So if we can't tax unrealized gains can't we ban federally insured banks from issuing loans with

[dsc]

stock as collateral? That would prevent the borrow against your stock and avoid paying taxes trick.

[Raven123]

1. Wow. Didn't know that happened. Should be illegal.

[drray23]

2. This is how you get cash flow if you are very wealthy.

Musk, Bezos, etc... don't get cash by selling their stock. Their wealth is just by virtue if owning majority shares in their companies worth hundreds of billions . Bezos only draws a $80,000 salary a year.. For the rest he just gets loans collateralized on his stocks.

[WarGamer]

3. and Musk is "forced" to execute options every few years...

So he pockets the cash, pays taxes on it and lives off of it so he doesn't have to claim ANY income every year.

[Hoyt]

4. Maybe not enough, but Bezos paid $973 Million in taxes from 2014 to 2018.

https://www.seattletimes.com/business/irs-records-show-wealthiest-americans-including-bezos-and-musk-pay-relatively-little-in-income-taxes/

Not to mention the taxes paid when millions of other Amazon stockholders sold their stock.

[MichMan]

6. I keep hearing he pays zero ???

[Hoyt]

9. Lots of misinformation. Expect it from GOPers, but . . . . . .

[Igel]

10. You know the old kid's game "telephone"?

Amazon uses investment and depreciation laws to basically write off their income.

They, for years, dumped their profit primarily into two buckets: dividends and investment in the businesses.

Both are costs of doing business and reduce taxable income. The investment might be intangible, innovating technology; it might be physical, buying buildings and technology. Either way, cost of doing business. This is *encouraged* in the tax code; it was written to produce this result. Presumably it produces more revenue and, in any event, when sold (something like land, maybe buildings) you get the money back (and it's suddenly taxable). Or maybe you even get capital gains.

However, if you've put up a building or invested in computers and machinery, the asset declines in value. That money is gone forever. Like buying a new car and driving it off the lot--suddenly value vanishes. The tax code lets you deduct depreciation from your income.

A number of years ago--pre-Trump, maybe pre-Obama--the depreciation laws were revised to allow depreciation deductions to be fast tracked. Again, this was intentional, it provided businesses with a quick shot of cash within a few years of making a large capital investment, instead of taking a small deduction for 10 or 15 years and this was seen as encouraging investment. In the case of Amazon, it certainly did--even if, in hindsight, we say we don't like the innovation that we encouraged.

Many households making up to $45k or so play the same game. They owe effectively 0 federal income tax because by the time they take various deductions their adjusted gross income is so low they pay nothing.

[MichMan]

12. Following the tax laws that congress passed

Wonder who voted for it back in the day ?

[Hoyt]

23. Good point. Accelerated depreciation/write-offs go way back. But it

was made even better for businesses in early 2000s to juice the economy. It’s almost baked into most financial decisions.

But, people need to separate Amazon from Bezos. Amazon might not pay corporate income taxes because it keeps plowing money into expanding, research, etc. At some point, they’ll have taxable income.

In the meantime, almost every share of Amazon Bezos sells, his xwife sells, millions of investors sell, etc., generates capital gains tax, every employee pays tax, etc.

Not opposed to some reasonable wealth tax or forcing wealthy to sell a percent of share every year like mandatory retirement account withdrawals. And Capital Gains rates should increase and estate taxes beefed up.

[csziggy]

13. But htat is often done through their stock brokers with margin loans

Rather than borrowing from a bank.

Margins loans are still borrowing against your stock, so if you can't pay it back, the stock can be sold to repay the loan.

So it you own $500,000 worth of stock, you can borrow a percentage of the value of that stock. I don't know the formula that is used to determine how much you can borrow, but it is over 50% of the value of the stock you hold.

[Mary in S. Carolina]

5. Wow!!

If gains are not realized for "tax purposes" why would a bank "realize gains" for lending purposes. This is genius!!!!!! So we need to change the lending and/or tax laws that state if we lend on appreciated property, you will be taxed on this appreciated property. This is the exact thinking that Democrats need to win!!!

[MichMan]

7. What makes you think they are lending only appreciated property?

They are lending on the total value of the account.

When people get home equity loans on houses, the bank doesn't know (or care) whether you are borrowing on appreciated gains or the base value of the property when it was first purchased.

[Mary in S. Carolina]

14. Exactly

When people get a home equity line of credit, they get an appraisal and base the loan on appreciated gains. Well if they are going to loan on appreciated gains, then these gains need to be taxed by the IRS. Don't worry, these gains should not be taxed on your primary home, just secondary homes and investment properties, regardless if the properties are real or personal.

[Mary in S. Carolina]

22. The Mitt Romney, the Donald Trumps, etc of the world

for example, purchase property for $10,000,000 and put the property in it's own corporation (separate from their other corporations). Next they have an appraiser appraise the property for $20,000,000 (because they can). The bank lends them $18,000,000 on the property, they take the $18,000,000 put in off shore accounts, foreclose on the loan and then file bankruptcy. They just made $8,000,000 off the bank, the bank turns around and charges the American public.

Now if they were required to be taxed on the appreciation, the bank would be required to withhold taxes on the $8,000,000 which I believe is 35% for federal and about 6% for state (depending on the state).

[fescuerescue]

11. The banks gains having nothing to do with the collateral

unless the borrower defaults.

Even in that case, when the borrower defaults, and the collateral is sold at auction and then the borrower incurs a capital gain or capital loss.

That's when the bank is made whole from the proceeds (if possible).

The banks gains come solely from interest charged which is taxed.

[Mary in S. Carolina]

15. You are missing the point

If you are going to get a loan based on an appraisal where the appraised value is greater than the purchase price, the difference needs to be taxed as capital gains for secondary homes, investment real or personal property. Come on accountants and attorneys out there, help me out on explaining this...this is brilliant.

[MichMan]

17. Not missing the point.

Say that I bought my home 20 years ago for $120k. It has been paid off & now has appreciated to $200k based on assessed value.

If I take out a equity loan for $50k, how does that have anything to do with any unrealized capital gains? The bank is lending me money based on the total assessed value of $200k, not separately on either the base valuation of $120k or the unrealized capital gain of $80k. Since it is paid off, they could care less on how much I might have paid for it 20 years ago.

Bank to me: "MichMan; Is your equity loan based on the initial $120k you paid when you bought it, or on the $80k it has appreciated? Oh by the way, if you say the appreciated $80k, you will be taxed on the loan as capital gains. If you say the initial $120k, you will not. Which one do you prefer?"

Me; "Duh, the first $120k then".

People shouldn't be taxed on borrowing using their own damn money as collateral. They are already paying interest for doing so

[Mary in S. Carolina]

20. It would not apply to your primary home!!

"A loan" on the amount on the "appreciated portion" on second homes, stocks, personal or other real property would be taxed. Are you getting a loan on the appreciated portion of your second home, your stocks, or any other personal or investment property??

[MichMan]

21. I'm not doing either, but it shouldn't matter if I was.

Why should anyone care if it was a second home, property, cars or my IRA?

Under your scenario, if I pawned something that had appreciated, I should not only have to pay interest on the loan, but also capital gains. Even if it was a short term loan that was paid back very quickly. Why does that make it different than any other type of loan ?

"Yes, I would like to pawn these diamond rings. I will be getting it back out, but need to pay a dentist bill first."

Pawnbroker: How much did you pay for it ? "

Me: "I have no idea, I got it 40 years ago from my first wife"

Pawnbroker " Not only am I going to charge you 20 % interest, you are also going to have to pay capital gains tax of 15% on it's current value, since it was a gift"

Me; "35% interest to borrow a couple thousand dollars against it for just a month !"

[Mary in S. Carolina]

24. Just read the original post

The uber wealthy are taking out loans to avoid taxes.

[MichMan]

25. The OP stated to ban any loans using stock as collateral

I did read the OP.

It stated to ban all and any loans issued by federally insured banks using stocks as collateral. No more, no less

No mention whatsoever with taxing unrealized gains from loans against second homes, real estate & personal property. In fact, the OP you referenced specifically mentions "if we can't tax unrealized gains, then ..... "

[fescuerescue]

27. Oh this is a should. Not how it is

I don't think it's worth killing the real estate market to just catch a few extra dollars in taxes.

[MiniMe]

16. Sorry, I agree with not taxing unrealized gains until the gains are realized

The whole idea behind that is so you have enough money to pay the taxes on it. In 2019, my broker sold a bunch of my Apple stock. I ended up with a huge tax liability for 2019.

[Mary in S. Carolina]

18. Gains should be realized not only when

you sell property but when you get a loan on the property in excess of the purchase price (primary homes exempt). This would result in the Uber wealthy of paying taxes on all of their various real and personal properties. When the wealthy take out loans (tax free), hide the money off shore for personal use, foreclose on the loan, file bankruptcy, shut down the businesses and fire all workers (think Mitt Romney).

[MiniMe]

19. I agree with that.

Some of that was my fault because I wasn't paying close enough attention when they made the sale. I never saw any of the money from that sale. It all went into another purchase. I never had any money go offshore.

[DFW]

26. I agree with that, especially for founders who took stock early as compensation

If they are forced to liquidate large positions of their own stock to satisfy the „tax-the-rich“ crowd, they‘ll still be fine even after the inevitable plunge in value when more of that stock is dumped on the market than the market wants to absorb. It‘s the small investor, who maybe took a shot on some stock with some „I can‘t afford to lose this“ savings—THAT is who gets hurt, and there are millions of them out there.

If there must be a rule that affects these people, I‘d make it so that they could not borrow against more than 10% of the market value of unrealized stock gains over some high limit. That removes much of the danger of the value of that stock dropping dramatically, and hurting the 750,000 other Americans who were counting on the stock to perform well as part of their retirement package, or children‘s future tuition, or whatever. If I owned any Amazon stock (I own none, for the record), and had two kids aged 10 and 6, it would be more important to me—and a million other small owners—that the stock enjoy steady growth than seeing its value plunge for the „joy“ of sticking it to Jeff Bezos.

[MiniMe]

28. The difference between them and me is that I have no problem paying the taxes I owe on the trans

May not like it, but I pay it.

[DFW]

29. I doubt anyone likes it per se

I think that most, however, don't mind paying what's legally an obligation. I see the biggest argument as being over just what should be their legal obligation. My personal opinion is that anything theoretical remains just that, and no matter how tempting a prize, especially in the eyes of someone who will never have wealth of that dimension (and that's everybody!), it's only on paper until sold.

Case in point: in 2011, a friend here in Europe got in a hunk of iridium, and asked if I wanted to take a flyer on it for $7000 per kilo (it was almost exactly 2 kilos). On a lark, I said sure (I had had a good year the year before). Well, I promptly forgot about it until last year, and saw the price of iridium had skyrocketed. This spring, it hit $6000 an ounce (a kilo is just over 32 ounces). Nice little score, right? I took it to a metal smeltery, who, while they were not equipped to refine iridium, did have a spectrometer so we could determine if it really was iridium (I never thought to check). Sure enough, it was 98.6% pure iridium. At theoretical market value, that was about $378,000!! What a score, right? Except that I can't find ANYBODY who will refine iridium. I was told that most refiners were crooked anyway, and would never tell you the true content of your metal, and cheat you if you knew already. But iridium? Too sophisticated, and I am not the Russian government. Well, the price is now down about 25%, so the theoretical value of my hunk of metal is now down to $283000. Boo hoo, right? Well one smeltery said I could reasonably expect to get 80% of the current market value (sounds realistic, given the sophisticated refining costs involved). So now $226,000. Then there is a 31.8% US tax on the gain (none in Germany, but I get hit for taxes in both countries). So I'd net $154,000 after all that. OK, I'm STILL happy with that. Except that I can't find ANYONE or ANYWHERE that will take the metal, refine it, take their 20% and pay me out. If some tax authority comes to me asking me to pay my "fayah shayah" of the unrealized gain, he had better expect to buy the hunk of metal off me at full market value, minus the tax owed, and go realize the gain I never could.

[dsc]

30. Home owners do this all the time and world doesn't stop spinning