6 ms·

Tax capital gains the same as income. Tax on unrealised gains (minus losses). Tax quarterly. Then this problem goes away. But the rich wont vote for that!

NotYourLawyer 4y ago
Taxing unrealized gains is unworkable.
- quickthrower2 4y ago
  Politically maybe but not practically. What are property taxes? Effectively this but for a specific asset. Granted they are not based in the rise in value. But the idea of paying tax for holding something is not new.
  - SamReidHughes 4y ago
    Property taxes are consumption taxes. Taxing stock ownership is a tax on investing.
    - quickthrower2 4y ago
      I am talking about taxes paid yearly per property by the owner even it they don’t occupy the property
      - SamReidHughes 4y ago
        They are still consuming those property-hours.
- heleninboodler 4y ago
  Changing the definition of what constitutes "realizing" a gain is workable, however. For example, if you put $50M in stock as collateral against a loan to buy your yacht, you are very explicitly "realizing" the value of that, both by getting multiple parties to agree on its value and put it on record in a federally-regulated transaction (realizing in the sense of "making the value real"), and by actually getting a corresponding wad of cash out of it (realizing in the sense of "reaping the benefit"). Using the fact that it hasn't actually been "sold" as the basis of a claim that its value is "unrealized" should be recognized as the tax dodge it is.
  - dataflow 4y ago
    How does the loan hack work here? I feel like there's a step missing in the explanations I always read. You take a loan to buy your yacht with your stocks at collateral, then somehow (?) get untaxed cash to pay the loan back?
    - notch898a 4y ago
      As a pleb my guess would be to just get new loans, bigger and bigger, that pay off the previous loan debt plus what you need next. Once you die the estate settles the loans via the creditors just grabbing the collateral. I think it would never get taxed then no?
      - dataflow 4y ago
        So, what I'm trying to get someone here to confirm (with no success so far) is that none of this would be a issue to speak of without inheritance cost basis step-up? Am I correct to understand that that's the real issue, and wash sale rules etc. are just distractions?
    - quickthrower2 4y ago
      You never pay them back. Just pay interest which you also borrow. This might stop being as attractive if interest rates are high and inflation is low though.
      - dataflow 4y ago
        Hm I don't quite believe this explains the story. How much does debt does someone like Ballmer carry to their death, and how much do they pay in interest?
    - heleninboodler 4y ago
      I think that's really all there is to it. They do have to pay the interest, and the cash they use to service the loan isn't untaxed, but they were paying that tax anyway. It does assume that the have the cashflow to service the loan completely independent of this deal, but the point is it means they get the best of all worlds: they get immediate access to the cash value of the stock, they don't pay taxes on that value, and they continue gaining as the stock increases even more in value. But you're right, they aren't really avoiding the tax on the stock gains, they're just deferring it way down the road, which is particularly beneficial when your heirs get to step up the basis of what they inherit.
hn_throwaway_99 4y ago
> But the rich wont vote for that! The middle class wouldn't vote for that either.
sakopov 4y ago
The wealthy can skirt this by hiring tax attorney to gift their assets to some kind of charitable trust and get annuity payments to live off of and pay minimal to no tax. While the rest of us will actually pay the tax... that is if you find any incentive to even participate in such market. All of these boneheaded ideas only end up taxing normal people in the end. The ultra wealthy have other plans.

NotYourLawyer 4y ago

Taxing unrealized gains is unworkable.

quickthrower2 4y ago
Politically maybe but not practically. What are property taxes? Effectively this but for a specific asset. Granted they are not based in the rise in value. But the idea of paying tax for holding something is not new.
- SamReidHughes 4y ago
  Property taxes are consumption taxes. Taxing stock ownership is a tax on investing.
  - quickthrower2 4y ago
    I am talking about taxes paid yearly per property by the owner even it they don’t occupy the property
    - SamReidHughes 4y ago
      They are still consuming those property-hours.
heleninboodler 4y ago
Changing the definition of what constitutes "realizing" a gain is workable, however. For example, if you put $50M in stock as collateral against a loan to buy your yacht, you are very explicitly "realizing" the value of that, both by getting multiple parties to agree on its value and put it on record in a federally-regulated transaction (realizing in the sense of "making the value real"), and by actually getting a corresponding wad of cash out of it (realizing in the sense of "reaping the benefit"). Using the fact that it hasn't actually been "sold" as the basis of a claim that its value is "unrealized" should be recognized as the tax dodge it is.
- dataflow 4y ago
  How does the loan hack work here? I feel like there's a step missing in the explanations I always read. You take a loan to buy your yacht with your stocks at collateral, then somehow (?) get untaxed cash to pay the loan back?
  - notch898a 4y ago
    As a pleb my guess would be to just get new loans, bigger and bigger, that pay off the previous loan debt plus what you need next. Once you die the estate settles the loans via the creditors just grabbing the collateral. I think it would never get taxed then no?
    - dataflow 4y ago
      So, what I'm trying to get someone here to confirm (with no success so far) is that none of this would be a issue to speak of without inheritance cost basis step-up? Am I correct to understand that that's the real issue, and wash sale rules etc. are just distractions?
  - quickthrower2 4y ago
    You never pay them back. Just pay interest which you also borrow. This might stop being as attractive if interest rates are high and inflation is low though.
    - dataflow 4y ago
      Hm I don't quite believe this explains the story. How much does debt does someone like Ballmer carry to their death, and how much do they pay in interest?
  - heleninboodler 4y ago
    I think that's really all there is to it. They do have to pay the interest, and the cash they use to service the loan isn't untaxed, but they were paying that tax anyway. It does assume that the have the cashflow to service the loan completely independent of this deal, but the point is it means they get the best of all worlds: they get immediate access to the cash value of the stock, they don't pay taxes on that value, and they continue gaining as the stock increases even more in value. But you're right, they aren't really avoiding the tax on the stock gains, they're just deferring it way down the road, which is particularly beneficial when your heirs get to step up the basis of what they inherit.

hn_throwaway_99 4y ago

> But the rich wont vote for that! The middle class wouldn't vote for that either.

sakopov 4y ago

The wealthy can skirt this by hiring tax attorney to gift their assets to some kind of charitable trust and get annuity payments to live off of and pay minimal to no tax. While the rest of us will actually pay the tax... that is if you find any incentive to even participate in such market. All of these boneheaded ideas only end up taxing normal people in the end. The ultra wealthy have other plans.