8 ms·

This article does not conflates income and wealth, stop saying that. This is NOT what it says. Thats' the whole damn point, they say that the system "tax the i

by dgan 5y ago

This article does not conflates income and wealth, stop saying that. This is NOT what it says. Thats' the whole damn point, they say that the system "tax the income" is flawed because it allows to borrow as much as your wealth allows, and live your life exactly as if you had that in income, without ever paying the income tax. I am quoting "Their wealth derives from the skyrocketing value of their assets, like stock and property. Those gains are not defined by U.S. laws as taxable income unless and until the billionaires sell"

deburo 5y ago
What about all the common folks that do the same? You don't have to be a millionnaire to benefit from this "trick". It's merely proper planning.
- pessimizer 5y ago
  I assume you mean "common" as "not royal," not "common" as "not wealthy enough to live off their investments."
- dgan 5y ago
  Is this even serious? "what-about" them? It seems pretty obvious that they don't have as much wealth, so the issue is less relevant. Again, that's the point of the article.. Common folks didn't see their wealth skyrocketing
  - mardifoufs 5y ago
    It depends on what your definition of common folks is. Even here in Montreal, where housing prices have been historically depressed VS the US and the rest of Canada, I know plenty of families with very modest salaries who bought 200-300k $ homes 10-20 years ago that are now worth well north of 1.5m+. Obviously a lot of people didn't get richer, but a huge proportion of the population did (at least on paper). By any definition being worth more than 1m$ is a lot of money, especially here. But it seems like the goalposts keep getting moved to the point where saying "what about the millionaires" is seen as an attack on the working class because billionaires exist. I've seen people argue that Bernie wasn't rich because he is just worth less than 2m$(!!). Sure, billionaires have a lot more wealth than your average millionaire but I'd bet even taxing them at 100% would bring so much less revenue than raising the tax rates on the "lower millionaire bourgeoisie" by a few percentage points. Yes we can do both, but it's not going to happen considering the complete focus on the mega wealthy sometimes coming from other rich people in denial.
    - tootie 5y ago
      You can get similar returns buying index funds and you don't need a down payment or good credit. The sunk cost or rent is usually higher than the sunk cost of mortgage interest and home maintenance, but gives the added benefit of increased liquidity and ability to diversify. And personal mobility.
Kalium 5y ago
> This article does not conflates income and wealth, stop saying that. The article repeatedly uses what it calls a "true tax rate", which is calculated from wealth. It does this knowing that people reason about tax rates as percentages of income. With this in mind, I think it's fair to say that the article puts a fair amount of work into talking about wealth and income as different, but also willingly conflates the two in order to produce shocking numbers when it's convenient.
- specialist 5y ago
  How could popular media do a better job at this? Use more graphs? Call out incomes (wages, dividends, rent, etc) and assets (property, investment) differently?
  - Kalium 5y ago
    I think that would be a great approach. Incomes and asset values are very different and work differently. They benefit from being discussed with different vocabulary in order to make this distinction clear to the general public.
- jameshart 5y ago
  They explicitly calculate it based on increase in wealth, rather than total wealth, which seems like a reasonable substitution. If you look at Scrooge McDuck's giant pit full of gold coins, and even though the pipe flowing into the room marked 'income' doesn't have any coins rolling down it into the pile, but the pipe heading out marked 'expenses' seems to be steadily draining coins... and yet the pile of coins is somehow still getting bigger... .... maybe you have to accept that just looking at what's going on in that income pipe isn't giving you the whole picture.
  - Kalium 5y ago
    You're completely right on both counts. That's precisely what they do. Income is definitely not the whole picture. I don't disagree with anything you've written here. I just think that conflating growth in value of assets and liquid cash is misleading, and using a snappy sloganeered idiom to do so compounds the error. That this is done in pursuit of illustrating an absolutely critical and nuanced political point about finances makes it, in my opinion, all the more important to be clear. I recognize that this is a position with which reasonable people might differ.
throwawayffffas 5y ago
> "tax the income" is flawed because it allows to borrow as much as your wealth allows, and live your life exactly as if you had that in income, without ever paying the income tax. I don't see how that can be true, you eventually have to repay the loan, to do that you need income which will be taxed. For example if you borrow 100000 dollars for one year with 3% interest you will have to pay to the bank 103000 dollars, as far as I understand you can only write off the 3000 dollars on your taxes. The reason rich people borrow against their equity is because they don't want to sell it and their equity makes them more money than the interest rate on their loans. Furthermore while the article does distinguish wealth from income, it fails to distinguish realized from unrealized gains. Taxing unrealized gains comes with two very significant downsides. Firstly to make the system fair it should provide tax credits for unrealized losses which means when the market goes down all of these people will use that tax credit to cancel out the huge salaries they will be paying themselves on that year. Secondly while a tax on unrealized gains will be annoying to rich people it will be devastating to small time investors, because it will force them to liquidate their minor positions in order to pay their taxes. To give a concrete example lets assume a college grad has a single share of amazon he bought last year for around 2000 usd, today that same share is worth around 3000 usd that's 1000 dollars of gains if our hypothetical student has to pay income tax on that 1000 dollars let's say 20% because he also has income. He will have to pay with his income (which has already been taxed) or he will have to sell that stock essentially robbing him of the future gains he could have if he held that stock.
- imhoguy 5y ago
  > I don't see how that can be true, you eventually have to repay the loan, to do that you need income which will be taxed. You refinance constantly.
  - koheripbal 5y ago
    Bankers aren't stupid. At some point, they'll stop lending you money and will just seize your collateral.
    - 5y ago
paul_f 5y ago
I think most people forget about this. You can have capital gains, not pay taxes, and borrow against them, and spend the money. In my opinion, do away with income and capital gains tax and have a pure consumption tax instead. Want a lavish lifestyle? Then you will pay higher taxes.
- koheripbal 5y ago
  And? What's wrong with that? There's no free lunch there - they still have to pay back the loan. It's not like it's free money.
  - paul_f 5y ago
    You don't necessarily have to pay back the loan until your death, then it is taken from the estate and the balance passed on to heirs. At that point the step up basis occurs and the process starts over again. No taxes were paid on the value of the loan. (Correct me if wrong on this)
    - throwaway210222 5y ago
      No tax perhaps, but interest has to be paid. Of course, in a ZIRP fantasyland the interest is negligible.
      - e12e 5y ago
        If the choice is 40% tax or 2% interest...
        kristjansson 5y ago
        I mean, long term rate is 20%, so taking a margin loan at 2% to finance consumption is a bet that you have less than 10 years to go…
        papercrane 5y ago

by dgan 5y ago

deburo 5y ago

What about all the common folks that do the same? You don't have to be a millionnaire to benefit from this "trick". It's merely proper planning.

pessimizer 5y ago
I assume you mean "common" as "not royal," not "common" as "not wealthy enough to live off their investments."
dgan 5y ago
Is this even serious? "what-about" them? It seems pretty obvious that they don't have as much wealth, so the issue is less relevant. Again, that's the point of the article.. Common folks didn't see their wealth skyrocketing
- mardifoufs 5y ago
  It depends on what your definition of common folks is. Even here in Montreal, where housing prices have been historically depressed VS the US and the rest of Canada, I know plenty of families with very modest salaries who bought 200-300k $ homes 10-20 years ago that are now worth well north of 1.5m+. Obviously a lot of people didn't get richer, but a huge proportion of the population did (at least on paper). By any definition being worth more than 1m$ is a lot of money, especially here. But it seems like the goalposts keep getting moved to the point where saying "what about the millionaires" is seen as an attack on the working class because billionaires exist. I've seen people argue that Bernie wasn't rich because he is just worth less than 2m$(!!). Sure, billionaires have a lot more wealth than your average millionaire but I'd bet even taxing them at 100% would bring so much less revenue than raising the tax rates on the "lower millionaire bourgeoisie" by a few percentage points. Yes we can do both, but it's not going to happen considering the complete focus on the mega wealthy sometimes coming from other rich people in denial.
  - tootie 5y ago
    You can get similar returns buying index funds and you don't need a down payment or good credit. The sunk cost or rent is usually higher than the sunk cost of mortgage interest and home maintenance, but gives the added benefit of increased liquidity and ability to diversify. And personal mobility.

Kalium 5y ago

> This article does not conflates income and wealth, stop saying that. The article repeatedly uses what it calls a "true tax rate", which is calculated from wealth. It does this knowing that people reason about tax rates as percentages of income. With this in mind, I think it's fair to say that the article puts a fair amount of work into talking about wealth and income as different, but also willingly conflates the two in order to produce shocking numbers when it's convenient.

specialist 5y ago
How could popular media do a better job at this? Use more graphs? Call out incomes (wages, dividends, rent, etc) and assets (property, investment) differently?
- Kalium 5y ago
  I think that would be a great approach. Incomes and asset values are very different and work differently. They benefit from being discussed with different vocabulary in order to make this distinction clear to the general public.
jameshart 5y ago
They explicitly calculate it based on increase in wealth, rather than total wealth, which seems like a reasonable substitution. If you look at Scrooge McDuck's giant pit full of gold coins, and even though the pipe flowing into the room marked 'income' doesn't have any coins rolling down it into the pile, but the pipe heading out marked 'expenses' seems to be steadily draining coins... and yet the pile of coins is somehow still getting bigger... .... maybe you have to accept that just looking at what's going on in that income pipe isn't giving you the whole picture.
- Kalium 5y ago
  You're completely right on both counts. That's precisely what they do. Income is definitely not the whole picture. I don't disagree with anything you've written here. I just think that conflating growth in value of assets and liquid cash is misleading, and using a snappy sloganeered idiom to do so compounds the error. That this is done in pursuit of illustrating an absolutely critical and nuanced political point about finances makes it, in my opinion, all the more important to be clear. I recognize that this is a position with which reasonable people might differ.

throwawayffffas 5y ago

> "tax the income" is flawed because it allows to borrow as much as your wealth allows, and live your life exactly as if you had that in income, without ever paying the income tax. I don't see how that can be true, you eventually have to repay the loan, to do that you need income which will be taxed. For example if you borrow 100000 dollars for one year with 3% interest you will have to pay to the bank 103000 dollars, as far as I understand you can only write off the 3000 dollars on your taxes. The reason rich people borrow against their equity is because they don't want to sell it and their equity makes them more money than the interest rate on their loans. Furthermore while the article does distinguish wealth from income, it fails to distinguish realized from unrealized gains. Taxing unrealized gains comes with two very significant downsides. Firstly to make the system fair it should provide tax credits for unrealized losses which means when the market goes down all of these people will use that tax credit to cancel out the huge salaries they will be paying themselves on that year. Secondly while a tax on unrealized gains will be annoying to rich people it will be devastating to small time investors, because it will force them to liquidate their minor positions in order to pay their taxes. To give a concrete example lets assume a college grad has a single share of amazon he bought last year for around 2000 usd, today that same share is worth around 3000 usd that's 1000 dollars of gains if our hypothetical student has to pay income tax on that 1000 dollars let's say 20% because he also has income. He will have to pay with his income (which has already been taxed) or he will have to sell that stock essentially robbing him of the future gains he could have if he held that stock.

imhoguy 5y ago
> I don't see how that can be true, you eventually have to repay the loan, to do that you need income which will be taxed. You refinance constantly.
- koheripbal 5y ago
  Bankers aren't stupid. At some point, they'll stop lending you money and will just seize your collateral.
  - 5y ago

paul_f 5y ago

I think most people forget about this. You can have capital gains, not pay taxes, and borrow against them, and spend the money. In my opinion, do away with income and capital gains tax and have a pure consumption tax instead. Want a lavish lifestyle? Then you will pay higher taxes.

koheripbal 5y ago
And? What's wrong with that? There's no free lunch there - they still have to pay back the loan. It's not like it's free money.
- paul_f 5y ago
  You don't necessarily have to pay back the loan until your death, then it is taken from the estate and the balance passed on to heirs. At that point the step up basis occurs and the process starts over again. No taxes were paid on the value of the loan. (Correct me if wrong on this)
  - throwaway210222 5y ago
    No tax perhaps, but interest has to be paid. Of course, in a ZIRP fantasyland the interest is negligible.
    - e12e 5y ago
      If the choice is 40% tax or 2% interest...
      - kristjansson 5y ago
        I mean, long term rate is 20%, so taking a margin loan at 2% to finance consumption is a bet that you have less than 10 years to go…
        papercrane 5y ago