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This scheme finances the personal spending of every American worth more than $50M. Sure, any time they're sloppy enough to personally receive real income, they

This scheme finances the personal spending of every American worth more than $50M. Sure, any time they're sloppy enough to personally receive real income, they pay taxes on it. Usually they are not that sloppy. The income goes to shells or other assets in which they've "invested". The assets become more valuable, and thus can be used as collateral for larger loans.

AmericanChopper 5y ago
I’ve worked with organisations that trade SLOCs other types of instruments that are typically used for these types of transactions. They can be used to defer taxable events in some cases (by taking a loan today instead of selling your shares/options), but there’s no way to use them to avoid paying taxes on local assets. This is especially true with Musk, because he’ll have to sell expiring options soon, which will be a taxable event no matter what. The only way they can be used to avoid paying taxes all together is if you’re trying to derive income from assets held (usually secretly) offshore, and this is almost always criminal tax evasion. The only thing they’re achieving in this circumstance is basically an international fund transfer without creating any taxable income. There are no secret tricks you can do to transfer your assets beyond the control of the IRS, you can’t “give” them to a bank, and if they’re collected as collateral on a defaulted loan, that’s a taxable event too. Companies can get away with moving their profits to other jurisdictions, because a collection of subsidiary companies can exist in as many different tax jurisdictions as you want. Individuals can’t (legally) do this, especially not US citizens, because they remain US tax residents for their entire lives, regardless of where they live or work. A lot of billionaires don’t pay a lot of taxes every year, because they don’t have a lot of income every year. The only way to turn it into a scandal is if you ignore all the years in which they do pay a lot of taxes. Which is, of course, fundamentally stupid.
- jessaustin 5y ago
  From the link in sibling thread: His tax avoidance is even more striking if you examine 2006 to 2018, a period for which ProPublica has complete data. Bezos’ wealth increased by $127 billion, according to Forbes, but he reported a total of $6.5 billion in income. The $1.4 billion he paid in personal federal taxes is a massive number — yet it amounts to a 1.1% true tax rate on the rise in his fortune. Why should we ignore these 13 years over which Bezos made $127B? Who would benefit from that?
  - AmericanChopper 5y ago
    Because the wealth of Jeff Bezos according to Forbes is just the amount of Amazon shares he owns, multiplied by the price of the stock on whatever day it was that somebody at Forbes decided to work out how much he was worth. Bezos, just like you and I, pays tax on his income. He only gets taxable income from the value of his Amazon shares when he sells them, which like most founders, he doesn’t do very frequently. You’re literally just getting upset at him for not liquidating his entire position of Amazon shares (or options) every year. If he ever wants to turn the theoretical number some Forbes intern came up with for his net worth into income, then he’ll have to pay tax on it. He could theoretically live the rest of his life without selling his shares if he wanted to, just like you or I never have to sell any shares, or property, or any other type of asset we own. However if he did that, the IRS is going to come and take the tax he owes from his estate. There is no tax evasion taking place here, this isn’t even a loophole. It’s the same treatment everybody gets. You don’t have to sell your assets if you don’t want to, and you don’t make a taxable profit from selling your assets… unless you sell them. The propublica article you’re quoting is designed entirely to rage-bait people who don’t want to think about the topic long enough to figure that very basic fact out.
    - jessaustin 5y ago
      I am not "upset". Since there is no literate reading of this thread that would yield such a conclusion, I suspect you might be projecting... I don't claim this is tax evasion. ProPublica didn't claim this is tax evasion: "Certainly, there are illegal tax evaders among them, but it turns out billionaires don’t have to evade taxes exotically and illicitly — they can avoid them routinely and legally." When rich people write laws, they usually don't write laws they'll need to violate. Since most people don't own billions of dollars worth of shares in giant firms, this "treatment" is certainly not what "everybody gets". Not even the billionaires' most ardent online white knights get this treatment.
prepend 5y ago
Wouldnt the interest on the loan be greater than the taxable event? Even with interest rates low, the prime rate is 3.25 [0]. So isn’t it worse to pay 3% interest per year than a 15-25% capital gain once? I assume Musk thinks he’ll live more than 10 years. [0] https://www.bankrate.com/rates/interest-rates/wall-street-prime-rate/ https://www.bankrate.com/rates/interest-rates/wall-street-pr...
- jessaustin 5y ago
  Interest payments are deductible. [0] The scheme was described by ProPublica earlier this year. [1] If they sell stock they lose the control over the firm that stock represents. That would be fine for normal humans, but not for the super control freaks under discussion. The interest, which is certainly lower than "prime" for borrowers like this in the era of zero-benchmark [2], is typically paid by future loans. It doesn't hamper the lifestyles of the rich any more than it benefits the public treasury. [0] https://www.irs.gov/taxtopics/tc505 https://www.irs.gov/taxtopics/tc505 [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... [2] https://www.federalreserve.gov/releases/h15/ https://www.federalreserve.gov/releases/h15/
  - brianwawok 5y ago
    Not sure why the downvotes, this is 100% what is going on the the top of the top 1%. Which is why the current congress push to ramp up capital gains to get money back from the rich is super super misguided. It screws startup founders like myself, but it literally has no impact on the mega rich.
    - jessaustin 5y ago
      Eh, downvotes happen. (Admittedly, I'll be less enthusiastic about sourcing in the near future...) I suspect 'AmericanChopper has learned something ITT, which was the point. He had a particular understanding of this practice, which had been imparted by someone he trusted. Now he knows that understanding was... incomplete, let's say. ProPublica can bang the drum all they want. In USA, the big media firms are all controlled by very rich people who don't want this sort of story to stay in the mainstream consciousness for more than a couple of days. So, information like this disappears more quickly than the average citizen can understand it.

AmericanChopper 5y ago

I’ve worked with organisations that trade SLOCs other types of instruments that are typically used for these types of transactions. They can be used to defer taxable events in some cases (by taking a loan today instead of selling your shares/options), but there’s no way to use them to avoid paying taxes on local assets. This is especially true with Musk, because he’ll have to sell expiring options soon, which will be a taxable event no matter what. The only way they can be used to avoid paying taxes all together is if you’re trying to derive income from assets held (usually secretly) offshore, and this is almost always criminal tax evasion. The only thing they’re achieving in this circumstance is basically an international fund transfer without creating any taxable income. There are no secret tricks you can do to transfer your assets beyond the control of the IRS, you can’t “give” them to a bank, and if they’re collected as collateral on a defaulted loan, that’s a taxable event too. Companies can get away with moving their profits to other jurisdictions, because a collection of subsidiary companies can exist in as many different tax jurisdictions as you want. Individuals can’t (legally) do this, especially not US citizens, because they remain US tax residents for their entire lives, regardless of where they live or work. A lot of billionaires don’t pay a lot of taxes every year, because they don’t have a lot of income every year. The only way to turn it into a scandal is if you ignore all the years in which they do pay a lot of taxes. Which is, of course, fundamentally stupid.

jessaustin 5y ago
From the link in sibling thread: His tax avoidance is even more striking if you examine 2006 to 2018, a period for which ProPublica has complete data. Bezos’ wealth increased by $127 billion, according to Forbes, but he reported a total of $6.5 billion in income. The $1.4 billion he paid in personal federal taxes is a massive number — yet it amounts to a 1.1% true tax rate on the rise in his fortune. Why should we ignore these 13 years over which Bezos made $127B? Who would benefit from that?
- AmericanChopper 5y ago
  Because the wealth of Jeff Bezos according to Forbes is just the amount of Amazon shares he owns, multiplied by the price of the stock on whatever day it was that somebody at Forbes decided to work out how much he was worth. Bezos, just like you and I, pays tax on his income. He only gets taxable income from the value of his Amazon shares when he sells them, which like most founders, he doesn’t do very frequently. You’re literally just getting upset at him for not liquidating his entire position of Amazon shares (or options) every year. If he ever wants to turn the theoretical number some Forbes intern came up with for his net worth into income, then he’ll have to pay tax on it. He could theoretically live the rest of his life without selling his shares if he wanted to, just like you or I never have to sell any shares, or property, or any other type of asset we own. However if he did that, the IRS is going to come and take the tax he owes from his estate. There is no tax evasion taking place here, this isn’t even a loophole. It’s the same treatment everybody gets. You don’t have to sell your assets if you don’t want to, and you don’t make a taxable profit from selling your assets… unless you sell them. The propublica article you’re quoting is designed entirely to rage-bait people who don’t want to think about the topic long enough to figure that very basic fact out.
  - jessaustin 5y ago
    I am not "upset". Since there is no literate reading of this thread that would yield such a conclusion, I suspect you might be projecting... I don't claim this is tax evasion. ProPublica didn't claim this is tax evasion: "Certainly, there are illegal tax evaders among them, but it turns out billionaires don’t have to evade taxes exotically and illicitly — they can avoid them routinely and legally." When rich people write laws, they usually don't write laws they'll need to violate. Since most people don't own billions of dollars worth of shares in giant firms, this "treatment" is certainly not what "everybody gets". Not even the billionaires' most ardent online white knights get this treatment.

prepend 5y ago

Wouldnt the interest on the loan be greater than the taxable event? Even with interest rates low, the prime rate is 3.25 [0]. So isn’t it worse to pay 3% interest per year than a 15-25% capital gain once? I assume Musk thinks he’ll live more than 10 years. [0] https://www.bankrate.com/rates/interest-rates/wall-street-prime-rate/ https://www.bankrate.com/rates/interest-rates/wall-street-pr...

jessaustin 5y ago
Interest payments are deductible. [0] The scheme was described by ProPublica earlier this year. [1] If they sell stock they lose the control over the firm that stock represents. That would be fine for normal humans, but not for the super control freaks under discussion. The interest, which is certainly lower than "prime" for borrowers like this in the era of zero-benchmark [2], is typically paid by future loans. It doesn't hamper the lifestyles of the rich any more than it benefits the public treasury. [0] https://www.irs.gov/taxtopics/tc505 https://www.irs.gov/taxtopics/tc505 [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... [2] https://www.federalreserve.gov/releases/h15/ https://www.federalreserve.gov/releases/h15/
- brianwawok 5y ago
  Not sure why the downvotes, this is 100% what is going on the the top of the top 1%. Which is why the current congress push to ramp up capital gains to get money back from the rich is super super misguided. It screws startup founders like myself, but it literally has no impact on the mega rich.
  - jessaustin 5y ago
    Eh, downvotes happen. (Admittedly, I'll be less enthusiastic about sourcing in the near future...) I suspect 'AmericanChopper has learned something ITT, which was the point. He had a particular understanding of this practice, which had been imparted by someone he trusted. Now he knows that understanding was... incomplete, let's say. ProPublica can bang the drum all they want. In USA, the big media firms are all controlled by very rich people who don't want this sort of story to stay in the mainstream consciousness for more than a couple of days. So, information like this disappears more quickly than the average citizen can understand it.