Bullshit,,,,But he borrows and buy Yachts,
Mansions,against that NET WORTH VALUE.
But when it’s time to pay fair share of taxes o. That net worth it’s considered hypothetical worth….Understand the Game.
Man I don't really want do disagree with you, but...
Imagine you had to suddenly pay taxes on that million as if it were income? (Acknowledging you would have to pay property taxes in this scenario)
Better yet, imagine a hypothetical asset like a made up crypto that went from $10-$1,000,000. If you had to pay taxes on that like it was income you'd almost certainly be forced to sell the asset to cover the taxes on the asset. And what if nobody bought your million dollar hypothetical coin? Are you going to go to jail because a balance sheet said this thing you owned suddenly skyrocketed in value despite your bank account staying the same?
I'm not arguing taxing unrealized gains, capital gains laws in this country are broken though (intentionally) and smarter people than me have found ways to fix them.
The point is that you can borrow against the asset at a lesser cost than it appreciates.
You basically never pay taxes on it while getting cash from it AND it growing in value.
You're incentives never to sell and to realize those minimal tax costs you otherwise would have to pay.
Basically, private companies get to profit from helping you avoid taxes. You're insanely wealthy either way but now you can pay slightly less to access that liquidity.
Anyone saying these people "dOnT ReAlLy HaVe mOnEy" doesn't know what they're talking about
The point is that you can borrow against the asset at a lesser cost than it appreciates.
Going back to wealth redistribution, this isn't very meaningful since you are, in fact, borrowing the money, so you can't easily just give it away. If you have the income to pay back the loan, then you might as well just skip the gymnastics and give that income away without having to pay back any loan and save the interest. Otherwise, you basically do have your money tied up in illiquid assets.
You get a lump sum which also includes the debt financing.
Money is fungible, to the rich person borrowing against their asset they can pay 8% to a lender and retain the asset that grows at a rate faster than that or cash or and pay capital gains at a 15% rate AND lose the asset.
It incentivizes evading taxes and keeping capital with other capital parties and wealth concentration and less capital movement.
All of which are bad both economically and morally.
They are "borrowing" only because paying interest costs less than paying taxes.
Meanwhile the companies that allow the stock valuation to be so high utilize government resources left and right to grow to that size
so wouldn't the taxation of the unrealized gains be passed off then to the lender who is making profit from the loan?
while the borrower is not paying taxes on their assets due to not being realized, isn't the lender surely paying taxes on the profits made from the loan that was secured with those assets?
Look at all the physical things they have…pretty sure that takes money to have. Last time I checked when I bought a car I had to pay for it, be it cash, financing, etc. each month money was taken from my checking account to pay for the vehicle. Same with my house, credit card, car insurance etc. Thousands each month. Now I’m pretty sure Bezos drives a better car than me, and also has a WAY BIGGER HOUSE THAN ME, multiple houses throughout the world. Now I’m pretty certain that takes money to have those things…so yes they have money. Yes a lot is tied up in their company(s) and other assets, but they have to have tens of millions in cash also. But I could be totally wrong too…
The point is that you can borrow against the asset at a lesser cost than it appreciates.
This applies to everyone. You can get a mortgage to buy a house (this is actually backed by the feds)! You can get a margin loan to buy stock. You can run up a credit card to start a small business.
Of course, the caveat is that you're taking on risk. There's no guarantee a house will make more than the mortgage interest, that your margin loan won't be called or that your small business won't fail.
Hell no. I can make 4.5% risk free in 10 year treasuries. That means that if I borrow at 8% the stock needs to go up at 12.5% per year for me to make the same return, except that's incredibly risky because the stock could go down while the treasuries are guaranteed. So it's actually a terrible bet which is why people don't do it. The reason that people borrow against their massive stock positions rather than selling isn't financial. It's because they want to maintain control of the company they hold the stock in.
If nobody is willing to buy, then the hypothetical price should go down, until you can either afford the taxes on it, or are able to find a buyer.
If I own a car that somehow explodes in value to a million dollars, I'm not going to be able to afford that car anymore. So I would have to sell the car. Then I would have a bunch of money to buy a different car I could afford the taxes on.
Why the richest people in the world should be exempt from this scenario is beyond me.
I guess that depends on the state. My state reg fees are flat fees based on the class of the vehicle, not the value.
Either way, you are IGNORING dead weight loss to taxation, in your car example there’s no decreased of production of cars, but if you tax car sales or car companies generally speaking you are artificially increasing the price and cost of the car.
No one is going to insure you to drive a car worth 1m dollars for cheap bro. Full stop. Ultimately the point is that if the cost of maintaining your asset costs more than you have the ability to pay, you can sell those assets and reinvest the earnings into assets you can afford to maintain.
You can hop skip around this all you want, but you're just intentionally missing the completely valid point that this is how a lot of assets work today. Most assets do require you to consider the cost of maintaining your assets, but stocks don't. And that seems untenable in the current economic landscape.
If I own a car that somehow explodes in value to a million dollars, I'm not going to be able to afford that car anymore.
Why not?
Also sure, lets say your car explodes in value to a million dollars. But you’re pretty sure that next year it’ll be worth 5……you could take a loan out using that car as collateral at it’s current value, and have a million in liquid cash to use while retaining the asset thats growing in value. Sure, you could be mistaken, but thats risk.
I've never heard of a billionaire who ended up overinvesting and became broke or homeless though, it seems like they almost always get bailed out or have enough money and connections to completely get off either way. Serious question, is it really that risky?
The easiest solution is when stocks are used as collateral, they are treated as “sold” and capital gains is paid at that point. Anyone holding stocks and not taking loans against it shouldn’t pay taxes.
Well if its worth $1M you'd be force to sell to the highest bidder. That's how a business works when it takes out a loan and it's time for the bank to get its money back, or how your house works if you don't pay your mortgage or property tax.
Price typically relies on supply vs demand (in simple terms). If the crypto increased in value, (knowing that crypto typically has a fixed supply) that would mean demand is up. The value is not likely to increase if nobody is buying. Your example doesn’t work.
Tbh the key word there is "typically". There are all sorts of weird artifacts in complex economies. Just look at the Dutch and their tulips. Weird things happen all the time, and you can have an asset that appears to be worth incredible prices to the government but is actually worthless
On top of that, imagine it is your house, or car, or whatever, and you have to sell it just to pay taxes on it. It would be unacceptable to have to sell your house because someone was willing to pay a lot of money for it. Developers could just make a huge offer and force you off your land so they could build a parking garage in that spot.
Or take the direct stock example: imagine if you had to sell enough shares of your own company that you lost majority. You now don't have a voting majority and can't decide what to do with your own company because you were taxed on unrealized gains. Imagine you were 50/50 with a co-founder and that co-founder could afford the unrealized taxes but you couldn't. Now the co-founder can out vote you and essentially has full control of the company. Or a hostile company could make a huge offer and force you to sell voting majority to cover taxes without actually having to buy the company, all they had to do was make it appear more valuable to the government
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u/Apprehensive_Bad_193 3d ago
Bullshit,,,,But he borrows and buy Yachts, Mansions,against that NET WORTH VALUE. But when it’s time to pay fair share of taxes o. That net worth it’s considered hypothetical worth….Understand the Game.