Doesn't this tax only apply to "net investment income"/realized gains? Billionaires technically already have to pay it at a higher rate. And well they generally do? I mean when they personally actually sell stock and or receive dividends and interest.
Most of the wealth being in stock is really tricky. You can't really tax stock ownership, but at the same time stock can be leveraged against business deals (Musk for example bought Twitter with largely stock, without having to sell it first and therefore being subject to tax), and you can take out loans with stock as collateral.
It's not that tricky. All you have to do is make it a taxable event to collateralize stock.
Should we similarly tax collateralizing real estate as in home equity loans?
Sure, if you exclude primary residence. We aren't trying to fuck with the middle class, just the uberwealthy. I'd be fine with only taxing collateralized stock on people with over $20M in net worth too. We just don't need to provide tax breaks to the rich to make them more rich.
Now, rigorously define "net worth".
It's such an odd argument - the wealthy always seem to know what their net worth is. We could just make them declare it. If they lie, straight to jail.
Do they? I think exactly the opposite is true - if you ask any sufficiently wealthy person, they’d need a team of people working for a bit to arrive at a very hazy net worth number. Private stock is extremely illiquid and doesn’t usually have a good mark to market, ditto most artwork. My impression is that even most public stock doesn’t generally have the depth of liquidity to absorb a founder selling any significant fraction in a short timeframe without cratering in value.
> If they lie, straight to jail.
How do we know whether they lie without a solid definition of net worth?
I'm not defending billionaires and I believe they should be heavily taxed, and huge inheritances should be outlawed, but what's Elon Musk's net worth, for example? He surely doesn't have $369 billion in cash. Can we tax him based on his Tesla shares? What happens if Tesla stock goes down by 99% next year? It's tricky.
> How do we know whether they lie without a solid definition of net worth?
They get to tell us what they are worth. Generally speaking, if you want to lie about your net worth you are choosing between tax fraud and insurance fraud. There are some areas that are tricky, like pre-market startups, but we have things like 409A valuations that help with that. Penalties should have no statute of limitations - if you lie about it, you get to look over your shoulder forever. It's not perfect, but as you have clearly recognized, there is no perfect system that allows for a reasonable degree of freedom.
> Can we tax him based on his Tesla shares? What happens if Tesla stock goes down by 99% next year?
Not really tricky! He gets taxed on the value of his shares in year 1 and he gets taxed on the value of the shares in year 2. If the value goes down 99%, you pay way less tax (or none if he's no longer wealthy enough to qualify). He can sell his shares to pay it, and I honestly do not care if he is not liquid enough to do that - that's a situation he put himself into. No he doesn't get a tax break on the loss - the rich have a sense of entitlement that their wealth belongs to them free of charge, and I think they should have to pay maintenance. Without public utilities (roads, electricity, air and sea traffic control, etc) and social stability, most of these billionaires would lose their wealth to warlords very quickly.
> He gets taxed on the value of his shares in year 1 and he gets taxed on the value of the shares in year 2.
That doesn't make any sense. If I have $8B worth of shares and I have $2B in cash, and if the wealth tax is 20% I will have to pay all my cash this year. If my shares goes down to zero next year I'm broke. I couldn't just sell $2B worth of shares in the first year either because that would have affected the value of the shares. This is not how taxes should work.
Everyone agrees on income tax or capital gains tax because they are both cash, and the tax is also in the same currency. If we can find a way to tax wealth in the same "currency" (for example 20% of your share portfolio, plus 20% of your cash) then it might work. Obviously the state may not always be able to use shares to fund infrastructure, and cashing out those shares would diminish the value. Also it's still hard to do that for, say, real estate investments.
What doesn't make sense? He'd owe $1.6B the first year, and then he'd be shit out of luck because he drove the stock to 0. Not my problem. And you should stop putting yourself in his shoes - you will never be a billionaire, and you probably won't be a mega-millionaire either. Start worrying about your own situation.
In any case, the whole thread about "net worth" is really besides my original point, which is that collateralizing stock for loans should be a taxable event. The only reason we got into net worth was because I said I'd only apply it to high net worth individuals, since they have almost exclusively benefitted from the economy over the last 10-20 years. This is also super achievable because to get the bank to loan you money, you have to declare the value of the assets and the bank has to agree with the valuation - super easy to determine tax on that number.
I don't feel that strongly about it if he is just sitting on the assets, but if he's leveraging them to buy Twitter, OpenAI or to donate money toward overthrowing the Democratic order, then yes, he should absolutely pay taxes for the privilege.
I'm not worrying about billionaires. I'm discussing about hypothetical ways we can tax them. They own the government, and obviously your idea of potentially making them homeless will be immediately rejected and we will be in this status quo forever.
> collateralizing stock for loans should be a taxable event
I fully agree with this.
> They own the government, and obviously your idea of potentially making them homeless will be immediately rejected and we will be in this status quo forever.
Disagree. We've been negotiating from the middle. We got the New Deal because the alternative for the wealthy was facing a socialist revolution.
I'm all for threatining them with a socialist revolution if possible. However, I'm afraid they are better prepared this time. In today's world a (metaphorical) guerilla war that targets one small win at a time might be more prudent. The wealthy is not necessarily smart. Not all will see it coming.
> Generally speaking, if you want to lie about your net worth you are choosing between tax fraud and insurance fraud.
Funnily enough there is (was?) legal activity about exactly this with our current POTUS.
Real estate assets when being accounted for tax purposes: "Worth: $x"
Same real estate assets when being accounted for loan collateral: "Worth: $10x".
But of course like most legal activity against POTUS, it's just been "abandoned".
When the amount of equity pulled out from the loan exceeds the cost basis, why not?
How? That makes little sense to me from an implementation standpoint.
When I bought my home I had to sell $XXX,XXX of stock to make the down payment. If Jeff Bezos wants to buy the same house, he would use a line of credit from the bank, collateralized by his Amazon shares (or whatever source of wealth) and pay with that. I paid 15% in long-term capital gains, he pays 0%. Under my plan, he would pay 15% LTCG for collateralizing his stock,. If I had to pay it, then it's entirely fair and reasonable that we expect him to pay his fair share too.
You could have done the same thing with a margin-enabled brokerage account, e.g. Interactive Brokers or Fidelity.
It's not particularly hard. Just have enough collateral to not get margin called. And, like the margin interest rate better than the tax hit. Shop around for rates. Notice, you don't have to pay the entire down payment this way.
If you have amassed 6 figures of stock and are buying a house, you're qualified to educate yourself on these topics. It's usually worth reading up anytime you incur that sizable a taxable event.
I am not saying this is a great idea, BTW. Just, it's an idea within many people's reach.
If it's a bad idea, it's a bad faith argument - why would you suggest it? The tax laws shouldn't favor the gross accumulation of wealth, nor the starvation of the treasury, so the laws need to change to force the rich to pay their fair share.
> If it's a bad idea, it's a bad faith argument
I believe the GP is just cautioning rando HN readers that they should not rush out and make their down payment in the manner described, as opposed to liquidating some of their stock options for "real cash" like the GGP had to do.
They are just explaining a reasonable method that the (above) average HN reader could use to be in the same situation as Bezos of having a 0% tax on their down payment.
In the US, there's a pretty massive exemption (well, deferral) for capital gains tax on the sale of a primary residence, so once you have one home to work with, the down payment is (kind of?) tax-free anyway.
They definitely shouldn't. It's absurd to suggest that because a middle-class homebuyer can get a margin loan through iBroker means that we should let the richest people in history dodge taxes in this way. If no one would actually do that, then it really doesn't matter that they technically can. The obvious solution is to take away the privilege from the wealthy and make them abide the same rules as the rest of us.
> They definitely shouldn't.
Never give absolute financial advice to anyone who's situation you don't fully understand.
Nah, I’m pretty comfortable that 99.99999% of people should not take a margin loan to buy a house. Close enough for me.
A fair number of people do use margin for down payments until they can sell assets to cover the margin.
It's not uncommon when people buy deals while traveling or in hot markets.
See also Mr Money Mustache's articles on this topic. He assuredly is not Bezosesque.
Here's the Mr. Money Mustache article I referenced: https://www.mrmoneymustache.com/2021/01/29/margin-loan-ibkr-...
Another very rational reason for such a margin loan for a home down payment is if the stock you wanted to sell hadn't been held for a year and therefore its sale would not yet qualify for long-term capital gains rates.
You might choose to pay margin interest for up to a year so that the stock sales become taxed at the much lower long-term capital gains rates instead of like income.
That might make sense for someone in the 24% federal bracket which ends at just under $200K of annual income, depending upon how much longer one needs to hold the position to achieve the more favorable taxation. Certainly far below the yacht-owning bracket.
Bezos gets a much better margin rate than you or I would ever get on IBKR. And IBKR doesn't margin call, they straight up auto liquidate. Bezos's lender would never do that to him.
And withdrawals from margin accounts should cause taxable events too. Honestly it is up to the industry to justify and propose a workable tax scheme that makes margin accounts feasible. Withdrawals triggering taxable events seems fair to me, though.
If I get something of worth, non-related to the stock/ownership, for the current value on my stock/ownership, I should pay taxes on that amount. I am using the stocks value to gain something. If I take out a loan for businesses needs, that is in the interest of the thing I own. If I take out a loan to buy a separate thing, I have leveraged the current value and have therefor realized the current value and should pay accordingly.
Lenders would have to report loan origination for secured loans where some specific asset classes are acting as the collateral.
Why does it matter? It eventually gets taxed through estate tax and at a higher rate than income. This obsession with taxing them _now_ only makes sense if the point is to punish the the rich.
Agreed. For the revenue tax activists want from billionaires, it would necessitate a wealth tax, which I believe is unconstitutional. The non-profit tax exemption fight is about "income taxes" which billionaires already have to pay (but avoid). So it is an apples-to-oranges comparison.
> it would necessitate a wealth tax, which I believe is unconstitutional
I take it you haven't heard of property taxes.
I'm not a lawyer but I do not consider a property tax to be the same thing as a wealth tax.
If I own a house or condominium in San Francisco, at a fundamental level I do not own the land or space the residence is sitting on. "Ownership" is basically a lease of the parcel from the city. The house structure is an improvement on leased land; this ties the property tax calculation to the value of the structure. The property tax is the rent on the land/space. I believe this is the constitutional justification for property taxes (no opposition from me).
> If I own a house or condominium in San Francisco, at a fundamental level I do not own the land or space the residence is sitting on. "Ownership" is basically a lease of the parcel from the city.
It's interesting to me that medieval European peasants "renting" the land they farmed had much stronger ownership rights than Americans who "own" land do today.
> I believe this is the constitutional justification for property taxes
It isn't. The constitutional justification for property taxes is that they're assessed by the states, not by the federal government.
The federal government is free to assess property taxes too, except that it must apportion them between the states: https://constitution.congress.gov/browse/essay/artI-S9-C4-1/...
> An 1861 federal tax on real property illustrates how the rule of apportionment operates. Congress enacted a direct tax of $20 million. After apportioning the direct tax among the states, territories, and the District of Columbia, the State of New York was liable for the largest portion of the tax [...]
What this meant was that the federal government delegated tax quotas to the states and the states were responsible for collecting them as they saw fit.
Recommend James C. Scott's "Seeing like a State" to learn more about the evolution of property valuation and rights. The systems of land rights in up to the 1500s-1800s were quite complex. The modern state imposed a uniform system of free-hold tenure which shifted the complexity to the downstream consequences.
https://www.amazon.com/Seeing-like-State-Certain-Condition/d...
I was making a comment about radical change in the meaning of "renting" and "ownership". Did you have anything specific in mind?
(I've read the book; it didn't strike me as related to this topic.)
The concept of freehold tenure is pretty central to the book. Not sure you could get any more on-point for the general reader looking for a book recommendation.
But since you ask: the peasant's rights to land were exquisitely bespoke. No tax collector could figure out how much one family owed versus another in another county. The rules in one prefecture of one county may have been completely unresolvable with the rules of a county a hundred miles north. Everything was negotiated family to family over generations, with rights in one place having no corollary whatsoever with the rights in another area, making the tax man's duty a fool's errand.
So, I don't your first statement "European peasants "renting" the land they farmed had much stronger ownership rights than Americans who "own" land do today." is really meaningful. Because no generalization can be made about the rights of a European peasant. That problem is the whole reason for the systems of freehold tenure that prevail today: making the territory "seeable" by the state.
You're talking about something entirely different. The typical case for the renting medieval peasant is that the rent on a given plot of land is set by custom, the nominal amount has been the same for centuries, and it can never be changed for any reason. No administrative task could ever be simpler than collecting the rent.
Landowners responded to that by adjusting the size of the units in which land rents were due, which is why a major demand of peasant movements was for standardized units.
The fact that rents were absolutely nonnegotiable led to other developments, such as the lord being so indifferent as to exactly who was renting from him that the renter was free to leave his status to whoever he chose in his will.
> amount has been the same for centuries, and it can never be changed for any reason
That's only true in a narrow and a relatively obtuse way. For starters that varied to a huge degree between regions and types of contracts.
e.g. in England freeholds were indeterminate and or more or less worked the way you are saying.
However most peasants didn't have those, before the plague the overwhelming majority of peasants were villeins (i.e. serfs), inheritance was customary and lords were not legally obliged to pass it to the serf's descendants (also there were all kinds of fees, fines and stuff besides the fact that they weren't legally free and there was no legal system to protect your rights).
Leaseholds and copyholds became much more common due to labour shortages after the plague. leaseholds were not inherited and market price based. Copyholds were inherited and rents customary fixes (but again lords could and would impose all kinds of arbitrary fees to get their cut).
Then you had the enclosures starting the 1400s (a lot of the land peasants relied on was common)
Again, you're generalizing. To say that doesn't work in medieval Europe is probably itself a generalization. But if you read the book, I don't think this would be a point you'd be arguing.
The Supreme Court explicitly allowed property taxes in Pollock decision. They haven’t for wealth taxes (they still might allow it but they also might not).
what is unconstitutional about a wealth tax?
>> what is unconstitutional about a wealth tax?
Article I, Section 9, Clause 4:
"No Capitation, or other direct, Tax shall be laid, unless in Proportion to the Census or Enumeration herein before directed to be taken"
A wealth tax is generally considered to be a direct tax. If you wanted to enact one at the federal level, my understanding is that it would have to be done in proportion to the census. So, given that Mississippi is around 1% of the total US population, Mississippi would have to pay 1% of the wealth tax. Mississippi is the poorest US state, so that would be a very regressive tax.
An income tax is also considered to be a direct tax, that's why it took an amendment to the Constitution to enact one.
The Constitution applies to taxes at the federal level, not state. States could enact a wealth tax the same way they enact property taxes now (depending on their state Constitutions). The problem for them is that wealth is a bit more mobile than property.
And yes there are arguments about what a direct tax really meant in the language at the time the Constitution was written, there are arguments that the income tax should have been legal without an amendment. But that's not how it went down.
It’s not totally clear if it would be but here’s a summary: https://city-countyobserver.com/the-constitutionality-of-a-w...
I'm not a lawyer but my reasoning is this:
- as far as I know, double taxation by any given entity (Federal Gov) is unconstitutional
- a given dollar is taxed once as income. A federal wealth tax on the remainder of that dollar would be double taxation.
That does not prohibit the Federal Gov from taxing once, and your residential state from taxing you a second time.
There are other arguments about "direct taxation" I don't fully understand.
"Double taxation" is absolutely constitutional. Tons of things are double, triple, quadruple and more taxed.
I make a W2 salary. I pay federal income taxes on it. I pay FICA taxes on it. My employer pays payroll taxes on it. I might pay state income taxes on it. One event, tons of taxes. I take that quadruple taxed money and buy a dinner with a beer. Sales taxes on the overall sale, additional taxes on the alcohol, additional sales tax riders because I bought it in the touristy night life area. Triple taxes on my quadruple taxes, good lord! Unconstitutional!
Worthless phrase, "double taxation".
> That does not prohibit the Federal Gov from taxing once, and your residential state from taxing you a second time.
Once again, the several different taxes applied to my salary income. Then on that I go buy a gallon of gasoline, uh oh, federal gas taxes on that. Or I buy a plane ticket and that gets Federal Excise Tax (7.5% of the base fare), the Federal Segment Fee (currently $5.20 per segment), the TSA Security Fee ($5.60 per passenger), and more. Oof, "double taxation"! Even at the federal level!