4 ms·

The annoying/sad/infuriating thing is the ultra wealthy don’t have “income.” Technically, according to IRS rules, much of what they experience (housing, food, e

The annoying/sad/infuriating thing is the ultra wealthy don’t have “income.” Technically, according to IRS rules, much of what they experience (housing, food, etc) should be classified as income. But their lawyers and accountants help them keep that looking quite low.

Schiendelman 3mo ago
I used to think this - but when I talked to a tax lawyer friend and we walked through the steps they take, usually they're just deferring taxation that does end up getting paid by an entity eventually.
- toomuchtodo 3mo ago
  If they donate the wealth to their own foundation to continue to hold close and control, it doesn't get taxed. If they borrow against the wealth at low interest rates until they die and the basis is stepped up ("buy, borrow, die"), it doesn't get taxed. Certainly, deferment is a component, but there are obvious examples of the very wealthy operating in a manner to avoid taxes entirely when they're able to (realizing the benefit of the wealth without having to realize a taxable event). Trust stacking is a recent fad as well, although I don't have enough data to say whether it is a material concern from a tax revenue perspective. Silicon Valley Is Obsessed with 'Trust Stacking,' and the IRS Doesn't Like It - https://news.ycombinator.com/item?id=48727963 https://news.ycombinator.com/item?id=48727963 - June 2026
  - Schiendelman 3mo ago
    The cases you're talking about are all delaying taxation, not eliminating it. Eventually someone has to draw that wealth - the foundation has to spend for public benefit to be eligible for 501(c)3 status, for instance.
    - toomuchtodo 3mo ago
      How Elon Musk's secretive foundation hands out his billions - https://www.theguardian.com/technology/2019/jan/23/how-elon-musks-secretive-foundation-benefits-his-own-family https://www.theguardian.com/technology/2019/jan/23/how-elon-... - January 23rd, 2019 "Spending for the public benefit" has a lot of latitude.
      - saghm 3mo ago
        I also don't think they addressed how borrowing against the wealth doesn't require any immediate taxes (and is often low interest, given how being a billionare means you get more favorable terms). There's nothing stopping someone in that position from just deferring taxes on the money they currently have, borrowing against it, and then investing that to turn into more money with taxes deferred even further so that they can use the proceeds to pay the previous deferred taxes and keep the difference.
        Schiendelman 3mo ago
        That requires their investments to keep going up in value. That doesn't last forever, the assets that people borrow against eventually need to be sold to pay back that loan. When they sell to make payments, those are taxable events.
        jagged-chisel 3mo ago
        How does it work if the loan defaults and those assets were used as collateral?
        Schiendelman 3mo ago
        I'm not a tax lawyer, but I think if you default on a loan, the collateral changes hands, which is a taxable event for you as if you sold the asset, at whatever value the unpaid portion of the loan was. So you pay tax.
        saghm 3mo ago
        If investments didn't grow at a faster rate than interest, why would anyone ever invest money at all instead of putting into a savings account? I don't know why it''s hard to imagine that a large loan with a relatively low interest rate might be able to be invested for more than enough profits to pay off the taxes and the loan with some to spare
- ck_one 3mo ago
  Capital gains tax is clearly lower than income tax. So why did you change your mind?
  - nickff 3mo ago
    Not the commenter you replied to, but one thing to note is that capital gains tax (at least in the context of investments in corporate equities) is applied after corporate taxes. Profits and reinvested earnings are taxed as profits, and they're two of the key components to valuing an equity. As such, when comparing income tax and capital gains, you should add the impact of corporate taxes. Incidentally, corporate taxes are why many small business owners pay themselves wage income, rather than doing stock buybacks or dividends.
    - saghm 3mo ago
      If the income was earned through dividends, maybe this would be a reasonable argument. Most of the time stock just gets bought and sold by investors rather than the company itself though, so it's not clear why corporate tax would have anything to do with this. Sure, the stock price should somehow be tied to the actual value of the company, but for a while now it's been mostly indistinguishable from a Ponzi scheme other than a few companies that do sometimes decide to buy back some stock, which makes it slightly less sketchy but if the value is from the company buying it back, it's a lot closer to debt or a bond, which is not at all how anyone treats it.
      - nickff 3mo ago
        I agree that in a bull market, many corporations are not purchased and sold at book value. That said, we are on the largest bull-run in history, so we shouldn’t treat this as the norm, and base all our long-term decisions on the current situation.
        saghm 3mo ago
        So if I'm understanding correctly, your argument is that it doesn't make sense to make people who make more money pay the same rate of taxes as regular people do because we should ignore the fact that they've been doing it for longer than ever before?
- Psillisp 3mo ago
  Was your ‘friend’ Jeffery Epstein?
lotsofpulp 3mo ago
Capital gains not being considered earned income is simply sensible use of terminology to categorize different ways of amassing purchasing power. For example, in order to carry out the linked analysis. It has nothing to do with the IRS or taxes.
- scottyah 3mo ago
  Income goes straight to a person, capital gains is a little return from other people generating income. Basically a MLM lol.
smt88 3mo ago
This report is only about wages, so even if the ultra-wealthy reported their real sources of income, they wouldn’t shut up as “labor” the way this defines it.
micromacrofoot 3mo ago
even with this scam the top 1% of earners still have more annual income than ~75% of the population

Schiendelman 3mo ago

I used to think this - but when I talked to a tax lawyer friend and we walked through the steps they take, usually they're just deferring taxation that does end up getting paid by an entity eventually.

toomuchtodo 3mo ago
If they donate the wealth to their own foundation to continue to hold close and control, it doesn't get taxed. If they borrow against the wealth at low interest rates until they die and the basis is stepped up ("buy, borrow, die"), it doesn't get taxed. Certainly, deferment is a component, but there are obvious examples of the very wealthy operating in a manner to avoid taxes entirely when they're able to (realizing the benefit of the wealth without having to realize a taxable event). Trust stacking is a recent fad as well, although I don't have enough data to say whether it is a material concern from a tax revenue perspective. Silicon Valley Is Obsessed with 'Trust Stacking,' and the IRS Doesn't Like It - https://news.ycombinator.com/item?id=48727963 https://news.ycombinator.com/item?id=48727963 - June 2026
- Schiendelman 3mo ago
  The cases you're talking about are all delaying taxation, not eliminating it. Eventually someone has to draw that wealth - the foundation has to spend for public benefit to be eligible for 501(c)3 status, for instance.
  - toomuchtodo 3mo ago
    How Elon Musk's secretive foundation hands out his billions - https://www.theguardian.com/technology/2019/jan/23/how-elon-musks-secretive-foundation-benefits-his-own-family https://www.theguardian.com/technology/2019/jan/23/how-elon-... - January 23rd, 2019 "Spending for the public benefit" has a lot of latitude.
    - saghm 3mo ago
      I also don't think they addressed how borrowing against the wealth doesn't require any immediate taxes (and is often low interest, given how being a billionare means you get more favorable terms). There's nothing stopping someone in that position from just deferring taxes on the money they currently have, borrowing against it, and then investing that to turn into more money with taxes deferred even further so that they can use the proceeds to pay the previous deferred taxes and keep the difference.
      - Schiendelman 3mo ago
        That requires their investments to keep going up in value. That doesn't last forever, the assets that people borrow against eventually need to be sold to pay back that loan. When they sell to make payments, those are taxable events.
        jagged-chisel 3mo ago
        How does it work if the loan defaults and those assets were used as collateral?
        Schiendelman 3mo ago
        I'm not a tax lawyer, but I think if you default on a loan, the collateral changes hands, which is a taxable event for you as if you sold the asset, at whatever value the unpaid portion of the loan was. So you pay tax.
        saghm 3mo ago
        If investments didn't grow at a faster rate than interest, why would anyone ever invest money at all instead of putting into a savings account? I don't know why it''s hard to imagine that a large loan with a relatively low interest rate might be able to be invested for more than enough profits to pay off the taxes and the loan with some to spare
ck_one 3mo ago
Capital gains tax is clearly lower than income tax. So why did you change your mind?
- nickff 3mo ago
  Not the commenter you replied to, but one thing to note is that capital gains tax (at least in the context of investments in corporate equities) is applied after corporate taxes. Profits and reinvested earnings are taxed as profits, and they're two of the key components to valuing an equity. As such, when comparing income tax and capital gains, you should add the impact of corporate taxes. Incidentally, corporate taxes are why many small business owners pay themselves wage income, rather than doing stock buybacks or dividends.
  - saghm 3mo ago
    If the income was earned through dividends, maybe this would be a reasonable argument. Most of the time stock just gets bought and sold by investors rather than the company itself though, so it's not clear why corporate tax would have anything to do with this. Sure, the stock price should somehow be tied to the actual value of the company, but for a while now it's been mostly indistinguishable from a Ponzi scheme other than a few companies that do sometimes decide to buy back some stock, which makes it slightly less sketchy but if the value is from the company buying it back, it's a lot closer to debt or a bond, which is not at all how anyone treats it.
    - nickff 3mo ago
      I agree that in a bull market, many corporations are not purchased and sold at book value. That said, we are on the largest bull-run in history, so we shouldn’t treat this as the norm, and base all our long-term decisions on the current situation.
      - saghm 3mo ago
        So if I'm understanding correctly, your argument is that it doesn't make sense to make people who make more money pay the same rate of taxes as regular people do because we should ignore the fact that they've been doing it for longer than ever before?
Psillisp 3mo ago
Was your ‘friend’ Jeffery Epstein?

lotsofpulp 3mo ago

Capital gains not being considered earned income is simply sensible use of terminology to categorize different ways of amassing purchasing power. For example, in order to carry out the linked analysis. It has nothing to do with the IRS or taxes.

scottyah 3mo ago
Income goes straight to a person, capital gains is a little return from other people generating income. Basically a MLM lol.

smt88 3mo ago

This report is only about wages, so even if the ultra-wealthy reported their real sources of income, they wouldn’t shut up as “labor” the way this defines it.

micromacrofoot 3mo ago

even with this scam the top 1% of earners still have more annual income than ~75% of the population