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Companies and Billionaires

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Re: Companies and Billionaires

#41

Post by Retric »

harryh wrote: post #25
dfischer wrote: post #17

Earlier quoted context omitted.

These individuals can easily call up banks and get a loan on their worth. "Hey, Morgan Stanley I need 2 mil deposited in my account" - "ok" This is also how they avoid income tax. ;) They can take in millions and it's just a loan. Then they pay it back off with stock or other asset deals.

You might be able to move around when you incur income tax a little bit that way, but you can't avoid it.

Deferring tax means you get interest on money that would have been taxed which acts as a tax break.

Ex: Supose you have 100$ your tax rate is 15% and you get 5% in interest. Pay 10% now you have (100$ - 15$) * 1.05 = 89.25 next year. Swap that order 100$ * 1.05 - 15$ = 90$ Next year or a ~7% tax break.

Push it off long enough (without interest or fees) and you pay arbitrarily close to 0% tax rate.

Re: Companies and Billionaires

#42

Post by harryh »

jedberg wrote: post #38
melling wrote: post #33

Earlier quoted context omitted.

I have $100 and i need $2 so i go through the trouble borrowing it? That's if you have a measly billion dollars. Now if you've got $10B, that's like financing 20 cents.

You're forgetting about taxes. If you sell something worth $100, you probably aren't going to pay $30 in tax on it (or probably anything at all). If you sell something worth 100 million you're going to pay 30 or 40 million in taxes. With the loan you won't pay any tax now, you might pay it later, or you might not ever pay it because you'll have that loan until you die and the bank will be the beneficiary of 100 milli…

Then you just die with more assets which will incur higher estate taxes. The estate tax rate is higher than the long term capital gains rate.

Estate taxes are paid before creditors.

Re: Companies and Billionaires

#43

Post by harryh »

Retric wrote: post #41
harryh wrote: post #25

Earlier quoted context omitted.

You might be able to move around when you incur income tax a little bit that way, but you can't avoid it.

Deferring tax means you get interest on money that would have been taxed which acts as a tax break. Ex: Supose you have 100$ your tax rate is 15% and you get 5% in interest. Pay 10% now you have (100$ - 15$) * 1.05 = 89.25 next year. Swap that order 100$ * 1.05 - 15$ = 90$ Next year or a ~7% tax break. Push it off long enough (without interest or fees) and you pay arbitrarily close to 0% tax rate.

Yes, borrowing can increase the leverage on an investment. It can magnify gains, but it can also magnify losses.

No, you cannot use leverage to reduce taxes to zero. You are confused if you think that. Go play with the numbers some more. Don't forget that you have to pay taxes on the investment gains you make with borrowed money (as you did in your example).

Re: Companies and Billionaires

#44

Post by networth »

jedberg wrote: post #38
melling wrote: post #33

Earlier quoted context omitted.

I have $100 and i need $2 so i go through the trouble borrowing it? That's if you have a measly billion dollars. Now if you've got $10B, that's like financing 20 cents.

You're forgetting about taxes. If you sell something worth $100, you probably aren't going to pay $30 in tax on it (or probably anything at all). If you sell something worth 100 million you're going to pay 30 or 40 million in taxes. With the loan you won't pay any tax now, you might pay it later, or you might not ever pay it because you'll have that loan until you die and the bank will be the beneficiary of 100 milli…

capital gains tax is lower, no?

Re: Companies and Billionaires

#45

Post by [deleted] »

dfischer wrote: post #17
kilroy123 wrote: post #14

Naïve question. The richest people in the world, who are billionaires from pretty much just stock. How do they convert that to real money to buy things? Do they just simply wait until the stock is at a high point, and sell a lot? Maybe move that money to other investments?

These individuals can easily call up banks and get a loan on their worth. "Hey, Morgan Stanley I need 2 mil deposited in my account" - "ok" This is also how they avoid income tax. ;) They can take in millions and it's just a loan. Then they pay it back off with stock or other asset deals.

[deleted]

Re: Companies and Billionaires

#46

Post by jedberg »

networth wrote: post #44
jedberg wrote: post #38

Earlier quoted context omitted.

You're forgetting about taxes. If you sell something worth $100, you probably aren't going to pay $30 in tax on it (or probably anything at all). If you sell something worth 100 million you're going to pay 30 or 40 million in taxes. With the loan you won't pay any tax now, you might pay it later, or you might not ever pay it because you'll have that loan until you die and the bank will be the beneficiary of 100 milli…

capital gains tax is lower, no?

Sure, but you still have to pay taxes, whereas if you get a loan you just pay interest (probably a very low rate) and defer the taxes.

Re: Companies and Billionaires

#47

Post by jedberg »

harryh wrote: post #42
jedberg wrote: post #38

Earlier quoted context omitted.

You're forgetting about taxes. If you sell something worth $100, you probably aren't going to pay $30 in tax on it (or probably anything at all). If you sell something worth 100 million you're going to pay 30 or 40 million in taxes. With the loan you won't pay any tax now, you might pay it later, or you might not ever pay it because you'll have that loan until you die and the bank will be the beneficiary of 100 milli…

Then you just die with more assets which will incur higher estate taxes. The estate tax rate is higher than the long term capital gains rate. Estate taxes are paid before creditors.

Yeah but you're dead so you don't care. :)

Re: Companies and Billionaires

#48

Post by md8 »

foundersgrid wrote: post #32

Nice work! Quick q: How did you set Google Docs to display like that where no one can edit the widths of the columns?

Share the read only sheet and append htmlview?sle=true# at the last

If you remove this part, you can see the read only version of the spreadsheet.

Re: Companies and Billionaires

#49

Post by kens »

I think most people don't realize just how much money the richest people have. People generally think of normal(ish) distributions like height, where if you're 10% taller or shorter than average, you're a tall or short person, and 40% taller makes you the tallest person in the world. In comparison, wealth has a very, very long tail, making it hard to visualize.

Here's what I've come up with to visualize wealth. Suppose you start counting, going up by 1 million dollars every second, and people sit down when you reach their net worth. Most people in the US will sit down immediately. After about 9 seconds, people in the "1%" will start sitting down. Mitt Romney would sit down after 4 minutes. Near the 17 minute mark, billionaires would start sitting down. Eric Schmidt would sit down around 2.8 hours. Finally, after nearly a day, Bill Gates would sit down.

The point of this is there's a huge range of billionaires (analogous to comparing 17 minutes to a day), and the 1% hardly even registers on this scale (like a few seconds).

Re: Companies and Billionaires

#50

Post by tamersalama »

davidf18 wrote: post #24

#2, who owns Zara among other clothing brands, never completed high school, but Zara has brilliant ideas. No connections, I think he started as a messenger for the firm that he was to head. He's sounds like someone Malcolm Gladwell would write about.

Amancio Ortega - https://en.wikipedia.org/wiki/Amancio_Ortega
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