It’s possible, but usually harder because what makes the uber wealthy uber wealthy is that they own assets rather than have huge income.
So when they say Bill Gates, Elon Musk, Bezos or whoever has “X” billions, they’re talking about the value of assets they own (usually large stakes in successful companies) which has more of a parallel with how the middle class talk about their house (an asset) now being worth (whatever). It’s not liquid cash.
Taxes on assets are typically realised when those assets are sold or transferred because their value goes up and down and all over the place. And the uber wealthy do pay tax whenever they sell stock because they’re buying this mansion or that yacht. It’s just usually comparatively small to their full fortune which remains in stock.
So the difficult thing about taxing stock while it’s owned is, like I said, the value goes up and down quite dramatically at times. Should the government collect taxes on the buoyant times but then refund them during market downturns? That would be a nightmare. No government wants to be on the hook for refunds during a downturn.
And it can’t (I don’t think) just collect taxes when super valuable stocks are on the way up because that’s not actually cash. It’s just the market value if that stock were to be sold. So the most a government could do would be either to receive some of the stock as a tax payment (not much use to a government that wants to spend it) or force the owners of companies to sell stock and make a cash payment just because they’re successful.
Which sounds fine on the surface, but this messes up how ownership of companies works. Let’s say some good guy CEO (they do exist) has managed the growth of a multi billion business and to do so has brought in investors which now own 49% of the company, and he - the founder - owns 51%. If the company’s value on the market rose 20% you’d get news articles about how the founder now has “XX billion” since last year and that they “earn” so many hundreds of thousands a day compared to your average working class person. If the government forced the owner to part with 3% of their ownership of the company in order to pay this “growth tax” then the founder no longer has overall control of the company. It would be 48% founder owner, 49% investors and 3% whoever the government sell the taxed stock to in order to realise a cash value.
So it erodes ownership. Again I’m sure there are plenty reading this who think “so what?”. But I can tell you that much of the market value of stock, the reason it has the value it does, is in many cases because the market trusts the management of the ownership of the companies to continue to make profit. If you force the erosion of that just because the company did well then you destroy the way the market trusts and ascribes value to things. Which is why the way governments tax company is via profits and stock sales, where the value is already realised or where the decision to sell is not forced in the same way.
So what to do about this?
Well you can just increase the taxes on stock sale, or on dividend income. But what happens there is you snare the wealthy middle class with the same rope you were aiming at the uber wealthy. Again some might not think that a bad thing, but it’s unlikely to be as effective as people would like it to be. You’d generally be raising dividend tax by a percentage point or two on people receiving low six figure sums. Which would get some extra from the Elon Musks, but also would get the same amount from, say, a consultant surgeon, or a recent tech startup founder etc. My point being, there are not huge numbers of these people, compared to the rest of the population that government spending is spread over. The amount you end up raising is not huge compared to what seemed to be on offer when you look at Meta’s total net worth or something like that.
The ultimate answer is about ownership. But it has to be organic (personal opinion) so that it doesn’t cause disruption to the markets that end up hurting the most vulnerable (via job losses).
And the best way this is done is to simply suck it up and pay a little more for a non mega corp solution to something. Want Bezos to have less of the pie? Stop buying through Amazon just because it’s cheaper. Want Gates fortune to be more wide spread? Save yourself a ton of cash by using Linux instead of windows + office licences. Don’t like Elon musk? Stop using twitter, don’t buy a Tesla.
If you’ve done all these things I personally think it’s as much as you can do. You should put your efforts into making these boycots as easy for others to follow as possible (support your favourite FOSS project) etc. Pay for the online services you like so they don’t feel the need to resort to Google ads and on. Unfortunately in a free market such as the ones many of us live in (thinking Western world) the uber wealthy are mainly that because of the millions and millions of micro choices by consumers who are free to go elsewhere but just often don’t choose to.
There were tax evasion schemes in the UK where wealthy people could take loans from an offshore entity they contributed to and never pay the loans back. But this was shutdown fairly quickly by HMRC (British IRS) and a bunch of people were fined / went to jail. Don’t know if the same is true in America?
So then you just have frequency, which is easily gamed by getting fewer larger loans. Maybe one every three to five years? At that point it really is just a mortgage with stock as collateral rather than a house.
Like, you’re not wrong in your intuition that the system is problematic. Mine (and others) point is that the devil is in the details, and they’re not trivial.
But then the value goes WAAY up. Let’s assume you live in a very good house, and mortgage it you’re able to get 5 million out of it. Do you think someone like Jeff Bezos could live for 5 years with that?. You can do it fairly straightforward, everytime you take a loan, the full amount of that loan gets added, after a period of 5 years that value disappears, if at any point that value goes above 10 million, you start paying taxes on it. And the higher it goes the more tax you pay on it, just like how income tax has brackets, and just like how up to certain values are exempt.
For you or me if we were ever loan 10 million over 5 years we wouldn’t have a way to pay it back. For an Uber wealthy they do that fairly quickly, Bezos mention costs 600k a month, so he’ll get into the first bracket from just that in a year and a half.
People need to realize just how big the gap is, there are plenty of ways to tax extremely rich people without affecting the middle class by just putting the bracket so high up that it’s impossible for a middle class to reach it.
The problem isn’t that i “don’t understand the gap”. The problem is that this isn’t what I’m asking.
How do you define for the purposes of this hypothetical law which loans would be taxed as income?
Telling me how rich Bezos is is completely tangential.
I’ve been trying to use the Socratic method to prime the pump that
-The root of the problem isn’t the loans themselves, it’s that they can “realize value” from shares (using them to secure a loan) without selling them.
But that doesn’t seem to have gotten anywhere because of how excited people are to hear any question to be somehow a doubting of how rich these guys are?
If that is the case, and you step back, can you consider an alternative strategy besides just some messy spaghetti definition of “income loans” vs other loans?
It’s possible, but usually harder because what makes the uber wealthy uber wealthy is that they own assets rather than have huge income.
So when they say Bill Gates, Elon Musk, Bezos or whoever has “X” billions, they’re talking about the value of assets they own (usually large stakes in successful companies) which has more of a parallel with how the middle class talk about their house (an asset) now being worth (whatever). It’s not liquid cash.
Taxes on assets are typically realised when those assets are sold or transferred because their value goes up and down and all over the place. And the uber wealthy do pay tax whenever they sell stock because they’re buying this mansion or that yacht. It’s just usually comparatively small to their full fortune which remains in stock.
So the difficult thing about taxing stock while it’s owned is, like I said, the value goes up and down quite dramatically at times. Should the government collect taxes on the buoyant times but then refund them during market downturns? That would be a nightmare. No government wants to be on the hook for refunds during a downturn.
And it can’t (I don’t think) just collect taxes when super valuable stocks are on the way up because that’s not actually cash. It’s just the market value if that stock were to be sold. So the most a government could do would be either to receive some of the stock as a tax payment (not much use to a government that wants to spend it) or force the owners of companies to sell stock and make a cash payment just because they’re successful.
Which sounds fine on the surface, but this messes up how ownership of companies works. Let’s say some good guy CEO (they do exist) has managed the growth of a multi billion business and to do so has brought in investors which now own 49% of the company, and he - the founder - owns 51%. If the company’s value on the market rose 20% you’d get news articles about how the founder now has “XX billion” since last year and that they “earn” so many hundreds of thousands a day compared to your average working class person. If the government forced the owner to part with 3% of their ownership of the company in order to pay this “growth tax” then the founder no longer has overall control of the company. It would be 48% founder owner, 49% investors and 3% whoever the government sell the taxed stock to in order to realise a cash value.
So it erodes ownership. Again I’m sure there are plenty reading this who think “so what?”. But I can tell you that much of the market value of stock, the reason it has the value it does, is in many cases because the market trusts the management of the ownership of the companies to continue to make profit. If you force the erosion of that just because the company did well then you destroy the way the market trusts and ascribes value to things. Which is why the way governments tax company is via profits and stock sales, where the value is already realised or where the decision to sell is not forced in the same way.
So what to do about this?
Well you can just increase the taxes on stock sale, or on dividend income. But what happens there is you snare the wealthy middle class with the same rope you were aiming at the uber wealthy. Again some might not think that a bad thing, but it’s unlikely to be as effective as people would like it to be. You’d generally be raising dividend tax by a percentage point or two on people receiving low six figure sums. Which would get some extra from the Elon Musks, but also would get the same amount from, say, a consultant surgeon, or a recent tech startup founder etc. My point being, there are not huge numbers of these people, compared to the rest of the population that government spending is spread over. The amount you end up raising is not huge compared to what seemed to be on offer when you look at Meta’s total net worth or something like that.
The ultimate answer is about ownership. But it has to be organic (personal opinion) so that it doesn’t cause disruption to the markets that end up hurting the most vulnerable (via job losses).
And the best way this is done is to simply suck it up and pay a little more for a non mega corp solution to something. Want Bezos to have less of the pie? Stop buying through Amazon just because it’s cheaper. Want Gates fortune to be more wide spread? Save yourself a ton of cash by using Linux instead of windows + office licences. Don’t like Elon musk? Stop using twitter, don’t buy a Tesla.
If you’ve done all these things I personally think it’s as much as you can do. You should put your efforts into making these boycots as easy for others to follow as possible (support your favourite FOSS project) etc. Pay for the online services you like so they don’t feel the need to resort to Google ads and on. Unfortunately in a free market such as the ones many of us live in (thinking Western world) the uber wealthy are mainly that because of the millions and millions of micro choices by consumers who are free to go elsewhere but just often don’t choose to.
While the ultra wealthy don’t have billions on hand, they do take loans against their assets, which we could tax more.
Why? Are any loans ever taxed?
There were tax evasion schemes in the UK where wealthy people could take loans from an offshore entity they contributed to and never pay the loans back. But this was shutdown fairly quickly by HMRC (British IRS) and a bunch of people were fined / went to jail. Don’t know if the same is true in America?
If a loan is acting as income (like it does for the ultra wealthy) then it should be treated like income and taxed accordingly.
How do you establish that a loan is or isn’t “acting as income”?
Those loans are often several times more than the yearly income and done more frequently.
My mortgage was many times my yearly income.
So then you just have frequency, which is easily gamed by getting fewer larger loans. Maybe one every three to five years? At that point it really is just a mortgage with stock as collateral rather than a house.
Like, you’re not wrong in your intuition that the system is problematic. Mine (and others) point is that the devil is in the details, and they’re not trivial.
But then the value goes WAAY up. Let’s assume you live in a very good house, and mortgage it you’re able to get 5 million out of it. Do you think someone like Jeff Bezos could live for 5 years with that?. You can do it fairly straightforward, everytime you take a loan, the full amount of that loan gets added, after a period of 5 years that value disappears, if at any point that value goes above 10 million, you start paying taxes on it. And the higher it goes the more tax you pay on it, just like how income tax has brackets, and just like how up to certain values are exempt.
For you or me if we were ever loan 10 million over 5 years we wouldn’t have a way to pay it back. For an Uber wealthy they do that fairly quickly, Bezos mention costs 600k a month, so he’ll get into the first bracket from just that in a year and a half.
People need to realize just how big the gap is, there are plenty of ways to tax extremely rich people without affecting the middle class by just putting the bracket so high up that it’s impossible for a middle class to reach it.
The problem isn’t that i “don’t understand the gap”. The problem is that this isn’t what I’m asking.
How do you define for the purposes of this hypothetical law which loans would be taxed as income?
Telling me how rich Bezos is is completely tangential.
I’ve been trying to use the Socratic method to prime the pump that
-The root of the problem isn’t the loans themselves, it’s that they can “realize value” from shares (using them to secure a loan) without selling them.
But that doesn’t seem to have gotten anywhere because of how excited people are to hear any question to be somehow a doubting of how rich these guys are?
If that is the case, and you step back, can you consider an alternative strategy besides just some messy spaghetti definition of “income loans” vs other loans?