Inside the Tax Records of the .001%
June 8, 2021 5:08 AM   Subscribe

 
This. This right here: “The consequences of allowing the most prosperous to game the tax system have been profound. Federal budgets, apart from military spending, have been constrained for decades. Roads and bridges have crumbled, social services have withered and the solvency of Social Security and Medicare is perpetually in question.”
posted by heyitsgogi at 5:48 AM on June 8 [86 favorites]


Sometimes reporting on tax planning by companies and the super-rich is shocking and illuminating. (Double Irish with a Dutch sandwich, anyone?) Then there’s this.

Yes, the numbers are grotesque. But the actual devices this article reports on are all literally tax 101: you learn this in your first month of Fed Tax in law school. Unrealized income is not taxed, so the rich, who have investments, hold them to defer paying tax on their gains.

I’m grateful for the pictures, numbers, and explanations, all of which will help with public understanding. But this is not exactly groundbreaking reporting on exotic tax planning. The scandal is in fundamental features of the US tax system, not in some new and brazen abuse of them.
posted by grimmelm at 5:57 AM on June 8 [70 favorites]


This is how the system was designed. This is it working as intended.
posted by dazed_one at 6:02 AM on June 8 [22 favorites]


Did Jeff Bezos also use this "unrealized income" to buy his megayacht?
posted by Faint of Butt at 6:05 AM on June 8 [2 favorites]


the article only tangentially hits the right point - which is the .001% fund their consumption through transactions that create obligations which are economically "sort of" sales (because its impossible for Elon Musk to generate 10bn in cash w/o selling stock) but from a tax code perspective are not treated as such, and then rely upon a bunch of rules around asset inheritance, interest deductibility, illiquidity& charitable donations to minimize the taxes due when you actually do sell the assets to satisfy those obligations at death.

Because I think the argument you shouldn't be required to sell an asset to pay taxes on unrealized gains is actually a pretty sound one. But the quid pro quo for that is that you can't fund consumption from that unrealized gain.
posted by JPD at 6:05 AM on June 8 [45 favorites]


Did Jeff Bezos also use this "unrealized income" to buy his megayacht?

Business expense. Mobile boardroom.
posted by Thorzdad at 6:06 AM on June 8 [10 favorites]


Did Jeff Bezos also use this "unrealized income" to buy his megayacht?

He funded a trust with some multiple of the value of the yacht in AMZN stock, then went to an investment bank an borrow the cash against that to buy the yacht.
posted by JPD at 6:09 AM on June 8 [25 favorites]


Its not necessarily a trust, but its some kind of corporate structure - whichever his tax people think is most advantageous.
posted by JPD at 6:16 AM on June 8 [6 favorites]


Two things have always stood out to me about how the wealthy hide their money. The borrowing of money against unrealized collateral strikes me as absurd. If it’s real enough to use as collateral, it’s real enough to tax. The second is that, while I fully support reduction of tax burden through charity, allowing people to donate huge sums to charities that they themselves create and manage is an obvious shell.
posted by Revvy at 6:17 AM on June 8 [62 favorites]


I worked for a non profit soliciting large donations. One tool they used was an “income replacement” life insurance policy. You, Super Rich Person, make a $1million donation. That money is put into a trust, and the Foundation uses income from that trust to pay for a $1million life insurance policy on the donor, whose proceeds go to donors’ heirs. Completely legal— the donor gets the tax benefit without affecting family wealth. Should be illegal.
posted by Silvery Fish at 6:31 AM on June 8 [39 favorites]


while I fully support reduction of tax burden through charity

4 years in the non-profit sector convinced me that it’s usually a dodge on some level.
posted by aspersioncast at 6:31 AM on June 8 [32 favorites]


from a fairly recent Guardian long read:

One thing I myself learned, for instance, was that before Bezos finally settled on Amazon as the name of his online store, he wanted to call it “Relentless”. Although friends eventually convinced him that he was erring on the side of the sinister, he did register the domain. Even now, if you type relentless.com into a browser, it will take you to Amazon.

[...]

Relentlessness, in other words, transcends the category of mere corporate value, to become a kind of moral imperative. And if relentlessness is a good in itself, what might the evil of relenting look like? It might take the form of stasis, which, as we will see, is the great future nightmare that Bezos wants humanity to avoid at all costs. Amazon has never paid its shareholders a dividend. For most of its history, it never turned a profit, its practice being to plough everything into growth. The company is, in this sense, a rarified example of capitalism in its ideal form: not merely premised on the notion of endless growth, but apparently achieving it.

posted by philip-random at 6:32 AM on June 8 [4 favorites]


Do they have income?

Now capital gains is an issue, can they get around paying when they liquidate capital? Big reform there but so tricky.

Not just international but what will the laws need to look like when all the transactions occur off planet? An Ethereum node is now on the ISS! How will any governmental body tax funds that are never on the planet let alone in a given city/state/nation?
posted by sammyo at 6:35 AM on June 8 [2 favorites]


I’ve seen people saying ‘nothing new here’ in a few places now - So, first year students in tax class in law school ‘know this’. If so the vast majority of them sound pretty severely quiet about it (considering the speed with which this concentration of wealth is currently progressing and is currently leaving an increasingly hollow shell of infrastructure, an indebted society and little hope for the building of wealth across our society [broad wealth being a source of healthier national strength and development]). This seems to examine specifics, this is not nothing.
Experts have long understood the broad outlines of how little the wealthy are taxed in the United States, and many lay people have long suspected the same thing.

But few specifics about individuals ever emerge in public. Tax information is among the most zealously guarded secrets in the federal government. ProPublica has decided to reveal individual tax information of some of the wealthiest Americans because it is only by seeing specifics that the public can understand the realities of the country’s tax system.
The tax data was provided to ProPublica after we published a series of articles scrutinizing the IRS. The articles exposed how years of budget cuts have hobbled the agency’s ability to enforce the law and how the largest corporations and the rich have benefited from the IRS’ weakness. They also showed how people in poor regions are now more likely to be audited than those in affluent areas.
posted by infinite intimation at 6:35 AM on June 8 [41 favorites]


The scandal is in fundamental features of the US tax system, not in some new and brazen abuse of them.

This is how the system was designed. This is it working as intended.

OK, OK, OK, stop! You've convinced me! We need to fundamentally overhaul the American tax code.
posted by Panjandrum at 6:35 AM on June 8 [22 favorites]


allowing people to donate huge sums to charities that they themselves create and manage is an obvious shell.

It's not just an obvious shell it's also a privatization of resources. Tax money is (presumably) spent by a duly elected government on priorities that represent the public at large and is (presumably) accountable to voters. A self-dealt charity spends money on whatever some dude or his surrogates thinks is important.
posted by RonButNotStupid at 6:37 AM on June 8 [27 favorites]




Thank you for posting, infinite intimation. I found the billionaires' replies (or the lack thereof) to be very interesting and almost painfully on-brand: Bezos' silence, Musk's weird question mark, Bloomberg's haughty pomposity (expressed through a third person statement, no less), Buffett's avuncular, conversational tone (all it was missing to be like his annual letters to shareholders was a shill for GEICO and Nebraska Furniture Mart), and Icahn's unfettered competitiveness and greed. I appreciate the bravery of whoever shared this information and hope we can move to a world where the ultrawealthy are forced to disclose tax returns and wealth information as a matter of course. (Fine, it's a pipe dream, but it's a nice one.)

With respect to your first comment, JPD, I'd be interested to learn what MeFites think might work to close some of the loopholes. Maybe some mix of a wealth tax (I was partial to Elizabeth Warren's proposal), an estate tax with only a few million dollars able to be sheltered, a phaseout of charitable income tax deductions above a certain AGI (or wealth?) threshold, no step-up in cost basis at death, treating certain loans against assets as taxable income, etc.? Who are the writers in this space who explain these options succinctly and clearly? A lot of this reminds me of what David Cay Johnston was writing about in Perfectly Legal nearly 20 years ago.
posted by cheapskatebay at 6:44 AM on June 8 [7 favorites]


I am under the impression that the tax code around self administered charities has gotten a lot tighter. Like there are some old money families that still benefit from them, but legally its hard to create new ones.

Most of the inequity around the charitable donation stuff comes from donating appreciated assets which get deducted at market value not cost from AGI, and the sale of those appreciated assets never get taxed as capital gains because the charitable seller is non-taxable. So effectively those cap gains are lost revenue to the government.

You can take this a step further by using the rules around certain business entities to use income distributions to reduce the cost basis on assets so you reduce the current taxable income (basically pay cap gains rates rather than ordinary income), and then when you donate some of the underlying units in the future you never have to pay for the step up in basis.
posted by JPD at 6:48 AM on June 8 [3 favorites]


The one thing I can never wrap my head around in schemes like this is... So I've amassed some amount of (unrealized) wealth, and to fund the lifestyle to which I am now deserving, I take out a big loan using my company/stock/whatever as collateral. I still have to pay that loan back somehow... how does that work? I guess it's just revolving loans that get bigger as the value of my stuff goes up?

I guess mechanisms like this really don't scale down at all, because I certainly can't take out revolving lines of credit against our home to pay for even a subsistence lifestyle.
posted by backseatpilot at 6:53 AM on June 8 [14 favorites]


The evidence is that wealth taxes don't work very well and that's why they've mostly been abandoned. Evasion becomes too high an RoI activity and the private sector will always pay more for smart tax counsel.

Cleaning up illiquidity gaming, Estate Taxes, tightening up rules around charitable donations, basis step-ups. Those all seem like things we should be doing. There is a reason why 1031 exchanges were such a big issue.

I don't know how to solve the margin lending angle. But if you clean up the avoidance of taxes at the time of settling the obligation that does make it less attractive (tho on an NPV basis you'd probably still do it)
posted by JPD at 6:56 AM on June 8 [9 favorites]


How will any governmental body tax funds that are never on the planet let alone in a given city/state/nation?

The same way the US taxes its citizens' income earned overseas: it declares its jurisdiction to extend that far and enforces it by (if push comes to shove) seizing assets that are within its direct control. Unless you have no assets in the US and never set foot in the US again, you have to deal with the IRS.

I don't know how to solve the margin lending angle.

Seems straightforward enough to pass a law declaring that creating a security interest in an asset is a realization of the value of that asset, with a reporting requirement.
posted by jedicus at 7:04 AM on June 8 [13 favorites]


Seems straightforward enough to pass a law declaring that creating a security interest in an asset is a realization of the value of that asset, with a reporting requirement.

Creates all kinds of other unintended consequences that impact legitimate borrowing needs. That's really the issue.
posted by JPD at 7:06 AM on June 8 [3 favorites]


Can we start a class action lawsuit? The people of America vs the top 25 wealthiest, and sue them for a trillion dollars or something?
posted by Grither at 7:07 AM on June 8 [8 favorites]


Class action success funds the lawyers by at least 1/3 of the settlement, win 1T and we now have more billionaires.
posted by sammyo at 7:11 AM on June 8 [7 favorites]


The evidence is that wealth taxes don't work very well and that's why they've mostly been abandoned. Evasion becomes too high an RoI activity and the private sector will always pay more for smart tax counsel.

Given how little money is spent on enforcement, I'm going to broadly assume that evidence cannot be considered valid. And that argument always sounds defeatist anyway. It's not like laws can't be rewritten to close evasion loopholes, and the more money that has to be spent on smart tax consel who know all the most recent tricks lowers the RoI on evasion.
posted by RonButNotStupid at 7:14 AM on June 8 [17 favorites]


because I certainly can't take out revolving lines of credit against our home to pay for even a subsistence lifestyle.
I've known people who did exactly that - live in a place with appreciating home values, and refinance their mortgage every few years, taking cash out each time. It works right up until it doesn't.

In many parts of the country right now, housing prices are appreciating much faster than interest rates; it would definitely be feasible - if you could find a cooperative bank - to live off of your house appreciation in those places.
posted by Hatashran at 7:23 AM on June 8 [4 favorites]


Creates all kinds of other unintended consequences that impact legitimate borrowing needs. That's really the issue.

Okay, so it's only triggered once you borrow more than $X million in a year. Or only once you borrow more than $X million in a year and $X is more than some multiple of your taxable income. There are ways to structure the law so that it narrowly targets the tax avoidance of the ultra-rich.
posted by jedicus at 7:25 AM on June 8 [8 favorites]


While I agree with others that the rich should pay more in taxes than they currently are, and we should try to close loopholes, I also agree with those that say there's no low-hanging fruit to accomplish this.

However, I'm curious - when did taxes become a percentage system instead of a flat rate system?

We all pay for some shared goods at a flat rate. $500 into a HOA. Tolls on toll roads ignore income. Taxes on Gas are applied evenly. Prices of goods are shared evenly between all people.

Have income taxes always been a %? Is that fair? Presumably, income taxes go toward the roads, defenses, parks, and rich people get a similar value of enjoyment from them as others.

So not only is there a % against higher income people (John earns $100, I earn $10, John contributes $10, I contribute $1), but there almost always is a increasing %, too! (John earns $100, I earn $10, John pays $17, I pay $1).

Do I believe in progressive tax rates? Yes! I sure do! But, I also think it's just an interesting facet of taxation that we often ignore. If Jeff Bezos DID pay 1% instead of 25%, that would still be, 50,000,000 to our 15K or whatever. No matter how they evade things, they are still paying more. I'm not sure I agree with the premise that it's a sure thing that taxation should scale with income level. I'd love to learn more about the history of those decisions. I can definitely imagine an alternative reality where everyone owes $10,000 a year regardless of income, and it's particularly harder on some people than others.
posted by bbqturtle at 7:29 AM on June 8 [1 favorite]


This isn't a tax code problem, although that's certainly how it manifests, but rather a political problem.

Finding "solutions" by workshopping tax clauses is like fixing gerrymandering by inventing exactly the right type of Voronoi-voting district with cool math.
posted by aramaic at 7:33 AM on June 8 [12 favorites]


The tax rates as a share of income aren't, in general, notably low: 20-30 percent. But the income as a share of wealth is very low.

There are two general ways to address this: Either expand the definition of income - for example, include unrealized gains (the increase in the value of your assets even if you don't sell them) - or apply a wealth tax.

And for backseatpilot's question: "I still have to pay that loan back somehow." You don't. Your estate does, after you die. And the estate (that is, your heirs) don't have to pay taxes on the gains in your assets during your death (this is known as "step up in basis").

Simplest example: You start a company, investing $1 million of your money. The company ends up being worth $100 million. You borrow money against that company - say, $30 million total over your lifetime. You die, and your heirs get $70 million ($100 m from the sale of the company less the $30 million in debt). Neither you nor they pay any income taxes on your $99 million in profit.

For a substantive yet accessible guide to the U.S. tax system, see The Tax Policy Center's Briefing Book: A citizen’s guide to the fascinating (though often complex) elements of the US tax system.
posted by Mr.Know-it-some at 7:34 AM on June 8 [15 favorites]


Presumably, income taxes go toward the roads, defenses, parks, and rich people get a similar value of enjoyment from them as others.

You can certainly make an argument that the wealthy cost society more than ordinary people. If someone breaks into my home and steals a painting, the police (if they even bother to show up) will just write up a report and tell me to make a claim on my insurance, if I have any.

If someone breaks into Bill Gates' house and steals a painting, there's a good chance that it's probably something really valuable and/or culturally significant which means they'll have to actually make an effort to track down the criminals and retrieve it.
posted by RonButNotStupid at 7:48 AM on June 8 [10 favorites]


In theory the step-up in basis shouldn't be that problmatic as the estate tax >1 Mil is 40% vs long-term cap gains at 15%. The bigger issue is gaming the value of estate subject to the inheritance tax.

So in your example you'd step the basis up pay 150 k + 340k in inheritance tax vs 400 k in the current system,

The real issue is that the 1000 ends up looking like 200 for the context of the estate so you only pay 80.
posted by JPD at 7:54 AM on June 8


Presumably, income taxes go toward the roads, defenses, parks, and rich people get a similar value of enjoyment from them as others.

Absolutely untrue. The government provides services to protect life, liberty, and property--but not necessarily in that order. We may all value our own lives and liberty roughly equally, but the services provided to protect people's property are tremendously more valuable to the rich, since they have tremendously more property. Things that maintain and protect the private ownership of property (law enforcement, judicial system, national defense, etc.) all provide value that increases as does a the value of a person's property.

The rich and owners of capital in general also benefit from second-order effects from services provided by the poor, as these maintain a supply of labor and consumers on which a flourishing economy depends. This benefit scales, too--a person who makes fifty billion dollars on e-commerce has reaped more from the tax dollars spent to maintain the system than does a person who made only fifty million. This is why the ultra-rich continue to do business in high-tax countries, the taxes are worth it, they're getting great value for their money.
posted by skewed at 8:08 AM on June 8 [31 favorites]


Amazon's tax record in Europe has been public record for some time. In 2020 they flogged €44bn of shit but paid ZERO corporation tax. They run everything through Luxembourg and officially made a loss there, so owed nowt. It actually has tax credits of €2.7bn which it can hedge against future losses.
posted by biffa at 8:08 AM on June 8 [3 favorites]




Dudes, you're not gonna fix this without spilling a lot of blood, let's be serious.

You can come up with all of the financial solutions you want but there's not a ghost of a chance of the US changing its tax code without a whole lot of teargas, actual saint Liz Warren not withstanding.

The political solution is absolutely intransigent because the billionaires own the politicians. The only thing that beats that kind of lobby power is mass riots and a general strike and I'm not sure the country has the spine for it any more.
posted by seanmpuckett at 8:13 AM on June 8 [17 favorites]


The root of this problem is that we moved from a civilization where wealth was predominantly in land and improvements to land (houses, buildings, farms, etc); to a civilization based on capital and non-land based assets. The tax collection scheme we use for these assets is based on taxing at generational transfer (inheritance), direct income from the underlying thing (e.g. business income), and when the assets are sold. If you have enough income to meet your needs, you never sell and so all that wealth escapes taxes.
posted by interogative mood at 8:23 AM on June 8 [1 favorite]


If you have enough income to meet your needs, you never sell and so all that wealth escapes taxes.

the point here is that isn't what's happening. The .001% don't generate enough cash from their investments to fund their consumption (which is why they don't get taxed) The use other ways to access their income that the tax code as intended didn't foresee.

Its also partially a rates story isn't it? I.e. If I can borrow at a negative real rate using leverage to fund consumption is really attractive.
posted by JPD at 8:28 AM on June 8 [7 favorites]


Is that the guy with the private space program? Oh, the other guy with a private space program. Yeah, I had a feeling those guys had too much fucking money.
posted by adept256 at 8:28 AM on June 8 [57 favorites]


The evidence is that wealth taxes don't work very well and that's why they've mostly been abandoned. Evasion becomes too high an RoI activity and the private sector will always pay more for smart tax counsel.

Given this is attached to a story about the utter and complete breakdown of other forms of taxation on the super wealthy I'm not sure this is convincing. Obviously it requires major changes and the will to see them through, but in a lot of cases it becomes simpler. The money is somewhere so someone pays. I know there are many accounting gimmicks to manipulate the price of assets not publicly listed, but they aren't any more impenetrable than games with classes of income and paper losses.

Piketty's proposal (for example) included infrastructure and international cooperation to make a wealth tax enforceable. He actually thought of this as a bonus, not a burden: Understand where the money is makes all solutions easier.

Are changes unrealistic? The criminal investigation of UBS that led to a sea change in Swiss bank secrecy is a case in favor of it being possible; when it began no insiders thought it would go anywhere because the Swiss were the Swiss.
posted by mark k at 8:48 AM on June 8 [13 favorites]


Presumably, income taxes go toward the roads, defenses, parks, and rich people get a similar value of enjoyment from them as others.

What? No, of course they don't. These things (and all the other essentials of economic growth paid for by the public purse) are literally the means by which they get rich. Would Jeff Bezos be a billionaire without roads? No: he'd he just be another subsistence farmer.

And the military? You have heard of the Persian Gulf, right?
posted by howfar at 9:03 AM on June 8 [18 favorites]


And for backseatpilot's question: "I still have to pay that loan back somehow." You don't. Your estate does, after you die.

So the banks are deferring service on the loans indefinitely? That seems crazy on their part: a huge chunk of the interest will just be swallowed up by inflation. Unless they’re just charging massive interest rates.
posted by mr_roboto at 9:07 AM on June 8


The other part of the problem is that the US considers a corporate tax deduction where the revenue goes to a foreign country identical to a deduction to a US company. The difference in corporate tax rates automatically make that an arbitrage opportunity hence your various sandwiches.

Deductions should only be allowed at a rate comparable to the US corporate tax rate. If the corporate tax rate here is 30% and in Ireland it's 12.5% you only get to deduct 41.667% of the transaction's value. This stops companies from holding "IP" in low tax jurisdictions and charging a licensing fee of 100% of their net.
posted by Your Childhood Pet Rock at 9:23 AM on June 8 [1 favorite]


So the banks are deferring service on the loans indefinitely? That seems crazy on their part: a huge chunk of the interest will just be swallowed up by inflation. Unless they’re just charging massive interest rates.

The banks hold large amounts of cash and they get effectively no interest on it already. Any secured loan they can give out means they can charge LIBOR + points and not affect the balance sheet. It's basically free money for them.
posted by Your Childhood Pet Rock at 9:25 AM on June 8 [4 favorites]


they charge tiny interest rates. They are hoping you use them to do other business that doesn't require capital.


you can work out the math here, and assume the mega rich are getting it much cheaper (And assume Wells is not the most aggressive player price wise)
posted by JPD at 9:28 AM on June 8 [1 favorite]


I'm confident that it isn't impossible to tax the rich.
posted by diogenes at 9:32 AM on June 8 [4 favorites]


How about some refunds for unrealized losses?
posted by save alive nothing that breatheth at 10:18 AM on June 8 [2 favorites]


OK... I'm still not completely understanding the use of debt as described here.

Let's say I borrow $100 on margin at 2.5% (the lowest rate possible in JPD's link). I don't service the loan for 30 years, at which point I die. The compounded debt is now $211. At historic inflation rates over the past 30 years, this is about $110 in basis-year dollars. If stock is liquidated at the time of death by my heirs, they pay no capital gains tax (because of basis step-up) but 40% inheritance tax, which would come to $44 in basis-year dollars. So the total cost of the scheme over the life of the loan is $54, or 54% of the cost of the initial loan. But if I just liquidate stock at the time of the loan, the cost is 15% capital gains tax. Does that seem right?

I see now why it can make sense to the bank, but not necessarily to the borrower. Is it just for massive purchases that would actually disrupt stock price upon liquidation?
posted by mr_roboto at 10:18 AM on June 8 [1 favorite]


But if I just liquidate stock at the time of the loan, the cost is 15% capital gains tax.

Except that there's an additional cost of whatever gains that $100 worth of stock would have realized over 30 years, if you hadn't liquidated it.
posted by mstokes650 at 10:25 AM on June 8 [1 favorite]


Money doesn't talk, it swears

It's Alright, Ma (I'm Only Bleeding)
Bob Dylan
posted by y2karl at 10:32 AM on June 8 [2 favorites]


From the June 6 edition of the consistently excellent Letters from an American by historian Heather Cox Richardson:
Treasury Secretary Janet Yellen pulled off a major deal on Saturday when she led the G7 finance ministers to reverse forty years of corporate tax cuts and agree to a global minimum tax of at least 15% on multinational corporations. After the deal, Spain, which is not part of the G7, endorsed the plan. Negotiators hope to expand the deal to the G20—twenty countries whose economies make up around 80% of world trade—this fall.

This agreement is a huge deal. If accepted, it would stop countries from trying to attract multinational businesses by cutting taxes on them, a so-called “race to the bottom” that reduces the amount of tax money available for public investment while pumping money into the largest multinational corporations. In 1980, the average global corporate tax rate was about 40%. By 2020, it was about 23%. By 2017, multinational firms had about $700 billion stashed in tax havens.

...

Biden wants to take the domestic corporate tax rate back to 28%, hoping to raise $3 billion to pay for infrastructure and education. This plan is popular with 65% of registered voters, while only 21% oppose it, but it faces huge headwinds among Republican lawmakers, who have said that higher domestic corporate taxes would simply send businesses overseas. An international tax floor helps to defang that fear. In addition, some U.S. companies are willing to exchange slightly higher taxes for certainty in international tax rules.

Countries have talked about international cooperation on taxes for many years, and Yellen’s fast victory in finding common ground has economic experts calling it “impressive,” although much more work will be necessary to get the plan accepted by national governments both overseas and at home.
(emphasis mine)

A global (well, multi-country) minimum tax would indeed be a huge deal. I hadn't expected to pay much attention to Yellen after her confirmation (Treasury is just not high on my interest list), but this sounds like a pretty amazing first step.
posted by kristi at 10:38 AM on June 8 [13 favorites]


But if I just liquidate stock at the time of the loan, the cost is 15% capital gains tax. Does that seem right?

you structure the estate so the effective inheritance tax rate will be way lower than 40%.

Also the loans are usual I/O. I actually found a better source for pricing that is probably closer to reality +50bps or so..

a lot of UHNW "cash" housing transacation are done this way as well.
posted by JPD at 10:49 AM on June 8 [1 favorite]


An Ethereum node is now on the ISS! How will any governmental body tax funds that are never on the planet let alone in a given city/state/nation?

At the point where it gets converted into actual (“fiat”) currency; i.e., treating it as an asset.

You can hold buttcoins, Chuck E. Cheese tokens, shares or whatever to your heart's content, though when you sell them (i.e., convert them into currency), you become liable for tax on the profit made.
posted by acb at 10:57 AM on June 8


Prison? They'll be lucky to live for leaking this. Someone's going to accidentally shoot themselves in the back of the head twice while cleaning their gun
posted by Ghostride The Whip at 11:18 AM on June 8 [3 favorites]


Three tax experts on the tax breaks Batman and Iron Man must have gotten

Matt Brescia, CPA: If Robin is adopted by Bruce Wayne, then there would be adoption credits for that. Like, if he adopted him when he was 13 from the circus or whatever, then Bruce Wayne could deduct the costs for adoption, like the court cost and attorney fees — that’s all deductible. He could also claim him as a dependent after that.
posted by They sucked his brains out! at 11:28 AM on June 8


Except that there's an additional cost of whatever gains that $100 worth of stock would have realized over 30 years, if you hadn't liquidated it.

That's the bit that is hard for me to wrap my head around. Normally you either spend the money or save/invest it. By borrowing against it it seems like they can do both.
posted by It's Never Lurgi at 11:29 AM on June 8


A sense of history would be useful here. In the early 20th century, the US used to tax the rich at a much higher level than today. 1900-1920, the gap between the rich and the poor was smaller than in Europe, Thomas Piketty writes in "Capital and Ideology".

1932-1980 the highest marginal tax rate was higher in the USA (around 80 %) than in France (60 %) and Germany (58 %).
posted by Termite at 11:32 AM on June 8 [4 favorites]


I'm confident that it isn't impossible to tax the rich.

It's not impossible, but it does seem very challenging. If one manages to fix the corruption of local officials, it would seem to require global agreement and application of tax laws, so that the rich cannot just pick up roots and change citizenship — recent example — to avoid paying hundreds of millions in their tax obligations.
posted by They sucked his brains out! at 11:34 AM on June 8


A chunk of this "high net worth" stuff is investments they can't really convert into spending money -- but if you made explicit the "make fungible" action and, say currency for it, you could tax the conversion to spending currency. (An additional exercise for the reader is to use a crypto ledger which expires fungible tokens after 90 days so that people must convert pocket money to live on.)
posted by k3ninho at 11:42 AM on June 8


Stepping back a bit, understanding how the taxation system actually (instead of theoretically) functions illustrates what our economic system is doing. Let's put aside intent for a moment. We have an economic system that collects and increases wealth for already ruling/rich people (money = power under current conditions, and those with power work daily, and effectively, to amplify the money/power connection).

Once you see that this is the function of our economic system, I hope the next step is to envision what a different kind of economics would look like, and identify what we would have to do to exert sufficient power to change that.
posted by latkes at 12:28 PM on June 8 [4 favorites]


Sure, we all know about tax code and assets do not equal income, etc. ... But PP's whole point here is that knowing how it plays out in real life has a lot more meaning to the average person. As in paragraphs like these two:
In that year, Bezos, who filed his taxes jointly with his then-wife, MacKenzie Scott, reported a paltry (for him) $46 million in income, largely from interest and dividend payments on outside investments. He was able to offset every penny he earned with losses from side investments and various deductions, like interest expenses on debts and the vague catchall category of “other expenses.”

In 2011, a year in which his wealth held roughly steady at $18 billion, Bezos filed a tax return reporting he lost money — his income that year was more than offset by investment losses. What’s more, because, according to the tax law, he made so little, he even claimed and received a $4,000 tax credit for his children.
Hey, Bezos and I have something in common after all!
posted by martin q blank at 12:32 PM on June 8 [6 favorites]


Well ....if you can't tax the rich .....
posted by mbo at 1:12 PM on June 8


The important question is: Will we be able to enjoy some schadenfreude when Bezos explodes in a Blue Origin rocket this summer or will the hagiography pushed by the media be so infuriating as to ruin the moment?
posted by interogative mood at 1:33 PM on June 8 [7 favorites]


like interest expenses on debts

I'm learning a shitload about margin today. TIL that margin interest can be used to offset investment earnings. Crap.
posted by mr_roboto at 2:06 PM on June 8


The important question is: Will we be able to enjoy some schadenfreude when Bezos explodes in a Blue Origin rocket this summer or will the hagiography pushed by the media be so infuriating as to ruin the moment?
posted by interogative mood at 1:33 PM on June 8 [1 favorite −] [!]

I've been waiting for that monster to shoot himself into the fucking moon.

posted by latkes at 2:39 PM on June 8


A chunk of this "high net worth" stuff is investments they can't really convert into spending money

I've never really bought that argument. Yes, there's an argument that Elon Musk can't cash out all of his Tesla stock both because there isn't necessarily demand for all of it, and because the price might tank if it were known that he was cashing out. At the same time, if you have a bunch of cash on hand as a wealthy person, you don't Scrooge McDuck it. You invest it into companies, which is to say, you buy institutional power.

In a real way, it's scarier that Jeff Bezos has control over a powerful company like Amazon, rather than just sitting on a trillion dollars that lets him buy trifling trinkets.
posted by explosion at 3:04 PM on June 8 [4 favorites]


Context: United States because that's what I know.

It never fails for any post like this on any forum in the U.S.: Droves of folks swarming in to correct the narrative, "MMmmm well actually, this is known information by a subset of society that is necessarily biased in favor of capital by nature of their vocation MmmHmmmm. You could have just asked us but for some reason no one ever does who can say why?"

Great. You went to school, you got through public or industry or whatever sector you're in, and now you point and laugh at the regular folks who know the planet is dying, know capitalism is doing it, but don't know the deliberately boring minutae that you do (because you're paid to, typically by said capital) that may convey a more nuanced perspective. It's probably because these folks work 40+ hours a week under threat of loss of health care, food, and housing for themselves and any dependents so thus don't understand the nuance of corporate tax. The Fools Amirite!

Income tax is a distraction. Income tax says "you get it now or it's NO TAKE BACKS!" That's what capital wants. They want a point in time where a referee of their choosing says "yep, all these earnings are yours now and forever!". That's gross and against the interests of biological life on earth. Especially because, in my professional opinion, 99.99999% of the time, "income" is a stand in for "legalized looting." (/alwayshasbeenmeme)

Even so, taxing income in 2021 is a distraction.

At the end of the day, wealth is comprised of assets. It might be a farm, a house, a factory, a car, whatever. It might even be an invented asset that said capitalists all agree is real (e.g. intangibles, currency, securities). I mostly just care about the ones that lead to food/housing/healthcare because that's what I, a human organism, need to live. Either way, substantively all of those assets are now the property of goons who don't want to support society in anything other than an income based manner for new wealth, and we can see they don't even want to do that (because they're functionally socipathic net negatives for biological life at a magnitude unseen on a geological timescale - is that article over 2 decades old? huh).

Forget that. Gross. Playing a game of no takebacks based on legislative and regulatory environments literally made up on the spot by literal slavers and genociders? Call me crazy, but I think that wealth needs a look. I don't think "no take backs" is the way to go if we all want to eat, be safe, and be provided healthcare. If you don't want that, don't talk to me. I'm not gonna litigate it witcha.

We need to tax wealth. We need reparations. The ancestors, relatives, and folks themselves who lived and mostly died as slaves, as Indigenous enemies of the state, as indentured servants, as extorted wage-slaves deserve the benefits from the assets stolen in the destruction of their lives, human connections, communities, and environments waaaaaaaaay more than the parastic ghouls that think the ownership culture of a slaver republic is valid.

We deserve more than debt service payments. We deserve the principal back. Gimme.
posted by CPAnarchist at 3:09 PM on June 8 [21 favorites]


What’s more, because, according to the tax law, he made so little, he even claimed and received a $4,000 tax credit for his children.

Are there countries where either wealth or previous income is taken into account in determining your income tax?

If I have no savings or assets and make $20,000 for a few years (below the poverty line), then $60,000 one year, then $20,000 again the year after that, my taxes for that anomalous good year aren't going to take into account my need to dig myself out of the various holes all those previous years will have put me in, or to save up a bit for future lean times. And on the other end of the scale if I have billions in assets but for whatever reason only $60,000 in income some year, should I necessarily get taxed on that income at the same rate as poverty-level me?
posted by trig at 3:25 PM on June 8 [3 favorites]


I use barely any public infrastructure compared to e.g. Gina Rinehart. She should pay much more tax, which happily she can afford to do, as she "earns" like a billion percent more than me.
posted by turbid dahlia at 3:28 PM on June 8


I don't really know much about any of this stuff, but isn't taxing capital missing the point in a way? My understanding is, the enormous "wealth" of people like Bezos and Musk consists essentially of bets riding on future profitability.

If something happened to Amazon to make it less profitable -- say the price of diesel or jet fuel quadruples, or every one of their warehouses unionizes simultaneously -- a big chunk of Bezos' wealth evaporates instantly, right? Yeah, both of those hit the consumer rather than Bezos directly, but his primary means of damaging society is undercutting the smaller or independent businesses we used to patronize, so we are already taking the hit. And raising the price of commodities or labour (through taxation or wages/benefits) is a form of redistribution, which is really what we're after anyway, isn't it?

But having asked the question, I'm still basically in favour of confiscating a great deal of this excess wealth by whatever means available. I don't care; fuck 'em.
posted by klanawa at 3:30 PM on June 8


Still no Trump tax records. Wth.
posted by pmburns222 at 3:30 PM on June 8 [3 favorites]


Guess he's not rich enough!
posted by trig at 3:33 PM on June 8 [5 favorites]


We need to tax wealth

Go ahead and try.

...in fact, I'll go one point further: go ahead and destroy the South Dakota Trust system. Prove to me that any of this is remotely feasible. I actually agree with your goals, except that I think what you're proposing cannot in fact be done -- much as I'd also like to live for an arbitrary length of time, but I also know I will die long before I'd like to regardless of my desires on the matter.

South Dakota is a small state, so it ought to be easy (at least compared to rejiggering the global financial system) to destroy the concept of a South Dakota Trust. Just one state, just one set of obviously corrupt laws. C'mon, easy, right?

Posturing on the internet achieves nothing, so get on out there and destroy the South Dakota Trusts -- it doesn't even require action by the federal government, so you don't need to worry about getting Ted Cruz or Rand Paul on-side.

...or perhaps "action" really has just devolved into occasional posts about pitchforks and tumbrils, sound and fury signifying nothing. Protests at an Amazon warehouse while someone makes a tidy "hey hey ho ho" chant for a half an hour before everyone goes home to see if they made the news. Has anyone busted out the giant puppets yet?
posted by aramaic at 3:52 PM on June 8 [7 favorites]


Wonder how much those homeowners who had to foreclose their homes because it went underwater had paid in property taxes every year.
posted by asra at 4:45 PM on June 8 [1 favorite]


If you are in the process of making a capital gain, the govt could insist that you should deposit a proportion of the tax due with them, on account. This is what we do with income, where people pay estimated payments if their bill is expected to be large when it comes.

It seems to solve the main point of the problem - not that these people aren't paying tax (they are being taxed on their income) but that they are putting off paying that tax until the asset is cashed out (making their tax bill much lower than their total assets might suggest it should be).

(This doesn't solve the 'borrowing against an asset' or the 'rebasing on death' issues mentioned, but these both seem like independent problems to me, with largely independent solutions.)
posted by How much is that froggie in the window at 5:13 PM on June 8 [2 favorites]


This article is fantastic and I'm looking forward to the forthcoming ProPublica reporting as they get into the details.

My primary question is: why is all this information secret? Why did it take this long for ProPublica to get ahold of some presumably unauthorized leak of data to understand how the tax code actually works for the wealthiest Americans? I'm not quite advocating for entirely public tax returns. although several European countries do exactly that. But some vaguely anonymized or aggregated or statistically fuzzed version of this data should absolutely be available to economists and journalists so that the citizens can be informed how their tax system actually works.

As many folks have said, and the article itself says, this is the US tax code working as intended. A huge portion of this is explained by the reality of deferring the realization of capital gains. There's good reasons you only pay tax when you sell a stock but then it creates all sorts of distortions too.

One distortion even moderately wealthy people can now take advantage of: tax loss harvesting. That's a gimmick where you buy and hold stocks and don't pay taxes on the gains as long as you don't sell. But you do take some losses that the portfolio generates all along, every year. So not only are you deferring taxes but you're in effect borrowing money from the tax system. This used to be complicated and only available to the super rich but Wealthfront will now do it for $100,000 accounts. Of course the vast proportion of Americans barely have any savings at all and don't have anything like $100,000 kicking around in a taxable investment account.

I don't know what the solution is. Reinstating estate taxes and eliminating various inheritance loopholes and the tax-free capital loss step-up would be one way, but that only works when someone dies. A straight-up wealth tax is being proposed, fairly seriously in California. That has other problems but might help address in the inequity this article talks about.
posted by Nelson at 5:21 PM on June 8 [3 favorites]


Posturing on the internet achieves nothing, so get on out there and destroy the South Dakota Trusts

Yeah, you tell 'em! They shouldn't be arguing for wealth taxes, they should be making the world better by signing up to your carefully set out programme of sneering and fuck all.

I agree that posturing on the internet achieves nothing.
posted by howfar at 5:46 PM on June 8 [8 favorites]


Tax loans above $1,000,000 per year as regular income? It would still be cheaper than the payday loan rates that poor people are forced to endure because capitalism.
posted by xigxag at 5:58 PM on June 8 [2 favorites]


"Andrew Carnegie said a true democracy would have a 100% inheritance tax"
- Gad Horowitz, in a Poli Sci 200 class
posted by morspin at 6:03 PM on June 8 [3 favorites]


I personally like the cut of Naomi Wu's jib...
Naomi Wu @RealSexyCyborg
Have you tried periodically disappearing your billionaires for weeks at a time and then sending them out on carefully scripted public appearances all twitchy and shell shocked? It *really* keeps all the other billionaires in line and paying what they should...
posted by Your Childhood Pet Rock at 7:46 PM on June 8 [9 favorites]


But the actual devices this article reports on are all literally tax 101

This style of argument is deflection 103.

"This extremely interesting and consequential thing is just something you've heard before, pay no attention..."

There's meat on this bite, stay focused, don't let your eyes off the rich.
posted by eustatic at 8:07 PM on June 8 [3 favorites]


fwiw, from bloomberg (ungated link) on debt servitude...
The Bottom 90% of Americans Are Borrowing From the Top 1% - "The savings of the rich are recycled into household and government debt."
We know three things about the U.S. economy: The rich are getting richer, everyone else is in debt, and interest rates have fallen. Is there a connection? Yes, and the link has implications for fiscal and monetary policy.

By forcing interest rates down, extreme wealth inequality pushes the U.S. economy toward a “debt trap” that’s hard to escape with conventional macroeconomic tools, write Atif Mian of Princeton, Ludwig Straub of Harvard, and Amir Sufi of the University of Chicago in an important paper that came out earlier this year, titled “Indebted Demand.” They advocate unconventional measures such as redistributive tax policies that narrow the gap between rich and poor...

Here’s their concept: The rich can’t possibly spend everything they earn, so they save a lot. In theory those savings can be recycled into productive investment, but in practice a lot of the money finances borrowing—i.e., dissaving—by people farther down the income ladder. “A substantial amount of borrowing by households in the bottom 90% of the wealth distribution was financed through the accumulation of financial assets by the top 1%,” the economists write, citing their own prior work.

The lending from rich to poor can be indirect. For example, let’s say a rich person buys shares issued by a company. The company stashes the proceeds in a bank. The bank in turn makes a loan to a non-rich person to buy a car or a house. The borrowers have a higher propensity to spend than the lenders, but they have less money to spend because part of their income goes to debt service.

The excess of desired savings over desired investment pushes interest rates down and down until the effective lower bound of around zero. Rates can’t get much below zero because savers won’t tolerate it—they’d rather put their money under a mattress than earn a negative return on it.

Any policy that attempts to fix things by encouraging more borrowing makes things better in the short run but worse in the long run by saddling the private or government borrowers with even more debts that will eventually have to be repaid, the economists write. That’s why they favor redistribution through income or wealth taxes, which would increase the spending power of the 90%.
> I'd be interested to learn what MeFites think might work to close some of the loopholes.

How to implement wealth taxes

also btw...
progressive consumption taxation?*
posted by kliuless at 9:14 PM on June 8 [10 favorites]


Well I should have
been a lawyer
but law school's expensive,
so instead I write songs.
But you can't write songs
about tax abatements
and filibusters
'cause nothing rhymes with that shit
'cept for shmilibusters and shmax abatements
Besides you can't change everybody's mind by the time they finish their bottles
of Chardonnay
So just take the tips you get and be on your way-y-y-ay.

- Stephanie Nilles
posted by bartleby at 9:57 PM on June 8 [2 favorites]


Since the the US is already used to weird stuff like repo men and bail bond agents, how about this?
(As a feel-good crumb from the table, mind you, not any kind of full solution.)
A hypothetical where You, as a private citizen, can play detective with your forensic accounting skills. You can go to the court and file suit declaring Person X has committed $680k in tax fraud. Your brief is filed properly, and examination of your evidence proves your claim. X is found liable and is forced to pay up.
You collect 10% from the collected judgement.
This is what you do for a living now.
Couple cases a year, you can open an office.
But for now, you can just anonymously hang around eavesdropping at the art gallery, and get people drunk at CPA conventions.
posted by bartleby at 10:13 PM on June 8 [8 favorites]


The SEC whistleblower program requires you get real close to the situation in order to get paid out 10-30% of what's recovered, but they've paid out millions. (Millions to people who worked at hedge funds, so it's not exactly a modern version of the G-men.)
posted by fragmede at 10:51 PM on June 8 [3 favorites]


Came to post Naomi Wu's suggest but Your Childhood Pet Rock beat me to it!

For what it's worth, I'm glad that there's a greater understanding that the 1% are benefitting significantly from the American tax system. In years gone by threads would entirely blame so called "tax havens", in ways that often don't take into account why said countries operate as they do. From my perspective the general awareness of global financial systems (at least on metafilter) has increased.
posted by Braeburn at 12:12 AM on June 9 [2 favorites]


A lot of the worst abuses do depend on offshore tax havens, but Jeff Bezos borrowing against his shares to avoid realizing gains does not. If we had a decent estate tax system that couldn't be gamed so easily, the latter wouldn't be so much of an issue.

The thing is, the step up basis rules aren't entirely a sop to the ultra wealthy. If you were to inherit assets from your decidedly not wealthy parents, they may well be what keeps you from having to liquidate parts of their estate that you want to keep. That said, the rules can and should be tightened up so as to limit the value and/or type of assets that can be treated that way.
posted by wierdo at 3:09 AM on June 9 [3 favorites]


Money Laundering: A How To Guide for the Modern Global Billionaire . This video both explains how the “Whales” use casino chips to move money, and then use ELOCs (“equity line of credit”) on high-priced assets like London real estate (which they never intend to occupy) and diversified stock portfolios in order to spend that money..
posted by Pirate-Bartender-Zombie-Monkey at 7:22 AM on June 9 [2 favorites]




The thing is, the step up basis rules aren't entirely a sop to the ultra wealthy. If you were to inherit assets from your decidedly not wealthy parents, they may well be what keeps you from having to liquidate parts of their estate that you want to keep.

Talk about your Republican talking points! The federal estate tax in the US has never applied to "decidedly not wealthy" people. Going back to 1982 under 2% of estates even file a tax return and many of those end up paying no tax. The current estate tax exemption is $23.4 million. We're in a historically bizarre time for estate taxes though thanks to Republican gifts to the wealthy. But even if this were "normal times" the exemption would be $1M+.

Also, well, taxes mean sometimes you have to sell something that you would rather keep. Or else come up with the cash to pay your taxes some other way. It's not like taxes are some voluntary happy opt-in system. We tax estates to raise money. We tax estates because it's a particularly felicitous time to raise money. Also to limit generational wealth.

I imagine the scenario you're thinking of is little ol' grandma in Pasadena, CA who has lived there her whole life and now her house is worth $2.5M even though she lived poor as a churchmouse. And she's gone to her eternal reward and OMG the family will have to sell grandma's house (in a fictional world where the estate tax exemption was only $1M) because there's $600k in taxes owed. Boo hoo! In this circumstance there's even options to keep the house. Take out a mortgage to pay the taxes. Worst case sell it and distribute the $1.9M to the heirs. The grandkids hate Pasadena anyway.
posted by Nelson at 8:20 AM on June 9 [16 favorites]


How the 1 percent's savings buried the middle class in debt - "The bottom 90 percent's debt has largely become the top 1 percent's financial asset."
From the 1980s through 2007, the top 1 percent financed a large portion of the overall rise in household debt for the lower 90 percent, according to the researchers. And as the rich have accumulated capital, the less wealthy have accumulated fewer assets, which means they experience less financial stability overall. Thus, the work argues, the savings glut of the rich, and its role in financing unproductive debt and dissavings of the nonrich, leads to instability not only for the less economically privileged but also for the broad economy.
posted by kliuless at 8:42 AM on June 9 [2 favorites]


We need to tax wealth

Well, we do on real estate and in my state, vehicles, but that's chiefly working and middle class which is where the real money is). And you can try to tax wealth of ultra wealthy, but as Edward Saverin showed, if pushed hard enough they are willing and able to bugger off. Or not build their business in countries that grasp too much. Shear a Steve Jobs, and the next Steve Jobs will look for a different country to start his start up. Or ditch the idea entirely, meaning, no IPhone for you.

Worth noting (if no one has already) that if the Feds were to insist that Bezos, say, divest a chunk of his stock, the price of stock will go down, affecting every pension fund and 401K and IRA or college fund that owns shares. (Wish I did.)

Then there's the problem of precedence. Modern income tax was instituted in the US in 1913 on 1% on the first $20,000, and rising accordingly with the pinky promise that it wouldn't get out of hand. That didn't last long. So, question becomes, at what point would confiscation of wealth begin? And how far down would it have to reach before the masses get fed up? (One gripe for American Revolutionaries was real estate tax.)

I have no answer to this, but if you're going to argue in favor of asset confiscation, best be ready with numbers and a model on how much your figures will ripple across the economy, and what kind of adjustments can people expect, and how you are going to encourage entrepreneurs to make jobs and business here rather than, say, Ireland. Bear in mind that people prefer predictability in their money life, and government credibility just now is at an all time low, so you have your work cut out for you.

Also worth noting that super rich in America at least tend to give it away in their waning years and after death. Carnegie libraries, U of Chicago, Metropolitan Art Museum, National Gallery, Rosenwald schools - the lists go on.

(By the way, revealing private tax information is a felony. This instance is inconsequential really, but I don't like the idea of people messing with private citizens business. Again, precedence.)

I imagine the scenario you're thinking of is little ol' grandma in Pasadena, CA


More likely that of small family businesses. Where most of the country's jobs are.

Thus endeth the Devil's Advocate. I come not to cleanse, but to muddy the waters.

For the record, I'm not thrilled that there is a billionaire class and I could wish it not so. I like the business model of Bob's Red Mill (much like early tech firms, though he spread the shares more widely). But the system is not entirely bad and much as one likes to dislike the usual suspects, tearing the system down to the extent some here seem to want historically creates nations that are rich in want.

(Fun Fact, or statistical allegation - country with greatest wealth inequality on earth is- the Netherlands. A country worth some examination, no?)
posted by BWA at 9:13 AM on June 9


Or ditch the idea entirely, meaning, no IPhone for you.

There are more than a few missing or questionable steps in between "no ultra-wealthy tech billionaires" and "no really well-designed smartphones".
posted by eviemath at 9:31 AM on June 9 [14 favorites]


Talk about your Republican talking points! The federal estate tax in the US has never applied to "decidedly not wealthy" people. Going back to 1982 under 2% of estates even file a tax return and many of those end up paying no tax. The current estate tax exemption is $23.4 million.

It's not just about the estate tax. Estate tax is paid by the estate, not the inheritor, which is who gets the benefit of the step up and the specific exemption that allows receiving an inheritance to not be a taxable event at the time the property is received.

It ain't a Republican talking point. The Republican talking point is about ensuring that the rules are broad enough to drive a billion dollar truck through because won't somebody think of the family farmers.

When you do shit indiscriminately, you end up with the situation we have now where (to pick one example) rich people get to write off pretty much all of their interest expenses because they can launder them through a business, but you and me get stuck paying tax on that money because we either don't have a business or even if we did trying to do it the way the rich people do would get our business determined to be a hobby business.
posted by wierdo at 9:38 AM on June 9


It might help the discussion a bit to separate step-up in basis (which is an income tax rule that only applies after (a) death and (b) liquidation) from estate tax.

Both of those have a lot to do with problems of multigenerational wealth, but in different ways; and I don't see much connection between either of them and the kind of short-term ultrawealth accumulation on display in the ProPublica investigation.
posted by Not A Thing at 9:46 AM on June 9 [2 favorites]


short term ultrawealth accumulation isn't a bad thing if its redistributed after 50 years or so. Wealth accumulation isn't a zero sum game.
posted by JPD at 11:44 AM on June 9


What's your argument for that? I'm not sure that's been our experience over the last 50 years; I'd say there have definitely been downsides.
posted by sagc at 11:51 AM on June 9 [1 favorite]


Of course there are downsides. There are downsides to capitalism in general. That isn't an absolute indictment of capitalism.
posted by JPD at 11:59 AM on June 9 [1 favorite]


The absolute indictment of capitalism? You're soaking in it.
posted by seanmpuckett at 12:01 PM on June 9 [2 favorites]


I'm asking you what the upsides of allowing people to hoard wealth are.
posted by sagc at 12:09 PM on June 9 [2 favorites]


More likely that of small family businesses. Where most of the country's jobs are.

To be clear a "small business" means less than 500 employees. It's not like we're talking a mom-and-pop yarn store that their kid works at and wants to take over and run. We're talking a major, privately owned where you want your kids to maintain control for generation after generation, while the 100 or more people working for you start working for them. That's the sob story of an article you linked to.

If you have created a business like that from scratch, there are lots of options to deal with the tax, some of which involve your heirs owning it, some of which don't, none of which inherently involve laying everyone off.
Should people like my father have to surrender up to 50% of their life savings to the government upon death?
Classic framing here. Note he describes his hardworking father as "surrendering" money to the government after he's dead. But his father isn't surrendering anything. His father is in the great beyond, singing with the choir invisible. The columnist is the one who will pay, or benefit from not paying, the tax.

However you spin this, it really boils down to "My father worked hard, and it would disrespect his memory if I didn't get my cut without working."
posted by mark k at 12:23 PM on June 9 [11 favorites]


And as the rich have accumulated capital, the less wealthy have accumulated fewer assets, which means they experience less financial stability overall. Thus, the work argues, the savings glut of the rich, and its role in financing unproductive debt and dissavings of the nonrich, leads to instability not only for the less economically privileged but also for the broad economy.

This is a really bad explanation in my opinion. First, debt scales nearly linearly with income level. This means the poorest people in the US have almost no debt. AND it's debatable if this is a good thing. They can't purchase low cost real estate for example, even though interest rates are low and their rent might be equal to a mortgage payment in their locality.


"And as the rich have accumulated capital, the less wealthy have accumulated fewer assets, which means they experience less financial stability overall. Thus, the work argues, the savings glut of the rich, and its role in financing unproductive debt and dissavings of the nonrich,"

So there are many ways in which the less wealthy can accumulate fewer assets, even as interest rates fall. Inflation not measuring real costs would be the most realistic one (in my opinion). Secondly would be moral panics around debt (I personally blame Dave Ramsey), in that "cash is king" is bandied about, even though it is not really true. They can be denied as credit risks to borrow from fair sources because they have no money (actually happening).

3rdly, the 'unproductive debt and dissavings' needs a lot of explanation. Buying real estate for the middle class is a huge financial risk, shifting consumption dramatically. The dramatic rise in housing prices is the middle class' fault though. It's self-inflicted. Sucks that their own priorities were poor. Also, even holding housing prices constant, it's a values judgement to say that the middle class didn't use their debt very productively, at an individual level. It's been made insanely easy to invest, so there are no barriers to doing so. If middle class people don't want to, and want to buy consumption items, prodded by marketing or totally at their own volition - it's wrong to declare that 'dis-savings'.

This further makes me doubt their findings:" (In 2008, the radio show This American Life famously explained how what it called “the giant pool of money”—the $70 trillion in global fixed-income investments—was lent out as mortgages, many of them subprime, and helped cause the housing crisis.)" There was no increase in subprime mortgages, there was no housing glut.

"However, much household debt goes toward instruments such as mortgages and home equity loans, which can be used speculatively, in which case they are less productive than, say, investments in manufacturing plants or technology. Thus, the researchers argue that mortgages, while enabling homeownership, can also help perpetuate a cycle of wealth inequality. "

This is a dumb paragraph. Giving the middle class raises could result in increased income to purchase drugs which leads to drug addiction, which also helps perpetuate a cycle of wealth inequality. Are they surmising? Show the work the negative outcomes exceeded the positive ones. They can't because it didn't happen at a national scale.

It sucks that billionaires are able to play the tax code, but that paper doesn't describe the problem correctly, and any actions taken would make things worse.
posted by The_Vegetables at 12:27 PM on June 9 [1 favorite]


To go along with my giant post, here's the evidence. This federal policy is causing income inequality:

source
Lending by credit score:

FHA backed mortgage market:
-----------------------Q1 2003 Q1 2021
$ loaned to 760+ - $304b - $831b
$ loaned to 720-759 - $336b - $152b
$ loaned to 660-719 - $188b - $111b
$ loaned to 620-659 - $68b - $29b
$ loaned to <620 ---- $72b - $16b
posted by The_Vegetables at 12:42 PM on June 9 [1 favorite]


by signing up to your carefully set out programme of sneering and fuck all.

What, beyond "fuck all" has your program achieved? Nothing. It's achieved fuck all.

All you have to do to prove me wrong is ... wait for it ... actually achieve anything substantive. Anything at all. I gave an option for an easy win, but you can pick harder ones if you like.

I see some more posts on the internet, on both sides a bunch of them sneering, and I don't see any actual achievements. I argue that's because it's not feasible, you disagree, so prove me wrong. Make something happen.

Seems like maybe our separate programs are actually the same program of sneering and fuck all, in the end, just with different words.
posted by aramaic at 12:52 PM on June 9


aramaic, the fact that you sneered at in-person protests as well does kinda make you sound like we just shouldn't bother. I'm really not sure what you're trying to say in this thread, other than that... talking about wealth inequality is bad? That protest or change isn't possible?
posted by sagc at 12:56 PM on June 9 [3 favorites]


oh man it's gonna be soo cool if we finally solve capitalism in this thread
posted by some loser at 1:09 PM on June 9 [1 favorite]


For anyone who wants to return to the original discussion and ponder actual ideas for what might be done, five former Treasury Secretaries offer their ideas for how to fix tax evasion in the NYT.
posted by PhineasGage at 1:31 PM on June 9 [7 favorites]


Amazon has never paid its shareholders a dividend. For most of its history, it never turned a profit, its practice being to plough everything into growth.

Capitalism is a cancer on society, and Amazon is a cancer on capitalism.
posted by flabdablet at 1:44 PM on June 9 [3 favorites]


and the guy responsible is about to leave the planet ... literally.

Is it just me or has the ghost of Philip K Dick become the show runner of the program known as Reality In General?
posted by philip-random at 2:07 PM on June 9 [3 favorites]


five former Treasury Secretaries offer their ideas for how to fix tax evasion in the NYT

That's a great article but it's addressing a different problem: people who cheat on their taxes. Underreporting, not filing at all. A lot of it talks about how the IRS is underfunded and unable to investigate people it knows are cheating. Note they say the problem is $600 billion a year, an enormous amount of money. Note that total revenue from income tax is about $1.7B; we're losing 1/3 of our tax revenue to cheats.

But the ProPublica article isn't about people cheating on their taxes. It's about people entirely 100% legally following the tax code and yet still paying almost no taxes. Because of how the US tax code is structured, most significantly the way capital gains are untaxed until realized. Fixing that is a very different problem than the NYTimes article talks about, it requires rethinking how taxes work.
posted by Nelson at 3:25 PM on June 9 [2 favorites]


I think the American lone hero myth is partly to blame for how we think about this. For example, if you ask me whether I think any American has ever worked hard enough or been brilliant enough to “deserve” a personal wealth of $100 million, I’d say absolutely not. As I’ve moved from $3.35/hour to low six figures over 30 years, have I worked harder? No. Have I used my brain more? Probably, but that’s by choice, and if I could get paid $100k to go back to washing dishes I wouldn’t. I enjoy the brain work and find it easier, though sometimes stressful.

Someone like Bezos had a couple of ideas and then used ruthless business practices and flogged a bunch of smart people to get where he is. He didn’t personally build even a tiny portion of what Amazon became. So does he deserve a couple hundred grand a year, maybe even say $500k? Sure. More than that? No. I think the tax code and social fabric should discourage the strike it rich and retire mentality. It’s bad for everyone. Cool stuff we really need would still get invented due to human curiosity and natural drive, and a lot of bullshit that no one needs would not.
posted by freecellwizard at 3:38 PM on June 9 [6 favorites]


I quite agree, Nelson. Thinking purely politically, though, and as acknowledged by many in this thread, we're unlikely to get significant changes to the U.S. tax code any time soon. Starting with the measures advocated in that op-ed - to at least collect what is indisputably due under current law - seems like a worthwhile first step toward a more rational and effective tax system.
posted by PhineasGage at 4:04 PM on June 9 [1 favorite]


I'm currently thinking through the consequences of a toy nation-state that runs on a slightly different notion of private property, where ownership of any privately owned and in-principle tradable asset automatically reverts to the public at (say) 1% per year.

When any such asset changes hands, only the portion of its ownership held by the vendor would do so. So if, for example, I acquired full ownership of a block of land or a parcel of Amazon shares and held it for 30 years, and then sold it or passed it on to my kids as an inheritance, whoever acquired it would end up with the same 70% ownership stake that I still had in it at the time I disposed of it; the other 30% would remain in public hands.

The main source of public revenue in this toy world would be moneys paid by asset holders to re-purchase reverted ownership rights from the public. The public's representative in such cases would be in no way obligated to accept any such re-purchase offer, and could simply elect to retain the public ownership stake instead if the offer is deemed insufficient. And of course the public's representative could elect to sell reverted part-ownership rights to somebody else if the initial private owner fails to negotiate their re-purchase in a timely fashion.

Any earnings derived from an asset would be allocated to the owners in proportion to their respective degrees of ownership, as would expenditures necessary for maintenance of the asset. The legal rights to make the kinds of decisions about what to do with an asset that private owners have in our world would belong to the entity with majority ownership, or to coalitions between entities if none had majority ownership on their own, or to the public in case of irresolvable differences between part-owners.

The underlying principle is that private property is a publicly sanctioned arrangement for protection of control, and that ongoing protection can either be paid for in an ongoing fashion or forfeited over time.

Might be fun to make some kind of sim game out of this kind of thing.
posted by flabdablet at 5:22 PM on June 9 [7 favorites]


Every person who uses these techniques to avoid paying taxes is making a choice that they want everyone to consider natural, inevitable, reasonable, unremarkable. Not everything that is legal is moral.

I was speaking to an estate planning attorney, who was explaining that every penny over some large number (maybe 11 million?) gets hit with a big estate tax when you die, so if your assets grow past that number, you then need to set up a complicated trust to defer those estate taxes. And I asked, can you just avoid the complexity by saying that every penny over 11 million (or whatever it is) goes to charity? And he paused and said... well, no one has ever asked me that question but... yeah, I mean, in principle, it would work...

And, presumably, no one has ever said to him, "that's fine, we don't need you to bother with the complicated trust, we'll just be paying the estate tax that the law imposes on our wealth."

But what will the kids do with ONLY 11 million dollars?
posted by prefpara at 5:27 PM on June 9 [1 favorite]


c'mon 11 million dollars is barely middle class these days, I mean have you seen the price of a gold shirt or a decent luxury bunker lately
posted by Lyme Drop at 6:13 PM on June 9


Frankly, if your kids really need eleven million dollars, no amount of money is really going to help them and you've failed as a parent.
posted by VTX at 7:51 PM on June 9 [8 favorites]


Also worth noting that super rich in America at least tend to give it away in their waning years and after death.

One of those super-rich, Carnegie, was in many ways a super-jerk, but he argued in his book “The Gospel of Wealth” that the wealthy should not pass wealth to their kids. (He also argued the wealthy got their wealth through exceptional merit, so had the wisdom to direct it better than mere mortals, his jerk-side showing.) When he gave money to communities to build public libraries, there were strings attached, and one was that ongoing support for books and staff could not be dependent on gifts or bake sales but had to come from local taxes. Which was smart. (This was in the US, not sure about UK or elsewhere.) Pro-tax! How about that.

That said, the real founders of most public libraries in the US were women. Women’s clubs got shit done. (Well, some shit, anyway…)
posted by zenzenobia at 8:36 PM on June 9


The Pro Publica article, and the reaction to it, strike me as containing some indefensible assumptions.

Pro Publica has produced a statistic that they call a “true income tax payment rate.” The true tax rate, they say, is the rate that people have paid up to now. This statistic is gibberish. One might as well compute a “true loan payment rate” – suppose you take out a loan from a bank on Monday, it wouldn’t make sense for the bank to call you on Tuesday and say “Your true loan payment rate is zero; we’re very concerned.” The true loan payment rate is going to rise over time until it’s fully repaid. Similarly, the true income tax payment rate will rise sharply whenever there is income. If Jeff Bezos borrows against his assets, taxes will necessarily be paid – one way or the other – on the income he receives. If he dies before he pays those taxes, his estate will pay them. If he makes gifts or bequests, his estate will pay taxes on them. One way or another, in the long run, taxes on accumulated capital will be paid.

Now it’s certainly possible in theory to levy or increase taxes on any action that anyone takes. We could insist that taking out a mortgage or a second mortgage should be a taxable event. We could insist that anytime anyone borrows money, this should be a taxable event. We could insist that whenever a capital good (say, a stock portfolio or a house) increases in value, that should be a taxable event. I think these types of taxes are more or less terrible ideas for several reasons -- largely because I’m really not any wealthier when my house rises in value; I’m only wealthier when I actually get income (for example, if I sell my home) because my house is more valuable. I also think the types of taxes described above deter socially valuable activities (people are generally better off when they exchange money for goods, or they exchange goods for money, or when they borrow or lend things; that’s why they do it; they don’t do it just for the thrill of watching numbers whirl around in their heads). But it’s important to remember that if you’re really upset by the spectacle of people who own assets with increased values who haven’t paid taxes on them yet, there are lots and lots of those people out there. The suggestion that people with value-accrued assets need to be taxed in ways that they aren’t already taxed strikes me as coming from motives that rest on anger or punishment, which is disappointing and weird. Furthermore, I think it’s pretty obvious that a system which views increases in asset value as such as something that needs to be taxed or deterred is going to carry with it substantial administrative costs.

I confess it! My house has increased in value! I just don’t think that, because of that, I’ve done anything wrong. And, furthermore, I don’t think that a system that says the increase isn’t a taxable event YET because I haven’t realized any income from this YET is in any way immoral.
posted by PaulVario at 6:55 AM on June 10 [1 favorite]


Now it’s certainly possible in theory to levy or increase taxes on any action that anyone takes

Alternately, we could levy or increase taxes on any action but with a floor high enough that it won't affect "anyone" but only very wealthy people. Like the AMT, but smarter.

Then we wouldn't have to worry about false equivalences like when Romney equated his scam that happened to use IRAs with normal people's retirement savings.
posted by GCU Sweet and Full of Grace at 7:18 AM on June 10 [3 favorites]


I confess it! My house has increased in value! I just don’t think that, because of that, I’ve done anything wrong.

This is a false equivalence. Your single house is not an active part of the economy and market. Your house is not serving as a shelter for your work's income to be non-taxable. Your house doesn't let you borrow millions of dollars at marginal interest rates.

The question you have to ask, at the very least, is "how much would Jeff Bezos command in income if he were a CEO with zero stock control?"

Bezos would easily have an income in the 8 figures. He is hiding at least that much, even if we otherwise disagree on when/whether unrealized capital gains should be taxed immediately or upon realization. He and his ilk have found a way to convert their market-demanded salaries into tax-sheltered stock-and-borrow schemes.

If you or I even tried to use our houses or other assets to do the same, the IRS would come down on us so hard. Or if it were somehow actually legal, it'd be called a "loophole" and closed immediately.
posted by explosion at 7:31 AM on June 10 [4 favorites]


If he dies before he pays those taxes, his estate will pay them. ... One way or another, in the long run, taxes on accumulated capital will be paid.

It's like you've ignored the whole discussion here about ways to avoid estate taxes. Also the step up in capital gains basis you get on death.

Also you ignored the part of the article where the ultrarich never sell appreciated stocks to cover purchases. They borrow money against the stocks instead, in effect using their wealth without paying the taxes. (In some circumstances the interest they pay on those loans is tax deductible!)

And the article hasn't even gotten into other ways to avoid capital gains taxes. I mentioned tax loss harvesting above. Also there's tax shelters like Opportunity Zones, a federal program explicitly designed to let people wash away capital gains without paying taxes. Then there's just the good ol' lying about cost basis, something the Republicans have tacitly endorsed by resisting any attempt to change the law so that brokerages report cost basis instead of relying on self-reporting.

You've also ignored the whole discussion here about proposed wealth taxes which would very handily tax capital gains in process. That's more or less how houses already work in most states; when your house appreciates your property tax goes up. Property tax is more or less a wealth tax. (California's Prop 13 is a glaring exception to this system.)

It is absolutely not true that taxes on accumulated capital "will be paid". There's a whole industry catering to rich people to make sure they don't.
posted by Nelson at 7:34 AM on June 10 [10 favorites]


One way or another, in the long run, taxes on accumulated capital will be paid.


This bears repeating: you are saying things that are not true, and that are contrary to basic tax provisions. Lots of appreciated assets are never subject to inheritance taxes or capital gains tax. Upon death, an appreciated asset transfers to a beneficiary with the *current market value* as its cost basis, so that beneficiary can immediately sell without incurring *any* capital gains tax. That means that when someone inherits grandpa's Apple stock purchased in 1997, they get to sell it as though they purchased it at today's price, so no capital gains. And if the asset was not subject to the inheritance tax (through either the gigantic exemption or one of the various ways to minimize an estate's exposure to the estate tax), all that appreciation goes untaxed.

The phrase "nothing is certain except death and taxes" is something that the poor and middle-class like to hear, because it makes us feel better about the rich getting taxed too. It's just a saying though, not public policy.
posted by skewed at 8:46 AM on June 10 [2 favorites]


You know, I think it would help to maintain a healthy, respectful discussion by focusing comments on the issues, topics, and facts at hand -- not at other members of the site. A quick discussion of how this stuff actually works may be helpful to clarify some issues.

Let’s say Jeff Bezos wants to borrow against his assets rather than selling them. (He could just sell some shares of his business; he’d then pay taxes on the gains immediately.) He borrows against his assets, which frees up some money for him, but he also has to pay interest on the borrowing costs. He has a second kind of financial obligation, too, which I fear is being ignored: he has to pay the money back! Of course it’s possible for him (if he’s rich enough in assets) to keep on borrowing and borrowing for a time – but this means that the interest he has to pay will grow and the underlying debt that he’s bearing will get larger and larger.

It’s possible that the underlying collateral will change in value, which means that the two kinds of debt obligation he’s carrying will vary inversely with it (if his assets drop, his debt grows, etc.), but eventually at least one of several things will have to happen:
1. He sells some of his assets so he can buy another mansion or pick up the tab for dinner (or whatever). This sale creates income. In this case, he pays tax!
2. He’ll pay off the debt he owes, both the borrowing costs and the asset loan. He will have to sell off assets to do this; where else would he get the money? In this case, he pays tax!
3. He’ll die. If he dies carrying debt, his estate will pay the debt he owes. It would have to sell off assets to do this; where else would it get the money? In this case, he pays tax!
4. In his will, he makes gifts or bequests to family or friends or whatever. The estate is taxed for these gifts (around 40%) over the threshold (around $12m). And of course it can’t deliver the gifts and bequests until all debts are paid. In this case, he pays tax!

Honestly, some of the discussion above reminds me of a TV commercial I saw many years ago – and it seems to me that some of the discussion misses a very important point. This commercial consisted in part of a voiceover saying something very much like: “Do you like the feel of counting money? Do you enjoy touching currency and coins, having them run through your hands? Don’t miss this valuable opportunity: get trained to become a bank teller!” The odd thing about this commercial is that most people wouldn’t think of being in contact with money at all as a pleasurable thing unless they could, at some point, spend it. I think that people who are concerned about Jeff Bezos not paying tax are making a similar mistake. It isn’t fun to have assets at all unless you can make use of them; and when Jeff Bezos is making use of them for consumption, he is assuredly creating tax obligations for himself. He’s actually paying more for the use of his property than he would if he simply sold part of his assets away and paid taxes immediately (margin costs and the risk of margin calls are not free; furthermore, margin costs are certainly not tax deductible when used for personal consumption); the reason he’s not cashing out is that he thinks his Amazon holdings are a better bet than holding onto cash. That maneuver defers taxation; it doesn’t hide, eliminate, or shrink it.

It is also worth emphasizing that there are plenty of people who take out second mortgages or borrow against other assets to finance their consumption. Borrowing money against the collateral you own is not some sort of super-secret high-tech financial wizardry available only to Amazon executives. I wish it were true that it saves you money – it doesn’t. It can defer taxation, but it necessarily creates debt.

Now, it is fair to say that there is something weird about the estate tax system. If you think that the threshold of tax-free inheritance is too high, I can see that. But that doesn’t really speak to what’s being discussed here – the alleged unfairness of the tax system for the mega-rich. (Note that the step-up basis has exactly the same irrelevance here; it’s clear to me that several commenters have misunderstood its operation.) You can make the argument that the exemption ought to be zero (or whatever) rather than $12m, but note that this implies that who’s really being treated much too nicely isn’t the mega-rich, but rather the quite well-off person who at death has a seven-figure estate once you add up the house, the car, the stocks, and the individual retirement account. My own opinion is that anything that looks like a graduated estate tax (except maybe for an extremely minimal exemption) strikes me as quite difficult to defend in theory, but less so in practice. The one practical difficulty with shrinking the exemption is that (in my opinion) people will do an excellent job of hiding assets from the government’s reach – probably more so than with other kinds of property transfers. (Assume a universe with no estate tax exemption; I predict that lots of seniors will sell their houses to their kids for a nominal sum in exchange for the seniors having the right to live there for the rest of their lives. What should the tax implications of this sale be?)

Borrowing money can be misguided. It isn’t, as a general matter, a wicked or socially counterproductive behavior that should be deterred by tax policy. If members of the Metafilter legislature really thinks that, e.g., anybody who borrows more than $X should have to pay a tax penalty on top of the interest charges, I admit that I am curious to know what X is.
posted by PaulVario at 10:16 AM on June 10 [1 favorite]


PaulVario, I believe you are the one who is not understanding the facts here. The loan is rolled over indefinitely, more borrowing is used to make the payments. As I understand it, even the capital gains taxes don't get paid when the estate sells the appreciated stock. And, of course, even if the capital gains taxes were paid, it's a tiny fraction of those on earned income, not even including those for Social Security and Medicare that apply to most ordinary people's income. The fact is, if you receive assets that are a huge multiple of your spending needs, you can avoid paying even that tiny fraction. I'll admit I don't understand how it could possibly be cheaper to keep borrowing rather than pay the tax. Interest rates are low right now, so maybe it really is cheaper to rent your entire consumption from a bank and keep the appreciation rather than paying Uncle Sam. Some people would gladly spend $2 to avoid $1 in tax, so that could be it as well.

And just to get some numbers in here, only .07% (1 out of 1400) people pay any estate tax at all. So it really applies not to the 1%, but a subset of even the .1%.

It seems like when someone receives stock or options for stock that they should pay tax. It's not the borrowing that's the problem, it's the fact that someone is receiving something of value but not paying tax on it, for the arbitrary reason that what they're receiving is a stock and not wages (or fringe benefits, many of which are taxed). The real scandal is what's perfectly legal.
posted by wnissen at 11:47 AM on June 10 [4 favorites]


I think it would help to maintain a healthy, respectful discussion by...

I think it would help to maintain a healthy, respectful discussion if people commenting did so referencing the previous conversation here in this thread and the article we are discussing. It'd be nice to avoid falsehoods the article refutes, too.

when Jeff Bezos is making use of them for consumption, he is assuredly creating tax obligations for himself.

I would urge people to re-read the part of the article that discusses Jeff Bezos' actual tax payments. How he paid nothing in 2007. Or 2011, where he qualified for the child tax credit. He did pay $1.4B in taxes on his reported $6.5B in income (2006-2018). That puts his rate-vs-income at 22% which is actually pretty high by rich guy standards. Michael Bloomberg paid 3.7%. Average Americans pay 14% by this measure. Bezos' rate is still a far cry from the nominal 37% income tax bracket you'd naively think he would be subject to. It's not even the 20+3.8% rate that high earning folks should be paying on capital gains.

But in that same 12 year period Bezos wealth went up $120B; that's why the headline 1% tax rate number. It's not a nonsense number at all, but it sure is astonishing. The article is quite clear in explaining how it works. Folks can wave theirr hands and say it's all paper gains and not "real". But it's absolutely real in very many important ways. The article does a great job framing this in terms of wealth creation and how ordinary Americans are heavily taxed while trying to build wealth in ways that the ultra-rich are not.

The estate is taxed for these gifts (around 40%) over the threshold

Estate taxes are for chumps. As the article says, "wealth managers offer clients a range of opaque and complicated trusts that allow the wealthiest Americans to give large sums to their heirs without paying estate taxes." It's completely disingenuous and disrespectful to keep claiming that estate taxes are somehow magically going to end up taxing folks on their capital gains. Technically the capital gains aren't taxed at all; it's a bit disingenuous to say "well it's taxed 40% so who cares about the 23.8% in capital gains?". The 40% tax is a tax against generational transfer of wealth, not capital gains. And again, only suckers pay the full 40%.

Putting my cards on the table, I don't have a solution for fair taxation of deferred capital gain. It makes little sense to tax capital gains every year in some mark-to-market scheme. If you did that, then to be even vaguely fair you'd have the government paying massive refunds to people in the years they lose money in the stock market. Also it'd encourage a lot of unhealthy churn. A straight up wealth tax is simpler in some ways but also creates problems.

The strongest part of the ProPublica article isn't its judgement about whether the US tax code is "fair". Just the raw fact of the numbers is breathtaking. The richest Americans get much, much richer faster than anyone else. And they're not being taxed while doing it.
posted by Nelson at 11:55 AM on June 10 [5 favorites]


Yeah that's really the thing, Regardless of how well you think the system is setup or how fair it is in concept, in reality, look at the actual number for the amount of tax Jeff Bezos is actually paying.

It's just the concept of "disparate impact" in banking. It doesn't matter how you intend the system to work. If the actual outcomes are racially disparate, your system is racist and you need to fix it.

But this isn't about race so it we can say that it doesn't matter how fair the rules appear, we can tell by the outcomes that it's fucked and something needs to be done to fix it.

So when I see statements like "In this case, he pays tax!" I respond with, "Well, that isn't what is actually happening, he's not paying that tax so it does not work that way." Maybe it should or it's supposed to but it isn't and it won't work that way until it's made to work that way.

Every system is perfectly designed to end up with the outcomes it gets. So if you don't like the outcomes you're seeing then something is wrong with the system.
posted by VTX at 12:42 PM on June 10 [3 favorites]


Warren Buffet's response, which is linked in article, says that when he dies 99.5% of his net worth will go to either taxes or charities. If that's true, is he really undertaxed? I guess in part it depends on how that breaks down between taxes (which will presumably be spent in accordance with democratic principles) vs. charities (which will presumably be spent in accordance Buffet's personal priorities, whatever those are).

The unanswered question in the article is what percentage of billionaire's estates are actually subject to the estate tax rate of 40%. The article says that the "wealthy that they can readily escape turning over almost half of the value of their estates" by using charitable trusts and trusts that somehow transfer wealth to the next generation with paying the estate tax. But doesn't explain that process or provide any support for the claim that "almost half" of these massive estates aren't subject to the estate tax.

I'm not too bothered by the obscenely wealthy not paying income tax in any given year, so long as we recoup an appropriate amount when they kick it. And common sense says that they probably don't, but this article doesn't connect all the dots.
posted by lumpy at 2:57 PM on June 10


when he dies 99.5% of his net worth will go to either taxes or charities If that's true, is he really undertaxed?

There's a huge range of how to calculate every part of that sentence.

1. Who defines net worth at this time
2. What % goes to 'charity'
3. What Charity? Who runs it?
4. What % goes to tax
posted by chaz at 3:29 PM on June 10 [2 favorites]


I don't know how true it is but Buffet has always had a reputation as not really spending his wealth. Lives in a modest home Nebraska and generally runs his businesses with an eye towards long-term growth and stability. When he says he's going to give away almost all his wealth I'm inclined to make somewhat charitable assumptions about how he'll do it. Even if Warren Buffet as an individual plans to give his money away in a way you would approve of, the point stands that the fact that's even up to him is ridiculous.

He's a bit of a unicorn among billionaires, eat him last.
posted by VTX at 7:06 PM on June 10 [8 favorites]


Also he'd be kind of chewy.
posted by flabdablet at 4:18 AM on June 11 [2 favorites]


IDK - cherry coke and cheeseburgers - might be a kind of American Wagyu.

(Buffett is a hypocrite of the first order on a lot of things, but he does seem very committed to not leaving his wealth to his heirs. )

when he dies 99.5% of his net worth will go to either taxes or charities If that's true, is he really undertaxed?
LOL. he's literally written multiple op-eds in the NYT and WSJ saying he is undertaxed.
posted by JPD at 6:06 AM on June 11 [3 favorites]


Dibs on the leg!
posted by Meatbomb at 6:25 AM on June 11 [1 favorite]


It’s Not Just Income Taxes. Billionaires Don’t Pay Inheritance Taxes Either. (Mother Jones, Michael Mechanic)
Rich Americans pay only about 2 percent on inherited fortunes, “less than one-seventh the average tax rate on income from work and savings.”
...
You have your lawyer set up the trust and assign a bunch of assets to it—that could be stocks, a Picasso painting, a stud racehorse, whatever. The initial value of the assets, plus interest calculated at the outset using that month’s 7520 interest rate, gets disbursed back to the trust’s creator in annual installments (annuities) over the lifetime of the trust, which can range from two years to much longer—that’s up to you. If the assets in your Walton GRAT increase in value faster than the 7520 rate would have predicted, there will be assets left over at the end of the trust’s lifetime. Those assets go to your beneficiaries—your princelings—tax free. Better yet, they don’t count against that lifetime gift/estate tax exemption.
posted by ectabo at 1:30 PM on June 11 [5 favorites]


when he dies 99.5% of his net worth will go to either taxes or charities

Of course, he could just give it away now. It's not like nobody could use it at this particular moment. Or hell, maybe he could buy up some big greenhouse gas producers and dismantle them. Or invest it all in renewable energy. This would be a really good time for that!

I admire Buffett's position on taxation, but I really don't admire this leisurely approach of "hey now, you'll get the giant hoard I'm sitting on one day, all in good time..." There's a world in need all around him. His net worth is over 100 billion. He could have raised hundreds of thousands of families out of generational poverty by now if he'd felt like it. Broken the cycle for so many people. Instead that money is currently funding BoA, Apple, Coca Cola, Kraft Heinz, Verizon, Amex, U.S. Bancorp, and so on.

Tax rich people now, not hypothetically at the time of their deaths. That money could be doing things in the meantime.
posted by trig at 2:42 PM on June 11 [4 favorites]


That money could be doing things in the meantime.

Net Present Value taxation = win.
posted by aramaic at 9:47 PM on June 11 [1 favorite]


I'm not too bothered by the obscenely wealthy not paying income tax in any given year, so long as we recoup an appropriate amount when they kick it.

I don't get this. Wealth, the wealth of billionaires in particular, isn't inert. It shapes the world according to their priorities. Priorities which are frequently opposed to the better interests and continued survival of civilisation as a whole. To me this is like saying "I don't mind if fascists run my country for a few decades, as long as we get a democracy at the end". This isn't a zero-sum game: harm, much of it irreparable, is being done to both individuals and society because we allow a tiny class of people to amass far more power than any one person can responsibly wield. There are things that power is needed for now, and massaging the egos and satisfying the peccadilloes of a handful of people is not one of those things. The existence of billionaires is, by its nature, inimical to human flourishing and human survival.
posted by howfar at 8:14 AM on June 12 [6 favorites]


Nick Hanauer is a self-described member of the economic .1%, a “plutocrat”. His message to his fellow plutocrats is:
Share the wealth, or face the angry mobs with pitchforks and guillotines
He goes on to make an economic argument about why a well-paid middle-class makes good economic and social sense.

But his main point is Violent revolutions by desperate, downtrodden masses against the plutocrats who run their society is a thing that humans do. And it never ends well.

Like Jim Morrison opined, “They got the guns, but we got the numbers.” And when enough people have nothing more to lose, violent revolutions happen.

The good thing is… large, well-paid, thriving middle classes tend not to revolt. So it is fully possible for the rich to buy their way out of violent revolution.

But they really, really seem to like having more wealth than they can spend.

🤷‍♂️
posted by Pirate-Bartender-Zombie-Monkey at 10:47 AM on June 12 [2 favorites]


OK, so I’m just going to sum up my own perspective here:

People borrow from others, using their own assets as collateral, all the time. This option is open to all sorts of homeowners and stock owners. It’s simply groundless to argue that (1) these assets are not part of the economy, (2) that people do not borrow using these assets as collateral, (3) that the IRS prohibits these practices, or (4) that taking out loans constitutes income or that people who take out loans are hiding income. This set of ideas confuses income with liquidity.

Furthermore, if a borrower dies, the estate has to repay the principal and interest on the loans. The notion that high-visibility super-rich borrowers are getting zero-interest loans is literally fabulous. That in itself would be a gift that would constitute income. There is no evidence whatsoever for the theory that such loans are “rolled over indefinitely.” This is just a matter of math: if you borrow X dollars and it costs you Y interest, you can’t repay the loan just by returning the principal. Interest costs money and accumulates, and all of these super-rich borrowers are paying interest costs.

It’s also worth noting that, as a tax avoidance strategy, dying as a debtor who possesses appreciated assets is going to face some steep limits. As an insider, someone like Bezos is going to have to get his trades cleared before they’re made. That information has to be made public. Any substantial sale of shares risks forcing the share price down. That means you could see a cascade effect, where the seller has to disgorge more and more shares at lower and lower prices. This is one of several reasons why step-up basis issues are not especially relevant to this discussion.

Notably, some people immediately above have argued that what’s wrong with the system is that people aren’t being taxed when they receive stocks or options on stocks. But this is mistaken, because the receipt of stocks and options are taxable transactions. What is at issue here is that the system doesn’t immediately charge holders of capital goods for the appreciated values of their assets.

Finally, in the context of intergenerational taxes, it's really weird to encounter the argument that a tax on generational transfers isn't really a tax at all because it is labeled as a different kind of tax. The important issues here are the dollars that transferors lose and/or the rate of tax that they face. The taxpayer doesn't really care whether something is labeled as a capital gains tax or as an estate tax. It isn't about the language -- it's about the money. There is no doubt that there are some ways to shield the intergenerational transfer of wealth from the tax man. But it's almost always true that once you go over the $12m (or whatever) threshold, the taxman will take a healthy bite.

What Pro Publica has discovered here is that the system doesn’t tax income when people don’t receive income. This is not an especially penetrating insight -- indeed, it seems to obscure more than it clarifies.
posted by PaulVario at 4:42 PM on June 13


This is one of several reasons why step-up basis issues are not especially relevant to this discussion.

As far as I understand it, stepped-up basis is the key to the tax strategies we're discussing. Stepped-up basis means that the estate pays no capital gains taxes on assets that are held until death. If you sell stock, it's not in your estate when you die; if you borrow against it, you can hold it until death.

Say A has $20M in appreciated stock. If A were to sell it, they would pay $4M in capital gains tax and be able to spend $16M. If, instead, they borrow $16M, they can spend $16M and die with $4M in their estate.

Interest muddles this up a bit, but the baseline is spending $16M and leaving no estate, so even if A's stock underperforms the loan, A can break even. Say the loan interest is 100% over the life of the loan (3% over 24 years) and the stock goes up 60% (2% over 24 years). Then A dies with $32M - $32M = $0M in their estate. But if the stock matches the loan or beats the loan, A's estate is even bigger. A has gotten a margin loan subsidized by $4M of avoided taxes.

Ultimately, if it weren't profitable to borrow against stock, why would so many billionaires do it?
posted by ectabo at 8:26 PM on June 13 [2 favorites]


the key bezzle for dynastic wealth is avoiding estate tax, which is a separate issue from the item at hand here - which is funding consumption without generating taxable income.

The step up in basis needs to be seen in the context of estate taxes. You step them up so you only get taxed once, the estate tax. You could not step up the basis but have a lower estate tax and get the same outcome. if people were paying taxes according to the spirit of the law. The issue is that you've never effectively shut down estate tax evasion, and you still allow the basis step up.
posted by JPD at 5:53 AM on June 14 [2 favorites]


If we want to keep comparing stocks to a house, the biggest thing is that there is no tax on owning stock, where there is tax on owning property. So, why not do that? The rate would have to be in-line with returns in the market (i.e. a 30% tax rate of the value of a stock isn't going to work when the average annual returns are only 5%). I dont know how this could be done, I'm not an accountant.

It wouldn't completely fix the problem, the rich will find other avenues. But it makes this less convenient and the stock market in general less of an appealing way to hold onto money. And it's probably not a bad thing to somehow de-emphasize the outsized role that the stock market plays in our economy. Or at least get some taxes from it.
posted by LizBoBiz at 7:47 AM on June 14 [1 favorite]


Some comments from tax guru Gene Steuerle (a leader of the 1986 tax reform effort, cofounder of the Tax Policy Center, etc.): Pro Publica’s Billionaires: Stories Behind the Story.
posted by Mr.Know-it-some at 11:16 AM on June 15


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