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Once you reach a certain level of wealth, your net worth increasing becomes a substitute for income because these people live off the debt backed by their illiq

• bko 4y ago
  > Once you reach a certain level of wealth, your net worth increasing becomes a substitute for income because these people live of the debt backed by their illiquid assets. That allows them to avoid a large tax bill. Income is periodic. I get a salary every year. I can spend that amount every year as long as I'm employed at the same salary. Elon Musk can't spend 220 billion every year. If you want to compare net worth to income you should look at if he were to sell his shares and put it in a safe annuity earning 4% a year or so in perpetuity. So take his wealth, and multiply it by 4%. Also note that the annuity won't grow, unlike my income. > Take out a $1b loan using $10b in assets as collateral. When that $1b loan comes due, your net worth has grown to $15b. So you can expect his assets to grow at 50% a year? Here's a life hack: invest in Tesla if you think its going to grow 50% a year. Then even with $100,000 invested today would have you become a billionaire in 23 years!
  • slg 4y ago
    Notice I said "your net worth increasing becomes a substitute for income" and not "your net worth becomes a substitute for income". These billionaires can get periodic influxes of cash through taking loans on their increased net worth. So I agree Elon's $220b net worth isn't directly comparable to my income, but the $121b increase in his net worth is pretty comparable to my income. The numbers I made up in that example are obviously made up. I included them to illustrate my point and not as a prediction that all billionaires see their net worth increase 50% every year. That said, Elon's net worth went up over 100% last year.
    • deleted 4y ago
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  • notahacker 4y ago
    The page compares it with the $120bn growth in his net worth last year, which absolutely is a capital gain over a fixed period comparable with how much salary and capital gains you made last year. Admittedly that's an atypical return from the most hyped stocks in a bull market. But using a made up figure for Musk's earnings based on normies' annuities is just as unrepresentative of the typical annual return of being Elon Musk
• missedthecue 4y ago
  This isn't an infinite money cheat. You eventually have to settle the debt. The only way to do that is with income.
  • yellowapple 4y ago
    Which can happen by liquidating assets. As long as your net worth grows faster than your debt, this is absolutely an infinite money cheat.
    • missedthecue 4y ago
      OK... liquidating assets is a taxable event. You aren't avoiding the taxman by borrowing money.
      • jjeaff 4y ago
        If you can hold off on liquidating assets until death, your estate will pay no capital gains when it liquidates due to the step up rule.
    • kortilla 4y ago
      That’s not an infinite money cheat when the required input is infinite wealth growth.
  • slg 4y ago
    There is obviously an upward limit on the debt they can acquire. The problem isn’t that this is an infinite money cheat. It is a tax avoidance cheat because now the income is all long term capital gains that can be realized whenever is most convenient and gains can be offset by losses. That is how these people have tax rates below 5%.
    • missedthecue 4y ago
      There is a $3000 cap on capital gains loss offsets. Useful for the middle class, but useless if you're Jeff Bezos.
• aml183 4y ago
  During a period of low interest rates, yes this was the case, but now that rates are rising, this won't be as common.
  • jjeaff 4y ago
    You can get 2.33% margin loans through Interactive Brokers right now. I guarantee you a billionaire can get much less than that. Banks will always give rates near zero to billionaires because the risk is very low and they want to curry favor and possibly get other, much more lucrative deals from said billionaire.
  • deleted 4y ago
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