushed instead of sane tax policies for companies like amazon or tesla. its part of the far rights end around democratic decline.
chaostheory 5y ago
> Squabbling over a wealth tax is not useful. The real issue is that the super rich create these personal "foundations" that act as never-taxed income holes, and then use them as personal and political tools. Politicians have them as well. Their foundations rarely if not ever cater to their stated mission. Instead, politicians use them as legal bribery vehicles.
nunez 5y ago
Isn't point 3 actually a net good, though? I'm personally okay with people wealthy enough to consider point 3 creating foundations that procure more murals, enhance local zoos, or support cancer research.

danso 5y ago

> It's everything we've already known. > A more interesting question is how did ProPublica get a copy of Jeff Bezos' tax returns. Seems like a leak at the IRS? Yes the actual tax records are what make the story interesting, even if the data only confirms what “everyone knows” — at least there’s actual data and empirical analysis of the scope. According to this accompanying explainer, the leak is anonymous: https://www.propublica.org/article/why-we-are-publishing-the-tax-secrets-of-the-001 https://www.propublica.org/article/why-we-are-publishing-the... > A second question certain to arise is the motives and identity of the source who has provided this data to ProPublica. We live in an age in which people with access to information can copy it with the click of a mouse and transmit it in a variety of ways to news organizations. Many years ago, ProPublica and other news organizations set up secure systems that allow whistleblowers to transmit information to us without revealing their identity. > We do not know the identity of our source. We did not solicit the information they sent us. The source says they were motivated by our previous coverage of issues surrounding the IRS and tax enforcement, but we do not know for certain that is true. We have considered the possibility that information we have received could have come from a state actor hostile to American interests. In particular, a number of government agencies were compromised last year by what the U.S. has said were Russian hackers who exploited vulnerabilities in software sold by SolarWinds, a Texas-based information technology company. We do note, however, that the Treasury Department’s inspector general for tax administration wrote in December that, “At this time, there is no evidence that any taxpayer information was exposed” in the SolarWinds hack.

koheripbal 5y ago
I don't think it's any coincidence that Jeff Bezos specifically was leaked. He has been straying into politics in DC very very heavily, and it looks like he's making enemies. I suspect that is also the reason we see near-daily anti-Amazon posts on social media.
- danso 5y ago
  He's literally the richest man in the world. If the leaker's purported motive is to expose tax avoidance by the ultrawealthy, it would be very strange for Bezos to not be in the leaked data. I don't think ProPublica describes in exact specificity the scope of the data, other than it contains "the tax returns of thousands of the nation's wealthiest people, covering more than 15 years". And it includes Warren Buffett, Rupert Murdoch, Mark Zuckerberg, Larry Ellison, Mike Bloomberg, Carl Icahn, and Elon Musk — a group of guys who, along with Bezos, are not considered to be politically aligned.
  - mc32 5y ago
    Richest from running a public company [holding stocks] not necessarily the richest overall.
    - jessaustin 5y ago
      We hope for more leaks about all these other people who are richer than Bezos.
    - rascul 5y ago
      Who is richer? Forbes says he's #1. https://www.forbes.com/billionaires/ https://www.forbes.com/billionaires/
      - mc32 5y ago
        Possibly oligarchs and middle eastern royals, those kind of people.

taneq 5y ago

> voiding the obvious argument that capital gains are eventually taxed - the rich are not escaping that. In one sense yes, but if they're living happily on a tiny fraction of their wealth then they can hang on to the rest until an opportune time to cash out. Governments come and go, taxes are imposed and abolished, loopholes open and close. If they can afford to play the long game then "eventually" may be very different to what would happen if they cashed out today.

finnh 5y ago
But what's the alternative? Forcing people to sell? Forcing people to mark-to-market? There's no way to (fairly) tax capital gains except at the time of sale.
- jermaustin1 5y ago
  Except the uber wealthy who can afford to lose money to pay taxes for the infrastructure that has enabled their explosive asset growth. I agree that you and me, and even my paper-millionaire neighbors and friends cannot afford to be taxed on their assets, but a billionaire can, even a paper billionaire can drum up the cash or debt when needed to pay taxes. They do it every day for their large purchases.
  - greenwich26 5y ago
    Sounds pretty authoritarian. > Except the uber wealthy who can afford to lose money to pay taxes for the infrastructure that has enabled their explosive asset growth. Federal income tax almost never gets used for infrastructure. Infrastructure is mostly built by state and local governments, which receive most of their income from sales tax and property tax, and other taxes, which are already almost entirely paid by businesses. So, they are already paying for the infrastructure that enabled their growth.
    - jessaustin 5y ago
      So you're not opposed to property tax? That's just what we're considering here, for securities rather than real property.

smitty1e 5y ago

> The real issue is that the super rich create these personal "foundations" that act as never-taxed income holes, and then use them as personal and political tools. Opinions may differ, but one major point is that our tax system is a joke. If we can put a movie about flying humans to the moon on Netflix, why can't we implement a tax system that isn't a Byzantine train wreck?

bsedlm 5y ago
> why can't we implement a tax system that isn't a Byzantine train wreck? because of lacking political incentives?
- hackeraccount 5y ago
  Lacking? The incentives are in geared towards a high rate with lots of deductions, certainly on the business side. If I'm running a business I don't want a low rate or low regulation - I want a high rate with loopholes narrowly tailored to whatever I'm doing and a high regulatory burden. Politicians want exactly the same thing. It's not exactly the same with non-business tax rates but it's not that far off either - see the deduction for SALT.
ansible 5y ago
> ... why can't we implement a tax system that isn't a Byzantine train wreck? Because the people with power (money) like it this way. They aren't interested in what is fair for everyone, they are only interested in what they can get away with. The rich can afford to hire a team of lawyers and accountants to navigate the tax system, and pay almost nothing. But they have to keep the fiction up that they are paying tax by having their "on the books" tax rate be non-zero.
throwaway210222 5y ago
> why can't we implement a tax system that isn't a Byzantine train wreck? The Hong Kong tax code is about 250 pages.

bradleyjg 5y ago

> and avoiding the obvious argument that capital gains are eventually taxed - the rich are not escaping that. Not so, because of the step up basis at death. That provision allows the capital gains tax to be not just postponed, but eliminated.

darkerside 5y ago
Ahh the old death loophole...
- thanatos519 5y ago
  You can't take it with you, but your estate can? WTF.
- mc32 5y ago
  I’m just surprised more wealthy people aren’t taking advantage of that obvious one.
koheripbal 5y ago
The step up basis only applies to estate taxes below the federal limits, so it doesn't apply to super-rich. ...another point (deliberately?) omitted from OP's article. Step up basis might get eliminated in any case, as the Biden Administration is proposing to remove it.
- bradleyjg 5y ago
  That’s not quite right. The step up basis applies to everyone. It is true that if estate taxes are paid on the gains then the step up loophole hasn’t completely eliminated taxes on capital gains. However, the estate tax is even more full of loopholes than the capital gains tax. See for example the Grantor Retained Annuity Trust. Finally, the Biden administration is not proposing to eliminate the step up basis entirely, unfortunately, but merely rein it in some.
aetherson 5y ago
For ordinary people, sure. But the estate tax kicks in at anything above $11M, and is 40%.

nlh 5y ago

I have what I hope is a genuine question here: > we need to ... severely limit tax exemptions for charitable donations Why do we need to do this? Wouldn’t the natural incentive-based result of this be a huge reduction in charitable donations? It’s essentially an asset transfer from charitable causes to the government. I’m not sure I understand why that’s default good.

HenryKissinger 5y ago
People should be giving to charities out of the good of their heart, not to get a tax deduction. The tax deductibility of charitable donations makes them no cost options for the donor. Remove the tax implications, and you will see who really cares about their cause.
- bitcurious 5y ago
  For the sake of argument, assume a flat 20% tax rate for a minute. Scenario A: Your taxable income is $1,000,000. Your tax liability is $200,000. You pay your taxes, you net $800,000. Scenario B: Your taxable income is $1,000,000. Your tax liability is $200,000. You donate $200,00 to charity. Now your taxable income is $800,000 and your tax liability is $160,000. Your net income is $640,000. The only scenario where a charitable contribution doesn’t lower your overall income is Scenario C: you commit fraud.
  - rattray 5y ago
    Scenario D: You donate $800,000 to a foundation you control. Your net income is $960,000 ($160,000 cash and $800,000 with some strings attached).
    - kristjansson 5y ago
      If they cut a string, or even pull on one a bit too much, they’re right back at C.
      - 5y ago

2Gkashmiri 5y ago

please help me understand what you call "capital gains". in india, when you are holding a share in a company for example, its value goes from $1 to $4 in a year. for that financial year, your accountant says "hey. you earned $3 as capital gains", and its appropriately taxed as short term capital gains or long term. how do American financial statements show "wealth"? i read the article but i don't understand. if my personal balance sheet was $ 1 at the start of the year and by the closing, i say my capital balance is now $2, that means i got the balance through some earning so that is what is taxed. why the half assed approach to delay till final sale? accrual is an accounting word. isn't it?

faet 5y ago
If I buy a share of a company for $1 January 1 2019 and it is worth $2 January 1 2020 I've got $1 of 'unrealized gains'. I pay zero taxes. If I sold it before 1 year of holding, I'd pay $1 in taxes (the gain) at my top tax rate based on my other income. If I sell it after 1 year I pay tax at a reduced rate on the total gain.
- 2Gkashmiri 5y ago
  i am not concerned about selling. i am saying when you "accrued" an income, you pay taxes on it.
  - kristjansson 5y ago
    It’s not an income until you sell it
koheripbal 5y ago
In the US (and most western countries), the difference is not reported as income until you actually sell it. This removes any debate about the value of the asset.
- 2Gkashmiri 5y ago
  my question stands. why doesnt us tax system recognise accural of income?

hogFeast 5y ago

The rich usually are escaping capital gains tax. There are a very large number of ways to avoid realising capital gains. A good example of this is John Malone...he has spent about two decades continuously trading assets up to $8bn, I would be surprised if he has ever actually paid capital gains.

foerbert 5y ago

The problems faced at a certain level of wealth are so alien that it's not uncommon for their solutions to sound totally nonsensical - even actively harmful - to anybody outside of that demographic. In light of this, I don't think we can so easily dismiss delayed taxation of capital gains as unimportant and irrelevant. Maybe it is, but I think we need more information to solidly come to that conclusion. Even one of the things you (rightly, I think) identify as a problem seems to have some serious synergy with such a delay. What happens if one of these charitable foundations ends up with stock? How long of a delay might that taxation have then? And is there any way for them to get some liquidity out of that stock without actually selling it? Can they take out loans with it as collateral, for example? I'm not actively making claims here, but rather trying to show the situation is complex enough that we can't write off seemingly innocuous mechanics simply because they appear innocuous. It's complex, and weird, and needs deeper information and data to really understand.

cableshaft 5y ago
He said delay, but that's just because the stock hasn't sold yet. Until you do, the gains are unrealized, i.e. the stock could drop precipitously suddenly due to some black swan event (i.e. a pandemic), and then they suddenly that wealth may as well never have existed. Like let's say I'm some regular guy, but I put my only $1000 in some asset that appreciated 100x, and it's now "worth" $100,000. These people that want to tax unrealized gains swoop in and go "hey, you're 'worth' $100k on Dec 31, you should pay us $30k in taxes this year". And so I don't have that money and have to sell my stock to pay it, but two days before I do the stock market tanks before I get a chance to sell and it's dropped 70% in price, so now I'm 'worth' 30k. And now I've sold it all just to pay the unrealized gains tax. Now this is an extreme example and unlikely to happen exactly in the stock world, although not terribly extreme if this weren't stocks we're talking about, but some cryptocurrency. This is why taxing unrealized gains never made much sense to me. The gains aren't actually real until you've converted them into something else or you purchase goods or services with. Until then it's just some number on a scoreboard.
- elliekelly 5y ago
  You can borrow against the gains though so they aren’t exactly unrealized gains either.

phekunde 5y ago

Add to that list: 4. Divorces are being initiated to show expenses and "reduce" wealth ;)

alok-g 5y ago
Unless the tax brackets go down, net taxes (spouses combined) should come to roughly the same thing.
- yupper32 5y ago
  It's very possible to pay more taxes while married. Two high income people getting married will very often face a large "marriage penalty". It's the dumbest thing I've ever heard of when I first looked into taxes when thinking about getting married. We seriously thought about not getting married on paper because of it.
  - alok-g 5y ago
    I would like to see more details. :-) What you wrote is not my current understanding or observations.
    - yupper32 5y ago
      You can just Google "Marriage Tax Penalty" and you'll get more details and history than I can write in a post. I imagine it's not a super common problem in the general population. But for the HN demographics, two high earning bay area tech people getting married is pretty common, and they'll often be hit with the penalty.
      - alok-g 5y ago
        That explains it. I looked it up and it does indeed say that it impacts those cases more when both people are high earners. Thanks. :-)

sobellian 5y ago

Capital gains are eventually taxed if you ever sell, but some individuals will just hold and take out loans against their enormously large amount of collateral to avoid incurring capital gains tax.

ghaff 5y ago
To the degree that someone isn't so concerned about passing down the maximum amount of wealth, there are also a number of things that can be done to turn appreciated assets into an annuity through an existing non-profit of some sort. (e.g. using a CRUT).
lovecg 5y ago
This argument is repeated a lot but I never understood the mechanics. Wouldn’t they have to pay back the principal + interest, from a supposedly taxed source of income? This sounds like a scheme to delay taxes and optimize cash flow, but not a way to avoid taxes altogether?
- bklyn11201 5y ago
  It's all about deferring to death and then hoping for the best possible tax treatment at death allowing basis step-up and avoiding estate taxes via various trusts.
- onlyrealcuzzo 5y ago
  I created this spreadsheet to show that the difference is pretty trivial IFF you ever cash out (<2% over 10 years). However, a lot of people: 1) never plan to cash out. 2) know that tax rates are fickle and plan for a day when there will be extremely low tax rates - just like for companies to "repatriate" their profits - and hope that they can in the future realize with little-to-no profits (although, I doubt capital gains tax rates will go much lower, and might actually go MUCH higher). Anyway - the difference before you realize is >13% over 10 years (and the higher the rate of return is, the bigger the difference - it's >17% with a 10% per year return, which is historically average for the extremely wealthy according to Piketty). Here's the sheet: https://docs.google.com/spreadsheets/d/1dZ6h0s2lZBp0fM6Z2w1KOiRrlUaFc3tyIYdPPMfsMpk/edit?usp=sharing https://docs.google.com/spreadsheets/d/1dZ6h0s2lZBp0fM6Z2w1K... This strategy isn't really popular unless you have a networth of greater >$20M. It's particularly attractive, because you get $40k in untaxed capital gains per year - which is roughly what you need to pay the interest on your "borrowed" / "pretend unrealized" capital gains. And, the added benefit is, the interest IS TAX DEDUCTIBLE!

elliekelly 5y ago

Point #3 has come to the (wealthy) masses via the “directed trust” which allows you to “donate” your money and take the write-off without actually donating it yet. It’s only just a bit more than a promise of eventual future donation.

jollofricepeas 5y ago

Nah. The author states clearly that wage earners don’t have assets other than homes. The facts are: “By the end of 2018, the 25 [wealthiest Americans] were worth $1.1 trillion. For comparison, it would take 14.3 million ordinary American wage earners put together to equal that same amount of wealth. The personal federal tax bill for the top 25 in 2018: $1.9 billion. The bill for the wage earners: $143 billion.”

missedthecue 5y ago
Don't think this is a useful comparison because wealth isn't taxed. Income is. If you take the top 1% of earners, they make 20% of the income, but pay 38% of the taxes.
- oblio 5y ago
  > If you take the top 1% of earners, they make 20% of the income, but pay 38% of the taxes. And that's normal. If I make $1k per year, taxing me is almost criminal, since I can barely afford to feed myself. If I make $100k per year, taxing me $20k year is kind of annoying, but manageable. I'll probably have to avoid some bigger expenses I would have made if I were not taxed at all. If I make $100m+ per year, taxing me $40m per year doesn't even change my lifestyle. It just gives me topics to bitch about at dinner time, but it doesn't change my life in any material way. The more I have, the more I can afford to give away without it impacting me or my family in any realistic way. Except for losing ego points.
  - hackeraccount 5y ago
    I understand the point but I question if reality works that way. No one looks at a tax bill and says "what have I got left after it?" They just look at the bottom line. And it doesn't matter if you've got a $100m in the bank or $900m - $40m is a lot of money. Avoidance is a more or less a fixed cost. It's the price of tax attorneys and Congressman. To the degree you go over that fixed cost it's going to be harder and harder to get the amount. The biggest surprise to me is always just how much the rich pay not how little.

leroman 5y ago

> Unfortunately instead, the author spends much more time on point 1, conflating wealth with income, and avoiding the obvious argument that capital gains are eventually taxed - the rich are not escaping that. Isn't it the point that wealth creates more wealth? and the more you have the more you can make? thus not paying taxes leaves you with more to play with?

sudhirj 5y ago
No, the more wealth doesn't mean the "more you can make". A majority of people own homes, for instance. And these homes usually go up in value. But no tax authority comes to your house and starts taxing you on how much the value of your home has increased. You pay taxes on the profits when you sell your home, not when you sit in it. Same thing goes for shares in companies. In both cases, the home and shares, owning something that has increased in value doesn't mean you have a stack of cash in your hand. You might once you sell your assets, at which point you pay taxes in both cases.
- thechao 5y ago
  What!? I absolutely pay a rolling cost in the increase in value in my home — to the tune of 3.1% of its expected value, every year.
  - sudhirj 5y ago
    That's a property tax, not quite the same thing. You'd still pay it even if the home didn't increase in value, and you'd still pay it even if the home decreased in value, right? Isn't that more a local infrastructure bill?
    - brewdad 5y ago
      The property tax is based on the value of the home. If your home loses value, your property tax goes down, all other things being equal. Increasing home values increase your property tax bill.
    - 5y ago

gameswithgo 5y ago

Points 2 and 3 are also being accomplished by corporations being willing to sponsor politicians that will reduce them no matter how horrible or unqualified they are in other domains.

pinkfairy10 5y ago

Capital gains are not eventually taxed if you hold the stock until you pass them get the step up in cost basis. Easier to do if you can borrow cheaply and deduct the interest.

inigojonesguy 5y ago

Looks like a confirmed prediction from The Sovereign Individual. Probably familiar to many of you, but I have my coke and mentos moment while I read it, in 2021. Here is a link to archived pdf, for others like me https://web.archive.org/web/20210112042733/https://www.lopp.net/pdf/The%20Sovereign%20Individual.pdf https://web.archive.org/web/20210112042733/https://www.lopp....

spikels 5y ago

> capital gains are eventually taxed Not if you never sell. At death the "basis" is reset to the current market price. All those capital gains accumulated during a lifetime are never subject to capital-gains tax. There is currently a proposal to eliminate this loophole which was originally intended to deal with the difficulty of determining the history of a dead person's assets. Obviously this doesn't apply to the extremely rich with accountants, lawyers and financial advisors.

evancox100 5y ago

On point 1, it’s also important to realize there is a step up in basis when inheriting or donating appreciated stock

drdec 5y ago

> Capital Gain taxes are delayed until you actually sell the stock. > Squabbling over a wealth tax is not useful. I agree that a wealth tax is not the way to go. But there are other ways to skin this cat. The big takeaway I got from the article missing in your summary is that the wealthy take loans secured by unrealized gains in order to finance their lifestyle. So what if we found a way to make a rule that using unrealized gains as collateral for a loan was, for tax purposes, the same as realizing the gains? (You might need to tweak the rule for fairness but the basic point remains.) I think aggressively closing loopholes in the current code could go a long way (you mentioned a couple, like charitable donations and tax havens).

TimPC 5y ago
Capital gains being delayed is not a direction we want to pursue. There are huge problems with unsellable stock in venture-backed start-ups and other situations where you can end up owning a massively valued asset that you can't sell to pay the taxes on. Said asset could go to zero without you ever realizing money. I don't think people should lose their start-up stock over taxes, or face putting their entire wealth on the line on a gamble the company pays off. Keep in mind it's not unheard of to have stock worth $2+ million for an early employee in a company that goes to zero. Even more relatable to the average person: If your house price goes up too quickly you can be forced to sell to afford paying the capital gains on it.
- rhino369 5y ago
  No different than me selling stock A, paying capital gains and then buying stock B, which could go to zero. You can handle your hypo the same way the tax system handles mine. You can deduct the capital loss from future gains.
  - nilsbunger 5y ago
    Sure it’s different. You might not have cash to pay those taxes. When you sold and bought, you had an opportunity to set aside the $$ to pay taxes

nilsbunger 5y ago

The biggest issue is that when you die, your assets get a “step up in basis” so the gains until then won’t ever be taxed.

kylestlb 5y ago

"conflating wealth with income" The author(s) explicitly do NOT conflate these and point that out several times.

hnburnsy 5y ago
The authors conflated right here... "The results are stark. According to Forbes, those 25 people saw their worth rise a collective $401 billion from 2014 to 2018. They paid a total of $13.6 billion in federal income taxes in those five years, the IRS data shows. That’s a staggering sum, but it amounts to a true tax rate of only 3.4%." Income taxes paid divided by increase in net worth, how is this NOT conflating? No one's definition of 'true tax rate' is calculated this way.

boringg 5y ago

The source of how they got the tax returns is the story - very unsettling that the IRS had a security breach (either leak or hacked). I suspect SolarWinds has a part in this

ccn0p 5y ago

The article also points out that "in the coming months" it'll reveal more. Although I agree this isn't that interesting, just judging by the income reported Buffett, Bezos, Musk, paid 19%, 23%, and 30% respectively (not counting obviously massive stakes in unrealized gains)... the outlier here is Bloomberg at 3%.

xhkkffbf 5y ago

Yes... and it's important to remember that unrealized stock gains aren't really wealth either. It's not like Bezos can go out and buy 100 billion things from the McDonald's dollar menu. The money is locked up in the shares and he has so many that any attempt to sell more than a few could really depress the price of the stock. If anything, he's sort of a curator of the wealth for everyone in the Amazon world. Yes, he's able to live very well, but the simple value of his unsold shares doesn't capture his true ability to buy things.

boatsie 5y ago
The article explains this, they use those unrealized gains as collateral for loans—bypassing the need to pay capital gains by actually selling the shares.
- abstractbarista 5y ago
  How do they pay back those loans? I've never understood that part.
  - xhkkffbf 5y ago
    Presumably they sell stock, but any money works. It's all a gamble. If the stock tanks -- and they often do-- then it's easy to end up in bankruptcy. But this article is all about hating on the rich and imagining that it's all perfect for them. They don't want to talk about the times when the stock falls and the once rich turn into very poor.
    - triceratops 5y ago
      > the times when the stock falls Remind me when that's ever been allowed to happen in the past 10 years. At the first sign of any market trouble, the default Fed response is OMO and cutting interest rates to shore up the markets. Stock prices can never fall even if the actual economy is in the shitter.
  - NaturalPhallacy 5y ago

boringg 5y ago

I feel like this article does 4 things: 1. Foment rage at the inequalities of the tax system (very easy to do) through their simple narrative 2. Flag to wealthy people who are paying their fair share to look at how to further improve their tax efficiency. 3. Create political damage (which seem to lean democratic) to the individuals who are doing everything legally? It seems like ProPublica is trying to continue to lay the groundwork for a wealthtax campaign by fomenting further rage around the inequalities of US tax system. Aside from that I have deep concerns about the source of this information and why it was used. Seems like IRS taxes have been weaponized and are readily available. Everyone should be deeply concerned about how ProPublica got this information.

dukeofdoom 5y ago

Fringe, whacky ideas are getting funded and their bad ideas given fuel to spread, and boosted on social media. Just thinking back how laughably bad of an idea communism was, and how many lives it cost. Just because you're a billionaire does not mean you should be playing a social engineer.

vmception 5y ago

Note that assets in a foundations and donor advised funds are not reported in anyone’s net worth online calculators. There is no way to predict somebody’s net worth and all the lists are wrong. There are only a few public things and they are all snapshots in time that assume it’s still true forever. An actor on a big movie? The list will say “we estimate they made 20 million, lets list them as a net worth of 20 million forever”, a non obfuscated real estate property record either in someones name or linked to them? Okay we are counting that. Aside from that they are just counting shares of public companies that large % holders are required to disclose. Outside of those slivers you’ll still never know if they were a savvy and passive investor in other public equities just like you are trying to be. You’ll never know if they made 1,000% more on tech stocks. You’ll never know if they assigned shares and cash to a charitable organization they control. You’ll definitely never know what subsequent trades the charitable organization made. But even without pointing at charities: Hedge Funds, VC and Private Equity firms are not reported nor are any business interest. These things can pay out arbitrarily and also have large amounts of funds in any limited partners name.

gxs 5y ago

Regarding it's not tax until it's sold, this isn't necessarily true. One little trick here is to take out huge loans using things like stock holdings as collateral. You're not paying tax on the money, and you can pay it back a bunch of difference ways that can limit how much you pay. There are nuances to this, it's not as straight forward as I mentioned, but that's the general idea.

9wzYQbTYsAIc 5y ago

> A more interesting question… From their other article, https://www.propublica.org/article/why-we-are-publishing-the-tax-secrets-of-the-001 https://www.propublica.org/article/why-we-are-publishing-the... “We do not know the identity of our source. We did not solicit the information they sent us. The source says they were motivated by our previous coverage of issues surrounding the IRS and tax enforcement, but we do not know for certain that is true. We have considered the possibility that information we have received could have come from a state actor hostile to American interests. In particular, a number of government agencies were compromised last year by what the U.S. has said were Russian hackers who exploited vulnerabilities in software sold by SolarWinds, a Texas-based information technology company. We do note, however, that the Treasury Department’s inspector general for tax administration wrote in December that, “At this time, there is no evidence that any taxpayer information was exposed” in the SolarWinds hack.“

ffggvv 5y ago

i don’t see the issue with the charity thing as long as the money is actually used for charity i would trust the gates foundation to use money 1 million more wisely than the government just wasting it

saint_abroad 5y ago

> 1. Capital Gain taxes are delayed until you actually sell the stock. By far, the greatest increase in wealth (and inequality) is due to capital gains. > [...] capital gains are eventually taxed Normally, one might sell assets before a decline, and at that point gains (and therefore taxes) may be realised. This is avoided by HODL stock in holding companies (such as Berkshire Hathaway) which can rotate assets without ever incurring capital gains (or indeed income).

socialist_coder 5y ago

What about the point about taking out loans to avoid paying income tax, since money from a loan isn't income. Isn't that one of the major points? I don't get how do they pay the loan off though, without paying taxes on the money used to pay off the loan. How does that work? Any loan I take out, I'd have to get income and then use my income to pay off the loan.

nmfisher 5y ago
I assume if you have a loan of $100,000 secured against an asset worth $1 million that appreciates 10% each year, you can basically continue rolling over the loan. As long as the asset value doesn’t drop, you never have to actually repay the loan with your own cash (at least, not until you die or you sell the asset).
- socialist_coder 5y ago
  Ahh, makes sense. So they are never paying back the loan with earned income. Thank you!

jandrese 5y ago

> avoiding the obvious argument that capital gains are eventually taxed - the rich are not escaping that. I used to think this too until my wife inherited some stocks from her grandmother. Turns out the strike price is reset when you inherit and you dodge all of the capital gains tax. This turned out to be a major win for us because her grandmother had acquired the stocks when she worked for AT&T back in the Ma Bell days and had not paid attention to them for 50 years. The paperwork was a complete mess and we had zero idea what the strike price would have been on stock she got as part of her normal income some time in the 50s and had been split up and recombined so many times in the mean time.

aluminum96 5y ago
Nit: I think you mean "basis" -- "strike price" only pertains to options.

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Trias11 5y ago

>> ... we need to curb foreign tax havens Luckily US cannot police other countries (not that it didn't try) to prevent people from taking advantage of more competitive tax regions outside of US. US obsession with taxing people and businesses to the ground is a strong contributor for so much capital escaping US.

boringg 5y ago

This seems like a state-sponsored hack to reveal this information (Solarwinds?). Way too much information for one IRS employee to leak. I would be incredibly surprised if anyone who had that kind of access to IRS returns (ie searchable database for everyone) would leak the 25 top earners. It does add up for the career risk to take that risk on especially as its not leaking anything illegal just shining a light on the injustices of the system.

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KingOfCoders 5y ago

Funnily made that point three days ago here https://news.ycombinator.com/item?id=27404513 https://news.ycombinator.com/item?id=27404513

robbintt 5y ago

Actually, most HNWI capital growth is not taxed, ever. It is a mistake to think any meaningful percentage of the wealth is sold or transferred, except on a stepped up basis to descendants, who likewise will hold it indefinitely. This does concentrate wealth.

hnmullany 5y ago

Other countries have a time limit for how long you're allowed to sit on unrealized gains. In Ireland, for example, you have to pay capital gains on unrealized gains at the 7 year mark.

hackeraccount 5y ago
How does that work for housing? Or is there some exception there?
- hnmullany 5y ago
  It doesn't apply to housing. (And there is no capital gains on sale of your primary residence anyway).

1cvmask 5y ago

The charity “scam” is brilliant because it is the hardest to argue against by the masses.

asimpletune 5y ago

This is a little random, but I had received stock as part of an acquisition, which I had to pay taxes on as if it were income. Now, if I sold that stock, do I have to pay taxes again?

Negitivefrags 5y ago
You pay capital gains tax on the difference in the price when you received it, and the price you sold it for.
rebuilder 5y ago
Presumably only on the capital gains, assuming any. So if the stock was taxed as being valued at X when you received it, and you sold it at x + y , you'd need to pay taxes on y.

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anonu 5y ago

Great summary and sensible conclusion. The problem is much of the NYT and ProPublica writing are wrapped in sensationalism and start from an extreme left position on the subject. I'm totally supportive of "taxing the uber wealthy"... But govt needs to take the long approach on this. Eventually, people die and inheritance kicks in. That's where these generational mega wealth transfers that don't do much good for society can be mitigated. The document leak probably has a banal explanation. Some insider with access to the documents...

aluminum96 5y ago
I hope you at least recognize that this is an uncommon opinion. Most Americans think billionaires pay too little tax, not only that they pass too much to their heirs. It's hardly extreme left.

yaroslavvb 5y ago

1. You don't have to sell the stock -- one could fund an ultra-wealthy lifestyle by renting expensive things, using stock as collateral. As your stock goes up in value, so does the value of things you have access to.

jorvi 5y ago

> IMO, we need to curb foreign tax havens That depends on what you mean. The US government (and a lot of US citizens) think that the tax on money Apple earns on selling iPhones in Europe belongs to the US, not France. But I feel if an iPhone is sold in a French building by a French person to another French person, with money transfered between two French bank accounts, all of that in French society, that that tax money belongs to the French and the US needs to keep its grubby paws off of it. No bullshit 'if you bring it back in the US we will forgo half of the tax on it and protect you internationally from the fallout'.

noobermin 5y ago

Why is a wealth tax not a good idea? Seems like it is the right idea.

hackeraccount 5y ago
Wealth taxes in practice tend to make income taxes look simple - to be effective they need to be capricious and arbitrary in way that's difficult to sustain in a country with a legal system that at least makes a reasonable show of not liking either of those two things.

varispeed 5y ago

Interestingly I can't hear any party, be it from the left or from the right hand side of the spectrum, telling that they are going to tackle tax avoidance by limiting 2. and 3. It should be frankly quite easy to identify fake costs and "charitable" foundations. They can only talk about minimum Corporation Tax... What a joke.

HWR_14 5y ago

Due to the step-up-basis law, the government does not collect any capital gains not realized prior to death. So if you make 10 million in capital gains on a lucky early stage $5,000 investment, and die without any other assets, the (US federal) government will collect zero in taxes from you, your estate or your heirs.

doopy1 5y ago

Are foundations available to folks on a tech salary as a similar tool?

splithalf 5y ago

If those foundations can do more good for humanity with less money than the federal system, wouldn’t it be good to leave these “loopholes” in place?

cyanydeez 5y ago

demogoguery will be pushed instead of sane tax policies for companies like amazon or tesla. its part of the far rights end around democratic decline.

chaostheory 5y ago

> Squabbling over a wealth tax is not useful. The real issue is that the super rich create these personal "foundations" that act as never-taxed income holes, and then use them as personal and political tools. Politicians have them as well. Their foundations rarely if not ever cater to their stated mission. Instead, politicians use them as legal bribery vehicles.

nunez 5y ago

Isn't point 3 actually a net good, though? I'm personally okay with people wealthy enough to consider point 3 creating foundations that procure more murals, enhance local zoos, or support cancer research.