Comment by sdh | Hacker News Reader

Comment by sdh | Hacker News Reader

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Maybe you're not aware how these "unrealized" capital gains (at scale) are indirectly realized in the form of loans taken against value of the asset.

Massive wealth doesn't operate in income or even in typical capital gains advantages you're referring to. It operates at a scale where the value of the assets are so great, banks compete to give loans to them, which are not taxed like income.

It's totally absurd to argue that loans from assets isn't income. It's used to purchase more assets, to purchase tax favorable legislation, to buy media to keep us thinking this issue is about paying capital gains on your retirement portfolio.

If Bezos will "never get that money unless he sells stock" was a true statement, then where do all the yachts and houses and other assets come from? How does he buy them? If the IRS suddenly recognized loans taken against asset wealth or any exchange of assets as income, the tax rates of the super wealthy compared to the average American would suddenly look sane.

>It's totally absurd to argue that loans from assets isn't income

That seems kinda whack to me. If I get a $500k mortgage, it's not like I received $500k of income that year-- the house belongs to the bank, and I'll be making payments for 30 years. If I stop paying my mortgage, I'll lose "my" house and have nothing to show for it except an insane tax bill (just like Elon would have to give up some of his Tesla stock if he gets margin called)

The collateralized loans trick was really only semi-viable because of historically low interest rates. SOFR will climb up to the more standard rate of 5-15% APR, which we saw with LIBOR back in the day. At that point, the one-off 23.8% capital gains tax on selling stock becomes more competitive.

A mortgage of that scale isn't even remotely close to how the mega rich operate. How is that example relevant to a discussion about multimillionaires and billionaires? Such a mortgage requires a massive down payment via cash (that was taxed), a non-trivial interest rate, and monthly payments again with taxed cash. The tax rates of such income is likely higher than the capital gains tax. The mega rich get loans in the tens of millions all the way up to billions with paintings, watches, houses, unrealized investments as collateral at ultra low interest rates. They repay the loan with money siphoned off at low tax rates, such as through dividends and even other loans, while the things they used as collateral continue to grow unchecked in value. Like seriously, the capital gains tax is much lower than the income tax rate I pay. How the hell is that not whack if not totally fucked up? Do you think it's okay that the mega rich are incentivized to continue to get richer and richer while receiving the massively preferential loans and tax rates they get? What normal person is getting rich off of a 30-year mortgage, where payments on make up double digit percentages of their monthly income?

>Do you think it's okay that the mega rich are incentivized to continue to get richer and richer while receiving the massively preferential loans and tax rates they get?

I don't think the loan and tax rates are particularly preferential.

Thanks to his twitter deal, he's had to publicize some info about how he gets his money. The interest rates on his loans range from SOFR+3% to SOFR+10%. Those rates aren't that low— even as a non-millionaire I could get similar ones from my bank (https://www.schwab.com/pledged-asset-line).

I pay 2.75% interest on my mortgage. So even Elon's best loan has an interest rate well above my mortgage. By the end of the year, his interest rate is on track to be around 3x higher than my mortgage! And like my mortgage, his loan has a large upfront payment and a minimum amount that must be repaid every year, it's not free money forever.

My effective federal tax rate is 20%. That's lower than the rate that a typical billionaire would pay on capital gains (23.8%).

Those loans have to be repaid. They aren’t a gift ffs.

They are repaid to the bank, which is obvious. No one said they are gifts. They are loaned at ridiculously low interest rates, and the government never sees an ounce of tax from the individual, which is the entire point. Like the person you replied to said, the mega-rich don't operate on income like the rest of us. Why does that make them completely immune to taxation?

How do you think those loans get paid?

Are these loans ever repaid or are you suggesting Bezos/Bill Gates etc have slowly accumulated loans to be paid in some long future. If so there must be some public info. about its stats

I would assume that, yes, these loans are often repaid via other similar loans or instruments that continue to leave unrealized gains as unrealized and avoid taxation. I doubt many multi-millionaires and billionaires publicly disclose or publish the techniques they use to siphon wealth off of society.

It is absurd to argue a loan is income. You get to keep income, you have to return the value of a loan, eventually. The process of unwinding the loan generates tax revenue.

Constant borrowing isn’t a free money machine, eventually you have to earn more to service the debt (income tax) or sell assets to pay it back (capital gains).

Have you ever taken a loan?

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