The law allows the RICH to "lock away" money...

[WarGamer]

It's done all the time.

Let's take a look at an example.

So you're filthy rich. You have a hundred million in the bank and don't know what to do with it.

Well... you call up Goldman Sachs and become one of their Private Banking Customers.

You deposit $100M and GS invests the money, take more than 1% a year BTW for their "hard work" and on average... they return around 11-12% annual returns.

So... $100M sits there, untouched, untouchable as GS brokers move it around between TSLA, APPL, SPY and MSFT or whatever, looking for consistent gains over the year.

That $100M might generate $10M a year in income for Mr. Rich. So the $10M is taxable (at a lower rate than the Doctor making $450k a year in income) but the $100M "seed money" is safe and sound, outside the reach of the IRS.

And the more money they PARK, the more investment income they receive.

How nice.

Money that is "outside" of public circulation does VERY LITTLE if anything for the general population

[Hoyt]

1. Seems to me that the rich would have likely sold something--

stock or something— to get the $100 M in cash.

Therefore, your “seed money” would have been taxed at that point. Ot is true that any gains on stocks after that would not be realized until the stock is sold. If they inherited stock, I would like to see the estate tax rate dramatically increase.

Most wealth in this country is on paper. If all the billionaires had to convert paper profits into cash, they’d get 20% if lucky. The rest of us would be selling pencils on the street corner and fighting each other for food.

[brooklynite]

2. Two points...

First, you seem to raise an issue about having a Private Banker handle your investments. I have one, and I pay for not having to oversee the investments in the account. That said, you don’t need to be “filthy rich” to be able to access one.

Second; while these investments (and other investments you might have) generate dividends which are reinvested, they’re not accessible until withdrawn: at which point their taxed for capital gain.

So what’s your concern?

[Steelrolled]

10. Actually, the dividends normally will be taxed (as dividends)

even if reinvested. You avoid that tax in IRA or 401K, but eventually you pay the tax (and as ordinary income!).

But otherwise, this scenario sounds like normal activity in a normal brokerage account - no special tax treatment.

[MichMan]

3. Under that scenario, my IRA is "parked" outside circulation until I make a withdrawal

and it increases in value most every year while it is being managed by my financial advisor. It is only taxed when I take any of it out for living expenses.

Exact same situation on a much smaller scale. Do you think it should be taxed by the IRS annually for parking it "outside of public circulation " too ?

[Captain Stern]

4. The money isn't 'locked away'.

The bank invests the money...you said so yourself.

It's not like the bank puts your money in a vault, and then pays you interest for the privilege of watching it for you.

And like other folks have pointed out, the money that is initially invested was already taxed.....and the investment income will also be taxed.

I think it should be taxed at a higher rate, but what's happening here isn't some big loophole that's being exploited by the rich.

[Bettie]

5. They're just human dragons

sitting on their piles of gold and hissing at anyone who comes near.

[WarGamer]

9. well said

[lame54]

6. That's because the rich ARE the law

[Zeitghost]

7. How is that "seed money"

How is that "seed money" any different than the money I put in my 401K, my house, my savings account, my safe, etc?

For better or worse, we tax income, not savings.

[WarGamer]

8. 10k, 100k, even 1M... sure... but hundreds of millions?

[Captain Zero]

11. And that money is often loaned to the government

Rather than being taxed.