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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 t

• 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.