Most small business owners probably can’t even do this, because banks won’t accept their shares as collateral. So in a sense you could say this would even the playing field between big and small business.
I don't think "slippery slope" is a reasonable defense here, especially with the situation you're using as an example. The top 40% of earners is a lot of people, and pretty close to the number of people that pay positive income taxes today (50% of earners pay 97% of taxes). The slope you're using as an example doesn't look very slippery, especially given that 100+ years of the US changing completely has happened in the meantime.
2) You're choosing 1917, pre changes, to paint an inaccurate picture. Top rate went from 15% to 67% that year, and 77% the year after. Almost double today's top rate.
What happened was, we introduced a revenue system, and have changed it over time, often dramatically, as the country's needs have changed, both raising and lowering rates. We haven't gone down some crazy spiral of ever increasing tax rates. If anything, the tax situation for the rich has gotten better over time, not worse.
I'm not sure what you're arguing - that it changed dramatically or that it has not changed dramatically. If you're arguing it has changed dramatically then I guess we are in agreement.
You should also note that 1917 was prior to the introduction of sales taxes (1921) and social security taxes (1937). Looking at only federal income tax paints an rather incomplete picture when looking at total tax burdens.
"A married couple with no kids will pay < 5% on 50k" I assume they're dual filing for the 50K so 25K on average? The lower %16 percent of the population. A weird number to pick.
Im arguing that the original comment, that income taxes weren't originally intended to be what they are today, or it was some kind of bate and switch, or slow bleeding, that led us to today. That was my read of thread parent anyway.
> You should also note that 1917 was prior to the introduction of sales taxes (1921) and social security taxes (1937). Looking at only federal income tax paints an rather incomplete picture when looking at total tax burdens.
We aren't arguing about total tax burden, we are arguing that a new kind of tax will/won't necessarily be abused and changed post introduction. Those three tax vectors prove that they won't be if anything, as they haven't changed much since introduction either.
>A married couple with no kids will pay < 5% on 50k" I assume they're dual filing for the 50K so 25K on average? The lower %16 percent of the population.
1) Most households were single income in 1917. 2) 50k was inflation adjusted equivalent to numbers that I was responding to. I didn't pick it at random, I chose it to show things hadn't changed much.
Judging by the timeline, it seemed like initial low rates had more to do with it being a new system, and less to do with some kind if "we will only do this to the rich" promise.
Also, they tried implementing income taxes previously, had it struck down by supreme court, then all the states got together to pass an amendment to allow income taxes. So, it was a pretty strongly supported change.
Honestly, I can get on board with "government tends to only grow in scope" point of view, I just don't think income taxes illustrate that point at all.
Again this loan scenario is just ridiculous. I wish someone would point out how it actually works. You have to pay back loans. This requires income, which is taxed. You can't dodge taxes by taking out loans.
You might say, well they can just take out more loans to pay the loans. Sure, but that only works if you are willing to grow your loan balance indefinitely. At some point if there is a downturn in markets or asset valuations you are going to be screwed when those massive loan bills come due and you can't take out a bigger loan because your asset valuation went down.
In response to "If one uses an asset as collateral for a loan" you wrote "So small business can't take out loans unless they can realize and be taxed on the full valuation of their company".
A company can also get asset-backed loans using as collateral something the company owns - or it can get a completely different kind of loan where there is no specific asset used as guarantee.
(That sounds unlikely to me, but I know little enough about the intricacies of business finance that it could be true...)
I see two reasonable paths forward for taxing using assets as collateral:
1. Treat it as a sale and repurchase (as you described) and transform capital gains into a progressive system 2. Treat the sale as earning income for purposes of using the traditional income tax brackets.
Either way, you don't get into a weird speculative tax gray area. Rather it's when the ultra wealthy want cash-on-hand that they incur some kind of income tax penalty. Maybe even put in a reasonable exemption ($25-100k/year) that doesn't trigger tax so that middle class households aren't hamstrung by this.
There are many web sites that claim this, but are there any actual reliable stats on how many lifetime loans are being given out? It is common to make short terms based on using stocks, etc as collateral. But how common is it to have a lender be ok with either deferring interest for decades until the person dies or continually giving new loans out to cover the interest (on paper at least)? Doing a quick search, I have not found one stat on how many lifetime loans like this are actually being done. There is a treasury department page claiming that about 160 billion dollars in unrealized gains are not being taxed, but that isn't talking about stock being used as collateral, that is talking about simply the value of assets increasing - that is entirely different. (If unrealized nominal gains should be taxed, should decreases in the value of assets lead to a tax refund?)
According to this: https://finance.yahoo.com/news/jeff-bezos-sell-5-billion-185... Bezos has sold around $13.4 billion in stock in 2024. If he could easily avoid millions (maybe billions) of dollars of capital gains tax by this one simple technique, why wouldn't he have?
My main concern is that it puts the government in a position to greatly benefit from inflation, even more so than it does now, and inflation will be the hidden tax that hurts the poor.
How does this interact with something trivial like remortgaging a house?
Say I bought a house for 100k, cash. Now it's worth 200k. I want to take another 50k mortgage on it. Do I realize cap gains on 25% of my house, i.e. an increase of value on 25k to 50k, and then I'm liable for cap gains on 25k? At 20% say, that's 5k tax. Unpleasant for sure, but doesn't seem out of proportion.
1. If one uses an asset as collateral for a loan (be it stock or whatever else), for tax purposes treat that asset as sold, then immediately repurchased at the same price.
2. From there all of the usual tax laws can apply.
So in theory this should get at the core of the actual problem, while avoiding at lot of the messiness of taxing un-realized gains.
It's not perfect, but I think it helps align incentives well. Whoever is lending the money probably wants to know the value of the collateral. Lender and borrower are now both incentivized to come up with the real value at the time of the loan.