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This is my current understanding: Basically, once you're this rich, you can take hundreds of millions or billions of dollars worth of loans to cover anything y

This is my current understanding: Basically, once you're this rich, you can take hundreds of millions or billions of dollars worth of loans to cover anything you'd like to spend. Now, you can make sure that you're actually "losing" money in any given year by having (almost) no realized income. Then, at the end, you die, having never paid taxes. https://www.nytimes.com/2021/06/09/briefing/tax-jeff-bezos-wealthy.html https://www.nytimes.com/2021/06/09/briefing/tax-jeff-bezos-w... https://www.propublica.org/article/the-secret-irs-files-short-form-a-quick-guide-to-what-we-uncovered https://www.propublica.org/article/the-secret-irs-files-shor... EDIT: Yes, this is a big part of why there's now a common argument that unrealized (but very large) capital gains should be taxed.

JumpCrisscross 5y ago
> once you're this rich, you can take hundreds of millions or billions of dollars worth of loans to cover anything you'd like to spend Didn’t ProPublica show, in their leaked tax returns, that Bezos doesn’t do this?
ALittleLight 5y ago
But you have to repay those loans eventually incurring the tax burden when you do, right?
- robotresearcher 5y ago
  You die without ever selling your stocks. Your heirs can pay off your loans by selling some of the stocks they inherit. Their cost basis for those stocks is their value at the time of inheritance. This way no capital gains tax is ever due on the stock gains made in your lifetime.
  - djrogers 5y ago
    At the amounts you're talking about (100s of millions of $$), virtually all of that stock would be subject to the federal estate tax, with the vast majority of it at the 40% top rate. Those unrealized gains you're talking about are one of the main reasons the estate tax was enacted ~100yrs ago...
    - robotresearcher 5y ago
      Yes, in practice there are more tax sidesteps via foundations, etc. But the step that wipes the capital gains liability is as described.
  - snowwrestler 5y ago
    Sure but Bezos’ heirs will certainly blast past the exemption on the estate tax, which exists specifically as a backstop against this type of situation. They will pay taxes on most of what they inherit.
    - bluedevil2k 5y ago
      That’s what trusts are for! To avoid the estate tax.
  - d110af5ccf 5y ago
    > Their cost basis for those stocks is their value at the time of inheritance. This way no capital gains tax is ever due on the stock gains Are you sure that's the way it works in the US? If so that seems somewhat absurd. In Canada there's no inheritance tax but capital gains are realized on death and the cost basis resets. So your heirs inherit the assets and an associated tax bill which honestly makes perfect sense to me (at least for things like stocks).
    - robotresearcher 5y ago
      yep. https://taxfoundation.org/tax-basics/step-up-in-basis/ https://taxfoundation.org/tax-basics/step-up-in-basis/ https://www.investopedia.com/ask/answers/073115/how-cost-basis-calculated-inherited-asset.asp https://www.investopedia.com/ask/answers/073115/how-cost-bas...
- bpt3 5y ago
  For Bezos (and the wealthy in general), the interest rate on the loan is lower than your capital gains, so you can just keep rolling the loan forward forever.
  - bluedevil2k 5y ago
    And the interest is sometimes tax deductible
    - bpt3 5y ago
      Yep. It's a great setup if you can get it (for yourself at least).
ironrabbit 5y ago
Interesting, but how do you pay off these loans except by later selling stock (and paying capital gains tax)?
- abrodersen 5y ago
  When you die, your heirs get the stock with "step up basis", meaning the cost basis used to calculate capital gains resets to the market price at time of death. So if they sell right after you die, they pay no capital gains tax.
  - ApolloFortyNine 5y ago
    I'm no super genius, but it does sound like simply changing the tax code to require paying back all loans before changing the cost basis would be both easily and less possibly catastrophic than all of a sudden taxing unrealized gains.
  - djrogers 5y ago
    The heirs get the stock at etc step-up basis after estate taxes, which are considerable in the $100m+ realm...
    - abrodersen 5y ago
      Estate taxes can be avoided with trusts.
  - cantrevealname 5y ago
    Heirs in the United States don't pay capital gains tax, but doesn't the estate of the super rich guy have to pay up to 40% in estate taxes on all his assests (with an exemption on the first ~$5M)? Jeff Bezos is worth $200B. If he died, his estate would have to pay 40% estate tax on $195B in assets (first ~$5M being exempt), which is $78B in tax. That's still a hell of a lot tax. I know there were some loopholes used by the Walton family and other super rich, but isn't the above how it's supposed to work?
alberth 5y ago
> "Yes, this is a big part of why there's now a common argument that unrealized (but very large) capital gains should be taxed." So how will the person pay for those taxes WITHOUT selling the underlining asset. This is a huge problem in startup land with something called AMT. Where you "on paper" are a millionaire but have no ability to sell your paper shares since the company hasn't IPO yet. I'd hate to live in a word where you have to pay taxes on unrealized gains because it's not like you're going to get a tax break for unrealized losses.
- owisd 5y ago
  Do they need to sell to pay their taxes? Government could just accept the shares as payment in kind, plenty of uses for them without selling: sovereign wealth fund, state pension fund, employee owned trust.
- Teknoman117 5y ago
  I would imagine that what would end up being implemented would be more nuanced. If most of your on-paper net worth is unsellable assets, I don't think it would be much of a stretch to say those wouldn't be subject to a hypothetical wealth tax. Tax law has plenty of examples of various assets having unaccessed value until it's sold. Publicly tradable shares have value because I can sell them to someone for a fairly visible price. If I can't sell it, you could make the argument it's really not worth anything. AMT also happens plenty to non-startup world people. Own a house and have a combined household income of >200k? You're probably dealing with AMT.
  - alberth 5y ago
    Let's pull on this thread some more. So if I purchase a home and it's my primary dwelling, and the fair market value of my home goes way up (like more than what my homestead cap is) - I should pay INCOME taxes on this UNREALIZED gain? See why this is so bonkers. Don't get me wrong, I'm totally in favor of the super rich to pay more in taxes ... but they are not using any "loop holes" here or getting preferential treatment. It's just that they have radically way more unrealized gains than ordinary people do. It'd be interesting if all those people who had huge unrealized Bitcoin gains had to start paying ordinary income taxes on it.

JumpCrisscross 5y ago

> once you're this rich, you can take hundreds of millions or billions of dollars worth of loans to cover anything you'd like to spend Didn’t ProPublica show, in their leaked tax returns, that Bezos doesn’t do this?

ALittleLight 5y ago

But you have to repay those loans eventually incurring the tax burden when you do, right?

robotresearcher 5y ago
You die without ever selling your stocks. Your heirs can pay off your loans by selling some of the stocks they inherit. Their cost basis for those stocks is their value at the time of inheritance. This way no capital gains tax is ever due on the stock gains made in your lifetime.
- djrogers 5y ago
  At the amounts you're talking about (100s of millions of $$), virtually all of that stock would be subject to the federal estate tax, with the vast majority of it at the 40% top rate. Those unrealized gains you're talking about are one of the main reasons the estate tax was enacted ~100yrs ago...
  - robotresearcher 5y ago
    Yes, in practice there are more tax sidesteps via foundations, etc. But the step that wipes the capital gains liability is as described.
- snowwrestler 5y ago
  Sure but Bezos’ heirs will certainly blast past the exemption on the estate tax, which exists specifically as a backstop against this type of situation. They will pay taxes on most of what they inherit.
  - bluedevil2k 5y ago
    That’s what trusts are for! To avoid the estate tax.
- d110af5ccf 5y ago
  > Their cost basis for those stocks is their value at the time of inheritance. This way no capital gains tax is ever due on the stock gains Are you sure that's the way it works in the US? If so that seems somewhat absurd. In Canada there's no inheritance tax but capital gains are realized on death and the cost basis resets. So your heirs inherit the assets and an associated tax bill which honestly makes perfect sense to me (at least for things like stocks).
  - robotresearcher 5y ago
    yep. https://taxfoundation.org/tax-basics/step-up-in-basis/ https://taxfoundation.org/tax-basics/step-up-in-basis/ https://www.investopedia.com/ask/answers/073115/how-cost-basis-calculated-inherited-asset.asp https://www.investopedia.com/ask/answers/073115/how-cost-bas...
bpt3 5y ago
For Bezos (and the wealthy in general), the interest rate on the loan is lower than your capital gains, so you can just keep rolling the loan forward forever.
- bluedevil2k 5y ago
  And the interest is sometimes tax deductible
  - bpt3 5y ago
    Yep. It's a great setup if you can get it (for yourself at least).

ironrabbit 5y ago

Interesting, but how do you pay off these loans except by later selling stock (and paying capital gains tax)?

abrodersen 5y ago
When you die, your heirs get the stock with "step up basis", meaning the cost basis used to calculate capital gains resets to the market price at time of death. So if they sell right after you die, they pay no capital gains tax.
- ApolloFortyNine 5y ago
  I'm no super genius, but it does sound like simply changing the tax code to require paying back all loans before changing the cost basis would be both easily and less possibly catastrophic than all of a sudden taxing unrealized gains.
- djrogers 5y ago
  The heirs get the stock at etc step-up basis after estate taxes, which are considerable in the $100m+ realm...
  - abrodersen 5y ago
    Estate taxes can be avoided with trusts.
- cantrevealname 5y ago
  Heirs in the United States don't pay capital gains tax, but doesn't the estate of the super rich guy have to pay up to 40% in estate taxes on all his assests (with an exemption on the first ~$5M)? Jeff Bezos is worth $200B. If he died, his estate would have to pay 40% estate tax on $195B in assets (first ~$5M being exempt), which is $78B in tax. That's still a hell of a lot tax. I know there were some loopholes used by the Walton family and other super rich, but isn't the above how it's supposed to work?

alberth 5y ago

> "Yes, this is a big part of why there's now a common argument that unrealized (but very large) capital gains should be taxed." So how will the person pay for those taxes WITHOUT selling the underlining asset. This is a huge problem in startup land with something called AMT. Where you "on paper" are a millionaire but have no ability to sell your paper shares since the company hasn't IPO yet. I'd hate to live in a word where you have to pay taxes on unrealized gains because it's not like you're going to get a tax break for unrealized losses.

owisd 5y ago
Do they need to sell to pay their taxes? Government could just accept the shares as payment in kind, plenty of uses for them without selling: sovereign wealth fund, state pension fund, employee owned trust.
Teknoman117 5y ago
I would imagine that what would end up being implemented would be more nuanced. If most of your on-paper net worth is unsellable assets, I don't think it would be much of a stretch to say those wouldn't be subject to a hypothetical wealth tax. Tax law has plenty of examples of various assets having unaccessed value until it's sold. Publicly tradable shares have value because I can sell them to someone for a fairly visible price. If I can't sell it, you could make the argument it's really not worth anything. AMT also happens plenty to non-startup world people. Own a house and have a combined household income of >200k? You're probably dealing with AMT.
- alberth 5y ago
  Let's pull on this thread some more. So if I purchase a home and it's my primary dwelling, and the fair market value of my home goes way up (like more than what my homestead cap is) - I should pay INCOME taxes on this UNREALIZED gain? See why this is so bonkers. Don't get me wrong, I'm totally in favor of the super rich to pay more in taxes ... but they are not using any "loop holes" here or getting preferential treatment. It's just that they have radically way more unrealized gains than ordinary people do. It'd be interesting if all those people who had huge unrealized Bitcoin gains had to start paying ordinary income taxes on it.