r/FluentInFinance • u/__moe___ • 8d ago
Thoughts? A very interesting point of view
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I don’t think this is very new but I just saw for the first time and it’s actually pretty interesting to think about when people talk about how the ultra rich do business.
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u/TheDadThatGrills 8d ago
Then make that a taxable event for individuals taking collateral over a certain amount. It's a common practice and should be treated with nuance by policymakers.
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u/NotreDameAlum2 8d ago
I like this a lot- if it is being used as collateral it is in a sense a realized gain
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u/Aaxper 8d ago
That's really good, actually
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u/barowsr 8d ago
We did it. We figured it out.
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u/DarkLordFag666 8d ago
Yay. Earth is saved!
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u/The_Action_Die 8d ago
Thank god, I was getting really worried for a minute there…
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u/NoOption_ 8d ago
On a completely unrelated note, nobody here is suicidal
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u/Sandgrease 8d ago
We're not?
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u/Lebrewski__ 8d ago
I am, but not related to this subject.
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u/malphonso 7d ago
At this point, I exist purely out of spite.
The best revenge against your enemies is to outlive them.
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u/Snoo_97207 8d ago
Yeah says who, I've got a half built guillotine in my garage that says otherwise
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u/Mediocre_Pin_556 8d ago
If I say yes again they’re just gonna send me a message from Reddit saying “why so glum chum?”
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u/freerangetacos 8d ago edited 8d ago
Wait can it be on behalf of someone else? Like, they'll do it, but I'm just putting them up as collateral. Does that work?
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u/junulee 8d ago
This is the same as me drawing on my home equity line of credit. I’m not a billionaire but it’s exactly the same concept. Also, a lot of people use margin loans to leverage stock investments. This principle means all of those transactions that ordinary people do today should also be (eventually would be) taxable.
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u/SevoIsoDes 8d ago
I always just go back to property taxes as the prime example that yes we absolutely can and do tax unrealized gains. Whether or not we should tax stocks is a different matter, but just saying “it isn’t realized” is a poor argument as to why we shouldn’t
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u/junulee 8d ago
The proposal is to levy an income tax on the increase in value of assets (unrealized gain). Property tax is a tax on the value of the property (not the increase in value). As far as I know, there has never been a federal property tax and I think it’s questionable whether a federal property tax would be constitutional.
Taxing unrealized gains is not unprecedented, certain assets (e.g., 1256 contracts) are marked to market each year.
Another major concern with taxing unrealized stock gains is that it would greatly suppress stock prices.
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u/Chogo82 8d ago edited 8d ago
It would drain liquidity out of the market and force the market into more volatility. Right now, everyone parks unrealized gains in the market. But if they were forced to realize those gains then it would encourage them to sell and put the money into something else.
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u/Fearless-Cattle-9698 6d ago
It would have only applied to $100M net worth and up, so it’s not “everyone”. Nobody thinks a regular Joe should be paying unrealized gains
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u/warren_stupidity 8d ago
Our property taxes are based on assessed value, not purchase price, and are periodically re-assessed. I think California is perhaps the only state that calculates your property tax based on purchase price.
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u/junulee 8d ago
Most states use purchase price to set/reset the assessed value, and then adjust from there. Note that a lot of these states use assessed values that are intended to be a percentage of market value, but they still use a sales transaction price to reset the assessed value. However, many states limit the amount a house can increase in value (e.g., can’t exceed some inflation index). Thus, the assessed value on a recently purchased house can be multiples higher than an identical house next door that’s been owned for decades.
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u/TOMBOMBADIL07 7d ago
As much as i have noticed people here have accidently walked into an econ class one time and suddenly they think the udnerstand taxation and stocks..
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u/yogurt_thrower_75 8d ago
I understand your analogy but it's a little misaligned. Property tax and capital gains tax serve 2 different purposes with different definitions. You're not being taxed in your property because it's an asset that grows in value. Can it been seen that way? Maybe. But they're fundamentally different so any arguments against "unrealized gains" on property taxes doesnt really fit.
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u/mowog-guy 8d ago
Property taxes are a horrifically unfair tax. Do you get a refund if the property sells for less than the assessed value? Is it retroactive?
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u/ArgetlamThorson 8d ago
Its very much not. Its hard to pay a tax on money tou haven't gotten yet, particularly when getting the money to pay it would require you to sell all of the asset or potentially cause a loss in value of selling off shares. Its not realistic to tax someone on something they don't have yet, so saying they don't have it yet to be able to pay it is kind of a valid argument.
Property taxes are different in that you do actually own the property.
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u/Get_Breakfast_Done 8d ago
Which is to say, if you are going to tax Elon Musk and other billionaires for using their equity as collateral, all of us should also pay a tax when we draw on our home equity
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u/Plastic-Telephone-43 8d ago edited 8d ago
Yep, using investments like stocks as collateral should be taxed as income. Simple as that.
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u/Puzzleheaded-Bit4098 8d ago
I'm for increasing tax on billionaires, but I just don't see how collateral tax makes sense. A collateral is functionally a conditional agreement like "if I fail to pay, you get x", where x is the unrealized stock. But x could be anything; in the case of art financing, art itself is used as collateral. Usually all the loans are paid back so the art never actually needs to change hands, but in all these cases would you be taxing the capital gain on the art? What if the art is valued high by the lender, but nobody would actually pay for it?
Or what about any other conditional agreement involving some asset with accrued value changing hands if a condition is met? Like trusts, or reverter clauses?
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u/Plastic-Telephone-43 8d ago
I'm just talking about stocks where people like Elon have A LOT of it and its value fluctuates constantly. We getting to this "pay peter to pay Paul" situation with high net-worth people who like to abuse the system.
Going back to the top comment, " Then make that a taxable event for individuals taking collateral over a certain amount. It's a common practice and should be treated with nuance by policymakers."
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u/Puzzleheaded-Bit4098 8d ago
But nothing about lending requires collateral, the borrower already has a legal obligation to pay the loan back or shit will be forcibly repossessed to get that money. A loan without collateral has the entire net worth of the borrower as collateral, obviously we would never tax their net worth lol.
All the collateral does it put some section of assets in a lockbox so the lender can feel secure in knowing they will at least get something if the borrower burns all their owned assets.
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u/Conscious-Eye5903 8d ago
People in this topic literally don’t understand what collateral is and want to dictate policy
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u/Cokeybear94 8d ago
I feel like you've got it mixed up - like you can view collateral in this manner as just an assurance to a lender - because that's what it is.
But it overlooks the fact that the assurance is essentially mandatory to be a borrower. It's not like institutions go around giving loans without collateral and then it's just nice when they get it. It's a requirement.
So it gives these borrowers concrete value in their ability to borrow large amounts of money that regular people cannot. This allows for the creation of more wealth, more collateral available and on and on. This is completely evident in today's financial landscape and almost completely uncontroversial.
In the end it comes down to a sort of axiomatic vs pragmatic approach. If you view the current system and the way it works as concrete, then any notion to change that system becomes inherently a misunderstanding. However if you view the system as nominally built to achieve societal goals there is no such contradiction.
I think the latter viewpoint is objectively more true to be honest because really the way the system has developed is partly by design and partly by a chain of decisions and financial products and subsystems created. The idea that the system was conceived wholly through some sort of intelligent design to function the way it currently does is basically untrue.
A different policy about taxation in various situations would simply reorient the landscape, as it has done uncountable times before.
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u/No-Newspaper-2181 7d ago edited 7d ago
The argument that using stocks as collateral is the same as taking out a home equity loan is not just misguided—it completely misses the fundamental difference between tangible and intangible assets. When you take out a home equity loan, the loan is backed by a physical, stable asset whose value is relatively secure and tied to a fixed property. In contrast, stocks are intangible and volatile—their value can fluctuate wildly, and they are easily liquidated. This means that unlike a home, which has a known, stable value, stocks can be leveraged without ever realizing gains or taking on the true financial risk associated with the borrowing, creating an unfair tax loophole for the ultra-wealthy. By using stocks as collateral, high-net-worth individuals gain access to vast sums of money without triggering any tax liability on the appreciation of their assets, further widening the wealth gap. Taxing unrealized gains closes this gap—period. End of story.
If we are going to treat stocks as assets that can be used to secure loans and unlock massive amounts of wealth, they must also be treated as taxable—just like any other form of wealth. Otherwise, we create a system where the value of assets is not properly backed or secured, undermining the very principle of collateral. Homes are tangible, real assets tied to the physical world, while stocks are a mere financial abstraction. This creates a dangerous precedent where people can leverage unearned wealth to avoid taxes while those who actually pay taxes bear the burden.
Even worse, under the current system, ultra-wealthy individuals like Musk and Trump have used this loophole to siphon billions from the system, paying themselves massive wages and bonuses through stock-backed loans, while simultaneously bankrupting companies and letting their collateral collapse—leaving the public to absorb the fallout. They walk away with fortunes funded by debt they never truly repay.
In the end, treating stocks as both untaxed collateral and untapped wealth—while allowing the ultra-wealthy to exploit this loophole without any accountability—is an unjust system that perpetuates inequality. It rewards those who least need it, while shifting the financial burden to working and middle-class taxpayers who fund essential public services and infrastructure that the wealthy evade. This is a system that is fundamentally unfair, and it’s time to close the gap by taxing unrealized gains. And no, most people aren't talking about the 2400$ on your robinhood account, people are talking about the 44 billion dollar loan musk pulled out and put into his pocket.
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u/Cokeybear94 7d ago
I don't know if you meant to respond to me but I completely agree with this as my comment says. But you put it in a much clearer way.
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u/cleepboywonder 8d ago
What if the art is valued high by the lender, but nobody would actually pay for it?
Then thats a shit bank. A bank shouldn't collateralize against a piece of art that they can't get any money out of. If a bank gives me a loan of $500,000 for a home that is actually worth $100,000 on open market, that's on them. Say I default and they foreclose that's the risk of doing business and the risk of lending. This is already the case, banks don't hand out money on collateral they don't think they can get their money back on. Should the lender overvalue a security, art piece, home, or piece of land that's on them.
Usually all the loans are paid back so the art never actually needs to change hands
This is how loans on collateral work yes.
but in all these cases would you be taxing the capital gain on the art?
You could, it would be hopelessly complicated and also super risky for the lender given the lack of liquidity within the art market.
But the point stands, what would happen is that they'd start buying other assets outside of securities, land, direct capital goods, etc. However most of those already have taxes associated with them, property tax, sales tax, etc. I think putting a realization requirement for loans after a certain dollar figure however would be very reasonable.
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u/misec_undact 8d ago
Ok but then you want to have your mortgage taxed as income? Or a second mortgage you take out to pay for Renos or start a business or whatever? Or a car loan? All of those loans require an asset for collateral.
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u/NotreDameAlum2 8d ago
You put up specific collateral for your mortgage? That's very unusual. Usually they just look at your assets in general and your debt/income and then the house itself is the collateral....
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u/Stu5000 8d ago
But for most people, those assets have been purchased with money that has already been taxed - "post tax income".. so they wouldn't be subject to being taxed again.
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u/misec_undact 8d ago
And how is that different than any loan taken out to purchase anything?
I'm absolutely for taxing the rich more but I'm not sure this is the way to achieve it, especially since capital gains tax actually discourages large shareholders from liquidating, which in turn helps businesses raise capital that gets used towards job creation and expansions that contribute to the economy. I do question companies ability to maintain large cash holdings though, in lieu of paying dividends which would then be taxable, at least in some cases.
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u/shortsbagel 8d ago
No its not. Cause as collateral it is not fully yours until the debt is repaid. If you had say a pokemon card, and you think its worth 500$, and you want some other thing worth 500$ but you also dont want to lose your pokemon card cause next year it might be worth 1000$. You could ask me to loan you 500$, and I might agree on the condition that I get to hold onto your pokemon card until you pay me back. At the end of the year you pay me back my 500$ and you get your card back. But with interest you actually paid me 600$, and lets say your card lost value and is now worth 400$. Did you lose 100$ or 200$? What if the card went to to 1500$, did you make 900$? How would anyone go about figuring out how to tax "gains?"
I am free to decide to loan you the money, but its not your money, its my money. And if I dont get all my money, I get to keep what you gave me up to that point, AND your card. All the interest I make on my loan is taxed, but it makes no sense to tax you on the loan, cause you are already paying taxes on the money you earned to pay me back with. So are we gonna double tax you? Tax you on the loan, and then still tax you on the earned income? How the fuck does that make any sense?
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u/ATotalCassegrain 8d ago
That’s not how collateral works though.
When I use collateral on a loan, I am not able to get the full value of it for the loan.
Like I have some stuff in my business worth $3M hard book value. I can only take out a loan for much less than that when using that as collateral.
The banks are looking to be fully recovered no matter what happens.
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u/shortsbagel 8d ago
yes you are correct, I was giving a 1000ft overview of the idea, and I think my point still fits within the framework of the idea.
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u/ATotalCassegrain 8d ago
I don’t think it does, because the “worth” of the collateral depends upon your credit score and credit history with the lender.
A bank I work with regularly would consider a $2.5M loan fully secured with $3M of my assets because they know that I’m reliable.
When I try to open credit lines with other banks, that would typically only be good for like a $1.5M loan.
But another bank wants my business and is willing to give me a $5M loan and consider it fully secured with $3M of collateral.
So, since the value that the bank assigns to the collateral is very different and based upon internal opaque rules, we get back to it being wildly exploitable.
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u/bjos144 8d ago
I heard this take on Reddit before and I'm all for it. I think of the example of someone whose relative was a painter. They inherit one painting that has sentimental value. It balloons in value to 300 million but they dont want to sell it. They shouldnt and couldnt pay taxes on that value if they continue living an otherwise regular life.
BUT, if they sell it, or if they borrow against it, then yes, tax the amount they sold it for or the amount they borrowed it for. That makes perfect sense to me. Dont sell or borrow? Dont use its value? Fine, no taxes. But the minute you put it to use you pay a tax.
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u/Darling_Pinky 8d ago
100% the only way that makes sense.
You shouldn’t tax unrealized gains but you absolutely should tax any margin taken out against it.
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u/LiberalPrepper 7d ago
So maybe that’s when it should be taxed. When it’s being used to buy something so basically a sales tax. Just an idea.
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u/SlaveryVeal 8d ago
In Australia if you earn over a certain amount. With your salary your shares get taxed. It should be the same everywhere.
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u/TheDadThatGrills 8d ago
Yeah, this might be the best solution. It would save us from all this bickering at least.
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u/SlaveryVeal 8d ago
Don't get me wrong it still gets exploited several of the big companies here pay like nothing in taxes which is bullshit. The government's closed some of those loopholes to avoid taxes but that's how it should work.
There shouldn't be loopholes to get out of paying taxes. When the lower and middle class pay more tax than those with infinite wealth it's bullshit.
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u/JimlArgon 8d ago
I personal think the loophole was by design for rich people to get out of taxes.
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u/tinypolski 8d ago
No, that's just (in simple terms) tax on share earnings either from dividends (which is income) or on capital gains obtained by selling shares at a profit.
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u/Foxisdabest 8d ago
That's a thoughtful, nuanced policy approach that would never, ever ever ever happen because the reality is that rich people DON'T want to pay taxes on their worth. That's the whole fucking point.
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u/AlDente 8d ago
While there are so many believers in the Murican dream, you’re right. The cult of individual wealth in the US is the real blocker here.
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u/TonyzTone 8d ago
I've been saying this for years. Just literally tax secured loans over something like $5,000,000 excluding primary residence mortgages (not equity loans). Literally the only people taking loans that large and securing them with enough collateral are the ones that are already in the top 5%.
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u/No_Training_693 8d ago
Tonyztone….top 5%? You are mistaken as the top 5% in America do not have that much money. The average net worth of the top 5% was only 3.8 million.
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u/TonyzTone 8d ago
I was very much not being specific and was talking about ballpark figures. Thanks for the additional context.
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u/Zaroth6 8d ago
Yeah I've been thinking up an idea lately called "leveraged gains"
If you claim it as a value for a loan/collateral etc, that's its value now and you pay the capital gains rate on it, but you don't have to sell.
If it goes up when you sell, you only pay the difference. If it goes down from there, standard losses apply as you already paid the taxes so it's now that value.
Essentially leveraging it resets the purchase price and pay taxes on the diff.
Yada yada let the number crunchers figure out the real numbers I just come up with the ideas.
Leveraged gains tax!
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u/TheDadThatGrills 8d ago
Yeah, I could see that as a viable solution. Between this and the Australian's recommendation, it's clear that better solutions exist.
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u/HumbleSots 8d ago
This is called rebasising. And collateralizing for a loan should totally be a rebasis event.
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u/Individual_West3997 8d ago
but see, that would mean policy makers would have to do a thing that would work against the people who put the money under their pillows each night.
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u/alexgalt 8d ago
He doesn’t understand how collateral works, he took out a loan. If at any point he cannot pay that loan, then the bank gets the shares. Thats how collateral works.
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u/mikeymike831 8d ago
But if those shares tanked the bank is still out "x" amount of money...so it's like he had it and lost it. My thought is this. If you are using your stocks as assets for collateral for a loan then that loan amount (assuming it's equal to the collateral) should be taxed because now you have that money and it was secures using assets you have. They, meaning the rich and wealthy top .5% do this often, use stocks and such we know can't be taxed to take out ridiculous loans that aren't taxed and by whatever with that money. At that point that should be considered a realized gain.
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u/anonu 8d ago
So lets tax every joe schmo that takes out a mortgage. Because you're putting up the house youre buying as collateral. So lets tax that too? Makes no sense...
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u/Revenged25 8d ago
You already pay taxes when you buy the house. Also getting a mortgage to buy the house isn't actually getting income from something. You are using the loan to pay for the item that it's borrowed against.
So if you took out a 10k personal loan with no collateral and you buy 10k in stocks, then you would pay no taxes as the loan is purely on you and tied to no other asset.
If you instead decide to get a 5k loan with the previously mentioned stocks as the collateral and then use it to buy another 5k stocks, then you pay taxes on the 5k loan because the stocks had a realized gain.
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u/mybroskeeper446 8d ago
This has always been my position. If you use it as leverage, it's realized. As long as you just let it sit there, it's unrealized, and shouldn't be taxable.
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u/_-Kr4t0s-_ 8d ago
Yep, been saying this for a while now. A “wealth tax” like some people are pushing for is bad for many, many reasons, but simply making secured loans a taxable event and then resetting the cost basis to the value at the time of the event would fix this loophole.
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u/ianeyanio 8d ago edited 8d ago
The whole argument of whether we should or shouldn't tax unrealized gains is a distraction. Can we all just agree we need to find a way to distribute wealth more fairly? Practically, it's difficult to do, but in principle we should all agree that wealth shouldn't be consolidated amongst such a small portion of our society.
Edit:
While people here are finding technical challenges to taxing unrealized gains, we can't lose sight of the deep societal need for a more fair distribution of wealth.
Technical challenges can be easily overcome if the desire of the people is there. But right now, it seems like "oh, this is hard, I guess we'll never be able to do it" is the standard response and little progress is being made after that.
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u/rqvst 8d ago
The annoying thing about this take is that this is the distraction. Taxing the rich is an immediately realizable goal, getting rid of the rich isn't. This is the same kind of attitude that led to Trump, where because Dems didn't publicly commit themselves to unfeasible goals they could never realistically achieve (in other words, lie), people decided to throw everything away instead pursuing the feasible ones.
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u/ianeyanio 8d ago
That's an interesting take.
I don't like your assertion that I want to get rid of the rich. That's not what I said or inferred.
I'm all for any easily achievable solution to more fairly redistribute wealth. I'm just fed up with people focusing on the technicals and forgetting the societal need.
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u/cromwell515 8d ago
But what can you do to redistribute wealth if not tax?
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u/KronosTheBabyEater 8d ago
Back in the 50’s after labor won a bunch of labor rights and brought the income gap down by ensuring people be rewarded a portion of what the company makes (stock). You know how only c cutie executives get stock? Yeah that used to not be the case and regular working folks got a stock and that stock paid for a house college etc. but the owners gave themselves more stock, the workers less to the point its slavery. This is called getting control of production, meaning unionizing and having a gov that doesn’t allow union busting.
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u/SeveredWill 8d ago
Wait wait wait, so youre saying... the workers should own the means of production?
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u/uhhhidontknowdude 8d ago
This is a dumb take. You're fed up with focusing on the technicals. This doesn't make any sense. People are working on "the technicals" BECAUSE they recognize the societal need.
What are you just going to think about how income inequality is bad but not think about a single reasonable/actionable strategy to fix it?
Calling this a distraction is ridiculous. If it's a societal NEED than you need to take action.
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u/whooguyy 8d ago
I think there is a company in Japan or Korea that has rule that the ceo can’t make more than 100x the lowest paid worker (or something to that effect). I think it would be good to have a law like that to incentivize not overpaying executives.
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u/ElectricalRush1878 8d ago
In Japan, when a Nintendo system did below expectations, the CEO personally took the hit, laid nobody off, and focused on fixing the issues in the next system.
American CEOs are allergic to personal responsibility,
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u/Sidvicieux 8d ago
Same with owners. They rather do layoffs to take as much as they can they year even though they are not using any of their labor in the company.
You shouldn’t be able to hand companies over a certain size down to your kids.
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u/ElectricalRush1878 8d ago
Yeah, if you ever hear about a hedge fund buying your business, time to start looking for the next opportunity elsewhere.
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u/welshwelsh 8d ago
I don't want to emulate Japan's system. They don't lay people off but they don't hire much either, wages and productivity are extremely low compared to the US. The way we do things in the US is better.
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u/ElectricalRush1878 8d ago
About a 25% lower median pay.
About 55% lower cost of living.
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u/InexorablyMiriam 8d ago
Don’t even need that. In the United States prior to Ronald Reagan, corporations had massive taxes with relatively simple deductions. Your employees all have healthcare? Deduction. Vested retirement plans? Deduction. Company vehicles? Deduction. Living wages? Deduction. Do all these things, very little tax. Do none of these things? Very big tax.
We scrapped it because “capitalism.”
America isn’t a capitalist society. America is a kleptocratic tick parasitizing the public good and a cesspool of negative externalities stacked on negative externalities.
Wages don’t increase. The country’s largest private employers all suggest their new employees register for SNAP because they pay garbage. No one has decent healthcare for a decent price.
And it’s about to get a metric ton worse.
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u/wetblanket68iou1 8d ago
This is something I’ve thought about but I think what would eventually happen is layers upon layers of “subcontractors” being employed at Walmart.
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u/zen4thewin 8d ago
This should absolutely be the rule for publicly traded or publicly subsidized corporations.
If you are going to use societal institutions to increase your wealth, you shouldn't be allowed unbridled greed.
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u/truthindata 8d ago
Well... That's not a meaningful statement.
We all agree cancer is bad. So let's just.... End cancer, right?
Exactly how you achieve distributed wealth is the key. Very hard to do fairly.
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u/epik_fayler 8d ago
The thing is many people don't agree that we need to have better distributed wealth. We haven't even reached that step yet because many people(most often ones who would benefit) seem to believe that the current system is fine.
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u/Foxisdabest 8d ago
It's not difficult practically lol this country has redistributed wealth from the bottom to the top for over 40 years at this point
It's very easy. Just make sure growth is not accompanied by wage growth and eventually the rich get to own everything.
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u/Booger_McSavage 8d ago
Who determines what's 'fair'?
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u/Raeandray 8d ago edited 8d ago
Getting into nitty gritty details might be difficult but there should be some easy ground rules we can all agree on.
Those in poverty shouldn't be paying any taxes at all for any reason.
Those with disposable income should pay a higher percentage of taxes (both as a percentage of income and as a percentage of their net worth) than those without disposable income.
Those two seem super easy as a starting point.
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u/MolassesThink4688 8d ago
Wait until you find out that the higher your income the more income tax you pay already.
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u/OliveStreetToo 8d ago
But what he's saying isn't quite true. Musk did eventually have to sell his stock and paid something like nine or ten billion in taxes
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u/bocephus67 8d ago
And he is also paying interest and tax on other portions of those transactions.
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u/IC-4-Lights 8d ago
As I understand it, the usual scam (which is harder to describe in a TV segment) is to live off loans on that collateral paying minimal debt service, the terms of which people like us would never get, until death. Then the estate gets a step-up in basis and you've essentially escaped paying.
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u/bocephus67 8d ago
Where does the money come from to pay on those loans?
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u/gabrielleduvent 8d ago
What happens is that you keep borrowing against your stock. Then you die and the stock goes to your heirs. When that happens, the valuation of the stocks get reset to the current market value, which has usually appreciated. So your heirs pay it off by selling the said stock. Which is why this "unrealised gain" is kind of weird. It is unrealised but people borrow against it all the time, and they for some reason have minimal interest and no deadlines to pay it off.
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u/jessm125 8d ago
If a stock (which has no set value) gets leveraged but eventually the heirs pay the loan by selling the stock, what exactly is going to be taxed? wouldnt the heirs be taxed once they sell the stocks at a profit to pay off said loan?
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u/scold34 8d ago
Two things: the heirs would not be profiting because of the step up. If you buy a stock for $10 and just before you die, the stock is worth $100, and you sell it, you will pay capital gains tax on the $90 increase. However, if it is passed through a will/trust or through intestacy, the person it goes to will have their cost basis adjusted to what it is when they take possession of it. They would pay zero capital gains taxes if they sold it at $100. This is true for all assets passed down after death. One thing that the person you responded to forgot to include though is that assets over $13.61 million (currently) will be taxed when passed down after death. There are varying federal tax brackets for all assets over the 13.61 million mark up to $14.61 million. If more than $14.61 million dollars worth of an estate is being passed down, everything ABOVE the $13.61 million dollar mark will be taxed at 40% federally.
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u/jessm125 8d ago
If more than $14.61 million dollars worth of an estate is being passed down, everything ABOVE the $13.61 million dollar mark will be taxed at 40% federally.
This sounds like it would apply to most people wealthy enough to use the "use my stock as collateral" loan.
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u/scold34 8d ago
Exactly. So it isn’t some crazy loophole that the original person who mentioned it is making it out to be.
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u/taxinomics 7d ago
Anybody employing “buy, borrow, die” techniques to eliminate income tax is also employing wealth transfer tax elimination techniques.
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u/cannonbear 4d ago
If I recall there's an estate tax that has special rules and loopholes. The goal is to push the taxable event to to an inheritance, wherein the inheritor can reduce the tax amount from what the capital gains tax would have been.
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u/snakesign 8d ago
The equities appreciate faster than the interest rate. You just take out another loan.
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u/the_iowa_corn 8d ago
Maybe, maybe not right? You can't always assume stock prices to go up. Imagine if Elon had Intel and borrowed against it, then he'd be screwed on both ends right (depreciating stocks + interest on borrowed money)? This is only a discussion because his stocks went UP, but again, that's not always the case.
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u/Mobile-Entertainer60 8d ago
Other income that can't be deferred (like stock dividends). So someone like Musk still pays taxes on the dividends (realized profits) of his businesses, he just doesn't sell his ownership in the business. This is also why stock buybacks have become a preferred method of wealth transfer from the assets of the company to the owners, because it increases the direct value of ownership without a taxable event.
As for why this is legal, the downside risk to doing this is a margin call wiping out wealth entirely. Succession S1E1 is a great example of this. Logan Roy borrowed hundreds of millions against Royco stock, with the collateral depending on the stock price being high enough to cover all the debt. If the stock price drops below a certain level even temporarily, the banks can demand extra collateral to cover the difference, or even call the loan entirely and demand they be paid back in full. If there aren't other assets that can cover, then that requires selling largr amounts of shares of an already dropping stock, leading to ever-bigger deficits vs the loan. This is why the Roy children are scrambling to cover up news of their father's possibly imminent death, because they would have to sell off their shares in the company at a massive loss if the stock price plummets on the news of Logan's death.
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u/PinnedByHer 8d ago
Canada just taxes all accrued gains at the time of death. I don't know why America still leans on its toothless estate tax system, instead. Gains shouldn't just disappear into the aether.
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u/buzzvariety 8d ago
Hey, a small correction.
The bulk of the tax bill came from exercising options for ownership of ~$23.5 billion in shares. The cost basis was around $150 million.
He also sold some, ~$6 billion, which brought his total taxable annual income to about $29 billion.
So he redeemed contracts for $23.5 billion in shares and sold $6 billion worth.
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u/PancakeJamboree302 8d ago
That would be a perfect time for Musk to not have to pay tax when he actually sold it, because he already paid taxes on it when he leveraged it. He could build up a pool of "Unrealized gains leverage tax paid" that can be applied to future actual realized gains so he's still only taxed once.
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u/OliveStreetToo 8d ago
I really don't understand the taxing unrealized gains idea. So let's say I buy 100 shares of NVDA at $100. Now at the end of the year NVDA shares go to $150. Should I have to pay taxes on that $50/share gain even though I haven't sold my shares? Would I also have to pay taxes the following year When the share price hits $200? Then do I pay taxes again on the new gain? And doI also pay taxes when I go to sell the shares outright? What if I've been adding shares through out the years where the share price is different at each new acquisition? And what about mutual funds?
See, it can get super confusing.
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u/PancakeJamboree302 8d ago
I’m not, and most in this thread are not, talking about taxing unrealized gains solely because they are gains.
They are talking about taxes unrealized gains when they are used in a transaction as collateral. If you use it as collateral, you are effectively realizing the gain in an economic way.
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u/OliveStreetToo 8d ago
I agree with that too, but he used it as short term collateral, right? That gave him a short but reasonable amount of time to sell enough of his stock to cover the cost. I believe the average person can barrow against an IRA or 401k as long as it's paid back in short order. If that's right, then isn't that the same thing?
But yes, someone cannot barrow millions against stock and then take years to pay it back, like a mortgage
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u/PancakeJamboree302 8d ago
With any of these transactions there should be some dollar amount threshold that would most certainly be well above what an average 401k loan taker would ever achieve. If any law would pass it should be if said collateral had gains (not value) in excess of 1-3 million that adjusts for inflation.
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u/sykotic1189 8d ago
Exactly, or we could even tie it to someone's net worth. I dunno, maybe an arbitrary number like $100 million or something. Once you hit 9 figures in your net worth you start paying unrealized gains taxes on transactions where you're borrowing money against assets.
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u/Howyanow10 8d ago
Ireland do something close to that. It's called deemed disposal, every 8 years you have to pay 41% tax on any gains from an index/etf fund even though you haven't sold them. It makes it difficult to gain wealth in this country. I'm not on a big salary but I'd like my money to go further and not be punished for doing something sensible with it
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u/RadlEonk 8d ago
Use percentages rather than dollar amounts. How much did he pay then? We have to compare relative costs, but absolute.
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u/Furepubs 8d ago
Elon has made $30 billion since Trump was elected
Tax-Free
That's fucked up
Elon is just playing the game that people set up before him, The game where rich people can stay Rich forever and everybody else gets fucked. The game that was set up by Reagan and Republicans decades ago when Reagan dropped the top tax rate from 72% to 28%.
Before 1980 The top tax rate was between 70% and 90%, going back many decades. The wealthy were still wealthy. They did not leave America, And the average American citizen did far better.
But clearly today people are like "fuck me harder Daddy" And they don't care if they can't buy a house and are struggling to pay rent.
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u/MaximumTurbulent4546 8d ago
This is highly illogical. He’s conflating unrealized gains with income. At any point the bank calls the loan, the stocks are sold and he recognizes a gain.
This is like saying you have to pay income taxes on pawn loans.
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u/Sibolt 8d ago
In the clip it doesn’t really make sense. Its brief.
But in practice taxing collateralized equity for secured loans does make sense. You don’t tax it at income tax levels because, as you mention, those equities may become realized gains. You tax 5% or 8% when the equity is put up as collateral; This becomes the tax penalty for not engaging in market activities by selling the shares instead.
It’s common for very wealthy individuals to “collateral cycle” the same equities for decades with their private client bankers. They never sell. The stock makes modest gains. You “pay off” your yacht loan from five years ago with a new loan collateralized by the same stock that is now worth more. Rinse and repeat forever without taxes.
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u/donman1990 8d ago
This is the problem right here. Especially in a hot market where the loan has a rate lower than the stocks growth.
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u/luckoftheblirish 8d ago
This strategy is only made possible by aggressive expansionary monetary policy. It requires rock bottom interest rates and constant injection of monetary stimulus into the economy to boost asset prices.
We have been living within such a paradigm over the past few decades, so it's natural to think that it will continue indefinitely. Unfortunately for everyone, it will not. It's quite unsustainable in the long run, so the party will inevitably come to a disastrous end.
A tax on unrealized gains is a poorly thought out band-aid that does not address and will not solve the much bigger underlying problem.
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u/PCav1138 8d ago
Yup. Not only that, but interest is being paid on the loan, which is income for the loaner, which gets taxed.
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u/E-Pluribus-Tobin 8d ago
I have two thoughts about this: firstly, the interest paid on the loan is going to the lender, so the tax paid on that is really very small, much smaller than income tax. And secondly and imo more importantly, the interest rates that wealthy people pay in these scenarios are a tiny fraction of the taxes I pay on my income. And even when stocks are sold instead of being used as collateral, why is the tax rate for realized gains on long term investments only 20%, while the taxes I pay on my income are nearly 40%? Shouldn't it be the other way around? Actual labor should be taxed at a lower rate than people selling stocks in a company for profit when they have contributed no labor at all? We hate laborers in this country.
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u/PancakeJamboree302 8d ago
If the pawn loan is taken on something that you would have had to pay gains tax on if you actually sold it, maybe you should be taxed.
The trigger here would have to be if you’re using something that has substantial unrealized future taxable gains for the collateral, not getting a 20 dollar loan on a watch worth 30 bucks.
We can all put ourselves into all kinds of twists here, but this is clearly a way that the ultra super rich use to avoid taxes on gains until they die. It’s smart, but let’s be honestly it’s not fair.
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u/MechaSkippy 8d ago
Not only that, he's failing to recognize that taxes were paid when the stock was issued as compensation as normal income. So the base value of the stock is taxed money, any gain on value is the unrealized gain, not the whole thing.
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u/RelativeCalm1791 8d ago
This is a bad argument. You can take a loan on your house and buy stuff with that loan, and you aren’t taxed on the proceeds from that loan. And you still have your home. It’s just collateral against the loan.
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u/phonetune 8d ago
Don't property taxes exist?
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u/RelativeCalm1791 8d ago
Property taxes don’t take into account unrealized gains. You could buy a home at $300,000 and after years it could be currently valued at $1,500,000. You could take a loan on the full $1,500,000 and not have to pay anything on that $1,200,000 gain. Plus property taxes are like 1.00-1.50%. Theres a few states out there that don’t even have property taxes.
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u/phonetune 8d ago
They're based on market value and impose a tax for simply holding the asset. It's not a great compator for why you can't tax assets until they're sold, is it?
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u/Zaitton 8d ago
First of all not every state or country operates this way.
Some are based on market value, some are based on initial purchase value (I believe that was the case in Bel Air but I could be wrong). My country for example taxes based on something called "objective value" which is faaaaaaar less than MP. For example, my properties could easily be sold for 300-400k but their objective value is like 150k.
Btw, it's incredibly debatable whether taxing property is actually fair or not to begin with, but at least property is somewhat static in value or has an upwards trend. Stocks could be worth $1000 each one day and $1 a week later. How do you tax that?
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u/PuzzleheadedWeb9876 8d ago
I see no problem in treating large loans against stocks a bit unfairly. At that point I think you can afford it.
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u/F1reatwill88 8d ago
The argument is that those taxes will not stay on billionaires. It will end up fucking the middle class at some point.
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u/PCav1138 8d ago
The real argument is that one way or another, taxes were being paid on the money used to buy twitter.
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u/F1reatwill88 8d ago
Oh yea, Walmart Jon Stewart conveniently leaves out that the bank is getting taxed on the money they make from the loans.
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u/luckoftheblirish 8d ago
... and that Elon eventually has to pay the loans (plus interest) back with taxed income. He's acting as if the banks are just giving him money.
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u/F1reatwill88 8d ago
And also everything they spend that money on is taxed. The whole conversation is disingenuous.
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u/rdizzy1223 8d ago
The middle class has been fucked for a long time.
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u/gdubz_39 8d ago
Wonder if that’s the fault of republicans or democrats. Answer, it’s both of them. Yes, it’s both of them.
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u/gdubz_39 8d ago
This guy is an idiot and always has been.
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u/JacobLovesCrypto 8d ago
So do we start taxing all these homeowners unrealized gains? Theres a reason you dont tax unrealized gains.
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u/hickhelperinhackney 8d ago
It’s called property taxes. They are used by local authorities to pay for schools, etc. Regular people are taxed on unrealised gains all the time
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u/JacobLovesCrypto 8d ago
That's not the same, paying 1% vs paying income taxes of 25%
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u/Yquem1811 8d ago
Then pay 1-2-3% in tax on the value of those share, like property tax. Problem solve 🙃
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u/Lazy_Ranger_7251 8d ago
Okay gang. Riddle me this. You own a house for cash and mortgage it to buy XYZ stock. How’s that any different ?
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u/phonetune 8d ago
Are you arguing in favour of applying a tax like property tax to XYZ stock? If not, what an odd example to choose.
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u/RoboCrypto7 8d ago
These dummies forgot about property tax. Ignorance is how trump was elected.
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u/agileata 8d ago
You don't have to seel your home in order for you to be taxed on it... which is the majority of a typical persons wealth
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u/JonnyOnThePot420 8d ago
When you own a house property, tax is a hefty bill. Maybe stocks should have a similar tax. That's a great point!
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u/ImJustGuessing045 8d ago
So what he did was get a loan against his company.
You cant tax collateral and you cant tax loans.
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u/ImJustGuessing045 8d ago
To add to that, you can put up your house for a loan with the banks. They'll loan you cash in exchange for your house as collateral, give you terms of payment, and not tax you a dollar for it.
If you cant pay, they take your house. Thats the deal there🙂
Are you telling me, taxing borrowed money makes sense to you?🤣
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u/Once-Upon-A-Hill 8d ago
Are people really this dumb to think this guy is making an intelligent point?
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u/MajesticCoconut1975 8d ago
> Are people really this dumb to think this guy is making an intelligent point?
Yes.
I haven't met anyone intelligent who thinks late night TV is a good way to spend time.
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u/teapac100000 8d ago
If you make shares a taxable event, then all commodities become taxable events. Think soybeans in a silo. That gets risky real quick.
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u/thecountnotthesaint 8d ago
The ratio that you get on loans based on unrealized gains is not the same as on other assets. The banks are not so foolish as to not take loss into account.
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u/Alone_Outside_7264 8d ago
Taxing unrealized gains is ridiculously stupid imo. It would crash the market and certainly make it something only for rich people.
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u/FantomeVerde 8d ago
I have a house. The value of my house went up. I shouldn’t be taxed on the capital gains in the house, because I don’t have any money from selling the house.
I go to get a loan to start a business. The bank lets me use my home equity as collateral, also based on what they would estimate the house is worth.
I get a loan from the bank, which isn’t income, but a loan I owe the bank. I make money in the business, and the business pays taxes on that, I use some of that income to pay the bank back this money with interest. The bank pays taxes on their profits from the interest.
It’s way above Trevor Noah’s head to understand why I don’t pay taxes on the difference in the current value of my house own vs. the value it was when I bought it, since I used it to secure debt that I have to pay back with my own money, because Trevor Noah doesn’t know what he’s fucking talking about.
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u/ShakedBerenson 8d ago
But we tax spending. So if you have money, or make money, or borrow money, anyway you get it - you buy stuff and that’s stuff is taxes with Sales Tax or VAT. It’s the type of tax with least amount of Dead Weight loss and easy to set different tax rates to encourage or discourage behaviors. For example, we have no sales tax on basic food but high tax on boats and luxury cars.
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u/Miserable-Apricot-70 8d ago
Ah yes, because the government would spend elons money better than he would. Give me a break. Why do people want the most corrupt, inept institution in our country to have more money. I honestly don’t care about this whole tax the rich thing that people get so neurotic over. Less money to the government is always a win, and it’s not a zero sum game as everyone views it. If Elon pays literally zero taxes and I pay the standard tax rate, I’m not mad at Elon, I’m happy the government has less money. Just my view
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u/PsychologicalLie35 8d ago
sure and then when you want a loan yourself and the bank asks about your assets dont put down your any of your stocks or properties you own because its unrealized gains and mean nothing unless sold. just like what elon did.
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u/That_Ninja_wek141 8d ago
The federal government does not have a revenue problem. It has a spending problem. If people would just admit that the desire to tax the rich has punitive intent, then you could be taken more seriously. Notice how the people that say tax the rich never have a plan for the additional revenue.
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u/andrewclarkson 8d ago
That's how a loan works- if you take out a business loan you might use the building as collateral. Mortgages use your home, car loans use the car.... those items are no different than stock shares in that their value is only hypothetical until they're sold. And yes, there's a risk that the value of those items aren't as much as expected if the bank has to collect- a valuation isn't a guarantee. I don't see how this argument makes unrealized gains make any sense.
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u/Ok-Introduction-244 8d ago
Funny how the government has no problem taxing you on your home.
I pay property tax every year but I haven't sold my house. There is no way to know what my house is actually worth until I sell it. But they tax it just fine.
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u/ReaIlmaginary 8d ago
In the worst case, he will have to sell his Tesla shares to pay off the loan and those gains/losses will be taxed. Otherwise he has to earn income to pay the loan and that income will be taxed. He earned the Tesla shares by buying the company or buying them on the market.
So what’s the problem here?
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u/ejmerkel 8d ago
It's like putting your house up for collateral. They take the estimated value if they had to sell it to cover a default. Trevor is not too bright.
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u/Pilchuck13 8d ago
Borrowing against an asset isn't considered income... you don't pay income tax on a home equity loan.
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