A Boring Dystopia

Don’t the unpaid loans get collected from the estate upon death, and the inheritors get whatever is left?

Still a tax dodge, but sounds like the wealth would reduce each generation?

I also still agree capital concentration is still occurring. Probably due to those loans getting used for excessive gains on the stock market. But those buys and sells would trigger capital gains tax.

Again not saying I’m ok with all this wealth concentration, just feels like a lot of nuance is missing here.

This is basically urban legend at this point; "buy borrow die" is a tiny piece of the ultra-wealthy's financial strategy, at least when it comes to the "borrow" part, which is what everyone's focused on:

• In reality, the ultra wealthy do not borrow against a large fraction of their unsold gains. On average from 2004 to 2022, the top 1% of wealth-holders only borrowed 1-2% of their annual economic income.

• Borrowing while holding unrealized gains is, in fact, more of a middle-class activity than an ultra-wealthy one: Americans in the 50-90th percentiles borrowed 42% of their unrealized gains in 2022, compared to just 4% for the top 1% of wealth-holders.

• The primary tax avoidance strategy for the top 1% is not to borrow, but simply not to sell appreciated assets.

They donate it all to charities…. Charities they set up with their relatives on the boards of trustees, who then get paid salaries from the charity’s endowment.

Technically three words.

Why's that? You stated your opinion knowing that many people are ignorant of it, but failed to back it up. Why should we research your idea when we have ideas of our own? Don't suggest we're ignorant if you're not willing to take the first step in educating us. Your contempt feels good but doesn't solve any problems. Ciao

I think the 'unrealized assets' should be taxed as 'realized' if they are used as collateral. Yes, it would affect the reverse mortgages and such, or home equity loans, but fuck it, I'd take those relatively small pains against the massive societal gains.

The ways this is idiotic:

1. "The government says: "Cool, but that card is worth $500 now. You owe us $100 in taxes." You: "…I didn't sell it.""

There is currently no tax on unrealized gains. If there ever were, it wouldn't be 20%. It would be something tiny like 1-2%. It's a wealth tax. Wealth taxes are tiny compared to income taxes precisely because they're taxing something you're holding and will still have next year if nothing changes.

2. "Next month? That card drops back to $50."

Why does it "drop back to $50"? OP said that the $500 value was because someone offered that much for it. Did that person no longer want to buy it? It's true that sometimes the value of things is fluid, which can make wealth taxes hard. But a 90% drop in value over the course of a month? Let's be realistic.

3. "Your mom calls you crying. She has to sell the house she raised you in. Not because she can't afford it. She's lived there 30 years. It's paid off."

Yes, housing taxes are wealth taxes. Sometimes when the place you lived in appreciates enough, the property taxes go up a lot. So yes, sometimes people do have to move when their properties go up so much they can no longer afford the property taxes. But, when that happens they get to sell the place, and if the property taxes are so much that the person can no longer afford them, that means that the property is worth a fortune. The property tax is often 2% or below. So, if mom owes $15,000 in property taxes, that means her property is worth at least $750,000, probably actually more than $1M. Cha ching! She can buy a nice, smaller place now that she doesn't need to raise kids, and use the rest to go on some nice vacations.

Yeah, it sucks if you have an emotional attachment to a place you can no longer afford. But, there are plenty of people who can't afford to buy a house at all, who weren't even allowed to mark their kids' heights every birthday because they were renting. Wealth taxes are a way to even things out. Property taxes are a pretty shitty form of wealth taxes because they hit the middle class harder than the ultra rich, but people who don't own property don't pay property taxes, which is good.

4. "Next year the market crashes. His business is worth $200,000."

Man, this guy can't catch a break, all his relatives have everything crash 90% in value immediately after having to pay a tax bill they can't afford, despite wealth taxes being tiny amounts.

In addition, most of the time wealth taxes have a threshold exactly for this kind of reason. If someone owns a $2m business in a place with wealth taxes, they may pay nothing because the first $5m is exempt.

Yes, sometimes wealth taxes are more painful to upper middle class or the moderately rich because they don't have the armies of lawyers and accountants who can find the best strategy to minimize their taxes. But, the answer isn't to scrap wealth taxes entirely. It's to accept that even the moderately wealthy should pay more than people who own almost nothing, and to properly fund the tax authorities and financial crimes divisions of the cops so they can go after the ultra rich when they illegally avoid taxes.

The Pokémon card example is ludicrous - aside from the fact that CCG cards are not “wealth”, or the fact that no one would offer $500 for a card that is only worth $50, a single buyer does not make a market or set the value. Stocks, the source of most outrageous wealth, by definition have a market value, and even the most frothy of assets don’t swing 10x in such a short period of time.

The mom calling about selling the childhood home is very real, in fact it already happens! Guess your friend is unfamiliar with property taxes. My home has tripled in value and the government appraised value went up by a smaller amount, and now I pay taxes. When my mortgage is fully paid off, I will still owe the local government taxes every year. All those “tax free” states lean on regressive taxes like sales tax and property taxes to avoid collecting progressive income taxes, so this problem is even worse in those states.

A while back I owned a small business, and because I didn’t pay myself in stock, I had to pay taxes every year based on how much my company profited. My business partner and I would do a distribution every year to pay those taxes. We paid more every year in taxes on our modest business than Tesla paid last year on $5.7B in income. Also, company “worth” for private businesses is based on appreciated assets and cash on hand… a business owner who “lost” 90% of the business value of a two decade old business in a year has much, much bigger problems than unrealized gains taxes.

Middle class people are already paying wealth taxes. Mutual funds are taxed on unrealized gains all the time, albeit at capital gains rates (because we value capital more than labor). Property taxes are paid on the biggest source of wealth most people own. Even poor people are paying annual taxes or fees on their cars.

I agree, your friend is a moron, but I think most people knew that the second they saw “ancap”.

This is the process, extremely simplified:

1. It’s 1970. You inherit $10M from your rich dad who worked hard.
2. Buy $10M index fund stock.
3. Borrow $10M against stock.
4. Live tax free off that $10M loan for 30 years (you can do that because you started in 1970 when it was cheap to buy a house).
5. Your stock is now worth $58M (avg 6% per year for 30 years)
6. Your kids inherit the stock at its current value and immediately sell $10M worth to pay off original loan. They pay no capital gains tax because the stock barely moved in the time between when they took ownership and selling it. All of the value growth since original purchase in 1970 is now tax free. The kids now start with $48M.
7. Repeat

Obviously, there is more to it than this. For example, this does not account for interest in the loan, or diversification of investments, or ability to hire accountants to maximize on the process.

https://budgetlab.yale.edu/research/buy-borrow-die-options-reforming-tax-treatment-borrowing-against-appreciated-assets

It's actually a real thing.

Since taxes are paid when an asset is sold, not when it goes up in value, your net worth goes up with no tax liability change. When you die, the purchase price for tax purposes resets. Now the inheritor sells the assets. Since the sale price is essentially the same as the taxation price, there's no taxes.
You're borrowing today's money against tomorrow's value and taking the difference out of your death messing with taxes to free up the value.
From a financial perspective the time horizon for return doesn't matter, only that the return is balanced against the time. From that perspective, the people giving the loan have no reason to really care since it makes them look good and they'll at least not be working there when and if it goes wrong.

They get a painting worth 10K, get a loan for that, then get it appraised for 30K, get a loan on that from somewhere else and pay off the other one. That's one idea.

The second is they like assets that provide passive income and appreciate. You'll find a lot get into land as well and rental units.

For the individual wealthy, they aren't. Some loans might get paid off by taking another loan, but the goal is to take the loan to the grave. The loan would get paid after death because then the estate can sell the stocks without paying any capital gains tax.

Let's say you buy 1 million worth of stocks. The day before you die that stock is worth 51 million. If you cash out that stock you're paying capital gains tax on 50 million. Let's say the capital gains tax is 20% which means you'd pay 10 mil in taxes. So you get 41 million from the sale. Let's say the loan is exactly 41 million so to pay off the loan you get nothing.

But if you die and that stock goes to the estate they haven't gained any capital from the stock so when they sell it they pay no tax on it. The estate then sells the stock tax free to pay off whatever debt there was (the estate sells only 41 million worth of stocks keeping the 10 million on stocks). That 10 million is effectively free money that goes to the inheritor.

Basically it's all just tax evasion for the ultrawealthy. Except it's legal so technically it's not tax evasion. And realistically the numbers are even more astronomical than what I used as an example.