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Or the illiquid asset tanks in value due to unpredictable future circumstances, and you now either lose the asset or bankrupt. There's no zero risk profit here

by chii 3y ago

Or the illiquid asset tanks in value due to unpredictable future circumstances, and you now either lose the asset or bankrupt. There's no zero risk profit here. Getting a loan using an asset as collateral is not some loophole to evade tax. The loan isn't used for consumption with zero residual value - otherwise how do the lender expect the borrower to service the interest? The loan is used to produce more profit via investment, increasing overall wealth, which means it's correct to not tax it the same way you would tax profit or capital gains. At the point of consumption is where the best place to tax occurs.

vlovich123 3y ago
Your business goes bankrupt but you’ve still used the bank provided cash flow for payroll & the like. For personal investments it can work out the same way because the interest rate on the loan can be negotiated to a much smaller level than what is available to normal people if you have a lot of money. So as long as you make a reasonable bet that your fairly liquid investments (stock in a public company is really liquid) can return more value than your loan repayment. There’s some risk but it’s not that insane and it’s manageable. > At the point of consumption is where the best place to tax occurs. Keep in mind that sales tax still exists but it’s a flat rate and is thus what’s called a regressive tax (vs a progressive income tax). So a rich person using a collatorized loan against their stock portfolio is going to pay less relative tax than a normal person receiving income who paid both income tax & the same sales tax amount. Yes there can sometimes be a luxury sales tax but all that means is that goods that normal people wouldn’t even be able to afford in the first place have a marginally higher tax rate.
- chii 3y ago
  > sales tax still exists i'm not referring to sales tax regarding point of consumption. I am referring to personal income taxes (capital gain or otherwise). As soon as the profits move from being re-used for investment to becoming personal wealth (intended for consumption), the taxation should occur.
  - vlovich123 3y ago
    Ah ok. That makes sense, there just doesn’t exist such a model and it might be hard to actually track. But even if reused for investment, it again is a tax break because now you’re paying only capital gains but the original investment never had any taxes applied to it as it would with normal income -> investment
yterdy 3y ago
[A wild Government Bailout appears!] (Maybe not of the firm that originally took the loan - but someone, eventually, because the alternative is economic collapse.)

by chii 3y ago

vlovich123 3y ago

Your business goes bankrupt but you’ve still used the bank provided cash flow for payroll & the like. For personal investments it can work out the same way because the interest rate on the loan can be negotiated to a much smaller level than what is available to normal people if you have a lot of money. So as long as you make a reasonable bet that your fairly liquid investments (stock in a public company is really liquid) can return more value than your loan repayment. There’s some risk but it’s not that insane and it’s manageable. > At the point of consumption is where the best place to tax occurs. Keep in mind that sales tax still exists but it’s a flat rate and is thus what’s called a regressive tax (vs a progressive income tax). So a rich person using a collatorized loan against their stock portfolio is going to pay less relative tax than a normal person receiving income who paid both income tax & the same sales tax amount. Yes there can sometimes be a luxury sales tax but all that means is that goods that normal people wouldn’t even be able to afford in the first place have a marginally higher tax rate.

chii 3y ago
> sales tax still exists i'm not referring to sales tax regarding point of consumption. I am referring to personal income taxes (capital gain or otherwise). As soon as the profits move from being re-used for investment to becoming personal wealth (intended for consumption), the taxation should occur.
- vlovich123 3y ago
  Ah ok. That makes sense, there just doesn’t exist such a model and it might be hard to actually track. But even if reused for investment, it again is a tax break because now you’re paying only capital gains but the original investment never had any taxes applied to it as it would with normal income -> investment

yterdy 3y ago

[A wild Government Bailout appears!] (Maybe not of the firm that originally took the loan - but someone, eventually, because the alternative is economic collapse.)