oh gosh, something is definitely going to happen, this time, i'm sure!
We are publishing the tax secrets of the .001%
321–330 of 580 posts
Re: We are publishing the tax secrets of the .001%
#322One of the primary mechanisms for tax avoidance is taking out loans against appreciated capital assets to avoid realizing capital gains. What's stopping the average citizen from exploiting this tax avoidance strategy? For example, every time I try to submit an order to sell stock that results in short-term capital gains, my broker should be asking me whether I want to take out a collateralized loan instead. If there…
Your example of loans is tax deferral , not avoidance. As for your examples in general, those are really good. Collateralized loans on stock we usually call "margin loans" and are easy to get. Also, anyone in real estate will recognize the term "HELOC", where you can get a loan against the value of your home, presumably after its value has appreciated. I think both of those are fairly accessible, at least in the US.
For the mega-rich it's tax avoidance. That money gets rolled into the estate or trust with the cost-basis resetting on death.
Re: We are publishing the tax secrets of the .001%
#323Earlier quoted context omitted.
How does this effect social mobility? I agree the tax system is unfair towards those in the 1% but not 0.001%, but I don't see how it is so punitive that those earning 500k or owning appreciating assets are taxed back down to a lower social class. And no one reaches those upper echelons by saving their 500k/year or holding their house for a really long time.
The general idea is average people don't make 500k/yr. What they might do though is have a one time event that earns them 500k in a single year, like selling a small business or a house. In that one year where they finally did well the tax system comes in and hits them even harder with laws intended for someone who makes 500k every year.
Working-class people don’t own small businesses worth hundreds of thousands of dollars, if you’re in that position you’re already middle-class.
Re: We are publishing the tax secrets of the .001%
#324Earlier quoted context omitted.
> ... bank taking on the risk... Banks don't take on risk. Seriously. That's another conversation to have, but the simple answer is do you want the value of your checking account impacted by someone else's purchase of Gamestop, or Enron? And that's why banks don't take risk.
Banks loan money, and every loan includes some risk. If banks didn’t take on risk than the 2007/2008 bailouts wouldn’t have happened.
I should have clarified - banks don't take on market risk.
Re: We are publishing the tax secrets of the .001%
#325One of the primary mechanisms for tax avoidance is taking out loans against appreciated capital assets to avoid realizing capital gains. What's stopping the average citizen from exploiting this tax avoidance strategy? For example, every time I try to submit an order to sell stock that results in short-term capital gains, my broker should be asking me whether I want to take out a collateralized loan instead. If there…
My Etrade account has that option. But I don't use it because it's risky. If you take out a loan collateralized by a stock, the stock could drop and you'd owe a lot of money. Selling the stock locks in the gain. Now, if you only need say 1/2 the value as cash and can absorb the risk of the stock going down, then it makes sense. Or if you want to "buy insurance" by taking out an opposite short position, that would als…
Taking the short position on a stock you own is called selling short against the box. I don't know much about it, just had heard of it, but it sounds like it's been regulated in the US (to reduce its use for tax avoidance) since 1997.
Re: We are publishing the tax secrets of the .001%
#326Earlier quoted context omitted.
Got it, but why don't brokers more aggressively push this program onto clients? It seems like a win-win. The debtor avoids the elevated short-term capital gains tax. The bank gets interest payments on a loan that has an almost 0 default rate due to the loan being fully collateralized.
> It seems like a win-win. It's not a win-win, there's significant risk. > fully collateralized This is not true! The underlying asset fluctuates in value and is open to lowering significantly in value, leaving the bank holding the bag.
Depends on what you spend the money on. If you take the margin and spend it on an asset, then you have the underlying stock as well as the asset to cover calls. Still requires correct thinking but the risk is mostly based on what you do with the loan.
Re: We are publishing the tax secrets of the .001%
#327Earlier quoted context omitted.
The people who live in hot real estate areas for years made them the hot real estate areas. Real estate appreciation isn't free money. It's people who risked moving into an area and brought their culture with them. This is what creates the value. Just because middle class people benefit from the subsidy of low interest rates that create asset bubbles does not mean that the people who raised families in a neighbourhoo…
>brought their culture with them. Yikes. Do you really think places like SOMA, SLU, DTLA, etc. got better because rich people brought their 'culture' there? I'd recommend you visit said places and see for yourself, most of the 'culture' is in adjacent (usually historically minority) neighborhoods.
In those places there is a huge value difference between the adjacent neighborhoods and the rich neighborhoods. This is primarily due to a culture of stability and safety
Re: We are publishing the tax secrets of the .001%
#328So lots of people saying the ultra rich are hard to tax because they take out loans against assets to fund the day-to-day. This then results in an argument about the morality/viability/etc of a wealth tax. But... why can't we just tax the loans?
yes that's called interest which the fed is reluctant to raise to appease the same lot in the name of improving employment.
Your comment made me realize something.
The government is funded by taxes and bond sales. Bond purchases absorb high interest rate demand across the entire market. If there weren't any taxes, there would be higher interest rates. So taxes are what subsidizes low interest rates. We're the ones paying the interest on their loans.
Now it all makes sense. Mind is blown.
Re: We are publishing the tax secrets of the .001%
#329Every time someone tries to make a tax targeting the ultra rich, it ends up hurting the moderately wealthy instead. Every. Single. Time. The worse tax situation is always the person who makes 500k in a good year, or sells a house they held for 25 years which went up a bunch in value. I suspect this is a significant factor in social mobility. Our tax system is punitive to people who try to leave the working class.
A house someone held for 25 years, fundamentally, doesn't seem any different than stocks someone held for 25 years. I'm not sure why we're obsessed with the idea that non-homeowners should subsidize homeowner's housing.
If we really claim to live in a progressive society, shouldn't renters be getting the subsidy? I mean, sure, a small percentage of the population does have public housing. But that hardly compares to the amount of people saving $10k per year on taxes with the mortgage interest deduction on ~$1M homes in HCOL areas, and then another 15-20% on $250k ($37.5k-$50k) when they sell it.
This is more than the average household makes per year after taxes...
The long-term average for appreciation on housing is 2.75%. In the last 20 years, it's been well above that. But even still, the average home-owner with a $1M house is saving $20k+ in taxes per year.
I mean - I get it. The average person buying a million dollar home these days probably has a marginal tax rate of >40%, and houses are wicked expensive. It's nice to save some taxes. But is this really the group that should be getting the savings? And isn't it possible all this is just manipulating the housing market further?
I'm not sure about everyone else, but I'd rather my home be a place where I live than a meme-stock I speculate on.
Re: We are publishing the tax secrets of the .001%
#330In Finland, everyone's taxable income is a matter of public record. One theoretical benefit of such a policy is that it eliminates information asymmetries between workers and employers in wage bargaining.
> everyone's taxable income is a matter of public record That's an interesting approach. I have a couple questions out of curiosity. Does that include their "offshore" income? By that, I mean income earned outside of the country, not necessarily hidden. Also, what is income? If there is a billionaire investor and he loses $10 million, do you see that as well?
Can't answer for Finland, but in Norway:
>Does that include their "offshore" income?
Yes. It counts as taxable income even if you end up paying 0% tax on it (such as via foreign tax credit).
>Also, what is income?
Net realized income. You can't tell the difference between earning $1M, and earning $10M and losing $9M, and earning $10M on paper but only selling $1M.