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I've seen people complaining that the article is disingenuous because it conflates income taxes with capital gains taxes. My response is 'so what'. When you m

I've seen people complaining that the article is disingenuous because it conflates income taxes with capital gains taxes. My response is 'so what'. When you make above a certain income level, you don't need anymore income and can play around with reinvesting capital gains to push taxes into the future while amassing wealth. Sure, you're not realizing the income, but what you're doing, I think, is gaining power and influence. To me, it makes some sense to tax capital gains the same as income, at least above a certain amount.

arn 5y ago
It conflates income with unrealized capital gains. You can make an argument that income and capital gains should be taxed at similar rates, but it feels like they are being purposely misleading in their presentation, when they use unrealized capital gains as the denominator. No one else’s taxes are viewed through that lens.
- zorak8me 5y ago
  I am confused. They were clearly discussing unrealized gains as wealth throughout the article. What am I missing here?
  - lotsofpulp 5y ago
    Look at this sentence in the Propublica article: > No one among the 25 wealthiest avoided as much tax as Buffett, the grandfatherly centibillionaire. That’s perhaps surprising, given his public stance as an advocate of higher taxes for the rich. It is clickbait, emotion inducing garbage. Buffett’s stance for higher taxes has nothing to do with the fact that he had less income than other rich people. I expected better from ProPublica. Arguing for taxing unrealized gains is fine, but trying to make it seem like Buffett is doing something sneaky to churn emotions is bullshit writing.
    - zorak8me 5y ago
      It certainly seems to have elicited emotions from some readers.
    - mindcandy 5y ago
      I read through the ProPublica article. What I got from it was: 1. They have a lot of unrealized gains. 2. They have losses. 3. They take out loans against those gains. I assume the play there is "I'll deal with it later (after 20 years of inflation-rate interest)." 4. They set up charities. 5. They lose money owning sports teams. Did I miss anything?
      - lotsofpulp 5y ago
        Yes, that summarizes it, but all of that was already known and did not to be supported by leaked tax records. The root cause is automation and technology is allowing for more winner take all markets, combined with government money printing and reduced power of labor to negotiate for a bigger piece of the pie means assets keep getting more and more valuable. Which lead to ever widening wealth gaps which might not be good for society, so taxing unrealized gains might be an answer.
      - throwaway210222 5y ago
        4. They set up charities. How exactly does giving money to other people help a millionaire fund his/her lifestyle? Surely the IRS you cannot have a charity that donates to just your family? I wish these articles would be specific [so I can setup my own :) ].
  - arn 5y ago
    What's your personal 'true' tax rate? Taxes paid divided by all income and all gains (unrealized capital gains, increase in real estate value, etc...). I'm sure you don't know. No one knows or has a frame of reference. It was chosen to emphasize the narrative. It's like comparing the carbon/waste from mining, manufacturing, delivery and use of a electric car vs. the carbon from burning a tank of gas -- and saying "ah ha! the total lifetime of an EV is worse for the environment than driving around town in a gas car"
influx 5y ago
Actually what I saw was that it conflated wealth with income. Just because there are unrealized capital gains in someone's account doesn't mean they are avoiding taxes.
hilbertseries 5y ago
I think you’re missing the point, capital gains is when you sell an asset. The article is talking about how much net worth grew due to asset appreciation. Not how much stock they sold. The article is arguing for a wealth tax, without admitting it.
imgabe 5y ago
We do tax capital gains. You pay taxes when you sell. Do you mean tax unrealized capital gains? There is a reason you don’t owe taxes on a stock you haven’t sold yet. For one thing, what if you have to pay tax at one valuation, and then it goes down later.
- astuyvenberg 5y ago
  The issue is when the ultra-wealthy take out loans against their investment assets (and thus, those unrealized capital gains). By doing that, ultra-wealthy _are_ realizing the value of their investments without being taxed. That's how this wealth is being accessed, and that's a large component of what drives these ultra-low tax rates for the ultra-wealthy.
  - kevinsundar 5y ago
    Then HELOC would be taxed which many middle class people rely on. Also its a loan so it need to be paid back. Will payments on private loans be deducted from income then?
    - dougmwne 5y ago
      Solutions to taxation do not need to be black and white simple rules. The US tax code is already purported to be 70,000 pages. It would be perfectly reasonable to write one tax code for middle class people below a certain net worth that encourages wealth creation, family wealth, credit and investment. It would be perfectly reasonable to have a separate tax code for the ultra wealthy that curtails loopholes, tax shelters, dynastic wealth and offshore accounting. For example, some countries tax net worth over a certain number of millions.
    - H8crilA 5y ago
      This is not on topic, but to me it's ridiculous that something like HELOC exists and is somehow widely accepted. Like dude, you'll never pay down that debt. Your house is not an ATM machine.
foobarbazboff 5y ago
If there's a way to reinvest capital gains without realizing them I'd love to know how to do that (without dying of course.)
dougmwne 5y ago
Once you have a certain amount of assets, there's no need to realize any personal income. It becomes completely voluntary. If you have a billion in stock, you could leverage that to pay personal expenses. You could use an unrealized loss over there to balance out the cash you're taking in from a gain over there. You can use companies and foundations to execute any vision you have outside of your household. If you play that game long enough, your descendants will get a cost basis step up. Tax is essentially voluntary when you are that wealthy, where as it is completely mandatory for me. I see absolutely nothing disingenuous about questioning the biggest loophole of them all.
- daenz 5y ago
  Do you trust politicians to redistribute money fairly and with accountability?
  - aaomidi 5y ago
    There is a reason we do have the second amendment if they don't. Like, it was literally written in the constitution for this purpose.
    - MisterBastahrd 5y ago
      It was literally written because the United States government did not have a standing army and there were no immediate intentions to create one. Every other reason is secondary to that one.
      - rayiner 5y ago
        No, it was so Americans could overthrow the government if necessary: https://avalon.law.yale.edu/18th_century/fed46.asp https://avalon.law.yale.edu/18th_century/fed46.asp From the Federalist No. 46: > Extravagant as the supposition is, let it however be made. Let a regular army, fully equal to the resources of the country, be formed; and let it be entirely at the devotion of the federal government; still it would not be going too far to say, that the State governments, with the people on their side, would be able to repel the danger. The highest number to which, according to the best computation, a standing army can be carried in any country, does not exceed one hundredth part of the whole number of souls; or one twenty-fifth part of the number able to bear arms. This proportion would not yield, in the United States, an army of more than twenty-five or thirty thousand men. To these would be opposed a militia amounting to near half a million of citizens with arms in their hands, officered by men chosen from among themselves, fighting for their common liberties, and united and conducted by governments possessing their affections and confidence. It may well be doubted, whether a militia thus circumstanced could ever be conquered by such a proportion of regular troops. Those who are best acquainted with the last successful resistance of this country against the British arms, will be most inclined to deny the possibility of it. > Besides the advantage of being armed, which the Americans possess over the people of almost every other nation, the existence of subordinate governments, to which the people are attached, and by which the militia officers are appointed, forms a barrier against the enterprises of ambition, more insurmountable than any which a simple government of any form can admit of. Notwithstanding the military establishments in the several kingdoms of Europe, which are carried as far as the public resources will bear, the governments are afraid to trust the people with arms. And it is not certain, that with this aid alone they would not be able to shake off their yokes. But were the people to possess the additional advantages of local governments chosen by themselves, who could collect the national will and direct the national force, and of officers appointed out of the militia, by these governments, and attached both to them and to the militia, it may be affirmed with the greatest assurance, that the throne of every tyranny in Europe would be speedily overturned in spite of the legions which surround it.
naveen99 5y ago
It’s hard to value a potential large liquidation. A market sell by Jeff Bezos of 40% of his Amazon stock to pay for income tax would destabilize the markets. Also, if there was no tax advantage to holding stocks long term, the entire stock market would have been liquidated to zero in q1 of 2020. market volatility would certainly be much higher than it is now.
- paulpauper 5y ago
  It does not have to be. All would have to do is transfer the shares to a separate entity and then borrow against them while hedging downside with options
  - naveen99 5y ago
    Borrow and lever up to pay taxes while shorting your main (too concentrated) holding with long put options. What could go wrong ? The IRS would more likely end up allowing you to take depreciation against your securities like they do for real property (which is subject to property tax)
- boomboomsubban 5y ago
  If the tax requirements were public, there would not be much destabilizing from executives yearly selling off an appropriate amount of stock.
duped 5y ago
Capital gains should be taxed as income when it's realized as income. You can't reinvest your capital gains without the tax penalty. However, it is completely unreasonable for long term capital gains to be taxed any differently than normal income. A dollar earned should be a dollar taxed.
- BitwiseFool 5y ago
  The idea is to incentivize long term investment while also trying to smooth out volatility by making short term investments less profitable. Or, put differently, people want day traders to be taxed at a higher rate than average people investing.
  - duped 5y ago
    One year is not long term investment.
rayiner 5y ago
The article is disingenuous for two reasons. 1) The "so what" is that capital gains is a different thing than wage income from an economics standpoint. Capital gains taxes have different economic effects than income taxes. Most economists agree that capital gains should be taxed lower than income. Most countries tax capital gains far lower than wage income. For example, in Canada only half of someone's capital gains are included in income, and is then taxed at the ordinary income tax rates. 2) Worse, the article just looks at paper wealth and ignores whether there is even a capital gain. If Amazon's stock price goes up, and Bezos makes $10 billion on paper, the IRS doesn't tax him on it. Which is fine--to actually do anything with that paper wealth, he needs to sell the stock or engage in a similar realization event, in which case that gain will be taxed.
- hundt 5y ago
  > to actually do anything with that paper wealth, he needs to sell the stock or engage in a similar realization event, in which case that gain will be taxed The ProPublica analysis that the BBC refers to [1] explains it: you borrow with the capital as collateral and then when you die the debt is repaid by selling some of the capital. But because of the stepped-up basis on death there is never a "realization" of positive gains. [1] https://www.propublica.org/article/the-secret-irs-files-trove-of-never-before-seen-records-reveal-how-the-wealthiest-avoid-income-tax https://www.propublica.org/article/the-secret-irs-files-trov...
refurb 5y ago
But capital gains is taxed as income. What you’re talking about is unrealized income. Would it make sense for tech workers to pay taxes on the options they hold as a part of their employment? That’s just deferred income as well.

arn 5y ago

It conflates income with unrealized capital gains. You can make an argument that income and capital gains should be taxed at similar rates, but it feels like they are being purposely misleading in their presentation, when they use unrealized capital gains as the denominator. No one else’s taxes are viewed through that lens.

zorak8me 5y ago
I am confused. They were clearly discussing unrealized gains as wealth throughout the article. What am I missing here?
- lotsofpulp 5y ago
  Look at this sentence in the Propublica article: > No one among the 25 wealthiest avoided as much tax as Buffett, the grandfatherly centibillionaire. That’s perhaps surprising, given his public stance as an advocate of higher taxes for the rich. It is clickbait, emotion inducing garbage. Buffett’s stance for higher taxes has nothing to do with the fact that he had less income than other rich people. I expected better from ProPublica. Arguing for taxing unrealized gains is fine, but trying to make it seem like Buffett is doing something sneaky to churn emotions is bullshit writing.
  - zorak8me 5y ago
    It certainly seems to have elicited emotions from some readers.
  - mindcandy 5y ago
    I read through the ProPublica article. What I got from it was: 1. They have a lot of unrealized gains. 2. They have losses. 3. They take out loans against those gains. I assume the play there is "I'll deal with it later (after 20 years of inflation-rate interest)." 4. They set up charities. 5. They lose money owning sports teams. Did I miss anything?
    - lotsofpulp 5y ago
      Yes, that summarizes it, but all of that was already known and did not to be supported by leaked tax records. The root cause is automation and technology is allowing for more winner take all markets, combined with government money printing and reduced power of labor to negotiate for a bigger piece of the pie means assets keep getting more and more valuable. Which lead to ever widening wealth gaps which might not be good for society, so taxing unrealized gains might be an answer.
    - throwaway210222 5y ago
      4. They set up charities. How exactly does giving money to other people help a millionaire fund his/her lifestyle? Surely the IRS you cannot have a charity that donates to just your family? I wish these articles would be specific [so I can setup my own :) ].
- arn 5y ago
  What's your personal 'true' tax rate? Taxes paid divided by all income and all gains (unrealized capital gains, increase in real estate value, etc...). I'm sure you don't know. No one knows or has a frame of reference. It was chosen to emphasize the narrative. It's like comparing the carbon/waste from mining, manufacturing, delivery and use of a electric car vs. the carbon from burning a tank of gas -- and saying "ah ha! the total lifetime of an EV is worse for the environment than driving around town in a gas car"

influx 5y ago

Actually what I saw was that it conflated wealth with income. Just because there are unrealized capital gains in someone's account doesn't mean they are avoiding taxes.

hilbertseries 5y ago

I think you’re missing the point, capital gains is when you sell an asset. The article is talking about how much net worth grew due to asset appreciation. Not how much stock they sold. The article is arguing for a wealth tax, without admitting it.

imgabe 5y ago

We do tax capital gains. You pay taxes when you sell. Do you mean tax unrealized capital gains? There is a reason you don’t owe taxes on a stock you haven’t sold yet. For one thing, what if you have to pay tax at one valuation, and then it goes down later.

astuyvenberg 5y ago
The issue is when the ultra-wealthy take out loans against their investment assets (and thus, those unrealized capital gains). By doing that, ultra-wealthy _are_ realizing the value of their investments without being taxed. That's how this wealth is being accessed, and that's a large component of what drives these ultra-low tax rates for the ultra-wealthy.
- kevinsundar 5y ago
  Then HELOC would be taxed which many middle class people rely on. Also its a loan so it need to be paid back. Will payments on private loans be deducted from income then?
  - dougmwne 5y ago
    Solutions to taxation do not need to be black and white simple rules. The US tax code is already purported to be 70,000 pages. It would be perfectly reasonable to write one tax code for middle class people below a certain net worth that encourages wealth creation, family wealth, credit and investment. It would be perfectly reasonable to have a separate tax code for the ultra wealthy that curtails loopholes, tax shelters, dynastic wealth and offshore accounting. For example, some countries tax net worth over a certain number of millions.
  - H8crilA 5y ago
    This is not on topic, but to me it's ridiculous that something like HELOC exists and is somehow widely accepted. Like dude, you'll never pay down that debt. Your house is not an ATM machine.

foobarbazboff 5y ago

If there's a way to reinvest capital gains without realizing them I'd love to know how to do that (without dying of course.)

dougmwne 5y ago

Once you have a certain amount of assets, there's no need to realize any personal income. It becomes completely voluntary. If you have a billion in stock, you could leverage that to pay personal expenses. You could use an unrealized loss over there to balance out the cash you're taking in from a gain over there. You can use companies and foundations to execute any vision you have outside of your household. If you play that game long enough, your descendants will get a cost basis step up. Tax is essentially voluntary when you are that wealthy, where as it is completely mandatory for me. I see absolutely nothing disingenuous about questioning the biggest loophole of them all.

daenz 5y ago
Do you trust politicians to redistribute money fairly and with accountability?
- aaomidi 5y ago
  There is a reason we do have the second amendment if they don't. Like, it was literally written in the constitution for this purpose.
  - MisterBastahrd 5y ago
    It was literally written because the United States government did not have a standing army and there were no immediate intentions to create one. Every other reason is secondary to that one.
    - rayiner 5y ago
      No, it was so Americans could overthrow the government if necessary: https://avalon.law.yale.edu/18th_century/fed46.asp https://avalon.law.yale.edu/18th_century/fed46.asp From the Federalist No. 46: > Extravagant as the supposition is, let it however be made. Let a regular army, fully equal to the resources of the country, be formed; and let it be entirely at the devotion of the federal government; still it would not be going too far to say, that the State governments, with the people on their side, would be able to repel the danger. The highest number to which, according to the best computation, a standing army can be carried in any country, does not exceed one hundredth part of the whole number of souls; or one twenty-fifth part of the number able to bear arms. This proportion would not yield, in the United States, an army of more than twenty-five or thirty thousand men. To these would be opposed a militia amounting to near half a million of citizens with arms in their hands, officered by men chosen from among themselves, fighting for their common liberties, and united and conducted by governments possessing their affections and confidence. It may well be doubted, whether a militia thus circumstanced could ever be conquered by such a proportion of regular troops. Those who are best acquainted with the last successful resistance of this country against the British arms, will be most inclined to deny the possibility of it. > Besides the advantage of being armed, which the Americans possess over the people of almost every other nation, the existence of subordinate governments, to which the people are attached, and by which the militia officers are appointed, forms a barrier against the enterprises of ambition, more insurmountable than any which a simple government of any form can admit of. Notwithstanding the military establishments in the several kingdoms of Europe, which are carried as far as the public resources will bear, the governments are afraid to trust the people with arms. And it is not certain, that with this aid alone they would not be able to shake off their yokes. But were the people to possess the additional advantages of local governments chosen by themselves, who could collect the national will and direct the national force, and of officers appointed out of the militia, by these governments, and attached both to them and to the militia, it may be affirmed with the greatest assurance, that the throne of every tyranny in Europe would be speedily overturned in spite of the legions which surround it.

naveen99 5y ago

It’s hard to value a potential large liquidation. A market sell by Jeff Bezos of 40% of his Amazon stock to pay for income tax would destabilize the markets. Also, if there was no tax advantage to holding stocks long term, the entire stock market would have been liquidated to zero in q1 of 2020. market volatility would certainly be much higher than it is now.

paulpauper 5y ago
It does not have to be. All would have to do is transfer the shares to a separate entity and then borrow against them while hedging downside with options
- naveen99 5y ago
  Borrow and lever up to pay taxes while shorting your main (too concentrated) holding with long put options. What could go wrong ? The IRS would more likely end up allowing you to take depreciation against your securities like they do for real property (which is subject to property tax)
boomboomsubban 5y ago
If the tax requirements were public, there would not be much destabilizing from executives yearly selling off an appropriate amount of stock.

duped 5y ago

Capital gains should be taxed as income when it's realized as income. You can't reinvest your capital gains without the tax penalty. However, it is completely unreasonable for long term capital gains to be taxed any differently than normal income. A dollar earned should be a dollar taxed.

BitwiseFool 5y ago
The idea is to incentivize long term investment while also trying to smooth out volatility by making short term investments less profitable. Or, put differently, people want day traders to be taxed at a higher rate than average people investing.
- duped 5y ago
  One year is not long term investment.

rayiner 5y ago

The article is disingenuous for two reasons. 1) The "so what" is that capital gains is a different thing than wage income from an economics standpoint. Capital gains taxes have different economic effects than income taxes. Most economists agree that capital gains should be taxed lower than income. Most countries tax capital gains far lower than wage income. For example, in Canada only half of someone's capital gains are included in income, and is then taxed at the ordinary income tax rates. 2) Worse, the article just looks at paper wealth and ignores whether there is even a capital gain. If Amazon's stock price goes up, and Bezos makes $10 billion on paper, the IRS doesn't tax him on it. Which is fine--to actually do anything with that paper wealth, he needs to sell the stock or engage in a similar realization event, in which case that gain will be taxed.

hundt 5y ago
> to actually do anything with that paper wealth, he needs to sell the stock or engage in a similar realization event, in which case that gain will be taxed The ProPublica analysis that the BBC refers to [1] explains it: you borrow with the capital as collateral and then when you die the debt is repaid by selling some of the capital. But because of the stepped-up basis on death there is never a "realization" of positive gains. [1] https://www.propublica.org/article/the-secret-irs-files-trove-of-never-before-seen-records-reveal-how-the-wealthiest-avoid-income-tax https://www.propublica.org/article/the-secret-irs-files-trov...

refurb 5y ago

But capital gains is taxed as income. What you’re talking about is unrealized income. Would it make sense for tech workers to pay taxes on the options they hold as a part of their employment? That’s just deferred income as well.