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Supreme Court hears a case that experts say could wreak havoc on the tax code

57 points by georgecmu 3y ago

underseacables 3y ago
You should only be taxed on income that you actually receive. Matt Levine did an excellent write up of this, but it makes sense. If you don't actually receive the money to do anything with it you should not be taxed on it. https://www.bloomberg.com/opinion/articles/2023-12-04/whose-income-do-you-pay-taxes-on https://www.bloomberg.com/opinion/articles/2023-12-04/whose-...
- andreareina 3y ago
  https://archive.is/neSja https://archive.is/neSja
- treyfitty 3y ago
  If you read the NPR article, you’ll realize that the issue at hand isn’t about paying tax on income received, but rather, addressing the nuance to what should be defined as income. The Indian investor never sold his initial investment, but there were back door financial transactions that were all-but income, seemingly as a favor for being an east investor.
  - jvanderbot 3y ago
    Well there is one bit about a tax on a one-time transfer of wealth out of the country, and (correct me if I'm wrong here) the value of the transfer seemed to be the value of the stake in the company, not the value of the initial investment.
    - verdverm 3y ago
      From my reading, there is a bit more nuance here. 1. The "investor" was actively involved in the company for some time, so there is an argument that the profits of the company can pass through as personal income, like a LLC or S-corp. The short-term loans (60 days) at high interest rates (12%) that just sat in a bank is definitely sus. 2. The trump tax cuts had a provision to bring these profits home. Previously, if you received profits off-shore, and kept them off-shore, you would not be taxed until you reshored them. The main target here in was the bigger corps, who, according to NPR, have complied
  - blantonl 3y ago
    There's also "more to the story" where the plaintiff appears to have been on the board of the foreign company as well. This almost seems like a case where they are trying to take an extremely complex nuanced tax case, strip away all the "color", and try that component. This over being taxed on $15K, tells me there are some bigger players in this case vs some farmer who wanted to take this case to the supreme court over "principle"
  - underseacables 3y ago
    But if you had read the article, you would've seen that that was income not actually received.
- RockyMcNuts 3y ago
  does exercising options constitute receiving it? once you get into the complexities that apply to investors and rich people, income is a slippery concept. you have a hot dog stand and pay yourself 10k, is it salary, dividend, capital gain, return of capital? maybe you didn't even make money after depreciation, inflation. "Income, like sausages... are esteemed most by those who know least about what goes into them." - paraphrasing Alvin Toffler That's why most economists prefer VAT, simple tax based on the value of work when the work is monetized at any stage of production. (you still need to deal with progressivity, income from capital gains / interest / dividends / wealth creation, the cash flows that cause those to arise are subject to VAT if not the animal spirits but that's another matter)
  - deleted 3y ago
    [deleted]
- alistairSH 3y ago
  But this case has two points to counter your assertion... - They were receiving income (via interest payments for loans that weren't actually used). - They have a controlling interest in the company - your assertion means they can effectively defer income indefinitely? This was the situation Congress was trying to solve - otherwise we go right back to everybody keeping all their money offshore.
- barrkel 3y ago
  If you take a broad view that income is an increase in wealth before expenses, then things are hard to calculate. If you focus narrowly on cash transfers, then you get an unfair tax system, where some forms of wealth accumulation are taxed much more heavily than others. Progressive tax systems are the headline policy of standard social democrat[0] dogma. But if you happen to own something that increases in value, it isn't usually "visible" to a progressive tax system, so it subverts the intent, and it's just working stiffs who get taxed the most, and not people who are accumulating wealth the fastest. [0] not to be confused with democratic socialism
- justin66 3y ago
  If your attempt to persuade involves offering nothing but a statement of belief, you need to repeat it three times, not twice.
- LanceH 3y ago
  Taking a loan and using something as collateral should be considered a taxable event at that new valuation.
  - fallingknife 3y ago
    So when I take a home equity line of credit on my house, I should have to pay capital gains tax every time I draw money?
    - alistairSH 3y ago
      If we want consistency with international investments, yes. Related but different point, using homes as massive wealth stores probably isn't ideal for society. It invites all sorts of nasty NIMBYism.
      - fallingknife 3y ago
        I don't like the NIMBY stuff either, but how can a house not be a wealth store?
        vkou 3y ago
        > but how can a house not be a wealth store? The same way that a car is not a wealth store, but is, instead, a wealth pit. Different tax or zoning rules, 99-year-land-leases, etc, can very well turn housing as a whole from a speculative investment into what it ought to be - a depreciating, but necessary-for-life asset.
        fallingknife 3y ago
        Sorry I have absolutely no interest in a system where the government owns all the land and I just rent it.
        vkou 3y ago
        And I have no interest in a system where a small cabal of speculators are hoarding all the land, and are just collecting rent from me, while providing zero value-add. Land isn't widgets. Unlike industrialists, real-estate 'Investors'[1] aren't making any more of it. The world would go on just fine, better even, if we got rid of all of them. [1] Not to be confused with developers, who actually build useful things.
- pnutjam 3y ago
  So property taxes are an illegal way to fund schools?
  - exabrial 3y ago
    Property taxes are what drive (poor) people out of their homes, or prevent them from moving into nice neighborhoods.
    - Turing_Machine 3y ago
      Yes. The occasional high-profile case aside, if you look at the actual records of people who lose their homes based on unpaid property taxes, you're going to see a vastly disproportionate number of moderate- to low-income people. Sometimes people with very low incomes (e.g. the 81-year-old woman who lost her home of 40 years due to ~$500 in unpaid taxes). I myself have some first-hand experience in this area. A now-deceased relative owned some (quite modestly valued) property in another state. It came within a hairs-breadth of being sold for $12.00 in back taxes. Yep, twelve bucks. It seems she'd neglected to pay the $4.00/year in taxes while she was busy dying of cancer. Fortunately one of the neighbors took the time to search me out and let me know about this, so I was able to save it. It was a near thing, though.
    - pnutjam 3y ago
      Certainly, this is true; but it's not really relevant to this conversation. Taxes are necessary and this is pretty solid, settled law.
  - bombcar 3y ago
    All taxes are eventually income taxes because you need to pay them somehow. Removing the middleman makes it more clear. Even the history of property tax is more of an income tax because property was income generating- think back hundreds of years where taxes were things like “1/10the the produce of your fields”. Having taxes being directly against income means that when your income falters or is stopped, the expense reduces or is eliminated also.
- atticora 3y ago
  No paywall for the Levine article here: https://newsletterhunt.com/emails/43722 https://newsletterhunt.com/emails/43722
- colmmacc 3y ago
  How do you think very wealthy people who subsist on rollover loans, secured against their assets, should be taxed? For example, an on-paper billionaire whose wealth is stock ... gets a loan, secured against that stock (which they never sell). When the loan is due repayment, they roll it over with more debt and go again. Works fine when the loan is a small enough proportion of their wealth that rolling over is no issue. Should they simply never pay income tax? They've received money, but they haven't sold.
  - ndriscoll 3y ago
    That seems like it's mostly caused by QE policies/zero interest loans (which is already just giving money to rich people). No one's going to take out a loan at 5% interest to avoid 20% capital gains on 10% growth (i.e. a 2% tax). For your unicorn growth billionaire, like someone else suggested, you could require realization at the time you value the asset to put it up for collateral.
  - Aloha 3y ago
    I'd personally tax loans on securities and from a HELOC or similar as income. I don't think it's practical to tax unrealized gains nor do I think that taking stock options should incur a tax until they are sold or borrowed against.
    - robertlagrant 3y ago
      E.g. a mortgage should be taxed?
      - amf12 3y ago
        Well, mortgage might be special because you don't outright own the property until you pay off the mortgage. Now using a paid off property as a collateral to buy another property might be considered as realized gain according to OPs argument.
        Aloha 3y ago
- chriskanan 3y ago
  This. It's insane to have to pay huge taxes when exercising stock options as a startup employee when many times the company goes bust. One should only pay taxes on real money received. There are many horror stories.
- d_e_solomon 3y ago
  If taxes were done on a cash basis, I would then be able to defer taxes on investments for years until I liquidate the investment. Governments generally have an interest in receiving tax revenue much faster than that both to ensure that they actually receive the tax revenue as well as they want to fund operations ongoing.
  - rufus_foreman 3y ago
    >> If taxes were done on a cash basis, I would then be able to defer taxes on investments for years until I liquidate the investment You can defer taxes on investments for years until you liquidate the investment. Buy stock in a company or fund that does not pay dividends. You do not owe taxes until you sell the stock. The US government's interests are constrained by the US Constitution, which limits the type of taxes the government can impose.
    - d_e_solomon 3y ago
      There's nothing in the Constitution that says the government has to use a cash basis for levying taxes. Sixteenth Amendment: "The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration."
      - Turing_Machine 3y ago
        The point is that it's not "income" until you actually receive it. Money you've borrowed is not "income". It is a liability, whether or not you've used another asset as collateral. Property you own outright is not "income", either.
        HDThoreaun 3y ago
        Where does the amendment define income?
        3y ago
- noja 3y ago
  Then you should be able to derive a benefit from unearned income in the form of loans secured on it.
- emmp 3y ago
  That's not the conclusion at all I took from reading the Levine newsletter. His take seems to come down on the other side
- briffle 3y ago
  your kind of preaching to the choir in a forum full of people who have had to deal with the tax mess from Stock Options at statups..
- naikrovek 3y ago
  the unrealized gains can be used as backing for loans, though. and loans aren't income if the loan goes to a business but is backed by the owner/CEO's untaxable holdings because they haven't been converted into income. There's a hole, here. and it is being exploited.
- jmyeet 3y ago
  That's basically a recipe for rich people never payping tax again. They pretty much do this already. It's called "buy, borrow, die" [1]. Basically, you borrow money against assets and spend that instead of realizing a profit or gain and being taxed on it. You basically never pay off those loans. Also, this claim is factually untrue. We tax property based on unrealized gains all the time. There's absolutely no reason why we couldn't do this with other assets. [1]: https://smartasset.com/investing/buy-borrow-die-how-the-rich-avoid-taxes https://smartasset.com/investing/buy-borrow-die-how-the-rich...
- aaomidi 3y ago
  I disagree, I would actually much prefer taxation on wealth and not distribution of income. A healthy economy is one that there's a lot of money flowing from hand to hand. It's effectively how _value gets created_. The more people are spending, and the more money is being distributed, the better and more healthy the economy becomes. An unhealthy economy is one that there's wealth being gathered and concentrated. One where spending, and receiving money is penalized. You can imagine taxes a form of penalization on money. Furthermore, one of the most important use cases of the government under capitalism is protection of property. If you believe that's one of the most important jobs they're doing, then people with the most property (e.g. wealth), should be paying for that protection. So, no I fundamentally disagree with you, and it seems like Matt does too if you read that piece. Wealth should be the form of taxation. This also means unrealized gains in stocks. It also means housing. If we actually taxed wealth at the federal level, and got rid of income taxes, a lot of economic problems we're facing in the US would simply go away. Housing would literally not be able to get as expensive as it is right now because there would be an ongoing cost to maintain that price, driving the incentives to actively build more housing to reduce property values. If you also did this, you'd really help in leveling the playing field. Having a rich family would still put you ahead of others, but not by the egregious levels it does today.
baryphonic 3y ago
Is there another publication covering this case? NPR, whose funding comes directly from federal taxes, has an inherent conflict of interest in this case, and based on the slant of the article, they are doing little to mitigate it.
- jvanderbot 3y ago
  I don't see a slant other than quoting government officials on the impact of the tax laws they drafted, and their opinion on the impact of overturning those laws. Aside from interviewing the judges potentially involved (which happens almost never?) what could they have done?
  - kyrra 3y ago
    Quote people that are constitutional lawyer that points out issues with the law. Passing a law that violates the constitution seems like an avenue that should be followed. Also, every article has a bias to it. If the author on NPR led with how the tax was potentially illegal and frame it that the couple is being unjustly taxed, that would have a very different feel than this article. The NPR author could then bury quotes from the author of the law further down in the article. Order of delivery of facts and the title of the article clearly show the authors bias in a certain direction. Here is an argument in favor of th couple. https://www.wsj.com/articles/the-supreme-court-will-finally-decide-what-income-means-tax-investment-mandatory-repatriation-e647a03f https://www.wsj.com/articles/the-supreme-court-will-finally-...
- V__ 3y ago
  About 10% comes directly from federal funding. [1] https://en.wikipedia.org/wiki/NPR#Funding https://en.wikipedia.org/wiki/NPR#Funding
  - junofan 3y ago
    Ironically, the article talks about how 10% of something is a controlling interest and part of the reason the plaintiffs wound up in court.
chx 3y ago
[flagged]
- ralfd 3y ago
  If the Supreme Court decides for the complainants they would axe a republican tax law.
  - chx 3y ago
    This Supreme Court Case Could Make It Even Harder to Tax Rich People https://www.thenation.com/article/society/moore-v-united-states-tax-case/ https://www.thenation.com/article/society/moore-v-united-sta...
voisin 3y ago
I’d like the Supreme Court to take up the topic of whether US taxes should be levied on Americans no matter where they live (citizenship based) rather than like every other country in the world (other than Eritrea) - based on residency.
- d_e_solomon 3y ago
  I'm curious - why is this a matter for the supreme court and not the legislative branch who usually make the rules on taxation?
  - sydbarrett74 3y ago
    Because Congress has abrogated its duty on this matter.
    - thrill 3y ago
      The list of Congress' abrogations could fill volumes (they could call it the Federal Register).
    - dragonwriter 3y ago
      No, its made a choice clearly within its Constitutional power, you just don't like the choice. That's bot an abrogation of duty (there are lots of places you can make an argument for doing that, but this isn't one.)
      - voisin 3y ago
        Enforcement via FATCA was a last minute amendment to a 1,000 page bill. No one read it, and it was overly broad - meant to capture people in the US hiding cash offshore but instead captured people who live outside the US and legitimately have local bank accounts.
exabrial 3y ago
The federal gov is way too big, spends way too much money, and delivers very little for its enormous budget. I’m not saying we shouldn’t do some of the programs, I’m saying the federal government is the wrong/worst place to do it. I say smash that tax code.
- vkou 3y ago
  Sure, smash the tax code. After you give everyone a chance to vote on the replacement. It's only fair, no? Before you go out breaking windows, you damn well be sure that you have something to replace them with.
  - beej71 3y ago
    I don't know why you're downvoted. This is risky stuff and needs to be handled as such. This "might as well blow up the country" attitude that's become more prevalent in the last several years isn't a healthy one. "No point in steering now!" --Doug McKenzie realizing his brakes are out
- acdha 3y ago
  Almost half of the federal budget goes towards social security, Medicare, and healthcare. Unless you want old people to die in the streets again, “very little” might not be accurate. https://www.usaspending.gov/explorer/budget_function https://www.usaspending.gov/explorer/budget_function To the larger point, the tax code needs to be simplified but your real problem is with Congress – we haven’t had a balanced budget since the Clinton administration and that’s because of what they’ve authorized spending on and, in the case of Republicans, defunding the IRS so there’s a substantial deficit between the actual taxes collected and what’s due (especially at the top end where you need experts to show that some rich person is hiding income). Blowing up the tax code won’t solve any of those problems.
  - robertlagrant 3y ago
    > especially at the top end where you need experts to show that some rich person is hiding income Well - until you do that you don't know if there's a substantial deficit between what's collected and what's due.
pembrook 3y ago
> What's more, various other tax regimes that have been enacted to prevent tax dodges by the rich, and those too could be at risk, according to Callas. Good. The US has the most draconian and ridiculous laws for expats in the world. The 10 million Americans living abroad could use some relief. The minute you leave the country you're treated as a "rich tax dodger" (as this clearly naive author suggests) when this is not the case for 99.999% of expats. In the past 15 years its become impossible to open a bank account abroad, invest money abroad, or even conduct business activity from abroad due to these laws. The US is the only country in the world that taxes its citizens and green card holders for life after they leave (there's one other tiny country in Africa that tries but doesn't have the power). Its time to finally get with the rest of the world on this.
- TheNewsIsHere 3y ago
  Routine banking across borders over the long term has become nightmarish for expats in particular. I have a client who isn’t even an expat. She’s a digital nomad running a company from her computer. Her business is regulated and she holds all the necessary licenses. Her business is US based, with US based employees. But God help her when she’s traveling, which used to be most of the time. She’s had US banks close her business and personal accounts simply for continued cross-border use. Her business doesn’t really permit her to use foreign banks. But she has had a hell of a time finding a bank that’s OK with her traveling outside the US for months at a time.
- filoleg 3y ago
  > The US is the only country in the world that taxes its citizens and green card holders for life after they leave. Yes on citizens, but not true about green card holders.
  - jmyeet 3y ago
    It's a bit more complicated. All US citizens and lawful permanent residents ("LPRs" or green card holders) must file annual taxes with the IRS regardless of where you live. Residency can be abandoned relatively easily, at which point you're not under the obligation anymore... mostly. If you stay out of the country too long, the US may decide you've abandoned your residency whether you intended to or not. An absence of 2+ years is effectively abandonment in almost all cases. Citizens can renounce their citizenship through a formal process that costs thousands of dollars. As part of this, all their assets will be taxed at current market value so if you bought a house for $300k and it's now valued at $800k even though you still own it, you'll be taxed on a capital gain of $500k. I said "mostly" because if you've been an LPR for 8+ years, you are subjected to the same mark-to-market tax that people renouncing citizenship have to pay. That's why at a certain point you may as well naturalize because you have all the negatives of citizenship and none of the positives.
jmyeet 3y ago
What we're witnessing now is the culmination of the 50+ year Republican Project to hijack government and the judiciary to bring about: 1. Destruction of the administrative state. This is why we're seeing so many cases (and rulings) that limit the power of agencies and the rights of people. This is the deregulation component of neoliberalism. Make no mistake, the only reason for this is to transfer wealth to the already insanely rich; and 2. Cutting taxes and "entitlements". Again, this is just neoliberalism: to transfer wealth to the already insanely rich. But it also creates a debt-laden (and thus compliant) work force. After all, if you're living paycheck-to-paycheck, you're showing up to work and you're certainly not risking that job by unionizing. Once you realize this, you can see through the politics for what it is. For example, the Republican-led House recently proposed funding the Israel military and now, suddenly caring that we're spending too much, wants to fund it by cutting funding to the IRS [1]. This is ridiculous for two reasons. First, every $1 spent on the IRS produces >$1 of tax revenue [2]. Second, of the $33 trillion in debt the US government has accumulated in over 2 centuries, nearly a quarter of that came from the 4 years of the Trump presidency [3], mostly from tax cuts to the ultra-wealthy. Again, all of this is simply wealthy transfer to the ultra-wealthy. [1]: https://www.reuters.com/world/us/us-house-republicans-unveil-bill-fund-israel-by-cutting-irs-budget-2023-10-30/ https://www.reuters.com/world/us/us-house-republicans-unveil... [2]: https://www.usatoday.com/story/money/2023/11/09/irs-uses-funding-to-audit-wealthy/71486513007/ https://www.usatoday.com/story/money/2023/11/09/irs-uses-fun... [3]: https://wisconsinwatch.org/2023/07/did-the-us-debt-increase-by-7-8-trillion-during-donald-trumps-presidency/ https://wisconsinwatch.org/2023/07/did-the-us-debt-increase-...
- pkkm 3y ago
  This is the kind of "political mind reading", where you confidently attribute hidden evil motives to anyone who disagrees with you about what is a good policy, that has made Reddit unbearable to read and, I suspect, increased political polarization in general. And your entire comment history is just you doing this over and over again. Please don't ruin another website with this.
  - somewhereoutth 3y ago
    But they are not wrong though are they. Perhaps the 'evil motives' might be more subconscious or even class conscious than overtly articulated in the minds of the actors, but the goal is the same. What do you expect us to do? Sit and equivocate while the Republic is reduced to what will be effectively a slave state? I spend a few years in the US before returning to Europe. The first thing I noticed on my return, that I was viscerally aware of, right in my stomach, was that nobody was afraid. We are not asking for communism, just a clear eyed judgement on what has been going on since the end of the 70s.

57 points by georgecmu 3y ago

You should only be taxed on income that you actually receive. Matt Levine did an excellent write up of this, but it makes sense. If you don't actually receive the money to do anything with it you should not be taxed on it. https://www.bloomberg.com/opinion/articles/2023-12-04/whose-income-do-you-pay-taxes-on https://www.bloomberg.com/opinion/articles/2023-12-04/whose-...

andreareina 3y ago
https://archive.is/neSja https://archive.is/neSja
treyfitty 3y ago
If you read the NPR article, you’ll realize that the issue at hand isn’t about paying tax on income received, but rather, addressing the nuance to what should be defined as income. The Indian investor never sold his initial investment, but there were back door financial transactions that were all-but income, seemingly as a favor for being an east investor.
- jvanderbot 3y ago
  Well there is one bit about a tax on a one-time transfer of wealth out of the country, and (correct me if I'm wrong here) the value of the transfer seemed to be the value of the stake in the company, not the value of the initial investment.
  - verdverm 3y ago
    From my reading, there is a bit more nuance here. 1. The "investor" was actively involved in the company for some time, so there is an argument that the profits of the company can pass through as personal income, like a LLC or S-corp. The short-term loans (60 days) at high interest rates (12%) that just sat in a bank is definitely sus. 2. The trump tax cuts had a provision to bring these profits home. Previously, if you received profits off-shore, and kept them off-shore, you would not be taxed until you reshored them. The main target here in was the bigger corps, who, according to NPR, have complied
- blantonl 3y ago
  There's also "more to the story" where the plaintiff appears to have been on the board of the foreign company as well. This almost seems like a case where they are trying to take an extremely complex nuanced tax case, strip away all the "color", and try that component. This over being taxed on $15K, tells me there are some bigger players in this case vs some farmer who wanted to take this case to the supreme court over "principle"
- underseacables 3y ago
  But if you had read the article, you would've seen that that was income not actually received.
RockyMcNuts 3y ago
does exercising options constitute receiving it? once you get into the complexities that apply to investors and rich people, income is a slippery concept. you have a hot dog stand and pay yourself 10k, is it salary, dividend, capital gain, return of capital? maybe you didn't even make money after depreciation, inflation. "Income, like sausages... are esteemed most by those who know least about what goes into them." - paraphrasing Alvin Toffler That's why most economists prefer VAT, simple tax based on the value of work when the work is monetized at any stage of production. (you still need to deal with progressivity, income from capital gains / interest / dividends / wealth creation, the cash flows that cause those to arise are subject to VAT if not the animal spirits but that's another matter)
- deleted 3y ago
  [deleted]
alistairSH 3y ago
But this case has two points to counter your assertion... - They were receiving income (via interest payments for loans that weren't actually used). - They have a controlling interest in the company - your assertion means they can effectively defer income indefinitely? This was the situation Congress was trying to solve - otherwise we go right back to everybody keeping all their money offshore.
barrkel 3y ago
If you take a broad view that income is an increase in wealth before expenses, then things are hard to calculate. If you focus narrowly on cash transfers, then you get an unfair tax system, where some forms of wealth accumulation are taxed much more heavily than others. Progressive tax systems are the headline policy of standard social democrat[0] dogma. But if you happen to own something that increases in value, it isn't usually "visible" to a progressive tax system, so it subverts the intent, and it's just working stiffs who get taxed the most, and not people who are accumulating wealth the fastest. [0] not to be confused with democratic socialism
justin66 3y ago
If your attempt to persuade involves offering nothing but a statement of belief, you need to repeat it three times, not twice.
LanceH 3y ago
Taking a loan and using something as collateral should be considered a taxable event at that new valuation.
- fallingknife 3y ago
  So when I take a home equity line of credit on my house, I should have to pay capital gains tax every time I draw money?
  - alistairSH 3y ago
    If we want consistency with international investments, yes. Related but different point, using homes as massive wealth stores probably isn't ideal for society. It invites all sorts of nasty NIMBYism.
    - fallingknife 3y ago
      I don't like the NIMBY stuff either, but how can a house not be a wealth store?
      - vkou 3y ago
        > but how can a house not be a wealth store? The same way that a car is not a wealth store, but is, instead, a wealth pit. Different tax or zoning rules, 99-year-land-leases, etc, can very well turn housing as a whole from a speculative investment into what it ought to be - a depreciating, but necessary-for-life asset.
        fallingknife 3y ago
        Sorry I have absolutely no interest in a system where the government owns all the land and I just rent it.
        vkou 3y ago
        And I have no interest in a system where a small cabal of speculators are hoarding all the land, and are just collecting rent from me, while providing zero value-add. Land isn't widgets. Unlike industrialists, real-estate 'Investors'[1] aren't making any more of it. The world would go on just fine, better even, if we got rid of all of them. [1] Not to be confused with developers, who actually build useful things.
pnutjam 3y ago
So property taxes are an illegal way to fund schools?
- exabrial 3y ago
  Property taxes are what drive (poor) people out of their homes, or prevent them from moving into nice neighborhoods.
  - Turing_Machine 3y ago
    Yes. The occasional high-profile case aside, if you look at the actual records of people who lose their homes based on unpaid property taxes, you're going to see a vastly disproportionate number of moderate- to low-income people. Sometimes people with very low incomes (e.g. the 81-year-old woman who lost her home of 40 years due to ~$500 in unpaid taxes). I myself have some first-hand experience in this area. A now-deceased relative owned some (quite modestly valued) property in another state. It came within a hairs-breadth of being sold for $12.00 in back taxes. Yep, twelve bucks. It seems she'd neglected to pay the $4.00/year in taxes while she was busy dying of cancer. Fortunately one of the neighbors took the time to search me out and let me know about this, so I was able to save it. It was a near thing, though.
  - pnutjam 3y ago
    Certainly, this is true; but it's not really relevant to this conversation. Taxes are necessary and this is pretty solid, settled law.
- bombcar 3y ago
  All taxes are eventually income taxes because you need to pay them somehow. Removing the middleman makes it more clear. Even the history of property tax is more of an income tax because property was income generating- think back hundreds of years where taxes were things like “1/10the the produce of your fields”. Having taxes being directly against income means that when your income falters or is stopped, the expense reduces or is eliminated also.
atticora 3y ago
No paywall for the Levine article here: https://newsletterhunt.com/emails/43722 https://newsletterhunt.com/emails/43722
colmmacc 3y ago
How do you think very wealthy people who subsist on rollover loans, secured against their assets, should be taxed? For example, an on-paper billionaire whose wealth is stock ... gets a loan, secured against that stock (which they never sell). When the loan is due repayment, they roll it over with more debt and go again. Works fine when the loan is a small enough proportion of their wealth that rolling over is no issue. Should they simply never pay income tax? They've received money, but they haven't sold.
- ndriscoll 3y ago
  That seems like it's mostly caused by QE policies/zero interest loans (which is already just giving money to rich people). No one's going to take out a loan at 5% interest to avoid 20% capital gains on 10% growth (i.e. a 2% tax). For your unicorn growth billionaire, like someone else suggested, you could require realization at the time you value the asset to put it up for collateral.
- Aloha 3y ago
  I'd personally tax loans on securities and from a HELOC or similar as income. I don't think it's practical to tax unrealized gains nor do I think that taking stock options should incur a tax until they are sold or borrowed against.
  - robertlagrant 3y ago
    E.g. a mortgage should be taxed?
    - amf12 3y ago
      Well, mortgage might be special because you don't outright own the property until you pay off the mortgage. Now using a paid off property as a collateral to buy another property might be considered as realized gain according to OPs argument.
      - Aloha 3y ago
chriskanan 3y ago
This. It's insane to have to pay huge taxes when exercising stock options as a startup employee when many times the company goes bust. One should only pay taxes on real money received. There are many horror stories.
d_e_solomon 3y ago
If taxes were done on a cash basis, I would then be able to defer taxes on investments for years until I liquidate the investment. Governments generally have an interest in receiving tax revenue much faster than that both to ensure that they actually receive the tax revenue as well as they want to fund operations ongoing.
- rufus_foreman 3y ago
  >> If taxes were done on a cash basis, I would then be able to defer taxes on investments for years until I liquidate the investment You can defer taxes on investments for years until you liquidate the investment. Buy stock in a company or fund that does not pay dividends. You do not owe taxes until you sell the stock. The US government's interests are constrained by the US Constitution, which limits the type of taxes the government can impose.
  - d_e_solomon 3y ago
    There's nothing in the Constitution that says the government has to use a cash basis for levying taxes. Sixteenth Amendment: "The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration."
    - Turing_Machine 3y ago
      The point is that it's not "income" until you actually receive it. Money you've borrowed is not "income". It is a liability, whether or not you've used another asset as collateral. Property you own outright is not "income", either.
      - HDThoreaun 3y ago
        Where does the amendment define income?
        3y ago
noja 3y ago
Then you should be able to derive a benefit from unearned income in the form of loans secured on it.
emmp 3y ago
That's not the conclusion at all I took from reading the Levine newsletter. His take seems to come down on the other side
briffle 3y ago
your kind of preaching to the choir in a forum full of people who have had to deal with the tax mess from Stock Options at statups..
naikrovek 3y ago
the unrealized gains can be used as backing for loans, though. and loans aren't income if the loan goes to a business but is backed by the owner/CEO's untaxable holdings because they haven't been converted into income. There's a hole, here. and it is being exploited.
jmyeet 3y ago
That's basically a recipe for rich people never payping tax again. They pretty much do this already. It's called "buy, borrow, die" [1]. Basically, you borrow money against assets and spend that instead of realizing a profit or gain and being taxed on it. You basically never pay off those loans. Also, this claim is factually untrue. We tax property based on unrealized gains all the time. There's absolutely no reason why we couldn't do this with other assets. [1]: https://smartasset.com/investing/buy-borrow-die-how-the-rich-avoid-taxes https://smartasset.com/investing/buy-borrow-die-how-the-rich...
aaomidi 3y ago
I disagree, I would actually much prefer taxation on wealth and not distribution of income. A healthy economy is one that there's a lot of money flowing from hand to hand. It's effectively how _value gets created_. The more people are spending, and the more money is being distributed, the better and more healthy the economy becomes. An unhealthy economy is one that there's wealth being gathered and concentrated. One where spending, and receiving money is penalized. You can imagine taxes a form of penalization on money. Furthermore, one of the most important use cases of the government under capitalism is protection of property. If you believe that's one of the most important jobs they're doing, then people with the most property (e.g. wealth), should be paying for that protection. So, no I fundamentally disagree with you, and it seems like Matt does too if you read that piece. Wealth should be the form of taxation. This also means unrealized gains in stocks. It also means housing. If we actually taxed wealth at the federal level, and got rid of income taxes, a lot of economic problems we're facing in the US would simply go away. Housing would literally not be able to get as expensive as it is right now because there would be an ongoing cost to maintain that price, driving the incentives to actively build more housing to reduce property values. If you also did this, you'd really help in leveling the playing field. Having a rich family would still put you ahead of others, but not by the egregious levels it does today.

baryphonic 3y ago

Is there another publication covering this case? NPR, whose funding comes directly from federal taxes, has an inherent conflict of interest in this case, and based on the slant of the article, they are doing little to mitigate it.

jvanderbot 3y ago
I don't see a slant other than quoting government officials on the impact of the tax laws they drafted, and their opinion on the impact of overturning those laws. Aside from interviewing the judges potentially involved (which happens almost never?) what could they have done?
- kyrra 3y ago
  Quote people that are constitutional lawyer that points out issues with the law. Passing a law that violates the constitution seems like an avenue that should be followed. Also, every article has a bias to it. If the author on NPR led with how the tax was potentially illegal and frame it that the couple is being unjustly taxed, that would have a very different feel than this article. The NPR author could then bury quotes from the author of the law further down in the article. Order of delivery of facts and the title of the article clearly show the authors bias in a certain direction. Here is an argument in favor of th couple. https://www.wsj.com/articles/the-supreme-court-will-finally-decide-what-income-means-tax-investment-mandatory-repatriation-e647a03f https://www.wsj.com/articles/the-supreme-court-will-finally-...
V__ 3y ago
About 10% comes directly from federal funding. [1] https://en.wikipedia.org/wiki/NPR#Funding https://en.wikipedia.org/wiki/NPR#Funding
- junofan 3y ago
  Ironically, the article talks about how 10% of something is a controlling interest and part of the reason the plaintiffs wound up in court.

chx 3y ago

[flagged]

ralfd 3y ago
If the Supreme Court decides for the complainants they would axe a republican tax law.
- chx 3y ago
  This Supreme Court Case Could Make It Even Harder to Tax Rich People https://www.thenation.com/article/society/moore-v-united-states-tax-case/ https://www.thenation.com/article/society/moore-v-united-sta...

voisin 3y ago

I’d like the Supreme Court to take up the topic of whether US taxes should be levied on Americans no matter where they live (citizenship based) rather than like every other country in the world (other than Eritrea) - based on residency.

d_e_solomon 3y ago
I'm curious - why is this a matter for the supreme court and not the legislative branch who usually make the rules on taxation?
- sydbarrett74 3y ago
  Because Congress has abrogated its duty on this matter.
  - thrill 3y ago
    The list of Congress' abrogations could fill volumes (they could call it the Federal Register).
  - dragonwriter 3y ago
    No, its made a choice clearly within its Constitutional power, you just don't like the choice. That's bot an abrogation of duty (there are lots of places you can make an argument for doing that, but this isn't one.)
    - voisin 3y ago
      Enforcement via FATCA was a last minute amendment to a 1,000 page bill. No one read it, and it was overly broad - meant to capture people in the US hiding cash offshore but instead captured people who live outside the US and legitimately have local bank accounts.

exabrial 3y ago

The federal gov is way too big, spends way too much money, and delivers very little for its enormous budget. I’m not saying we shouldn’t do some of the programs, I’m saying the federal government is the wrong/worst place to do it. I say smash that tax code.

vkou 3y ago
Sure, smash the tax code. After you give everyone a chance to vote on the replacement. It's only fair, no? Before you go out breaking windows, you damn well be sure that you have something to replace them with.
- beej71 3y ago
  I don't know why you're downvoted. This is risky stuff and needs to be handled as such. This "might as well blow up the country" attitude that's become more prevalent in the last several years isn't a healthy one. "No point in steering now!" --Doug McKenzie realizing his brakes are out
acdha 3y ago
Almost half of the federal budget goes towards social security, Medicare, and healthcare. Unless you want old people to die in the streets again, “very little” might not be accurate. https://www.usaspending.gov/explorer/budget_function https://www.usaspending.gov/explorer/budget_function To the larger point, the tax code needs to be simplified but your real problem is with Congress – we haven’t had a balanced budget since the Clinton administration and that’s because of what they’ve authorized spending on and, in the case of Republicans, defunding the IRS so there’s a substantial deficit between the actual taxes collected and what’s due (especially at the top end where you need experts to show that some rich person is hiding income). Blowing up the tax code won’t solve any of those problems.
- robertlagrant 3y ago
  > especially at the top end where you need experts to show that some rich person is hiding income Well - until you do that you don't know if there's a substantial deficit between what's collected and what's due.

pembrook 3y ago

> What's more, various other tax regimes that have been enacted to prevent tax dodges by the rich, and those too could be at risk, according to Callas. Good. The US has the most draconian and ridiculous laws for expats in the world. The 10 million Americans living abroad could use some relief. The minute you leave the country you're treated as a "rich tax dodger" (as this clearly naive author suggests) when this is not the case for 99.999% of expats. In the past 15 years its become impossible to open a bank account abroad, invest money abroad, or even conduct business activity from abroad due to these laws. The US is the only country in the world that taxes its citizens and green card holders for life after they leave (there's one other tiny country in Africa that tries but doesn't have the power). Its time to finally get with the rest of the world on this.

TheNewsIsHere 3y ago
Routine banking across borders over the long term has become nightmarish for expats in particular. I have a client who isn’t even an expat. She’s a digital nomad running a company from her computer. Her business is regulated and she holds all the necessary licenses. Her business is US based, with US based employees. But God help her when she’s traveling, which used to be most of the time. She’s had US banks close her business and personal accounts simply for continued cross-border use. Her business doesn’t really permit her to use foreign banks. But she has had a hell of a time finding a bank that’s OK with her traveling outside the US for months at a time.
filoleg 3y ago
> The US is the only country in the world that taxes its citizens and green card holders for life after they leave. Yes on citizens, but not true about green card holders.
- jmyeet 3y ago
  It's a bit more complicated. All US citizens and lawful permanent residents ("LPRs" or green card holders) must file annual taxes with the IRS regardless of where you live. Residency can be abandoned relatively easily, at which point you're not under the obligation anymore... mostly. If you stay out of the country too long, the US may decide you've abandoned your residency whether you intended to or not. An absence of 2+ years is effectively abandonment in almost all cases. Citizens can renounce their citizenship through a formal process that costs thousands of dollars. As part of this, all their assets will be taxed at current market value so if you bought a house for $300k and it's now valued at $800k even though you still own it, you'll be taxed on a capital gain of $500k. I said "mostly" because if you've been an LPR for 8+ years, you are subjected to the same mark-to-market tax that people renouncing citizenship have to pay. That's why at a certain point you may as well naturalize because you have all the negatives of citizenship and none of the positives.

jmyeet 3y ago

What we're witnessing now is the culmination of the 50+ year Republican Project to hijack government and the judiciary to bring about: 1. Destruction of the administrative state. This is why we're seeing so many cases (and rulings) that limit the power of agencies and the rights of people. This is the deregulation component of neoliberalism. Make no mistake, the only reason for this is to transfer wealth to the already insanely rich; and 2. Cutting taxes and "entitlements". Again, this is just neoliberalism: to transfer wealth to the already insanely rich. But it also creates a debt-laden (and thus compliant) work force. After all, if you're living paycheck-to-paycheck, you're showing up to work and you're certainly not risking that job by unionizing. Once you realize this, you can see through the politics for what it is. For example, the Republican-led House recently proposed funding the Israel military and now, suddenly caring that we're spending too much, wants to fund it by cutting funding to the IRS [1]. This is ridiculous for two reasons. First, every $1 spent on the IRS produces >$1 of tax revenue [2]. Second, of the $33 trillion in debt the US government has accumulated in over 2 centuries, nearly a quarter of that came from the 4 years of the Trump presidency [3], mostly from tax cuts to the ultra-wealthy. Again, all of this is simply wealthy transfer to the ultra-wealthy. [1]: https://www.reuters.com/world/us/us-house-republicans-unveil-bill-fund-israel-by-cutting-irs-budget-2023-10-30/ https://www.reuters.com/world/us/us-house-republicans-unveil... [2]: https://www.usatoday.com/story/money/2023/11/09/irs-uses-funding-to-audit-wealthy/71486513007/ https://www.usatoday.com/story/money/2023/11/09/irs-uses-fun... [3]: https://wisconsinwatch.org/2023/07/did-the-us-debt-increase-by-7-8-trillion-during-donald-trumps-presidency/ https://wisconsinwatch.org/2023/07/did-the-us-debt-increase-...

pkkm 3y ago
This is the kind of "political mind reading", where you confidently attribute hidden evil motives to anyone who disagrees with you about what is a good policy, that has made Reddit unbearable to read and, I suspect, increased political polarization in general. And your entire comment history is just you doing this over and over again. Please don't ruin another website with this.
- somewhereoutth 3y ago
  But they are not wrong though are they. Perhaps the 'evil motives' might be more subconscious or even class conscious than overtly articulated in the minds of the actors, but the goal is the same. What do you expect us to do? Sit and equivocate while the Republic is reduced to what will be effectively a slave state? I spend a few years in the US before returning to Europe. The first thing I noticed on my return, that I was viscerally aware of, right in my stomach, was that nobody was afraid. We are not asking for communism, just a clear eyed judgement on what has been going on since the end of the 70s.