Re:Low interest rates in advanced countries have pushed mone...
by danans on Saturday November 27, 2021 @10:44PM
(#29366008)
> Therefore, to pay that interest, they'd either have to borrow even more, or sell some equity to pay
Or take a minimal salary or use equity sold at the low long term capital gains tax rate to pay for it.
Also consider that when you have huge amounts of assets - far greater than the loan principal itself - you can negotiate an interest rate that regular people can't. Borrowing 20M for living expenses against assets worth 200M is a very low loan to collateral value ratio.
but they'd have to pay interest on that borrowing, and presumably, these interest from borrowings for daily life and consumption is not tax deductible (or only the portion related to an investment expense could be deducted).
Therefore, to pay that interest, they'd either have to borrow even more, or sell some equity to pay. The current taxation scheme encourages this, because if the person's consumption is lower than their wealth's growth, they would want to reinvest their excess, and this is the most efficient way to do so without the state taking away a large portion from taxation.