[unclewalter]

To me, the parent wasn’t saying an asset holder would need to pay taxes on the asset unless they used it as collateral. To me, this makes a lot of sense. If someone owns a startup and worries tax implications would overextend them if the value was taxed, they shouldn’t use it as collateral on a loan.

I may be missing your point though.

[koheripbal]

I don't see why we care that they're using an asset as collateral for a loan. They still need to pay back that loan with post-tax money.

Maybe they're kicking the can down the road, but that's their choice.

The real issue here is that super rich are, at the end of that road, donating shares to their non-profits, tax free. ...and that their children then have access to that non-profit and all of its assets, again without income or estate tax.

The big hole here isn't the unrealized gains - it's the "charitable Foundations" that are a complete scam.

[guiambros]

> They still need to pay back that loan with post-tax money.

Unless they pay back said loan with another loan. Given the massive amount of wealth accumulated, you can rinse and repeat indefinitely. Basically you have a free cash flow machine, without ever having to convert that income as proceeds (unless you want to convert between asset types).

Having said I agree with your main point: we need to close the loopholes, and the charitable foundations is the biggest of all, and sadly the article missed the point entirely.

[JAlexoid]

The annoying point is that those foundations are not at all charitable.

[pas]

> and that their children then have access to that non-profit and all of its assets, again without income or estate tax

That shouldn't matter as long as they don't start to enjoy the benefit of those assets.

This means tax rules should separate the estate as a business/investment from the personal use of the funds/wealth.

Sure, at some point it becomes neigh impossible, like let's say Bill and Melinda went to Africa on their marriage anniversary, was that business or personal? (And yes, at that level of wealth, influence, income it's always both.)

When an owner (or close relative or friend of an owner) of a family trusts/foundations/estates/NGOs/church/non-profit conducts business through said entity, that entity should pay some tax corresponding to said expense as if some part of that expense were income to the owner/relative/friend.

[ric2b]

> Maybe they're kicking the can down the road, but that's their choice.

I can't just say "Oh, I'm investing 30% of my income, tax that part when I sell later", I don't have that choice of kicking the can down the road.

[ljf]

In the UK at least, the 'trick' is that the load is never actually repaid, or is continually deferred.

[RhodoGSA]

tldr; The rich, there kids and grandkids will never pay taxes under the current structure.

The problem is you're not kicking the can down the road, you are delaying it forever. Your entire 'Lifestyle' can be funded tax free. Instead of things being your assets, that you spent money on you could have a company plane, car, boat, house. Lavish dinners can be put on the company card as 'business meetings' and travel as 'Business Travel'. This is all taken out of your business profits and the best tax structure for a business is at a loss or barly profitable. Add that to the point OP made about taxing collateral loans is it would semi-eliminate the 'loophole' of never having to pay taxs.

Edit: One more point. Should a $1m donation to scientology be considered a tax writeoff?

[TimPC]

Collateral for a loan is a completely separate point. The issue was taxing unrealized capital gains. Effectively if your house goes up $100,000 you'd owe the government the capital gains tax on $100,000 immediately, not when you sold. If you don't have the money to pay for the capital gains you're looking at selling the asset. Finding the money to pay capital gains while paying down a mortgage isn't a direction I'd want to go in.

[klyrs]

As I understand the proposal, you wouldn't owe the tax on $100k immediately -- that would only happen when you use the house as collateral for a reverse mortgage or similar. This makes sense to me, because the capital gains are effectively realized when used as leverage.

[TimPC]

Parent was arguing to not delay capital gains at all, as was the article. I'm pointing out how that idea is bad.

[somedudetbh]

Of course, in the USA, outside of California, this is essentially what we do.

We can argue about whether or not it's good, but its not unthinkable. Property taxes in most places (in the USA, the subject of the article) are linked to the current market value of real estate. Sometimes property values rise, taxes follow, and people have to move.

[TimPC]

Property taxes are such a small portion of property value that they seldom force a move. Capital gains can be anywhere from 20-50% depending on country. Having your home go from 800,000 to 1,000,000 and having your property taxes go from 4000 to 5000 a year is very different from having your home go up 200,000 and suddenly owing the government 40,000 to 100,000 dollars.

[rapht]

I agree with you. This makes even more sense as in: if a lender lends you $x against a collateral of N shares, this means that they consider that there is only a tiny chance that said shares may be worth less than $x before the maturity of the debt. So this means that for all practical purposes we could decide that there are at least $x of realised gains. (In a more extreme version you could even consider that all your shares, and not just the N shares used as collateral, should be valued at $x/N per share and treat the gain as a capital gain for tax purposes)

[yebyen]

But you basically always do use your house as collateral on the mortgage loan. I think this is a more radical change than you have realized.

[saalweachter]

You could pin it to when loans are issued rather than their existence.

That would only affect home refinancing, which will still be a considerable number of people.

[lupire]

That's different, because the house is collateral for itself, effectively a "rent to own", not for money that can be spent elsewhere.

[nmfisher]

I agree, I don’t see why income tax couldn’t be levied on any amount greater than $X borrowed/secured by an asset as collateral.

For all intents and purposes, it is income and should be taxed as such.