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Taxing unrealized gains

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3 minutes ago, AztecSU said:

Wouldn't the solution to what Akulla points out wrt borrowing against wealth...which is an issue and part of what's contributing to the new wealth gap. Wouldn't it be to tax that specific practice? I mean if we want to go after the 500-750 most wealthy Americans for their share of taxes you need to make sure you there's no cross fire. 

Example. Multi-billionaire wants to borrow against his wealth and is offered a rate of 5% (made up) per annum. Because he holds wealth above a certain threshold it triggers a federal wealthy borrower tax of X% of borrowed amount. Am I crazy that it could be that easy without risking regular Joe's?

 

 

 

 

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11 minutes ago, AztecSU said:

Wouldn't the solution to what Akulla points out wrt borrowing against wealth...which is an issue and part of what's contributing to the new wealth gap. Wouldn't it be to tax that specific practice? I mean if we want to go after the 500-750 most wealthy Americans for their share of taxes you need to make sure you there's no cross fire. 

It isn't just the wealthy people who borrow against their wealth to avoid taxes. 

Do you want to pay taxes at ordinary rates every time you use a HELOC to remodel your house? 

If you have an emergency and need to borrow from your 401(k) to you want to be hit with income taxes? 

Both of these are tools the middle class use to borrow against their wealth tax free. In fact it is more than tax free because you can deduct the interest on a HELOC loan if you use the funds to improve your home. 

 

 

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12 minutes ago, AztecSU said:

Example. Multi-billionaire wants to borrow against his wealth and is offered a rate of 5% (made up) per annum. Because he holds wealth above a certain threshold it triggers a federal wealthy borrower tax of X% of borrowed amount. Am I crazy that it could be that easy without risking regular Joe's?

If you really want to target the top 500-1000 taxpayers the way to do it is through AMT which would force them to pay at a minimum rate. 

I don't get the obsession with taxing the shit out of these people though. If the federal government  were to confiscate everything they own it would be a drop in the bucket in comparison to total government revenues and expenditures. The overwhelming majority of taxes income taxes collected comes from every day idiots like you and me, because there are so many of us. 

 

 

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13 minutes ago, bornontheblue said:

If you really want to target the top 500-1000 taxpayers the way to do it is through AMT which would force them to pay at a minimum rate. 

I don't get the obsession with taxing the shit out of these people though. If the federal government  were to confiscate everything they own it would be a drop in the bucket in comparison to total government revenues and expenditures. The overwhelming majority of taxes income taxes collected comes from every day idiots like you and me, because there are so many of us. 

 

 

If you have a billion dollars in investments you can set up a borrowing mechanism that allows you to borrow at low rates normal people won't have access to while consuming as much or more than any normal person. IOW, there is a loophole in which you can consume and generate public expenses while paying no reasonable tax against your impact. This is a loophole that needs to be closed before its normalized outside the billionaire class. 

Think about it...a person doing this and their descendents could potentially do this in perpetuity. 

 

 

 

 

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6 minutes ago, AztecSU said:

If you have a billion dollars in investments you can set up a borrowing mechanism that allows you to borrow at low rates normal people won't have access to while consuming as much or more than any normal person. IOW, there is a loophole in which you can consume and generate public expenses while paying no reasonable tax against your impact. This is a loophole that needs to be closed before its normalized outside the billionaire class. 

Think about it...a person doing this and their descendents could potentially do this in perpetuity. 

Look, the average Joe six pack gets ALL or nearly ALL of their income in the form of wages.  The IRS gets a copy of the W2 you receive and they know exactly how much you receive in income.  You can't just "move some  things around" to pay zero or nearly zero taxes on your wage income.  

There is a different set of rules for billionaires.  They can shift income to other countries, decide how to structure their income, defer income, borrow off their income, etc., while still getting the full benefit of using that income.  They play the tax code to be able to earn income but not have to pay tax.  Some will argue that Jeff Bezos amazon stock appreciation isn't "Income" and that is basically how the tax code currently defines it.  However, Bezos has the power to channel all of his wealth into that Amazon stock so he never get a W2 like the base majority of Americans get.  How many "Joe Six Pack" wage earners can just decide they will monkey around with their accounting to manipulate it so their "Wages" never get taxed that year and just go into a special account that NEVER gets taxed until they take money out of that account?

The efforts to tax unrealized gains by billionaires, institute a global corporate minimum tax, and force banks to report more income that pass through them is an effort to close the tax system where only the "little people" pay tax.  The later is to make sure that tax cheats who have a ton of unreported income going through their bank accounts but never report them on taxes are also caught.

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11 minutes ago, AztecSU said:

If you have a billion dollars in investments you can set up a borrowing mechanism that allows you to borrow at low rates normal people won't have access to while consuming as much or more than any normal person. IOW, there is a loophole in which you can consume and generate public expenses while paying no reasonable tax against your impact. This is a loophole that needs to be closed before its normalized outside the billionaire class. 

Think about it...a person doing this and their descendents could potentially do this in perpetuity. 

I get what you are saying but the federal government can only legally tax income, not wealth, or loan proceeds. It would require a constitutional amendment that would never pass. 

Middle class people borrow tax free against their wealth all the time too. HELOC loans, 401(k) Loans etc. 

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2 minutes ago, bornontheblue said:

I get what you are saying but the federal government can only legally tax income, not wealth, or loan proceeds. It would require a constitutional amendment that would never pass. 

Middle class people borrow tax free against their wealth all the time too. HELOC loans, 401(k) Loans etc. 

You keep repeating that but there is no proposal to tax wealth...just unrealized gains.  

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1 minute ago, Akkula said:

Look, the average Joe six pack gets ALL or nearly ALL of their income in the form of wages.  The IRS gets a copy of the W2 you receive and they know exactly how much you receive in income.  You can't just "move some  things around" to pay zero or nearly zero taxes on your wage income.  

There is a different set of rules for billionaires.  They can shift income to other countries, decide how to structure their income, defer income, borrow off their income, etc., while still getting the full benefit of using that income.  They play the tax code to be able to earn income but not have to pay tax.  Some will argue that Jeff Bezos amazon stock appreciation isn't "Income" and that is basically how the tax code currently defines it.  However, Bezos has the power to channel all of his wealth into that Amazon stock so he never get a W2 like the base majority of Americans get.  How many "Joe Six Pack" wage earners can just decide they will monkey around with their accounting to manipulate it so their "Wages" never get taxed that year and just go into a special account that NEVER gets taxed until they take money out of that account?

The efforts to tax unrealized gains by billionaires, institute a global corporate minimum tax, and force banks to report more income that pass through them is an effort to close the tax system where only the "little people" pay tax.  The later is to make sure that tax cheats who have a ton of unreported income going through their bank accounts but never report them on taxes are also caught.

Middle class people have many options to lower their taxable income 

Health insurance, HSA contributions, 401(k) contributions all defer taxable income. You can defer up to $12,000 dollars in most states by contributing to a college savings plan. The middle and working class get tax benefits that are phased out for  millionaires and billionaires. Child Tax credits for large families often make it so that families pay 0 in tax and actually get money back. They can also deduct student loan interest, get refundable credits for college expenses that are all phased out for millionaires and billionaires. The working and middle class have plenty of options to save on their taxes. 

If you are self employed you even have more options, you can deduct IRA, or SEP contributions. get an above the line deduction for self employed health insurance. 

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5 minutes ago, bornontheblue said:

I get what you are saying but the federal government can only legally tax income, not wealth, or loan proceeds. It would require a constitutional amendment that would never pass. 

Middle class people borrow tax free against their wealth all the time too. HELOC loans, 401(k) Loans etc. 

Ok, understood. Now, it would seem that they are benefiting from unrealized gains by borrowing against the value of their investments. To me that is a trigger that pushes this into gray territory. I mean most well do investors can easily make 10% a year in the market. So any borrowing below that number seems to indicate you can borrow against unrealized gains and further enrich yourself while avoiding paying tax EVER on those gains. Doesn't that seem fairly one-sided? 

 

 

 

 

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10 minutes ago, Akkula said:

You keep repeating that but there is no proposal to tax wealth...just unrealized gains.  

Unrealized gains are wealth dumb dumb. 

This is well established in case law. Unrealized gains are not income. 

They can try and tax it all they want, it would not survive a court challenge. 

 

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1 minute ago, AztecSU said:

Ok, understood. Now, it would seem that they are benefiting from unrealized gains by borrowing against the value of their investments. To me that is a trigger that pushes this into gray territory. I mean most well do investors can easily make 10% a year in the market. So any borrowing below that number seems to indicate you can borrow against unrealized gains and further enrich yourself while avoiding paying tax EVER on those gains. Doesn't that seem fairly one-sided? 

Very few taxpayers just sit on their gains and never pay taxes on them EVER. 

As their investment strategies change over time they will sell investments and invest in new ones. Very few people just buy stock and sit on it for decades. 

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Welp, looks like one of the board comedians doesn't know the answer to the questions I'm asking. 

@bornontheblue, @mugtang, any of the other pros, what is/are the I.R.S.'s legal right(s) to inquire into one's alleged gain, or any other way that someone makes a living? Is/are there specific codes? Is it written on their badges? Darth Vader said so?

 

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5 minutes ago, Akkula said:

You keep repeating that but there is no proposal to tax wealth...just unrealized gains.  

Unrealized isn't income...yet.  It's a theoretical notion until a sale.  I get what they are going for, but maybe we should stop rewarding some of the things that creates a holding of cashflow, like making multiple houses still available for writeoff on the interest while collecting revenue while having it appreciate, for one.  I see even crazier manipulation of markets if we start going this route.  What if a large real estate and property firm wanted to lower it's values until they can buy a politician to reverse this plan.  It wouldn't take much to lower their values by design, which would have a regional effect on appraisal comps, putting current buyers underwater, and potentially create a buyer's market that they know isn't real, buy more property and exacerbate an issue down the road.  It wouldn't be hard for them to do.

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1 minute ago, Maynard Delecto said:

Welp, looks like one of the board comedians doesn't know the answer to the questions I'm asking. 

@bornontheblue, @mugtang, any of the other pros, what is/are the I.R.S.'s legal right(s) to ask about how one's alleged gain, or any other way that someone makes a living? Is/are there specific codes? Is it written on their badges? Darth Vader said so?

I don't know if I can answer that question

thelawlorfaithful, on 31 Dec 2012 - 04:01 AM, said:One of the rules I live by: never underestimate a man in a dandy looking sweater

 

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5 minutes ago, bornontheblue said:

Middle class people have many options to lower their taxable income 

Health insurance, HSA contributions, 401(k) contributions all defer taxable income. You can defer up to $12,000 dollars in most states by contributing to a college savings plan. The middle and working class get tax benefits that are phased out for  millionaires and billionaires. Child Tax credits for large families often make it so that families pay 0 in tax and actually get money back. They can also deduct student loan interest, get refundable credits for college expenses that are all phased out for millionaires and billionaires. The working and middle class have plenty of options to save on their taxes. 

If you are self employed you even have more options, you can deduct IRA, or SEP contributions. get an above the line deduction for self employed health insurance. 

You are playing games and trying to distort for people who aren't well versed in taxes.  What option does "Joe Six Pack" wage earner have to defer 100% of their income so as to avoid 100% of income taxes for a given year?  Furthermore, what percentage of "Joe Six Pack" people can even afford to do such a maneuver to avoid taxes when they have bills to pay and kids to feed?  Furthermore, what option does "Joe Six Pack" have to only pay capital gains tax rates on this income when they do sell instead of ordinary tax rates?  This is what people mean when they say our tax code rewards wealth and not work!

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7 minutes ago, bornontheblue said:

Very few taxpayers just sit on their gains and never pay taxes on them EVER. 

As their investment strategies change over time they will sell investments and invest in new ones. Very few people just buy stock and sit on it for decades. 

Maybe, but this "loop hole" sure seems to make a case for taxing consumption for those over a certain threshold(let the eggheads decide)...

 

 

 

 

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1 minute ago, Akkula said:

You are playing games and trying to distort for people who aren't well versed in taxes.  What option does "Joe Six Pack" wage earner have to defer 100% of their income so as to avoid 100% of income taxes for a given year?  Furthermore, what percentage of "Joe Six Pack" people can even afford to do such a maneuver to avoid taxes when they have bills to pay and kids to feed?  Furthermore, what option does "Joe Six Pack" have to only pay capital gains tax rates on this income when they do sell instead of ordinary tax rates?  This is what people mean when they say our tax code rewards wealth and not work!

Joe Six Pack doesn't invest?  If we are simply saying that the established rich aren't paying income because they don't need to actualize wealth, how many is that?  Because most who are moving money around are still circulating cashflows, and if they have employees, are paying taxes as well.  Personally, I am more apt to keep deductions that promote small and privately owned businesses, and let large corporations and especially publicly-traded companies have very limited deductions.  Their size and global-funding can fend for themselves much easier, and they have no attachment to their location or workforce due to that.  

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6 minutes ago, East Coast Aztec said:

Unrealized isn't income...yet.  It's a theoretical notion until a sale.  I get what they are going for, but maybe we should stop rewarding some of the things that creates a holding of cashflow, like making multiple houses still available for writeoff on the interest while collecting revenue while having it appreciate, for one.  I see even crazier manipulation of markets if we start going this route.  What if a large real estate and property firm wanted to lower it's values until they can buy a politician to reverse this plan.  It wouldn't take much to lower their values by design, which would have a regional effect on appraisal comps, putting current buyers underwater, and potentially create a buyer's market that they know isn't real, buy more property and exacerbate an issue down the road.  It wouldn't be hard for them to do.

The way it normally works is you have to value your assets every year on 12/31.  If you have a gain you have to pay income tax, if you have a loss, no tax.  You have to keep track of what you paid in tax on the asset until you sell.  If you end up having an overall gain or loss you get to use all of the prior taxes paid on gains and losses and valuations to reduce the amount of tax you pay on final sale.  At the end of the day it all comes out even when the asset is sold.  

The current system allows billionaires to defer the tax forever and then it allows them to pass on the assets with a cost basis to their heirs AS IF they had paid the tax.  Deferring taxes until you die but getting step up basis so nobody ever pays the tax is the name of the game.

Is keeping track of unrealized gain complicated in some respects?  Yes....but giant companies have to keep historical tax records and there is no reason 1000 billionaires can't cough up the money to pay their accountants for these tasks.  They already employ hundreds anyway so "its complicated" isn't an excuse.  

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4 minutes ago, Akkula said:

You are playing games and trying to distort for people who aren't well versed in taxes.  What option does "Joe Six Pack" wage earner have to defer 100% of their income so as to avoid 100% of income taxes for a given year?  Furthermore, what percentage of "Joe Six Pack" people can even afford to do such a maneuver to avoid taxes when they have bills to pay and kids to feed?  Furthermore, what option does "Joe Six Pack" have to only pay capital gains tax rates on this income when they do sell instead of ordinary tax rates?  This is what people mean when they say our tax code rewards wealth and not work!

Easy. If Joe six pack makes 55,000 a year and has three kids and a wife they will pay zero or very little tax because of child tax credits. They will probably have a negative effective rate because of child tax credits. 

They can also probably contribute to a 401(k) and have health insurance deducted from their taxable wages. 

 

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