Ultra-wealthy individuals legally minimise their tax liability by:

Receiving a relatively low official salary (Bezos's Amazon salary was $81,840 for many years).

Not receiving dividends, so the wealth remains in stock that is not taxed annually.

Borrowing money against their stock holdings to fund their lifestyle. Loans are not considered income and are therefore not taxable, and the interest on the loans can sometimes be used as a deduction.

If you don’t receive income then it obviously shouldn’t be taxed. Otherwise you’d be taxed on owning a car or a house, despite not selling it.

I think the claimed issue is that these people do receive income from those assets indirectly. My understanding is that if your assets are worth much more than the amount you're borrowing then a bank is happy to keep giving you loans, which you use like income, that incur compound interest until you die, your estate must settle up the loans, and the estate gets to pay capital gains against the basis when you died, not the basis when the shares were first created and worth $1 each.

> If you don’t receive income then it obviously shouldn’t be taxed

Right, but you're ignoring the loop-hole OP mentioned where you borrow un-taxed money then deduct it. Kill the loop holes.

There is no tax loophole. The only thing they are getting is higher leverage against borrowing, and the only difference would occur if that individual would go bankrupt in that the entity that they borrowed from wouldn't need to pay income tax.

So the only way to pay less tax is to surrender all your assets.

Or die and pass it to your children. Buy, borrow, die. Kill the step up basis loophole.

No it doesn't work that way. If you pass on the stock options, you pass on the tax burden.

I'm not sure if "options" is the relevant word in your post, but it does seem like capital gains tax is significantly reduced in inheritances? Here's an example source that says the cost basis gets reset to its value at approximately the deceased's death [1], and gains relative to that cost basis are likely much smaller (and thus a much smaller tax burden) than those relative to their initial acquisition price possibly decades earlier, no?

[1] https://www.fidelity.com/learning-center/life-events/cost-ba...

Even according to you article, fair market value at the time of transfer is subject to same tax. Can you phrase what exactly you are trying to say?

I included options because that's how ultra wealthy get their wealth from and it has market value of 0 so company could give lot of them.

Also anyone can get majority of your earning in stocks, not just ultra rich. Companies want to pay in stocks, and it's a win win for both, if there is a loophole.

My understanding is that it's not subject to the same tax it would have been as income, since the federal estate tax only applies to value above ~14 million per individual. So, my understanding is that a married couple can pass 25 million in stocks to their heirs and pay nearly no taxes on it because it's under the estate tax threshold and the capital gains cost basis got reset on their death. But not everyone can do this because you need enough assets or other business the bank wants to handle for them to be happy lending you money for years, and only people with a lot of assets have either of those things.

(I'm happy to be wrong about this, since it seems unfair, but AFAIK this is how it works?)

It is not so obvious, some countries have a wealth tax in addition to the income tax.

You do pay taxes on cars and houses

Borrowing against illiquid assets should be considered a taxable event. Seems like this would entirely fix the loophole.

So every small business loan should be a taxable event?

You pay taxes when you are paying off your loan...

Really? What taxes?

Rather, you pay taxes on the income you use to repay the loan. Plus you pay the interest on the loan.

This basically defers the taxes to a later date and charges you interest for 'em. Which might be worthwhile, depending on how quickly and reliably your capital is growing.

Only if you pay it off with taxable income.

If you have a lot of assets you can just refinance your loan with more debt.

This makes no sense. How is lender going to make money?

They still charge interest but at a rate lower than the tax rate of earning it as income.

> Borrowing money against their stock holdings to fund their lifestyle. Loans are not considered income and are therefore not taxable, and the interest on the loans can sometimes be used as a deduction.

A loan should definitely be a taxable event and capital gains taxes should apply to rebase the value of the stock to the market value at the time the loan is taken out. Currently, very wealthy people use the loan dodge to avoid selling stocks and since the loan isn't paid off until death (usually), estate taxes wave their hands and any gains in the stock price go away, so that the next nepo generation gets to repeat the same dodge.

> Ultra-wealthy individuals legally minimise their tax liability by ...

- And: lobbying their congressmen for tax cuts

I heard from a medium reliable source that this loophole wasn't as popular as the zeitgeist implies. I'd love to know how true that is and if so, how the rich finance themselves.

I heard 3 people have more wealth than the bottom 50% globally. Wtf is the point

Numbers, from the article:

> In the United States, for example, about 85% of federal tax revenue comes from labor income,

That means only 15% is coming from all other taxes, including corporate taxes, capital gains taxes, and other taxes on the wealthy (estate taxes), mostly because they find creative ways -- and loopholes by design -- that allow them to reduce those taxes significantly.

Yes! Numbers are good.

Making capital gains taxes more progressive is a good first step.

> But you cannot seriously argue that capital owners "avoid contributing to the financing of our states and social systems".

Sure we can. Peter Thiel managed to put $5 billion in his Roth IRA.

https://www.propublica.org/article/billionaires-tax-avoidanc...

"Using stock deals unavailable to most people, Thiel has taken a retirement account worth less than $2,000 in 1999 and spun it into a $5 billion windfall... What’s more, as long as Thiel waits to withdraw his money until April 2027, when he is six months shy of his 60th birthday, he will never have to pay a penny of tax on those billions."

But this strategy is also eligible to you. Nothing is stopping you from turning your Roth IRA into a multi billion tax free gain.

I choose to interpret this as satire.

"Using stock deals unavailable to most people" is the very first phrase I quoted.

Damn, I knew when I picked "not billionaire" I would regret it.

This is because of badly organized incentives. What we should do is to implement a tax on poor people. This will make them understand that being poor is less profitable than being rich and they will be motivated to become rich.

There's nothing wrong with murder because you could also murder people.

Yes!

This is exactly the kind of thing I was looking for.

When Romney was running for President, much was made about his $100M holdings in his IRA accounts. At that time, I was working for a company who sold software to report pension (and pension-like) benefits. So we all had to become pretty familiar with ERISA and EFAST and the retirement laws every time they changed. We even had more than one attorney and several CPAs working on our staff. When the attorney tried explaining how Romney moved $100M from Bain into his IRA accounts, we all saying things that were like "that can't be legal".

What a naive position. People hate to pay taxes, the more they have to pay, the more they avoid it. Megacorps openly hiding money in fiscal paradises are the tip of the iceberg. Companies, and individuals, at every level, try to pay as little as possible, becoming as creative as the methods their wealth can unlock.

If billionaires (soon to be trillionaries) paid as much taxes as their wealth disparity compared to the middle class, a significant percent of the population would be exempt from taxes by the sheer insignificance of their contribution, and I don't mean only the poorest people.

Even with all that, top 1% of earners pay more than 40% of overall tax revenue in the US.

Now do the corresponding percentage of the wealth they hoover up.

(Plus, one of the tricks employed is to avoid earning actual taxable money. Steve Jobs famously had a $1 salary; folks like Musk now just borrow against their ever-rising shares. https://www.propublica.org/article/the-secret-irs-files-trov...)

> But take out a loan, and these days you’ll pay a single-digit interest rate and no tax; since loans must be paid back, the IRS doesn’t consider them income. Banks typically require collateral, but the wealthy have plenty of that.

The likes of Musk and Bezos are not earners though. They don't get a salary. They pay nothing in taxes as long as they don't cash out their wealth.

The whole reason for the use of "pay their fair share" while never actually defining what the fair share is supposed to be. It's solely about hit & run propaganda. Avoiding discussing actual numbers is a requirement to the politics.

> Can we have a grown up discussion

starting your reply with an insult, great way to spark "grown up discussion"

What is the non-insulting alternative? Here's my proposal:

Can we have an honest discussion that uses numbers instead of hyperbole?

Notably, that still seems pretty insulting to me. jimbokun wants to have an honest discussion about the problem, using true data instead of emotional exaggeration. This is a reasonable thing to ask IMO, but of course it seems like an insult towards the person that's making stuff up.