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Right, but to my understanding there are related games that are played with trusts for example such that the loan passes onto the next generation too. To make

Right, but to my understanding there are related games that are played with trusts for example such that the loan passes onto the next generation too. To make matters worse, theres a concept called "step up in basis" such that if structured correctly, the inheritors can pretend the cost basis of their portfolio is the current market value. So the parents shield the gains from taxes in life, pass on the portfolio, and the kids reset the tax obligation to zero. "The concept of step-up in basis is actually quite simple. A trust or estate and its beneficiaries, or payable on death beneficiaries, get a step-up in basis to fair market value of the asset so received. That value is stepped up to the fair market value of the asset as of the date of death of the Decedent. This is true even if the beneficiary of the asset so transferred is a spouse of the Decedent." https://www.axley.com/publication_article/step-up-in-basis/ https://www.axley.com/publication_article/step-up-in-basis/ Not an expert, but having heard of it before & doing some research.. I'm sure there are more details, but if mere mortals like me understand it, I am sure the tax lawyers have even more esoteric methods now.

CPLX 3y ago
You’ve zeroed in on the most egregious problem. Step up basis is insane as a policy choice. It basically means that we just don’t tax the primary means of income used by wealthy people AT ALL. If a company pays you you have to pay taxes on it. Unless the company pays you by inflating the value of stock in that company, in which case you just… don’t.
- RhysU 3y ago
  The step up applies only to assets in one's estate at death, not assets in trust. IIUC, the very wealthy have limited exposure to step up in basis because they use trusts. Everyone else doesn't want to owe taxes when selling a house at market value they, e.g., inherited from a recently deceased loved one. The policy is not insane. It's sufficiently popular that no politician touches it.
  - CPLX 3y ago
    No it’s insane. Like any tax it could be made progressive, make the tax lower or nonexistent for smaller amounts of money. But stepping up the basis is insane and indefensible. It’s a heads I win tails you lose approach. Basically you’re saying oh we know there are capital gains here but they are not realized so it’s not time to tax them yet and then the person dies they say just kidding those capital gains never happened. It’s nonsense. Tax them at whatever rate makes sense if you want but don’t make a complete mockery of the concept of basis.
    - steveBK123 3y ago
      My simple tax take is that we should just treat all income streams as regular income, and have whatever progressive rate on that income and be done with it. By creating different classifications of income and constantly tweaking the rules, we setup entire tax evasion industries catering to those who have control of their income streams & money to pay advisors. There's lots of BS that estate tax exemptions are there to protect small farmers, but they constitute something like 0.002% of estate tax payers.
      - RhysU 3y ago
        I agree. But if we had a simple system people would be able to tell whether or not they get adequate value for their money. Obtuse and opaque are a defense against fair or just, take your pick.
        steveBK123 3y ago
        I think people at the top miss that they get, in some sense, some of the most value for money from a modern functional society. In the absence of a government monopoly on violence and functional government services, a highly paid business exec will need to live their life more like a mafioso or warlord. There's places in latin America where even what Americans would call "upper middle class" people need to hire security and worry about kidnapping and extortion plots. Add to that things like rule of law, so that the government strongman can't suddenly declare your business anti-patriotic / illegal (China) & take your cash / put you in jail. Then you have things like - copyright, trademark, etc systems that allow you & I to develop ideas as IP and the government allows us to protect it in court so that we can reap the benefits. So no, I don't think "tax is theft" and that we should live in some Mad Max world. People who denigrate high trust society & rule of law do not understand how messed up living in low trust societies is. Nor am I thoroughly impressed with the idea that we need a permanent overclass who is able to pass wealth down untaxed across generations, especially given all the trust fund underachievers I've met in my life in NYC.
- steveBK123 3y ago
  Yeah. I think a lot of the non-founder, high-pay FAANG crowd is in the funny spot where we are all paid super well, pay a lot of taxes, but if we were richer.. we'd actually pay a lot less taxes. Being paid salary by employers, we can't structure our compensation to the most tax efficient forms. The guys (almost always guys) at the top structure their pay to forms like stock or pass-thru or carried-interest, or whatever tax arb of the decade. Then they carry it forward, use trusts, borrow against stocks, and then hand it off to their kids when they die w/o tax. They probably own enough houses, and have control of their schedule that they can stay out of CA/NY for 183 nights/year and avoid high state income tax too (while mandating RTO to high tax city/states for the rest of us). Kind of a millionaires vs billionaires (or even decamillionaires) thing.
  - yieldcrv 3y ago
    yeah I make similar as FAANG employees but in a mixture of businesses and capital gains, deducted by retirement contributions (doing your own employer match is a super power! 3x higher contribution limit), QBI, illiquid asset based donations to donor advised funds and deducting the expenses to generate income my tax is basically 0 every year, down from closer to 52% marginal in California (effective 40%) if I was doing the same with W-2 income there would be almost nothing I could do

CPLX 3y ago

You’ve zeroed in on the most egregious problem. Step up basis is insane as a policy choice. It basically means that we just don’t tax the primary means of income used by wealthy people AT ALL. If a company pays you you have to pay taxes on it. Unless the company pays you by inflating the value of stock in that company, in which case you just… don’t.

RhysU 3y ago
The step up applies only to assets in one's estate at death, not assets in trust. IIUC, the very wealthy have limited exposure to step up in basis because they use trusts. Everyone else doesn't want to owe taxes when selling a house at market value they, e.g., inherited from a recently deceased loved one. The policy is not insane. It's sufficiently popular that no politician touches it.
- CPLX 3y ago
  No it’s insane. Like any tax it could be made progressive, make the tax lower or nonexistent for smaller amounts of money. But stepping up the basis is insane and indefensible. It’s a heads I win tails you lose approach. Basically you’re saying oh we know there are capital gains here but they are not realized so it’s not time to tax them yet and then the person dies they say just kidding those capital gains never happened. It’s nonsense. Tax them at whatever rate makes sense if you want but don’t make a complete mockery of the concept of basis.
  - steveBK123 3y ago
    My simple tax take is that we should just treat all income streams as regular income, and have whatever progressive rate on that income and be done with it. By creating different classifications of income and constantly tweaking the rules, we setup entire tax evasion industries catering to those who have control of their income streams & money to pay advisors. There's lots of BS that estate tax exemptions are there to protect small farmers, but they constitute something like 0.002% of estate tax payers.
    - RhysU 3y ago
      I agree. But if we had a simple system people would be able to tell whether or not they get adequate value for their money. Obtuse and opaque are a defense against fair or just, take your pick.
      - steveBK123 3y ago
        I think people at the top miss that they get, in some sense, some of the most value for money from a modern functional society. In the absence of a government monopoly on violence and functional government services, a highly paid business exec will need to live their life more like a mafioso or warlord. There's places in latin America where even what Americans would call "upper middle class" people need to hire security and worry about kidnapping and extortion plots. Add to that things like rule of law, so that the government strongman can't suddenly declare your business anti-patriotic / illegal (China) & take your cash / put you in jail. Then you have things like - copyright, trademark, etc systems that allow you & I to develop ideas as IP and the government allows us to protect it in court so that we can reap the benefits. So no, I don't think "tax is theft" and that we should live in some Mad Max world. People who denigrate high trust society & rule of law do not understand how messed up living in low trust societies is. Nor am I thoroughly impressed with the idea that we need a permanent overclass who is able to pass wealth down untaxed across generations, especially given all the trust fund underachievers I've met in my life in NYC.
steveBK123 3y ago
Yeah. I think a lot of the non-founder, high-pay FAANG crowd is in the funny spot where we are all paid super well, pay a lot of taxes, but if we were richer.. we'd actually pay a lot less taxes. Being paid salary by employers, we can't structure our compensation to the most tax efficient forms. The guys (almost always guys) at the top structure their pay to forms like stock or pass-thru or carried-interest, or whatever tax arb of the decade. Then they carry it forward, use trusts, borrow against stocks, and then hand it off to their kids when they die w/o tax. They probably own enough houses, and have control of their schedule that they can stay out of CA/NY for 183 nights/year and avoid high state income tax too (while mandating RTO to high tax city/states for the rest of us). Kind of a millionaires vs billionaires (or even decamillionaires) thing.
- yieldcrv 3y ago
  yeah I make similar as FAANG employees but in a mixture of businesses and capital gains, deducted by retirement contributions (doing your own employer match is a super power! 3x higher contribution limit), QBI, illiquid asset based donations to donor advised funds and deducting the expenses to generate income my tax is basically 0 every year, down from closer to 52% marginal in California (effective 40%) if I was doing the same with W-2 income there would be almost nothing I could do