You're referring to the tactic where billionaires can live off loans against their unrealized capital gains (e.g. stock with appreciation/dividends). Which goes back
to the US case Eisner v. Macomber (Stock Dividends are Not Taxable) (1920). But it also goes back to CEO compensation in general, and in stock in particular, being abnormally high. It is not tax-effective for the proverbial Google chefs to do this, only a tiny group.
A dictionary definition of "Income" is "money received, especially on a regular basis, for work or through investments". It's not just the narrowest definition, e.g. "only the thing that appears in the Income box on your [US] tax form, under the latest revision of the US tax code". (Like when Mitt Romney in 2012 accidentally shone a spotlight on
"carried interest" which allows private equity managers to pay only 15% tax.)
If your unrealized CG is so high that you can live off the loan until you die or retire, then it semantically isn't really a loan, is it.
When US CEO compensation becomes so excessive that it means that something that originally meant temporarily deferring tax in the 1920s now means deferring essentially all income taxes for most of their working life, it does suggest things have gotten distorted.
Sure ProPublica should have been more accurate and said "Here's stuff that is functionally equivalent to income, yet isn't taxed". But if you want to argue that ProPublica isn't entitled to is own semantics, then neither are other people in that debate. For example, we'll probaly see more scrutiny that Clarence Thomas (and his mother) were clearly receiving multiple streams of undeclared "income" or benefits from Harlan Crow. Also allegedly a complete miscarriage of ethics. (Yes that's currently primarily an ethics scandal not a tax evasion one, although it might become that too).
By the way, Warren Buffett essentially made the same point as ProPublica with his famous 2011(?) wager about CEO's secretaries' tax rates being higher. Noone accused him of a complete miscarriage of ethics.
Apparently the US tax code is even worse than that [0]. How is this not generational tax avoidance:
> Capital gains taxes on accrued capital gains are forgiven if the asset holder dies—the so-called “Angel of Death” loophole. The basis of an asset left to an heir is “stepped up” to the asset’s current value.
(Cue the panicmongering 'divide the family farm' story. Obviously Congress and the IRS can't figure out different treatment of stock, real estate, investments, farms.)
If it is in your interesst to not understand a problem, you don't. In that case, failing to grasp how stocks, real estate, farms and investments are different things is an easy excuse to keep a convenient loop hole open.
>If your unrealized CG is so high that you can live off the loan until you die or retire, then it semantically isn't really a loan, is it.
It is, because it gets paid back. What a stupid fucking line to draw “loans” and “not loans” at.
Do you consider people who take out mortgages that don’t pay them back before they die to not be taking out loans? Because that happens all the time. My father took out a 30 year mortgage when he was 84. F
The ultra wealthy can borrow vs. holdings at close to prime, which was basically zero when that article was written. So, they could take out a multi-decade 0% “loan” secured by stocks held at the same bank, and then pay it back, interest free after decades of inflation, and after decades of appreciation on the underlying stock portfolio.
Of course, at that point, they could pay the loan off by borrowing more against their portfolio. In this way, they can recursively never pay tax on the money they received (and spent) in exchange for “not selling” it to a financial institution that will no longer let them withdraw the collateral.
If:
(1) your father’s mortgage was used to pay off debt by using existing real estate holdings as collateral
(2) where the holdings appreciated significantly over the lifetime of the previous loan,
(3) the previous loan was collateralized by other real estate holdings,
(4) he then re-mortgaged a small fraction of those holdings to generate free cash flow for personal use, and
(5) this strategy only worked due to the bank giving him loans significantly below market value, due to other considerations regarding your father’s impact on the bank’s broader business,
Then, no, I wouldn’t consider that set of financial transactions to be a loan.
A dictionary definition of "Income" is "money received, especially on a regular basis, for work or through investments". It's not just the narrowest definition, e.g. "only the thing that appears in the Income box on your [US] tax form, under the latest revision of the US tax code". (Like when Mitt Romney in 2012 accidentally shone a spotlight on "carried interest" which allows private equity managers to pay only 15% tax.)
If your unrealized CG is so high that you can live off the loan until you die or retire, then it semantically isn't really a loan, is it.
When US CEO compensation becomes so excessive that it means that something that originally meant temporarily deferring tax in the 1920s now means deferring essentially all income taxes for most of their working life, it does suggest things have gotten distorted.
Sure ProPublica should have been more accurate and said "Here's stuff that is functionally equivalent to income, yet isn't taxed". But if you want to argue that ProPublica isn't entitled to is own semantics, then neither are other people in that debate. For example, we'll probaly see more scrutiny that Clarence Thomas (and his mother) were clearly receiving multiple streams of undeclared "income" or benefits from Harlan Crow. Also allegedly a complete miscarriage of ethics. (Yes that's currently primarily an ethics scandal not a tax evasion one, although it might become that too).
By the way, Warren Buffett essentially made the same point as ProPublica with his famous 2011(?) wager about CEO's secretaries' tax rates being higher. Noone accused him of a complete miscarriage of ethics.