6 ms·

Income tax doesn't really tax the very rich. They earn their money from assets and generally either don't pay taxes at all, or if they do pay taxes, it's based

by gpt5 3y ago

Income tax doesn't really tax the very rich. They earn their money from assets and generally either don't pay taxes at all, or if they do pay taxes, it's based on long term capital gain rate, which is lower. High property tax on the other hand, is helpful in two ways: 1. It directly tax the rich who hold more property. 2. It keeps housing prices lower.

wolverine876 3y ago
Good point, though there is another solution: Increase capital gains tax. Property tax is a wealth tax for one (very significant) kind of wealth.
- shortcake27 3y ago
  The problem with CGT is that it allows people to defer their tax obligations indefinitely while amassing wealth using untaxed “unrealised” gains. This can be a very effective tax-avoidance strategy.
  - Thorrez 3y ago
    What if we get rid of the step up doctrine? Then they can't avoid it indefinitely.
  - gameman144 3y ago
    This makes sense kind of, though. If you haven't realized any of your gains, what are you paying the tax with? This feels like if you're a normal person who happens to own a painting that becomes super desirable and worth millions. If you sell it then tax away, but otherwise it's literally just the same painting you've always had.
    - MagnumOpus 3y ago
      Yup, but an unrealised gain is still a gain. A million dollar in shares or paintings or classic cars can be borrowed against, and you don't need to pay taxes on borrowing. (And when you die, the capital gains base resets, which is the real travesty -- the heirs pay the loan with some of the capital at zero capital gains tax cost, and start borrowing again with the same strategy whenever they need to.)
      - gameman144 3y ago
        > Yup, but an unrealised gain is still a gain. How so though? If you're not selling or collateralizing something, you're not gaining any money from possessing it (unless you're counting the spreadsheet number going up as gains by itself). > And when you die, the capital gains base resets Yeah, this seems pretty ludicrous. I can understand why inheritance wouldn't cause a taxable event (e.g. you inherit the painting), but it seems pretty wild to allow that while also resetting the basis. I could be missing something, but I don't know of a super reasonable defense for this part (other than potentially disincentivizing inter-generational hoarding of assets? Honestly not sure)
        shortcake27 3y ago
        > you're not gaining any money from possessing it. You aren’t gaining money, but you’re gaining wealth. And the compounding effects are exaggerated if you don’t pay tax until you sell. For certain asset classes, especially liquid assets like shares/stocks this is dead simple. The value is easily and accurately determinable. If you don’t have the money to pay the tax, you sell assets to make the money. Property, especially residential, is basically on the same level. Ah, but what if investors don’t have the cash and are forced to sell their properties? God forbid these leeches stop treating housing as speculative assets and sell their portfolios onto owner-occupiers. For other assets, yeah, I don’t know. But I don’t have a single iota of sympathy for millionaires/billionaires who may struggle to pay tax because their wealth isn’t generated via personal income.
    - wolverine876 3y ago
      > This makes sense kind of, though. If you haven't realized any of your gains, what are you paying the tax with? True, but only in a philosophical sense. It's an issue of pricing, and pricing securities assets to original purchase value is a falsehood. People are very happy when their stock price increases dramatically, or their home value increases; they don't say 'well, those aren't my assets; all I have is the $100 price I bought it at X years ago.' People are happy when it's securities for which they only have future options to buy.
apsurd 3y ago
i'm mostly learning about this just recently, but i still downvoted you because i don't think that's true. property tax, for all intents and purposes, seems to just get passed down to the renters both commercial and residential. i used to knee jerk think that raising property taxes to the market rate was a great equalizer. in california that bill got killed, but actually i'm more informed now and i don't think it's that easy. rich people find a way, always.
- Thorrez 3y ago
  If you look at a property in the Bay Area, it seems mortgages are significantly more expensive than rent. So people can't be buying for the purpose of making money off renting it out, or for the purpose of saving money by not paying rent. People must be buying for the purpose of making money from the price going up in the future. Property tax prevents it from going up in the future too much, thus it will prevent prices from getting so high.
  - apsurd 3y ago
    appreciate the nuance. what about all cash offers though? i understand high interest rates change these equations, but influx of egregious capital from China for example, all-cash offers is a problem no? they break the equation if they need places to store capital. they aren't affected by interest rates and so sit on property and weather any storms.
    - Thorrez 3y ago
      If the tax rate is high, then property won't be a good investment. They'll be paying high tax on a small value property. The high tax will discourage people from buying property as an investment.
  - seanp2k2 3y ago
    >in the Bay Area, it seems mortgages are significantly more expensive than rent. It wasn’t that way when mortgages were 2-4% —- getting a mortgage is harder and requires a large down payment. It’s more of a commitment. Rent will always be more. >So people can't be buying for the purpose of making money off renting it out, or for the purpose of saving money by not paying rent. They can and they did. > People must be buying for the purpose of making money from the price going up in the future. It does that too, and for many boomers who bought in the 60s-80s, it went up about 10x for them. > Property tax prevents it from going up in the future too much, thus it will prevent prices from getting so high. Look up “California Prop 13”. People who buy basically get a freeze on tax rates at the price they paid for the house. If you bought in 1978, you’d pay the property tax based on the 1975 assessed value, and it can only go up 2% per year up to 1% of that assessed value MAX. That means if you bought a house back then for $100k, the max tax is $1k. Now your neighbor moved out and cashes in on their lottery ticket-like winnings, selling their home right next door for the $2m properties on that street are now worth. Guess how much the new owner pays in taxes? $20k. Even though the house paying $1k could sell tomorrow for the same $2m, they paid a ridiculously low property tax for decades, and the new owners of the exact same property will pay $20k each time property tax season rolls along. This garbage law is a big part of why owning in the Bay Area is so hard for folks trying to get their first home. Meanwhile, tons of owners rent their paid-off cheap tax home for ridiculous market rates. $5-7k/mo for a clapped out 60s POS is very typical. The folks who really played their cards right and have multiple properties for which there paying 1/10th or so of what their property tax SHOULD be then renting those all out while they live like kings are the real winners in this scenario, as are all the businesses that enjoy the same anti-competitive benefits. Ever wonder how all those crappy taquerias in San Jose stay open after all these decades while newer much better restaurants struggle and go under in a year? It’s this. Ever wonder how much tax Disney pays on all their property? It’s criminally low. Yet this issue is such a political third rail because all the boomer voters love love love their sweet sweet 90%+ tax discount, they’ll do anything to keep it. Another fun fact is this benefit can be passed down within the family, and with some clever lawyers, be passed between companies as well (IIRC the trick is to sell a property in 3 parts so no part exceeds 50% of tbe whole). Yay, loopholes. This is also a big part of why we have some schools that are surrounded by $2m+ houses and yet the school is way under-funded: those old neighborhoods don’t pay jack for property tax.
freediverx 3y ago
[dead]
jwestbury 3y ago
Capital gains can be considered income depending on how the tax is structured. States without income tax are nearly always states with more regressive tax structures as a whole[0]. States with income tax are typically less regressive. Property tax can target wealth, yes; but states without income tax nearly always rely on sales and excise taxes to bridge the gap, not on property taxes. 0. https://itep.org/whopays/#:~:text=Washington%20State%20is%20the%20most,most%20regressive%20state%20tax%20systems https://itep.org/whopays/#:~:text=Washington%20State%20is%20....
- wolverine876 3y ago
  Very informative; thanks. But who taxes unrealized capital gains?
seanp2k2 3y ago
Until they do stuff like CA Prop 13 so the folks who have been rich for a while continue to pay very little property taxes, while the burden rests with anyone trying to buy a home in the past 10-20 years.

by gpt5 3y ago

wolverine876 3y ago

Good point, though there is another solution: Increase capital gains tax. Property tax is a wealth tax for one (very significant) kind of wealth.

shortcake27 3y ago
The problem with CGT is that it allows people to defer their tax obligations indefinitely while amassing wealth using untaxed “unrealised” gains. This can be a very effective tax-avoidance strategy.
- Thorrez 3y ago
  What if we get rid of the step up doctrine? Then they can't avoid it indefinitely.
- gameman144 3y ago
  This makes sense kind of, though. If you haven't realized any of your gains, what are you paying the tax with? This feels like if you're a normal person who happens to own a painting that becomes super desirable and worth millions. If you sell it then tax away, but otherwise it's literally just the same painting you've always had.
  - MagnumOpus 3y ago
    Yup, but an unrealised gain is still a gain. A million dollar in shares or paintings or classic cars can be borrowed against, and you don't need to pay taxes on borrowing. (And when you die, the capital gains base resets, which is the real travesty -- the heirs pay the loan with some of the capital at zero capital gains tax cost, and start borrowing again with the same strategy whenever they need to.)
    - gameman144 3y ago
      > Yup, but an unrealised gain is still a gain. How so though? If you're not selling or collateralizing something, you're not gaining any money from possessing it (unless you're counting the spreadsheet number going up as gains by itself). > And when you die, the capital gains base resets Yeah, this seems pretty ludicrous. I can understand why inheritance wouldn't cause a taxable event (e.g. you inherit the painting), but it seems pretty wild to allow that while also resetting the basis. I could be missing something, but I don't know of a super reasonable defense for this part (other than potentially disincentivizing inter-generational hoarding of assets? Honestly not sure)
      - shortcake27 3y ago
        > you're not gaining any money from possessing it. You aren’t gaining money, but you’re gaining wealth. And the compounding effects are exaggerated if you don’t pay tax until you sell. For certain asset classes, especially liquid assets like shares/stocks this is dead simple. The value is easily and accurately determinable. If you don’t have the money to pay the tax, you sell assets to make the money. Property, especially residential, is basically on the same level. Ah, but what if investors don’t have the cash and are forced to sell their properties? God forbid these leeches stop treating housing as speculative assets and sell their portfolios onto owner-occupiers. For other assets, yeah, I don’t know. But I don’t have a single iota of sympathy for millionaires/billionaires who may struggle to pay tax because their wealth isn’t generated via personal income.
  - wolverine876 3y ago
    > This makes sense kind of, though. If you haven't realized any of your gains, what are you paying the tax with? True, but only in a philosophical sense. It's an issue of pricing, and pricing securities assets to original purchase value is a falsehood. People are very happy when their stock price increases dramatically, or their home value increases; they don't say 'well, those aren't my assets; all I have is the $100 price I bought it at X years ago.' People are happy when it's securities for which they only have future options to buy.

apsurd 3y ago

i'm mostly learning about this just recently, but i still downvoted you because i don't think that's true. property tax, for all intents and purposes, seems to just get passed down to the renters both commercial and residential. i used to knee jerk think that raising property taxes to the market rate was a great equalizer. in california that bill got killed, but actually i'm more informed now and i don't think it's that easy. rich people find a way, always.

Thorrez 3y ago
If you look at a property in the Bay Area, it seems mortgages are significantly more expensive than rent. So people can't be buying for the purpose of making money off renting it out, or for the purpose of saving money by not paying rent. People must be buying for the purpose of making money from the price going up in the future. Property tax prevents it from going up in the future too much, thus it will prevent prices from getting so high.
- apsurd 3y ago
  appreciate the nuance. what about all cash offers though? i understand high interest rates change these equations, but influx of egregious capital from China for example, all-cash offers is a problem no? they break the equation if they need places to store capital. they aren't affected by interest rates and so sit on property and weather any storms.
  - Thorrez 3y ago
    If the tax rate is high, then property won't be a good investment. They'll be paying high tax on a small value property. The high tax will discourage people from buying property as an investment.
- seanp2k2 3y ago
  >in the Bay Area, it seems mortgages are significantly more expensive than rent. It wasn’t that way when mortgages were 2-4% —- getting a mortgage is harder and requires a large down payment. It’s more of a commitment. Rent will always be more. >So people can't be buying for the purpose of making money off renting it out, or for the purpose of saving money by not paying rent. They can and they did. > People must be buying for the purpose of making money from the price going up in the future. It does that too, and for many boomers who bought in the 60s-80s, it went up about 10x for them. > Property tax prevents it from going up in the future too much, thus it will prevent prices from getting so high. Look up “California Prop 13”. People who buy basically get a freeze on tax rates at the price they paid for the house. If you bought in 1978, you’d pay the property tax based on the 1975 assessed value, and it can only go up 2% per year up to 1% of that assessed value MAX. That means if you bought a house back then for $100k, the max tax is $1k. Now your neighbor moved out and cashes in on their lottery ticket-like winnings, selling their home right next door for the $2m properties on that street are now worth. Guess how much the new owner pays in taxes? $20k. Even though the house paying $1k could sell tomorrow for the same $2m, they paid a ridiculously low property tax for decades, and the new owners of the exact same property will pay $20k each time property tax season rolls along. This garbage law is a big part of why owning in the Bay Area is so hard for folks trying to get their first home. Meanwhile, tons of owners rent their paid-off cheap tax home for ridiculous market rates. $5-7k/mo for a clapped out 60s POS is very typical. The folks who really played their cards right and have multiple properties for which there paying 1/10th or so of what their property tax SHOULD be then renting those all out while they live like kings are the real winners in this scenario, as are all the businesses that enjoy the same anti-competitive benefits. Ever wonder how all those crappy taquerias in San Jose stay open after all these decades while newer much better restaurants struggle and go under in a year? It’s this. Ever wonder how much tax Disney pays on all their property? It’s criminally low. Yet this issue is such a political third rail because all the boomer voters love love love their sweet sweet 90%+ tax discount, they’ll do anything to keep it. Another fun fact is this benefit can be passed down within the family, and with some clever lawyers, be passed between companies as well (IIRC the trick is to sell a property in 3 parts so no part exceeds 50% of tbe whole). Yay, loopholes. This is also a big part of why we have some schools that are surrounded by $2m+ houses and yet the school is way under-funded: those old neighborhoods don’t pay jack for property tax.

freediverx 3y ago

[dead]

jwestbury 3y ago

Capital gains can be considered income depending on how the tax is structured. States without income tax are nearly always states with more regressive tax structures as a whole[0]. States with income tax are typically less regressive. Property tax can target wealth, yes; but states without income tax nearly always rely on sales and excise taxes to bridge the gap, not on property taxes. 0. https://itep.org/whopays/#:~:text=Washington%20State%20is%20the%20most,most%20regressive%20state%20tax%20systems https://itep.org/whopays/#:~:text=Washington%20State%20is%20....

wolverine876 3y ago
Very informative; thanks. But who taxes unrealized capital gains?

seanp2k2 3y ago

Until they do stuff like CA Prop 13 so the folks who have been rich for a while continue to pay very little property taxes, while the burden rests with anyone trying to buy a home in the past 10-20 years.