Democrats move to finalize new ‘billionaire’ tax proposal, targeting 700 wealthiest Americans

Overnight said:
Why not? The bank lends you the money on, say, a home-equity-loan. You do not pay, they can hold your home hostage, and eventually seize it if you fail to meet terms after a certain time-frame, yes?
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But why would you intentionally do that?
 
vanzandt said:
I could be misunderstanding you here, but does a bank really need to see an income stream from someone like Zucherberg or Dorsey? Gates? Benioff? Ellison?

"We can't approve your request for a loan because you don't have an hourly wage."

I mean... what I miss?
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It doesn't matter whether the bank needs to see an income stream or not. You have to pay back the loan or the bank will sell your collateral.
 
Sig said:
It's actually two pieces of the tax code paired together that they're taking advantage of. The first is that when you die, the assets in your estate are all stepped up to their value the day you died. Any built-in capital gains are instantly erased. The second is that any money you borrow against an appreciate assets doesn't trigger any tax liability.

So, lets say you have $100M in stocks and they've appreciated significantly so if you sold them you would pay a big chunk of capital gains tax. You figure you're going to need $50M between now and when you die and give what's left to your children and you think you're going to live 25 more years. There are two options. Option one, you sell $2M per year every year for the next 25 years and pay 23.8% in long term gains plus medicare levy tax. So you really need to sell $2,625,000 per year to get $2M in spending money (assuming 100% gains for simplification). Over the 25 years, you end up selling $65,625,000 in stock and leaving your poor heirs a measly $34,375,000.

Or, you borrow the $2M per year you need against your appreciated stocks every year, which as you know literally anyone can do at any broker using margin. If you've got $100M, you're probably borrowing at this point at almost no interest. You get $2M to spend without paying a cent in tax. At the end of 25 years, your heirs pay back the $50M in now outstanding loans and end up with $50M, tax free because of the basis step-up.

Which is why I would advocate that instead of this impossible to enforce valuation of hard to value assets every year, we either tax the loan proceeds of these types of loans for this same group of people, or we get rid of the step-up basis concept. The latter really is indefensible, if you're going to be fair you keep the basis where it's at and keep the taxation system as-is. However that would take a while to realize the revenue, which is where the first option comes in. Either one targets the exploitation of the tax code most folks see as unfair, where as the proposed measure is a blunt instrument purporting to target that but causing all kinds of unforeseen (and in some cases foreseen) consequences.
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Well I started to write something, but then thinking about this gave me a headache. I think in scheme two the 40% estate tax on estates over about 12 million is going to be painful. I quess in scheme two you're able to borrow at way less than the cap gains tax? The step up saves the cap gains tax on the 50 million residual plus ROI - interest over the intervening 25 years, and you should be ahead despite 40% estate tax you have to pay regardless, is that right?
 
piezoe said:
Well I started to write something, but then thinking about this gave me a headache. I think in scheme two the 40% estate tax on estates over about 12 million is going to be painful. I quess in scheme two you're able to borrow at way less than the cap gains tax? The step up saves the cap gains tax on the 50 million residual plus ROI - interest over the intervening 25 years, and you should be ahead despite 40% estate tax you have to pay regardless, is that right?
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Millionaire said:
Once the precedent is set they will keep lowering the threshold until eventually it becomes normal and everyone is caught.
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Musk making the same point i did above:

The world’s richest man predicted that the Democrats’ plan to tax the wealthy will eventually expand to include new levies on middle class Americans.

‘Eventually, they run out of other people’s money and then they come for you,’ Musk tweeted.
 
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If the billionaire tax survives, it may face legal challenges. Here’s why

But the bigger issue may be the definition of billionaire and net worth calculation, Hemel said, because if it’s a “direct tax,” it needs to be apportioned, or split up among states based on population, and isn’t possible since some places don’t have billionaires.

Meanwhile, the party is also weighing a surtax on millionaires making more than $10 million, a corporate minimum tax and increased bank reporting.


 
Now they've apparently switched to a tax hitting those earning over $10M, $25M, and receiving income from an S corp. A bit crazy that they switched from caring about billionaires who are sheltering their billions with this combination of step-up basis and loaning themselves money to caring about lawyers, doctors, and small businesses with S corps and people who sell their passthrough company for more than $10M, which are really the only people who make more than $10M in income vice capital gains at this point. Not that we can't afford it and it's actually better policy even if it does impact me, it's just funny that Manchin was uncomfortable with "targeting" the richest man on earth who paid paid less than $70,000 in federal income taxes between 2015 and 2017 and nothing in 2018 but apparently he's fine with this.
 
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