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Top 1% of salary earners. The CEOs, highly paid doctors, engineers. The real capitalists - those who hold the assets and pay for their yachts with stock-backed

Top 1% of salary earners. The CEOs, highly paid doctors, engineers. The real capitalists - those who hold the assets and pay for their yachts with stock-backed loans - they don't pay 40% of the federal tax revenue. Their salary is $1/year.

WalterBright 4y ago
Loans are not income.
- janalsncm 4y ago
  There is no law of nature that says only income can be taxed. Loans could be taxed.
  - bmitc 4y ago
    You totally get it, and I really like the law of nature phrasing.
  - WalterBright 4y ago
    How about taxing your mortgage, then?
    - janalsncm 4y ago
      That could be a law. It would be a bad law for most people since they don’t own any houses. Taxing loans to billionaires is a good law because it closes the “just take out a loan” loophole.
- dragonwriter 4y ago
  Alternatively, loans are income today coupled with an expense over some future period. Including loan proceeds in taxed income (and deducting repayment) is certainly a potential policy choice. OTOH, treating pledging an asset as security for a loan as a realization event at FMV, making it both taxable if a gain and a basis value update, while taxing capital gains as normal income would also be a way to shutdown the “use secured loans to fund your lifestyle to avoid realizing gains and being taxed” hack.
vladvasiliu 4y ago
How are stock-backed-loans paid back? If in cash, they have to get the cash from somewhere, right? Supposedly selling the stocks. That can be taxed then and there. If they transfer the stocks to the lender, that means the stocks in question are valued at $x, since that's the value of the loan. So tax that value.
- brianwawok 4y ago
  After you die your estate sells stocks
  - matthewdgreen 4y ago
    Does the estate pay capital gains on those stocks, or can it take advantage of stepped-up cost basis rules to avoid those as well?
    - ti00 4y ago
      I'm not an expert, but my reading of the IRS's FAQ [1] is that the cost basis of inherited assets gets reset to the fair market value of the assets on the date of death. 1. https://www.irs.gov/faqs/interest-dividends-other-types-of-income/gifts-inheritances/gifts-inheritances https://www.irs.gov/faqs/interest-dividends-other-types-of-i...
      - WalterBright 4y ago
        You're right, and then you pay the inheritance tax which is more than the capital gains taxes would have been.
        dragonwriter 4y ago
        > > And then you pay the 40% federal inheritance tax and the 20% state inheritance tax on the total value at the date of death. After the $12 million (nearly $13 million next year) exemption, the unused portion of which passes to the surviving spouse and increases their tax-free estate exemption. But, yes, in the limit case estates aren't the tax-optimal way to transfer capital to survivors, which is why other vehicles are used for people for whom the estate exemption is small potatoes.

WalterBright 4y ago

Loans are not income.

janalsncm 4y ago
There is no law of nature that says only income can be taxed. Loans could be taxed.
- bmitc 4y ago
  You totally get it, and I really like the law of nature phrasing.
- WalterBright 4y ago
  How about taxing your mortgage, then?
  - janalsncm 4y ago
    That could be a law. It would be a bad law for most people since they don’t own any houses. Taxing loans to billionaires is a good law because it closes the “just take out a loan” loophole.
dragonwriter 4y ago
Alternatively, loans are income today coupled with an expense over some future period. Including loan proceeds in taxed income (and deducting repayment) is certainly a potential policy choice. OTOH, treating pledging an asset as security for a loan as a realization event at FMV, making it both taxable if a gain and a basis value update, while taxing capital gains as normal income would also be a way to shutdown the “use secured loans to fund your lifestyle to avoid realizing gains and being taxed” hack.

vladvasiliu 4y ago

How are stock-backed-loans paid back? If in cash, they have to get the cash from somewhere, right? Supposedly selling the stocks. That can be taxed then and there. If they transfer the stocks to the lender, that means the stocks in question are valued at $x, since that's the value of the loan. So tax that value.

brianwawok 4y ago
After you die your estate sells stocks
- matthewdgreen 4y ago
  Does the estate pay capital gains on those stocks, or can it take advantage of stepped-up cost basis rules to avoid those as well?
  - ti00 4y ago
    I'm not an expert, but my reading of the IRS's FAQ [1] is that the cost basis of inherited assets gets reset to the fair market value of the assets on the date of death. 1. https://www.irs.gov/faqs/interest-dividends-other-types-of-income/gifts-inheritances/gifts-inheritances https://www.irs.gov/faqs/interest-dividends-other-types-of-i...
    - WalterBright 4y ago
      You're right, and then you pay the inheritance tax which is more than the capital gains taxes would have been.
      - dragonwriter 4y ago
        > > And then you pay the 40% federal inheritance tax and the 20% state inheritance tax on the total value at the date of death. After the $12 million (nearly $13 million next year) exemption, the unused portion of which passes to the surviving spouse and increases their tax-free estate exemption. But, yes, in the limit case estates aren't the tax-optimal way to transfer capital to survivors, which is why other vehicles are used for people for whom the estate exemption is small potatoes.