zlacker

I mean, you have to pay the loans back. Which requires income which is taxed. This would only work if you either don't spend any money (which then what is the point of the loan) or if your assets are always going up and increasing in value beyond that of the loan which inevitably will not be the case.

>>nights+(OP)
> Which requires income which is taxed

And there lies the loophole. These loans are often structured as some kind of business expense that can be paid from pre-tax income.

So, ultra rich people get to double dip here. No taxes on selling stocks for money, as there's a loan, plus no taxes on the income for paying it off.

>>nights+(OP)
The actual loophole is the step-up basis for inheritance. This allows you to never realize gains, living off loans against them. Then, when you die, your heirs inherit the appeciated assets, and the liabilities. But, their cost basis for the assets is stepped up to the then-current fair value. So, they can sell off assets to pay the loans off, but have no realized gains.

>>fooker+Ra
That's not a loophole, it is illegal. You can't deduct personal expenses from a business. I realize the rich do it, but if that is the problem let's go after that.

Also if you sell stocks you always pay tax on the capital gains regardless if there is a loan or not.

>>pkaedi+wb
But charging taxes on the loan won't really reflect that well. Also, there are limits on inheritance before estate tax kicks in, so folks with 100's of million in assets passed on to their heirs are still paying estate tax, it won't be tax free at that level.

(Edited to correct "inheritance tax" to the technically correct term, "estate tax")

>>pkaedi+wb
However, there is the estate tax.

If you're a billionaire who does the "take out loans against your unrealized cap gains" trick, then you, you know... can't sell your stock. So then your stock passes to your kids -- who, due to the stepped up basis, yes, do not have to pay cap gains on that stock.

But there's a 40% estate tax.

Estate tax generally isn't very relevant even to the ordinarily-rich, because it has an extremely high deduction (about $27M for a married couple), but for a billionaire it's absolutely relevant.

Now, sure, if you paid both the cap gains and the estate tax you'd pay that much more taxes, but if you compare a normally-wealthy person (pays 15-20% cap gains and 0% estate tax) and a billionaire (pays 0% cap gains and 40% estate tax), it's obvious that the billionaire, eventually, pays a much higher tax rate.

>>pkaedi+wb
Well, you still have to pay the estate tax, but you are probably arguing that is independent as it would need to be paid regardless of the step-up in basis.

Yeah, the real loophole is step-up in basis with no corresponding tax event. What should really happen is that every step-up in basis should correspond to a tax event or, somewhat more speculatively, only net changes in basis should result in tax events. Incidentally, this would also give everybody access to reduced taxes due to unrealized losses (tax loss harvesting) instead of just people with accountants.

>>nights+Be
>You can't deduct personal expenses from a business. I realize the rich do it, but if that is the problem let's go after that.

We have gone 'after it' again and again, making the system more and more complex. So much that you can now out-lawyer the IRS if you have enough money. There is no 'personal' expense, everything is somehow a business need. There is no simple solution to this really. Whatever you do to hurt ten billionaires, the ten million small business owners will face the brunt of it.

>Also if you sell stocks you always pay tax on the capital gains regardless if there is a loan or not.

That is the point, you don't sell stocks that makes you a billionaire. Instead, you find more and more creative ways to leverage that stock for loans, for deals, for power/control, etc etc. Also see cross collaterals where the same asset is used for multiple purposes at the same time!

>>aether+Eg
Right. In my opinion, the 'fair' and 'simple' thing to do would be to eliminate the estate tax, and the step-up basis. Then there would be no loop hole to borrow against unrealized gains (and no real point to do so), while still allowing wealth to be enjoyed by the family that generated it, requiring them to pay taxes in the same way everyone else does (simplifying the tax code).

>>fooker+nK
So if you argue that we already can't enforce existing tax laws then why is proposing new, extremely expensive and difficult to enforce tax laws the solution?

>>nights+711
It's not.

Taxing unrealized capital gains is just going to give these people more loopholes to play with.

But "tax the rich" seems to be the zeitgeist for whatever reason.