5 ms·

Don’t wait for billionaires to sell their stock. Tax their riches now

41 points by nthitz 5y ago

satya71 5y ago
Right in the article they say that these billionaires are consuming their unrealized gains. Wouldn’t a consumption tax on luxury items be more effective and efficient?
- sbeller 5y ago
  They try such a thing in Germany by having different rates of VAT (~sales tax) for different products. Basics (such as food) being on the lower rate, and luxury items on the higher end. Not sure if it actually works well or is overly complex nowadays.
  - Something1234 5y ago
    VAT always has felt overly complicated to me. At least everytime I try to look at and understand it. It feels like it's a potentially good solution but calling it VAT will cause issues.
    - laurencerowe 5y ago
      From a consumer perspective VAT as implemented in Europe much simpler than sales tax in the US. The price advertised is actually the price you pay. As a business it’s really not that much more complex. Add VAT to all the invoices you send out. Keep track of how much was charged to you by your suppliers. Pay the difference to the tax man.
      - rags2riches 5y ago
        It's simple enough for honest folks. Yet it also enables VAT carousel fraudsters to illegally get their hands on billions each year. https://en.m.wikipedia.org/wiki/Missing_trader_fraud https://en.m.wikipedia.org/wiki/Missing_trader_fraud
  - sunsipples 5y ago
    Australia uses GST (essentially same as VAT) but everything that is deemed essential/basic is GST free. It's a standard 10% of course other items incur additional taxes/fees/rates ("luxury cars" also have a 33% tax on top of GST)
  - asimpletune 5y ago
    Fwiw I think having a standard simple consumption tax + a monthly negative tax is the way to go. So like everyone gets $150/mo from the govt to offset taxes on food or whatever, for example, but then everything could be taxed at a flat rate.
- chii 5y ago
  > consuming their unrealized gains. they are getting loans using their unrealized capital gains as collateral. And these loans are not interest free, and would have to be paid back at some point in the future. And in order to pay the interest on the loan, they will have to realize _some_ gains as income. So that gets taxed. Is it better that these billionaires don't obtain their mansions and yachts, or that they do and don't get taxed?
  - satya71 5y ago
    Govt doesn’t get any money from the interest paid. The underlying asset can eventually be sent offshore, put in trust or whatever, and never be taxed.
    - sparky_z 5y ago
      If the underlying asset goes away and never gets realized then where does the money to pay back the loan come from?
      - chii 5y ago
        So you're saying that they'd bankrupt themselves, rather than pay off the loan? And i'm sure the banks lending out the money will want to have a way to hold on to the collateral.
        sparky_z 5y ago
        No, I'm saying that they wouldn't bankrupt themselves. They would realize assets (or take income) to pay off the loan, and that's when they would get taxed. The story that rich people don't pay taxes because they just take out loans and never sell the assets doesn't make sense to me for that reason.
    - chii 5y ago
      of course they do - these interest payment isn't investment cost that can be claimed. And the interest payment is profit to the banks/lender, and thus, they pay tax on profits (less expenses).
sokoloff 5y ago
https://archive.is/rLtwu https://archive.is/rLtwu
sokoloff 5y ago
I would think at a minimum that the government would have to accept shares if the taxpayer elected that. You can't (IMO) reasonably ask someone to pay a cash tax based on a notional value for a transaction that never happened as that notional value will not account for the inevitable execution slippage that will happen if the shares are actually sold later. Let the government eat that slippage.
- chii 5y ago
  if you were paid equity compensation, the gov't currently does not accept the actual share as tax payment, but cash only. Therefore, you have to sell a portion to realize the capital of said share compensation. I think the people should not ask, nor accept equity payment as taxation. I also think that taxation should only be on income. Wealth tax doesn't work well, and only hurts those who would use that wealth to produce more wealth (to the detriment of all). Taxing consumption is the best, but that's a little regressive, so taxing income is the next best thing.
  - perl4ever 5y ago
    >I think the people should not ask, nor accept equity payment as taxation. As a matter of historical fact, governments do sometimes take equity in something, in exchange for what's owed. Like with the financial crisis bailouts. It's a normal thing among and between capitalists, but also when the government interacts with them. I'm unclear on what principle would forbid it, when you start from the assumption that it's normal, rather than unheard of.
    - senkora 5y ago
      It seems weird to me because governments like to drive demand for their own currency by requiring taxes to be paid in that currency. If you let people pay taxes in assets then demand for dollars would drop, and that’s a big source of American soft power.
- tricolon 5y ago
  I agree, but I'd like to point out the US exit tax, which does exactly that.
solveit 5y ago
These kinds of pieces never seem to mention that taxing unrealized gains will take control of the companies away from the founders. Love Musk or hate him, pretty sure nobody thinks Tesla is viable without Musk at the helm.
- londons_explore 5y ago
  If it was important for Tesla to have musk at the helm, Tesla could simply offer to pay the taxes for Musk.
  - sparky_z 5y ago
    I'm not knowledgeable enough about corporate finance to run the numbers, but would that sustainable in practice? What's being taxed is the market valuation of the company, which is based on the market's prediction of future cash flows. How common would it be for a company, particularly a startup, to have enough cash on hand to do that? It would be like asking you to pay the next 15 years of your income tax right now, in advance.
    - solveit 5y ago
      Assuming a 6% wealth tax (as Elizabeth Warren proposed) and a founder(s) owning 50% of the company, the yearly tax would be 3% of the company's valuation, which might be, say, 30% of their most recent funding round. So that would be somewhere between devastating and disastrous. And then you do it again next year.
      - londons_explore 5y ago
        But the tax will reduce the valuation of companies, in turn reducing their tax owed. It's a self-balancing system, and will therefore never bankrupt a company - since any company that is bankrupt has a valuation of zero and therefore a tax liability of zero.
        solveit 5y ago
BeyondLimits99 5y ago
Isn't the Washington Post owned by Bezos? It's a bit meta they are writing about taxing the rich....
decker 5y ago
Taxing the unrealized gains doesn't seem like a good idea, however, taxing stock used as collateral for loans would be appealing since that seems a loophole to access the gains without realizing them for tax purposes.

41 points by nthitz 5y ago

Right in the article they say that these billionaires are consuming their unrealized gains. Wouldn’t a consumption tax on luxury items be more effective and efficient?

sbeller 5y ago
They try such a thing in Germany by having different rates of VAT (~sales tax) for different products. Basics (such as food) being on the lower rate, and luxury items on the higher end. Not sure if it actually works well or is overly complex nowadays.
- Something1234 5y ago
  VAT always has felt overly complicated to me. At least everytime I try to look at and understand it. It feels like it's a potentially good solution but calling it VAT will cause issues.
  - laurencerowe 5y ago
    From a consumer perspective VAT as implemented in Europe much simpler than sales tax in the US. The price advertised is actually the price you pay. As a business it’s really not that much more complex. Add VAT to all the invoices you send out. Keep track of how much was charged to you by your suppliers. Pay the difference to the tax man.
    - rags2riches 5y ago
      It's simple enough for honest folks. Yet it also enables VAT carousel fraudsters to illegally get their hands on billions each year. https://en.m.wikipedia.org/wiki/Missing_trader_fraud https://en.m.wikipedia.org/wiki/Missing_trader_fraud
- sunsipples 5y ago
  Australia uses GST (essentially same as VAT) but everything that is deemed essential/basic is GST free. It's a standard 10% of course other items incur additional taxes/fees/rates ("luxury cars" also have a 33% tax on top of GST)
- asimpletune 5y ago
  Fwiw I think having a standard simple consumption tax + a monthly negative tax is the way to go. So like everyone gets $150/mo from the govt to offset taxes on food or whatever, for example, but then everything could be taxed at a flat rate.
chii 5y ago
> consuming their unrealized gains. they are getting loans using their unrealized capital gains as collateral. And these loans are not interest free, and would have to be paid back at some point in the future. And in order to pay the interest on the loan, they will have to realize _some_ gains as income. So that gets taxed. Is it better that these billionaires don't obtain their mansions and yachts, or that they do and don't get taxed?
- satya71 5y ago
  Govt doesn’t get any money from the interest paid. The underlying asset can eventually be sent offshore, put in trust or whatever, and never be taxed.
  - sparky_z 5y ago
    If the underlying asset goes away and never gets realized then where does the money to pay back the loan come from?
    - chii 5y ago
      So you're saying that they'd bankrupt themselves, rather than pay off the loan? And i'm sure the banks lending out the money will want to have a way to hold on to the collateral.
      - sparky_z 5y ago
        No, I'm saying that they wouldn't bankrupt themselves. They would realize assets (or take income) to pay off the loan, and that's when they would get taxed. The story that rich people don't pay taxes because they just take out loans and never sell the assets doesn't make sense to me for that reason.
  - chii 5y ago
    of course they do - these interest payment isn't investment cost that can be claimed. And the interest payment is profit to the banks/lender, and thus, they pay tax on profits (less expenses).

sokoloff 5y ago

https://archive.is/rLtwu https://archive.is/rLtwu

sokoloff 5y ago

I would think at a minimum that the government would have to accept shares if the taxpayer elected that. You can't (IMO) reasonably ask someone to pay a cash tax based on a notional value for a transaction that never happened as that notional value will not account for the inevitable execution slippage that will happen if the shares are actually sold later. Let the government eat that slippage.

chii 5y ago
if you were paid equity compensation, the gov't currently does not accept the actual share as tax payment, but cash only. Therefore, you have to sell a portion to realize the capital of said share compensation. I think the people should not ask, nor accept equity payment as taxation. I also think that taxation should only be on income. Wealth tax doesn't work well, and only hurts those who would use that wealth to produce more wealth (to the detriment of all). Taxing consumption is the best, but that's a little regressive, so taxing income is the next best thing.
- perl4ever 5y ago
  >I think the people should not ask, nor accept equity payment as taxation. As a matter of historical fact, governments do sometimes take equity in something, in exchange for what's owed. Like with the financial crisis bailouts. It's a normal thing among and between capitalists, but also when the government interacts with them. I'm unclear on what principle would forbid it, when you start from the assumption that it's normal, rather than unheard of.
  - senkora 5y ago
    It seems weird to me because governments like to drive demand for their own currency by requiring taxes to be paid in that currency. If you let people pay taxes in assets then demand for dollars would drop, and that’s a big source of American soft power.
tricolon 5y ago
I agree, but I'd like to point out the US exit tax, which does exactly that.

solveit 5y ago

These kinds of pieces never seem to mention that taxing unrealized gains will take control of the companies away from the founders. Love Musk or hate him, pretty sure nobody thinks Tesla is viable without Musk at the helm.

londons_explore 5y ago
If it was important for Tesla to have musk at the helm, Tesla could simply offer to pay the taxes for Musk.
- sparky_z 5y ago
  I'm not knowledgeable enough about corporate finance to run the numbers, but would that sustainable in practice? What's being taxed is the market valuation of the company, which is based on the market's prediction of future cash flows. How common would it be for a company, particularly a startup, to have enough cash on hand to do that? It would be like asking you to pay the next 15 years of your income tax right now, in advance.
  - solveit 5y ago
    Assuming a 6% wealth tax (as Elizabeth Warren proposed) and a founder(s) owning 50% of the company, the yearly tax would be 3% of the company's valuation, which might be, say, 30% of their most recent funding round. So that would be somewhere between devastating and disastrous. And then you do it again next year.
    - londons_explore 5y ago
      But the tax will reduce the valuation of companies, in turn reducing their tax owed. It's a self-balancing system, and will therefore never bankrupt a company - since any company that is bankrupt has a valuation of zero and therefore a tax liability of zero.
      - solveit 5y ago

BeyondLimits99 5y ago

Isn't the Washington Post owned by Bezos? It's a bit meta they are writing about taxing the rich....

decker 5y ago

Taxing the unrealized gains doesn't seem like a good idea, however, taxing stock used as collateral for loans would be appealing since that seems a loophole to access the gains without realizing them for tax purposes.