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ProPublica's tax story
- maxrev17 5y agoHow do they afford lavish personal lifestyle if they're declaring no income (I get the cap gains part, I don't get the mansions, parties, cars, food etc. Bit)
- GeneralTspoon 5y agoThey borrow money using their assets as collateral
- SilasX 5y ago... and then have to pay interest on top of the taxes for whatever they realize to pay it back (and the eventual “legit” realization)?
- GeneralTspoon 5y agoPotentially. But there’s also an inheritance loophole that allows them to avoid that: https://www.thebalance.com/how-the-stepped-up-basis-loophole-works-357485 https://www.thebalance.com/how-the-stepped-up-basis-loophole... Even without that loophole there are probably a bunch of tricks their financial planners have to minimise taxes (e.g. using trusts/charities, various tax free allowances). Or alternatively, because they essentially get to defer taxes for as long as they like (by refinancing the loan), it means they have the full tax free amount of cash available up front to buy more wealth generating assets.
- gruez 5y ago> Potentially. But there’s also an inheritance loophole that allows them to avoid that: https://www.thebalance.com/how-the-stepped-up-basis-loophole https://www.thebalance.com/how-the-stepped-up-basis-loophole... but you still pay the estate tax? Otherwise you get hit by the capital gains tax AND the estate tax.
- pitaj 5y agoIt's not necessarily that they're declaring no income, it's that their income is entirely composed of long term capital gains which are taxed at a lower rate than standard income tax.
- PaulDavisThe1st 5y agoThat's not actually the point of the ProPubica piece. The central point there is the treatement of unrealized capital gains.
- kcbigring 5y agoread the propublica article - it explains. or be lazy. loans ;) in particular low interest loans. as high interest loans would sort of ruin the plot and those are reserved for the working class.
- wmf 5y agoInterest rates aren't magic; secured loans have lower rates than unsecured.
- cycrutchfield 5y agoYour mortgage is a low interest loan. Should we tax your mortgage as income?
- lupire 5y agoYes, but deduct the house that the loan buys as an expense.
- imgabe 5y agoThen if you take a $500 million loan backed by your stock holdings to build a yacht, why not deduct the yacht as an expense?
- triceratops 5y agoThe house the mortgage paid for is taxed.
- cycrutchfield 5y agoI assume you're talking about property taxes, which is not really what we're talking about here.
- deleted 5y ago[deleted]
- jkhdigital 5y agoYou know Warren Buffett eats McDonald’s, right? A lavish personal lifestyle is not a requirement for being wealthy. But in general, I assume that most of the perks of that wealth are really attached to the ownership/management of the corporation that produced the wealth.
- nimih 5y agoYou raise an interesting point. On the other hand, Jeff Bezos is currently building a $0.5bn super-yacht.
- jonnycomputer 5y agoIt seems to me that quite a few things that we think of as lifestyle, can get written off as business expenses. Not that I know anything about this world.
- wolverine876 5y agoThe title is definitely trolling and should be changed. (The article also looks that way to me, but there's no HN rule against it.)
- johncessna 5y agoThe titles are matching for me.
- wolverine876 5y agoI agree. Trolling / inflammatory language in titles should be changed, per the guidelines (and I think it's a good idea). The whole thing is yet another Internet rant.
- pitaj 5y agoThe title matches the article's title. If you want it changed suggest a replacement.
- dredmorbius 5y agoIf the title contains a gratuitous number or number + adjective, we'd appreciate it if you'd crop it. E.g. translate "10 Ways To Do X" to "How To Do X," and "14 Amazing Ys" to "Ys." Exception: when the number is meaningful, e.g. "The 5 Platonic Solids." Otherwise please use the original title, unless it is misleading or linkbait; don't editorialize. https://news.ycombinator.com/newsguidelines.html https://news.ycombinator.com/newsguidelines.html
- wolverine876 5y agoThanks for the quote. My original point about 'trolling' should have said 'linkbait'.
- dredmorbius 5y agoIt's both.
- naurupatel 5y agoDamage control.
- jungturk 5y ago> Delaying a tax is not avoiding a tax. Stepping-up the basis amounts to exactly that, and is unfortunately not mentioned in the article. Too bad the author doesn't have friends in finance to challenge his thinking.
- pitaj 5y agoThis only applies to inheritance, right?
- andrewflnr 5y agoThat's the point. Delay your taxes to the point they become inheritance, and you can avoid some of them entirely.
- zaphar 5y agoYou're inheritor won't avoid them though so it's kind of a moot point. Even a trust will get taxed as money is withdrawn.
- dredmorbius 5y agoWhich article and author are you referring to? The Substack ... er ... rant, or ProPublica's piece it's responding to? (Qualify your pronouns and referants, peeps.)
- yonran 5y agoSo the focus of the article should have been on eliminating the step up basis (which ProPublica admitted is a bipartisan thing to do) or other ways of avoiding capital gains tax rather than conflating tax avoidance with tax deferral. And all the activities they complained about billionaires doing are things that the middle class can relate to too: deferring taxes (401(k)), avoiding taxes using step up in basis and $500k home gain exemption, borrowing on paper wealth without realizing gains (HELOC).
- jeremy_arnold 5y agoOP here. Just replied to this elsewhere. Step-up is just to avoid double taxation. Estate taxes are at a 2x rate (vs. LTCG) for assets above the baseline ($1m + exemptions etc).
- SilasX 5y agoOverall this is a great criticism of the dubious assumptions in the ProPublica piece, but this part is over-the-top: > But imagine that we forced lots of people to sell shares every April to pay for their gains. There’d be more sellers than buyers as everyone raced to raise cash, and prices would go down, and our collective wealth with it. No one really wants this. (To the degree that anyone wants it, it would be the rich — as they have the collective borrowing power to buy back shares on the cheap while poorer folks can’t.) Such a scheme shouldn’t introduce an imbalance: with how liquid and efficient the stock market is, these exchanges would be known about well in advance and easy profits would be arbitraged away. It’s like saying that stocks of hot dog makers peak near the Fourth of July. Now, this is a valid concern for illiquid assets, but: 1) The previous paragraph makes clear the argument refers to the stock market, and 2) It’s not fair to compare the most naive, reckless way of assessing a wealth tax, which forces such sales of hard to value assets.
- jeremy_arnold 5y agoOP here. A few readers mentioned versions of this. Am correcting. (IRS would likely try to stagger in some way. But there's basically no good system for doing this, and you're going to cause roughly the same selling pressure no matter how you go about it. But agree that my framing was rushed/bad here for this bullet.)
- SilasX 5y agoAwesome! Thanks for listening!
- Dracophoenix 5y agoThe stock market is not all public. Stocks can be sold privately, (i.e. private contracts, stock bartering) or trading private collaterizable assets (i.e stocks in private companies). What you see on CNBC is the average buying price what people are willing to purchase on the public market. How do you go about valuing those transactions?
- lupire 5y ago
- wolverine876 5y agoHere's ProPublica's article, which I think would is much more informative and interesting, and includes a lot of research: 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... And here's the NY Times coverage of it: https://www.nytimes.com/2021/06/08/us/politics/income-taxes-bezos-musk-buffett.html https://www.nytimes.com/2021/06/08/us/politics/income-taxes-...
- pitaj 5y agoAm I missing something? This is a reply to that article, which is linked in the embedded tweet in this article.
- microtherion 5y agoFrom TFA: > But even there either the heirs are withdrawing money to spend or they aren’t. If they are, it gets taxed. Under current US tax law, the heirs are inheriting the assets on a "stepped-up" value basis, i.e., any gains realized BEFORE they inherited the assets are NEVER taxed. The fact that this detail is not mentioned once in the article means that the author either is not as knowledgeable about finance as they present themselves, or they are, themselves, trying to sell a "BS Tax Story".
- wmf 5y agoIsn't the basis stepped up after estate tax is paid? So if you die holding stock no tax is avoided.
- vmh1928 5y agoany capital asset is stepped up currently. https://www.kiplinger.com/retirement/estate-planning/602701/biden-hopes-to-eliminate-stepped-up-basis-for-millionaires https://www.kiplinger.com/retirement/estate-planning/602701/...
- jeremy_arnold 5y agoOP here. ProPublica made the same argument. Maybe I should have covered it. Here's why that step-up doesn't really matter. For round numbers, let's imagine Bezos acquires shares of Amazon at $1 each. Fast forward a few decades and they're now worth $100 each. He's accrued $99 in taxable gains. But he blows up in space, so it's all left for heirs. At transfer, the cap gains part is thrown away. But this is only to avoid double taxation, as the heirs now pay 40% on current market value for assets > $1m. Making them pay 20% CG on $99 and 40% would be far too high. So the gov lets them only pay 40% on ~$100, which is roughly 2x the total receipts. (If the assets are left in trust, you can avoid the estate taxes. But then you're back to paying cap gains when the money is withdrawn.) EDIT: Technically it's assets over $1m + other exemptions and deductions. In practice it kicks in more like $10-12m depending on particulars. But the amounts in question here are way, way above that baseline.
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- wallawe 5y agoWhy is this being flagged? It raises many valid points against Propublica's article which was more misleading than this piece or its title.
- johncessna 5y agoYou know the answer
- wolverine876 5y ago> It raises many valid points against Propublica's article which was more misleading than this piece or its title. That's your assertion, not a fact. It's a bit circular to use your assertion to support the idea that this is a quality article.
- mirkules 5y agoIt’s being flagged right now because frankly it is deeply popular to hate rich people, especially in this political climate. Since this article raises an unpopular, opposite point of view, it has been flagged.
- schoen 5y agoThe article didn't even go very far to defend rich people or their wealth, merely arguing that it's not bad for people to obey existing laws that permit them to defer paying taxes on unrealized capital gains, and possibly also not bad for them to obey existing laws that permit them to give unrealized capital gains to charity instead of being taxed on them.
- mirkules 5y agoI wholeheartedly agree. But the reddit hypersensitive and hyperbolic mentality is seeping out of reddit - any mention that even suggests that contrary belief is wrong or misguided is met with a strong response that discourages further discussion on the matter. Cancel culture, in short. I’ve been seeing it creep into HN for quite some time, although it’s more civil here.
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- sacomo 5y agoThis is why things like the NY Stock Transaction Tax rebate should be repealed and expanded. And why we need property taxes to apply to these financial holdings. There is currently too much untaxable property that will never be cycled through the economy in a way that allows them to be properly taxed. Propublica's framing is still wrong.
- wolverine876 5y ago> Propublica's framing is still wrong. Could you expand on that?
- wolverine876 5y agoDoes anyone know who the author, "Jeremy Arnold" is, and what the "Save Journalism Committee" is and who backs them? Their about page doesn't say who they are: https://savingjournalism.substack.com/p/what-this-newsletter-is-about https://savingjournalism.substack.com/p/what-this-newsletter... Also, why should I or do you trust them over ProPublica? These ranting-style articles are written as if the author possesses the Truth, but analogous to the XKCD about technical standards, all we have is one more point of view. To me, at this point in Internet history, the ranting, ridiculing style is a strong negative signal. Also, criticism of Silicon Valley billionaires seems to draw responses that try to discredit the news media. (I always wonder: Where then do they get news?) [Edited slightly for politeness.]
- jeremy_arnold 5y agoOP here. Happy to answer direct questions as you have them. It's a self-funded project. As for trust, I pay bounties for corrections for a reason. And I keep a public list of all past bounties paid. Readers can review and decide how much to trust accordingly.
- wolverine876 5y agoWelcome! Thanks for dropping in. Sorry to grill you when we just met, but what is your background, if you are willing to share publicly (I understand if not)? I just like to know who I am reading, especially on the Internets!
- jeremy_arnold 5y agoGrilling is cool. TLDR is I'm a copywriter turned comms consultant. I work mostly with tech companies. My interest in journalism review came just from years of diving into stories on topics I knew and finding them grotesquely misrepresented. This then kicked up a gear when I wrote about Elon Musk and the Thai cave rescue in 2018 and had a bunch of newspapers/journalists shit on my work. I wrote an exhaustive rebuttal to all their points (and offered them money for any mistakes they could find) and they just didn't read it. I came to realize that they have the privilege of just never having to engage with criticism no matter how rendered. So I started my substack to effectively pre-publish chapters of a book I'm writing with a list of examples of really bad journalism from top outlets. Then going to segue from that to my own journalism-esque platform to put my money where my mouth is a far as building a news org with better incentives and more accountability.
- penteract 5y agoI have an objection to a particular paragraph: > > We understand that nearly everyone who provides material to a reporter is doing so in ways that reflect their worldview, agenda or biases. We have long held that those motives are irrelevant if the information is reliable. > This is an … insane statement? — both rationally and morally. Truth can't ever be a sole criteria for publishing. It's necessary, but not sufficient. To suggest otherwise ought to flunk someone out of first year journalism school. This is a misinterpretation of the quoted text. Propublica says that the motive of the source is not part of the set of criteria for publishing (unless it the information is unreliable), not that reliability is the sole criterion for publishing. Propublica's article explicitly says that privacy is a legitimate concern. "One of the billionaires mentioned in this article objected, arguing that publishing personal tax information is a violation of privacy. We have concluded that the public interest in knowing this information at this pivotal moment outweighs that legitimate concern."
- jeremy_arnold 5y agoOP here. Pondering this.
- op00to 5y agoGood to know you’re pondering.
- specialist 5y ago"Delaying a tax is not avoiding a tax. Tax avoidance is a term of art (distinct from tax evasion) that speaks to maximizing deductions/credits and optimizing income categorization. ..." Dragging debate into the minutiae distracts from the cogent moral objection. Time honored technique. Observing that inequity is accelerating does not and should not require a CPA. "They’re right about the laws, but incurious about why the laws are that way (not just in the US, but across the developed world).:" Opinions differ. You do not cite the original precedent setting court case. Nor do you cite the prescient objections which have proven true. Further, you do not acknowledge the central issue, nor offer any guidance or wisdom for possible remedies. Lastly, I don't like your clickbait title.
- dang 5y agoRecent related threads: We are publishing the tax secrets of the .001% - https://news.ycombinator.com/item?id=27434307 https://news.ycombinator.com/item?id=27434307 - June 2021 (463 comments) Tax details of US super-rich allegedly leaked - https://news.ycombinator.com/item?id=27440881 https://news.ycombinator.com/item?id=27440881 - June 2021 (ongoing)
- rhacker 5y agoHere's the underlying reason why the thesis in this follow up from savingjournalism is HORRIBLE. A person that has 1 trillion dollars or makes multiple billions of dollars a year, probably only needs $100K per year during their rich lifetime to make them "personally comfortable". That speaks NOTHING of the extra billions that NEVER EVER need to become liquid to pay for the things that keep them in power, pay employees, buy homes. I think the person that wrote this piece is forgetting that it SHOULDNT be done this way. I don't care if it's the "way all the countries do it" of course it is - the rich copy and paste the rules that work for them across the nations.
- jeremy_arnold 5y agoOP here. The point is that taxation can't really be avoided. If you take out loans against your shares to fund a lavish lifestyle, those loans need to be paid back (and you'll also get taxed on much of your consumption via sales taxes / VAT). Now, sure, there's a way in which you can just keep rolling over loans with new ones until you approach some max % of your collateralized shares. But this has practical limits, and you're still not really avoiding anything. What's happening practically is that the gov has an IOU for 20% of those shares, where the value of that IOU is growing faster than the servicing costs of their own debt. So pushing out the date of realization is basically fine. The rich person may never pay those taxes within their own lifetime, but someone will. And the gov has no meaningful reason to care who pays or when, so long as the increase in share value outpaces their borrowing costs (pretty easy). EDIT: Should have said 15-20% to be precise, as lowest rate is 15% for long-term holdings.
- lupire 5y ago> The rich person may never pay those taxes within their own lifetime, but someone will. Citation needed.
- jeremy_arnold 5y agoI mean there are elaborate schemes to avoid this, but it's not obvious to me that many of them really work short of active (i.e., illegal) tax evasion. You can, for example, shield stuff in trusts, which is tax-efficient. But when an heir wants to realize gains to buy stuff, it's going to be taxed. All you're doing is deferring, which is fine from the gov's POV as their share of the pool isn't changing, and the pool is in most cases growing a rate that exceeds their borrowing costs. That said, if Congress wants to make estate/inheritance laws more strict, sure, fine! I think most would be ok with that. Or they could even put a max window on gains realization. But the thing to do there is write an op-ed directly calling for the desired policy, not some sort of alarmist piece about the rich and their "true tax rate".
- xt00 5y agoA couple of questions I would love to see some info on: 1) if somebody actually sold say 100M in stock at long term cap gains rates they should be paying roughly 15% tax, but in these cases people paid far lower than 15%, so they must offset those gains with something — what was it? 2) borrowing say 100M and using their large qty of stock as collateral at say 2% interest rate means you can buy stuff with that money then they pay it back later, but how? If they sell stock to pay it back later, then in that year they should have to pay tax in that year.. so ultimately the cash flow needs to be tracked.. if somebody buys a sports team for 2B, where did they get the cash for that? Did they buy it by paying the person in stock? Would be great to understand how people are doing this kind of stuff because it seems like the old line about “not taxing the job creators” translating to somebody only paying 1% tax might be fine if that was the societal trade we are making but if that person is not actually benefiting society in any way, then that person paying ultra low taxes does seem unfair.
- ttul 5y agoWell, I think the strategy is to keep balancing your gains and losses to minimize taxes until you die, by which point you’ve transferred all your wealth out tax-efficiently through trusts.
- gruez 5y ago...by taking out loans and not paying them back? I'm not sure why any bank would sign up for that.
- nullc 5y agoPropublica's claims about how they verified the information seem to contradict the impression that they only recieved information about a few ultra rich persons-- comparing published returns from some 50 persons? I'd guess you'd probably need the entire top 10% of all taxpayers to end up with the returns of 50 persons who've published them. In any case, one thing this doesn't seem to point out is any significant nexus between most of the content of the article and the private data. Okay, various parties reported almost no income in some years-- We knew that. They talk about trusts used to escape estate taxes, but don't support it with their trove of private information. As the OP says, the Propublica piece is essentially a standard tax policy op-end that could have been written today without the benefit of any new private information. The connection to the private data seems weak at best.
- dwt204 5y agoLet the bootlicking begin. It is not enough that all of the subjects of the article don't pay their fair share, but we have to listen to their apologists, like the author, use pretzel logic to justify why they don't pay their taxes, should not have to pay their taxes and we should just shut the fuck up and take it. I guess the new successors to Tucker Carlson and his ilk are lining up for jobs, once they retire to the Hamptons. Some how the author thinks that he is the only one who can read, comprehend and opinionate outside the right wing sphere of influence. There are other realities out there other than retreaded bullshit like trickle down and other moribund ideologies pushed by Friedman and Sowell. My advice to the subjects of the article is to sit down, take your talking to, and pay your taxes or deal with the political reaction and face something far worse.
- nullc 5y agoOn what basis do you claim the subjects will not pay their fair share? That looking at single years their tax burden was a small percentage of an entertainment website pure-fiction guess at their increase in net worth? There may be a case to be made here, but Propublica didn't even attempt to make it. --- but it seems to have stirred your outrage well enough that you're slinging rude insults against a person you don't know and have never met. :(
- vmh1928 5y agoAs long as I get a refund when the stocks I hold decrease in value then I'm good with taxing unrealized capital gains. I'm going to be belly belly rich!
- partido3619463 5y agoProPublica is making a point about billionaire wealth generation being radically different than average person’s (and thus opening you to more money/influence/power even just by donating it all to charity). Substack author got stuck on “tax avoidance” and missed the broader point. Sure, perhaps taxes get paid at some point, but it’s radically different if you can build up a huge warchest and sock everything away behind future wealth transfer schemes. (And point that you get one-time 40% vs 20% cut then 40% cut is also valid). Beyond all that - when you can accumulate wealth without taxes like that - you get security and comfort. Certainly there are reasons to prioritize investment, but why should earning income via wages put you at such a HUGE disadvantage? Def doesn’t rise to the inflammatory title. ProPublica has a different attitude towards wealth and investment than you do - fine! Not sure there’s a truly “objective” way to look at this.
- WalterBright 5y ago> why should earning income via wages put you at such a HUGE disadvantage? Wages are paid out of pre-tax earnings. Capital gains correspond to after-tax earnings. This puts them at approximately the same level. (A lot of cap gains are also due to inflation, i.e. they're fake gains.)
- alex_young 5y agoWhat do you mean by after tax? Capital gains are literally that, value increase of assets. How is that after tax? Also, if you’re going to discount inflation, don’t you have to do the same for annual salaries which are very much worth less under any significant inflation?
- nullc 5y agoYour income comes from a company which pays it with pretax money, you pay taxes on that money and then invest it in shares, companies earn money, pay taxes on the profits, and gain value (dividends/share buybacks/self-investment). The sum of corporate taxes and gains taxes are close in magnitude to income tax. So a dollar goes into a corp, it either: (1) gets paid to you, you pay your marginal income tax rate on it (say 28%), the corp doesn't pay a tax on it because you're an expense they deduct. or (2) they pay corporate tax on it (21%) and then it turns into gains for you and you pay LTCG on it (15%) = ~33%. (and no, it's still automatically lower than your marginal income tax rate when you're in a higher tax bracket: LTCG goes up to 23.8% when you have sufficiently high investment income) ... and if you don't qualify for LTCG on that cap gain, you get taxed at your income tax rates on it even though you, as a (tiny) owner of the company, already paid corp taxes on.
- deleted 5y ago[deleted]
- peter303 5y ago100% agree. ProPubluca author seems to not know difference between income and wealth.
- alex_young 5y ago> I don’t think anyone involved at ProPublica grasps why virtually all developed countries don’t tax unrealized capital gains This just isn’t true is it? According to the OECD Colombia, France, Norway, Spain, and Switzerland are the countries that raised revenue from net wealth taxes on individuals in 2019: https://en.m.wikipedia.org/wiki/Wealth_tax https://en.m.wikipedia.org/wiki/Wealth_tax
- deleted 5y ago[deleted]
- fshbbdssbbgdd 5y agoPropublica and OP talk about taxing gains (as though the gains were income), while this wiki link refers to taxes on wealth. Those aren’t the same thing. The wealth tax would be a low rate that applies to your entire wealth each year, while the tax on gains would be higher but only apply when the gains occur.
- alex_young 5y agoI’ll grant that these would be two different ways to achieve very similar results, but I don’t read where propublica proposed a direct tax on capital gains rather than a more generalized wealth tax, which very much is a real thing.
- fshbbdssbbgdd 5y agoPropublica calculates a “true tax rate” which uses the unrealized capital gains as the denominator. They don’t make any public policy recommendation in the article, but I think computing the tax rate in this way implies that the unrealized gains should be taxable income. They also mention that Senator Ron Wyden has proposed doing this.
- md_ 5y agoWhy? Calculating the tax rate as “taxes paid” / “net wealth” is just what the effective wealth tax would be if one existed. This is consistent with advocating for a wealth tax, which, as I noted elsewhere, does in fact exist in other OECD countries than the US.
- Sytten 5y agoIt is interesting to me that the main opposition argument to taxation of wealth seems to be that it could cause a crash of the stock when people need to sell. I would like to propose a counter argument and happy to debate its merits/shortfalls. What if they don't sell. What if you pay in shares based on price increase over the year and we then transfer those shares into a sovereign fund. Obviously that would be a progressive tax to mimic what is already done for income tax. That fund could then manage those assets and could potentially redistribute them in people's 401K (US)/RRSP (Canada) or make them grow to pay for pensions/fund projects (like Quebec CDPQ). In the first case (redistribution), people are unlikely to all sell at the same time (there could even set a hold period to be sure) and since the transactions would be small overtime it is unlikely to stir the market. For the second option, then the fund would manage it more like any large portfolio and it has an incentive to keep the stock high so it would not dump their new stocks (it would also benefit from stock buybacks). The fundamental end goal of taxation is to reduce inequalities in a society to keep it functional and peaceful. As we are seeing unprecedented levels of inequalities that tells me that the system is broken. You can call it tax delay all you want, but if I can delay taxes for 50-60 years it has sufficient negative impact on society at the scale we are talking that it should be reformed.
- bhupy 5y ago> The fundamental end goal of taxation is to reduce inequalities in a society to keep it functional and peaceful. This is not at all clear. To many others, the fundamental end goal of taxation is to fund the government. The trillion dollar question is: is our goal to make the poor richer or the rich poorer? There’s broad disagreement on the answer to that question, and without acknowledging this, we’re really just shouting past each other.
- Sytten 5y agoI follow the MMT thinking on that and I would say we are way past the time where one could reasonably argue that taxation funds the government. At best it serves to reduce the money supply to avoid inflation. Having a strong middle class is a deep factor for the stability of a country. Inequalities is easily linkable to social unrest.
- InTheArena 5y agoIt’s very clear that the original article was a hit piece/advocacy editorial more than anything else. If you don’t believe, go look at the cover of drudge right now, where he’s using it to go after his favorite target, Elon musk. (making a claim that even the pro Publico article doesn’t make). All that said there’s a fundamental challenge here. People conflate unrealized wealth with income because loans offer a mechanism with cash today while deferring tax until later. As pointed out in many places, we target the 1% at the expense of not going after the .1% or even a .01%. I think it makes perfect sense for somebody to say that any loan that is backed by stocks granted on the basis of RSU, incur some additional special taxes. For all intents and purposes the principal is Realizing some of the value of the stock by getting a loan against a stock. Unfortunately articles like this which conflate things actually make it harder for us to fix the real loophole. Im fortunate to temporarily be a member of the top 1%, but not the top .1% or the top .01% my tax burden last year was 40%. That’s not including healthcare or government fees. I’m fine with that, but the fact that both people earning more than I, and earning less than I pay less in taxes as a percent is incredibly irritating. Articles like this will result in politicians blindly saying the rich need to be taxed more while the hyper Rich continue to skirt taxes.
- InTheArena 5y agoPP also failed to disclose that their argument on Musk during 2018 was while Tesla and Musk nearly went bankrupt trying to scale the M3. Not Teslas current state which is dramatically more valuable given that Tesla scaled for the M3 and MY).
- whakim 5y agoThat may well be true, but even if Tesla had gone bankrupt in 2018, Elon Musk would still have dramatically more money than you or me. If anything, this highlights how the uber-wealthy are able to make riskier (and, on average, more profitable) investments than you or I in part because the tax system has their back. (To be clear, I wish the article had actually explained all this instead of not mentioning it.)
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- jxramos 5y agoYep, failing to differentiate unrealized gains falls in the realm of beginner information. Taxes on Stocks Explained for Beginners that Know NOTHING About Taxes https://youtu.be/EKYMbsjUUtE?t=46 https://youtu.be/EKYMbsjUUtE?t=46 > > Those gains are not defined by U.S. laws as taxable income unless and until the billionaires sell. --yes, precisely because they're not income until then. > but incurious about why the laws are that way (not just in the US, but across the developed world. --this is a great characterization, this settling for grasping what little one superficially comprehends about a complex subject does indeed come across as incurious. They never apparently rose to ask the next 3 or 5 questions that should immediately follow. If one's curiosity stopped at question 1 or 2 that's pretty underwhelming.
- jfrunyon 5y agoBut they are income. They can use it directly as collateral for loans, they can use it to increase their assets, they can convert it to cash just about any time they want, etc.
- deleted 5y ago[deleted]
- Trias11 5y ago>> ProPublica has obtained a vast trove of Internal Revenue Service data on the tax returns of thousands of the nation’s wealthiest people, covering more than 15 years This statement alone is IRS-gate. Privacy breach at it's finest.
- jb775 5y agoI feel like this response kind of misses the point of the bigger issue, and subserviently plays into the elitist constructs of society built up over the past few decades. Like obviously the super rich legally avoid paying taxes using intricate loopholes, but that doesn't mean people shouldn't bring up the fact that the entire system is screwed up. The article's primary criticism of ProPublica is premised around the fact that these loopholes exist, and that they're legal....but doesn't give consideration to how absurd they are. (not talking about taxing unrealized gains, that's just idiotic) I don't have an issue with how they framed this. If the author is going to call out bad journalism, he should focus on the media conglomerates being taken over by de-facto communists...pushing leftist propaganda from the top down (CNN, NBC, ABC, NYT, etc). And the sad thing is, people on the left can't see it because what the MSM selectively reports plays into their worldview. What a fucking travesty.
- gruez 5y ago>Like obviously the super rich legally avoid paying taxes using intricate loopholes Not paying taxes on unrealized gains is an intricate loophole? You can take advantage of it right now by buying stocks and... holding on to them. >bring up the fact that the entire system is screwed up We think the system is screwed up, so let's use any sort of misrepresentation we can to help our narrative. After all, the ends justifies the means right?
- jfrunyon 5y ago> I don’t think anyone involved at ProPublica knows what tax avoidance means Just because something is not legally tax avoidance does not mean that it should not be. > I don’t think anyone involved at ProPublica grasps why virtually all developed countries don’t tax unrealized capital gains Again... whether we do or don't is not related to whether we should or shouldn't. > I don’t think anyone involved at ProPublica tried very hard (at all?) to learn about what they didn’t know before publishing this piece Sure. > I don’t think anyone involved at ProPublica gave nearly enough thought to the implications of violating privacy laws (or at least norms) to publish a non-story Or perhaps this is truly a societal issue, as evidenced by the wide difference between the current amount of taxes which the wealthy pay, and the historical amount; and as evidenced by the wide difference between different countries. The fact that it has long been a part of the public discourse suggests so. And none of that explains how it is "misleading". Edit/PS: 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... but sure, tell me how they didn't give "nearly enough thought to the implications of violating privacy norms"
- Kalium 5y ago> Just because something is not legally tax avoidance does not mean that it should not be. I think this author would agree with you on this point and indeed most of your points. I think it could perhaps worth considering this author's point - understanding something about the systems being criticized is important because it guides people to good critique. If ProPublica is indeed writing from a position of gross ignorance on the subject they are writing about, this should be understood by the readers and color how the story is read. Much as we here on HN are likely to find it salient if someone with thoughts to share on programming languages knew very little about computing.
- DevKoala 5y agoSome individuals believe it is fair to tax unrealized capital gains. How does this make sense? Do people really think Jeff Bezos is worth 60+ billion when there is no liquidity to buy all of his stock at that price?
- mapgrep 5y agoThis is itself misleading. There are many examples of government in the U.S. taxing unrealized gains. Prime one is property tax. The author claims: > most countries use the very sane solution of staggering sales by only imposing a tax when an asset is sold States and cities right here in the U.S. impose taxes on real estate long before it is sold, regularly assessing its value. Homeowners are indeed forced to sell or mortgage their homes sometimes to pay. In California this laid the groundwork for Prop 13. But property taxes are common globally https://taxfoundation.org/countries-target-property-tax-reforms-property-transaction-tax-net-wealth-transfer-tax/ https://taxfoundation.org/countries-target-property-tax-refo... Politicians like Elizabeth Warren have proposed a wealth tax to treat stock and other assets more like real estate. The author seems to strongly imply the US treatment of stock capital gains is some highly rational system designed by deep thinking experts. In reality it is the end point of a long, ad hoc political process, like all our laws. While I do wish Pro Publica had examined the roots and benefits of our current system as the author suggests, his own post similarly lacks context in the pursuit (IMO) of a buzzy smack down.
- teakettle42 5y ago> Prime one is property tax. Which is a horrendous injustice. I bought my house at a fixed amount. I have no desire or plans to move. My property taxes have increased by over $3k since I purchased my home, simply due to market conditions. Why should the size of the local municipalities coffers increase, at my expense, relative to the vagaries of the housing market, instead of according to actual budget needs? I have realized no value whatsoever; if I were to sell my home to try to realize that value, any home I'd buy in the area has similarly risen in price. The only way for me to realize that "wealth" is to sell my home and significantly downsize, or leave the area entirely, and buy somewhere cheaper.
- R0b0t1 5y ago> Which is a horrendous injustice. It's basically feudalism. I'm not against taxes in general, but property tax means you never really own anything.
- umeshunni 5y ago> What happens when journalists don't have any friends in finance to challenge their thinking? I have a basic theory that 'journalists' don't generally understand math or finance. For one, if they did, they wouldn't choose to become journalists. As a result, they surround themselves with a bubble of low math and finance skills and are prone to misunderstand and conflate basic concepts like assets and income.
- GreaterFool 5y agoIn their article they have compared the income tax rate with wealth adjusted tax rate. Out of curiosity, what would a wealth adjusted tax rate be for a dual income family that owns a house?
- md_ 5y agoI continue to miss what all the fuss is about on the ProPublica piece, both in the sense that (as this article points out) it’s not, in broad strokes, surprising, and in the sense that it’s very far from journalistic malfeasance. This author argues that ProPublica “misunderstand” the difference between taxing unrealized gains and taxing income. I’ve seen this same argument on HN comments, as though knowing what a 1040-B is somehow makes one a tax policy expert. Of course, there are countries that tax wealth directly, so “taxes paid as a percentage of wealth” is certainly a valid metric! And if the public are concerned about tax policy disparities between the ultra rich and the rest, it’s the only metric to look at[1]; as everyone knows, the ultra rich tend to earn their wealth primarily as capital gains, so a metric like “effective tax rate on earned income” would simply not be very informative across social classes. I’m really surprised that this argument has taken off; it feel almost like some sort of astroturfing campaign. There’s no reason we shouldn’t talk about effective tax rates on wealth, even though this isn’t how the US tax code works; indeed, that’s really the point of the article. 1. As someone else noted, looking at returns on capital vs labor after taxes and transfers over time is a better approach to understanding trend, but as a snapshot view, I think this is quite reasonable and easier for readers to grasp.
- jeremy_arnold 5y agoOP here. Three things: 1. Most countries that have tried wealth taxes have either abandoned them or have had to constantly readjust them due to logistical difficulties and capital flight. They're elegant in theory, but very difficult practically. 2. The problem with ProPublica's coverage is that it was a tax policy argument masquerading as a news story. If they wanted to advocate for whatever policy position, that's fine! But to paint specific individuals as underpaying in taxes is deeply disingenuous. It poisons the civic well and gives casual readers the sense that something nefarious is happening. 3. Violating right-to-privacy laws to illustrate a policy proposal is bad! Really bad!
- md_ 5y ago1. Two points: a) The capital flight argument is silly. The US has a global tax on tax residents already, alongside an onerous reporting scheme. b) So what? Again, I don’t understand your argument, which seems to be “this is just how it works—taxes on unrealized gains are rare.” Indeed they are rare, but isn’t that the entire point of the ProPublica piece? 2) No, it’s illustrating the consequences of current tax policy. I read (or misread?) your argument as “effective tax rates on total wealth is the wrong metric” (and you go on to suggest that looking at such a metric puts one as an ignorant). Why is this the wrong metric? Economists like Piketty and Milanovic—going back to Kuznets—have looked at returns on capital vs labor. Effective tax rates on capital are one such component. Why is it disingenuous to look at such a metric? 3) Really? I dunno. https://www.oyez.org/cases/1970/1873 https://www.oyez.org/cases/1970/1873?
- ryankupyn 5y agoI think the most concerning element in the ProPublica piece is that there might be individuals inside the government who are willing to exfiltrate extremely sensitive private information and hand it over to outside parties without any public process/consent - this seems like a major privacy risk, and even more so than other entities/corporations one deals with it's very hard (for understandable reasons!) to prevent the IRS from collecting and retaining personal information, and tough to keep them accountable for the information they do collect.
- dole 5y ago“Nevermind the fire, who dialed 911?”
- kristofferR 5y agoThe author of this piece seems to have major anger issues. I got banned from being "uncooperative", despite being very respectful in my criticism [1]. [1] https://i.imgur.com/ZkaLuRT.png https://i.imgur.com/ZkaLuRT.png
- jeremy_arnold 5y agolol I've directly engaged with 100+ comments today. I stand behind my work in ways that virtually no writers do. All I ask in return is a basic bit of respect in the form of default rules of engagement. Forcing me to address the same concern in two places is bad form. When I informed you of that, you implied (per your own screenshot) that I was trying to get away with something underhanded. I don't need to be treated like that, so I blocked you in the space I control. You can be as butthurt as you'd like! You can complain about it wide and far! Or you can reflect. It's up to you!
- kristofferR 5y agoYou did it first, you forced me to address the same misinformation in two places by duplicating the misinformation. Yeah, I copied a reply from HN about an inaccuracy you hadn't adressed/fixed. Is that really a bannable offense? You still haven't addressed it either, you're still misrepresenting political talking points of the Conservatives in Norway as established, undeniable facts. For my other comments, you've just deflected.
- jeremy_arnold 5y agoThe offense was you intimating that I had bad motives when I simply wanted to centralize discussion and then link from one to the other (as I did). You clearly have no idea what it's like to manage replies at scale. People with bad faith engagement gum up the works, and that's unfair to everyone else, including me. You've made your points. I've replied to all of them. Readers can judge.
- kristofferR 5y ago
- darawk 5y agoMan I am so glad someone is saying this. This was exactly my reaction to this article. ProPublica normally does relatively good work in my experience, but this piece just basically boiled down to: Did you know that you don't have to pay capital gains tax until you sell? And rich people often don't sell for a long time? I mean, it's a useful facet of our tax regime to understand. And it's an important part of how rich people end up paying a much lower tax rate than others. But the idea that this is some nefarious scheme that they've uncovered by stealing Jeff Bezos's tax returns is....just completely ridiculous. Anyone who understood the US tax system even a little bit should have known that this was exactly what was happening.
- madaxe_again 5y agoKinda - although CGT is at a much lower rate than employment income, and you can write all sorts of expenses off against it. I mean, I had to go to Mauritius for a week to sell those stocks, and the entertainment bill was huge. Oh and look no tax. Oh and you can write off unrealised losses against realised gains.
- darawk 5y ago> Kinda - although CGT is at a much lower rate than employment income, and you can write all sorts of expenses off against it. Ya, definitely. Although Biden's tax proposals may change that. If ProPublica wanted to put out a piece arguing for a higher capital gains rate, i'd be totally fine with that, but that isn't what they did. > Oh and you can write off unrealised losses against realised gains I don't think that's true, at least not in the US. Do you have a citation for that?
- madaxe_again 5y agoTo be fair, it’s not directly true, but it’s commonly done. You just start an offshore trust, sell the loss to them, by which means you realise it (even though you’ve just moved where it sits in your network of entities), and you can then write it down. This definitely sits in “evasion” rather than “avoidance”, but it’s such a common practice that accountants recommend it like it’s just another normal service they offer.
- chalst 5y agoSince Piketty's 'Capital' was published, there's been a lot of interest in the relationship between 'r', the return on wealth and 'g', the growth rate of the economy, and how this relationship is influenced by the tax system. The ProPublica story provides obviously relevant data to this discussion. It is not, as Arnold would have it, "bullshit".
- Havoc 5y agoThis is generally the outcome when “normal” journalists try to write about high level tax stuff. They’re not equipped to understand let alone authoritatively opine on it. Same with the offshore stuff - very few people have visibility on that world and journalists as a general rule don’t. Doesn’t seem to stop them though
- iamsaitam 5y agoIt's clear that the author of this article has missed the point brought up by the ProPublica's story. The system isn't fair for everyone and it's relaxed towards the upper echelons. The author also assumes that everyone is part of the stock market and it's a community wealth pool. Why is it wrong that Jeff Bezos has to sell stock or have an actual income paycheck to pay for his wealth tax? The author says it would be bad because it would affect every shareholder negatively due to the lower stock value. Yes, it probably would, but value of stocks is impacted by externalities all the time, why would this possible scenario be the bad one? My point being, the author starts by stating how the ProPublica's article is at fault by technical standards and proceeds to give biased subjective opinions on how it did so.
- bawolff 5y ago> The system isn't fair for everyone and it's relaxed towards the upper echelons. Isn't the author's primary point that everyone knows its unfair in this manner (Similar to how most of the world is) and the violation of privacy isn't justified because it didn't reveal anything new that wasn't extensively documented already? > Why is it wrong that Jeff Bezos has to sell stock or have an actual income paycheck to pay for his wealth tax? Is it your position that only people who are invested in public companies should have to pay wealth tax? If not, how do the people who have stock in private companies that cannot sell their stock expected to pay the wealth tax? If so, why would anyone invest in a public company?
- chalst 5y ago> Delaying a tax is not avoiding a tax. Delaying tax is part of normal tax avoidance strategy. A tax that is endlessly deferred, or deferred until there is a tax amnesty, is one that is avoided (or evaded). Deferring the payment of tax is good for the payer both for managing cash flows and from increasing the freedom tax accountants have in finding favourable terms when taxes are paid. The main use of the term "avoidance" is its contrast to "evasion": the distinction is between those things an accountant does to benefit the client that are legal and those that are illegal. If you misrepresented your affairs to the IRS in order to defer a tax liability for a year, that would be tax evasion. (FWIW, I used to be a tax accountant.)
- refurb 5y agoIt’s a pretty bad piece. I love the part when they calculate the “true tax rate” (love the “true” part). Elon Musk pays half a billion in taxes on $1.5B in income, which is 33%! But no, they divide his tax payment over all his assets to come up with 3%. Maybe we should try that same math with other mid-career middle class tax payers? Oh, pay $50k in taxes on $150k in income. That’s not a 33% rate. The “true tax rate” is determined by dividing by your investment account, 401k, pension vesting, RSUs, vehicles and real estate holdings. Well holy shit! Your tax rate is low single digits too? Amazing.
- talkingtab 5y agoWow. The number of comments in this thread which focus on the trees, trees, trees rather than the forest is astonishing. The forest is clear, many people in the US with enormous wealth do not pay fair and reasonable taxes. But let us ignore that and focus on - well not even the trees but the leaves, leaves, leaves.
- yunohn 5y agoHN has a lot of 1%ers who despise the concept of paying taxes. As such, they love standing up for the <1%ers who pay no taxes and as such, shift the burden entirely onto the 99%. Obviously, if we could distribute tax contributions proportionally, it would help everyone. But HN can’t fathom that.
- AndyMcConachie 5y ago> HN has a lot of 1%ers who despise the concept of paying taxes. Let me correct that statement. "HN has a lot of wannabe 1%ers who despise the concept of paying taxes." In other words, HN is full of people who identify with rich people and their problems while not actually being that rich. The proper term for these kinds of people is 'bootlickers'.
- Cybotron5000 5y agoHear hear. I don’t begrudge clever hardworking people having the opportunity to make money as an incentive, in the implementation of some sort of Adam Smith-like idea of a genuinely free and sensibly regulated market …especially when it comes to non-essential goods and services… (proportionate to their wealth/jobs creation perhaps, as they never tire of reminding us…) …even better if this was awarded somehow based on their capacity to genuinely innovate and bring to market (as opposed to rip off and monopolise I suppose), but when you live in a country/world where people, kids even, are not eating properly, people are dying prematurely because the infrastructure/services are crumbling etc etc …as a priority before we even start to think about other ways to alleviate inequality of opportunity… and yet a tiny proportion are spending what to others would be a lifetime’s fortune every year on wealth fiddlers/obfuscation services to enable ‘tax avoidance’, even spending vast sums to finance lobbyists and entire media organisations because it is cheaper than actually paying another 1% of tax/whatever… (if I ‘evade’ something thrown at me is it really all that different from ‘avoiding’ it? …and yes, I understand that in financial terms one word denotes a crime and the other is supposed to merely be admired as ‘creative’ accountancy…). Warren Buffett himself suggests he should be taxed higher (…his famous anecdote about his secetary…). Idiosyncratic philanthropy is a poor substitute, no matter the inefficiencies of the state (…Anand Giridharadas writes well about this: https://www.penguinrandomhouse.com/books/539747/winners-take-all-by-anand-giridharadas/9780451493248/ https://www.penguinrandomhouse.com/books/539747/winners-take... …Even the 0.1%/whatever might find the world a brighter place to live in with the improvement of public services and a reasonably educated, healthy populace flourishing on a non-dying planet, at least before the robot overlord takeover/orbital/interplanetary escape plan is completed ! :) For me it comes down to a question of what we value as a society. Is a nurse/carer for example, who literally preserves someone’s life, day in day out, worth less or working less hard than a hedge fund CEO/tech. entrepreneur? Both are doubtless very important and valuable to society, but is one a thousand/whatever times more valuable as a human being or possessing of a thousandfold more rarefied qualities of thought/action? https://www.theguardian.com/news/2018/may/24/the-trouble-with-charitable-billionaires-philanthrocapitalism https://www.theguardian.com/news/2018/may/24/the-trouble-wit...
- MomoXenosaga 5y agoPeople have this belief that the government is all-powerful. But the reason why they tax income and not wealth is because it's easier. The smartest people on this planet are not working for the IRS they are working for the rich avoiding said taxation.
- AndyMcConachie 5y agoIt's rather amazing to see so many people complaining about being told that the rich aren't paying their fair share of taxes. That's the central premise here and it gets lost through all this muttering about technical detail. The richest Americans aren't paying their fair share of taxes. That's the story. That's the central truth we should be talking about, but instead we want to spend time complaining about a bunch of periphery minutiae. The privacy angle is also distraction. Public figures should enjoy less privacy than the rest of us. That's not just my opinion, it's basically a given in societies that care about holding their powerful to account. Was the Pro Publica piece a hit piece? Maybe, but I don't care, because once again the central premise is indisputable. Rich Americans don't pay their fair share of taxes. We should be 'hitting' them.
- jl2718 5y agoThere are some very stupid things in that article. I ignored them. There were some good points: 1. Proof of the hypocrisy of top billionaires lobbying for higher taxes on their competition. 2. The typical American pays almost twice as much in taxes as they are able to keep for themselves, while top billionaires get 100x in the opposite direction. I saw this as evidence that the tax system is just feudal wealth transfer to our owners. Their 'solutions' are also terrible, but there is strong evidence that we don't need it at all. Income tax is currently less than 10% of treasury funding.
- fairity 5y agoMy understanding is that this piece largely glosses over what is the only truly guaranteed way to escape taxes on capital gains: charitable trusts. As the article aptly points out, deferring unrealized gains does not necessarily lead to tax avoidance. Either you eventually sell your assets and pay capital gains, or you die and gains are taxed via estate tax. However, by transferring your assets to a charitable trust, you can avoid both capital gains tax and estate tax. Yes, your heirs will have to pay ordinary income tax when withdrawing from said trust, but due to the US's progressive income tax, said tax rate can be quite low. Please correct me if I'm wrong.
- jfrunyon 5y ago> Either you eventually sell your assets and pay capital gains Or, you wait until the government makes a 'temporary' change to the tax code that allows you to reduce your tax more than normal and do it then. Which, to my understanding, is what actually happens...
- xondono 5y agoA LOT of people here seem to be very willing to tax unrealized gains. I hope you all know that that would kick gentrification into hyperdrive and force a whole lot of people out of their homes.