Coincidentally, I saw an article entitled “Buy, Borrow, Die”. If you don’t need to have a salary paying job (so not applicable to almost everyone I know or have ever met), you buy an asset let it grow, refinance it (borrowings grow), spend the money you borrowed (tax free) some for more assets, some for pleasure. Rinse and repeat until you die with a shitload of debt that then gets wiped out.
One word: Land value tax.
Every time I see a post like this I am disappointed that NO ONE mentions Henry George.
People, please, go educate yourself. Taxes were solved before ww1.
Technically three words.
I’m german speaking. So for me, this is one word ;)
Fun fact, in German the entire Bible is just one word!
deleted by creator
This is why we need a wealth tax.
Don’t tax the rich. Take more extreme measures.
Join your local communist party and join the revolution to overthrow these fucks and seize their fortune by force.
Yeah because Communism worked so well for Russia, China, North Korea, etc. Communism is NEVER the answer, since it will ALWAYS get abused.
If I burn your house down, is that evidence your house “didn’t work” and should never have been built in the first place?
Apparently worked better than the alternative . . .
Saying communism isn’t the answer since it will get abused, when your alternative is capitalism, is like saying dating someone in recovery is a bad idea, and that’s why you only look for abusive people who are currently drunk.
So much apples in 1997?
This is u ironically why the rich should support a wealth tax.
Ok, but how about something instead of communism, because that never works.
Capitalism doesn’t work. And sadly capitalism never allowed communism to work. Because the greed of the few outweighed the needs of he many.
Capitalism works a lot better than communism. At least countries that are vaguely capitalist still exist and can realistically be described as capitalist today. Countries that claim to be communist are authoritarian, or authoritarian plus capitalist.
All capitalist countries have elements of socialism, a mix is probably the best scenario, and indeed to have private benefit corporations and co ops to fulfill needs the private sector is unwilling and unable to provide the needs for equitably.
The idealogues of the right talk a lot of shit, but capitalism doesn’t work without controls, the free market destroys itself, and leads to consolidation, to one company, becoming sort of communist as the opposite ends come back together in a circle between free market and controlled economy. Somalia should be a free market paradise according to the dogma of the billionaires funding libertarianism and the republican party’s think tanks.
Capital is too greedy to do what’s in it’s own interests and will destroy itself like yeast in a wort producing alcohol that will kill that yeast above a certain percentage.
Who told you that it never works? … Checks notes … the capitalists did.
No, it’s my own eyes. You don’t need the capitalists to interpret it for you when you can just look for yourself and see that communism never works.
keep in mind, that communism, based on marx’s vision, was supposed to bring democracy to the workplace, on top of democracy in politics, the “worker’s dictatorship” was supposed to be a temporary thing, before the system reaches actual communism
What communist country did you live in again?
That’s so far because either a elite group gets in power and turns it into feudalism again, or the us intervenes because communism shall not work.
We didn’t throw away democracy just because the french revolution failed at first.
That’s so far because either a elite group gets in power and turns it into feudalism again
If it always collapses into feudalism / authoritarianism, it’s not a workable system.
We didn’t throw away democracy just because the french revolution failed at first.
The French and the Americans had historical working versions of democracy to consider, like the Athenian system. Communism just fails over and over again every time it’s tried.
A permanent utopia free from geopolitical influence has yet to be established under any system of government, therefore no system of government has ever worked.
Why is “permanent utopia” the criterion? I don’t know of any political system that claims there will be a “permanent utopia”, except maybe dreams of what communism might one day be like.
Well, permanent because if it gets destroyed it you can’t call it successful, and utopia because you need an ideal to measure success against even if its not realistically achievable.
Looking at Vietnam… Seems to work great when the imperialists fall to crush you.
Vietnam joined the WTO and exploits it’s workers for Wall Street corporations outsourcing from even china to save an extra buck. How is that communist, whoring for wall street?
In what ways is Vietnam a communist country?
The oligarchs in the US are the utlimate power behind the destruction of our democracy. They have stolen the wealth from us for decades. And yet so many of our citizens defend them because they might be rich one day. Which they won’t. Because the ultrarich already there won’t let them.
Guillotines are long overdue.
We don’t wonder anything. If you were wondering, you never bothered to think about it for more than three minutes.
And your comment has what to do with mine?
Yup, search for “Buy borrow die” and there are various articles about the technique.
This is basically urban legend at this point; “buy borrow die” is a tiny piece of the ultra-wealthy’s financial strategy, at least when it comes to the “borrow” part, which is what everyone’s focused on:
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In reality, the ultra wealthy do not borrow against a large fraction of their unsold gains. On average from 2004 to 2022, the top 1% of wealth-holders only borrowed 1-2% of their annual economic income.
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Borrowing while holding unrealized gains is, in fact, more of a middle-class activity than an ultra-wealthy one: Americans in the 50-90th percentiles borrowed 42% of their unrealized gains in 2022, compared to just 4% for the top 1% of wealth-holders.
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The primary tax avoidance strategy for the top 1% is not to borrow, but simply not to sell appreciated assets.
On average from 2004 to 2022, the top 1% of wealth-holders only borrowed 1-2% of their annual economic income
What’s confusing to me is that there must be a reason they’re borrowing. When you borrow, you have to pay interest. If you’re someone who has a lot of money, why would you pay someone to lend you money? I guess the only thing that makes sense is that they think that whatever makes them rich, say Amazon shares or something, will go up at a rate that beats the interest rate they have to pay for the loan. OTOH, I guess they’re not so sure of that that they borrow in order to buy even more Amazon shares.
The primary tax avoidance strategy for the top 1% is not to borrow, but simply not to sell appreciated assets
I assume this means “not to sell all of their appreciated assets”, because they do spend a lot of money and it has to come from somewhere.
The reason the rich borrow money is to take advantage of tax loopholes. It’s not about being reasonable or what ought to make sense. They are gaming the system, that’s it. So, how does it work?
If they have investments in the stock market, then they get taxed when they sell those. So even though the investments are usually going up in value, they don’t want to sell too often. But they still need to buy things.
So, where do they get money for living, houses, cars, travel, etc? If they get paid for working a job, their income is taxed a lot, meh. If they sell their stocks, they get taxed a little, meh. But if they get a low-interest loan, that money is not taxed.
And you might say hey, money’s gotta be paid back some day. But remember, the goal is to find the loopholes, the places and times where either you don’t pay tax or you pay much less tax. And those loopholes are all over the place. In the end, the details are just boring. Most financial scams have just enough moving parts to look amazing, but if you take an hour to figure them out, it’s nothing exciting.
I cant blame them, honestly. And I think 99.99% of poor people would use the same strategies if they could. This is not about being morally superior, its about finding ways to keep your money. And this is something everyone is interested in.
Unfortunately only the rich can use this strategy in practice, but we all would if we could.
The reason the rich borrow money is to take advantage of tax loopholes
Ok, what tax loopholes?
A basic one is negative gearing + trusts + cheap loans.
Negative gearing allows you to deduct/combine different income streams together to reduce your taxable income, and hence tax liability.
Traditionally used by middle/upper middle class to deduct mortgage interest payments and reduce their taxable income.
Rich(er) people combine this with trusts to distribute income/expenses among trust beneficiaries for something more tax advantageous. Usually this is someone like a spouse, child, or extended family member.
Add on the fact that rich people get cheaper loans, which often makes it cheaper to finance day to day life with loans, and only draw down (ie realise capital gains) after shuffling around incomes/expenses for a year.
Tax loopholes are basically legal ways to shift the timing and benefiary of income/expenses. There’s a bunch of other ones, like
- choice of depreciation calculation
- purchasing things on behalf of a “trust” or “company”
- getting paid in low tax jurisdictions
- moving money into tax advantageous retirement accounts
None of that explains anything for wealth levels we’re talking about. Negative gearing implies a loss elsewhere, trusts max out at the same rate as all other inheritance they just avoid probate, retirement maxes out way earlier than what they have.
Neat doc, thanks for linking. I find this part very sensible in light of what you brought up
In most cases, the ultra wealthy don’t need to borrow, because their liquid, taxable income—salaries, business income, and capital gains—is significantly higher than their annual consumption.
That makes sense… I mean once you’re somehow generating millions or more every year in income, no need to borrow at all really. It’s making it to that upper tier of income vs. expenses that few reach.
Tax the Rich, the Old Fashioned Way: Raise Rates
That’s the key thing.
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Ancap (ie, right wing) friend sent me this off shitter:
Unrealized gains tax for Gen-Z:
You buy a Pokémon card for $50.
Someone offers you $500 for it. You say no. You love that card. You’re keeping it.
The government says: “Cool, but that card is worth $500 now. You owe us $100 in taxes.” You: “…I didn’t sell it.”
Government: “Don’t care. Pay up.”
You don’t have $100 lying around. So you’re forced to sell the card you love just to pay a tax on money you never received.
Next month? That card drops back to $50.
Your card is gone. Your money is gone. And the government shrugs.
That’s a wealth tax on unrealized gains. They don’t pay you back the tax…
Now picture this.
Your mom calls you crying. She has to sell the house she raised you in. Not because she can’t afford it. She’s lived there 30 years. It’s paid off.
But some website says it’s worth more now and the government says she owes $15,000 she doesn’t have.
So she sells your childhood home. The kitchen where she made you breakfast. The doorframe where she marked your height every birthday.
Gone.
To pay a tax on money that was never real.
Now picture the opposite.
Your dad put everything into his small business. For 20 years he built it from nothing. One year the business is “valued” at $2 million on paper. He owes a massive tax bill. He empties his savings. Sells his truck. Borrows money. Pays it.
Next year the market crashes. His business is worth $200,000.
He lost everything to pay a tax on a number that doesn’t exist anymore.
Does the government give him his money back? No.
Does the government give him his truck back? No.
Does the government care? No.
They sold this idea as “taxing billionaires.” But billionaires have armies of lawyers, offshore accounts, and trusts. They’ll be fine.
You know who won’t be fine? Your mom. Your dad. Your neighbor with a small business. The farmer down the road who’s had the same land for four generations and now has to sell it because dirt got expensive.
You’re not taxing wealth. You’re taxing people for owning things.
It’s like getting a parking ticket for a car you might drive somewhere someday.
They want you to own nothing and be happy. To fund the fraud, waste and abuse of the welfare state they created.
There is enough money. More tax isn’t needed. It’s all a lie. But you’ve been gaslit into believing this is a rich vs poor debate.
I hope you understand what’s at stake.
I pretty much instantly shut that down by saying “THEN MAKE THE FUCKING LAW FORBID THE BILLIONAIRES FROM SIDE STEPPING IT! THAT IS THE PROBLEM! IT IS A RICH VS POOR DEBATE YOU IDIOT!!!”
People are idiots.
A wealth tax wouldn’t apply to normal people below an obscene threshold. And you wouldn’t tax a primary residence at all, as is already the case with our tax code on near every score. You wouldn’t tax a baseball card collection.
But if a person put a bunch of paypal stock into an IRA account, and it turned into 5 billion dollars later, you would find a way to tax most all of that. If bezos’ worth increased by billions, then a portion above an obscene level would be taxed, often exempting the first so much then graduating higher levels, as is customary in taxation here.
You are excusing the super rich from taxes by associating it with hypothetical unfair taxations against normal people for smaller amounts. Which is the same way they got rid of the estate tax, by lying about who paid the estate tax, claiming family farms and small business paid it, when it was only obscenely rich people that paid it.
Now, no one pays it. An heiress just inherited 200 million on her 19th birthday or something, not the entire estate just a piece of it, without paying a dime in tax, thanks to the dishonest arguments mirroring the ones you made on this in the first half of your piece at least.
Bezos paid 600 dollars in 2020, a year his net worth skyrocketed, and where he spent an incredible amount of money he got without getting a paycheck. He paid less in taxes than we do, not just per capita, total. He claimed the child tax credit. When your net worth increases by millions above millions, it needs to be taxed, whether it’s when they borrow against the value of that which is where they now realize much of their income that is tax free now, or whether it’s regardless of it being realized.
If the value they were taxed on an increased price of an asset fell later, they would be able to subtract that back 3 years and forward ten years to offset other taxable income, that’s the way it’s already set up, itself quite unfair as working people get no such consideration to only pay taxes on profits, which would be akin to only paying taxes on wages after paying all of your core bills.
In 1950, the majority of taxes, like 90 percent, came from businesses, now 90 percent is ripped from working people, and the richer they are, the less they pay above a certain threshold, something has to change.
The ways this is idiotic:
- “The government says: “Cool, but that card is worth $500 now. You owe us $100 in taxes.” You: “…I didn’t sell it.””
There is currently no tax on unrealized gains. If there ever were, it wouldn’t be 20%. It would be something tiny like 1-2%. It’s a wealth tax. Wealth taxes are tiny compared to income taxes precisely because they’re taxing something you’re holding and will still have next year if nothing changes.
- “Next month? That card drops back to $50.”
Why does it “drop back to $50”? OP said that the $500 value was because someone offered that much for it. Did that person no longer want to buy it? It’s true that sometimes the value of things is fluid, which can make wealth taxes hard. But a 90% drop in value over the course of a month? Let’s be realistic.
- “Your mom calls you crying. She has to sell the house she raised you in. Not because she can’t afford it. She’s lived there 30 years. It’s paid off.”
Yes, housing taxes are wealth taxes. Sometimes when the place you lived in appreciates enough, the property taxes go up a lot. So yes, sometimes people do have to move when their properties go up so much they can no longer afford the property taxes. But, when that happens they get to sell the place, and if the property taxes are so much that the person can no longer afford them, that means that the property is worth a fortune. The property tax is often 2% or below. So, if mom owes $15,000 in property taxes, that means her property is worth at least $750,000, probably actually more than $1M. Cha ching! She can buy a nice, smaller place now that she doesn’t need to raise kids, and use the rest to go on some nice vacations.
Yeah, it sucks if you have an emotional attachment to a place you can no longer afford. But, there are plenty of people who can’t afford to buy a house at all, who weren’t even allowed to mark their kids’ heights every birthday because they were renting. Wealth taxes are a way to even things out. Property taxes are a pretty shitty form of wealth taxes because they hit the middle class harder than the ultra rich, but people who don’t own property don’t pay property taxes, which is good.
- “Next year the market crashes. His business is worth $200,000.”
Man, this guy can’t catch a break, all his relatives have everything crash 90% in value immediately after having to pay a tax bill they can’t afford, despite wealth taxes being tiny amounts.
In addition, most of the time wealth taxes have a threshold exactly for this kind of reason. If someone owns a $2m business in a place with wealth taxes, they may pay nothing because the first $5m is exempt.
Yes, sometimes wealth taxes are more painful to upper middle class or the moderately rich because they don’t have the armies of lawyers and accountants who can find the best strategy to minimize their taxes. But, the answer isn’t to scrap wealth taxes entirely. It’s to accept that even the moderately wealthy should pay more than people who own almost nothing, and to properly fund the tax authorities and financial crimes divisions of the cops so they can go after the ultra rich when they illegally avoid taxes.
If you got 500$ - 100$ in tax for the card and it drops back to 50$, you can just buy it back with 400$ you still have left…
And a wealth tax and inheritance tax usually have a cut before you even have to pay any tax. Got granny’s house worth 500k? No problem. Get a building complex worth millions? Pay your damn taxes. I’m sure the state will accept a payout over time if you can’t afford to pay it at once.
If you got 500$ - 100$ in tax for the card and it drops back to 50$, you can just buy it back with 400$ you still have left…
They’re talking about a wealth tax where you have to pay $100 even though you never sold the card. (But it’s double bullshit because something as small as $500 is never going to face a wealth tax, and $100 (20%) is a way higher tax rate than anybody would pay.
Start taxing 20% from $1B+ and I think 99.999999% of us are fine.
Historically, taxing the ultra-rich at 90% or 95% has not stopped them from staying rich, and it also helped everyone else get more social services.
When the US was at the height of prosperity, when the working class had the highest standard of living, and disposable income, the highest ever in history of any working class hands down, in the 1950s, and until the 1970s when it declined precipitously in the late 70s, obscene incomes were taxed at 90 percent. The first so much was taxed at lower rates, above a certain amount the rest at 90%.
The majority of taxes came from businesses too, 90%, today it’s flipped and 90% is individuals.
Whatever problems existed in those decades, a minimum wage job paid for a family, bought a house, a cheap car, health care, food, incidentals, going out for a burger even. Just one of them. And that is the issue people care most about, having enough money to live with dignity.
The Pokémon card example is ludicrous - aside from the fact that CCG cards are not “wealth”, or the fact that no one would offer $500 for a card that is only worth $50, a single buyer does not make a market or set the value. Stocks, the source of most outrageous wealth, by definition have a market value, and even the most frothy of assets don’t swing 10x in such a short period of time.
The mom calling about selling the childhood home is very real, in fact it already happens! Guess your friend is unfamiliar with property taxes. My home has tripled in value and the government appraised value went up by a smaller amount, and now I pay taxes. When my mortgage is fully paid off, I will still owe the local government taxes every year. All those “tax free” states lean on regressive taxes like sales tax and property taxes to avoid collecting progressive income taxes, so this problem is even worse in those states.
A while back I owned a small business, and because I didn’t pay myself in stock, I had to pay taxes every year based on how much my company profited. My business partner and I would do a distribution every year to pay those taxes. We paid more every year in taxes on our modest business than Tesla paid last year on $5.7B in income. Also, company “worth” for private businesses is based on appreciated assets and cash on hand… a business owner who “lost” 90% of the business value of a two decade old business in a year has much, much bigger problems than unrealized gains taxes.
Middle class people are already paying wealth taxes. Mutual funds are taxed on unrealized gains all the time, albeit at capital gains rates (because we value capital more than labor). Property taxes are paid on the biggest source of wealth most people own. Even poor people are paying annual taxes or fees on their cars.
I agree, your friend is a moron, but I think most people knew that the second they saw “ancap”.
Property taxes are regressive, but having state income taxes doesn’t preclude them, the states just spend the extra money. Here some cities have income taxes, the state, and the feds. And counties do property taxes through the township levels. The state will spend every penny they can get their grasping hands on, currently for pet projects of lawmakers and tax breaks and incentives and money spent to improve locations to lure big business to set up here.
While the small business both parties pretend to care about like yourself pay through the nose, that money is taken from us and handed to the richest companies in the world to set up here without paying those same taxes.
It’s all about leverage, and alone we have none. It’s never been more clear we need to organize, on our own forums, around what we agree on, no matter what we disagree on. On existing social media we are simply turned against each other on issues, oh that person from the other side that rejected their party and came over to our side? They once said this and still say that so fuck them they aren’t pure, even as the people making those arguments originally are the biggest pieces of shit in the world.
Social media is rigged, we need our own forums set up to not be rigged, to not be hooked by government and big business, and providing clear rules enforced fairly. Federated sites on general forums allowing people to cooperate publicly and privately as they see fit, and move between social medias on the same account. Where violations can be appealed all the way to a jury trial of members to prevent the rich, government, and moderators perverting it or abusing their power.
Would making the law kick in after a certain amount of net worth be the answer in that situation?
It’s almost like we have that exact system in place for income.
Not likely. First of all, the net worth numbers you see for these ultra-wealthy people are all educated guesses. To actually legally impose anything based on total net worth, you need to actually audit net worth and get a real figure. The resources it would take to do this are very unlikely to yield more tax revenue than they cost, especially because there is so much one can possess whose value is pretty much completely arbitrary (the high-end artwork, etc.).
It’s actually all-but-certain it’d be a net loss of tax revenue. There is a reason that every time such a policy targeting only the wealthiest is put into place (it’s been tried numerous times over the years in a bunch of European countries), it’s gotten rid of soon thereafter, or ‘dialed down’ to be just another ‘mundane’ tax that falls primarily into the lap of the middle class.
To actually legally impose anything based on total net worth, you need to actually audit net worth and get a real figure.
So, what’s wrong with that? You have a wealth tax on all wealth over $100 million. If you have wealth anywhere over say, $50 million, you hire an accountant to assess your business’s value. Everyone with that level of wealth already hires accountants. It’s a trivial additional burden. If your wealth is no where near the tax threshold, you don’t need to bother hiring an accountant to get a precise figure.
There is a reason that every time such a policy targeting only the wealthiest is put into place (it’s been tried numerous times over the years in a bunch of European countries)
I’m calling bullshit on this. There are all sorts of taxes that fall heavily or solely on the wealthy. The reason the wealthy don’t all leave is that they don’t actually want to live in places that have low taxes. You can get low taxes in a war-torn hellhole, but most don’t actually want to live like that.
Accepting your premise as true, that still doesn’t make the tax valueless. The real value in a wealth tax is breaking up the money from individuals, the revenue is just a bonus. Even if it is all used to pay the accountants, that’s still money that’s now actually moving through the economy rather than zombie wealth sitting in some rich fuck’s paws, doing nothing but contribute to inflation.
Do you consider Switzerland to be a European country. It has had forms of wealth tax for centuries, and the current tax generates roughly 4% of Switzerland’s total revenue. It seems to work just fine there.
Yeah. My parents moved into the country because their house value got too high and they were being taxed to death because of all the people that moved into my hometown making property values skyrocket.
Then other people started moving into the area, and now the value of their place has skyrocketed, and they’re gonna have to sell again because they’re being taxed to death because other people moved into the area.
There’s this massive movement of retirement people from place to place because every time they move somewhere to reduce their tax burden the values go up again.
I’m 100% for capping the taxable value of land for primary homes based on the value at the time of purchase plus inflation. The whole idea of a homestead is to improve land, and
“Boo Hoo, my assets keep going up in value so much that I keep having to cash out!”
No. They keep having to move away from their homes and get new loans at higher rates.
They’ve never been able to pay off a home because they keep having to do new mortgages.
Your parents just suck at personal finance. They used their home as a piggy bank and raided the equity every time they moved. Either that or they kept buying more expensive properties.
I’m sorry, but your story is just not credible. If they owned a house in the city, and then the value soared, they should have been able to take their windfall, move out to the country, and buy a cheap property in cash. The only way this isn’t true is if they either did a lot of cash-out refinancing, or if when they moved to the countryside, they bought a much larger property.
The property was cheap (about an acre for 40,000), but then they had to put a house on it. They were living in an RV that came with the property due a few months while the house was being built.
Covid hit in the lag between when their old house sold and the new one was ordered, so the cost of building the new house was double what was expected, so instead of buying cash their remaining equity was wiped out and they ended up with a loan. But it was still cheaper than their old house because of taxes.
But after the new, smaller house was finished, a neighboring property was also bought and a multi-million dollar mansion was placed on it. And then another.
And then the county and school district raised the tax rate for everyone while also quintupling the assessed value of the land. There’s a circuit breaker law, so it can only go up 10% a year, but even that’s unsustainable for people on a fixed income.
There actually is an estate tax after death:
https://www.irs.gov/businesses/small-businesses-self-employed/estate-tax
Right now it only kicks in after 15 million. A decade ago it was still 5 million. But it doubles to 30 million for a couple.
For the really wealthy people, they need to pay to obfuscate the rest of the money thru trusts and offshore banking, which they’d rather not to pay to do.
Which is why they’re still pushing to raise the cap every year.
They donate it all to charities…. Charities they set up with their relatives on the boards of trustees, who then get paid salaries from the charity’s endowment.
No they don’t. You cannot buy yourself what they have with charity money. That’s just the influence part.
“The rich pay nintey-”
“They can pay fucken 100 percent, I dont give a shit. You want to be a world pillar? Here you go.”This doesn’t make any sense. How are the loans getting paid back?
This is the process, extremely simplified:
- It’s 1970. You inherit $10M from your rich dad who worked hard.
- Buy $10M index fund stock.
- Borrow $10M against stock.
- Live tax free off that $10M loan for 30 years (you can do that because you started in 1970 when it was cheap to buy a house).
- Your stock is now worth $58M (avg 6% per year for 30 years)
- Your kids inherit the stock at its current value and immediately sell $10M worth to pay off original loan. They pay no capital gains tax because the stock barely moved in the time between when they took ownership and selling it. All of the value growth since original purchase in 1970 is now tax free. The kids now start with $48M.
- Repeat
Obviously, there is more to it than this. For example, this does not account for interest in the loan, or diversification of investments, or ability to hire accountants to maximize on the process.
You think they’re giving out low rate 30-50 year rolling personal loans in the tens or hundreds of millions of dollars range? This I find hard to believe. The premise makes sense, but I don’t think these loans usually exist.
Your kids inherit the stock at its current value and immediately sell $10M worth to pay off original loan
And the bank says “um, what about the rest?” In the 1970s and early 80s the inflation rate was, at times, above 10%, so your loan’s interest rate would have been above that. But say on average the loan’s interest rate was 5% per year over 30 years… the bank isn’t going to be content for just the original $10M.
All that matters is that your portfolio grows faster than the interest rate.
That’s what success looks like. But, you don’t know if you’re going to be successful when you take out the loan. If there’s a market downturn you’re on the hook for the loan and your portfolio has crashed. If you sold a few stocks instead of taking out a loan, you’re insulated from that possibility.
It’s actually a real thing.
Since taxes are paid when an asset is sold, not when it goes up in value, your net worth goes up with no tax liability change. When you die, the purchase price for tax purposes resets. Now the inheritor sells the assets. Since the sale price is essentially the same as the taxation price, there’s no taxes.
You’re borrowing today’s money against tomorrow’s value and taking the difference out of your death messing with taxes to free up the value.
From a financial perspective the time horizon for return doesn’t matter, only that the return is balanced against the time. From that perspective, the people giving the loan have no reason to really care since it makes them look good and they’ll at least not be working there when and if it goes wrong.For the individual wealthy, they aren’t. Some loans might get paid off by taking another loan, but the goal is to take the loan to the grave. The loan would get paid after death because then the estate can sell the stocks without paying any capital gains tax.
Let’s say you buy 1 million worth of stocks. The day before you die that stock is worth 51 million. If you cash out that stock you’re paying capital gains tax on 50 million. Let’s say the capital gains tax is 20% which means you’d pay 10 mil in taxes. So you get 41 million from the sale. Let’s say the loan is exactly 41 million so to pay off the loan you get nothing.
But if you die and that stock goes to the estate they haven’t gained any capital from the stock so when they sell it they pay no tax on it. The estate then sells the stock tax free to pay off whatever debt there was (the estate sells only 41 million worth of stocks keeping the 10 million on stocks). That 10 million is effectively free money that goes to the inheritor.
Basically it’s all just tax evasion for the ultrawealthy. Except it’s legal so technically it’s not tax evasion. And realistically the numbers are even more astronomical than what I used as an example.
They get a painting worth 10K, get a loan for that, then get it appraised for 30K, get a loan on that from somewhere else and pay off the other one. That’s one idea.
The second is they like assets that provide passive income and appreciate. You’ll find a lot get into land as well and rental units.
Since the 1970s governments have been continually printing more money. This means that if you can get a low enough interest loan (i.e. by having a ton of money already so that you’re low risk), the money you owe will devalue faster than interest accrues. You just keep doing that, and/or use it to invest.
Look, the rich people wrote the laws. You think they didn’t leave loopholes for themselves? … Tax law doesn’t have to make sense.
the stocks pay dividends,
If all the assets are secured by loans, then they inherit fuck all. They don’t magically not owe loans or not pay interest.
I’m not even close to the type of person where this strategy is an option, but the magic is in the stepped-up basis from what I understand.
Let’s say an asset is purchased for $1 million, held until it’s worth $10 million, and used to secure a $5 million loan. If you sell the asset, you owe taxes on the $9 million capital gain. If you die, the asset’s value “steps up” to the new baseline of $10 million. Your heir could then sell it with no capital gains tax, and pay off the loan and pocket the rest. If they hold onto the asset, and it appreciates to $11 million, they would only owe taxes on the gain of $1 million, not $10 million.
The whole scheme makes sense when it’s applied to a random farmer inheriting land from his parents: you dont want to force him to sell the land to pay capital gains. It makes a lot less sense when it’s someone inheriting stocks worth the GDP of a country.
It’s complicated…
The estate pays the loans back, but as the assets appreciate, the loans are covered….
The trick is moving your assets around, so that you personally own very little, and they have trusts or LLCs that own the assets so there isn’t inherent tax liability
Shrug fuck us.
Yachts don’t appreciate but yes, and inflation eats the debt so they win both ways.
Boats (yachts)
A hole in the water into which one throws money…
For the ultra wealthy, the value of their assets goes up faster than the interest rate of the loan.
Yep, you need a proper market crash for the loans to be called in. That’s when it gets fun.
Inheritance is wealth centralizing and anti democratic without severe restrictions
Yachts and mansions are depreciating assets. You aren’t borrowing against those and then passing them along as an inheritance.
The yacht, sure. The mansion…Are you seriously trying to argue that real estate, literal land, isn’t a long-term valuable asset? There is literally no asset in existence with a better long-term value proposition than land.
