The Secret IRS Files: Trove of Never-Before-Seen Records Reveal How the Wealthiest Avoid Income Tax

[jonatha]

Whatever they spend they earn as taxable income.

No, they don't.

They spend the proceeds of loans against their portfolios.

You still need to pay loan up with real money on which you pay income tax.
And I seriously doubt Bezos pays his bank $500/month for his boats.
Bezos has to have at least $30mil/year income to support his lifestyle. This moves him well into 37% bracket.

You probably don't need to pay much if anything in the way of principal on a margin loan, at least if the underlying stock is going up.

And Bezos could fund his $30mil/year income for 6300 years on sales of his stock, on which the top marginal rate is 20%...

 

[laughing dog]

Whatever they spend they earn as taxable income.

No, they don't.

They spend the proceeds of loans against their portfolios.

If the democrats enacted legislation to tax loan proceeds and/or the economy would crash and the dems would be tossed out of office. There's no doubt. This would just kill the middle class. The average person just wouldn't be able to buy a house anymore.

There is no need to tax loan proceeds directly. The US income tax system is already a hybrid consumption/income tax. All that is necessary is to shift it more into consumption while keeping the progressive rate structure.

 

[Derec]

You probably don't need to pay much if anything in the way of principal on a margin loan, at least if the underlying stock is going up.

And Bezos could fund his $30mil/year income for 6300 years on sales of his stock, on which the top marginal rate is 20%...

According to the graphic from page 1, Bezos paid almost 1 billion in taxes in the five year period in question (2014-2018). That's almost $200M per year. Hardly fair to say he paid almost no tax.
But yeah, it is likely he paid 20% rather than 37% because his income would be almost all realized capital gains.

 

[Elixir]

I'm an ex-banker! Now I'm part of the evil capitalist empire! Yea, I know some about banking (was a commercial lender). But I never did private banking (which is more like what you are describing). However, it's my experience that banks don't take a lien on stocks. It's more that they evaluate a borrower for their cash flow and personal assets. If someone has sufficient assets (like a Bezos); they can get an "unsecured LOC". And yes, you get this loan and buy a boat or whatever, if you want. However, you can't use the value of your stocks to make the monthly payments. Banks want cash. Stocks are not cash. Stocks are just estimated wealth. For example, if you get a HELOC on your home, you borrow against the value of your home. Then you buy something. But are you suggesting the equity in your house should be considered income since you are using it as collateral for a loan?

Bankers won't take stock as collateral, but brokers will. It's called a margin loan.

Nevertheless it’s a perpetual personal money machine. Like having dozens of 100+m$ homes that double in value every year or few years. You can always borrow on the increases in equity and deduct the interest and expenses (like the annual re-appraisal) incurred, from any realized gains. Voila, a “net worth” in the billions increasing annually by hundred of millions, and next to no taxes paid.

 

[Loren Pechtel]

We've been down this road before. You're off by some orders of magnitude.

Estimates of how much money it would take to end world hunger range from $7 billion to $265 billion per year.

...depending on the particular causes in the locality.

https://www.globalgiving.org/learn/how-much-would-it-cost-to-end-world-hunger/#:~:text=Estimates%20of%20how%20much%20money,to%20%24265%20billion%20per%20year.

per year. You can take their wealth to feed the world for one year.

Furthermore, feeding people other than in times of disaster is inherently impossible--the long run effect of providing food is to increase the number of hungry people.

 

[Loren Pechtel]

So you've fallen for the deception.

His stock went up. That's not income. It only becomes income if you sell it. Taxing the gain on stock you haven't sold causes all sort of problems for the business owner.

Why can't it be considered income? All it would take would be a little change in the tax code.

And the end effect is to take their companies away from them.

 

[Loren Pechtel]

Whatever they spend they earn as taxable income.

No, they don't.

They spend the proceeds of loans against their portfolios.

If the democrats enacted legislation to tax loan proceeds and/or the economy would crash and the dems would be tossed out of office. There's no doubt. This would just kill the middle class. The average person just wouldn't be able to buy a house anymore.

Took me a bit to figure it out but you're right. Mega ouch!

 

[Loren Pechtel]

If the democrats enacted legislation to tax loan proceeds and/or the economy would crash and the dems would be tossed out of office. There's no doubt. This would just kill the middle class. The average person just wouldn't be able to buy a house anymore.

Let's look at the reason that is.

I expect that the reason loan culture inflates the way it does is, the middle class can't afford a house because the class who organized their own army and gang sought rent for the land. Then when it came time to either let the land be sold or face revolution, they let it be sold only in such a way that their leveraged asking price still demands far more than the land is worth: the call of mammon to Leverage is just too strong.

So, loan culture is only necessary for the middle class to buy a home because loan culture has positioned itself between people and homes.

Other mechanisms are possible, but because no other mechanism profits and prevents harm for those who have the private army at their beck and call, nothing is going to change.

Nope.

I just looked up our house on the county assessor's website.

27% of the assessed value is the land. I have previously noted that the cost to rebuild (homeowner's insurance) is approximately the total value of the property. (Yes, the cost to rebuild is higher than the assessor's opinion of the value--this is a tract house, but reconstruction would not have any of the economy of scale that tract houses have.)

Drive the price of land to $0 and this place would still cost 73% of what does.

Even the expensive land downtown has buildings on it that cost far more than the land is worth.

 

[Loren Pechtel]

I'm an ex-banker! Now I'm part of the evil capitalist empire! Yea, I know some about banking (was a commercial lender). But I never did private banking (which is more like what you are describing). However, it's my experience that banks don't take a lien on stocks. It's more that they evaluate a borrower for their cash flow and personal assets. If someone has sufficient assets (like a Bezos); they can get an "unsecured LOC". And yes, you get this loan and buy a boat or whatever, if you want. However, you can't use the value of your stocks to make the monthly payments. Banks want cash. Stocks are not cash. Stocks are just estimated wealth. For example, if you get a HELOC on your home, you borrow against the value of your home. Then you buy something. But are you suggesting the equity in your house should be considered income since you are using it as collateral for a loan?

Bankers won't take stock as collateral, but brokers will. It's called a margin loan.

Nevertheless it’s a perpetual personal money machine. Like having dozens of 100+m$ homes that double in value every year or few years. You can always borrow on the increases in equity and deduct the interest and expenses (like the annual re-appraisal) incurred, from any realized gains. Voila, a “net worth” in the billions increasing annually by hundred of millions, and next to no taxes paid.

Over enough years you pay more in interest than you would in capital gains from selling.

 

[Swammerdami]

Why can't it be considered income? All it would take would be a little change in the tax code.

And the end effect is to take their companies away from them.

So ... You think Elizabeth Warren's 3% wealth tax is exactly the same as a 10% wealth tax. Where did you learn your arithmetic? At Trump University?

Over enough years you pay more in interest than you would in capital gains from selling.

Slow down, there; you may want to re-check your math.

IF the interest rate is LESS than the rate at which the stock appreciates THEN you do better borrowing EVEN IF THE CAP_GAINS TAX IS ZERO!

 

[Elixir]

Nevertheless it’s a perpetual personal money machine. Like having dozens of 100+m$ homes that double in value every year or few years. You can always borrow on the increases in equity and deduct the interest and expenses (like the annual re-appraisal) incurred, from any realized gains. Voila, a “net worth” in the billions increasing annually by hundred of millions, and next to no taxes paid.

Over enough years you pay more in interest than you would in capital gains from selling.

Of course. But taking the gains pulls your money or assets out of the appreciation mechanism.

 

[ZiprHead]

So you've fallen for the deception.

His stock went up. That's not income. It only becomes income if you sell it. Taxing the gain on stock you haven't sold causes all sort of problems for the business owner.

Why can't it be considered income? All it would take would be a little change in the tax code.

And the end effect is to take their companies away from them.

How does that work? Taking a small percentage of the increase in their wealth means taking to company?

 

[laughing dog]

Nevertheless it’s a perpetual personal money machine. Like having dozens of 100+m$ homes that double in value every year or few years. You can always borrow on the increases in equity and deduct the interest and expenses (like the annual re-appraisal) incurred, from any realized gains. Voila, a “net worth” in the billions increasing annually by hundred of millions, and next to no taxes paid.

Over enough years you pay more in interest than you would in capital gains from selling.

Of course. But taking the gains pulls your money or assets out of the appreciation mechanism.

Right, as long as the assets earn a return that is higher than the rate on the loan, the borrower ends up with more wealth - something someone like Mr. Bezos expects, otherwise he would not do it.

 

[Elixir]

Of course. But taking the gains pulls your money or assets out of the appreciation mechanism.

Right, as long as the assets earn a return that is higher than the rate on the loan, the borrower ends up with more wealth - something someone like Mr. Bezos expects, otherwise he would not do it.

Exactly. And the loan amount is but a tiny fraction of the asset values that continue to accumulate. If Bezos needs 500m$ for his new yacht, it's not like he's going to sell Amazon shares to pay for it. He just borrows a fraction of one percent of the skyrocketing asset value and deducts the interest from any realized gains he might "accidentally" incur. That gives him all the money he needs to gas the thing up and pay the crew, and little or nothing goes to paying taxes. He's not going to pluck one feather from his golden goose as long as he can avoid it.

 

[Harry Bosch]

So you've fallen for the deception.

His stock went up. That's not income. It only becomes income if you sell it. Taxing the gain on stock you haven't sold causes all sort of problems for the business owner.

Why can't it be considered income? All it would take would be a little change in the tax code.

This would just be a CPA's wet dream! There are 1,000's of people with unsecured loans (that are leant out in part due to their net worth). There's must be hundred's of thousands of HELOCs in the country. People refinance their homes and get cash out all the time. This might alleviate the growing inflation issue though as it would quite easily discourage buying anything with debt. But I guaranty you this, the average tax payer would absolutely hate it.

 

[ZiprHead]

So you've fallen for the deception.

His stock went up. That's not income. It only becomes income if you sell it. Taxing the gain on stock you haven't sold causes all sort of problems for the business owner.

Why can't it be considered income? All it would take would be a little change in the tax code.

This would just be a CPA's wet dream! There are 1,000's of people with unsecured loans (that are leant out in part due to their net worth). There's must be hundred's of thousands of HELOCs in the country. People refinance their homes and get cash out all the time. This might alleviate the growing inflation issue though as it would quite easily discourage buying anything with debt. But I guaranty you this, the average tax payer would absolutely hate it.

The subject was stocks, not home loans.

 

[Harry Bosch]

This would just be a CPA's wet dream! There are 1,000's of people with unsecured loans (that are leant out in part due to their net worth). There's must be hundred's of thousands of HELOCs in the country. People refinance their homes and get cash out all the time. This might alleviate the growing inflation issue though as it would quite easily discourage buying anything with debt. But I guaranty you this, the average tax payer would absolutely hate it.

The subject was stocks, not home loans.

So, you think that appreciating stock value should be taxed but not appreciating real estate? Secondly, would you favor allowing people to deduct decreases in stock value on their taxes?

I'm just a peon. Just a struggling small manufacturer. And yet I have a private banking LOC (unsecured LOC) of $200,000. I mostly only use it for emergencies. But sometimes use it for short term purchases of raw material when it's cheap (materials are very very expensive today). The LOC is unsecured, but if my stock (really net worth) dropped by some percentage (this isn't well defined by my banker); my LOC could be reduced or cut off. I think that it would be problematic to figure out how much I should be taxed on it. Finally, as you can probably see, if my taxes would go up, I'd simply cancel the LOC and figure out another way (probably a HELOC on my house).

 

[ZiprHead]

This would just be a CPA's wet dream! There are 1,000's of people with unsecured loans (that are leant out in part due to their net worth). There's must be hundred's of thousands of HELOCs in the country. People refinance their homes and get cash out all the time. This might alleviate the growing inflation issue though as it would quite easily discourage buying anything with debt. But I guaranty you this, the average tax payer would absolutely hate it.

The subject was stocks, not home loans.

So, you think that appreciating stock value should be taxed but not appreciating real estate? Secondly, would you favor allowing people to deduct decreases in stock value on their taxes?

I'm just a peon. Just a struggling small manufacturer. And yet I have a private banking LOC (unsecured LOC) of $200,000. I mostly only use it for emergencies. But sometimes use it for short term purchases of raw material when it's cheap (materials are very very expensive today). The LOC is unsecured, but if my stock (really net worth) dropped by some percentage (this isn't well defined by my banker); my LOC could be reduced or cut off. I think that it would be problematic to figure out how much I should be taxed on it. Finally, as you can probably see, if my taxes would go up, I'd simply cancel the LOC and figure out another way (probably a HELOC on my house).

You're just a peon, not someone like Jeff Bezos. I've seen no wealth tax proposals that would apply to you.

I can't believe the number of people who are defending people accruing more wealth than that of kings as if it's an attack on small investors.

 

[ZiprHead]

 

[jonatha]

So, you think that appreciating stock value should be taxed but not appreciating real estate?

I don't see a conceptual problem with taxing gains that are effectively realized (e.g., by taking a loan against the underlying appreciated property, rather than selling it). This would include HELOCs, which have already been limited to a substantial degree.

Details of rates, threshholds, and exemptions can be haggled over...

Secondly, would you favor allowing people to deduct decreases in stock value on their taxes?

If you'd like to suggest a mechanism by which decreases in the value of stock that is not sold can cause outward cashflow I'll consider it. (Although I did mention above the possibility of getting around the subject problem by having certain large shareholders and/or insiders adopt the mark-to-market rules, which would in fact allow them to apply unrealized losses against unrealized gains, even, I suppose, to the point of showing a loss on their tax return.)

ETA - I suppose I should have said this "could" include HELOCs. Borrowing against equity that was created by paying down a loan is not the same (I think) as borrowing against equity created due to an increase in the home's value above its initial purchase price...