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> Unfortunately articles like this which conflate things actually make it harder for us to fix the real loophole.

While I would consider that a loophole, I'm not sure it's the main problem. I feel that for all the complaints and logic of the substack piece, it misses the point of the propublica one, the kind of underlying feeling that's driving it: that it's unfair that the wealthiest people in the world pay so little tax compared to people in the 10% to .1% bracket, and even compared to people in lower brackets. It's unfair that they can gain extraordinary amounts of wealth, to such a degree that it's impractical for them to even use, and yet not be taxed on any of it, unrealized or no.

Because from my perspective, my monetary gains (eg. salary) don't really feel realized until I use them to buy something. Cash in the bank doesn't do much but make me feel financially safer - so why is taxing income considered reasonable, but wealth is not? And why, exactly, is it apparently reasonable to have sales taxes that don't exceed 12% (disclaimer - in the states, as far as I know); capital gains at 15%; but my income at 25%, 35%, 45%? Why is considering taxing wealth like company shares "far left end" but taxing other wealth, like my house, considered acceptable? Heck, we even have assessments and appraisals for real estate for the purpose of determining value without selling, for more accurate taxes and associated financial instruments - but taxing something that has a constant active market is the thing that's weird?

The way that the substack article fails to mention Warren's millionaire wealth tax proposal is a further disappointment, and leaves me feeling like it is also a fairly weak piece of journalism, not unlike the one it criticizes. It also makes little mention of the ever-higher bracket of the estate tax, and has bits like

> Sometimes stock prices go down, and that's generally not a write-off. So taxing the upside at an arbitrary point is unfair and kind of just silly.

Just because it isn't a write off now doesn't mean it couldn't be if some sort of wealth tax was implemented; this a poor-faith considering of the policy. In short, while I wouldn't consider the original article to be of much merit, and certainly below propublica's usual standard, this rebuttal is hardly any better.

> Cash in the bank doesn't do much but make me feel financially safer - so why is taxing income considered reasonable, but wealth is not?

Your cash in the bank is guaranteed to not be erased tomorrow, up to the FDIC coverage limit.

Stock has no inherent value until it's sold at whatever price the market is willing to pay. Claiming that I've acquired "wealth" simply because of an increase in the current market price is an extreme stretch.

I don't have that money – I simply have the potential to sell my stock for some estimated, potential price.

So why tax physical property? :)

Why indeed? I think increasing property taxes based on unrealized gains estimated by tax assessors is fundamentally unjust.

Maybe.

This guy Arnold seems to take the position that the ProPublica piece is somehow invalid because…you can’t tax unrealized gains?

1. I don’t understand how the latter follows from the former.

2. Of course you can. Property taxes are just that.

3. Wealth taxes are also just that, though elsewhere in this thread I see Arnold has argued that they aren’t really that.

Whether you should tax unrealized gains is a policy debate, but it’s not an outlandish or ignorant position to say you should—though ProPublica doesn’t say that, so I’m still not sure the relevance.

While I disagree that property taxes are unjust, most date back 200+ years to a time when almost all wealth was in the form of land. If a state wanted to tax wealth, they taxed land. (Though this sounds progressive in theory, such taxes were almost universally levied at very low rates. Combined with very low inflation, this meant was it was very easy for the wealthy to accumulate capital by living off the rents of their land.)

The way the US taxes physical property based on its current market value is pretty unusual these days, and I'm not sure it's a good idea. It seems to have all kinds of weird distortive effects on the market like encouraging train companies to rip up serviceable track to reduce their tax, incentivizing manufacturers to keep the bare minimum supply of components and materials in stock, and either causing increases in paper wealth due to a house price boom to mean people can no longer afford to keep a roof over their heads or leading to Proposition 13-like measures to prevent this that have their own negative effects. Everyone ultimately seems to pay the price for all these consequences of the US tax structure.

I may be wrong but I don't think the US taxes companies on the value of their inventory.

> Stock has no inherent value until it's sold at whatever price the market is willing to pay.

> Claiming that I've acquired "wealth" simply because of an increase in the current market price is an extreme stretch.

You’re aware that the market price is what someone is willing to pay, right? It’s not theoretical, it’s backed up by someone willing to buy shares (a lot of them for Amazon) at the quoted price.

> You’re aware that the market price is what someone is willing to pay, right?

Until I actually sell, it's merely a datapoint for very loosely estimating what the sale price will likely eventually be.

No, it's wealth. There's a real issue here: asset prices can be volatile; someone can own a valuable house and not have enough to pay their groceries. But asset prices are not fictional. Typically, corporations report the value of their assets in their accounts.

> No, it's wealth.

AAPL is up 0.67% over yesterday. Let's pretend it's January 1st, and my net worth is tied up entirely in Apple stock. Should I pay taxes on that unrealized gain?

> Typically, corporations report the value of their assets in their accounts.

With the notable exception of feudal property taxes, we generally don't tax the mere possession of assets.

> Should I pay taxes on that unrealized gain?

Did you read the whole of my comment? Yes, there is a real issue here.

Nobody should be put in the position of having a tax obligation they can't afford. Equally, nothing good is achieved by closely tracking the day-to-day volatility of stocks. But in general I don't think there is a fact of the matter about the kind of "ought" question you are asking in isolation: a tax regime is a system that should be judged as a whole.

> we generally don't tax the mere possession of assets.

Who is "we"? Many countries have wealth taxes.

>Who is "we"? Many countries have wealth taxes.

Many meaning 7, right? 7 countries have net wealth taxes.

It used to be many - dozens of countries did it. They stopped doing it.

Any country with a property tax has a form of a wealth tax. Most just don’t have one for total wealth.

Sure, but that's not what people talk about when they talk about 'wealth tax;' the accepted definition is net, not property.

As proof, if we already had a wealth tax and people referred to it that way, the past year and a half wouldn't have had people arguing over whether or not we should introduce a wealth tax. It would be whether we should expand the wealth tax to cover new assets.

Also, I think it's quite common outside of the USA for property taxes not to be based on the current market price of the property and also not to be charged at a fixed percentage of the value, both of which make them rather different from any proposed wealth tax.

> Should I pay taxes on that unrealized gain?

People sure do pay taxes on "unrealized gain" of the houses they live in when the real estate market heats up in their neighborhood, and the property tax assessor gleefully changes their assessment that year.

"But equities can go to zero!"

Sure, just as a house can go to zero (fire, acts of God-level insurance incidents).

"But those are covered by insurance!"

Sure, just as you are free to buy options to insure the equities.

I'm not really seeing strong arguments based upon some intrinsic property of financial instruments used at scale granting them capital gains treatment against taxing financial instruments like any other property / real asset. There is the whole "hold Grandma's retirement hostage" policy aspect that can be mitigated by a generous cliff and age means test perhaps, I haven't thought about that mitigation much, as well as capital gains at different scales. But at the policy level, capital gains treatment being so non-linearly favorable at scale compared to income tax treatment seems a reasonable topic to explore in public discourse. I'm not averse to capital gains continuing at smaller scales, even at millionaire scales, but I am curious what the economic rationale is to continue that treatment at the billionaire scales when it seems much like income on a more complex level.

There are also second order effects. Higher wealth taxation combined with clamp-downs on tax evasion, money laundering, and other illegal and semi-legal-for-now activities would stabilise money markets and keep Grandma's money safer.

Extreme losses are caused by the manic-depressive boom-bust cycle which is in turn caused by plentiful money chasing fraudulent opportunities that don't really exist. (See also, S&L crisis, securitisation failures, and many many more.)

Damping that cycle and turning it into an engine for national profit sharing would raise collective prosperity, increase social mobility, and create new opportunities.

> AAPL is up 0.67% over yesterday. Let's pretend it's January 1st, and my net worth is tied up entirely in Apple stock. Should I pay taxes on that unrealized gain?

This isn’t actually an argument against the idea that you’re wealthier, you’re just arguing that society shouldn’t tax you yet. These arguments are orthogonal, one can admit that paper gains are real wealth while also maintaining that we should only tax realized gains for policy reasons.

Similarly, if my house doubles in value, then I’m richer. It might not be liquid yet, but the bank, the local property tax authority, and my account would absolutely treat me as significantly richer than before.

The issue in the above article isn’t that gains aren’t taxed until after the sale. The issue is that for the ultra wealthy they basically never sell. Instead their stock holdings are used as collateral for low interest debt that finances the lifestyle of these executives. In this case it sure seems like the gains are realized in every way other than for the IRS.

Personally, I’d tax the bejeesus out of this scheme, preferably by counting it as straight up income subject to normal tax rates. Take a salary or sell the stock and pay the gains tax, no other choices.

Man, I wish I could sell that logic to the county assessor.

So do I. Yearly property tax assessments are an injustice.

In elons case - the vast majority of his wealth is stock options that he can’t physically use yet, under the terms of his reimbursement plan at Tesla.

That kind of illiquidity is not taken into account In this argument.

https://www.tesmanian.com/blogs/tesmanian-blog/elon-musk-own...

(a) Amount beneficially owned: 227,131,935 shares which includes (i) 170,492,985 shares of Common Stock held by the Elon Musk Revocable Trust dated July 22, 2003 and (ii) options to purchase 56,638,950 shares of Common Stock that are exercisable within 60 days of December 31, 2020. On August 28, 2020, the Issuer effected a five-for-one stock split of its Common Stock (the “Stock Split”). The share numbers reported on this Schedule 13G / A reflects the Stock Split.

(b) Percent of class: 22.4% (percentage ownership is calculated based on 959,552,475 shares of Common Stock outstanding as of December 31, 2020 and assumes that the shares of Common Stock underlying the stock options are deemed outstanding pursuant to SEC Rule 13d-3 (d) (1) (i)).

One might ask why the vast majority of his wealth is stock options.

And why we allow stock options to be used as a vehicle for tax avoidance.

> the market price is what someone is willing to pay, right?

Roughly speaking it's the price someone is willing to pay for one share. That doesn't say much about how much money Elon would receive if he liquidated his entire portfolio tomorrow. You can't just put 100+ BILLION dollars worth of anything on the market and expect there to be a buyer for all of it at yesterday's price. And furthermore, what is Tesla going to be worth when its chairman and CEO is seen to be dumping their shares?

I doubt Elon could even realise one quarter of his "net worth" if he needed it converted to US Dollars next week.

Thing is, you don't need to actually convert if you want to pay, you can actually use the shares as a currency, a vehicule for value. Just like contemporary art. Not being spit dollars out is a problem for buying food, much less for making deals among high-level capitalists.

Is you are willing to tax wealth on the current value of an often illiquid asset, are you equally willing for the government to refund the owner if the value of an asset drops below the purchase price in the same tax year?

If not, why not?

You should ask governments why they so consistently choose the opposite - bailouts for "too big to fail", and an ever-increasing round of tax breaks the rest of the time.

It may also have something to do with the fact that billionaires can buy significant political control of policy in our supposed democracies, while poor people organising to promote their interests are bullied and sneered at.

You already can mark down and carry losses forward into future tax years. Extremely wealthy people do this to get their taxes down to $0 regularly, including Trump.

Also, if I’m underwater on my house, I don’t get a break on my property insurance. I still have to pay the assessed rate.

This “no taxes if I take a loss” is an extremely selectively applied principle in the US legal code.

It is money in the bank effectively. tesla stock is extremely liquid. Elon can borrow against it, and has. So have other billionaires. this notion that paper wealth is not real wealth is just silly.

Loans aren’t considered income, and borrowing against stock carries risk that borrowing against other collateral does not.

> Your cash in the bank is guaranteed to not be erased tomorrow, up to the FDIC coverage limit.

Until a hyperinflation period hits.

Or simply tax things based on consumption. But then the tax breaks that each party worked for its citizens (both rich and poor) to not pay income tax goes away as a advantage for the parties.

>It's unfair that they can gain extraordinary amounts of wealth, to such a degree that it's impractical for them to even use, and yet not be taxed on any of it, unrealized or no.

If someone earns a lot of money and just sits on it, they're essentially just reducing the money supply and redistributing purchasing power to other owners of dollar-denominated assets. What is fundamentally "unfair" about this? Why obsess over income inequality if there's admittedly not much consumption inequality? Why is it more "fair" for the government to marshal this purchasing power via taxation than for other holders of cash? Is the implicit assumption here that there's a monotonic relationship between government revenue and fairness?

The article reflects the worst sort of moralized economic illiteracy.

yeah not a good rebuttal

>Successful companies induce enormous tax receipts for governments at all levels (corporate taxes, income taxes, property taxes, payroll taxes, headcount taxes, etc). If Bezos is paying less percentage-wise today because he's holding his Amazon stock, where said holding makes Amazon more valuable, that's a good net deal. The alternative world where he’s routinely trimming his shares and thus reducing his economic stake in Amazon's future isn’t really ideal for anyone.

I think my being allowed to pay 0-3% taxes and holdng on to more of the cash I earn would make the world better too and is a good deal. Try using the same logic as this author does with the IRS and see how far it gets you.

>I think my being allowed to pay 0-3% taxes and holdng on to more of the cash I earn would make the world better too and is a good deal.

Except that's not what the author said. You don't earn the cash, see - it's not realized gains.

If you make a cryptocurrency and then get a friend to buy one coin for $10 and now say your cryptocurrency has a market cap of $50,000,000,000, almost all of which you own, you shouldn't get taxed on 50 billion dollar income this year - you should be taxed on the $10 worth you actually sold because that's the cash you earned.

But that $10 plus you making even $1,000,000 in income means you pay taxes at a 0.00000009% rate.

So...yeah. You are allowed to do that, and it will get you far with the IRS.

As others have pointed out, your cash in the bank is actual money in a sense that (say) Musk or Bezos' wealth isn't - you can actually buy things with it, whereas if they want to sell their shares to buy something else they need to find someone with enough actual money who's willing to trade it for shares which may or may not be worth something down the line.

The really big problem is that regardless of where the money comes from on paper, in an important sense all the big government spending has to be paid for out of that actual money in the form of people's income. Suppose the government carries out a big series of infrastructure projects, or even say AOC's plan for mass upgrading of home insulation. That will use a huge amount of scarce resources like raw materials, workers' time, equipment etc which then cannot be used for other things. Which means that whatever would've otherwise been made with those resources no longer exists to be consumed, and that everyone overall is worse off in terms of stuff they can buy with their income by the amount required to offset this cost. This real tax on the actual real value of everyone's income cannot come out of Bezos and Musk and the other multi-billionaires' wealth, because the amount of stuff they consume is tiny compared to their paper wealth. It has to come from ordinary people. (A similar argument applies to the cost of shuttering all those businesses and paying their workers to sit around doing nothing during the pandemic.)

Now of course, a lot of big companies do themselves use a bunch of resources, but take those away and you lose whatever the company is supplying. No Amazon warehouses? Suddenly a lot less stuff is available to be ordered online. No Tesla factories? Say bye-bye to clean electric cars and hello to more pollution and CO2. Etc, etc.

> As others have pointed out, your cash in the bank is actual money in a sense that (say) Musk or Bezos' wealth isn't - you can actually buy things with it

Your cash in the bank is actual money in the sense that...

> No Amazon warehouses? Suddenly a lot less stuff is available to be ordered online. No Tesla factories? Say bye-bye to clean electric cars and hello to more pollution and CO2. Etc, etc.

...you can buy stuff from Musk and Bezos.

No. The problem here isn't that Musk and Bezos are the only people you can buy stuff from, it's that in order to pay the real resource price of all that government spending using their factories and warehouses those factories and warehouses must not exist at all. They can't simply become Walmart warehouses or Toyota or GM factories, they have to go away altogether - along with whatever they're supplying. Which means a lot less clean electric cars and a lot less capacity to buy stuff online.

(The secondary problem is that the big multi-billionaire winners often get that way by figuring out how to satisfy the same consumer demand with less real resources. Which means that if you get rid of those companies, guess what? Everyone is worse off because the overall size of the pie has shrunk, and there's no clever redistribution of slice sizes that'll fix it. For example, without Tesla we'd have to burn more non-renewable oil and use more of our CO2 budget to fill the same transportation demand.)

Bezos is practically a personal market black hole. His warehouse and delivery workers would certainly not be worse off if he was forced to pay them a decent wage. His customers would not be worse off if he was forced to operate an ethical search system on Amazon and remove scams.

If Amazon hadn't been invented, how long do you think it would have taken someone - probably a HN reader - to build a multisite search aggregator and bargain hunter?

Apple and Google's customers would not be worse off if all scams were removed from their respective app stores. Web users would not be worse off if Google search and ad tech didn't distort search rankings by promoting clickbait at the expense of high quality content.

YouTube's small content creators would not be worse off if the copyright strike system wasn't biased towards big corporate at the expense of small creators.

The electric car market would have happened without Musk. It may or may not have happened as well - that's up for debate - but it's clearly not going to not happen.

And the fact that we have a small but growing electric car market in 2021 instead of 2001 - when it was really needed - is entirely due to the political distortions caused by the billions generated in Big Fossil profits.

I have no problem with smart talented and driven individuals making money by solving real problems. But I do have a problem with attempts to deify and canonise the individuals who are most prominent just because they become very rich.

We need more accurate accounting systems that select for benefit without ignoring social, political, and environmental costs. Otherwise we're just rewarding people for being high-functioning narcissists instead of selecting people who can get shit done cheaply and efficiently without ignoring the social and other externalities that are currently ignored.

Everything you say is equally true for income taxation as wealth taxation. In fact, it's true for all forms of taxation--at a high level, taxation is a way of redirecting the use of resources.

> And why, exactly, is it apparently reasonable to have sales taxes that don't exceed 12% (disclaimer - in the states, as far as I know); capital gains at 15%; but my income at 25%, 35%, 45%?

Sales taxes tend to be regressive.

Someone making $50K a year pays the same sales tax as someone making $500K.

You're throwing out percentages for income tax, but those are progressive: the 40,000th dollar earned is taxed differently than the 140,000th dollar.

A wealth tax, especially in the US, would go a long was. Something like 2% on net wealth above (e.g.) $500M or $1B would slow inequality; below $10M it'd be 0%, from $10M to $100M it'd be 0.5%, then 1%, then the top rate. See Piketty's book:

* https://en.wikipedia.org/wiki/Capital_in_the_Twenty-First_Ce...

> If you don’t believe, go look at the cover of drudge right now, where he’s using it to go after his favorite target, Elon musk. (making a claim that even the pro Publico article doesn’t make).

Someone else distorting the contents of an article says nothing about the intent of the original author. They’re literally different people, who can be doing different things for different reasons

The thing that really needs to be measured here is the real rate of return on these individuals' capital (i.e. post-tax returns) vs economic growth (i.e. growth in wages for ordinary people). The point isn't really about when taxation occurs (I agree this is lazy in the article), it's more that once you factor in taxes (and most serious economists of inequality do this), you end up with more money via returns on wealth than via earning an income. So there's these two concepts, and they are sort of related because they show how the tax regime favors the wealthiest of the wealthy. But the article does a poor job of this.

> the fact that both people earning more than I, and earning less than I pay less in taxes as a percent is incredibly irritating

I understand why it is irritating that those earning more pay a lower tax rate, but why do you find it irritating that those earning less do?

PP also failed to disclose that their argument on Musk during 2018 was while Tesla and Musk nearly went bankrupt trying to scale the M3. Not Teslas current state which is dramatically more valuable given that Tesla scaled for the M3 and MY).

That may well be true, but even if Tesla had gone bankrupt in 2018, Elon Musk would still have dramatically more money than you or me. If anything, this highlights how the uber-wealthy are able to make riskier (and, on average, more profitable) investments than you or I in part because the tax system has their back. (To be clear, I wish the article had actually explained all this instead of not mentioning it.)

Yes the rich of today are almost completely sheltered from any risk. At least the royalty and nobility in the past had to fight in wars.

They often avoided having to fight in wars too ;) On a more serious note, in the past nobility and clergy were often exempt from various taxes (e.g. the taille, the main tax in Ancien Regime France) because of the other "value" they were bringing to society - an argument not dissimilar from those we hear today against various kinds of wealth/capital gains taxes!

> I think it makes perfect sense for somebody to say that any loan that is backed by stocks granted on the basis of RSU, incur some additional special taxes

Based on the numbers published though, it does not appear like these people are taking out loans with shares as collateral.

E.g. Bezos declared 4.22B in income and paid 973M in tax. This leaves him with more than 3 billions after tax, so I sincerely doubt he also took out a loan.

> It’s very clear that the original article was a hit piece/advocacy editorial more than anything else. If you don’t believe, go look at the cover of drudge right now, where he’s using it to go after his favorite target, Elon musk. (making a claim that even the pro Publico article doesn’t make).

Propublica is to gun manufacturers as drudge is to john wilkes booth.