When does a loan "function like income"?

What happens when they pay the loan back?

Does the lender get a deduction?

> But if they’re reporting 80k income but spending 10M, maybe they should be paying their fair share on that.

A tax on spending (i.e. a sales tax) is a much more efficient means to achieve this.

It functions like income when they treat it like an average person treats their income. Spending on their home, their car, travel, etc. They’re using the loan to avoid taking income or realizing gains.

But yeah, I would be down for a more sensible sales tax situation. I’m sure there are a hundred ways to skin this cat.

Edit: ways

How is that any different than paying with a credit card or using reward points? Those aren't taxable or treated like income so why should loans and mortgages be?

The difference is what secures the loan:

- credit card: nothing

- mortgage: the house

- car loan: the car

One could make rules about loans secured by assets with unrealized gains (with an exemption for a primary residence).

PS Credit card reward points are taxed as interest income in the US so look for a 1099 INT.

Why? The loan didn't get paid back magically. It isn't going to get paid back by other loans. It will eventually be paid with taxable income.

Someone sufficiently wealthy can push off taxes until they die and their heirs can use the step up basis[1] to avoid them entirely.

There's also a huge advantage in the ability to choose when one wants to pay taxes even if they eventually do get paid. Buffet loves to talk about unrealized gains as a loan from Uncle Sam at zero percent interest.

[1] https://www.investopedia.com/terms/s/stepupinbasis.asp

I think this is where at least talking about rather than a wealth tax a usage tax. Now some will fall through the cracks as a billionaire that lives like a middle class person would be taxed as such but that could be viewed as fair since the assumption is at some point the wealth will be spent and taxed. The trick of a usage tax though is some kind of baseline income or offset to prevent the inevitable result of permanent poverty as rich have the safety net of wealth and a usage tax just encourages them to hoard more and distribute less to employees.

But how did the get that 10m? Presumably they paid taxes on the 10m when it was earned.

I think this might upset the millions of people who take large loan to do things like purchase real estate to live in.

A mortgage is not a personal loan.